SCHEDULE 14C
(Rule 14c-101)
SCHEDULE 14C INFORMATION REQUIRED IN INFORMATION STATEMENT
Information Statement Pursuant to Section 14(c)
of the Securities Exchange Act of 1934 (Amendment No. 4)
Check the appropriate box:
[XX] Preliminary Information Statement
[ ] Definitive Information Statement
PRELIMINARY COPY
December 22, 1995
VMS Investors First-Staged Equity L.P. II
(Name of Registrant as Specified In its Charter)
VMS Investors First-Staged Equity L.P. II
(Name of Person(s) Filing Information Statement)
Payment of Filing Fee (Check the appropriate box):
[ ] $125 per Exchange Act Rules 0-11(c)(1)(ii) or 14c-5(g)
[ ] Fee computed on table below per Exchange Act Rules 14c-5(g) and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11.
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
[XX] Fee paid previously with preliminary materials.
[ ] Check box if any of the fee is offset as provided by Exchange Act Rule 0-
11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form of Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.
3) Filing Party:
4) Date Filed:
VMS INVESTORS FIRST-STAGED EQUITY L.P. II
c/o VMS Realty Partners
8700 West Bryn Mawr Avenue
Chicago, Illinois 60631
INFORMATION STATEMENT
We are writing to advise you of a proposed amendment to the Restated
Limited Partnership Agreement ("Partnership Agreement") of VMS Investors First-
Staged Equity L.P. II, a Delaware limited partnership ("Partnership"). The
amendment ("Amendment") discussed below relates to the terms on which the
general partner of the Partnership may withdraw as such. The Amendment will
permit (i) the contemplated withdrawal of the current general partner of the
Partnership and (ii) the contemplated admission as the general partner of the
Partnership of MAERIL, Inc., a Delaware corporation ("MAERIL"), an affiliate of
Metropolitan Asset Enhancement, L.P., which is an affiliate of Insignia
Financial Group, Inc., a fully integrated real estate organization. WE ARE NOT
ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND US A PROXY.
The Amendment is proposed pursuant to the terms of settlement ("Settlement
Agreement") of the lawsuits consolidated under the caption In Re VMS Limited
Partnership Securities Litigation, in the United States District Court for the
Northern District of Illinois (the "Court"). The general partner of the
Partnership is VMS Staged Equity II, Inc. ("VMSSE"), an Illinois corporation
which is wholly owned by VMS Realty, Inc., which itself is wholly owned by VMS
Realty Partners, L.P., an Illinois limited partnership ("VMSRP")(1).
This Information Statement is being mailed to all limited partners of
record of the Partnership as of , 1995. No meeting of limited
partners of the Partnership will be held. It is contemplated that the Amendment
will be adopted by the Partnership by consent twenty (20) business days from the
above date, such consent to be accomplished by the exercise of irrevocable
proxies previously given to the general partner (which functions as the managing
general partner) of the Partnership by the limited partners pursuant to the
terms of the Settlement Agreement described below. Under the Settlement
Agreement, limited partners of the Partnership owning 98.84% of the limited
partnership interests of the Partnership granted such irrevocable proxies to the
managing general partner of their respective Partnerships to approve the
Amendment.
Pursuant to Section AA, paragraph 8 of the Partnership Agreement of the
Partnership (the "Partnership Agreement"), the consent to an amendment by
limited partners owning at least a majority of the limited partnership interests
of the Partnership is sufficient for the adoption of an amendment to the
Partnership Agreement. Consequently, the proxies held by VMSSE pursuant to the
Settlement Agreement are sufficient to assure the approval of the Amendment.
The Partnership has a single class of limited partnership interests, consisting
of
(1) The general partners of VMSRP are Brewster Realty, Inc. (which
holds a 2.5% general partnership interests) and Residential Equities Ltd. (which
owns a 2.5% partnership interest). The stockholders of Brewster Realty are Joel
Stone (205) and Rover van Kampen (80%). Perter Morris is the sole stockholder
of Residential Equities Ltd. Messrs. Stone, van Kampen and Morris constitute the
executive committee of VMSRP, and are vested with policy making powers (acting
by a majority). Messrs. Stone, van Kampen and morris are also the sold Limited
Partners of VMSRP, holding 13%, 34.5% and 47.5% limited partnership interests,
respectively.
25,186 Units of interest. No person or "group" (as that term is used in
Section 13(d)(3) of the Securities Exchange Act of 1934, as amended) is the
beneficial owner of five percent or more of the Partnership's limited
partnership interests, except that, solely because of its shared voting power
pursuant to the proxies given under the Settlement Agreement, VMSSE could be
deemed to be the beneficial owner of 98.84% of the limited partnership
interests.
Under applicable state law, no dissenter's rights (i.e., rights of
non-consenting security holders to exchange interests in the Partnership for
payment of their fair value) are available to any limited partner of the
Partnership, regardless of whether such limited partner has consented to the
adoption of the Amendment.
The Partnership will provide without charge to each person, including any
limited partners of the Partnership, to whom a copy of this Information
Statement is delivered, upon the written or oral request of any such person, a
copy of any or all of the documents which are incorporated herein by reference,
other than exhibits to such documents (unless such exhibits are specifically
incorporated by reference into such documents). Requests should be directed to
Thomas Gatti, VMS Realty Partners, L.P., 8700 West Bryn Mawr Avenue, Chicago,
Illinois 60631 (telephone (312) 399-8700).
This information statement should be read carefully as it describes
certain substantial consequences of the approval of the Amendment including the
following:
- Should the proposed substitution of MAERIL as general partner of
the Partnership proceed without the consent of the Partnership's mortgage
lenders (which consent has been requested but not obtained), such lenders could
have a right to declare a default and attempt to exercise their remedies,
including foreclosing upon the mortgaged properties.
- MAERIL, upon becoming substitute general partner, will have the
authority, pursuant to the Settlement Agreement, to consent on behalf of a
substantial majority of the limited partners to transfers of the Partnership
assets (including the sale of all or substantially all of the Partnership's
assets), subject to review of an oversight committee. See "Settlement
Agreement's Relationship to the Partnerships -- Procedures for Disposition of
Assets of Settling Limited Partnerships."
- VMSSE's resignation as general partner will relieve it of any
liability for the obligations of the Partnership incurred subsequent to the date
of its withdrawal.
- The substitution of MAERIL is part of a series of transactions
involving MAERIL's affiliates and VMSSE's affiliates pursuant to which VMSSE's
affiliates will receive, and have received, significant compensation, including:
(a) cash compensation in excess of $6 million;
(b) $500,000 of indemnification against certain
potential claims;
(c) a covenant not to sue from a partnership affiliate
of MAERIL which was the principal creditor of one
of VMSSE's affiliates.
SUMMARY OF THE INFORMATION STATEMENT
The following summary is qualified by, and should be read in conjunction
with, the more detailed information appearing elsewhere herein. Limited
partners of the Partnership are urged to read this Information Statement in its
entirety. The Glossary contains an index of the defined terms used herein.
A. Amendment to Partnership Agreements
Pursuant to the terms of the Settlement Agreement, an amendment to the
terms of the Partnership Agreement will be adopted, providing that the general
partner of the Partnership may withdraw as such without liability and may
substitute its own successor, all without the further consent of the limited
partners of the Partnership, provided that certain conditions are satisfied.(2)
The proposed amendment will be adopted upon VMSSE's exercise of the proxies
("Proxies") granted to it by settling investors pursuant to the terms of the
Settlement Agreement (which proxies were granted for the express purpose of,
among other things, adopting the proposed amendment). See "Amendment To
Partnership Agreement."
B. Withdrawal of VMSSE and Substitution of MAERIL
Strategic Realty Advisers ("SRA") (an affiliate of VMSSE), certain other
affiliates of VMSSE (including VMSRP and VMS Realty Investment, Ltd.
("VMSRIL")), Insignia Financial Group, Inc. ("Insignia"), a fully integrated
real estate service organization, and an Insignia affiliate executed a letter of
intent (the "Insignia Letter of Intent") dated November 16, 1993, contemplating,
among other things, that the general partners (including VMSSE) of all VMS
syndicated partnerships other than those owning hotels (those that do not own
hotels are referred to as the "Syndicated Partnerships"), including the
Partnership, will withdraw as general partners and be replaced by MAERIL.
MAERIL is a single purpose affiliate (a second tier wholly owned subsidiary) of
Metropolitan Asset Enhancement, L.P. ("MAE"), a limited partnership (a) in which
Insignia owns a 19% limited partnership interest, (b) the general partner of
which is solely owned by Andrew L. Farkas, the Chairman and Chief Executive
Officer of Insignia and (c) in which Mr. Farkas individually holds substantial
additional interests.(3) After consummation of certain of the transactions
contemplated by the Insignia Letter of Intent, Insignia, MAE, MAERIL, VMSRIL and
the VMS Principal Entities(4)
entered into a binding agreement (the "Insignia Agreement") dated July 14, 1994
which terminated the Insignia Letter of Intent, and restructured certain of the
then unconsummated transactions that had been contemplated by the Insignia
Letter of Intent and provided for certain other agreements of the parties.
Pursuant to the Insignia Agreement, MAERIL will become the substitute general
partner of only the Selected Syndicated Partnerships(5), rather than all of the
Syndicated Partnerships as originally contemplated in the Insignia Letter of
Intent.
(2) These conditions generally require that (i) the substitute partner have
experience in real estate management and be reasonably capitalized to serve as
general partner and (ii) the substitution not result in the reclassification of
the Partnership as an association taxable as a corporation for federal income
tax purposes.
(3) Mr. Farkas is the sole stockholder of a corporation which is the general
partner of MAP IV, which holds a 64.5% limited partnership interest in MAE; and
owns the general partner in MAP V which holds 9.5% limited partnership
interest in MAE. He is also a stockholder in Insignia, directly and through
MAP IV, MAP V, and certain other entities.
(4) "VMS Principal Entity" means VMSRP, Chicago Wheaton Partners, VMS Realty
Investors, VMS Financial Services, VMS Realty Guarantee Limited Partnership:
"VMS Principal Entities" means every VMS Principal Entity, collectively.
The mortgage documents with respect to the Partnership's properties
require that the mortgage lenders consent to the substitution of MAERIL as
general partner. The Partnership has requested these consents, but has received
no response from the applicable lenders. Should the proposed substitution of
MAERIL as general partner of the Partnership proceed without the consent of the
Partnership's mortgage lenders, such lenders' could have a right to declare a
default and attempt to exercise their remedies, including foreclosing upon the
mortgaged properties.
The Insignia Letter of Intent also contemplated that each of the
Syndicated Partnerships, including the Partnership, were to retain (subject to
certain limitations) an Insignia affiliate, to provide all property and asset
management services to such Syndicated Partnerships.(6) The Partnership had
retained an
(5) "Selected Syndicated Partnerships" means, collectively, the Partnership,
Boca Glades Associates, Ltd., Boca West Shopping Center Associates, Ltd., Four
Quarters Habitat Apartments Associates, Ltd., Hearthwood Associates, Investors
First-Staged Equity, L.P., Kendall Townhome Investors, Ltd., Lynnhaven
Associates,Merrifields Apartments, mount Regis Associates II, Pasadena Office
Park Associates, Prudential-Bache VMS Realty Associates L.P. I, Scarlett Oaks
Apartment Associates, Ltd., VMS National Residential Portfolio I, VMS National
Residential Portfolio II, Woodlawn Associates and Yorktown Towers Associates.
(6) Most of the Syndicated Partnerships have retained Insignia or its
affiliates to povide property and asset management services. However, pursuant
to the Insignia Agreement, Insignia terminated its and its affiliates' rights
and obligations to provide management services to the following Syndicated
Partnerships: Fort Lauderdale Office Park Associates, Garden City Plaza
Associates, Ltd., Jacksonville/Windsong Apartments Associates, Natick Village
Apartment Associates, Oak Brook International Office Center Associates,
Ramblewood Associates, 1600 Arch Investors, Ltd., 1600 Arch Limited Partnership
Valley View Associates, Valley view Associates II, Village Green apartment-
Townhome Associates, Woodmere Associates, Ltd.
Insignia Affiliate to provide such services with respect to each of the
Partnership's properties, but pursuant to the Insignia Agreement, the right of
an Insignia affiliate to provide such services with respect to the Partnership's
Kendall Mall property was terminated(7), although Insignia affiliates continue
to perform such services with respect to the Partnership's two remaining
properties.
The Insignia Letter of Intent had contemplated that such Insignia
affiliate would retain SRA to assist it in the provision of such management
services; however, pursuant to the Insignia Agreement, SRA has been retained to
assist in the provision of management services only to VMS National Properties
Joint Venture, and will not be retained to provide such services with respect to
any of the other Syndicated Partnerships, including the Partnership. SRA is
wholly owned by Joel A. Stone, who is a member of the executive committee of
VMSRP. See "The Insignia Transactions," and footnote 1.
Pursuant to the Insignia Agreement and appropriate documents of
conveyance, VMSSE will withdraw as general partner of the Partnership, and
transfer its general partnership interest therein to MAERIL. Pursuant to the
terms of the Partnership's secured loan obligations with respect to each of the
Partnership's properties, the substitution of MAERIL as general partner of the
Partnership requires lender consent, which has been requested but not received.
See "The Insignia Transactions - Substitution of MAERIL and Retention of
Insignia Affiliate as Manager."
C. Settlement Agreement
The Settlement Agreement dismissed all settling defendants, including the
Partnership, from certain actions brought by and on behalf of certain purchasers
of limited partnership interests in approximately 100 VMS-sponsored syndicated
limited partnerships ("Settling Limited Partnerships"), including the
Partnership.
1. Release
The investors who participated in the Settlement Agreement ("Settling
Class Members") thereby released the settling defendants from any and all claims
which they might have against the settling defendants relating to the Settling
Limited Partnerships, as well as defenses to collection actions related to notes
given by Settling Class Members in connection with the purchase of their
interests in such partnership. See "Settlement Agreement's Relationship To The
Partnership."
2. Settlement Proceeds
An aggregate amount of $23,500,000 in cash was initially paid on behalf of
both the VMS-related settling defendants and the Prudential-Bache-related
settling defendants. (An additional $1,050,000 in cash was initially paid on
behalf of Settling Class Members related to Mutual Benefit Financial Services
Co.
(7) As reported in the Partnership's Form 10-QSB for the quarterly period
ended March 31, 1994, Kendall Mall was sold at a public auction on March 16,
1994, following the entry of a foreclosure judgement.
and MB Investment Properties, Inc. (collectively, "Mutual Benefit Settling
Defendants"), although none of these proceeds were allocated to the
Partnerships.) Additionally, upon the disposition of assets owned by the
Settling Limited Partnerships, VMSRIL and certain of its affiliates, including
VMSSE, have paid (net of certain deductions) a percentage of certain payments
they have received as a result of such dispositions (including, without
limitation, repayments of certain amounts loaned to the Settling Limited
Partnerships), into the settlement fund created for the benefit of the Settling
Class Members. In the future, a percentage of certain amounts (without
deductions) that would have been received by VMSRIL's affiliates in the event of
a disposition of assets owned by the Settling Limited Partnerships will be paid
to such settlement fund. Additional consideration for the Settling Class
Members has also been provided by the settling defendants. See "Settlement
Agreement's Relationship To The Partnership - Terms of the Settlement Relating
to the VMS Settling Defendants; and - Terms of the Settlement Agreement Relating
to the Prudential-Bache Settling Defendants."
3. Allocation of Settlement Proceeds
The Partnership is allocated 1.61 percent of the net settlement proceeds
paid on behalf of the VMS-related settling defendants and 1.30 percent of the
net settlement proceeds paid on behalf of the Prudential-Bache-related settling
defendants. See "Settlement Agreement's Relationship To The Partnership -
Allocation of Settlement Proceeds."
4. Procedures for Disposition of Assets of Settling Limited
Partnerships
In addition to empowering the managing general partner of each of the
active Settling Limited Partnerships to cause adoption of the Amendment, the
Proxies also grant the managing general partner the power to consent on behalf
of a Settling Class Member who is a limited partner of such partnership to the
disposition of any or all of the assets of such partnership. Therefore, for
each Settling Limited Partnership, including the Partnership, in which the
managing general partner holds proxies representing a sufficient percentage of
the limited partnership interests, no further approval of the limited partners
of such partnership is required to dispose of any or all of its assets.
However, all dispositions of assets owned by Settling Limited Partnerships will
be subject to review by an oversight committee (the "Oversight Committee")
consisting of counsel for the class of Settling Class Members and any other
person that such counsel shall designate. The Oversight Committee has the right
to challenge in court a proposed disposition based on the inadequacy of the
consideration being paid or other business considerations deemed appropriate by
the Oversight Committee. If the committee challenges a proposed disposition, it
will not occur until the Court rules on such challenge.
5. Effect On Fees, Distributions and Allocations of Profits
and Losses to General Partners
The Settlement Agreement does not increase the fees which a general
partner of a syndicated limited partnership was entitled to receive prior to the
Settlement Agreement. However, following VMSSE's withdrawal from, and transfer
of its general partnership interest in, the Partnership, partnership
distributions of profits and losses attributable to its general partnership
interest in the Partnership will be received by MAERIL as the transferee of such
interest. See "Settlement Agreement's Relationship To The Partnership - Effect
on Fees, Distributions and Allocations of Profits and Losses to General Partners
of Settling Limited Partnerships."
D. Summary of Conflicts of Interest
The substitution of MAERIL is part of a series of transactions involving
MAERIL's affiliates and VMSSE's affiliates pursuant to which VMSSE's affiliates
will receive, and have received, significant compensation, including:
(a) cash compensation in excess of $6 million;
(b) $500,000 of indemnification against certain potential claims; and
(c) a covenant not to sue from a partnership affiliate of MAERIL which
was the principal creditor of VMSRIL, an affiliate of VMSSE. MAERIL's affiliate
(ISLP) acquired this debt (which aggregated $37,270,000 as of January 1, 1994)
on November 16, 1993 from EAB (as defined below) for $1,100,000. Additionally,
such partnership purchased approximately $16,150,000 of VMSRP debt held by EAB
for a price of $400,000 and approximately $23,750,000 of VMSRP debt held by
Marine Midland for a price of $620,000. See "The Insignia Transactions."
Pursuant to Delaware law, absent the proxies and the Amendment, there
would be certain substantial limitations on the authority of the general partner
to withdraw and substitute a new general partner. However, the proxies and the
Amendment effectively eliminate these limitations, permitting the general
partner to freely withdraw and substitute a new general partner so long as the
withdrawal conditions specified in the Settlement Agreement have been
satisfied. As a result, though any substitute general partner must meet the
withdrawal conditions, the existing general partner might be motivated in the
selection of a substitute general partner by factors other than the successor's
qualifications to serve as a substitute general partner, such as the
consideration to be received from such successor and the speed with which the
substitution of the successor can be accomplished. Additionally, in order to
facilitate its withdrawal, a general partner could cause the Partnership to
confer benefits upon a successor and its affiliates which might not be in the
best interests of the Partnership. See "Conflicts of Interest."
E. Adverse Effects on Limited Partners
and Benefits to Resigning General Partners
A potentially adverse effect of the Amendment on the limited partners is
that VMSSE will be able to withdraw as the general partner of the Partnership.
VMSSE's resignation as general partner of the Partnership will relieve it of any
liability for the obligations of the Partnership incurred subsequent to the date
of its withdrawal. However, despite its withdrawal, VMSSE will remain liable
for liabilities, if any, which arose prior to its withdrawal; provided that
VMSSE will not be liable for any such liability if (i) it otherwise would not
have been liable for such liability had it not withdrawn or (ii) the assets of
the Partnership are sufficient to satisfy such liability. Under the terms of
the Partnership Agreement, however, VMSSE, in its capacity as the general
partner of the Partnership, would not have an obligation to make additional
contributions to, or assume additional liabilities of, the Partnership.
Additionally, VMSSE has been released from certain claims pre-dating its
withdrawal pursuant to the terms of the Settlement Agreement. See "Settlement
Agreement's Relationship To The Partnership." Furthermore, as the substitute
general partner in the Partnership, MAERIL will be liable, to the same extent
VMSSE would have been, absent its withdrawal, with respect to obligations of the
Partnership incurred following MAERIL's substitution as general partner.
MAERIL will receive VMSSE's general partnership interest in the
Partnership, and any distributions and fees attributable to such interest after
the date of the transfer of such general partnership interest. VMSSE and
certain of its affiliates have received benefits pursuant to the Insignia Letter
of Intent, including a covenant not to sue given by ISLP, and have and, in the
future, will receive benefits pursuant to the Insignia Agreement; these benefits
include substitution of MAERIL for VMSSE as general partner of the Partnership
and certain other monetary benefits. See "The Insignia Transactions."
Additionally, with the proxies granted in connection with the Settlement
Agreement, the managing general partner (MAERIL) can consent on behalf of each
Settling Class Member to any sale, lease, assignment, exchange or other transfer
or conveyance of the assets of the Partnership, subject to review of the
Oversight Committee. See "Settlement Agreement's Relationship to the
Partnerships - Procedures for Disposition of Assets of Settling Limited
Partnerships" and "The Insignia Transactions."
F. Developments Affecting VMSSE
and Its Affiliates
As previously disclosed in the Partnership's public filings, certain
affiliates of VMSSE, including VMSRIL, had experienced severe liquidity
problems. VMSRIL's liability to its principal creditor (the "EAB Debt"),
European American Bank ("EAB"), substantially exceeded the realizable value of
VMSRIL's assets. However, these problems have now been addressed by the receipt
by VMSRIL of a covenant not to sue from a partnership in which Insignia is the
general partner, which purchased VMSRIL's debt to its principal creditor, as
well as by the execution of certain creditor agreements described below. See
"The Insignia Transactions" and "Recent Developments Affecting VMS Realty
Partners And Its Affiliates."
AMENDMENT TO PARTNERSHIP AGREEMENT
Attached as Exhibit A to this Information Statement is a copy of the text
of the Amendment. The Amendment provides that notwithstanding any provisions to
the contrary in the Partnership Agreement or the prospectus by which such
Partnership was syndicated in 1986, the general partner of the Partnership may
(i) withdraw, without liability for such withdrawal, from the
Partnership (whether by resignation or retirement or by the transfer, sale,
assignment, pledge, encumbrance or other disposition of such general
partner's general partnership interest in the Partnership) and
(ii) substitute one or more successor general partners,
without obtaining, with respect to both (i) and (ii) above, any further consent
of the limited partners of the Partnership, and without satisfying any other
conditions to the withdrawal and substitution of general partners other than
satisfaction of the Withdrawal Conditions. Although the Partnership Agreement
does not specify a procedure for, nor prohibit, the voluntary withdrawal of the
general partner and the admission of a new general partner, Section 17-402 of
the Delaware Revised Uniform Limited Partnership Act provides that "unless
otherwise provided in the partnership agreement, additional general partners may
be admitted only with the written consent of each partner." The Amendment will
amend the Partnership Agreement so that, notwithstanding the above referenced
provision of Delaware law, the general partner may withdraw and substitute a new
general partner upon Satisfaction of the Withdrawal Conditions.(8)
(8) Section 17-602 of the Delaware Revised Uniform Limited Partnership Act
provides that "(a) general partner may withdraw from a limited partnership at
the time or upon the happening of event specified in the partnership agreement
and in accordance with the partnership agreement."
"Satisfaction of the Withdrawal Conditions" shall be deemed to have
occurred with respect to the withdrawal of a general partner of the Partnership
if such general partner reasonably determines that (x) the proposed withdrawal
will not result in the reclassification of the Partnership as an association
taxable as a corporation for Federal income tax purposes; and (y) any proposed
substitute general partner has experience in real estate management and is
reasonably capitalized to carry out its duties and obligations as general
partner.
It is contemplated that, shortly after the effectiveness of the Amendment,
VMSSE will withdraw as the general partner of the Partnership by transferring
its general partnership interest in the Partnership to MAERIL. See "The
Insignia Transactions--Substitution of MAERIL and Retention of Insignia
Affiliate as Manager" for a discussion of certain lender consents to such
substitution, which to date have not been received.
Satisfaction of the Withdrawal Conditions with respect to such withdrawal
will have occurred, given that: (i) with respect to the Withdrawal Condition
set forth in clause (x) VMSSE has reasonably determined that its contemplated
withdrawal through the assignment of its general partnership interest to MAERIL
will not result in the reclassification of the Partnership as an association
taxable as a corporation for Federal income tax purposes; and (ii) with respect
to the condition set forth in clause (y) MAERIL has (a) substantial experience
in real estate management, and (b) a reasonable amount of capital to carry out
its duties and obligations as a general partner. See "The Insignia Transactions
- -- Insignia, MAE and MAERIL" and MAERIL's audited balance sheet which is
attached hereto as Exhibit F and incorporated herein by reference. As reflected
in footnote 1 to MAERIL's balance sheet, MAE and Insignia are parties to an
agreement dated August 13, 1993 and terminating April 15, 2018, pursuant to
which Insignia has agreed to perform all administrative functions for MAE and
each of its affiliates and controlled subsidiaries. Pursuant to this agreement,
Insignia will perform these responsibilities on behalf of MAERIL with respect to
the Selected Syndicated Partnerships, including the Partnership, for no
additional consideration. Under this same agreement, MAE and its affiliates
engage Insignia to perform property and asset management for partnerships in
which they serve as general partner.
The Proxies, which will be used to approve the Amendment, were granted
pursuant to the terms of the Settlement Agreement. The Settlement Agreement, as
amended, was approved on July 2, 1991 by Judge Zagel of the United States
District Court for the Northern District of Illinois and permits the withdrawal
of the general partner of the Partnership. Limited partners of the
Partnership owning 98.84% of the limited partnership interests are Settling
Class Members that have granted, through the Settlement Agreement, irrevocable
proxies, containing the terms set forth in Exhibit B attached hereto, consenting
to the Amendment. Pursuant to Section 2.02 of the Settlement Agreement, VMSSE,
as the managing general partner of the Partnership, is required to vote the
Proxies in favor of the Amendment. (The Settlement Agreement contains similar
provisions relating to each of the other Active Limited Partnerships; a list of
the Active Limited Partnerships is attached as Exhibit C hereto.)
The Proxies also grant to the managing general partner of the Partnership
the right of each of the limited partners of the Partnership who is a Settling
Class Member to consent or object to the disposition of the assets of the
Partnership, as more fully described in "Settlement Agreement's Relationship To
The Partnership -- Procedures for Disposition of Assets of Settling Limited
Partnerships," below.
SETTLEMENT AGREEMENT, THE PLAN AND THEIR RELATIONSHIP TO THE PARTNERSHIPS
The Settlement Agreement resolved the claims asserted in thirty-eight
actions filed by investors in limited partnerships against VMSRP and certain
entities and individuals related to VMSRP which were consolidated for pretrial
and discovery purposes under the caption In Re VMS Limited Partnership
Securities Litigation, Case No. 90 C 2412 (U.S. District Court, N.D. Illinois)
("Consolidated Actions"). In connection with the negotiations of a class action
settlement, the "New Action" was filed in the Court on behalf of all investors
who purchased an interest in any of approximately 100 non-publicly-traded
VMS-sponsored syndicated limited partnerships prior to December 31, 1989.
The Settlement Agreement became effective on August 12, 1991. The Court's
July 2, 1991 order granting final approval of the Settlement Agreement dismissed
with prejudice all settling defendants, including the Partnership, from all
Consolidated Actions and dismissed the "New Action". The settling defendants(9)
(9) The settling defendants include: (i) Prudential Securities Incorporated
(including its predecessor Prudential-Bache Securities, Inc) and Prudential-
Bache Properties Inc. (collectively, "Prudential-Bache Settling Defendants"),
(ii) the Mutual Benefit Settling Defendants, (iii) Industrial Indemnity Co. and
Financial Guaranty Associates, Inc. (collectively, "Industrial Indemnity
Settling Defendants"), (iv) the individuals and entities related to VMS,
including the Partnership, listed on Exhibit D attached hereto (collectively,
"VMS Settling Defendants") and (v) continental Casualty Company ("CNA Settling
Defendants"). As used herein, the term "Settling Defendants" means VMS
Settling Defendants, Prudential-Bache Settling Defendants, Mutual Benefit
Settling Defendants, Industrial Indemnity Settling Defendants and CNS Settling
Defendants.
included those defendants in the Consolidated Actions that had reached a
Settlement Agreement with the Settling Class Members. The "Settling Class
Members" are those eligible investors who did not elect to be excluded from the
Settlement Agreement.
As part of the Settlement Agreement and in exchange for the payments and
other consideration offered by the Settling Defendants (as more fully described
below), the Settling Class Members released the Partnership, the general partner
of the Partnership and certain of their respective affiliates from any and all
claims of all kinds, including, but not limited to, known and unknown claims
relating to any matters that were or might have been asserted in the New Action,
in any of the Consolidated Actions, in any action which was or could have been
commenced by any Settling Limited Partnership against any of the Settling Class
Members under the terms of his Investor Note,(10) or Partnership Amendment to
Note,(11) in any court or forum whatsoever, which in any way relate to the
(10) The term "Investor Note" means any note executed by a Settling Class
member as consideration for the acquisition of any interest in a Settling
Limited Partnership.
(11) The term "Partnership Amendment to Note" means the agreement pursuant to
which such Settling Class Member had the option of refinancing his obligation
to the Settling Limited Partnership under Investor Note.
Settling Limited Partnerships, including but not limited to such claims relating
to the marketing, purchase or sale of interests in the Settling Limited
Partnerships (listed on Exhibit D hereto), the operation and management of the
Settling Limited Partnerships and/or the sale of real property or other assets
owned by the Settling Limited Partnerships, as well as releasing defenses to
collection actions related to Investor Notes. The release does not cover any
claims to enforce the terms of the Settlement Agreement.
The following summarizes the terms of the Settlement Agreement which, in
addition to the granting of the Proxies and the withdrawal of VMSSE described
above, may be material to the Partnership or the limited partners of the
Partnership who are Settling Class Members.
A. Allocation of Settlement Proceeds
On March 10, 1992, the law firms of Beigel & Sandler, Ltd. and Kohn,
Klein, Nast & Graf (collectively, "Class Counsel") presented to the Court a
proposed plan of distribution of the net settlement fund among the Settling
Class Members. The plan allocates a percentage of the net proceeds from the VMS
Settling Defendants, the Prudential-Bache Settling Defendants and the Mutual
Benefit Settling Defendants to each Settling Limited Partnership, except as
indicated below. Each Settling Limited Partnership's specific portion of the
net settlement fund is then allocated among the Settling Class Members who
purchased interests in that Settling Limited Partnership, based on their
respective ownership interests and whether they purchased their interests from
Prudential-Bache or Mutual Benefit.
Pursuant to the terms of the Settlement Agreement, the plan allocates the
net proceeds from the Prudential-Bache Settling Defendants and the Mutual
Benefit Settling Defendants only to Settling Class Members who purchased
interests in Settling Limited Partnerships through the Prudential-Bache Settling
Defendants or the Mutual Benefit Settling Defendants, respectively, and only as
to those interests; the net proceeds from the VMS Settling Defendants are
allocated among all Settling Class Members.
On March 23, 1992, the Court approved a form of notice to be mailed to all
Settling Class Members describing the plan of allocation proposed by Class
Counsel and informing them of their right to object to the proposed plan at a
hearing before the Court scheduled for May 18, 1992. At the hearing, the Court
heard argument by Class Counsel in favor of the proposed plan and objections
from certain Settling Class Members. By order dated May 21, 1992, the Court
overruled the objections and found the proposed plan to be fair, adequate and
reasonable. Based upon these allocations, the Partnership is allocated 1.61
percent of the net settlement proceeds paid on behalf of the VMS Settling
Defendants and 1.30 percent of the net settlement proceeds paid on behalf of the
Prudential-Bache Settling Defendants. Because the Mutual Benefit Settling
Defendants did not sell any interests in the Partnership, the Partnership is not
allocated a percentage of the net settlement proceeds paid on behalf of these
defendants.
Pursuant to the terms of the Settlement Agreement, none of the VMS
Settling Defendants, the Prudential-Bache Settling Defendants or the Mutual
Benefit Settling Defendants participated in or had any responsibility with
respect to the allocation process.
All initial distributions of settlement proceeds paid on behalf of the VMS
Settling Defendants, the Prudential-Bache Settling Defendants and the Mutual
Benefit Settling Defendants have been made. Additional distributions may
potentially be made if additional net settlement proceeds are received. For
Settling Class Members with past due or future payments owed under an Investor
Note who did not execute a forbearance agreement and amendment to note, such
payments were applied first to unpaid interest, then to unpaid principal. For
Settling Class Members who did execute a forbearance agreement and amendment to
note, such payments were applied first to unpaid principal, then to unpaid
interest. See "--Amendment of Investor Notes."
B. Amendment of Investor Notes
The Settling Limited Partnerships, including the Partnership, to whom
Settling Class Members, including certain limited partners of the Partnership,
owed past due or future payments under Investor Notes offered those Settling
Class Members the option to make those payments on terms more favorable than
originally provided in the Investor Notes. The more favorable terms include a
revised repayment schedule, the reduction of penalty interest which had accrued
or would accrue on past due or future payments and an agreement to forbear
collection of such Investor Notes so long as such Settling Class Member performs
its payment obligations under the forbearance agreement. Eligible Settling
Class Members who did not elect new terms for their Investor Notes remain liable
for all past due or future payments under the original terms of their Investor
Notes.
C. Procedures for Disposition of Assets of Settling Limited
Partnerships
All sales and other dispositions of the real estate or other assets owned
by the Settling Limited Partnerships, including the Partnership, will be
negotiated by and will be the responsibility of the respective managing general
partners of the Settling Limited Partnerships which own such real estate or
other assets.(12)
(12) As previously reported in Item 13 (Certain Relationships and Related
Transactions) of the Partnership's Report on Form 10-K for the year ended
December 31, 1993, on the sale or refinancing of an investment property owned
by the Partnership, the general partner is entitled to a commission paid by the
Partnership, to the extent it has rendered real estate brokerage services,
equal to the lesser of (a) 3% of the sales or refinancing proceeds of such
property or (b) 1/2 of the competitive real estate commission. Such a
commission will only be payable, however, to the extent that the limited
partners have first recovered their adjusted capital contributions together
with their preferred cumulative return (equal to 6% per annum, non-compounded).
Given the current value of the Partnership's property, it is unlikely that such
condition would be fulfilled, and that such a commission would be payable to
the general partner upon the sale of any of the Partnership's properties.
In addition to the power to vote for the Amendment (and similar
amendments to the partnership agreements of other active Settling Limited
Partnerships), the Proxies also grant the managing general partner of each
active Settling Limited Partnership an irrevocable proxy to consent on behalf
of each Settling Class Member that is a limited partner of such active Settling
Limited Partnership to any sale, lease, assignment, exchange or other transfer
or conveyance of any or all of the real property and/or other assets owned by
such Settling Limited Partnership. Therefore, for those Settling Limited
Partnerships, including the Partnership, in which the managing general partner
has received Proxies representing a sufficient percentage of the limited
partnership interests of such Settling Limited Partnership, no further action
and/or approval of the limited partners of such Settling Limited Partnership is
required to dispose of an asset of such Settling Limited Partnership.
However, sales or dispositions of assets owned by Settling Limited
Partnerships will be subject to review by the Oversight Committee. The
Oversight Committee consists of Class Counsel and any other persons or
professionals Class Counsel shall designate. The Oversight Committee has the
right to petition the Court to challenge a proposed sale or disposition based on
the inadequacy of the consideration being paid or other business considerations
deemed appropriate by the Oversight Committee.(13) In the event such a petition
is filed, the proposed sale or disposition will not be consummated until the
Court rules on the petition.(14)
(13) The Settlement Agreement provides that if a Settling Limited Partnership
(or a partnership of which Settling Limited Partnerships are the general
partners) is a debtor under the Bankruptcy Code, and the applicable United
States Bankruptcy Court has approved the sale or other disposition of the real
property and/or other assets owned by that debtor, such approval shall
automatically constitute an irrevocable approval of such sale or other
disposition by the Oversight Committee.
(14) To date, of approximately 13 proposed property dispositions submitted to
the Oversight Committee for approval, only two have been challenged by a member
of the Oversight Committee. A proposed sale of the property owned by
Lynnhaven Associates was challenged by Equity Resources Group, a former member
of the Oversight Committee as to only those Settling Limited Partnership in
which it is a limited partner (which includes Lynnhaven Associates but not the
Partnership). Judge Zagel of the United States District Court for the Northern
District of Illinois approved the sale of Lynnhaven property over the objection
of Equity Resources Group, in accordance with the terms of the Settlement
Agreement. Equity Resources Group then appealed Judge Zagel's decision, and
it's appeal was dismissed by the United States Court of Appeals for the Seventh
Circuit. The oversight Committee also objected to a proposed transaction in
which the mortgage loan on two office building owned by Eaton Canyon Partners
was to be restructured. As a result of the objection, the restructuring was
abandoned and the property was foreclosed.
Under the Settlement Agreement, the Oversight Committee's purpose is to
protect the interests of the Settling Class Members, which may, in some
circumstances, diverge from the interests of certain of the limited partners of
the Settling Limited Partnership in question. The Oversight Committee's
structure results in the limited partners of all the Settling Limited
Partnerships relying, as a replacement of any right they might have had to vote
on certain sales of property by their Settling Limited Partnership, on the
Oversight Committee's ability to judge the adequacy of proposed transactions and
its ability to demonstrate to the Court the imprudence of those it deems
unsatisfactory.
The members of the Oversight Committee are entitled to receive
compensation from the settlement fund established by the Settling Defendants for
the benefit of the Settling Class Members for the work which they perform in
their capacity as members of the Oversight Committee. The members of the
Oversight Committee must petition the Court in order to receive any such
compensation. As of July 15, 1995, members of the Oversight Committee had
received aggregate compensation of approximately $50,000.
There is no requirement that sales (other than sales of all or
substantially all of the Partnership properties) of the Partnership's properties
be approved by the limited partners. Thus, the sale of assets by the
Partnership will receive a level of review and meet certain standards, which,
but for the Settlement Agreement, would not normally have been applicable.
Additionally, VMSSE, as the managing general partner of the Partnership, intends
to make sales in a manner consistent with its fiduciary duty, and MAERIL, upon
becoming the general partner of the Partnership, will have such fiduciary
duties, as well. Currently, the Partnership is not a party to any contract for
sale or letter of intent regarding the disposition of any material asset, nor is
it in the process of negotiating such a disposition. However, if at any time in
the future, the Partnership seeks approval of the disposition of all or
substantially all of its assets (other than an ordinary course sale of its final
property remaining after the sale of all other Properties) through the exercise
of the Proxies, the Partnership will issue an information statement notifying
all limited partners of the Partnership of such proposed disposition and the
terms thereof.
Asset dispositions may result in adverse consequences to certain of the
limited partners of the Partnership as a result of tax recapture (i.e.,
recognition of taxable gain without an accompanying cash distribution).
However, limited partners of the Partnership could also experience tax recapture
in the event of a foreclosure of property of the Partnership or the giving of a
deed in lieu of foreclosure.
D. Effect On Fees, Distributions and Allocations of Profits and
Losses To General Partners Of Settling Limited Partnerships
The Settlement Agreement provides for certain actions to be taken which
will affect the fees and expenses which a general partner of a Settling Limited
Partnership or its affiliates are entitled to receive. A withdrawn general
partner will cease to receive partnership distributions of profits and losses,
as will be the case upon VMSSE's withdrawal as a general partner of the
Partnership following the transfer of its interests as such to MAERIL.
Thereafter, MAERIL will receive partnership distributions attributable to
VMSSE's general partnership interest.
Pursuant to the terms of the Partnership Agreement, the general partner of
the Partnership may receive reimbursement from the Partnership for expenses
which it incurs on behalf of the Partnership in connection with the
implementation of the Settlement Agreement, which expenses might not have
otherwise been incurred. These expenses with respect to the Partnership are not
expected to exceed $20,000.
E. Terms of the Settlement Relating to the VMS Settling
Defendants
1. Initial Cash Payment
$3,500,000 in cash has been paid on behalf of the VMS Settling Defendants
(all of which are set forth in Exhibit E attached hereto) into the Escrow (as
defined below) for the benefit of the Settling Class Members.
2. Additional Cash Payments
Upon the sale or other disposition of certain real estate or other assets
owned by the Settling Limited Partnerships enumerated in Exhibit D, a percentage
of the Entity Payments(15) resulting therefrom will be paid into an escrow for
(15) Entity Payments are generally sums paid to VMSRIL or a VMS Principal
Entity by a Settling Limited Partnership as fees, repayments of obligations for
other purposes. See the Glossary for a more complete definition.
the benefit of Settling Class Members ("Escrow"). As of July 15, 1995, $1
million has been paid into the Escrow. Payments that would have been Entity
Payments if received by VMSSE as general partner of the Partnership, but that
are received by MAERIL when it replaces VMSSE as general partner, will result in
an obligation of MAERIL to make the same percentage payment into the Escrow that
VMSSE would have made.(16)
(16) Payments that would have been Entity Payments if received by the other
VMS Principal Entities that are received by the liquidating trusts pursuant to
the Fifth Amendment to the VMS Creditor Repayment Agreement ("CRA") will result
in an obligation of those liquidating trust to make the same percentage
payments into the Escrow that such VMS Principal Entities would have made.
See "Recent Developments Affecting VMS Realty Partners and Its Affiliates."
Settling Class Members will receive 15% of the first $90,000,000 of
such Entity Payments and 20% of any such amounts over $90,000,000, until such
time as the indebtedness of certain VMS Settling Defendants is paid off in full
and all claims which creditors could bring related to the indebtedness are
either released or satisfied. After such time, the Settling Class Members will
receive 50% of any such cash distributions. However, based upon the current
depressed condition of the national real estate market, there is no assurance
as to the amount that may be realized from the disposition of assets owned by
the Settling Limited Partnerships (or a partnership of which Settling Limited
Partnerships are the general partners), including the Partnership, and there is
therefore no assurance as to the amount ultimately payable to the Escrow for
the benefit of the Settling Class Members.
The Settlement Agreement did not limit the rights of Settling Class
Members to receive cash proceeds to which they would be entitled under the terms
of the limited partnership agreements of the Settling Limited Partnerships,
including cash proceeds upon the sale or other disposition of the assets of the
applicable Settling Limited Partnership. The portion of the Entity Payments
described above which have been and will be deposited into the Escrow for the
benefit of the Settling Class Members is cash which, in the absence of the
Settlement Agreement, would have been distributed to certain VMS Principal
Entities. Absent the Settlement Agreement, this cash would not be distributed
to any Settling Limited Partnership or any limited partners of a Settling
Limited Partnership.
3. Waiver Of 1990 Recapture
The Partnership did not reduce the percentage of the profits allocated to
Settling Class Members who are or were limited partners of the Partnership and
who failed to make Investor Note payments due in 1990. In 1991, the Partnership
did not issue IRS Form 1065 Schedule K-1's reflecting deemed distributions or
income to those Settling Class Members as a result of any such reduction,
provided such Settling Class Members satisfied their payment obligations to the
Partnership of which they are or were a limited partner, whether under the
original terms of the Investor Notes or the Agreement, as the case may be.
F. Terms of the Settlement Relating to the Prudential-Bache
Settling Defendants
1. Cash Payment
$20,000,000 in cash has been paid on behalf of the Prudential-Bache
Settling Defendants into the Escrow for the benefit of the Settling Class
Members who purchased their interest in a Settling Limited Partnership through a
Prudential-Bache Settling Defendant, including certain of the limited partners
of the Partnership.
2. Assignment of Rights in Assignment Notes
The Prudential-Bache Settling Defendants have assigned, for the benefit of
the Settling Class Members, all of their interest in assignment notes owed to
certain VMS Settling Defendants by certain Settling Limited Partnerships (or
partnerships of which Settling Limited Partnerships are the general partners),
whether such interest was obtained through an assignment from a VMS Settling
Defendant or otherwise. The value ultimately realized for the interest in the
assignment notes depends upon the amount of proceeds generated by the sale of
the real estate or other assets securing the assignment notes. The face amount
of the Prudential-Bache Settling Defendants' interest in those assignment notes
was approximately $10.6 million as of March 31, 1991, none of which had been
realized as of July 15, 1995. However, given the current state of the real
estate market, the current net realizable value of such interest in the
assignment notes is estimated to be substantially lower than their face amount.
3. Assignment of Limited Partnership Interests
The Prudential-Bache Settling Defendants have assigned to an escrow fund,
for the benefit of the Settling Class Members, all of their interests as a
limited partner in each of the following Settling Limited Partnerships: 850
Third Avenue Limited Partnership; Boca Raton Hotel & Club Limited Partnership;
Candlewood Square Apartments Associates, Ltd.; North Palm Beach Shopping Center
Associates, Ltd.; The Shoreham Hotel Limited Partnership; and Trails Shopping
Center Associates, Ltd. The Prudential-Bache Settling Defendants have
transferred to the Settling Class Members their interests as a limited partner
in each of LaJolla Village Professional Center Associates, Ltd. and Oak Brook
International Office Center Associates, each of which has been a debtor in a
bankruptcy proceeding under the Bankruptcy Code.
THE INSIGNIA TRANSACTIONS
A. Substitution of MAERIL and Retention of Insignia Affiliate as
Manager
During the summer of 1993, EAB introduced VMSRIL to Insignia. EAB and
Insignia had been engaged in discussions concerning the possible acquisition by
an Insignia subsidiary of VMSRIL's debt to EAB. Subsequently, Insignia began
negotiating with VMSRIL concerning a possible transaction. As a result of these
negotiations, VMSRIL and various of its affiliates, SRA, Insignia and a limited
partnership ("ISLP")(17) agreed to the terms of the Insignia Letter Of Intent,
(17) An MAE affiliate is the sole general partner in ISLP, and an Insignia
affiliate holds the sole limited partnership interest.
which contemplated, among other things, that VMSRIL and certain of its
affiliates, including VMSSE, serving as general partners of the Syndicated
Partnerships, including the Partnership, would withdraw as such and be replaced
by MAERIL, a single purpose affiliate of MAE. The Insignia Agreement modified
the intentions of the parties as expressed in the Insignia Letter of Intent to
provide that MAERIL would become the new general partner of only the Selected
Syndicated Partnerships, including the Partnership. Adoption of the Amendment
by the Partnership will permit this substitution, because the Withdrawal
Conditions will have been satisfied in connection therewith. See "Amendment To
Partnership Agreement."
Pursuant to the terms of the Partnership's secured loan obligations with
respect to each of the Partnership's properties, the substitution of MAERIL as
general partner of the Partnership requires lender consent, which has been
requested but not received(18). Although the Partnership could contend that
such consent was unreasonably withheld, or that a lender's failure to respond
should constitute an implied consent (or waiver of its right to consent), it is
possible
(18) Each property owned by the Partnership, as well as the other Syndicated
Partnerships, is subject to one or more secured project loans. The terms of
each such loan with respect to the Partnership require lender consent for a
change in the general partner of the Partnership. Although VMSSE and its
affiliates have attempted to obtain such consents with respect to all such
loans, it has been unsuccessful in obtaining any consents, and, in many cases,
no responses have been received to such requests; however, none of the lenders
have expressly rejected the proposed substitution.
that one or more lenders might seek to declare a default and attempt to
foreclose on their respective collateral if the transfer of general partnership
interests to MAERIL were to proceed without such lender's express consent.
Furthermore, pursuant to the Insignia Letter of Intent, many of the
Syndicated Partnerships retained (to the extent permitted under applicable
mortgages and other governing documents) an Insignia affiliate to provide all
property and asset management services to such Syndicated Partnership for the
maximum term permitted under the partnership agreement or other governing
documents of such Syndicated Partnership.(19) In particular, an affiliate of
Insignia has become the asset manager of the Partnership, as of January 1, 1994
(19) See footnote 4 and the associated text.
at a fee of 2% of gross revenues. Additionally, an affiliate of Insignia is
performing property management services for the Partnership's two remaining
properties, at a fee of 3% of gross revenue. These fees totaled $131,392 in
1994 and $73,048 for the first six months of 1995. In addition, such Insignia
affiliate received expense reimbursements of $135,317 in 1994 and $68,0004 in
the first six months of 1995. The above percentage fees are the same fee
percentages charged by the prior property and asset manager, which was not
affiliated with either VMSSE or MAERIL. Although the Insignia affiliates
initially retained SRA to assist them in the provision of management services to
the Partnership, this relationship was terminated pursuant to the Insignia
Agreement.
B. Insignia, MAE and MAERIL
Insignia is a publicly held fully integrated real estate service
organization performing property management, asset management, investor
services, partnership administration, mortgage banking, and real estate
investment banking services for various ownership entities, including
approximately 950 limited partnerships having approximately 300,000 limited
partners. Based upon published industry surveys, Insignia is the largest
manager of multifamily residential properties in the United States and is a
significant manager of commercial property. Insignia commenced operations in
December 1990 and since then has grown to provide property and/or asset
management services (as of June 30, 1995) for over 1,700 properties, which
include approximately 207,000 residential units and approximately 66,600,000
square feet of commercial space, located in over 500 cities in 48 states with
aggregate annual rentals and collections estimated by Insignia to be in excess
of $1 billion.
Insignia has grown primarily by acquiring, directly or through related
entities (principally MAE), controlling positions in general partners of real
estate limited partnerships. Many of the sellers of such assets, and in some
cases the partnerships which own the properties, were financially distressed,
but the partnerships own properties that Insignia in most cases believes to be
fundamentally sound. Following each acquisition, Insignia takes steps to
enhance the value and stability of the acquired properties, including a thorough
analysis of each property's operations, develops a detailed marketing strategy,
and, when appropriate, develops a program for restructuring its indebtedness.
Insignia or MAE has, where consistent with its fiduciary obligations to the
property owner, caused the controlled entity to retain Insignia to provide
property management and other services for the property, and will continue to do
so in the future.
Insignia also provides services to non-affiliated entities. Insignia
currently provides services to institutional clients including large insurance
companies, such as John Hancock Mutual Life Insurance Co., Mutual of New York,
Metropolitan Life Insurance Company, and The Prudential Insurance Company of
America; banks, such as Bank of America and First Nationwide Bank; government or
quasi-government agencies, such as the Federal Home Loan Mortgage Corporation
(known as Freddie Mac) and the Resolution Trust Corporation; and other
institutional investors and lenders. As of June 30, 1995, the average duration
of Insignia's tenure (including that of its acquired predecessors) as manager
for owners of unaffiliated properties under agreements with terms of two years
or less was approximately six years for residential properties and three years
for commercial properties.
Insignia's services include property management, providing all of the day-
to-day services necessary to operate a property, whether residential or
commercial; asset management, including long-term financial planning, capital
improvements, and development and execution of refinancings and dispositions;
maintenance and construction services; marketing and advertising; investor
reporting and accounting, including preparation of quarterly reports and annual
K-1 tax reporting forms for limited partners as well as regular reporting under
the Securities Exchange Act of 1934 where applicable; investment banking,
including assistance in workouts and restructurings, mergers and acquisitions,
and debt and equity securitization; and mortgage banking and real estate
brokerage. This integrated organization allows "one stop shopping" for
substantially all of the services necessary to operate a property and the
related partnership successfully, for both controlled entities and unaffiliated
owners.
In addition, Insignia is the exclusive mortgage marketing advisor for
Prudential Insurance Company of America's PruExpress program in the Southeast
and Mid-Atlantic areas of the United States, originating loans typically in the
$2,000,000 to $15,000,000 range for investment-grade income-producing real
estate.
Insignia's senior residential property management personnel have an
average of over 15 years of experience in property management with a broad range
of types of properties throughout the United States. Many of Insignia's most
experienced managers joined Insignia in connection with some of Insignia's
acquisitions. Insignia believes that its management expertise and state-of-the-
art computer and communications systems allow it to offer its customized
services efficiently and at a cost to Insignia which permits it to be
competitive with other real estate management service companies.
Insignia and its affiliates have acquired control of or management rights
to 17 significant portfolios of properties since 1990.
Insignia was incorporated in Delaware in July 1990. Insignia's principal
executive offices are located at One Insignia Financial Plaza, P.O. Box 1089,
Greenville, South Carolina 29602, telephone number (803) 239-1000.
MAE was formed to be the principal vehicle for acquiring interests in real
property that would be managed or serviced by Insignia. MAE, directly or
through subsidiaries, holds general partnership interests in approximately 500
partnerships, all of which have retained Insignia as manager for all or certain
aspects of their operations. MAE has no other material assets and has no
material cash flow. MAE has various liabilities associated with prior
acquisitions, certain of which have been guaranteed or are joint obligations
with Insignia or one or more of its subsidiaries. Insignia intends to continue
its acquisition activities with MAE. MAE and Insignia have entered into an
agreement governing the structuring of future acquisitions.
Insignia holds a 19% limited partnership interest in MAE. Andrew L.
Farkas, the Chairman of the Board and Chief Executive Officer of Insignia, owns
the general partner of MAE, which has a 1% partnership interest. In addition, a
3% limited partnership interest in MAE is owned by five officers and one
employee of Insignia. In addition Mr. Farkas is a sole stockholder of the
general partner of Metropolitan Acquisition Partners IV, L.P. ("MAP IV"), which
holds a 64.5% limited partnership interest in MAE; the general partner of MAP IV
is generally entitled to receive 50% of all distributions made by MAP IV, and
Mr. Farkas holds an indirect 5.0% limited partnership interest in MAP IV. Mr.
Farkas is also the sole stockholder of the general partner of Metropolitan
Acquisition Partners V, L.P. ("MAP V"), which holds a 9.5% limited partnership
interest in MAE; the general partner of MAP V is generally entitled to receive
30% of all distributions made by MAP V. MAP IV and MAP V, respectively, own
22.1% and 7.7% of the equity of Insignia. Mr. Farkas also has other ownership
interests in Insignia. Although the general partner may not assign its interest
in MAE without the consent of holders of a majority in interest of the limited
partners' interests, there are no restrictions on Mr. Farkas's ability to sell
such general partner. Insignia may not transfer its limited partnership
interest in MAE without the consent of the general partner of MAE. The general
partner has complete authority over the management of MAE and its assets,
provided that, except in connection with acquisitions, the general partner may
not cause MAE to sell all or a substantial portion of its assets without the
consent of holders of a majority in interest of the limited partners'
interests. The limited partners, including Insignia, have no other rights with
regard to the business or operations of MAE.
MAERIL is a Delaware corporation, formed in March 1994 for the purpose of
serving as general partner of the Partnerships and certain of the other
Syndicated Partnerships. MAE GP Corporation is the sole stockholder of MAERIL
and MAE is the sole stockholder of MAE GP Corporation. As of September 30,
1995, MAERIL had a net worth in excess of $29,000. Additionally, MAE and
Insignia are parties to an agreement dated August 13, 1993 and terminating April
15, 2018, pursuant to which Insignia has agreed to perform all administrative
functions for MAE and each of its affiliates and controlled subsidiaries.
Pursuant to this agreement, Insignia will perform these responsibilities on
behalf of MAERIL with respect to the Selected Syndicated Partnerships, including
the Partnerships, for no additional consideration. Under this same agreement,
MAE and its affiliates engage Insignia to perform property and asset management
for partnerships in which they serve as general partner. An audited balance
sheet for MAERIL, as of March 31, 1995 is attached hereto as Exhibit F and
incorporated herein by reference.
The names, ages and certain biographical information regarding MAERIL's
sole director and each of its executive officers is listed below:
Jeffrey L. Goldberg is 32 years old and has served as the sole director
and President of MAERIL since March 1994. Mr. Goldberg has been Managing
Director-Asset Management of Insignia since January 1991. Since April 1990, Mr.
Goldberg has been an officer of Metropolitan Asset Group, Ltd. ("MAG"), a real
estate investment banking firm. From July 1989 until March 1990, Mr. Goldberg
was employed in the Mergers and Acquisitions Group of Drexel Burnham Lambert
Incorporation, an investment banking firm.
William H. Jarrard, Jr. is 47 years old and has served as a Vice President
of MAERIL since March 1994. Mr. Jarrard has been Managing Director -
Partnership Administration of Insignia since January 1991. Mr. Jarrard was
employed by U.S. Shelter in a similar capacity for three years prior to his
joining Insignia.
Robert D. Long, Jr. is 27 years old and has been Chief Accounting Officer
and Controller of MAERIL since March 1994. Mr. Long joined Insignia in
December 1991. From January 1991, Mr. Long was employed with a private
accounting firm, Harshman, Lewis & Associates, P.A., in Nashville, Tennessee.
From July 1989, Mr. Long was employed with the State of Tennessee in Nashville,
Tennessee as a staff accountant.
Kelley M. Buechler is 37 years old and has been Secretary of MAERIL since
March 1994. Ms. Buechler has been Assistant Secretary of Insignia since
January 1991. From October 1984, Ms. Buechler was employed as a legal assistant
with U.S. Shelter (a property management and real estate services company from
which Insignia acquired certain assets in 1990).
C. Purchase of EAB and Creditor Assets and Granting of Covenants
not to Sue
Pursuant to the Insignia Letter of Intent, ISLP purchased for an aggregate
price paid to EAB of $1,100,000 the EAB Debt (which had an outstanding principal
and interest balance as of such purchase of approximately $37.2 million),
constituting all of the debt of VMSRIL and of VMSRP to VMSRIL's single major
creditor, EAB. Subsequently, VMSRIL conveyed to ISLP, in a transfer in lieu of
foreclosure, all of the assets (the "EAB Assets") securing the EAB Debt. The
EAB Assets constituted all of the assets owned by VMSRIL other than its rights
to act as general partner of the Syndicated Partnerships in which it is a
general partner. In connection with this conveyance, ISLP has covenanted
(i) not to sue VMSRIL with respect to the EAB Debt, (ii) to look exclusively to
the EAB Assets for payment of the EAB Debt and (iii) to repay (but only out of
the proceeds realized from the EAB Assets acquired by ISLP) loans made to
VMSRIL, of which approximately $845,000 was outstanding as of November 16, 1993,
the date of the Insignia Letter of Intent (including principal and unpaid
interest). These loans, which were made to VMSRIL in 1992 by certain of its
principals to provide VMSRIL sufficient funds to permit it to meet its
obligations under the VMSRIL Agreement (as defined below), were repaid in full
by ISLP as of December 31, 1993. See "Recent Developments Affecting VMS Realty
Partners And Its Affiliates." Upon exercise of an option granted SRA pursuant
to the Insignia Letter of Intent, SRA acquired from Insignia, without payment of
separate consideration, all of the EAB assets relating to VMS Syndicated
Partnerships(20) that own hotels. Furthermore, the Insignia Agreement
contemplates (as did the
(20) "VMS Syndicated Partnerships" means those partnerships, including the
Syndicated Partnerships, of which (i) VMSRIL, (ii) one of the VMS Principal
Entities, or an affiliate thereof is the managing general partner (or (iii) a
general partner of a general partner) and as to which limited partnership
interest were sold to investors through syndications.
Insignia Letter of Intent) that ISLP may seek to purchase certain assets (the
"Creditor Assets") conveyed to creditors of VMSRP pursuant to the Fifth
Amendment to the CRA. Following such purchase, ISLP will (i) covenant not to
sue VMSRP with respect to debts associated with the Creditor Assets and
(ii) agree to look exclusively to the beneficial interest of the applicable
creditor in the Creditor Assets for payment of such debts. See "Recent
Developments Affecting VMS Realty Partners And Its Affiliates" and "Conflicts Of
Interest."
D. Indemnities Granted by Insignia
Pursuant to the Insignia Letter of Intent, Insignia granted an indemnity
to each of the individual partners of each of the VMS Principal Entities and/or
VMSRIL and each of their respective partners (the "Indemnified Partners") with
respect to the Syndicated Partnerships, including the Partnership. Insignia
agreed to indemnify the Indemnified Partners for up to $500,000 of claims of
creditors in connection with (i) consummation of the transactions contemplated
by the Insignia Letter of Intent, (ii) the Indemnified Partners' roles as
general partners of, and service providers to, the Syndicated Partnerships, and
(iii) the EAB and Creditor Assets. Payments with respect to this
indemnification obligation will be made solely from a cash reserve (the
"Reserve") established by Insignia. The Reserve has been funded with $333,333
and, pursuant to the Insignia Agreement, is to be funded with an additional
$166,667 upon the offering by VMSRIL or its affiliates to cause the substitution
of MAERIL for VMSRIL or such affiliate with respect to 60% of the Selected
Syndicated Partnerships. In the event that the entire Reserve is not applied to
the payment of Insignia indemnity obligations, all of the remaining funds in the
Reserve will be paid over to SRA.
Pursuant to the Insignia Agreement, Insignia also will indemnify the
Indemnified Partners against all claims ("Covered Losses") in connection with
(i) actions taken by MAERIL, as general partner of the Selected Syndicated
Partnerships, (ii) actions taken by MAERIL or its affiliates in connection with
prospective work outs of Selected Syndicated Partnership debts or other efforts
to raise capital for the Selected Syndicated Partnerships and (iii) actions
taken by Insignia, MAE or any of their affiliates with respect to the EAB and
Creditor Assets. The Reserve may not be used to pay Insignia's obligations with
respect to this indemnity. Pursuant to the Insignia Agreement, Insignia's
obligation to make such indemnity payments will be reduced by an amount equal to
50% of the Aggregate Payments (as defined in the next section) actually received
by SRA from time to time pursuant to the Insignia Agreement (such reduction
being subject to adjustment upon receipt of any additional such payments).
E. Compensation to VMSSE Affiliate
The Insignia Letter of Intent provided for certain business relationships
between Insignia (and its affiliates) and SRA. SRA is wholly owned by Joel
Stone, who is a significant stockholder of two of VMSSE's corporate general
partners, and is therefore an affiliate of VMSSE. See footnote 1, above.
Pursuant to the Insignia Letter of Intent, SRA was to perform certain
services (the "Services") for Insignia and its affiliates including:
(i) assisting Insignia and its affiliates in minimizing
their indemnity obligation under the Letter of Intent;
(ii) maximizing the return on ISLP's investment in the EAB
and Creditor Assets; and
(iii) assisting (a) Insignia or its affiliates in connection with
the management and asset management of properties owned by the
Syndicated Partnerships and (b) MAERIL or its affiliates in
fulfillment of their obligations as substitute general
partners.
As discussed below, SRA's provision of the Services was terminated except for
its provision of assistance to an Insignia affiliate in its provision of asset
management services to VMS National Properties Joint Venture.
For its provision of the Services, SRA was to receive a variety of forms
of compensation, including a right to acquire a 48.5% limited partnership
interest in ISLP for nominal consideration. SRA exercised this right on May 24,
1994 but, pursuant to the Insignia Agreement, subsequently revoked such
exercise, and relinquished such right. Prior to its exercise of this right, SRA
also received 48.5% of all amounts realized from the EAB Assets and the other
assets purchased by ISLP pursuant to the Insignia Letter of Intent, net of
certain specified deductions; such right to receive such payments was not
revived, however, following SRA's revocation of the exercise of its acquisition
right. The payments to SRA prior to its exercise of its acquisition right
totalled $17,135. As further consideration, to the extent Insignia became the
property manager or asset manager for Syndicated Partnerships and retained SRA
to assist it, Insignia was to pay SRA the SRA Management Fee consisting of
(a) 28% of the management and asset management fees paid to Insignia affiliates
by the Syndicated Partnerships, including the Partnerships and (b) 28% of all
net income received by MAERIL (including all fees and distributions) as a result
of its acting as general partner of the Syndicated Partnerships. With certain
exceptions, the obligations of Insignia pursuant to the Insignia Letter of
Intent were to be secured.
Although Insignia and MAE desired to have MAERIL substituted as the
general partner of the Selected Syndicated Partnerships, Insignia, MAE and ISLP
determined that they did not require SRA's management and related services on a
long-term basis as they believed that they could more efficiently and
effectively perform their respective obligations to the selected Syndicated
Partnerships on their own and without the necessity of coordinating with SRA.
Accordingly, the Insignia Agreement effects, among other things, a buyout by
Insignia of SRA's rights to provide the Services and to receive the compensation
therefore discussed above. Pursuant to the Insignia Agreement, SRA's right to
provide the Services was terminated, except that SRA is required to assist
Insignia in performing asset management services for the VMS National Properties
Joint Venture but not the Partnership or any of the other Syndicated
Partnerships. Furthermore, Insignia and SRA acknowledged that they no longer
contemplate seeking to maintain any future or ongoing mutual business
relationships (although such relationships had been contemplated by the Insignia
Letter of Intent). Additionally, SRA will be owed no further fees or
obligations pursuant to the Insignia Letter of Intent or on account of services
it has provided or will provide, but in lieu thereof will receive the
following:
(a) $500,000 on closing;
(b) $100,000 on both of the first and second anniversaries of
closing;
(c) $226,250 each calendar quarter for 6 years commencing in the
calendar quarter beginning in July of 1994;
(d) 28% of all fees and other payments received by (i) Insignia or
its affiliates for the provision of management services to
Boca West Center Associates, Ltd. and (ii) MAERIL in its
capacity of substitute general partner of such Syndicated
Partnership or otherwise related to such Syndicated
Partnership;
(e) the first $1.2 million of all net proceeds ("Net Proceeds") in
excess of the Calculation Amount(21) derived by Insignia or
ISLP from the sale of Creditor Assets and EAB Assets; and
(21) The Calculating AMount is equal to (x) $3.4 million plus (y) the
aggregate cost of each of the Creditor Assets acquired by ISLP (including
interest at a rate of 4% over Citibank's base rate from the date of acquisition
of each of the respective Creditor Assets) plus (z) the sum of any amounts
previously received by Insignia in repayment of its loan to ISLP to acquire the
EAB Assets and the Creditor Assets, or by ISLP as proceeds of the sale,
refinancing or disposition of any EAB Assets or Creditor Assets, which insignia
or ISLP has been required to disgorge by reason of a valid claim thereto
asserted by an unaffiliated third party.
(f) 50% of Net Proceeds in excess of the sum of (i) the
Calculation Amount plus (ii) $1.2 million.
The payments pursuant to Clauses (a), (b), (e) and (f) of this paragraph are
referred to herein as the "Aggregate Payments." All of the obligations
specified in clauses (a) through (f) will be secured by a security interest in
Insignia's 48.5% limited partnership interest in ISLP and Insignia's economic
rights (but not obligations) pursuant to each of the property and asset
management agreements between Insignia or its affiliates and the Syndicated
Partnerships. In order to further secure payment of such obligations, Insignia
and MAERIL agreed that at such time and from time to time as MAERIL becomes
substitute general partners of a Selected Syndicated Partnership, at the
election of SRA either (i) Insignia and/or its affiliates owning 100% of the
stock of MAERIL shall pledge such stock to SRA or (ii) MAERIL shall pledge to
SRA 100% of its economic rights and entitlements of every kind and nature (but
not obligations) as general partner of each of the Selected Syndicated
Partnerships, including, but not limited to, rights to general partner
distributions and fees.
In addition, pursuant to the Insignia Agreement, Insignia and its
affiliates granted SRA a right of first refusal with respect to any proposed
future sale by Insignia of EAB Assets and Creditor Assets to which Insignia or
ISLP takes title by foreclosure, deed-in-lieu of foreclosure or otherwise.
CONFLICTS OF INTEREST
A. General Partners' Selection of Successor
The ability of a general partner to select its own successor, pursuant to
the Amendment, removes a safeguard against an inherent conflict of interest
between the withdrawing general partner and the Partnership. The Amendment
permits withdrawal by general partners on terms and conditions not as
restrictive as those in the Partnership Agreement. Thus, notwithstanding the
fact that a successor must satisfy the Withdrawal Conditions, an existing
general partner might be motivated in its selection of a substitute general
partner by factors other than the successor's qualifications to serve as a
substitute general partner, such as the consideration to be paid to such
withdrawing general partner in consideration for its interest or the speed
within which a substitution could be effected. A successor general partner so
chosen may not be able to adequately fulfill its obligations to the Partnership,
and could cause a decline in the financial performance of the Partnership and/or
the Partnership's assets.
Pursuant to the Insignia Letter of Intent, ISLP has granted VMSRIL,
VMSSE's affiliate, a covenant not to sue with respect to the EAB Debt (which has
been acquired by ISLP). In addition, VMSSE's affiliate, SRA, is receiving
significant consideration in connection with the transactions contemplated by
the Insignia Agreement. Because this consideration results, in part, from the
agreement to substitute MAERIL as the general partner of the Selected Syndicated
Partnerships, including the Partnership, it creates a conflict of interest for
VMSSE. See "The Insignia Transactions - Purchase of EAB and Creditor Assets and
Granting of Covenants not to Sue; and - Compensation to VMSSE Affiliate."
Additionally, in order to expedite its withdrawal from the Partnership, a
general partner could cause the Partnership to confer certain benefits upon a
potential successor general partner or its affiliates, as an inducement to such
potential successor to become a substitute general partner. Pursuant to the
Insignia Letter of Intent, many of the Syndicated Partnerships, including the
Partnership, retained affiliates of Insignia to provide property and asset
management services for a fee. See "The Insignia Transactions - Substitution of
MAERIL and Retention of Insignia Affiliates as Manager." Although such
retention is part of a series of transactions pursuant to which, among other
things, VMSSE and its affiliates, which serve as general partners of Selected
Syndicated Partnerships, will withdraw as such, substituting MAERIL as general
partner, VMSSE believes that because of Insignia's expertise and resources and
the terms of such retention that such retention of an Insignia affiliate to
provide property and asset management services is in the best interests of the
Partnership and the compensation to be paid the Insignia affiliates for their
provision of services is comparable to the compensation received by the
Partnership's prior asset and property managers. See "The Insignia Transactions
- - Substitution of MAERIL and Retention of Insignia's Affiliate as Manager." It
should also be noted that even had Insignia affiliates not been previously
retained to provide such managerial services, once MAERIL became general partner
of the Selected Syndicated Partnerships, it would have had the ability to so
retain an Insignia affiliate.
INTERESTED PERSONS
VMSSE owns a 1% interest in the profits and losses of the Partnership. It
is contemplated that all of such interest will be transferred to MAERIL which
will then become the sole general partner of the Partnership. In addition, as
discussed under "Insignia Transactions -- Compensation to VMSSE Affiliate", in
the event of consummation of the transactions contemplated thereby, which will
be permitted by the Amendment, VMSSE's affiliates are expected to receive
substantial consideration, and VMSRIL, a VMSSE affiliate, has the continuing
benefit of the covenant not to sue contemplated by the Insignia Letter of
Intent.
VMSSE has no interest in the adoption of the Amendment other than the
interests described above, the matters discussed under the heading "Conflicts of
Interest", and the following. VMSSE will be fulfilling its obligations under
the Settlement Agreement. VMSSE will have fulfilled its obligation to vote the
Proxies and its withdrawal as general partner of the Partnership will relieve
VMSSE from any liability for the obligations of the Partnership incurred
subsequent to the date of such withdrawal. See "The Insignia Transactions --
Indemnities Granted by Insignia." However, VMSSE has no obligation under the
terms of the Partnership Agreement to make additional contributions to, or
assume additional liabilities of, the Partnership.
Upon MAERIL's substitution as general partner of the Partnership, MAERIL
will be liable with respect to obligations of the Partnership incurred after
such substitution to the same extent as VMSSE would have been had it not
withdrawn. Furthermore, even subsequent to its withdrawal as the general
partner, VMSSE will remain liable, jointly and severally, for those existing
obligations of Partnership incurred prior to the date of its withdrawal, to the
extent that (i) the assets of the Partnership are inadequate to respond to those
obligations and (ii) VMSSE would have been otherwise liable with respect to such
obligations had it not withdrawn as a general partner. VMSSE has been released
from certain claims pre-dating its withdrawal pursuant to the terms of the
Settlement Agreement. See "Settlement Agreement's Relationship To The
Partnership."
All associates of VMSSE having an interest in it have, through and as a
result of that interest, an interest in the withdrawal of VMSSE from the
Partnership, and the assignment of its partnership interest to MAERIL. VMSSE
and certain of its affiliates, including SRA and the Indemnified Partners, have
an additional interest in the Amendment as it will permit consummation of the
transactions contemplated by the Insignia Agreement.
DEVELOPMENTS AFFECTING VMS REALTY PARTNERS AND ITS AFFILIATES
As previously reported in the Registrants' quarterly and annual reports,
VMSRP, the sole stockholder of VMSSE's sole stockholder, and certain of its
affiliates had experienced severe liquidity problems. Because of VMSRP's
inability to resolve the liquidity problems affecting it and its affiliates,
VMSRP had generally suspended making payments relating to operating assets of it
and its affiliates, other than payments generally necessary to maintain the
operation of such assets of it and its affiliates, and changed the business of
VMSRP and its affiliates, eliminating the acquisition and development of real
estate assets. However, VMSRIL, VMSSE and each of the other affiliates that
serve as general partners of VMS Syndicated Partnerships continue, and are
continuing, to perform their responsibilities as general partners.
In response to the above-described liquidity problems, on March 25, 1992,
VMSRIL, (an affiliate of (i.e., under common control with) VMSSE, the managing
general partner of the Partnership, and an affiliate of the VMS Principal
Entities) entered into an agreement (the "VMSRIL Agreement") with its single
major creditor, European American Bank, and one of its affiliates, EURAM
(collectively "EAB"), which held a lien on all of VMSRIL's assets.
The VMSRIL Agreement provided that for a 12-month period VMSRIL was
prohibited from engaging in business activities or operations unrelated to the
orderly liquidation of its existing assets, which liquidation was to be
conducted consistent with its duties as the managing general partner of VMS
Syndicated Partnerships. Notwithstanding the foregoing, the VMSRIL Agreement
provided that VMSRIL was not prohibited from engaging in any activities with
respect to VMS Syndicated Partnerships, including, but not limited to, the
continuation of the VMS Syndicated Partnerships' business operations.
Under the VMSRIL Agreement, in order to facilitate VMSRIL's operation of
its assets in a manner intended to preserve and, if possible, enhance the value
of such assets prior to their disposition, EAB granted VMSRIL a moratorium on
enforcement of all indebtedness owed to EAB by VMSRIL. EAB agreed that, during
the one year term of the VMSRIL Agreement (assuming no default by VMSRIL in the
performance of its obligations under the VMSRIL Agreement), EAB would not take
any action which would materially adversely affect the interests of VMSRIL,
including, without limitation, demanding payment of indebtedness and filing a
petition to institute an involuntary bankruptcy proceeding against VMSRIL.
Also in response to the above-described liquidity problems, on March 31,
1992, the VMS Principal Entities entered into the CRA with a number of parties
including substantially all of the unsecured and undersecured creditors (other
than trade creditors) of the VMS Principal Entities and certain of the unsecured
or undersecured creditors (other than trade creditors) of their affiliates
(collectively, the "Creditors"). Although VMSRIL is a party to the CRA, it is
generally not considered a VMS Principal Entity thereunder. VMSSE is neither a
party to the CRA nor a VMS Principal Entity thereunder.
The CRA was intended to achieve a purpose comparable to that described
above for the VMSRIL Agreement. In consideration of the benefits received by
the Creditors under the CRA, the Creditors granted the VMS Principal Entities a
moratorium similar to that contained in the VMSRIL Agreement.
During the respective terms of, and under certain circumstances specified
in, the VMSRIL Agreement and the CRA, VMSRP and certain of its affiliates,
including VMSRIL and VMSSE, were required to pay certain sums derived from their
operations and asset dispositions to be applied to their restructured debts;
these sums were paid by VMSRP and its affiliates, including VMSRIL and VMSSE, as
and when required under the terms of those agreements.
Effective November 17, 1993, the VMS Principal Entities entered into the
Fifth Amendment to the CRA, dated as of October 25, 1993, pursuant to which each
VMS Principal Entity (and not VMSRIL) has transferred certain of its assets in
lieu of foreclosure (other than general partnership interests in VMS Syndicated
Partnerships and assets that the Creditors chose not to acquire, based on their
view of the value of such assets and concerns about possible liability
associated with them) to separate trusts beneficially owned by the Creditors of
each of the respective transferring VMS Principal Entities, subject to the liens
of the applicable Creditors, in consideration of, among other things, the
granting of covenants not to sue by the respective Creditors (and their
successors and assigns) with respect to each of the VMS Principal Entities'
liability for the indebtedness owed such Creditors. Such transactions have
amicably concluded the debtor creditor relationship between the VMS Principal
Entities and the Creditors.
Pursuant to the CRA and the Fifth Amendment thereto, and as an inducement
to the VMS Principal Entities to engage in the deed in lieu transactions
described above, substantial cash consideration, at the direction of the VMS
Principal Entities, was paid by the Creditors to SRA for future services to be
performed by SRA for benefit of the VMS Principal Entities.
During the summer of 1993, EAB introduced VMSRIL to Insignia, which was
engaged in discussions with EAB concerning the possible acquisition by an
Insignia subsidiary of VMSRIL's debt to EAB and the assets securing that debt,
and the granting by that Insignia subsidiary of a covenant not to sue VMSRIL.
This transaction has now occurred, effectively resolving VMSRIL's financial
difficulties with its single major creditor.
Subsequently, Insignia entered into negotiations with VMSRIL that have
resulted in the execution of the Insignia Letter of Intent, and thereafter, the
Insignia Agreement. See "The Insignia Transactions."
The plaintiffs in the Dubelko Lawsuit, previously reported in Item 2
of Part I of the Partnership's Report on Form 10-Q for the nine months ended
September 30, 1992, and Item 1 of Part I of the Partnership's Report on Form
10-K for the year ended December 31, 1992, alleged that because of VMSRIL's past
financial difficulties it had withdrawn as the general partner of a VMS
syndicated partnership pursuant to the terms of that partnership's partnership
agreement, which partnership agreement is similar to the Partnership Agreement.
Effective January, 1993, the Dubelko Lawsuit was settled and, pursuant to such
settlement, the plaintiffs withdrew their allegations. Additionally, in the
recently completed Chapter 11 case involving Frenchman's Reef Beach Associates
("Frenchman's"), another VMS syndicated partnership, Case No. 93B 18572 (Bankr.
N.D. Ill.), the Frenchman's Reef Protection Committee (an unofficial Committee
purporting to represent certain limited partners in Frenchman's) filed an
objection to the plan and disclosure statement filed by Frenchmen's, which
objection disputed VMSRIL's status as the general partner of Frenchman's,
relying upon an argument substantially similar to that advanced in the Dubelko
Lawsuit. Notwithstanding this objection, Frenchman's bankruptcy plan was
confirmed in November of 1994 by the bankruptcy court and became effective in
December of 1994. VMSRIL believes, after consultation with its counsel, that
VMSRIL has meritorious defenses to actions such as the Dubelko Lawsuit and the
Frenchman's action, and that the resolution of VMSRIL's financial difficulties
discussed above affords additional strength to such defenses.
The Office of the Inspector General ("OIG") for the Department of Housing
and Urban Development ("HUD") has completed an audit of the books and records of
VMS Realty Management, Inc. relative to seven HUD projects which VMS Realty
Management, Inc. managed from 1987 to 1991, the years which were the subject of
the OIG audit. None of these projects were owned by the Partnership. The OIG
concluded that VMS Realty Management, Inc. did not comply with the terms and
conditions for the HUD Regulatory Agreements and applicable HUD regulations and
instructions relating to the financial and general management practices for six
of the seven HUD projects reviewed. Specifically, the OIG audit concluded that
VMS Realty Management, Inc. inappropriately disbursed $6,366,180 from the
projects' funds for partnership expenses from 1987 to 1991 when the projects
were in a non-surplus cash position or lacked adequate surplus cash for the
payments, as the term "surplus cash" is defined pursuant to the HUD Regulatory
Agreements.
The OIG's Audit Report to HUD recommends that (1) the projects' owners
reimburse $6,366,180 to the projects' accounts for the excess distributions and
if the owners fail to comply, then HUD should initiate action for double damages
remedy, (2) take action to preclude VMS Realty Management, Inc. and the
individuals which comprise it from participating in future HUD projects, and
(3) require the appropriate HUD Regional/Field Offices to conduct reviews of the
13 remaining HUD projects which VMS Realty Management, Inc. previously managed
which were not the subject of the OIG audit.
Four of the six HUD projects which were the subject of the OIG audit
currently have surplus cash in excess of the amounts which the OIG has concluded
were inappropriately disbursed between 1987 and 1991, and HUD has tentatively
agreed to accept a current financial statement verifying the surplus cash
amounts in full settlement for these four projects. These four projects with
sufficient current surplus cash represent $6,009,514 of the entire $6,366,180
inappropriate disbursements. A cash settlement has been reached with HUD for
Ramblewood Associates, the owner of one of the two other HUD projects which were
the subject of the OIG audit. However, at the present time, no settlement has
been reached between HUD and the project owner (a subpartnership of VMS National
Properties Joint Venture) for the final HUD project which the OIG has found to
have made inappropriate disbursements. The maximum amount of inappropriate
disbursements with respect to such project totals $132,744.
INFORMATION INCORPORATED BY REFERENCE
The following documents are incorporated by reference herein in their
entirety:
(a) Registrant's Form 10-KSB for the year ended December 31, 1994
(b) Registrant's Form 10-QSB for the three-month period ended
March 31, 1995
(c) Registrant's Form 10-QSB for the six-month period ended
June 30, 1995
(d) Registrant's Form 10-QSB for the nine-month period ended
September 30, 1995
GLOSSARY
"Entity Payments" means sums paid to a VMS Principal Entity or VMSRIL
(i) pursuant to the terms of an assignment note or wrap note; (ii) pursuant to
the provisions of the partnership agreement of a Settling Limited Partnership
providing for the distribution to the general partners of such Settling Limited
Partnership of a portion of the net proceeds of a sale or other disposition of
real property and/or other assets owned by such Settling Limited Partnership;
(iii) as repayment of amounts loaned to a Settling Limited Partnership or,
including interest thereon, by a VMS Principal Entity or VMSRIL, in its capacity
as a general partner of such Settling Limited Partnership, on the terms set
forth in the limited partnership agreement and/or private placement memorandum
of such Settling Limited Partnership; (iv) as a fee upon the sale of any project
owned by either a Settling Limited Partnership or a joint venture in which such
Settling Limited Partnership is a partner, pursuant to the terms of either the
limited partnership agreement or private placement memorandum of such Settling
Limited Partnership; the amounts referred to in this clause (iv) include, but
are not limited to, (a) fees payable for advice rendered by the VMS Principal
Entity or VMSRIL as to the timing and terms of the sale of any project and
(b) incentive payments payable due to the gross proceeds derived from the sale
of a project exceeding certain financial thresholds set forth in the private
placement memorandum of such Settling Limited Partnership; provided, however,
that Entity Payments shall not include any amounts due or payable to a VMS
Principal Entity or VMSRIL as a Management Fee.
"Management Fee" means any and all amounts payable to any VMS Principal
Entity or VMSRIL in its capacity as manager or asset manager of a project owned
by either a Settling Limited Partnership or a joint venture in which a Settling
Limited Partnership is a partner, for its services as manager or asset manager
of such project, as such fees are payable pursuant to the terms set forth in the
private placement memorandum of such Settling Limited Partnership.
Index of Defined Terms
Term Page Number
Aggregate Payments 32
Amendment 1
Class Counsel 15
Consolidated Actions 13
Court 1
Covered Losses 29
CRA 20
Creditors 36
Creditor Assets 28
EAB 10
EAB Assets 28
EAB Debt 10
Escrow 20
Frenchman's 37
HUD 37
Indemnified Partners 29
Insignia 4
Insignia Agreement 5
Insignia Letter of Intent 4
ISLP 22
MAERIL 1
MAE 4
MAG 27
MAP IV 26
MAP V 26
Mutual Benefit Settling Defendants 7
OIG 37
Oversight Committee 8
Partnership 1
Partnership Agreement 1
Proxies 4
Reserve 29
Services 30
Settlement Agreement 1
Settling Class Members 7
Settling Limited Partnerships 7
SRA 4
Syndicated Partnerships 4
VMSRIL 3
VMSRIL Agreement 35
VMSRP 1
VMSSE 1
EXHIBIT A
THIS AMENDMENT to the Amended and Restated Limited Partnership Agreement
and Certificate of Limited Partnership (the "Agreement") of VMS Investors First-
Staged Equity L.P. II (the "Partnership") is executed on the day of
, 1994. Except as otherwise indicated, all capitalized terms used
herein have the meaning ascribed to such terms in the Agreement.
WHEREAS, the Partnership desires to grant the General Partners the right
to freely Withdraw from the Partnership without liability, subject only to
Satisfaction of the Withdrawal Conditions (as such term is defined below); and
WHEREAS, Limited Partners representing 98.84% of the Limited Partnership
Interests, directly or by proxy granted to the Managing General Partner either
(i) pursuant to the terms of that certain Stipulation of Settlement of New
Action and Partial Settlement of Consolidated Actions approved by order of Judge
Zagel dated July 2, 1991, as amended (the "Settlement Agreement") or (ii)
otherwise, consent to the grant of a right of Withdrawal to the General
Partners.
NOW, THEREFORE, the Partners hereby amend the Agreement by inserting the
following as a new Section BB:
BB. Permitted Withdrawal by a General Partner.
Notwithstanding anything contained in this Agreement and Certificate
to the contrary, a General Partner may, without the consent of any Limited
Partners, but subject solely (except in the case of death, disability or
incompetency) to the Satisfaction of the Withdrawal Conditions, (1)
Withdraw from the Partnership at any time without incurring any liability
to the Partnership for such Withdrawal; provided, however, that the
foregoing shall not release any such withdrawing General Partner from any
liability of such General Partner arising, or relating to any matter
existing, prior to its date of Withdrawal, and (2) substitute for itself
one or more successor General Partners. "Satisfaction of the Withdrawal
Conditions" shall be deemed to have occurred if the General Partner shall
have reasonably determined that (x) the proposed Withdrawal will not
result in the reclassification of the Partnership as an association
taxable as a corporation for Federal income tax purposes and (y) any
proposed substitute General Partner has experience in real estate
management and is reasonably capitalized to carry out its duties and
obligations as a General Partner.
EXHIBIT B
Irrevocable Proxy and Power of Attorney
Each settling Class member who is a current limited partner of any of the
Active Limited Partnerships identified by footnote 3 on Exhibit A will be deemed
to grant to each managing general partner of each such Active Limited
Partnership, acting singly, the irrevocable proxy and power of attorney
specified below and will irrevocably constitute and appoint them, with full
power of substitution and resubstitution, as his, her or its attorney-in-fact
with full power and authority to act in his, her or its name on his, her or its
behalf with respect to:
(a) Voting in favor of, or consenting to, any sale, lease,
assignment, exchange or other transfer or conveyance of the real property
and/or other assets owned by such Active Limited Partnership, including,
but not limited to, any conveyance of all or substantially all of the
assets of such Active Limited Partnership; and
(b) Voting in favor of an amendment to the partnership agreement
of such Active Limited Partnership, which, notwithstanding any provisions
to the contrary in the applicable partnership agreement or prospectus,
permits each general partner of such Active Limited Partnership to (i)
withdraw, without liability for such withdrawal, from the Active Limited
Partnership (whether by resignation or retirement or by the transfer,
sale, assignment, pledge, encumbrance or other disposition of such general
partner's general partnership interest in such Active Limited Partnership)
and (ii) substitute one or more successor general partners without
obtaining, with respect to both (i) or (ii) above, any further consent of
the limited partners of the Active Limited Partnership, and without
satisfying any other conditions to the withdrawal and substitution of
general partners other than Satisfaction of the Withdrawal Conditions. As
used herein, "Satisfaction of the Withdrawal Conditions" shall be deemed
to have occurred if the general partner reasonably determines that (x) the
proposed withdrawal will not result in the reclassification of the Active
Limited Partnership as an association taxable as a corporation for Federal
income tax purposes; and (y) any proposed substitute general partner has
experience in real estate management and is reasonably capitalized to
carry out its duties and obligations as general partner.
(c) The proxy and power of attorney hereby granted by each limited
partner of each Active Limited Partnership:
(i) is a proxy and power of attorney coupled with an
interest, is irrevocable and shall survive the death or incapacity
of such limited partner, shall revoke all prior proxies granted by
such limited partner and shall survive for the life of the Active
Limited Partnership; and
(ii) shall be valid and binding upon, and inure to the
benefit of, the successors, assigns, personal representatives,
estates, heirs and legatees of each such limited partner and each
managing general partner of such Active Limited Partnership.
(d) No settling Class member who is a limited partner of the
Active Limited Partnerships shall grant a proxy or power of attorney to
any person which conflicts with the proxy and power of attorney granted
herein and any attempt to do so shall be void.
EXHIBIT C
ACTIVE LIMITED PARTNERSHIPS
11 Broadway Associates Limited Partnership I
11 Broadway Associates Limited Partnership II
11 Broadway Associates Limited Partnership III
1600 Arch Investors, Ltd.
1600 Arch Limited Partnership
18th & Market Street Hotel Limited Partnership
850 Third Avenue Limited Partnership
Boca Glades Associates
Boca Raton Hotel & Club Limited Partnership
Boca West Shopping Center Associates
Boulder/Arapahoe Mall Associates, Ltd.
C.H. Equity Associates
Candlewood Square Apartments Associates, Ltd.
Chicago Resort Hotels and Conference Centers Limited
Partnership I
Chicago Resort Hotels and Conference Centers Limited
Partnership II
Coral Gables Financial Center Associates, Ltd.
Coral Gables Hi-Rise Office Associates, Ltd.
Davies Pacific Center Limited Partnership
East/Southeast Hotel Associates, Ltd.
East/West Coast Mall Associates, Ltd.
Forest Glen Townhome Associates, Ltd.
Forest Glen Townhome Associates II, Ltd.
Four Quarters Habitat Apartments
Frenchman's Reef Beach Associates
Ft. Lauderdale Office Park Associates, Ltd.
Garden City Plaza Associates, Ltd.
Gulfstream Mall Associates, Ltd.
Harbour House Investors, Ltd.
Harbour House Partners, Ltd.
Hearthwood Associates
Hickory Point Townhome Associates
Investors First-Staged Equity L.P.
Jacksonville/Windsong Apartments Associates, Ltd.
Kendall Townhome Investors, Ltd.
Key Biscayne Beach Hotel Associates Ltd.
LaJolla Village Professional Center Associates
LaSalle/Market Streets Associates, Ltd.
Lodge West Townhome Associates
Lynnhaven Associates
Merrifields Associates
Mount Regis Associates II
Nashville House Office Center Associates
North Palm Beach Shopping Center Associates, Ltd.
Northern California Shopping Center Associates, a Limited
Partnership
Oak Brook International Office Center Associates
Oceanside and Shenandoah Hotel Associates
Oceanview/Virginia Beach Hotel Associates
One Hundred Gold Street Limited Partnership
Orlando-Spanish Trace Associates, Ltd.
Park Centre Associates
Pasadena Office Park Associates
Pennsylvania Building Limited Partnership, The
Potomac/Waterview Associates
Prudential-Bache/VMS Realty Associates L.P. I
Prudential-Bache/VMS Realty Associates L.P. II
Raleigh/Spring Forest Apartments Associates
Raleigh/Spring Forest Investors
Ramblewood Associates
Scarlett Oaks Apartments Associates, Ltd.
Shadowood Associates
Shoreham Hotel Limited Partnership, The
Spring Brook Village Apartment Associates, Ltd.
Thornwood Townhomes & Apartments Associates
Toronto Park Hotel Limited Partnership
Trails Shopping Center Associates, Ltd.
Turnberry Wells Townhome Associates
Tyson's Pike Seven Plaza Associates
Village Green Apartment-Townhome Associates
VMS Canadian Hotel Partnership
VMS Investors First-Staged Equity L.P. II
VMS National Hotel Portfolio I
VMS National Hotel Portfolio II
VMS National Residential Portfolio I
VMS National Residential Portfolio II
VMS Resort Retirement Living Associates, L.P. I
VMS Resort Retirement Living Associates, L.P. II
VMS/Tower Place Limited Partnership
Waterview Colonial Manor Associates
Woodhaven Associates
Woodmere Associates, Ltd.
Yorktown Towers Associates
EXHIBIT D
SETTLING LIMITED PARTNERSHIPS
11 Broadway Associates Limited Partnership I
11 Broadway Associates Limited Partnership II
11 Broadway Associates Limited Partnership III
1600 Arch Investors, Ltd.
1600 Arch Limited Partnership
18th & Market Street Hotel Limited Partnership
850 Third Avenue Limited Partnership
Albuquerque/San Pedro Office Park Associates
Arlington/Woodcreek Associates
Boca Glades Associates
Boca Raton Hotel & Club Limited Partnership
Boca West Shopping Center Associates
Boulder/Arapahoe Mall Associates, Ltd.
C.H. Equity Associates
Candlewood Square Apartments Associates, Ltd.
Chicago Resort Hotels and Conference Centers Limited
Partnership I
Chicago Resort Hotels and Conference Centers Limited
Partnership II
Coral Gables Financial Center Associates, Ltd.
Coral Gables Hi-Rise Office Associates, Ltd.
Dallas Timber Ridge Associates
Davies Pacific Center Limited Partnership
Denver/Hi-Tech Executive Center Associates
East/Southeast Hotel Associates, Ltd.
East/West Coast Mall Associates, Ltd.
Embassy Associates
Forest Glen Townhome Associates, Ltd.
Forest Glen Townhome Associates II, Ltd.
Forest Hills Townhome Associates
Forestwood Associates
Fort Worth/Gates of Spain Associates, Ltd.
Four Quarters Habitat Apartments
Frenchman's Reef Beach Associates
Ft. Lauderdale Office Park Associates, Ltd.
Garden City Plaza Associates, Ltd.
Gulfstream Mall Associates, Ltd.
Harbour House Investors, Ltd.
Harbour House Partners, Ltd.
Hearthwood Associates
Hickory Point Townhome Associates
Investors First-Staged Equity L.P.
Jacksonville/Windsong Apartments Associates, Ltd.
Kendall Townhome Investors, Ltd.
Key Biscayne Beach Hotel Associates, Ltd.
LaJolla Village Professional Center Associates
Lake Magdalene Arms Apartment Associates, Ltd.
LaSalle/Market Streets Associates, Ltd.
Lodge West Townhome Associates
Lynnhaven Associates
Merrifields Associates
Mount Regis Associates II
Nashville House Office Center Associates
Nob Hill Townhome-Apartment Associates
North Palm Beach Shopping Center Associates, Ltd.
Northern California Shopping Center Associates, a Limited
Partnership
Oak Brook International Office Center Associates
Oceanside and Shenandoah Hotel Associates
Oceanview/Virginia Beach Hotel Associates
One Hundred Gold Street Limited Partnership
Orlando-Spanish Trace Associates, Ltd.
Park Centre Associates
Pasadena Office Park Associates
Pennsylvania Building Limited Partnership, The
Potomac/Waterview Associates
Prudential-Bache/VMS Realty Associates L.P. I
Prudential-Bache/VMS Realty Associates L.P. II
Raleigh/Spring Forest Apartments Associates
Raleigh/Spring Forest Investors
Ramblewood Associates
Regency Square Townhomes and Apartments Associates, Ltd.
Scarlett Oaks Apartments Associates, Ltd.
Shadowood Associates
Shoreham Hotel Limited Partnership, The
Spring Brook Village Apartment Associates, Ltd.
Springs of Country Woods Apartment Associates, Ltd.
Thornwood Townhomes & Apartments Associates
Toronto Park Hotel Limited Partnership
Trails Shopping Center Associates, Ltd.
Turnberry Wells Townhome Associates
Tyson's Pike Seven Plaza Associates
Village Green Apartment-Townhome Associates
Virginia Beach Hotel Associates
VMS Canadian Hotel Partnership
VMS Investors First-Staged Equity L.P. II
VMS National Hotel Portfolio I
VMS National Hotel Portfolio II
VMS National Residential Portfolio I
VMS National Residential Portfolio II
VMS Resort Retirement Living Associates, L.P. I
VMS Resort Retirement Living Associates, L.P. II
VMS/Tower Place Limited Partnership
Waterview Colonial Manor Associates
West Palm/Forum III Associates, Ltd.
Woodhaven Associates
Woodmere Associates, Ltd.
Yorktown Towers Associates
EXHIBIT E
VMS SETTLING DEFENDANTS
Boca-CWP Partners
Brewster Corp.
Brewster Realty, Inc.
(formerly known as VanKampen Stone, Inc.)
Chicago Wheaton Partners
Congregate Living Partnership
Green, Richard
Harbour House Assoc.
Hayes, David
Hoekstra, Allan W.
Howard, Melvin
Indian Lakes/Nordic Hills L.P.
LaJolla Office Associates
Merritt, John C.
Morris, Peter R.
Morris/Stone Assoc.
Park, Jeffrey J.
PRM-Garden City Assoc.
Residential Equities, Ltd.
Resort Retirement Properties Associates
Robbins, James
Seeland, Allen
Sveen, Richard
Sonnenschein Nath & Rosenthal
(formerly known as Sonnenschein Carlin Nath & Rosenthal)
Springs Management Company
Stone, Joel A.
VanKampen Merritt, Inc.
VanKampen/Morris/Stone, Inc.
VanKampen, Robert D.
VanKampen Stone, Inc.
VKM&S Enterprises, Inc.
VKM&S-Garden City Associates
VMS Broadway Associates
VMS East Bay Associates
VMS Financial Guarantee L.P.
VMS Hotel Mortgage, Inc.
VMS Institutional Capital Corp. 1984-2
VMS Mortgage Co.
VMS Mortgage Co. II
VMS Mortgage Co. IV
VMA National Hotel Partners
VMS National Properties
VMS Realty, Inc.
VMS Realty Investment, Ltd.
VMS Realty Investors
VMS Realty Management, Inc.
VMS Realty Partners
VMS Securities Inc.
VMS Staged Equity II, Inc.
VMS Wall Street Associates Limited Partnership (11 Broadway)
Xerox Corporation
Xerox Credit Corporation
Xerox Financial Services, Inc.
XCC Investment Corporation
11 Broadway Associates Limited Partnership I
11 Broadway Associates Limited Partnership II
11 Broadway Associates Limited Partnership III
1600 Arch Investors, Ltd.
1600 Arch Limited Partnership
18th & Market Street Hotel Limited Partnership
850 Third Avenue Limited Partnership
Albuquerque/San Pedro Office Park Associates
Arlington/Woodcreek Associates
Boca Glades Associates
Boca Raton Hotel & Club Limited Partnership
Boca West Shopping Center Associates, Ltd.
Boulder/Arapahoe Mall Associates, Ltd.
C.H. Equity Associates
Candlewood Square Apartments Associates, Ltd.
Chicago Resort Hotels and Conference Centers Limited
Partnership I
Chicago Resort Hotels and Conference Centers Limited
Partnership II
Coral Gables Financial Center Associates, Ltd.
Coral Gables Hi-Rise Office Associates, Ltd.
Dallas Timber Ridge Associates
Davies Pacific Center Limited Partnership
Denver/Hi-Tech Executive Center Associates
East/Southeast Hotel Associates, Ltd.
East/West Coast Mall Associates, Ltd.
Embassy Associates
Forest Glen Townhome Associates, Ltd.
Forest Glen Townhome Associates II, Ltd.
Forest Hills Townhome Associates
Forestwood Associates
Fort Worth/Gates of Spain Associates, Ltd.
Four Quarters Habitat Apartments
Frenchman's Reef Beach Associates
Ft. Lauderdale Office Park Associates, Ltd.
Garden City Plaza Associates, Ltd.
Gulfstream Mall Associates, Ltd.
Harbour House Investors, Ltd.
Harbour House Partners, Ltd.
Hearthwood Associates
Hickory Point Townhome Associates
Investors First-Staged Equity L.P.
Jacksonville/Windsong Apartments Associates, Ltd.
Kendall Townhome Investors, Ltd.
Key Biscayne Beach Hotel Associates, Ltd.
LaJolla Village Professional Center Associates
Lake Magdalene Arms Apartment Associates, Ltd.
LaSalle/Market Streets Associates, Ltd.
Lodge West Townhome Associates
Lynnhaven Associates
Merrifields Associates
Mount Regis Associates II
Nashville House Office Center Associates
Nob Hill Townhome-Apartment Associates
North Palm Beach Shopping Center Associates, Ltd.
Northern California Shopping Center Associates, a Limited
Partnership
Oak Brook International Office Center Associates
Oceanside and Shenandoah Hotel Associates
Oceanview/Virginia Beach Hotel Associates
One Hundred Gold Street Limited Partnership
Orlando-Spanish Trace Associates, Ltd.
Park Centre Associates
Pasadena Office Park Associates
Pennsylvania Building Limited Partnership, The
Potomac/Waterview Associates
Prudential-Bache/VMS Realty Associates L.P. I
Prudential-Bache/VMS Realty Associates L.P. II
Raleigh/Spring Forest Apartments Associates
Raleigh/Spring Forest Investors
Ramblewood Associates
Regency Square Townhomes and Apartments Associates, Ltd.
Scarlett Oaks Apartments Associates, Ltd.
Shadowood Associates
Shoreham Hotel Limited Partnership, The
Spring Brook Village Apartment Associates, Ltd.
Springs of Country Woods Apartment Associates, Ltd.
Thornwood Townhomes & Apartments Associates
Toronto Park Hotel Limited Partnership
Trails Shopping Center Associates, Ltd.
Turnberry Wells Townhome Associates
Tyson's Pike Seven Plaza Associates
Village Green Apartment-Townhome Associates
Virginia Beach Hotel Associates
VMS Canadian Hotel Partnership
VMS Investors First-Staged Equity L.P. II
VMS National Hotel Portfolio I
VMS National Hotel Portfolio II
VMS National Residential Portfolio I
VMS National Residential Portfolio II
VMS Resort Retirement Living Associates, L.P. I
VMS Resort Retirement Living Associates, L.P. II
VMS/Tower Place Limited Partnership
Waterview Colonial Manor Associates
West Palm/Forum III Associates, Ltd.
Woodhaven Associates
Woodmere Associates, Ltd.
Yorktown Tower Associates
EXHIBIT F
Balance Sheet
MAERIL, Inc.
September 30, 1995
with Report of Independent Auditors
MAERIL, Inc.
Balance Sheet
September 30, 1995
Contents
Report of Independent Auditors 1
Balance Sheet 2
Notes to Balance Sheet 3
Report of Independent Auditors
To the Stockholders
MAERIL, Inc.
We have audited the accompanying balance sheet of MAERIL, Inc. as of September
30, 1995. This balance sheet is the responsibility of the Company s
management. Our responsibility is to express an opinion on this balance sheet
based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the balance sheet is free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the balance sheet. An audit also
includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall balance sheet
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of MAERIL, Inc. at September 30, 1995,
in conformity with generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
Greenville, South Carolina
November 14, 1995
MAERIL, Inc.
Balance Sheet
September 30, 1995
Assets
Cash $122,006
Total assets $122,006
Liabilities and stockholder s equity
Accounts payable
$ 1,780
Payable to affiliates 19,998
Losses in excess of investment in partnerships 70,234
Total liabilities 92,012
Stockholder s equity:
Common stock, $1 par value; 100 shares authorized
and outstanding
$ 100
Paid-in capital 99,900
Deficit (70,006) 29,994
Total liabilities and stockholder s equity $122,006
See accompanying notes.
MAERIL, Inc.
Notes to Balance Sheet
September 30, 1995
1. Organization
MAERIL, Inc. ( the Company ) is a wholly owned subsidiary of MAE GP Corporation,
which is wholly-owned by Metropolitan Asset Enhancement, L.P. ( MAE ). The
Company was incorporated as a Delaware corporation on March 23, 1994 and was
formed to become the general partner of certain real estate related limited
partnerships.
An agreement exists between MAE and Insignia Financial Group, Inc. ( Insignia ),
dated August 13, 1993 and terminating April 15, 2018, which causes Insignia,
through its employees, to perform certain functions for MAE and each of its
affiliates and controlled subsidiaries. Pursuant to this agreement, Insignia
will perform these responsibilities on behalf of the Company and shall receive
for the performance of such services Incentive Management Fees and
Transaction Fees (as defined).
2. Investment in General Partnership Interests
During 1995 and 1994, the general partnership interests in the following twelve
limited partnerships were transferred to the Company from the prior general
partner:
Boca Glades Associates Ltd. 1%
Boca West Shopping Center Associates, Ltd. 2%
Eaton Canyon Partners, Ltd. 1%
Four Quarters Habitat Apartments Associates, Ltd. 2%
Hearthwood Associates 1%
Kendall Townhome Investors, Ltd. 1%
Lynnhaven Associates 1%
Merrifields Associates 1%
Mt. Regis Associates II 1%
Pasadena Office Park Associates 1%
Woodhaven Associates 1%
Yorktown Towers Associates 1%
Eaton Canyon Partners, Kendall Townhome Investors, Lynnhaven Associates, Mt.
Regis Associates II and Pasadena Office Park Associates have no operating
activity.
The general partnership interests have been acquired by MAERIL generally at no
out-of-pocket cost, as Insignia has funded all acquisition costs in return for
the management rights for properties owned by partnerships in which MAERIL or
an affiliate is the general partner.
2. Investment in General Partnership Interests (continued)
Investments in real estate partnerships are accounted for under the equity
method. Under the equity method, MAERIL records a liability for its
proportionate share of the investee s income or loss in the income statement and
records cash distributions received as a reduction of its investments. At
September 30, 1995, MAERIL has recorded a liability of approximately $70,000
related to its share of equity in losses in the partnerships, which includes the
amortization of MAERIL s costs in excess ($407,000) of its proportionate share
of the investees assets at the dates of acquisition. The costs in excess are
being amortized over ten years, which is the estimated composite life of the
investees.
A general partner of a limited partnership may become obligated to fund certain
losses of the limited partnership once the capital of the limited partnership is
depleted. There can be no assurance that MAERIL will have the necessary
resources to fund such losses. Generally, the limited partnerships are financed
with non-recourse mortgages for which the general partner is not responsible
should the partnerships default on such mortgages. In addition, recourse
obligations of the underlying partnerships existing prior to the date of
MAERIL s becoming general partner are generally not the responsibility of
MAERIL. However, MAERIL is contingently liable for other recourse obligations
of the partnerships, consisting primarily of trade payables and other accruals.
Management does not expect this contingency to have a material adverse effect on
MAERIL s financial condition.
Total unaudited assets, liabilities and deficit of these partnerships as of
September 30, 1995 were approximately $28,800,000, $61,300,000 and $32,500,000,
respectively.
3. Income Taxes
The Company accounts for income taxes under the liability method as required by
FASB Statement No. 109, Accounting for Income Taxes . The Company will file
its return as part of a consolidated group with MAE GP Corporation. The
provision for income taxes is determined on a separate company basis. The
Company has incurred losses since inception and therefore no provision for
income taxes has been recorded. Deferred income taxes reflect the net effects
of temporary differences between the carrying amounts of assets and liabilities
used for income tax purposes.
Temporary differences arise from book and tax differences in accounting for the
equity in losses of the partnerships. Significant components of the Company s
deferred tax assets and liabilities as of September 30, 1995 are as follows:
Deferred tax assets:
Net operating loss carryforward
$ 28,000
Valuation allowance for deferred tax assets (28,000)
Net deferred tax assets
$ 0
Deferred tax liabilities
$ 0
4. Environmental Liabilities
Under various Federal and state environmental laws and regulations, a current or
previous owner or operator of real estate may be required to investigate and
clean up certain hazardous or toxic substances or petroleum product released at
the property, and may be held liable to a governmental entity or to third
parties for property damage and for investigation and cleanup costs incurred by
such parties in connection with contamination. In addition, some environmental
laws create a lien on the contaminated site in favor of the government for
damages and costs it incurs in connection with the contamination. The owner or
operator of a site may be liable under common law to third parties for damages
and injuries resulting from environmental contamination emanating from the
site. There can be no assurance that MAERIL, any of its affiliates, or any
assets owned or controlled by MAERIL or any of its affiliates currently are in
compliance with all of such laws and regulations, or that MAERIL or its
affiliates will not become subject to liabilities that arise in whole or in part
out of any such laws, rules or regulations. Management is not currently aware
of any environmental liabilities which are expected to have a material adverse
effect on MAERIL s financial condition.
