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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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SCHEDULE 14D-9
Solicitation/Recommendation Statement
Pursuant to Section 14(d)(4) of the
Securities Exchange Act of 1934
(Amendment No. 2)
--------------------------
High Equity Partners L.P. - Series 86
(Name of Subject Company)
High Equity Partners L.P. - Series 86
(Name of Person Filing Statement)
Units of Limited Partnership Interest
(Title of Class of Securities)
None
(CUSIP Number of Class of Securities)
-----------------------
Edward W. Kerson, Esq.
Proskauer Rose LLP
1585 Broadway
New York, New York 10036
(Name, Address and Telephone Number of Person
Authorized to Receive Notice and Communications
on Behalf of the Person(s) Filing Statement)
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AMENDMENT No. 2 TO SCHEDULE 14D-9
This Amendment No. 2 amends and supplements the
Solicitation/Recommendation Statement on Schedule 14D-9
originally filed with the Securities and Exchange Commission on
March 25, 1998, as amended by Amendment No. 1 filed with the
Securities and Exchange Commission on May 22, 1998 (the "Original
Schedule 14D-9"), by High Equity Partners L.P. - Series 86 (the
"Partnership"). All capitalized terms used but not defined have
the respective meanings given them in the Original Schedule 14D-
9.
ITEM 3. IDENTITY AND BACKGROUND
The second sentence of the fourth paragraph of (b)(i)
is amended in its entirety as follows:
Although such amount can only be determined at the time of
liquidation (which is not required for a number of years),
it is estimated that, if the Partnership were liquidated now
and realized the appraised values set forth in Item 4 below,
the General Partners would be obligated to pay $4,246,646 to
the limited partners.
ITEM 4. THE SOLICITATION OR RECOMMENDATION
Item 4 is amended in its entirety as follows:
(a) The General Partners are expressing no opinion and
are remaining neutral with respect to the Offer.
(b) In May 1998, the Partnership obtained new
appraisals of the Partnership's properties (the "New Appraisal
Information"), which reflect appraised values that average
approximately 6% greater than those in the Appraisal Information.
The purchase price being offered by the Purchaser is 31% less
than $123.34, which is an amount (the "Revised Deemed Net Asset
Value Per Unit") equal to (i) the sum of the appraised value of
the limited partners' share of the Partnership's real estate
assets (based on the New Appraisal Information) plus the
Partnership's net current assets at March 31, 1998 (based on the
Partnership's balance sheet at that date), divided by (ii) the
number of outstanding Units at March 31, 1998. However, the
Offer provides Unitholders with the immediate opportunity to
liquidate their investment in the Partnership at a price that
generally exceeds recent secondary market selling prices for
Units. Certain Unitholders may find that 31% discount
acceptable, if they want the certainty of an immediate cash
purchase in exchange for their Units. Other Unitholders who do
not want immediate cash, however, may prefer to continue to
retain their investment in the Partnership and potentially
receive a greater amount for their Units. Because of differing
motivations Unitholders may have, the General Partners are not
making a recommendation and are remaining neutral with respect to
the Offer. See Item 3(b)(i) in the Original Schedule 14D-9
regarding certain conflicts of interest to which the General
Partners are subject.
Although the General Partners are not making a
recommendation with respect to the Offer, the General Partners
believe Unitholders should consider, among others, the following
factors in deciding whether to accept or reject the Offer:
1. Although the value of the Units is not certain and
there is no established public trading market for the Units, the
Revised Deemed Net Asset Value Per Unit estimated by the General
Partners is $123.34, compared with the $85.00 per Unit price in
the Offer. The Revised Deemed Net Asset Value Per Unit was
determined based on independent third party appraisals obtained
by the Partnerships in May 1998, and take into account the other
assets and liabilities of the Partnership reflected on the
Partnership's March 31, 1998 balance sheet. The Revised Deemed
Net Asset Value Per Unit does not necessarily reflect the amount
a Unitholder would receive if the Partnership were liquidated,
and does not take into account transaction costs relating to the
sale of the Partnership's properties, which would reduce the
amounts available for distribution. There can be no assurance
that the actual value of a Unit was not more or less than the
Revised Deemed Net Asset Value Per Unit, or that the value of a
Unit will not increase or decrease.
The New Appraisal Information was obtained in
connection with the General Partners' consideration of a possible
settlement of the California Action (as defined in paragraph 11
below). The following table sets forth the market value of each
of the Partnership's properties as specified in the New Appraisal
Information. (In the case of joint venture investments, the
value represents the Partnership's proportionate interest in the
joint venture. There is no discount to reflect the fact that
certain real estate in which the Partnership has an interest is
held by joint ventures with affiliated partnerships in which the
Partnership itself does not have a controlling interest or the
unilateral power to effect a sale of the entire property.)
Property Value of Aggregate Percentage of
Partnership's Appraised Interest of
Interest Value Partnership
Century Park I $ 9,500,000 $19,000,000 50.000%
568 Broadway 12,066,750 31,000,000 38.925
Seattle Tower 5,150,000 10,300,000 50.000
Commonwealth
Industrial Park 7,200,000 7,200,000 100.000
Commerce Plaza I 7,600,000 7,600,000 100.000
Melrose Crossing 3,100,000 3,100,000 100.000
Matthews Township
Festival 9,600,000 9,600,000 100.000
Sutton Square
Shopping Center 10,200,000 10,200,000 100.000
TMR Warehouse 4,441,900 21,500,000 20.660
TOTAL $ 68,858,650 $119,500,000
The sum of the appraised value of the Partnership's
real estate plus the Partnership's net current assets at March
31, 1998 equals $76,341,586, or $123.34 per Unit.
2. Secondary market sales activity for the Units,
including privately negotiated sales, has been limited. At
present, privately negotiated sales and sales through
intermediaries (e.g., through the trading system operated by
American Partnership Board, Inc., which publishes sell offers by
holders of Units) are the only means available to a Unitholder to
liquidate an investment in Units (other than the Offer and other
possible tender offers) because the Units are not listed or
traded on any exchange or quoted on any NASDAQ list or system.
According to Partnership Spectrum, an independent industry
publication, between December 1, 1997 and January 31, 1998, there
were 982 Units traded in the secondary market between a high of
$95.00 per Unit and a low of $60.00 per Unit, with a weighted
average price of $66.08 per Unit. Such prices do not take into
account commissions and other transactional costs payable by
sellers of Units (which typically range between 8% and 10% of the
reported selling price). In addition, such prices do not reflect
the prices per Unit paid by an affiliate of the General Partners
in that period ranging from $71.75 per Unit to $81.00 per Unit,
or the $100.00 per Unit and $113.00 per Unit paid by an affiliate
of the General Partners in mid-February 1998. See Item 6 below.
3. Three tender offers for Units have occurred since
1996. Each offers has been for fewer than 5% of the outstanding
Units. The offer prices have been $25.00 per Unit (in an April
1996 tender offer), $51.00 per Unit (in a February 1997 tender
offer) and $65.00 per Unit (in a December 1997 tender offer).
These tender offers have afforded only a modest amount of
liquidity to limited partners, and, in each case, the General
Partners have recommended that limited partners reject the offer.
4. In March 1997, KB Realty Advisors, Inc. ("KB")
made an offer, subject to a number of conditions, to purchase all
the real estate assets of all three Partnerships for $141,000,000
in the aggregate. If the offer by KB had been accepted and the
Partnerships had received the $141,000,000, the General Partners
estimate that the Partnership's share of that amount would have
been $55,600,000, and, after payment of taxes and other expenses
required to be borne by the Partnership under the KB offer
(estimated at 2% of the purchase price), the General Partners
estimate that the net proceeds of the transaction that would have
been allocable to the Partnerships' limited partners would have
been $51,763,000, or $88.03 per Unit. If, following such a
transaction, the Partnership had been liquidated, and the
$4,246,646 the General Partners estimate would have been payable
by them to the limited partners (see Item 3 above(the "Excess Fee
Amount")) had been paid, the General Partners estimate that the
limited partners would have received $106.55 per Unit (including
amounts relating to the limited partners' share of the other net
assets of the Partnership). By comparison, the per Unit price in
the Offer is $85.00, and the sum of the Revised Deemed Net Asset
Value Per Unit plus the per Unit value of the Excess Fee Amount
is $130.56.
5. The General Partners are actively considering a
variety of plans to enhance the value and liquidity of the Units.
The plans have included possible conversion of the Partnership
into an actively traded real estate investment trust (a
"Reorganization Plan"). Although the terms of a Reorganization
Plan have not been defined, it is the present intention of the
General Partners that, if a Reorganization is effected, the fees
to them and their affiliates from the Partnership would not
increase from their existing level (see Item 3(b)(i) in the
Original Schedule 14D-9), and their equity interest in the
Partnership as general partners would not increase from the
existing level. The trading price for the securities that would
be issued in exchange for the Units could be more or less than
the trading price currently available in the secondary market. A
Reorganization Plan would require as a condition to its
consummation, among other things, the approval by holders of a
majority of the outstanding Units. There can be no assurance a
Reorganization Plan, or any other plan, will actually be proposed
by the General Partners, or, if proposed, will be approved by
holders of a majority of the outstanding Units or consummated.
However, if a Reorganization Plan is proposed by the General
Partners and subject to paragraph 6 below, the General partners
expect that they and their affiliates would vote all Units they
own at the time in its favor, and that the Purchaser and its
affiliates would vote all Units they own at the time in its
favor. At present, the General Partners and their affiliates
beneficially own, in the aggregate, 7.7% of the outstanding
Units, and the Purchaser has advised that it and its affiliates
beneficially own, in the aggregate, 0.6% of the outstanding
Units. If the Purchaser acquires a substantial number of Units
in the Offer, the likelihood of approval of a Reorganization
Plan, if proposed, would be enhanced.
6. Unitholders who tender their Units will be giving
up the opportunity to participate in any potential benefits
represented by ownership of such Units, including participation
in possible future tender offers by the Purchaser or its
affiliates or the General Partners or their affiliates, possible
financings of Partnership properties resulting in possible
special distributions by the Partnership, possible appreciation
in the value of the Units and participation in any reorganization
of the Partnership, including the Reorganization Plan, or
resolution or disposition of the litigation described in
paragraph 11 below. In that connection, the General Partners
have determined that, prior to the first anniversary of the
completion of the Offer, the General Partners and their
affiliates will not solicit approval by the limited partners for,
or consummate, a transaction, or series of related transactions,
constituting a "roll-up transaction" (within the meaning of
Regulation S-K, Item 901), other than a conversion of the
Partnership into a stand-alone (i.e., not part of another entity
or entities), actively traded, real estate investment trust
pursuant to section 3(a)(10) of the Securities Act of 1933, where
the terms and conditions of the transaction, or series of related
transactions, including any related tender offer for Units or any
sale or financing of Partnership properties, are approved, after
a hearing upon the fairness of such terms and conditions at which
all limited partners have the right to appear, by the court in
connection with a settlement of the litigation described in
paragraph 11 below.
7. The agreement among the Purchaser and affiliates
of the General Partners described in Item 3 in the Original
Schedule 14D-9 (which has been amended to provide for
indemnification by the parties for information concerning
themselves and their respective affiliates in connection with the
Offer and the offers for units of the other HEP Partnerships and
to provide that the Purchaser and its affiliates are not required
to vote their Units in favor of any proposal in contravention of
paragraph 6 above) creates certain conflicts of interest for the
General Partners with respect to the Offer.
8. Unitholders could, as an alternative to tendering
their Units, propose a variety of possible actions, including
liquidation of the Partnership or removal and replacement of the
General Partners.
9. Depending upon the number of Units tendered
pursuant to the Offer and whether the Purchaser or its
affiliates, on the one hand, or affiliates of the General
Partners, on the other hand, acquire Units from the other
pursuant to the agreement described in Item 3 in the Original
Schedule 14D-9, the Purchaser or its affiliates, on the one hand,
or the General Partners or their affiliates, on the other hand,
could be in a stronger position to influence significantly all
Partnership decisions on which Unitholders may vote, including
decisions regarding removal of the General Partners, merger,
sales of assets and liquidation. Accordingly, (i) non-tendering
Unitholders could be prevented from taking action they desire
that the Purchaser or the General Partners, as the case may be,
oppose, and (ii) the Purchaser or the General Partners, as the
case may be, may be able to take action opposed by non-tendering
Unitholders.
10. Pursuant to the partnership agreement, transfers
of Units that would cause a termination of the Partnership for
federal income tax purposes (which may occur when 50% or more of
the Units are transferred in a 12-month period) are not
permitted. Depending upon the number of Units tendered pursuant
to the Offer, sales of Units on the secondary market for the 12-
month period following completion of the Offer may be limited.
The Partnership will not process a request for transfer of Units
during that 12-month period, if the General Partners believe the
transfer may cause a tax termination. In determining the number
of Units subject to the Offer, the parties to the agreement
described in Item 3 in the Original Schedule 14D-9 took this
restriction into account to permit historical levels of transfers
to occur after consummation of the Offer without violating this
restriction.
11. In May 1993, limited partners in the Partnerships
commenced a class action (the "California Action") on behalf of
all investors against the HEP General Partners and certain
related persons and entities asserting various claims arising
from alleged mismanagement of the Partnerships. On November 30,
1995, the original plaintiffs and intervening plaintiffs filed a
consolidated class and derivative action complaint (the
"Consolidated Complaint") alleging various state law class and
derivative claims, including claims for breach of fiduciary duty;
breach of contract; unfair and fraudulent business practices
under California Bus. & Prof. Code Section 17200; negligence;
dissolution, accounting, receivership and removal of general
partner; fraud; and negligent misrepresentation. The
Consolidated Complaint alleges, among other things, that the HEP
General Partners caused a waste of the Partnerships' assets by
collecting management fees in lieu of pursuing a strategy to
maximize the value of the investments owned by the investors in
the Partnerships, that the HEP General Partners breached their
duty of loyalty and due care to the investors by expropriating
management fees from the Partnerships without trying to run the
Partnerships for the purposes for which they were intended; that
the HEP General Partners were acting improperly to entrench
themselves in their position of control over the Partnerships and
that their actions prevented non-affiliated entities from making
and completing tender offers to purchase HEP Units; that, by
refusing to seek the sale of the Partnerships' properties, the
HEP General Partners diminished the value of the investors'
equity in the Partnerships; that the HEP General Partners took
heavily overvalued asset management fees; and that HEP Units were
sold and marketed through the use of false and misleading
statements.
In early 1996, the parties submitted a proposed
settlement to the court (the "Proposed Settlement"), which
contemplated a reorganization of the three Partnerships into a
single real estate investment trust, pursuant to which
approximately 85% of the shares of the real estate investment
trust would have been allocated to investors in the aggregate
(assuming each of the Partnerships participated in the
reorganization) and approximately 15% of the shares would have
been allocated to the HEP General Partners. As a consequence,
the Proposed Settlement would, among other things, have
approximately tripled the HEP General Partners' equity interests
in the Partnerships. In late 1996, the California Department of
Corporations informed the Court of its conclusion that the
Proposed Settlement was unfair, and, in early 1997, the Court
declined to grant final approval of the Proposed Settlement
because the Court was not persuaded that the Proposed Settlement
was fair, adequate or reasonable as to the proposed class.
As set forth in Item 5, above, although the General
Partners are actively considering a variety of plans to enhance
the value and liquidity of the Units, including a possible
Reorganization Plan, the terms of a Reorganization Plan have not
been defined. Nonetheless, it is the present intention of the
General Partners that, if a Reorganization Plan were to be
pursued, (a) the fees to them and their affiliates would not
increase from their existing level, and (b) unlike the Proposed
Settlement, which would, among other things, have approximately
tripled the HEP General Partners' equity interests, their equity
interests as general partners would not increase from the
existing level.
The plaintiffs have filed an amended complaint, which
generally asserts the same claims as the earlier Consolidated
Complaint but contains more detailed factual assertions and
eliminates some claims they had previously asserted. The HEP
General Partners believe that the amended complaint was subject
to challenge on legal grounds and filed demurrers and a motion to
strike. In October 1997, the Court granted substantial portions
of the HEP General Partners' motions. Thereafter, the HEP
General Partners served answers denying the allegations and
asserting numerous defenses.
The plaintiffs and the HEP General Partners recently
have engaged in discussions relating to a possible settlement of
the California Action, including discussions regarding a possible
tender offer by the Partnership or the General Partners or their
affiliates for Units at a price that may exceed the price in the
Offer. There can be no assurance the parties will enter into a
settlement agreement, or that the court will approve any such
settlement agreement.
The HEP General Partners believe each of the claims
asserted is meritless and intend to continue vigorously to defend
the California Action. The partnership agreement provides for
indemnification of the General Partner and their affiliates in
certain circumstances. The Partnership has agreed to reimburse
the General Partners for the actual costs incurred in defending
the California Action and the costs of preparing settlement
materials. Through December 31, 1997, the General Partners had
billed the Partnership a total of $1,058,511 for these costs, of
which $824,511 was paid in February 1997.
ITEM 6. RECENT TRANSACTIONS AND INTENT WITH RESPECT TO
SECURITIES
Item 6 is amended in its entirety as follows:
(a) Except as set forth below, neither the Partnership
nor the General Partners have effected any transactions in the
Units during the past 60 days. Except as set forth below, the
General Partners are not aware of any transactions in the Units
during the past 60 days by any of its executive officers
directors, affiliates or subsidiaries.
At present, affiliates of the General Partners
beneficially own an aggregate of 45,320 Units, or 7.7% of the
outstanding Units, all of which are owned directly by wholly-
owned subsidiaries of Presidio.
(b) Neither the General Partners nor, to the knowledge
of the General Partners, any of their executive officers,
directors, affiliates or subsidiaries intend to tender Units
owned by them to the Purchaser pursuant to the Offer.
Since May 1996, wholly-owned subsidiaries of Presidio,
of which the General Partners are themselves wholly-owned
subsidiaries, purchased the numbers of Units set forth below at
the prices indicated. Each transaction was effected in a
brokerage transaction, except for the transactions on May 14,
1996, November 26, 1996, February 5, 1998 and February 18, 1998,
which were privately negotiated transactions.
Date Number of Units Price Per Unit Aggregate Price
5/14/96 20 $45.00 $ 900.00
7/16/96 100 54.63 5,463.20
7/17/96 174 45.72 7,954.41
7/29/96 60 55.00 3,300.00
8/6/96 330 46.13 15,221.25
8/12/96 240 55.13 13,230.00
8/20/96 80 59.00 4,720.00
10/3/96 173 46.13 7,979.63
10/9/96 250 59.00 14,750.00
10/30/96 615 53.30 32,779.50
11/26/96 200 57.50 11,500.00
2/19/97 275 56.38 15,503.13
2/21/97 600 58.43 35,055.00
2/26/97 531 57.00 30,267.00
3/12/97 1,582 57.05 90,253.10
3/25/97 421 57.72 24,300.12
4/1/97 320 58.61 18,754.43
4/21/97 186 59.45 11,057.70
6/1/97 380 60.48 22,980.55
6/19/97 736 60.48 44,509.60
7/2/97 1,008 60.48 60,958.80
8/4/97 742 61.50 45,633.00
8/28/97 466 61.50 28,659.00
11/7/97 40 78.00 3,120.00
12/5/97 24 78.00 1,872.00
12/5/97 60 80.67 4,840.00
1/2/98 160 81.00 12,960.00
1/2/98 331 76.88 25,445.63
Date Number of Units Price Per Unit Aggregate Price
1/2/98 55 71.75 3,946.25
1/9/98 293 73.29 21,473.24
1/14/98 36 80.00 2,880.00
1/26/98 60 81.00 4,860.00
1/27/98 400 80.00 32,000.00
1/27/98 126 80.34 10,122.50
1/28/98 330 73.29 24,184.88
1/28/98 257 75.08 19,294.28
2/2/98 100 80.00 8,000.00
2/5/98 12,166 100.00 1,216,600.00
2/10/98 20 80.00 1,600.00
2/11/98 550 73.29 40,308.13
2/11/98 152 73.29 11,139.70
2/16/98 408 74.31 30,319.50
2/16/98 247 80.85 19,969.95
2/18/98 20,000 113.00 2,260,000.00
These purchases of Units were for investment purposes
and with a view to making a profit. Although such purchases were
not intended as steps in furtherance of a Reorganization Plan,
the General Partners believe the effect of such purchases may be
to enhance the ability of the General Partners and their
affiliates to control the Partnership and effect a Reorganization
Plan.
ITEM 9. MATERIAL TO BE FILED AS EXHIBITS
Item 9 is amended to add the following at the end:
(iii) Amendment No. 2 to Agreement dated as of March
6, 1998 among Presidio Capital Corp., American Real Estate
Holdings, L.P. and Olympia Investors L.P.
SIGNATURE
After reasonable 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: July 1, 1998
HIGH EQUITY PARTNERS L.P. - SERIES 86
By: RESOURCES CAPITAL CORP.,
administrative general partner
By: /s/ Allan B. Rothschild
-------------------------------
Name: Allan B. Rothschild
Title: Executive Vice President
Amendment No. 2
to
Agreement
dated March 6, 1998
This Amendment No. 2 (the "Agreement"), dated as of
June 29, 1998, amends the agreement, dated March 6, 1998 (the
"Agreement") and as amended by Amendment No. 1 thereto, dated as
of May 20, 1998 ("Amendment No. 1"), among Presidio Capital
Corp., a corporation organized in the British Virgin Islands
("Presidio"), American Real Estate Holdings, L.P., a Delaware
limited partnership ("AREH") and Olympia Investors, L.P., a
Delaware limited partnership ("Olympia"). Capitalized terms used
herein and not otherwise defined will have the meanings ascribed
to them in the Agreement.
The parties agree as follows:
1. The following proviso is hereby added to the end
of Section 5 of the Agreement:
"; provided, however, that AREH shall have no obligation to
cause Units of a Partnership to be voted in favor of any
proposal otherwise covered by this Section 5 if such
proposal (a) is made prior to the first anniversary of the
completion of the Offer relating to such Partnership and (b)
relates to a transaction or series of related transactions
constituting a "roll-up transaction" (within the meaning of
Regulation S-K, Item 901), other than a proposal for the
conversion of such Partnership into a stand-alone (i.e., not
part of another entity or entities), actively traded, real
estate investment trust pursuant to Section 3(a)(10) of the
Securities Act of 1933, where the terms and conditions of
the transaction, or series of related transactions,
including any related tender offer for Units or any sale or
financing of Partnership properties, are approved, after a
hearing upon the fairness of such terms and conditions at
which all limited partners have the right to appear, by the
court in connection with a settlement of the litigation
described in Item 4, paragraph 12 of the Schedules 14D-9
filed by HEP 85 and HEP 88 in connection with the Offers for
Units of those Partnerships and in Item 4, paragraph 11 of
the Schedule 14D-9 filed by HEP 86 in connection with the
Offer for Units of HEP 86."
2. All references in the Agreement and in Amendment
No. 1 to "the agreement" or "this agreement" shall hereinafter be
deemed to refer to the Agreement as amended by Amendment No. 1
and by this Amendment. Except as expressly amended by Amendment
No. 1 and hereby, the Agreement shall remain in full force and
effect as originally executed by the parties.
3. The provisions of Section 8.3 of the Agreement are
incorporated by reference herein as if fully set forth herein,
except that, for purposes of this Amendment, all references to
"the agreement" in said Section shall be deemed to refer to this
Amendment.
4. This Amendment may be executed in counterparts,
each of which shall be considered an original, but both of which
together shall constitute the same instrument.
IN WITNESS WHEREOF, the undersigned have caused this
Amendment to be executed by their duly authorized representatives
as of the date first above written.
PRESIDIO CAPITAL CORP.
By: /s/ Allan B. Rothschild
Allan B. Rothschild,
Authorized Signatory
OLYMPIA INVESTORS, L.P.
By: Olympia-GP, Inc.
By: /s/ Martin L. Hirsch
Martin L. Hirsch,
Vice President
AMERICAN REAL ESTATE HOLDINGS, L.P.
By: American Property Investors,
Inc.
By: /s/ Martin L. Hirsch
Martin L. Hirsch,
Vice President
