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SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] Confidential, for Use of the
[X] Definitive Proxy Statement Commission Only
[_] Definitive Additional Materials (as permitted by Rule 14a-6(e)(2)
[_] Soliciting Material Pursuant to
Rule 14a-11(c) or Rule 14a-12
McNeil Real Estate Fund XXVI, L.P.
(Name of Registrant as Specified in Its Charter)
Not Applicable
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[_] No fee required.
[X] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
Units of Limited Partner Interest
(2) Aggregate number of securities to which transaction applies:
86,530,671
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
$0.26. The per unit price is equal to the estimated merger
consideration to be received per limited partner unit in the
registrant. This estimated amount is based on a preliminary allocation
of the aggregate consideration in the transaction rendered by Robert
A. Stanger & Co., Inc.
(4) Proposed maximum aggregate value of transaction:
$22,497,974.
(5) Total Fee Paid:
$4,499.59
[X] Fee paid previously with preliminary materials:
The total fee set forth above was previously paid in connection with the
filing by the registrant of the Preliminary Proxy Statement on Schedule
14A with the Commission on August 3, 1999.
[_] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the form or schedule and the date of its filing.
(1) Amount previously paid:
(2) Form, Schedule or Registration Statement no.:
(3) Filing Party:
(4) Date Filed:
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McNEIL REAL ESTATE FUND XXVI, L.P.
To the Limited Partners of McNeil Real Estate Fund XXVI, L.P.--
YOUR VOTE IS VERY IMPORTANT
You are cordially invited to attend a meeting of the Partnership's limited
partners. At the meeting, holders of limited partner units in the Partnership
will consider and vote on the proposals described in the accompanying notice of
meeting. These proposals are being proposed by McNeil Partners, L.P., the
Partnership's general partner.
The date, time and place of the meeting are as follows:
Friday, January 21, 2000
11:30 a.m., local time
R.R. Donnelley Financial
Reverchon Plaza
3500 Maple Avenue, 8th Floor
Dallas, Texas 75219-3901
The Partnership has entered into an acquisition agreement whereby WXI/McN
Realty L.L.C., a newly formed company affiliated with Whitehall Street Real
Estate Limited Partnership XI, will acquire the general partner interests and
limited partner interests in the Partnership, the general partner interests and
limited partner interests in eighteen other partnerships controlled by McNeil
Partners and its affiliates, certain assets of McNeil Partners and certain
assets of McNeil Real Estate Management, Inc., the management company for the
Partnership's properties.
In the proposed transaction, the Partnership will merge with a subsidiary of
WXI/McN Realty, and each limited partner of the Partnership (other than limited
partners who validly exercise dissenters' rights in connection with the merger)
will receive an aggregate of approximately $0.28 in cash for each limited
partner unit in the Partnership. Following the merger, you will no longer be a
limited partner of the Partnership. The aggregate amount to be received for
each limited partner unit consists of cash merger consideration of $0.26 per
unit and a special distribution in cash estimated as of January 31, 2000 to be
$0.02 per unit.
The aggregate amount to be received for each limited partner unit is based
on the estimates of McNeil management, as of the date of this Proxy Statement,
of the Partnership's modified net working capital balance as of the estimated
closing date of the transaction. While we expect that you will receive the
estimated amounts set forth above for each of your limited partner units, there
can be no assurances that you will receive the specified cash merger
consideration or any special distribution.
You will receive a special distribution only if the Partnership has a
positive modified net working capital balance as of the closing date. There can
be no assurances that the Partnership will have a positive modified net working
capital balance as of the closing date or that the actual per unit amount of
the special distribution will be equal to the estimated per unit amount of the
special distribution. If the Partnership's modified net working capital balance
as of the closing date is zero, you will receive no special distribution and
will receive only the cash merger consideration of $0.26 for each limited
partner unit. If the Partnership has a negative modified net working capital
balance as of the closing date, you will receive no special distribution and
the cash merger consideration to be received for each limited partner unit will
be reduced by the pro rata amount of that negative modified net working capital
balance.
In lieu of receiving the cash merger consideration for each of their limited
partner units, limited partners of the Partnership who do not vote for the
merger proposal and who otherwise comply with the provisions of Article 7.6 of
the California Revised Limited Partnership Act will be entitled to exercise
dissenters' rights with respect to their limited partner units if the
Partnership participates in the transaction and the transaction is completed.
The transaction will provide you with the opportunity to liquidate your
investment in the Partnership for cash at a price and on terms that McNeil
Partners believes are fair to and in the best interests of the limited partners
of the Partnership. If the Partnership participates in the transaction, all SEC
reporting obligations of the Partnership will cease. Unlike in a liquidation,
the merger transaction will not require limited partners to continue to hold
interests in the Partnership until all contingent liabilities have been
settled. You should be aware
This Proxy Statement is dated December 14, 1999 and was first mailed to
limited partners of the Partnership on or about December 14, 1999.
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that McNeil Partners will receive an equity interest in WXI/McN Realty if the
transaction is completed.
The Partnership cannot participate in the transaction unless limited
partners holding greater than 50% of the limited partner units in the
Partnership approve the merger proposal described in the accompanying notice
of meeting. Only limited partners who held their limited partner units in the
Partnership at the close of business on December 10, 1999 will be entitled to
vote at the meeting.
The board of directors of McNeil Investors, Inc., the corporate general
partner of McNeil Partners, considering, among other factors, the
recommendation of an independent special committee and fairness opinions
rendered by Robert A. Stanger & Co., Inc., has unanimously determined that the
transaction is fair to and in the best interests of the Partnership and its
limited partners. The McNeil Investors board of directors has unanimously
approved the Master Agreement and the transactions contemplated by the Master
Agreement and unanimously recommends that you vote for the merger proposal and
for the adjournment proposal.
This Proxy Statement explains in detail the terms of the proposed
transaction and related matters. Please carefully review and consider all of
this information.
The transaction is an important decision for the Partnership and the limited
partners of the Partnership. Whether or not you plan to attend the meeting,
please complete, date, sign and promptly return the accompanying proxy in the
enclosed self-addressed stamped envelope. Returning your proxy does NOT
deprive you of your right to attend the meeting and to vote in person.
Your vote is important. If you fail to return your proxy and fail to attend
and vote at the meeting, it will have the effect of voting your limited
partner units against the merger proposal.
On behalf of McNeil Partners, I thank you for your support and appreciate
your consideration of these matters.
McNeil Partners, L.P.
By: McNeil Investors, Inc., its General Partner
/s/ Ron K. Taylor
Ron K. Taylor
President
THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION
PASSED UPON THE FAIRNESS OR MERITS OF THIS TRANSACTION NOR UPON THE
ACCURACY OR ADEQUACY OF THE INFORMATION CONTAINED IN THIS DOCUMENT. ANY
REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
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McNEIL REAL ESTATE FUND XXVI, L.P.
NOTICE OF MEETING OF LIMITED PARTNERS
Notice is hereby given that a meeting of the limited partners of McNeil
Real Estate Fund XXVI, L.P. will be held at 11:30 a.m., local time, on Friday,
January 21, 2000, at R.R. Donnelley Financial, Reverchon Plaza, 3500 Maple
Avenue, 8th Floor, Dallas, Texas 75219-3901. The purposes of the meeting are:
1. To consider and vote on a proposal to approve the Master Agreement,
dated as of June 24, 1999, as amended as of December 2, 1999 and December 10,
1999 (as amended, the "Master Agreement"), by and among WXI/McN Realty L.L.C.,
McNeil Real Estate Fund IX, Ltd., McNeil Real Estate Fund X, Ltd., McNeil Real
Estate Fund XI, Ltd., McNeil Real Estate Fund XII, Ltd., McNeil Real Estate
Fund XIV, Ltd., McNeil Real Estate Fund XV, Ltd., McNeil Real Estate Fund XX,
L.P., McNeil Real Estate Fund XXI, L.P., McNeil Real Estate Fund XXII, L.P.,
McNeil Real Estate Fund XXIII, L.P., McNeil Real Estate Fund XXIV, L.P.,
McNeil Real Estate Fund XXV, L.P., McNeil Real Estate Fund XXVI, L.P., McNeil
Real Estate Fund XXVII, L.P., Hearth Hollow Associates, L.P., McNeil Midwest
Properties I, L.P., Regency North Associates, L.P., Fairfax Associates II,
Ltd., McNeil Summerhill I, L.P., McNeil Partners, L.P., McNeil Investors,
Inc., McNeil Real Estate Management, Inc., McNeil Summerhill, Inc. and Robert
A. McNeil. This proposal, together with the Master Agreement and all of the
transactions contemplated by the Master Agreement, is referred to in this
Proxy Statement as the "merger proposal." Approval of the merger proposal will
also constitute approval of all of the transactions contemplated by the Master
Agreement, including:
. McNeil Partners' contribution of all of its general partner interests
in the Partnership to a newly formed limited liability company
directly or indirectly wholly owned by WXI/McN Realty and the
appointment of this subsidiary as the new general partner of the
Partnership, and
. the merger of a newly formed limited partnership directly or
indirectly wholly owned by WXI/McN Realty with and into the
Partnership.
2. To consider and vote on a proposal to permit McNeil Partners to adjourn
the meeting to permit further solicitation of proxies in the event that there
are not sufficient votes at the time of the meeting to approve the merger
proposal. This proposal is referred to in this Proxy Statement as the
"adjournment proposal."
3. To transact such other business as may properly come before the meeting
or any adjournment or postponement of the meeting.
These items of business are described in this Proxy Statement. Only limited
partners of record at the close of business on December 10, 1999, the record
date, are entitled to notice of and to vote at the meeting. You may vote in
person at the meeting, even if you have returned a proxy.
By Order of McNeil Partners, L.P.
By: McNeil Investors, Inc., its General
Partner
/s/ Ron K. Taylor
Ron K. Taylor
President
Dallas, Texas
December 14, 1999
Whether or not you plan to attend the meeting, we urge you to complete,
date, sign and promptly return the accompanying proxy in the enclosed self-
addressed stamped envelope. Returning your proxy does NOT deprive you of
your right to attend the meeting and to vote your limited partner units in
person.
<PAGE>
TABLE OF CONTENTS
<TABLE>
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QUESTIONS AND ANSWERS ABOUT THE TRANSACTION................................ 1
WHO CAN HELP ANSWER YOUR QUESTIONS?........................................ 8
SUMMARY.................................................................... 9
Parties to the transaction............................................... 9
The Partnership........................................................ 9
McNeil Partners........................................................ 9
McNeil Investors....................................................... 9
The other McNeil Partnerships.......................................... 10
The McNeil Affiliates.................................................. 10
WXI/McN Realty and its subsidiaries.................................... 10
The meeting.............................................................. 11
Record date; voting power................................................ 12
Quorum; vote required.................................................... 12
Changing your vote....................................................... 13
Purposes and reasons for the transaction................................. 13
Structure of the transaction............................................. 15
Structure and ownership prior to the transaction....................... 15
Contributions to McNeil Partners by the other McNeil Affiliates ....... 18
Replacement of general partner......................................... 20
The mergers............................................................ 23
Effects of the transaction .............................................. 28
Effects of the transaction on limited partners of the McNeil
Partnership........................................................... 28
Effects of the transaction on the McNeil Affiliates.................... 30
Recommendations of the special committee and the McNeil Investors board
of directors............................................................ 31
Recommendations of the special committee............................... 31
Recommendations of the McNeil Investors board of directors............. 31
Factors considered by the McNeil Investors board of directors and the
special committee; fairness of the transaction.......................... 32
Opinions and reports of financial advisors............................... 39
Stanger & Co. ......................................................... 39
Eastdil Realty Company................................................. 40
Position of McNeil Partners and Robert A. McNeil regarding the fairness
of the transaction ..................................................... 40
Position of Whitehall, WXI/MNL Real Estate and WXI/McN Realty............ 42
Allocation of the aggregate consideration in the transaction............. 43
Interests of certain persons in matters to be acted on; conflicts of
interest................................................................ 45
Relationships among the McNeil Affiliates and the McNeil Partnerships.. 45
Ownership of limited partner units in the Partnership.................. 45
Structuring of the transaction by the McNeil General Partners.......... 45
Equity interest of McNeil Partners in WXI/McN Realty; WXI/McN Realty
operating agreement................................................... 46
Retention agreements................................................... 47
Conditions to the transaction............................................ 47
Termination of the Master Agreement...................................... 48
Right to terminate the Master Agreement in its entirety................ 48
Right to terminate the Master Agreement with respect to one or more
McNeil Partnerships................................................... 49
Effect of termination.................................................. 50
Termination fees and expenses............................................ 50
Financing; sources of funds.............................................. 51
Accounting treatment of transaction...................................... 52
Federal income tax consequences.......................................... 52
Dissenters' rights....................................................... 53
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Events subsequent to the execution of the Master Agreement............... 53
Settlement of litigation brought against the McNeil Affiliates by
affiliates of Carl C. Icahn........................................... 53
SPECIAL FACTORS............................................................ 55
Background of the transaction............................................ 55
Organization of the public McNeil Partnerships......................... 55
Restructuring of the public McNeil Partnerships........................ 55
Icahn tender offers.................................................... 55
Background of the Schofield litigation................................. 56
Background of the auction process...................................... 57
Engagement of PaineWebber............................................ 57
Structuring of the transaction....................................... 58
Engagement of Stanger & Co. to provide fairness opinions ............ 59
Solicitation of initial bids......................................... 59
Solicitation of final bids........................................... 62
Negotiations with the final bidders.................................. 64
Solicitation of additional bids; continued discussions with Final
Bidder 3 ........................................................... 65
Appointment of the special committee................................... 70
Engagement of Stanger & Co. to render the allocations.................. 71
Negotiation of definitive transaction documents with Whitehall......... 71
May 8, 1999: Presentations to the special committee and its advisors
by McNeil management and Stanger & Co. ............................. 71
Negotiations among the special committee, McNeil management and
Whitehall........................................................... 71
May 25, 1999: Presentations to the special committee by Eastdil
Realty Company, Stanger & Co. and PaineWebber....................... 72
Continued negotiations with Whitehall................................ 74
June 3, 1999: Presentations to the McNeil Investors board of
directors and the special committee................................. 75
Review of Stanger & Co. allocation analysis by the Schofield
plaintiffs.......................................................... 77
Further negotiations with Whitehall.................................. 77
June 24, 1999: Approval of the transaction........................... 78
Events subsequent to the execution of the Master Agreement............... 81
High River letter...................................................... 81
Settlement of Schofield litigation..................................... 82
High River Complaint................................................... 82
Settlement of the High River litigation................................ 83
Icahn Voting and Standstill Agreement.................................. 84
Purposes and reasons for the transaction................................. 84
Purposes and reasons of the McNeil Partnerships and the McNeil
Affiliates for engaging in the transaction............................ 84
Structuring of the transaction......................................... 86
Recommendations of the special committee and the McNeil Investors board
of directors; fairness of the transaction............................... 87
Recommendations of the special committee............................... 87
Recommendations of the McNeil Investors board of directors............. 95
Alternatives to the transaction.......................................... 99
Liquidation............................................................ 99
Benefits of liquidation to the limited partners...................... 100
Disadvantages of liquidation to the limited partners................. 100
Continued ownership of the Partnership................................. 103
Benefits of continued ownership...................................... 103
Disadvantages of continued ownership................................. 104
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Effects of the transaction............................................... 109
Effects of the transaction on the Partnership.......................... 109
Effects of the transaction on all of the other participating McNeil
Partnerships and the McNeil Affiliates................................ 110
Benefits and detriments of the transaction to the McNeil Affiliates.... 112
Opinions and reports of financial advisors............................... 115
Allocation analysis and opinions of Stanger & Co....................... 115
First Stanger & Co. opinion ......................................... 115
Second Stanger & Co. opinion......................................... 116
Financial analysis of Stanger & Co. ................................. 120
Stanger & Co. observations regarding aggregate consideration......... 123
Stanger & Co. allocation analysis.................................... 124
Fee arrangements..................................................... 131
Eastdil Realty Company opinions........................................ 131
First Eastdil Realty Company opinion................................. 131
Second Eastdil Realty Company opinion................................ 132
Financial analysis of Eastdil Realty Company; review of Stanger & Co.
analyses and methodologies.......................................... 136
Fee arrangements..................................................... 137
Position of McNeil Partners and Robert A. McNeil regarding the fairness
of the transaction...................................................... 137
Position of Whitehall, WXI/MNL Real Estate and WXI/McN Realty............ 140
Interests of certain persons in matters to be acted upon; conflicts of
interest................................................................ 140
Relationships among the McNeil Affiliates and the McNeil Partnerships.. 141
Ownership of limited partner units in the McNeil Partnerships by the
McNeil Affiliates..................................................... 142
Structuring of the transaction by the McNeil General Partners.......... 143
Receipt of aggregate consideration by the McNeil Affiliates............ 145
Equity interest of McNeil Partners in WXI/McN Realty................... 146
Retention agreements................................................... 147
Special committee...................................................... 147
Financing; sources of funds.............................................. 148
Fees and expenses relating to the transaction............................ 151
Plans for the McNeil Partnerships that participate in the transaction.... 152
Plans for the McNeil Partnerships that do not participate in the
transaction............................................................. 153
Dissenters' rights....................................................... 154
Requirements for exercise of dissenters' rights ....................... 154
Determination of fair market value..................................... 155
Right to seek judicial determination................................... 155
Loss of status of dissenting interests................................. 156
Federal income tax consequences.......................................... 156
Taxation of special distribution of cash............................... 157
Taxable gain or loss pursuant to the merger............................ 157
Character of gain or loss recognized pursuant to the merger............ 158
Passive activity losses................................................ 158
Information reporting backup withholding and FIRPTA ................... 158
Tax consequences to McNeil Partners.................................... 159
Anticipated accounting treatment......................................... 159
Regulatory requirements.................................................. 159
THE MEETING................................................................ 160
Time, date and place of the meeting...................................... 160
Matters to be considered at the meeting.................................. 160
Recommendations of the McNeil Investors board of directors............... 160
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Record date; voting power................................................ 161
Quorum................................................................... 161
Vote required............................................................ 161
Changing your vote....................................................... 162
Ownership of limited partner units in the Partnership.................... 162
Solicitation of proxies.................................................. 162
List of limited partners of the Partnership.............................. 163
THE MASTER AGREEMENT....................................................... 165
Parties to the Master Agreement.......................................... 165
Structure of the transaction............................................. 165
Closing of the transaction............................................... 165
Aggregate consideration.................................................. 165
Allocation of aggregate consideration.................................. 165
Prepayment and assumption of mortgage debt............................. 165
The mergers.............................................................. 166
Merger consideration................................................... 166
Exchange of certificates............................................... 167
Special distribution of positive net working capital balance........... 168
The contributions........................................................ 169
Contributions to McNeil Partners by the other McNeil Affiliates........ 169
Replacement of general partner......................................... 170
Other contributions by McNeil Partners to WXI/McN Realty and WXI/McN
Realty's subsidiaries................................................. 170
Material covenants....................................................... 171
Interim operations of Sellers.......................................... 171
Limited partner meetings; proxy material............................... 173
No solicitation by Sellers............................................. 174
Reasonable best efforts................................................ 176
Replacement indemnification agreements................................. 176
Reimbursable proposals................................................. 177
Operation of McREMI assets............................................. 178
Material representations and warranties.................................. 178
Conditions to closing.................................................... 180
Conditions to each party's obligations to close........................ 180
Conditions to WXI/McN Realty's obligations to close.................... 181
Conditions to Sellers' obligations to close............................ 183
Certain exclusions from conditions to closing.......................... 183
Removal notices........................................................ 184
Termination of the Master Agreement...................................... 185
Right to terminate the Master Agreement................................ 185
Right to terminate the Master Agreement with respect to one or more
McNeil Partnerships................................................... 185
Effect of termination of the Master Agreement.......................... 186
Fees and expenses........................................................ 188
General................................................................ 188
Partnership break-up fee............................................... 188
Reimbursement of expenses.............................................. 191
WXI/McN Realty's reimbursable expenses................................ 191
Sellers' reimbursable expenses........................................ 192
Amendments, modification, waiver; reservation of right to revise the
transaction............................................................. 193
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WXI/McN REALTY OPERATING AGREEMENT......................................... 194
Membership interests..................................................... 194
McNeil Class A Interests............................................... 194
McNeil Class B Interests............................................... 195
McNeil Class C Interests............................................... 195
Whitehall Class A Interests............................................ 195
Whitehall Class B Interests............................................ 195
Distributions to members of WXI/McN Realty............................... 196
Supermajority voting rights.............................................. 197
Management of WXI/McN Realty and its managing member..................... 197
OTHER AGREEMENTS BETWEEN THE McNEIL AFFILIATES AND AFFILIATES OF WXI/McN
REALTY ................................................................... 199
Indemnification and pledge agreement..................................... 199
Whitehall standstill agreement........................................... 200
OTHER AGREEMENTS WITH RESPECT TO THE TRANSACTION........................... 202
Voting agreement of the Icahn parties ................................... 202
Grant of irrevocable proxy by the Icahn parties.......................... 202
Waiver of dissenters' rights by the Icahn parties........................ 203
No solicitation by the Icahn parties; Icahn standstill................... 203
Termination of the Icahn Voting and Standstill Agreement................. 204
CONTROLLING PERSONS, DIRECTORS AND EXECUTIVE OFFICERS OF McNEIL PARTNERS,
McNEIL INVESTORS, WXI/MNL REAL ESTATE, L.L.C., WH ADVISORS, L.L.C. XI AND
THE GOLDMAN SACHS GROUP, INC.............................................. 205
Background of McNeil named persons ...................................... 205
McNeil Partners and McNeil Investors.................................... 205
Background of WXI/McN Realty named persons............................... 206
WXI/MNL Real Estate, L.L.C.............................................. 206
WH Advisors, L.L.C. XI.................................................. 207
The Goldman Sachs Group, Inc............................................ 208
RELATED SECURITY HOLDER MATTERS............................................ 209
Additional information concerning limited partner units.................. 209
Principal holders of limited partner units............................... 209
Past contacts, transactions and negotiations............................. 210
Recent transactions in the Partnership's limited partner units........... 210
Contracts, arrangements or understandings with respect to limited partner
units in the Partnership................................................ 211
Plans or proposals....................................................... 211
SELECTED FINANCIAL DATA OF THE PARTNERSHIP................................. 212
CERTAIN FINANCIAL PROJECTIONS OF THE PARTNERSHIP........................... 213
FORWARD-LOOKING STATEMENTS................................................. 215
INDEPENDENT AUDITORS....................................................... 215
LIMITED PARTNER PROPOSALS.................................................. 215
WHERE YOU CAN FIND MORE INFORMATION........................................ 216
ANNUAL REPORT AND QUARTERLY REPORT......................................... 217
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE............................ 218
OTHER MATTERS.............................................................. 218
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TABLES
Table 1 -- Unit Value Comparisons of Alternatives to the Transaction.... 106
Table 2 -- Summary of Stanger & Co. Allocation Analysis and Related Master
Agreement Calculations....................................... 127
APPENDICES
Appendix A -- Master Agreement, dated as of June 24, 1999, as amended as
of December 2, 1999 and December 10, 1999, by and among
WXI/McN Realty L.L.C., the McNeil Partnerships (as defined
therein), McNeil Investors, Inc., McNeil Partners, L.P.,
McNeil Real Estate Management, Inc., McNeil Summerhill,
Inc. and Robert A. McNeil
Appendix B -- Form of First Amended and Restated Limited Liability
Company Operating Agreement of WXI/McN Realty L.L.C.
Appendix C-1 -- Fairness Opinion of Robert A. Stanger & Co., Inc. dated
June 24, 1999
Appendix C-2 -- Fairness Opinion of Robert A. Stanger & Co., Inc. dated
December 10, 1999
Appendix D-1 -- Fairness Opinion of Eastdil Realty Company L.L.C. dated
June 24, 1999
Appendix D-2 -- Fairness Opinion of Eastdil Realty Company L.L.C. dated
December 10, 1999
Appendix E-- Article 7.6 of the California Corporations Code
vi
<PAGE>
QUESTIONS AND ANSWERS ABOUT THE TRANSACTION
The following questions and answers are intended to provide brief answers
to some commonly asked questions. These questions and answers do not, and are
not intended to, address all questions that may be important to you. The
following questions and answers are qualified in their entirety by reference
to the more detailed information contained elsewhere in this Proxy Statement,
the Appendices to this Proxy Statement and the other documents to which we
have referred you. For a summary description of the parties to the transaction
referred to in the questions and answers below, see "Summary--Parties to the
transaction."
Q: What is the transaction?
A: The transaction is the acquisition by a newly formed affiliate of Whitehall
Street Real Estate Limited Partnership XI of the Partnership, up to
eighteen other McNeil Partnerships controlled by McNeil Partners and its
affiliates, assets of McNeil Partners related to the participating McNeil
Partnerships and certain assets of McNeil Real Estate Management, Inc.
("McREMI"), the management company for the McNeil Partnerships' properties.
Whitehall Street Real Estate Limited Partnership XI is a real estate
investment fund whose investment manager is Goldman, Sachs & Co.
If the Partnership participates in the transaction, you will receive an
aggregate of approximately $0.28 in cash for each of your limited partner
units in the Partnership, and you will no longer be a limited partner of
the Partnership. The aggregate amount to be received for each limited
partner unit consists of cash merger consideration of $0.26 per unit and a
special distribution in cash estimated as of January 31, 2000, to be $0.02
per unit.
The aggregate amount to be received for each limited partner unit is based
on the estimates of McNeil management, as of the date of this Proxy
Statement, of the Partnership's modified net working capital balance as of
the estimated closing date of the transaction. While we expect that you
will receive the estimated amounts set forth above for each of your limited
partner units there can be no assurances that you will receive the
specified cash merger consideration or any special distribution.
You will receive a special distribution only if the Partnership has a
positive modified net working capital balance as of the closing date. There
can be no assurances that the Partnership will have a positive modified net
working capital balance as of the closing date or that the actual per unit
amount of the special distribution will be equal to the estimated per unit
amount of the special distribution. If the Partnership's modified net
working capital balance as of the closing date is zero, you will receive no
special distribution and will receive only the cash merger consideration of
$0.26 for each limited partner unit. If the Partnership has a negative
modified net working capital balance as of the closing date, you will
receive no special distribution and the cash merger consideration to be
received for each limited partner unit will be reduced by the pro rata
amount of that negative modified net working capital balance.
Q: Why is McNeil Partners proposing the transaction?
A: The transaction is the result of an auction and marketing process
undertaken on the advice of PaineWebber, Incorporated ("PaineWebber"), the
McNeil Partnerships' exclusive financial advisor, and designed to achieve
the most favorable price for the McNeil Partnerships in the shortest period
of time. The transaction represents the culmination of nearly two years of
efforts by McNeil Partners to achieve a sale of the McNeil Partnerships and
distribution of the sale proceeds to the limited partners.
In late 1997, McNeil management chose to market the McNeil portfolio for
sale to satisfy, in a manner that would be in the best interests of the
limited partners of each of the McNeil Partnerships, the following:
. McNeil Partners' obligations, pursuant to covenants contained in the
limited partnership agreements of the public McNeil Partnerships, to use
commercially reasonable efforts to liquidate the public McNeil
Partnerships prior to the end of 1999;
1
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. McNeil Partners' commitment in statements filed with the SEC in response
to the Icahn tender offers in 1995 and 1996 to begin a sale or orderly
liquidation of all of the assets of the McNeil Partnerships which were
the subject of those tender offers; and
. the commitment of McNeil Partners and its affiliates in the settlement of
the Schofield litigation described below to market the McNeil
Partnerships for sale, together with McREMI, through a fair and impartial
bidding process overseen by a national investment banking firm.
The McNeil Partnerships and the McNeil Affiliates are proposing the
transaction described in this Proxy Statement because, among other things,
the transaction:
. satisfies the obligations described in the three bullet points above in a
manner that McNeil Partners believes is in the best interests of the
limited partners of each of the McNeil Partnerships;
. allows each of the limited partners of each of the McNeil Partnerships to
dispose of its investment in the McNeil Partnerships for a greater per
unit aggregate amount of cash, based on the analyses of Robert A.
Stanger & Co., Inc. ("Stanger & Co."), and more quickly than in a
property by property liquidation;
. provides the limited partners of the McNeil Partnerships with the
opportunity to liquidate their investment in the McNeil Partnerships for
cash at a price and on terms that the McNeil Investors board of
directors, McNeil Partners and Robert A. McNeil believe are fair to the
limited partners of each of the McNeil Partnerships;
. has been approved by the McNeil Investors board of directors considering,
among other factors, the recommendation of an independent special
committee of the McNeil Investors board of directors; and
. is the subject of fairness opinions from Stanger & Co. and Eastdil Realty
Company.
The McNeil Investors board of directors has unanimously determined, and
McNeil Partners and Robert A. McNeil each has concluded, that the
transaction is fair to the McNeil Partnerships and their limited partners.
Moreover, counsel to the plaintiffs in the Schofield litigation have
reviewed the terms of the transaction and oversaw the auction process.
Q: Why should I vote for the merger proposal?
A: The transaction will allow you to dispose of your investment in the
Partnership for a greater per unit aggregate amount of cash, based on the
analyses of Stanger & Co., and more quickly than in a property by property
liquidation. Unlike in a property by property liquidation, the merger
proposal will not require limited partners to continue to hold interests in
the Partnership until all contingent liabilities have been settled.
Moreover, the McNeil Investors board of directors has unanimously determined
that the transaction is fair to, and in the best interests of, the
Partnership and its limited partners and has unanimously approved the Master
Agreement and the transactions contemplated by the Master Agreement and
unanimously recommends that you vote for the merger proposal. In making its
determination, the McNeil Investors board of directors considered as
positive factors the recommendation of an independent special committee of
the McNeil Investors board of directors and fairness opinions delivered by
Stanger & Co. on behalf of the McNeil Partnerships to the effect that the
aggregate consideration, the allocations of the aggregate consideration and
the per unit estimated aggregate amount to be received by each class of
limited partners of the McNeil Partnerships are each fair from a financial
point of view to the holders of limited partner units in the Partnership. In
making its recommendation, the special committee considered as positive
factors the fairness opinions rendered by Stanger & Co. and similar fairness
opinions rendered by Eastdil Realty Company, L.L.C., the special committee's
financial advisor.
Q: What is the structure of the transaction?
A: WXI/McN Realty, a newly formed company affiliated with Whitehall Street Real
Estate
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Limited Partnership XI, will acquire the general partner interests and
limited partner interests in the Partnership, the general partner interests
and limited partner interests in the other McNeil Partnerships that
participate in the transaction, assets of McNeil Partners related to the
participating McNeil Partnerships and certain assets of McREMI, the
management company for the McNeil Partnerships' properties. Following the
closing of the transaction, McNeil Partners will own an equity interest in
WXI/McN Realty.
Q: Why doesn't the Partnership just sell all of its properties?
A: McNeil Partners believes that the transaction provides each of the limited
partners of the Partnership with an opportunity to dispose of its
investment in the Partnership for a greater per unit aggregate amount of
cash, based on the analyses of Stanger & Co., and more quickly than in a
property by property liquidation. Additionally, unlike in a liquidation,
the merger proposal will not require limited partners to continue to hold
interests in the Partnership until all contingent liabilities have been
settled.
Q: Why are the McNeil Partnerships being acquired by merger?
A: In addition to the benefits described in the preceding answer, McNeil
Partners believes that a merger achieves several additional benefits to
the limited partners of the McNeil Partnerships that would not be achieved
in a property by property liquidation of the McNeil Partnerships. Among
other things, structuring the transaction as a merger eliminated the
difficulties that would have been encountered if prospective purchasers
were allowed to purchase the more attractive properties, leaving behind the
less attractive properties that could prove time consuming and expensive
for an individual McNeil Partnership to liquidate. Moreover, a merger may
permit the McNeil Partnerships to avoid the payment of some of the transfer
taxes generally associated with a sale of the properties. In addition, a
merger of the McNeil Partnerships would not trigger certain due-on-sale
covenants in the mortgage debt of some of the McNeil Partnerships that
otherwise might be triggered by a sale of the individual properties of
those McNeil Partnerships. The transaction, as structured, also will allow
McNeil Partners to make the contributions of its interests in the McNeil
Partnerships and the assets of McNeil Partners and McREMI to WXI/McN Realty
on a tax-deferred basis and will permit the partners of McNeil Partners to
defer, as estimated by Arthur Andersen LLP, approximately $30,563,000 in
taxes that would have been required to be paid by the partners of McNeil
Partners if the transaction had been structured as an acquisition of the
entire McNeil portfolio for cash.
Q: Why are the McNeil Partnerships and the assets of McREMI being sold as a
single portfolio instead of in separate transactions?
A: At the commencement of its engagement, PaineWebber advised McNeil Partners
that the most favorable price for the McNeil Partnerships would likely be
achieved by offering the McNeil Partnerships and McREMI together on an all-
or-none basis. PaineWebber perceived the advantages of an all-or-none
transaction as compared to separate asset sales of individual McNeil
Partnerships to include, among others, relatively quick liquidity, a less
time-consuming marketing period and the likelihood of a higher aggregate
purchase price. Among other factors, McNeil Partners itself preferred an
all-or-none transaction because it believed that the uneven performance of
the various properties owned by the McNeil Partnerships might allow
prospective purchasers to "cherry-pick" the most desirable assets to the
detriment of the others.
Q: What will I receive in the transaction?
A: If the Partnership participates in the transaction, limited partners of the
Partnership will receive an aggregate of approximately $0.28 in cash for
each limited partner unit held by them in the Partnership. The aggregate
amount to be received for each limited partner unit consists of cash merger
consideration of $0.26 per unit and a special distribution in cash
estimated as of January 31, 2000 to be $0.02 per unit.
The aggregate amount to be received for each limited partner unit is based
on the estimates of McNeil management, as of the date of this
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Proxy Statement, of the Partnership's modified net working capital balance
as of the estimated closing date of the transaction. While we expect that
you will receive the estimated amounts set forth above for each of your
limited partner units, there can be no assurances that you will receive the
specified cash merger consideration or any special distribution.
You will receive a special distribution only if the Partnership has a
positive modified net working capital balance as of the closing date. There
can be no assurances that the Partnership will have a positive modified net
working capital balance as of the closing date or that the actual per unit
amount of the special distribution will be equal to the estimated per unit
amount of the special distribution. If the Partnership's modified net
working capital balance as of the closing date is zero, you will receive no
special distribution and will receive only the cash merger consideration of
$0.26 for each limited partner unit. If the Partnership has a negative
modified net working capital balance as of the closing date, you will
receive no special distribution and the cash merger consideration to be
received for each limited partner unit will be reduced by the pro rata
amount of that negative modified net working capital balance.
Q: How was the amount that I will receive for my limited partner units in the
Partnership determined?
A: The cash merger consideration into which each limited partner unit in the
Partnership will be converted is equal to the amount of the aggregate
consideration in the transaction allocated to a limited partner unit in the
Partnership by Stanger & Co., the independent advisor to the McNeil
Partnerships. Stanger & Co. allocated the aggregate consideration in the
transaction among the various interests, rights and assets being acquired by
WXI/McN Realty in the transaction. This allocation was based on, among other
things:
. the relative aggregate values of the real estate assets of each McNeil
Partnership as determined by Stanger & Co.,
. the value of the management assets and other assets of McREMI as
determined by Stanger & Co.,
. percentages jointly negotiated by Stanger & Co., in consultation with
Eastdil Realty Company, and WXI/McN Realty governing the allocation of
the portion of the aggregate consideration allocated to the McNeil
Partnerships among the McNeil Partnerships, and
. the estimated amounts due to the McNeil Affiliates based on estimated
December 31, 1999 financial statements of the McNeil Partnerships.
The aggregate amount of the special distribution which will be distributed
to limited partners of the will be based upon the positive modified net
working capital balance of the Partnership as of the closing date. The
modified net working capital balance of the Partnership will be calculated
in accordance with the terms of the Master Agreement and will be based upon
the net working capital balance of the Partnership as of the closing date.
The per unit amount of the special distribution will be determined in
accordance with the provisions of the Partnership's limited partnership
agreement governing distributions of surplus cash, except that the general
partner of the Partnership will not receive any part of the special
distribution.
There can be no assurances that you will receive the specified cash merger
consideration or any special distribution. You will receive a special
distribution only if the Partnership has a positive modified net working
capital balance as of the closing date. There can be no assurances that the
Partnership will have a positive modified net working capital balance as of
the closing date or that the actual per unit amount of the special
distribution will be equal to the estimated per unit amount of the special
distribution. If the Partnership's modified net working capital balance as
of the closing date is zero, you will receive no special distribution and
will receive only the specified cash merger consideration for each of your
limited partner units. If the Partnership has a negative modified net
working capital balance as of the closing date, you will receive no special
distribution and the cash merger consideration to be
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received for each limited partner unit will be reduced by the pro rata
amount of that negative modified net working capital balance.
The estimated per unit aggregate amount set forth in this Proxy Statement
to be received for each limited partner unit in the Partnership is greater
than the estimated per unit aggregate amount set forth in the June 25, 1999
press release announcing the transaction because of an increase in the
estimate of the Partnership's modified net working capital balance as of
the estimated closing date of the transaction. This increase is
attributable primarily to an increase in the estimate of the Partnership's
cash flow, for the period through the estimated closing date, as a result
of higher than anticipated revenues generated to date and additional
revenue estimated to be generated through the estimated closing date of the
transaction. This increase in the estimate of the Partnership's cash flow
exceeds additional costs to complete all budgeted capital items with
respect to the Partnership through the estimated closing date of the
transaction as required by the Master Agreement, the Partnership's pro rata
share of higher than anticipated transaction costs and the Partnership's
pro rata share of an increase in the reserve for transaction costs. As
described in the preceding paragraph, the actual per unit aggregate amount
to be received for each limited partner unit in the Partnership will vary
based on the Partnership's actual modified net working capital balance as
of the actual closing date of the transaction.
Q: Will I continue to receive distributions from the Partnership?
A: Following the merger of the Partnership, you will have no right to receive
distributions other than unpaid distributions that were declared prior to
the merger of the Partnership, if any, and other than the special
distribution, if any, of the Partnership as described above in the answer to
the question "What will I receive in the transaction?". If the Partnership
does not participate in the transaction, you will continue to receive
distributions, if any, in accordance with the Partnership's limited
partnership agreement and in the discretion of McNeil Partners.
Q: Does the transaction require the vote of the limited partners of the
Partnership?
A: Yes. Approval of the merger proposal by the limited partners of the
Partnership is a condition to the Partnership's participation in the
transaction. The affirmative vote of limited partners holding more than 50%
of the limited partner units in the Partnership outstanding as of December
10, 1999 (the "record date") is required to approve the merger proposal. The
record date is the date fixed by McNeil Partners to determine the limited
partners entitled to vote at the meeting.
Q: If the limited partners of the Partnership approve the merger proposal, is
it certain that the Partnership will participate in the transaction?
A: No. The Partnership's participation in the transaction is subject to several
other closing conditions, including: the accuracy of the representations and
warranties of the McNeil Partnerships and WXI/McN Realty contained in the
Master Agreement; performance of obligations by the McNeil Partnerships and
WXI/McN Realty under the Master Agreement; obtaining various consents and
other approvals; the McNeil Partnerships having generally unencumbered,
insurable title to each of their properties; and the McNeil Partnerships as
a group having a specified minimum net operating income for the twelve
months prior to the closing.
Limited partners of the Partnership should be aware that the satisfaction or
waiver of each of the closing conditions is a condition to the Partnership's
participation in the transaction. Therefore, it is possible that the failure
of one McNeil Partnership to satisfy a condition could cause the transaction
to fail to close for all of the McNeil Partnerships.
The parties to the Master Agreement also have the right to terminate the
transaction in its entirety in specified circumstances, and the right to
cause one or more McNeil Partnerships to be excluded from the transaction in
specified circumstances and to proceed to close with the other McNeil
Partnerships.
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Q: What happens if I vote against the merger proposal?
A: If you vote against the merger proposal, but holders of more than 50% of
the limited partner units in the Partnership outstanding as of the record
date vote for the merger proposal and the Partnership participates in the
transaction, you will receive an aggregate of approximately $0.28 in cash
for each of your limited partner units. See the answer to the question
"What will I receive in the transaction?" above. If you fail to return your
proxy or mark "ABSTAIN" on your proxy, the effect will be the same as a
vote against the merger proposal. If you do not vote for the merger
proposal, you will be entitled to exercise dissenters' rights if the
Partnership participates in the transaction, the transaction is completed
and you follow specific procedures set forth in the California Revised
Limited Partnership Act.
Q: What happens if the Partnership participates in the transaction?
A: If the Partnership participates in the transaction, you will cease to own
limited partner units in the Partnership and McNeil Partners will cease to
be the general partner of the Partnership. Following the closing of the
transaction, the Partnership will be wholly owned by WXI/McN Realty and its
subsidiaries, and McNeil Partners will own an equity interest in WXI/McN
Realty.
Q: What happens if the Partnership does not participate in the transaction?
A: If the Partnership does not participate in the transaction, the limited
partners of the Partnership will continue to own limited partner units in
the Partnership and McNeil Partners will continue to be the general partner
of the Partnership. Because McNeil Partners is obligated under a covenant
contained in the Partnership's limited partnership agreement to use
commercially reasonable efforts to complete the liquidation and termination
of the Partnership by December 31, 1999, McNeil Partners will continue to
explore alternative transactions to liquidate the Partnership if the
Partnership does not participate in the transaction. There is no assurance,
however, that, if the Partnership does not participate in the transaction,
McNeil Partners will be able to arrange an alternative transaction
involving the Partnership, or that any alternative transaction would result
in limited partners receiving consideration of equal or greater value than
the consideration which is estimated to be paid in the transaction. If the
Partnership does not participate in the transaction, McREMI, or another
property manager selected by McNeil Partners, will manage the Partnership's
properties pending a liquidation.
Q: Do limited partners have dissenters' or appraisal rights in connection with
the transaction?
A: Yes. If you do not vote for the merger proposal, you will be entitled to
exercise dissenters' rights if the Partnership participates in the
transaction, the transaction is completed and you follow specific
procedures set forth in the California Revised Limited Partnership Act.
Q: When do you expect the transaction to be completed?
A: We are working to complete the transaction as quickly as possible. We
expect to complete the transaction within several days following the
meeting.
Q: What are the tax consequences of the transaction to the limited partners of
the Partnership?
A: Limited partners will recognize gain or loss on the conversion of their
limited partner units into cash in the merger, depending on the tax basis
in their units. The gain or loss will be treated as capital gain or capital
loss. However, a portion of that gain or loss that is attributable to so-
called "unrealized receivables" (which includes recapture of some
depreciation deductions previously taken) and "inventory items" (as defined
in Section 751 of the Internal Revenue Code of 1986, as amended) may be
treated as ordinary income or ordinary loss.
In general, the special distribution of cash will be treated as a return of
capital to each limited partner. This return of capital will reduce the
limited partner's adjusted tax basis in its limited
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partner units in the Partnership to the extent of the return of capital and,
therefore, may increase the amount of any gain or decrease the amount of any
loss recognized by that limited partner on the conversion of its limited
partner units into cash in the merger. To the extent that the special
distribution received by a limited partner exceeds that limited partner's
adjusted tax basis in all of its limited partner units, that excess will be
taxable and will be treated as capital gain.
Limited partners should consult their respective tax advisors as to the
particular tax consequences of the transaction.
Q: When will I receive my final Schedule K-1?
A: The Partnership plans to deliver Schedule K-1s (Form 1065) to the limited
partners prior to the fifteenth day of the fourth month following the
closing date of the transaction, unless the Partnership finds that it will
require additional time to complete the final return. If this situation
occurs, the Partnership will apply for an extension from the IRS and will
notify the limited partners of the extension request and the projected
timing of the mailing of the Schedule K-1s.
Q: How is the Schofield litigation related to this transaction?
A: In August 1995, limited partners of some of the McNeil Partnerships filed
class actions, derivative actions or both on behalf of the limited partners
of those McNeil Partnerships. These actions were consolidated in late 1996
under the action, Schofield et al. v. McNeil Partners, L.P. et al., Superior
Court of the State of California for the County of Los Angeles. In September
1998, the parties signed a Stipulation of Settlement providing, among other
things, for a commitment by McNeil Partners and its affiliates to market the
McNeil Partnerships for sale, together with McREMI, through a fair and
impartial bidding process overseen by a national investment banking firm.
This transaction is, in part, a result of that process. On July 8, 1999, the
court granted final approval of the settlement and dismissed the action.
Q: What other matters will be voted on at the meeting?
A: In addition to asking you to vote on the merger proposal, we are asking you
to consider and vote on a proposal to permit McNeil Partners to adjourn the
meeting to permit further solicitation of proxies in the event that there
are not sufficient votes at the time of the meeting to approve the merger
proposal.
A vote for the merger proposal is not also a vote for the adjournment
proposal. You must vote separately on each proposal. The affirmative vote of
limited partners holding more than 50% of the limited partner units present
in person or by proxy at the meeting is required to approve the adjournment
proposal. If you fail to return your proxy and do not vote in person at the
meeting, it will have no effect on the adjournment proposal. If you mark
"ABSTAIN" on your proxy and do not vote in person at the meeting, the effect
will be the same as a vote against the adjournment proposal. Approval of the
adjournment proposal by the limited partners of the Partnership is not a
condition to the Partnership's participation in the transaction. Approval of
the adjournment proposal by the limited partners of the Partnership will
permit the adjournment of the meeting to solicit additional proxies in the
event that there are not sufficient votes at the time of the meeting to
approve the merger proposal.
The McNeil Investors board of directors unanimously recommends that you vote
for the adjournment proposal.
Other than the merger proposal and the adjournment proposal, we do not
expect to ask you to vote on any other matters at the meeting. However, if
matters other than the merger proposal and the adjournment proposal are
properly brought before the meeting, or any adjournments or postponements of
the meeting, the persons appointed as proxies will have discretion to vote
or act on those matters according to their best judgment.
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Q: What do I need to do now?
A: Please complete, date and sign your proxy and then return it in the enclosed
envelope as soon as possible so that your limited partner units may be
represented at the meeting.
Q: Can I fax my proxy vote?
A: Yes. First complete, date and sign your proxy. Then fax the proxy to 1-877-
638-5640 (Toll Free).
Q: Should I send in my limited partner unit certificates?
A: No. After the merger of the Partnership is completed, we will send you a
letter of transmittal and written instructions for exchanging your
certificates for the merger consideration.
Q: When can I expect to receive payment for my limited partner units?
A: After the consummation of the merger, the Partnership will send you a letter
of transmittal. Upon receipt of a completed letter of transmittal and your
certificates from you, the payment agent will mail your check to you.
Q: May I change my vote after I have mailed my signed proxy?
A: Yes. Just send in a later dated, signed proxy prior to the meeting or attend
the meeting and vote in person. Taking either of these steps will revoke any
previously submitted proxy. You may also revoke any previously submitted
proxy by written notice to McNeil Partners prior to the meeting.
WHO CAN HELP ANSWER YOUR QUESTIONS?
If you have more questions about the transaction or would like additional
copies of this Proxy Statement, you should contact:
McNeil Partners, L.P.
Investor Services
P.O. Box 800359
Dallas, Texas 75380
telephone number: 1-800-576-7907
fax number: 1-877-638-5640 (Toll Free)
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SUMMARY
This summary highlights selected information included in this Proxy
Statement. This summary may not contain all of the information that is
important to you. To understand the merger proposal and the proposed
transaction fully and for a more complete description of the legal terms of the
transaction, you should read carefully this entire document and the other
documents to which we have referred you. See "Where you can find more
information." We have included page references in parentheses to direct you to
a more complete description of the topics presented in this summary. The terms
of the transaction are contained in the Master Agreement, a copy of which is
attached to this Proxy Statement as Appendix A, and which is incorporated in
this Proxy Statement by reference.
All information contained in this Proxy Statement relating to WXI/McN
Realty, its subsidiaries and affiliates, other than the McNeil Partnerships and
the McNeil Affiliates, or to their respective actions, purposes, beliefs,
intentions or plans has been supplied by WXI/McN Realty for inclusion in this
Proxy Statement and has not been independently verified by any of the McNeil
Partnerships or the McNeil Affiliates.
Parties to the transaction
The Partnership
The Partnership is a California limited partnership engaged in real estate
activities, including the ownership, operation and management of commercial and
residential real estate and other real estate related assets. The Partnership
was formed on February 22, 1985. The Partnership is governed by the California
Revised Limited Partnership Act and an amended and restated limited partnership
agreement dated March 30, 1992, as amended.
The Partnership was formed to engage in the business of acquiring and
operating income-producing real properties, and holding the properties for
investment. Since completion of its capital formation and property acquisition
phases in 1987, the Partnership has operated its properties for production of
income. The original acquisitions of properties were all cash. The Partnership
currently owns four properties. Two of these properties are subject to mortgage
notes.
The principal executive offices of the Partnership are located at 13760 Noel
Road, Suite 600, LB70, Dallas, Texas 75240, telephone number 1-800-576-7907.
McNeil Partners
McNeil Partners, L.P., a Delaware limited partnership, is the general
partner of the Partnership. The principal business of McNeil Partners is acting
as general partner of limited partnerships and managing real estate. The
principal executive offices of McNeil Partners are located at 13760 Noel Road,
Suite 600, LB70, Dallas, Texas 75240, telephone number 1-800-576-7907.
McNeil Investors
McNeil Investors, Inc., a Delaware corporation, is the general partner of
McNeil Partners. The principal business of McNeil Investors is acting as
general partner of McNeil Partners and managing real estate. The principal
executive offices of McNeil Investors are located at 13760 Noel Road, Suite
600, LB70, Dallas, Texas 75240, telephone number 1-800-576-7907.
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The other McNeil Partnerships
In addition to the Partnership, the transaction includes eighteen other
limited partnerships controlled by McNeil Partners or its affiliates. These
partnerships, together with the Partnership, are referred to in this Proxy
Statement as the "McNeil Partnerships." The names of the McNeil Partnerships
are set forth below:
Public McNeil Partnerships Private McNeil Partnerships
. McNeil Real Estate Fund IX, Ltd. . Hearth Hollow Associates, L.P.
. McNeil Real Estate Fund X, Ltd. . McNeil Midwest Properties I, L.P.
. McNeil Real Estate Fund XI, Ltd. . Regency North Associates, L.P.
. McNeil Real Estate Fund XII, Ltd.
. McNeil Real Estate Fund XIV, Ltd. Affiliated McNeil Partnerships
. McNeil Real Estate Fund XV, Ltd.
. McNeil Real Estate Fund XX, L.P. . Fairfax Associates II, Ltd.
. McNeil Real Estate Fund XXI, L.P. . McNeil Summerhill I, L.P.
. McNeil Real Estate Fund XXII, L.P.
. McNeil Real Estate Fund XXIII, L.P. The "Affiliated McNeil Partnerships"
. McNeil Real Estate Fund XXIV, L.P. are wholly owned by Robert A. McNeil
. McNeil Real Estate Fund XXV, L.P. and related parties.
. McNeil Real Estate Fund XXVI, L.P.
. McNeil Real Estate Fund XXVII, L.P.
The McNeil Affiliates
In addition to the McNeil Partnerships, McNeil Partners and McNeil
Investors, the following affiliates of McNeil Partners are parties to the
Master Agreement:
. McNeil Summerhill, Inc. (referred to in this Proxy Statement as "McNeil
Summerhill, Inc."), a Texas corporation wholly owned by Robert A. McNeil
and Carole J. McNeil, which is the general partner of McNeil Summerhill
I, L.P. (referred to in this Proxy Statement as "Summerhill");
. McNeil Real Estate Management, Inc. ("McREMI"), a Delaware corporation
wholly owned by Robert A. McNeil, which is the management company for the
properties of the McNeil Partnerships; and
. Robert A. McNeil.
McNeil Partners, McNeil Investors, McNeil Summerhill, Inc. and Robert A.
McNeil are sometimes referred to in this Proxy Statement as the "McNeil General
Partners." McNeil Partners, together with McREMI, McNeil Investors, McNeil
Summerhill, Inc., Robert A. McNeil and Carole J. McNeil, are sometimes referred
to in this Proxy Statement as the "McNeil Affiliates." McNeil Partners, McNeil
Investors, McNeil Summerhill, Inc., McREMI and the McNeil Partnerships are
sometimes referred to in this Proxy Statement as the "Sellers" and, together
with Robert A. McNeil, are the McNeil parties to the Master Agreement.
WXI/McN Realty and its subsidiaries
WXI/McN Realty is a Delaware limited liability company formed on June 17,
1999 by WXI/MNL Real Estate, L.L.C., the managing member of WXI/McN Realty.
WXI/McN Realty's managing member is owned 99% by Whitehall Street Real Estate
Limited Partnership XI ("Whitehall"), a real estate investment fund whose
investment manager is Goldman, Sachs & Co. and whose general partner is an
affiliate of The Goldman Sachs Group, Inc., and 1% by Archon Group, L.P.
("Archon"), a subsidiary of The Goldman Sachs Group, Inc. The principal
executive offices of WXI/McN Realty are located at c/o Goldman, Sachs & Co.,
100 Crescent Court, Suite 1000, Dallas, Texas 75201, telephone number (214)
855-6316.
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WXI/McN Realty was organized for the purposes of, and the primary business
of WXI/McN Realty, after consummation of the transaction, will be:
. acquiring, holding, financing, refinancing, maintaining and managing the
interests in the participating McNeil Partnerships;
. directly or indirectly owning, financing, refinancing, managing,
maintaining, operating, improving, leasing, selling and otherwise
disposing of the properties of the participating McNeil Partnerships; and
. acquiring, holding and utilizing the assets of McREMI.
WXI/McN Realty's managing member is and will be until the effective time of
the mergers the sole member of WXI/McN Realty. At the effective time, McNeil
Partners will receive membership interests in WXI/McN Realty in exchange for
its contributions to WXI/McN Realty and WXI/McN Realty's subsidiaries in the
transaction. See "--Effects of the transaction," "--Structure of the
transaction" and "--Allocation of the aggregate consideration in the
transaction."
WXI/McN Realty will form or cause to be formed, prior to any contributions
by McNeil Partners and prior to the merger of any of the participating McNeil
Partnerships, several subsidiaries which will be directly or indirectly wholly
owned by WXI/McN Realty or one or more of its subsidiaries:
. One of these subsidiaries, a Delaware limited liability company, will
acquire the general partner interests (as defined below) in the
Partnership and assets of McNeil Partners related to the Partnership, and
this subsidiary will be appointed as the new general partner of the
Partnership;
. One of these subsidiaries, a California limited partnership, will be
merged with and into the Partnership, with the Partnership surviving as a
subsidiary limited partnership of WXI/McN Realty; and
. One of these subsidiaries, a Delaware limited liability company, will
acquire the assets of McREMI being contributed to WXI/McN Realty and its
subsidiaries. This subsidiary is referred to as "Management LLC" in this
Proxy Statement.
As used in this Proxy Statement, the term "general partner interest" in a
McNeil Partnership includes the proportional interest in the McNeil Partnership
based upon capital contributions and each of the rights and other assets
corresponding to the McNeil Partnership which are being contributed
in connection with that general partner interest.
The principal executive offices of each of these subsidiaries will be
located at c/o Goldman, Sachs & Co., 100 Crescent Court, Suite 1000, Dallas,
Texas 75201, telephone number (214) 855-6316.
The meeting (page 160)
The meeting will be held at 11:30 a.m., local time, on Friday, January 21,
2000, at R.R. Donnelley Financial, Reverchon Plaza, 3500 Maple Avenue, 8th
Floor, Dallas, Texas 75219-3901. At the meeting, limited partners of the
Partnership will be asked to consider and vote on the merger proposal and the
adjournment proposal.
In addition to asking limited partners of the Partnership to consider and
vote on the merger proposal, McNeil Partners is asking limited partners of the
Partnership to consider and vote on a proposal to permit McNeil Partners to
adjourn the meeting to permit further solicitation of proxies in the event that
there are not sufficient votes at the time of the meeting to approve the merger
proposal. The Master Agreement provides that McNeil Partners will recommend the
adjournment of the meeting for ten days if on the date of the meeting the
Partnership has not received duly executed proxies which, when added to the
number of votes represented in person at the meeting by persons who intend to
vote for the merger proposal, will constitute a sufficient number
11
<PAGE>
of votes to approve the merger proposal. However, if limited partners holding
greater than a majority of the outstanding limited partner units in the
Partnership have indicated their intention to vote against, and have submitted
duly executed proxies voting against, the merger proposal, the Master Agreement
does not require McNeil Partners to recommend adjournment of the meeting.
Other than the merger proposal and the adjournment proposal, McNeil Partners
does not expect to ask the limited partners of the Partnership to vote on any
other matters at the meeting. However, if matters other than the merger
proposal and the adjournment proposal are properly brought before the meeting,
or any adjournments or postponements of the meeting, the persons appointed as
proxies will have discretion to vote or act on those matters according to their
best judgment.
Record date; voting power (page 161)
McNeil Partners has fixed the close of business on December 10, 1999, as the
record date for determination of the limited partners entitled to notice of and
to vote at the meeting and any adjournment or postponement of the meeting. As
of the record date, there were 86,530,671 limited partner units in the
Partnership issued and outstanding and held of record by 5,972 holders of
record. Holders of record of limited partner units in the Partnership are
entitled to one vote for each unit that they hold on the merger proposal, the
adjournment proposal and any other matter that may properly come before the
meeting.
Quorum; vote required (page 161)
The necessary quorum for the transaction of business at the meeting is the
presence in person or by proxy of limited partners holding a majority of the
limited partner units in the Partnership outstanding on the record date. For
purposes of determining the presence of a quorum, proxies marked "ABSTAIN" will
be counted by McNeil Partners as present at the meeting.
The affirmative vote of limited partners holding greater than 50% of the
limited partner units in the Partnership outstanding on the record date is
required to approve the merger proposal. The affirmative vote of limited
partners holding more than 50% of the limited partner units present in person
or by proxy at the meeting is required to approve the adjournment proposal.
A vote for the merger proposal is not also a vote for the adjournment
proposal. You must vote separately on each proposal.
If you fail to return your proxy or mark "ABSTAIN" on your proxy and in
either case do not vote in person at the meeting, the effect will be the same
as a vote against the merger proposal. If you fail to return your proxy and do
not vote in person at the meeting, it will have no effect on the adjournment
proposal. If you mark "ABSTAIN" on your proxy and do not vote in person at the
meeting, the effect will be the same as a vote against the adjournment
proposal. If you sign and return your proxy but do not give instructions on
your proxy, your limited partner units will be voted for the merger proposal
and for the adjournment proposal.
Approval of the merger proposal by the limited partners of the Partnership
is a condition to the Partnership's participation in the transaction. See "--
Conditions to the transaction." Therefore, if we do not receive votes for the
merger proposal from limited partners holding greater than 50% of the limited
partner units in the Partnership, the merger proposal will not be approved and
the Partnership will not participate in the transaction. Approval of the
adjournment proposal by the limited partners of the Partnership is not a
condition to the Partnership's participation in the transaction. Approval of
the adjournment proposal by the limited partners of the Partnership will permit
the adjournment of the meeting to solicit additional proxies in the event that
there are not sufficient votes at the time of the meeting to approve the merger
proposal.
12
<PAGE>
As of the record date, McNeil Partners and some of its affiliates, other
than the Partnership, beneficially owned an aggregate of 3,122,277 limited
partner units in the Partnership, representing in the aggregate approximately
3.6% of the limited partner units outstanding on the record date. McNeil
Partners and these affiliates intend to vote all of the limited partner units
beneficially owned by them in the Partnership for the merger proposal and for
the adjournment proposal.
In addition, in connection with the settlement of litigation brought against
McNeil Partners, McNeil Investors, McREMI, Robert A. McNeil and Carole J.
McNeil by affiliates of Carl C. Icahn, Mr. Icahn and his affiliates have
entered into a voting and standstill agreement with the McNeil Partnerships,
McNeil Partners, McNeil Investors, McREMI, Robert A. McNeil and Carole J.
McNeil (referred to in this Proxy Statement as the "Icahn Voting and Standstill
Agreement"). For a description of the litigation, the settlement agreement and
the Icahn Voting and Standstill Agreement, see "--Events subsequent to the
execution of the Master Agreement," "Special Factors--Events subsequent to the
execution of the Master Agreement" and "Other Agreements With Respect to the
Transaction."
Mr. Icahn and his affiliates have agreed in the Icahn Voting and Standstill
Agreement to vote all of the limited partner units beneficially owned and held
of record by them in any of the McNeil Partnerships for the merger proposal and
for the adjournment proposal with respect to that McNeil Partnership. Mr. Icahn
and his affiliates also have agreed in the Icahn Voting and Standstill
Agreement to direct the holders of record of any limited partner units
beneficially owned by them but not held of record by them in any of the McNeil
Partnerships to vote those limited partner units for the merger proposal and
for the adjournment proposal with respect to that McNeil Partnership. As of the
record date, Mr. Icahn and his affiliates held of record and beneficially owned
an aggregate of 886,960 limited partner units in the Partnership, representing
in the aggregate approximately 1.0% of the limited partner units outstanding on
the record date.
The Icahn Voting and Standstill Agreement also includes a standstill
provision and a no solicitation provision pursuant to which each of the Icahn
parties, its affiliates and its subsidiaries have agreed to certain
restrictions on their actions with respect to the McNeil Partnerships and
related parties. The standstill provision and no solicitation provision
automatically terminate with respect to all of the McNeil Partnerships on
December 7, 2002, and terminate with respect to particular McNeil Partnerships
under certain other circumstances. See "Other Agreements With Respect to the
Transaction--No solicitation by the Icahn parties; Icahn standstill."
Changing your vote (page 162)
You may revoke your proxy at any time before it is voted at the meeting (1)
by sending in a later dated, signed proxy, (2) by written notice to McNeil
Partners or (3) by attending the meeting and voting in person.
Purposes and reasons for the transaction (page 84)
The transaction is the result of an auction and marketing process undertaken
on the advice of PaineWebber and designed to achieve the most favorable price
for the McNeil Partnerships in the shortest period of time. The transaction
represents the culmination of nearly two years of efforts by McNeil Partners to
achieve a sale of the McNeil Partnerships and distribution of the sale proceeds
to the limited partners.
In late 1997, McNeil management chose to market the McNeil portfolio for
sale to satisfy, in a manner that would be in the best interests of the limited
partners of each of the McNeil Partnerships, the following:
. McNeil Partners' obligations, pursuant to covenants contained in the
limited partnership agreements of the public McNeil Partnerships, to use
commercially reasonable efforts to liquidate the public McNeil
Partnerships prior to the end of 1999;
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<PAGE>
. McNeil Partners' commitment in statements filed with the SEC in response
to the Icahn tender offers in 1995 and 1996 to begin a sale or orderly
liquidation of all of the assets of the McNeil Partnerships which were
the subject of those tender offers; and
. the commitment of McNeil Partners and its affiliates in the settlement of
the Schofield litigation to market the McNeil Partnerships for sale,
together with McREMI, through a fair and impartial bidding process
overseen by a national investment banking firm.
The McNeil Partnerships and the McNeil Affiliates are proposing the
transaction described in this Proxy Statement because, among other things, the
transaction:
. satisfies the obligations described in the three bullet points above in a
manner that McNeil Partners believes is in the best interests of the
limited partners of each of the McNeil Partnerships;
. allows each of the limited partners of each of the McNeil Partnerships to
dispose of its investment in the McNeil Partnerships for a greater per
unit aggregate amount of cash, based on the analyses of Stanger & Co.,
and more quickly than in a property by property liquidation;
. provides the limited partners of the McNeil Partnerships with the
opportunity to liquidate their investment in the McNeil Partnerships for
cash at a price and on terms that the McNeil Investors board of
directors, McNeil Partners and Robert A. McNeil believe are fair to the
limited partners of each of the McNeil Partnerships;
. has been approved by the McNeil Investors board of directors considering,
among other factors, the recommendation of an independent special
committee of the McNeil Investors board of directors; and
. is the subject of fairness opinions from Stanger & Co. and Eastdil Realty
Company.
The McNeil Investors board of directors has unanimously determined, and
McNeil Partners and Robert A. McNeil each has concluded, that the transaction
is fair to the McNeil Partnerships and their limited partners. Moreover,
counsel to the plaintiffs in the Schofield litigation have reviewed the terms
of the transaction and oversaw the auction process.
The bid form and attachment distributed to potential purchasers in the
auction did not require any of the bids to be structured to achieve any
particular tax result for either the McNeil Affiliates or the limited partners
of the McNeil Partnerships, whether by restricting alienation of the McNeil
Partnership properties or otherwise directly or indirectly providing tax
deferral for or a tax benefit to any of the McNeil Affiliates. A bid could have
provided that the entire McNeil portfolio would be acquired solely for cash or
for a combination of cash and operating partnership units. Prospective
purchasers were instructed that the McNeil Partnerships sought only cash offers
for the limited partner interests in the McNeil Partnerships because under the
limited partnership agreements of the public McNeil Partnerships, limited
partners owning at least 80% of the outstanding limited partner units must
approve a merger or liquidation in which the limited partners would receive
securities. McNeil Partners believed that it would be difficult on a practical
level to obtain the 80% vote. See "Special Factors--Background of the
transaction--Background of the auction process--Solicitation of initial bids."
14
<PAGE>
Structure of the transaction
The following figures depict the structure of the transaction and the
ownership interests of the parties to the transaction at different stages of
the transaction.
The following figures assume that each of the McNeil Partnerships approves
the merger proposal applicable to that McNeil Partnership and participates in
the transaction. In the event that a particular McNeil Partnership does not
approve the merger proposal or does not participate in the transaction, it will
not be included in the transaction and the transactions depicted below with
respect to that McNeil Partnership will not occur. In the event that a
particular McNeil Partnership does not participate in the transaction, none of
the transactions relating to the other McNeil Partnerships will be affected.
Structure and ownership prior to the transaction
Ownership of the McNeil Partnerships immediately prior to the transaction
Figure 1
Public McNeil Partnerships, Hearth Hollow, Midwest Properties
[FLOW CHART]
15
<PAGE>
Figure 1--Continued
[FLOW CHART]
Regency North
Affiliated McNeil Partnerships
[FLOW CHARTS]
16
<PAGE>
Ownership structure of WXI/McN Realty and its subsidiaries prior to the
transaction
Figure 2
[FLOW CHART]
17
<PAGE>
Contributions to McNeil Partners by the other McNeil Affiliates
Following the meetings of the limited partners of the McNeil Partnerships,
the McNeil Affiliates will contribute, transfer and assign the following to
McNeil Partners or an affiliate of McNeil Partners in exchange for limited
partner interests in McNeil Partners: (1) the general partner interests in
Regency North and the Affiliated McNeil Partnerships, (2) the limited partner
interests owned by the McNeil Affiliates in the Affiliated McNeil Partnerships
and (3) certain assets of McREMI.
As of the date of this Proxy Statement, Sallie B. McNeil, a former wife of
Robert A. McNeil, owns a 50% limited partner interest in Fairfax. If Fairfax is
a participating McNeil Partnership, it is contemplated that prior to or
contemporaneously with the contributions described above, McNeil Partners or an
affiliate of McNeil Partners will acquire all of the limited partner interest
owned by Sallie B. McNeil in Fairfax.
18
<PAGE>
Figure 3 depicts the contributions to McNeil Partners by the other McNeil
Affiliates. Figure 4 depicts the ownership of the McNeil Partnerships and
assets of McREMI following these contributions.
Contributions to McNeil Partners by the other McNeil Affiliates
Figure 3
[FLOW CHART]
19
<PAGE>
Ownership of the McNeil Partnerships and assets of McREMI following
contributions to McNeil Partners by the other McNeil Affiliates
Figure 4
[FLOW CHART]
* See "--Structure of the transaction--Contributions to McNeil Partners by the
other McNeil Affiliates" on page 18.
Replacement of general partner
Following the contributions to McNeil Partners by the McNeil Affiliates and
immediately prior to the mergers described below in "--Structure of the
transaction--The mergers," McNeil Partners or an affiliate of McNeil Partners
will contribute, transfer and assign the following to WXI/McN Realty or, at the
direction of WXI/McN Realty, to newly formed limited liability company
subsidiaries directly or indirectly wholly owned by WXI/McN Realty: (1) all of
the general partner interests in each of the participating McNeil Partnerships,
(2) all of the limited partner interests in the Affiliated McNeil Partnerships,
(3) assets of McNeil Partners related to the participating McNeil Partnerships
and (4) certain assets of McREMI. In exchange for these contributions, McNeil
Partners will receive membership interests in WXI/McN Realty and a credit for a
capital contribution to WXI/McN Realty in an amount equal to the amount of the
aggregate consideration allocated by Stanger & Co. to the interests, rights and
assets being contributed by McNeil Partners. See "--Allocation of aggregate
consideration in the transaction." Following these contributions, McNeil
Partners will be replaced as general partner of the participating McNeil
Partnerships by a wholly owned subsidiary of WXI/McN Realty.
20
<PAGE>
At the effective time of the mergers, McNeil Partners also may make cash
contributions to WXI/McN Realty in exchange for additional membership interests
in WXI/McN Realty. In addition, some fees, expenses and disbursements incurred
and paid by the McNeil Affiliates in connection with the transaction will be
treated as a contribution-in-kind to WXI/McN Realty by McNeil Partners in
exchange for additional membership interests in WXI/McN Realty. See "--
Interests of certain persons in matters to be acted on; conflicts of interest--
Equity interest of McNeil Partners in WXI/McN Realty; WXI/McN Realty operating
agreement."
Figure 5 depicts the contributions to McNeil Partners by the other McNeil
Affiliates and the replacement of the general partner of the McNeil
Partnerships. Figure 6 depicts the ownership of the McNeil Partnerships and the
assets of McREMI following these contributions.
Replacement of general partner of the McNeil Partnerships and contribution of
assets of McREMI
Figure 5
[FLOW CHART]
21
<PAGE>
Ownership of McNeil Partnerships following replacement of general partner
and contribution of assets of McREMI
Figure 6
[FLOW CHART]
* See "--Structure of the transaction--Contributions to McNeil Partners by
the other McNeil Affiliates" on page 18.
22
<PAGE>
The mergers
Immediately following the replacement of the general partner of each of the
participating McNeil Partnerships, separate newly formed limited partnerships
directly or indirectly wholly owned by WXI/McN Realty will be simultaneously
merged with and into each of the participating McNeil Partnerships, other than
the Affiliated McNeil Partnerships, with that McNeil Partnership surviving. The
limited partners of each of the participating McNeil Partnerships, other than
the Affiliated McNeil Partnerships, will receive cash consideration in the
transaction. The aggregate amount to be received in the transaction per limited
partner unit in each of the participating McNeil Partnerships consists of two
components--the merger consideration and a special distribution.
Merger consideration. The per unit merger consideration to be received with
respect to each class of limited partner units in a participating McNeil
Partnership, other than growth/shelter units in each of Funds XXI, XXII and
XXIII, is equal to the amount of the aggregate consideration in the transaction
allocated to a limited partner unit in that class by Stanger & Co.
The per unit merger consideration to be received with respect to
growth/shelter units in each of Funds XXI, XXII and XXIII is not based on the
Stanger & Co. allocation analysis. Under the Stanger & Co. allocation analysis,
growth/shelter units in each of Funds XXI, XXII and XXIII are entitled to
receive $0 because under the provisions of that McNeil Partnership's limited
partnership agreement relating to a liquidation and termination of that McNeil
Partnership holders of growth/shelter units are not entitled to receive any
distributions until holders of current income units have received the specified
priority return on their investment. Instead, the per unit amount was
separately agreed upon between McNeil Partners and WXI/McN Realty with respect
to growth/shelter units in that McNeil Partnership. The amount payable with
respect to growth/shelter units in each of Funds XXI, XXII and XXIII will be
paid by WXI/McN Realty independent of and in addition to the aggregate
consideration in the transaction which is being allocated by Stanger & Co.
For each participating McNeil Partnership, other than the Affiliated McNeil
Partnerships, each limited partner unit in that participating McNeil
Partnership will be converted at the effective time of the merger of that
participating McNeil Partnership into the right to receive the per unit merger
consideration.
Special distribution. The aggregate amount of the special distribution which
will be distributed to limited partners of a participating McNeil Partnership
will be based upon the positive modified net working capital balance of that
participating McNeil Partnership as of the closing date. The modified net
working capital balance of a McNeil Partnership will be calculated in
accordance with the terms of the Master Agreement and will be based upon the
net working capital balance of that McNeil Partnership as of the closing date.
If a participating McNeil Partnership has a positive modified net working
capital balance as of the closing date, that participating McNeil Partnership
will declare a special distribution of that positive modified net working
capital balance in cash to its limited partners. The per unit amount of the
special distribution will be determined in accordance with the provisions of
that McNeil Partnership's limited partnership agreement governing distributions
of surplus cash, except that the general partner of that McNeil Partnership
will not receive any part of the special distribution.
There can be no assurances that limited partners of a participating McNeil
Partnership will receive the specified merger consideration or any special
distribution. Limited partners of a participating McNeil Partnership will
receive a special distribution only if that participating McNeil Partnership
has a positive modified net working capital balance as of the closing date.
There can be no assurances that a participating McNeil Partnership will have a
positive modified net working capital balance as of the closing date. If a
participating McNeil Partnership's modified net working capital balance as of
the closing date is zero, limited partners of that participating McNeil
Partnership will receive no special distribution and will receive only the
specified merger consideration for each of their limited partner units. If a
participating McNeil Partnership has a negative modified net working capital
balance as of the closing date, limited partners of that participating
23
<PAGE>
McNeil Partnership will receive no special distribution and the per unit merger
consideration to be received with respect to each class of limited partner
units in that participating McNeil Partnership will be reduced by the pro rata
amount of the negative modified net working capital balance allocated by
Stanger & Co. to that class.
The discussion in the preceding two paragraphs does not apply to
growth/shelter units in each of Funds XXI, XXII and XXIII. No special
distribution will be made in respect of the growth/shelter units, and the cash
merger consideration to be received for each growth/shelter unit will not be
subject to adjustment based on such McNeil Partnership's modified net working
capital balance as of the closing date. Under the provisions of each such
McNeil Partnership's limited partnership agreement, holders of growth/shelter
units are not entitled to receive any distributions until holders of current
income units have received the specified priority return on their investment.
The estimated per unit aggregate amount to be received for limited partner
units in some of the McNeil Partnerships differs from the estimated per unit
aggregate amount set forth with respect to that McNeil Partnership in the June
25, 1999 press release announcing the transaction because of changes in the
estimate of that McNeil Partnership's modified net working capital balance as
of the estimated closing date of the transaction. These changes are
attributable primarily to additional costs to complete all budgeted capital
items with respect to that McNeil Partnership through the estimated closing
date of the transaction as required by the Master Agreement, that McNeil
Partnership's pro rata share of higher than anticipated transaction costs and
that McNeil Partnership's pro rata share of an increase in the reserve for
transaction costs. If these amounts are in the aggregate less than the increase
in the estimate of a McNeil Partnership's cash flow, for the period through the
estimated closing date, as a result of higher than anticipated revenues
generated to date and additional revenue estimated to be generated through the
estimated closing date of the transaction, both the estimate of that McNeil
Partnership's modified net working capital balance as of the estimated closing
date and the estimated per unit aggregate amount to be received for limited
partner units in that McNeil Partnership increased. If, on the other hand,
these amounts are in the aggregate greater than the increase in the estimate of
a McNeil Partnership's cash flow, for the period through the estimated closing
date, as a result of higher than anticipated revenues generated to date and
additional revenue estimated to be generated through the estimated closing date
of the transaction, both the estimate of that McNeil Partnership's modified net
working capital balance as of the estimated closing date and the estimated per
unit aggregate amount to be received for limited partner units in that McNeil
Partnership decreased. The foregoing discussion does not apply to
growth/shelter units in each of Funds XXI, XXII and XXIII because no special
distribution will be made in respect of the growth/shelter units. Under the
provisions of each such McNeil Partnership's limited partnership agreement,
holders of growth/shelter units are not entitled to receive any distributions
until holders of current income units have received the specified priority
return on their investment.
The Partnership. The aggregate amount to be received in the transaction by
limited partners of the Partnership is estimated at $0.28 in cash for each
limited partner unit. The aggregate amount for each limited partner unit
consists of cash merger consideration of $0.26 per unit and a special cash
distribution estimated as of January 31, 2000 at $0.02 per unit.
The aggregate amount to be received for each limited partner unit is based
on the estimates of McNeil management, as of the date of this Proxy Statement,
of the Partnership's modified net working capital balance as of the estimated
closing date of the transaction. While we expect that you will receive the
estimated amounts set forth above for each of your limited partner units, there
can be no assurances that you will receive the specified cash merger
consideration or any special distribution.
You will receive a special distribution only if the Partnership has a
positive modified net working capital balance as of the closing date. There can
be no assurances that the Partnership will have a positive modified net working
capital balance as of the closing date or that the actual per unit amount of
the special distribution will
24
<PAGE>
be equal to the estimated per unit amount of the special distribution. If the
Partnership's modified net working capital balance as of the closing date is
zero, you will receive no special distribution and will receive only the cash
merger consideration of $0.26 for each limited partner unit. If the Partnership
has a negative modified net working capital balance as of the closing date, you
will receive no special distribution and the cash merger consideration to be
received for each limited partner unit will be reduced by the pro rata amount
of that negative modified net working capital balance.
The estimated per unit aggregate amount set forth in this Proxy Statement to
be received for each limited partner unit in the Partnership is greater than
the estimated per unit aggregate amount set forth in the June 25, 1999 press
release announcing the transaction because of an increase in the estimate of
the Partnership's modified net working capital balance as of the estimated
closing date of the transaction. This increase is attributable primarily to an
increase in the estimate of the Partnership's cash flow, for the period through
the estimated closing date of the transaction, as a result of higher than
anticipated revenues generated to date and additional revenue estimated to be
generated through the estimated closing date of the transaction. This increase
in the estimate of the Partnership's cash flow exceeds additional costs to
complete all budgeted capital items with respect to the Partnership through the
estimated closing date of the transaction as required by the Master Agreement,
the Partnership's pro rata share of higher than anticipated transaction costs
and the Partnership's pro rata share of an increase in the reserve for
transaction costs. As described in the preceding paragraphs, the actual per
unit aggregate amount to be received for each limited partner unit in the
Partnership will vary based on the Partnership's actual modified net working
capital balance as of the actual closing date of the transaction.
Other effects of the mergers. McNeil Partners will receive membership
interests in and credit for a capital contribution to WXI/McN Realty in
exchange for its contributions to WXI/McN Realty and WXI/McN Realty's
subsidiaries of its general partner interests in each of the participating
McNeil Partnerships, its limited partner interests in the Affiliated McNeil
Partnerships, assets of McNeil Partners related to the participating McNeil
Partnerships and certain assets of McREMI.
Following the mergers, each of the participating McNeil Partnerships will
continue as a directly and/or indirectly wholly owned subsidiary of WXI/McN
Realty.
25
<PAGE>
Figure 7 depicts the mergers. Figure 8 depicts the ownership of the McNeil
Partnerships and the assets of McREMI following the transaction.
The Mergers
Figure 7
[FLOW CHART]
26
<PAGE>
Ownership following the transaction
Figure 8
[FLOW CHART]
* See "--Structure of the transaction--Contributions to McNeil Partners by
the other McNeil Affiliates" on page 18.
27
<PAGE>
Effects of the transaction (page 109)
The Master Agreement provides that WXI/McN Realty will acquire the general
partner interests and limited partner interests in each of the McNeil
Partnerships, assets of McNeil Partners related to the McNeil Partnerships and
certain assets of McREMI. Each McNeil Partnership's participation in the
transaction is subject to the requisite approval of its limited partners. As a
result of the transaction, each participating McNeil Partnership will become a
direct and/or indirect wholly owned subsidiary of WXI/McN Realty and a separate
direct or indirect wholly owned subsidiary of WXI/McN Realty will own and
operate the assets of McREMI contributed to WXI/McN Realty and its
subsidiaries. Following completion of the transaction, the current limited
partners of a participating McNeil Partnership will no longer have any interest
in, and will not be limited partners of, that McNeil Partnership and,
therefore, will not participate in that McNeil Partnership's future earnings
and potential growth. Following the completion of the transaction, each of the
public McNeil Partnerships which participates in the transaction will cease to
be a reporting company and the limited partner units in that McNeil Partnership
will cease to be registered under the Securities Exchange Act of 1934, as
amended.
Effects of the transaction on limited partners of the McNeil Partnerships
The limited partners of each of the participating McNeil Partnerships, other
than the Affiliated McNeil Partnerships, will receive only cash consideration
in the transaction. The aggregate amount to be received in the transaction per
limited partner units in each of the McNeil Partnerships consists of two
components--the merger consideration and a special distribution.
Merger consideration. The per unit merger consideration to be received with
respect to each class of limited partner units in a participating McNeil
Partnership, other than growth/shelter units in each of Funds XXI, XXII and
XXIII, is equal to the amount of the aggregate consideration in the transaction
allocated to a limited partner unit in that class by Stanger & Co.
The per unit merger consideration to be received with respect to
growth/shelter units in each of Funds XXI, XXII and XXIII is not based on the
Stanger & Co. allocation analysis. Under the Stanger & Co. allocation analysis,
growth/shelter units in each of Funds XXI, XXII and XXIII are entitled to
receive $0 because under the provisions of that McNeil Partnership's limited
partnership agreement relating to a liquidation and termination of that McNeil
Partnership holders of growth/shelter units are not entitled to receive any
distributions until holders of current income units have received the specified
priority return on their investment. Instead, the per unit amount was
separately agreed upon between McNeil Partners and WXI/McN Realty with respect
to growth/shelter units in that McNeil Partnership. The amount payable with
respect to growth/shelter units in each of Funds XXI, XXII and XXIII will be
paid by WXI/McN Realty independent of and in addition to the aggregate
consideration in the transaction which is being allocated by Stanger & Co.
For each participating McNeil Partnership, other than the Affiliated McNeil
Partnerships, each limited partner unit in that participating McNeil
Partnership will be converted at the effective time of the merger of that
participating McNeil Partnership into the right to receive the per unit merger
consideration.
Special distribution. The aggregate amount of the special distribution which
will be distributed to limited partners of a participating McNeil Partnership
will be based upon the positive modified net working capital balance of that
participating McNeil Partnership as of the closing date. The modified net
working capital balance of a McNeil Partnership will be calculated in
accordance with the terms of the Master Agreement and will be based upon the
net working capital balance of that McNeil Partnership as of the closing date.
If a participating McNeil Partnership has a positive modified net working
capital balance as of the closing date, that participating McNeil Partnership
will declare a special distribution of that positive modified net working
capital balance in cash to its limited partners. The per unit amount of the
special distribution will be determined in accordance with the provisions of
that McNeil Partnership's limited partnership agreement governing
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distributions of surplus cash, except that the general partner of that McNeil
Partnership will not receive any part of the special distribution.
There can be no assurances that limited partners of a participating McNeil
Partnership will receive the specified merger consideration or any special
distribution. Limited partners of a participating McNeil Partnership will
receive a special distribution only if that participating McNeil Partnership
has a positive modified net working capital balance as of the closing date.
There can be no assurances that a participating McNeil Partnership will have a
positive modified net working capital balance as of the closing date. If a
participating McNeil Partnership's modified net working capital balance as of
the closing date is zero, limited partners of that participating McNeil
Partnership will receive no special distribution and will receive only the
specified merger consideration for each of their limited partner units. If a
participating McNeil Partnership has a negative modified net working capital
balance as of the closing date, limited partners of that participating McNeil
Partnership will receive no special distribution and the per unit merger
consideration to be received with respect to each class of limited partner
units in that participating McNeil Partnership will be reduced by the pro rata
amount of the negative modified net working capital balance allocated by
Stanger & Co. to that class.
The discussion in the preceding two paragraphs does not apply to
growth/shelter units in each of Funds XXI, XXII and XXIII. No special
distribution will be made in respect of the growth/shelter units, and the cash
merger consideration to be received for each growth/shelter unit will not be
subject to adjustment based on such McNeil Partnership's modified net working
capital balance as of the closing date. Under the provisions of each such
McNeil Partnership's limited partnership agreement, holders of growth/shelter
units are not entitled to receive any distributions until holders of current
income units have received the specified priority return on their investment.
The estimated per unit aggregate amount to be received for limited partner
units in some of the McNeil Partnerships differs from the estimated per unit
aggregate amount set forth with respect to that McNeil Partnership in the June
25, 1999 press release announcing the transaction because of changes in the
estimate of that McNeil Partnership's modified net working capital balance as
of the estimated closing date of the transaction. These changes are
attributable primarily to additional costs to complete all budgeted capital
items with respect to that McNeil Partnership through the estimated closing
date of the transaction as required by the Master Agreement, that McNeil
Partnership's pro rata share of higher than anticipated transaction costs and
that McNeil Partnership's pro rata share of an increase in the reserve for
transaction costs. If these amounts are in the aggregate less than the increase
in the estimate of a McNeil Partnership's cash flow, for the period through the
estimated closing date, as a result of higher than anticipated revenues
generated to date and additional revenue estimated to be generated through the
estimated closing date of the transaction, both the estimate of that McNeil
Partnership's modified net working capital balance as of the estimated closing
date and the estimated per unit aggregate amount to be received for limited
partner units in that McNeil Partnership increased. If, on the other hand,
these amounts are in the aggregate greater than the increase in the estimate of
a McNeil Partnership's cash flow, for the period through the estimated closing
date, as a result of higher than anticipated revenues generated to date and
additional revenue estimated to be generated through the estimated closing date
of the transaction, both the estimate of that McNeil Partnership's modified net
working capital balance as of the estimated closing date and the estimated per
unit aggregate amount to be received for limited partner units in that McNeil
Partnership decreased. The foregoing discussion does not apply to
growth/shelter units in each of Funds XXI, XXII and XXIII because no special
distribution will be made in respect of the growth/shelter units. Under the
provisions of each such McNeil Partnership's limited partnership agreement,
holders of growth/shelter units are not entitled to receive any distributions
until holders of current income units have received the specified priority
return on their investment.
The Partnership. The aggregate amount to be received in the transaction by
limited partners of the Partnership is estimated at $0.28 in cash for each
limited partner unit. The aggregate amount for each limited
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partner unit consists of cash merger consideration of $0.26 per unit and a
special cash distribution estimated as of January 31, 2000 at $0.02 per unit.
The aggregate amount to be received for each limited partner unit is based
on the estimates of McNeil management, as of the date of this Proxy Statement,
of the Partnership's modified net working capital balance as of the estimated
closing date of the transaction. While we expect that you will receive the
estimated amounts set forth above for each of your limited partner units, there
can be no assurances that you will receive the specified cash merger
consideration or any special distribution.
You will receive a special distribution only if the Partnership has a
positive modified net working capital balance as of the closing date. There can
be no assurances that the Partnership will have a positive modified net working
capital balance as of the closing date or that the actual per unit amount of
the special distribution will be equal to the estimated per unit amount of the
special distribution. If the Partnership's modified net working capital balance
as of the closing date is zero, you will receive no special distribution and
will receive only the cash merger consideration of $0.26 for each limited
partner unit. If the Partnership has a negative modified net working capital
balance as of the closing date, you will receive no special distribution and
the cash merger consideration to be received for each limited partner unit will
be reduced by the pro rata amount of that negative modified net working capital
balance.
The estimated per unit aggregate amount set forth in this Proxy Statement to
be received for each limited partner unit in the Partnership is greater than
the estimated per unit aggregate amount set forth in the June 25, 1999 press
release announcing the transaction because of an increase in the estimate of
the Partnership's modified net working capital balance as of the estimated
closing date of the transaction. This increase is attributable primarily to an
increase in the estimate of the Partnership's cash flow, for the period through
the estimated closing date of the transaction, as a result of higher than
anticipated revenues generated to date and additional revenue estimated to be
generated through the estimated closing date of the transaction. This increase
in the estimate of the Partnership's cash flow exceeds additional costs to
complete all budgeted capital items with respect to the Partnership through the
estimated closing date of the transaction as required by the Master Agreement,
the Partnership's pro rata share of higher than anticipated transaction costs
and the Partnership's pro rata share of an increase in the reserve for
transaction costs. As described in the preceding paragraphs, the actual per
unit aggregate amount to be received for each limited partner unit in the
Partnership will vary based on the Partnership's actual modified net working
capital balance as of the actual closing date of the transaction.
Effects of the transaction on the McNeil Affiliates
McNeil Partners will receive membership interests in and credit for a
capital contribution to WXI/McN Realty in exchange for its contributions to
WXI/McN Realty and WXI/McN Realty's subsidiaries of its general partner
interests in each of the participating McNeil Partnerships, the limited partner
interests in the Affiliated McNeil Partnerships, assets of McNeil Partners
related to the participating McNeil Partnerships and certain assets of McREMI.
The amount of the capital contribution by McNeil Partners to WXI/McN Realty in
exchange for these contributions will be equal to the aggregate consideration
allocated by Stanger & Co. to the interests, rights and assets being
contributed by McNeil Partners in these contributions. McNeil Partners also may
make cash contributions to WXI/McN Realty under some circumstances, and some
fees, expenses and disbursements incurred and paid by the McNeil Affiliates in
connection with the transaction will be treated as a contribution in-kind by
McNeil Partners to WXI/McN Realty. McNeil Partners will receive membership
interests in WXI/McN Realty and credit for a capital contribution to WXI/McN
Realty in the amount of any such cash contribution or any such contribution in-
kind. See "--Interests of certain persons in matters to be acted upon;
conflicts of interest--Equity interest of McNeil Partners in WXI/McN Realty;
WXI/McN Realty operating agreement."
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The relationship between McNeil Partners and WXI/McN Realty's managing
member after the effective time of the mergers will be governed by the first
amended and restated limited liability company operating agreement of WXI/McN
Realty (the "WXI/McN Realty Operating Agreement") to be entered into between
McNeil Partners and WXI/McN Realty's managing member at the effective time of
the mergers. See "WXI/McN Realty Operating Agreement." The form of the WXI/McN
Realty Operating Agreement is attached to this Proxy Statement as Appendix B
and is incorporated in this Proxy Statement by reference.
Recommendations of the special committee and the McNeil Investors board of
directors (page 87)
Recommendations of the special committee
On May 7, 1999, following preliminary discussions with Whitehall, the McNeil
Investors board of directors formed a special committee of the McNeil Investors
board of directors, consisting of one independent director, (1) to participate,
through its legal counsel and financial advisor, in negotiating the forms,
terms and conditions of the definitive agreements with respect to the
transaction, and (2) with the assistance of its legal counsel and financial
advisor, to review and pass upon the terms of the transaction on behalf of the
limited partners of the McNeil Partnerships. See "Special Factors--Background
of the transaction--Appointment of the special committee."
The special committee:
. determined that the transaction is fair to, and in the best interests of,
the limited partners of each of the McNeil Partnerships, and
. recommended to the McNeil Investors board of directors the approval of
the transaction.
In making its determination and recommendation, the special committee
considered as positive factors a fairness opinion delivered to the McNeil
Investors board of directors by Stanger & Co. on behalf of the McNeil
Partnerships and a fairness opinion delivered to the special committee by
Eastdil Realty Company, the financial advisor to the special committee, to the
effect that each of the aggregate consideration, the allocations of the
aggregate consideration and the estimated aggregate amount to be received with
respect to each limited partner unit in each of the McNeil Partnerships is fair
from a financial point of view to the holders of each class of limited partner
units in each of the McNeil Partnerships. In making its determination and
recommendation, the special committee also considered the other factors
enumerated in "--Factors considered by the McNeil Investors board of directors
and the special committee; fairness of the transaction."
Recommendations of the McNeil Investors board of directors
The McNeil Investors board of directors:
. has unanimously determined that the transaction is fair to, and in the
best interests of, the limited partners of each of the McNeil
Partnerships,
. has unanimously approved the Master Agreement and the transactions
contemplated by the Master Agreement, and
. unanimously recommends that the limited partners of the Partnership vote
for the merger proposal and for the adjournment proposal.
In making its determination and recommendation with respect to the merger
proposal, the McNeil Investors board of directors considered as positive
factors the recommendation of the special committee and a fairness opinion
delivered to the McNeil Investors board of directors by Stanger & Co. on behalf
of the McNeil Partnerships to the effect that each of the aggregate
consideration, the allocations of the aggregate consideration and the estimated
aggregate amount to be received with respect to each limited partner unit in
each of the
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McNeil Partnerships is fair from a financial point of view to the holders of
each class of limited partner units in each of the McNeil Partnerships. In
making its determination and recommendation with respect to the merger
proposal, the McNeil Investors board of directors also considered the other
factors enumerated in "--Factors considered by the McNeil Investors board of
directors and the special committee; fairness of the transaction."
Factors considered by the McNeil Investors board of directors and the special
committee; fairness of the transaction (page 87)
Positive factors considered. In determining that the transaction is fair to,
and in the best interests of, the limited partners of each of the McNeil
Partnerships and in recommending approval of the transaction, the McNeil
Investors board of directors and the special committee considered the following
factors, each of which the McNeil Investors board of directors and the special
committee believed supported their determinations regarding the fairness of the
transaction and their recommendations:
. The transaction satisfied McNeil Partners' obligations under the limited
partnership agreements of each of the public McNeil Partnerships to use
commercially reasonable efforts to complete the liquidation and
termination of the public McNeil Partnerships by December 31, 1999. The
transaction also satisfied the commitment of McNeil Partners in a
settlement of the Schofield litigation to market the McNeil Partnerships
for sale, together with McREMI, through a fair and impartial bidding
process overseen by a national investment banking firm.
. The transaction was structured to maximize the value of each of the
McNeil Partnerships. PaineWebber, the McNeil Partnerships' exclusive
financial advisor, advised McNeil Partners that the most favorable price
for the McNeil Partnerships would likely be achieved by offering for sale
the McNeil Partnerships, McNeil Partners, McNeil Investors and McREMI as
an entire portfolio on an all-or-none basis, a structure that would allow
a potential purchaser to acquire a large portfolio of real estate managed
by a competent and experienced management team with a demonstrated track
record of operating the properties over an extended period of time. This
was particularly important because of the geographic diversity of the
properties and the age of the improvements on most of the properties. In
addition, the structure selected eliminated the difficulties that would
have been encountered if prospective purchasers were allowed to purchase
the more attractive properties, leaving behind the less attractive
properties that could prove time-consuming and expensive for an
individual McNeil Partnership to liquidate.
. The manner in which the auction process with respect to the proposed
transaction was structured, the method and criteria for selection of the
potential bidders, the detailed information with respect to the
properties furnished to the prospective bidders, the conduct of the
initial and final bid stages of the auction process and the lengthy
negotiations that were conducted with the final bidders ultimately
leading to WXI/McN Realty as the prospective purchaser.
. WXI/McN Realty has agreed to an aggregate purchase price for all of the
McNeil Partnerships and the assets being acquired in the transaction. The
special committee took into account that Stanger & Co., the independent
advisor to the McNeil Partnerships, made the following allocations: (1)
the allocation of the aggregate consideration between the management
assets of McREMI, on the one hand, and the McNeil Partnerships as a
group, on the other hand; (2) the allocation of the aggregate
consideration to each individual McNeil Partnership; and (3) the
allocation of the aggregate consideration allocated to each individual
McNeil Partnership among the general partner interests in that McNeil
Partnership, other assets of McREMI related to that McNeil Partnership
and each class of limited partner units in that McNeil Partnership.
. If a participating McNeil Partnership's modified net working capital
balance, calculated on the closing date of the transaction in accordance
with the Master Agreement, is greater than zero, that McNeil Partnership
will make a special cash distribution to its limited partners on the
closing date equal to the amount of the positive modified net working
capital balance.
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. The opinions of Stanger & Co. to the effect that each of the aggregate
consideration, the allocations of the aggregate consideration and the
estimated per unit aggregate amount to be received with respect to each
class of limited partners of each of the McNeil Partnerships is fair from
a financial point of view to the holders of each class of limited partner
units in each of the McNeil Partnerships.
. The fact that the estimated per unit aggregate amount, including both the
merger consideration and the special distribution, to be received with
respect to each class of limited partners of each of the McNeil
Partnerships upon the closing of the transaction was equal to or greater
than the Stanger & Co. estimates of (1) the net asset value of that unit,
(2) the going concern value of that unit and (3) the liquidation value of
that unit.
. The opinions of Eastdil Realty Company to the effect that each of the
aggregate consideration, the allocations of the aggregate consideration
and the estimated per unit aggregate amount to be received with respect
to each class of limited partners of each of the McNeil Partnerships is
fair from a financial point of view to the holders of each class of
limited partner units in each of the McNeil Partnerships.
. The fact that the total consideration that would be fairly allocable to
McREMI as determined by Stanger & Co. was below the range of fair market
values of McREMI on a controlling interest basis as determined by
Houlihan, Lokey, Howard & Zukin Capital ("Houlihan, Lokey"), who was
retained by McNeil Partners, McREMI, Robert A. McNeil and Carole J.
McNeil as their personal financial advisor to advocate on their behalf
the fair market value of McREMI. See "Special Factors--Background of the
transaction--Negotiation of definitive transaction documents with
Whitehall--June 3, 1999: Presentations to the McNeil Investors board of
directors and the special committee."
. The fact that Stanger & Co. (1) valued the membership interests to be
received by McNeil Partners in WXI/McN Realty in connection with the
transaction, (2) valued the contributions being made by McNeil Partners
to WXI/McN Realty in exchange for those membership interests and (3)
concluded based on its analysis that the aggregate value of those
membership interests is no greater than the aggregate value of those
contributions.
. The fact that the lawyers representing the plaintiffs in the Schofield
litigation, in connection with settlement proceedings relating to that
litigation, oversaw the auction process, including the allocation
analysis rendered by Stanger & Co.
. The identity of the proposed purchaser and its affiliates and the ability
of WXI/McN Realty to consummate the transaction on the terms specified in
the Master Agreement.
. The provisions in the Master Agreement allowing each of the McNeil
Partnerships to terminate its participation in the transaction if, in the
exercise of the good faith judgment of the general partner as to its
fiduciary duties to its limited partners, the general partner of that
McNeil Partnership determined that termination was required by reason of
a superior acquisition proposal being made by a third party for that
McNeil Partnership. The special committee recognized that any such
termination would require the payment by that terminating McNeil
Partnership to WXI/McN Realty of a break-up fee and certain reimbursable
expenses.
. The terms and conditions of the Master Agreement, taken as a whole, were
favorable to the limited partners of the McNeil Partnerships and thus
supported the conclusion that the merger proposal is fair to, and in the
best interests of, the limited partners of the McNeil Partnerships.
. In allocating the aggregate consideration, Stanger & Co. took the
position that the deficit restoration obligations of the general partners
of the McNeil Partnerships were required to be paid to the McNeil
Partnerships. As a result, the aggregate consideration allocated by
Stanger & Co. to the general partner interests in each of the McNeil
Partnerships is net of the estimated deficit restoration obligation with
respect to that McNeil Partnership. The aggregate amount of the estimated
deficit restoration obligation
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payable in respect of all of the McNeil Partnerships, based upon a
hypothetical sale of properties and liquidation of the McNeil Partnerships
at January 31, 2000, is approximately $6,427,000.
. In allocating the aggregate consideration, Stanger & Co. took the
position that no asset disposition fees were payable by any of the McNeil
Partnerships to the McNeil General Partners as a result of the
transaction. In a liquidation, the limited partnership agreements of some
of the public McNeil Partnerships provide that McNeil Partners is
entitled to receive an asset disposition fee equal to 3% of the gross
sales price of each property sold in connection with a liquidation of
that McNeil Partnership. No asset disposition fees will be paid by any of
the McNeil Partnerships as a result of the transaction.
. Each of the McNeil General Partners has agreed to irrevocably,
unconditionally and absolutely waive any and all rights it may have to
indemnification, contribution or reimbursement from any of the
participating McNeil Partnerships with respect to those matters for which
McNeil Partners has agreed to indemnify WXI/McN Realty's managing member
and some of the affiliates of WXI/McN Realty's managing member.
. Upon the completion of the transaction, the limited partners of the
participating McNeil Partnerships, other than the Affiliated McNeil
Partnerships, would receive cash in exchange for their limited partner
units and, accordingly, those limited partners would no longer bear the
risks inherent in the ownership of real property.
. Commencing with the tax year following the tax year in which the closing
of the transaction occurs, the limited partners of the participating
McNeil Partnerships will no longer need to include in their federal and
state income tax returns the various items of income, loss, deduction and
credit as previously reported on Schedule K-1s delivered by the
participating McNeil Partnerships.
. As to each McNeil Partnership, approval of the merger proposal requires
the affirmative vote of limited partners holding greater than 50% of each
class of limited partner units in that McNeil Partnership outstanding as
of the record date.
. Under the California Revised Limited Partnership Act, a limited partner
of some of the McNeil Partnerships, including the Partnership, who does
not wish to accept the merger consideration may dissent from the merger
proposal and require that McNeil Partnership to purchase for cash, at
their fair market value, the limited partner units owned by that limited
partner, if that McNeil Partnership participates in the transaction, the
transaction is completed, the limited partner does not vote for the
merger proposal and the limited partner follows specific procedures set
forth in the California Revised Limited Partnership Act.
Negative factors considered. The McNeil Investors board of directors and the
special committee also considered the following negative factors:
. Following the transaction, the limited partners of each participating
McNeil Partnership, other than the Affiliated McNeil Partnerships, will
cease to participate in future earnings or growth, if any, of that McNeil
Partnership or benefit from increases, if any, in the value of that
McNeil Partnership.
. The transaction involves the entire McNeil portfolio, including all of
the McNeil Partnerships, assets of McNeil Partners related to the McNeil
Partnerships and certain assets of McREMI. At the commencement of
PaineWebber's engagement, McNeil Partners determined to structure the
transaction to include certain assets of McREMI based on PaineWebber's
belief at that time that the most favorable price for the McNeil
Partnerships would likely be achieved by offering for sale the McNeil
Partnerships and McREMI as an entire portfolio on an all-or-none basis.
However, it is possible that the limited partners of a McNeil Partnership
could have received more consideration than what they will otherwise
receive in the proposed transaction with WXI/McN Realty if that McNeil
Partnership were to be sold or
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liquidated in a transaction separate from a transaction involving other
McNeil Partnerships and/or the assets of McREMI.
. The limited partners of each participating McNeil Partnership will forego
alternatives to the transaction. These alternatives include a separate
sale of all of the assets of that McNeil Partnership and subsequent
liquidation of that McNeil Partnership, or the continuation of that
McNeil Partnership under its current ownership structure.
. There are numerous conditions to WXI/McN Realty's and Sellers'
obligations to consummate the transaction. No assurance can be given
that the transaction will be consummated.
. The Master Agreement provides that in some circumstances WXI/McN Realty
will receive a break-up fee, calculated on a partnership by partnership
basis, up to an aggregate maximum of $18.0 million, if the Master
Agreement is terminated. The amount of the break-up fee payable by the
Partnership is $1,251,306. The obligation of a McNeil Partnership to pay
a break-up fee may discourage third party offers for that particular
McNeil Partnership and may adversely affect the ability of that McNeil
Partnership to engage in another transaction following termination of
the Master Agreement in respect of that McNeil Partnership. In addition,
a McNeil Partnership may be obligated to pay a break-up fee even if it
has not entered into a definitive agreement for, or consummated, another
transaction. As a result, payment of the break-up fee may have an
adverse impact on the financial condition of that McNeil Partnership.
. If a participating McNeil Partnership has a negative modified net
working capital balance on the closing date of the transaction, the per
unit merger consideration to be received with respect to each class of
limited partner units in that McNeil Partnership will be reduced by the
pro rata amount of the negative modified net working capital balance
allocated by Stanger & Co. to that class. The modified net working
capital balance of each of the McNeil Partnerships will be calculated in
accordance with the terms of the Master Agreement and will be based upon
the net working capital balance of that McNeil Partnership as of the
closing date.
. McNeil Partners has actual or potential conflicts of interest in
connection with recommending the approval of the merger proposal to the
limited partners of the McNeil Partnerships.
. McNeil Partners will receive a significant, although non-controlling,
equity interest in WXI/McN Realty if the transaction is completed. Under
the terms of the WXI/McN Realty Operating Agreement, McNeil Partners
will be entitled to receive from WXI/McN Realty distributions of net
cash flow and net proceeds from capital transactions. Consequently,
McNeil Partners and the other McNeil Affiliates, subject to certain
limitations, will continue to have the opportunity to benefit, up to a
specific capped return on their investment, from future earnings growth
and increases in the value of the participating McNeil Partnerships and
their properties.
. The McNeil Affiliates had a separate economic interest in structuring
the transaction to achieve favorable tax treatment. The transaction, as
structured, will allow McNeil Partners to make the contributions of its
interests in the McNeil Partnerships and the assets of McNeil Partners
and McREMI being contributed to WXI/McN Realty on a tax-deferred basis
and will permit the partners of McNeil Partners to defer substantial tax
liability. If the transaction had been structured as an acquisition of
the entire McNeil portfolio for cash, it is estimated by Arthur Andersen
LLP that the partners of McNeil Partners would have been required to pay
approximately $30,563,000 in taxes in connection with the transaction.
. In contrast, limited partners will recognize gain or loss on the
conversion of their limited partner units into cash in the merger or on
receipt of cash pursuant to the exercise of dissenters' rights. In
general, the special distribution will be treated as a return of capital
to the limited partner. This return of capital will reduce the limited
partner's basis in its limited partner units in the Partnership to the
extent of the
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return of capital and, therefore, may increase the amount of any gain or
decrease the amount of any loss recognized by that limited partner on the
conversion of its limited partner units into cash in the merger. In
addition, to the extent that the special distribution received by a
limited partner exceeds that limited partner's adjusted tax basis in all
of its limited partner units, that excess will be taxable and will be
treated as capital gain.
. Each of the McNeil Partnerships did not have separate representation in
the transaction. In structuring the transaction, the special committee
represented the interests of the limited partners of all of the McNeil
Partnerships as a group and Stanger & Co. served as independent advisor
to all of the McNeil Partnerships. If separate representation had been
arranged for each McNeil Partnership, issues unique to the value of a
given McNeil Partnership might have received greater attention during
the structuring of the transaction and the terms of the transaction
might have been different with respect to that McNeil Partnership.
. If limited partners owning more than 50% of each class of limited
partner units in a McNeil Partnership vote for the merger proposal,
their approval will bind all limited partners of that McNeil
Partnership. Therefore, a limited partner of a McNeil Partnership may
vote against the merger proposal and nevertheless have its limited
partner units converted into the right to receive cash in the
transaction if the requisite vote of the limited partners of that McNeil
Partnership is obtained.
. In determining whether the requisite vote of the limited partners of a
McNeil Partnership has been obtained, limited partner units held by
McNeil Partners and its affiliates will not be excluded. McNeil Partners
and its affiliates intend to vote all of the limited partner units
beneficially owned by them in each of the McNeil Partnerships for the
merger proposal with respect to that McNeil Partnership. As of the
record date, McNeil Partners and some of its affiliates beneficially
owned an aggregate of 3,122,277 limited partner units in the
Partnership, representing in the aggregate approximately 3.6% of the
limited partner units in the Partnership outstanding as of the record
date.
. Limited partners of some of the McNeil Partnerships do not have any
dissenters' rights or other rights of appraisal, under the state law
which governs those McNeil Partnerships, the limited partnership
agreements of those McNeil Partnerships or otherwise, in connection with
the merger proposal. Therefore, dissenting limited partners of those
McNeil Partnerships do not have the right to have their limited partner
units appraised if they disapprove of the action of the limited partners
that voted for the merger proposal. The limited partners of other McNeil
Partnerships, including the Partnership, are entitled to the benefits of
dissenters' rights as provided under applicable state law.
In the views of the special committee and the McNeil Investors board of
directors, these negative factors were not sufficient, either individually or
in the aggregate, to outweigh the benefits of the proposed transaction to the
limited partners of the McNeil Partnerships.
Other factors considered. As discussed above, in evaluating the fairness of
the transaction, the special committee and the McNeil Investors board of
directors each considered the liquidation value, net asset value and going
concern value of the limited partner units in each of the McNeil Partnerships
as estimated by Stanger & Co. and presented in the status report delivered by
Stanger & Co. to the special committee and the McNeil Investors board of
directors. See "Liquidation Value," "Net Asset Value" and "Going Concern Value"
in Table 1. The special committee's and the McNeil Investors board of
directors' considerations of the liquidation value, net asset value and going
concern value involved:
. numerous discussions with Stanger & Co.;
. reviews by the special committee, Eastdil Realty Company and the McNeil
Investors board of directors of the factual, financial and numerical
information presented to the special committee and the McNeil Investors
board of directors by Stanger & Co.;
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. review and corroboration by Eastdil Realty Company of Stanger & Co.'s
estimates of liquidation value, net asset value and going concern value;
. independent review by Eastdil Realty Company, following independent
property level and other due diligence, of the methodologies utilized by
Stanger & Co., the professional bases for the use of those
methodologies, the factual bases utilized in connection with the
application of those methodologies and other procedures as Eastdil
Realty Company deemed necessary or appropriate;
. numerous inquiries by the special committee, other members of the McNeil
Investors board of directors and their respective advisors, at meetings
of the special committee and the McNeil Investors board of directors and
during a number of telephone conference calls and informal sessions with
Stanger & Co. and Eastdil Realty Company, into the underlying analyses,
methodologies and assumptions supporting Stanger & Co.'s estimates; and
. numerous inquiries by the special committee, at meetings of the special
committee and during a number of telephone conference calls and informal
sessions with Eastdil Realty Company, into Eastdil Realty Company's
review of Stanger & Co.'s estimates and the analyses, methodologies and
assumptions supporting Stanger & Co.'s estimates.
The special committee and the McNeil Investors board of directors have each
relied in good faith under applicable law on Stanger & Co.'s analyses of
liquidation value, net asset value and going concern value and, to that extent,
have each adopted Stanger & Co.'s analyses of liquidation value, net asset
value and going concern value.
With respect to the Partnership, the special committee and the McNeil
Investors board of directors noted in particular that the estimated per unit
aggregate amount of $0.28, including both the merger consideration and the
estimated special distribution, to be received with respect to each limited
partner unit in the Partnership is greater than or equal to each of the
following, each as estimated by Stanger & Co.:
. the liquidation value of $0.26 per limited partner unit
. the net asset value of $0.28 per limited partner unit
. the going concern value of $0.24 per limited partner unit
In evaluating the fairness of the transaction, the special committee and the
McNeil Investors board of directors also considered the information on weighted
average private sales prices and tender offer ranges for limited partner units
in the McNeil Partnerships presented in the status report delivered by Stanger
& Co. to the special committee and the McNeil Investors board of directors. See
"Private Sales Weighted Average" and "Tender Offer Ranges" in Table 1. However,
for the reasons stated below, the special committee and the McNeil Investors
board of directors did not place significant emphasis or weight on these prices
and ranges and did not consider these prices and ranges to be material factors
in making their determinations and recommendations. The special committee and
the McNeil Investors board of directors do not believe that current market
prices, historical market prices or recent tender offer prices are a good
measure of the value of the limited partner units in the McNeil Partnerships.
At present, there is no established public trading market for the limited
partner units in the McNeil Partnerships, nor is one expected to develop.
Moreover, liquidity is limited to sporadic private sales or tender offers for
limited partner units which generally involve a relatively small percentage of
the limited partner units outstanding.
The special committee and the McNeil Investors board of directors did not
consider purchase prices paid by the Partnership, McNeil Partners, McNeil
Investors or Robert A. McNeil for limited partner units in the Partnership
since the commencement of the Partnership's second full fiscal year preceding
the date of this Proxy Statement because since that time, none of the
Partnership, McNeil Partners, McNeil Investors or Robert
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A. McNeil has made any purchases of limited partner units in the Partnership.
See "Related Security Holder Matters--Recent transactions in the Partnership's
limited partner units."
Procedural fairness of the transaction. The special committee and the McNeil
Investors board of directors are aware that the McNeil Affiliates have
interests in the transaction or relationships that may present actual or
potential conflicts of interest in connection with the transaction and
considered these conflicts of interest along with the other factors enumerated
above in making their determinations and recommendations. See "--Interests of
certain persons in matters to be acted upon; conflicts of interest." The
special committee and the McNeil Investors board of directors also recognize
that in determining whether the requisite vote of the limited partners of a
McNeil Partnership has been obtained, limited partner units held by McNeil
Partners and its affiliates will not be excluded. As enumerated above, the
special committee and the McNeil Investors board of directors considered these
factors to be negative factors in their determinations regarding the fairness
of the transaction. However, the special committee and the McNeil Investors
board of directors believe that the transaction is procedurally fair to the
limited partners of each of the McNeil Partnerships because, among other
things:
. The special committee was constituted with all of the power and authority
of the McNeil Investors board of directors (1) to participate, through
its legal counsel and financial advisor, in negotiating the forms, terms
and conditions of the definitive agreements respecting the transaction,
and (2) with the assistance of its legal counsel and financial advisor,
to review and pass upon the terms of the transaction on behalf of the
limited partners of the McNeil Partnerships.
. Separate outside legal counsel to the special committee was retained on
behalf of the special committee.
. Eastdil Realty Company was retained on behalf of the special committee as
the independent financial advisor to the special committee.
. The special committee, with the assistance of its legal and financial
advisors, engaged in negotiations with respect to the forms, terms and
conditions of the definitive agreements respecting the transaction and
reviewed and passed upon the terms of the transaction on behalf of the
limited partners of the McNeil Partnerships.
. The terms and conditions of the transaction resulted from arm's-length
bargaining among representatives of the special committee,
representatives of the McNeil Affiliates and representatives of
Whitehall.
. As to each McNeil Partnership, approval of the merger proposal requires
the affirmative vote of limited partners holding greater than 50% of each
class of limited partner units in that McNeil Partnership outstanding as
of the record date.
. Although McNeil Partners and its affiliates intend to vote all of the
limited partner units beneficially owned by them in each of the McNeil
Partnerships for the merger proposal with respect to that McNeil
Partnership, McNeil Partners and its affiliates do not beneficially own a
sufficient number of limited partner units in any of the McNeil
Partnerships to approve the merger proposal with respect to that McNeil
Partnership without the affirmative vote of other limited partners of
that McNeil Partnership. As of the record date, McNeil Partners and some
of its affiliates beneficially owned an aggregate of 3,122,277 limited
partner units in the Partnership, representing in the aggregate
approximately 3.6% of the limited partner units in the Partnership
outstanding as of the record date.
. Under the California Revised Limited Partnership Act, a limited partner
of the Partnership who does not wish to accept the merger consideration
may dissent from the merger proposal and require the Partnership to
purchase for cash, at their fair market value, the limited partner units
owned by that limited partner, if the Partnership participates in the
transaction, the transaction is completed, the limited partner does not
vote for the merger proposal, and the limited partner follows specific
procedures set forth in the California Revised Limited Partnership Act.
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In view of the wide variety of factors considered in connection with its
evaluation of the fairness of the transaction, neither the special committee
nor the McNeil Investors board of directors found it practicable to, and did
not attempt to, quantify, rank or otherwise assign relative weights to the
specific factors it considered in reaching its determination and
recommendation.
Opinions and reports of financial advisors (page 115)
Stanger & Co.
Stanger & Co. delivered to the McNeil Investors board of directors on behalf
of the McNeil Partnerships a written opinion dated June 24, 1999, to the effect
that, as of the date of the opinion, and subject to the
assumptions, qualifications and limitations set forth in the opinion, each of
the five matters set forth below was fair from a financial point of view to the
holders of each class of limited partner units in each McNeil Partnership:
. the aggregate consideration in the transaction;
. the allocation of the aggregate consideration between the management
assets of McREMI, on the one hand, and the McNeil Partnerships as a
group, on the other hand;
. the allocation of the aggregate consideration to each individual McNeil
Partnership;
. the methodology of the allocation of the aggregate consideration
allocated to each individual McNeil Partnership among the general partner
interests in that McNeil Partnership, other assets of McREMI related to
that McNeil Partnership and each class of limited partner units in that
McNeil Partnership; and
. with respect to each class of limited partner units in each McNeil
Partnership, the estimated per unit aggregate amount to be received with
respect to limited partner units in that class, consisting of the sum of
(1) the amount of the aggregate consideration allocated to a limited
partner unit in that class and (2) the pro rata amount of the estimated
modified net working capital balance with respect to a limited partner
unit in that class.
On December 10, 1999, Stanger & Co. delivered to the McNeil Investors board
of directors on behalf of the McNeil Partnerships a second written opinion, to
the effect that, as of the date of the second opinion, and subject to the
qualifications and limitations set forth in the second opinion, each of the
following matters was fair from a financial point of view to the holders of
each class of limited partner units in each of the McNeil Partnerships:
. the aggregate consideration allocated to the general partner interests in
each McNeil Partnership;
. the aggregate consideration allocated to the other assets of McREMI
related to each McNeil Partnership;
. the aggregate consideration allocated to each class of limited partner
units in each McNeil Partnership; and
. with respect to each class of limited partner units in each McNeil
Partnership, the estimated per unit aggregate amount to be received with
respect to limited partner units in that class, consisting of the sum of
(1) the amount of the aggregate consideration allocated to a limited
partner unit in that class and (2) the pro rata amount of the estimated
modified net working capital balance with respect to a limited partner
unit in that class.
The full text of each of Stanger & Co.'s opinions, including each of the
opinions described in the nine bullet points above, which sets forth the
assumptions made, matters considered and qualifications and limitations on the
review undertaken by Stanger & Co., is incorporated in this Proxy Statement by
reference. Stanger & Co.'s June 24, 1999 opinion is attached as Appendix C-1 to
this Proxy Statement, and Stanger &
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Co.'s December 10, 1999 opinion is attached as Appendix C-2 to this Proxy
Statement. The limited partners of the Partnership are urged to read carefully
each opinion in its entirety.
Eastdil Realty Company
Eastdil Realty Company delivered to the special committee a written opinion
dated June 24, 1999, to the effect that, as of the date of the opinion, and
subject to the assumptions, qualifications and limitations set forth in the
opinion:
. the allocation analysis and opinions rendered by Stanger & Co. were based
upon the application of appropriate methodologies, and the factual bases
utilized by Stanger & Co. in the application of these methodologies have
a reasonable basis;
. the conclusions reached in the allocation analysis and opinions rendered
by Stanger & Co. have a reasonable basis;
. the special committee is entitled to rely upon those conclusions; and
. each of the matters set forth in the first five bullet points above under
"--Stanger & Co." is fair from a financial point of view to the holders
of each class of limited partner units in each of the McNeil
Partnerships.
On December 10, 1999, Eastdil Realty Company delivered to the special
committee a second written opinion, to the effect that, as of the date of the
second opinion, and subject to the assumptions, qualifications and limitations
set forth in the second opinion, each of the matters set forth in the opinions
included in the second opinion delivered to the McNeil Investors board of
directors by Stanger & Co. on behalf of the McNeil Partnerships was fair from a
financial point of view to the holders of each class of limited partner units
in each of the McNeil Partnerships.
The full text of each of Eastdil Realty Company's opinions, including each
of the opinions described above, which sets forth the assumptions made, matters
considered and qualifications and limitations on the review undertaken by
Eastdil Realty Company, is incorporated in this Proxy Statement by reference.
Eastdil Realty Company's June 24, 1999 opinion is attached as Appendix D-1 to
this Proxy Statement, and Eastdil Realty Company's December 10, 1999 opinion is
attached as Appendix D-2 to this Proxy Statement. The limited partners of the
Partnership are urged to read carefully each opinion in its entirety.
Position of McNeil Partners and Robert A. McNeil regarding the fairness of the
transaction (page 137)
Each of McNeil Partners and Robert A. McNeil believes that the transaction
is fair to the limited partners of each of the McNeil Partnerships.
Positive factors considered. In concluding that the transaction is fair to
the limited partners of each of the McNeil Partnerships, McNeil Partners and
Robert A. McNeil considered the following factors, each of which, in the view
of McNeil Partners and Robert A. McNeil, supported their conclusions regarding
the fairness of the transaction:
. The fact that the special committee and the McNeil Investors board of
directors each unanimously determined that the transaction is fair to,
and in the best interests of, the limited partners of each of the McNeil
Partnerships.
. The special committee's recommendation that the McNeil Investors board of
directors approve the transaction.
. The unanimous approval by the McNeil Investors board of directors of the
Master Agreement and the transactions contemplated by the Master
Agreement.
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. The unanimous recommendation of the McNeil Investors board of directors
that the limited partners of each of the McNeil Partnerships vote for the
merger proposal.
. The positive factors enumerated in "--Factors considered by the McNeil
Investors board of directors and the special committee; fairness of the
transaction," each of which factors McNeil Partners and Robert A. McNeil
considered, and each of which they believed supported their conclusions
regarding the fairness of the transaction.
. Notwithstanding the fact that the fairness opinions of Stanger & Co. were
delivered to the McNeil Investors board of directors on behalf of the
McNeil Partnerships and that McNeil Partners and Robert A. McNeil are not
entitled to rely on such opinions, the fact that the McNeil Investors
board of directors received the fairness opinions dated June 24, 1999 and
December 10, 1999 from Stanger & Co. on behalf of the McNeil
Partnerships.
. Notwithstanding the fact that the fairness opinions of Eastdil Realty
Company were delivered to the special committee and that McNeil Partners
and Robert A. McNeil are not entitled to rely on such opinions, the fact
that the special committee received the fairness opinions dated June 24,
1999 and December 10, 1999 from Eastdil Realty Company.
Negative factors considered. In concluding that the transaction is fair to
the limited partners of each of the McNeil Partnerships, McNeil Partners and
Robert A. McNeil also considered the negative factors enumerated in "--Factors
considered by the McNeil Investors board of directors and the special
committee; fairness of the transaction." In the view of McNeil Partners and
Robert A. McNeil, these negative factors were not sufficient, either
individually or in the aggregate, to outweigh the benefits of the proposed
transaction to the limited partners of the McNeil Partnerships.
Other factors considered. In evaluating the fairness of the transaction,
McNeil Partners and Robert A. McNeil also considered the liquidation value, net
asset value and going concern value of the limited partner units in each of the
McNeil Partnerships as estimated by Stanger & Co. and presented in the status
report delivered by Stanger & Co. to the special committee and the McNeil
Investors board of directors. See "Liquidation Value," "Net Asset Value" and
"Going Concern Value" in Table 1. The consideration by McNeil Partners and
Robert A. McNeil of the going concern value, liquidation value and net asset
value involved:
. discussions among representatives of McNeil Partners, Robert A. McNeil
and Stanger & Co.;
. participation by Robert A. McNeil in meetings of the McNeil Investors
board of directors at which Stanger & Co. presented and discussed its
status report;
. review by McNeil Partners and Robert A. McNeil of the factual, financial
and numerical information presented in the status report; and
. numerous inquiries into the underlying analyses, methodologies and
assumptions supporting Stanger & Co.'s estimates.
McNeil Partners, as the general partner of the Partnership, and Robert A.
McNeil, as a member of the McNeil Investors board of directors, have each
relied in good faith under applicable law on Stanger & Co.'s analyses of
liquidation value, net asset value and going concern value and, to that extent,
have each adopted Stanger & Co.'s analyses of liquidation value, net asset
value and going concern value.
With respect to the Partnership, McNeil Partners and Robert A. McNeil each
noted in particular that the estimated per unit aggregate amount of $0.28,
including both the merger consideration and the estimated special distribution,
to be received with respect to each limited partner unit in the Partnership is
greater than or equal to each of the following, each as estimated by Stanger &
Co.:
. the liquidation value of $0.26 per limited partner unit
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. the net asset value of $0.28 per limited partner unit
. the going concern value of $0.24 per limited partner unit
In evaluating the fairness of the transaction, McNeil Partners and Robert A.
McNeil also considered the information on weighted average private sales prices
and tender offer ranges for limited partner units in the McNeil Partnerships
presented in the status report delivered by Stanger & Co. to the special
committee and the McNeil Investors board of directors. See "Private Sales
Weighted Average" and "Tender Offer Ranges" in Table 1. However, for the
reasons stated in "--Factors considered by the McNeil Investors board of
directors and the special committee; fairness of the transaction," McNeil
Partners and Robert A. McNeil did not place significant emphasis or weight on
these prices and ranges and did not consider these prices and ranges to be
material factors in reaching their conclusions that the transaction is fair to
the limited partners of each of the McNeil Partnerships.
McNeil Partners and Robert A. McNeil did not consider purchase prices paid
by the Partnership, McNeil Partners, McNeil Investors or Robert A. McNeil for
limited partner units in the Partnership since the commencement of the
Partnership's second full fiscal year preceding the date of this Proxy
Statement because since that time, none of the Partnership, McNeil Partners,
McNeil Investors or Robert A. McNeil has made any purchases of limited partner
units in the Partnership. See "Related Security Holder Matters--Recent
transactions in the Partnership's limited partner units."
Procedural fairness of the transaction. As disclosed in the section entitled
"--Interests of certain persons in matters to be acted upon; conflicts of
interest," each of McNeil Partners, Robert A. McNeil and the other McNeil
Affiliates has a financial interest in the transaction and interests in the
transaction or relationships that may present actual or potential conflicts of
interest in connection with the transaction. In evaluating the fairness of the
transaction, McNeil Partners and Robert A. McNeil considered these conflicts of
interest along with the other factors enumerated above in reaching their
conclusions that the transaction is fair to the limited partners of each of the
McNeil Partnerships. See "--Interests of certain persons in matters to be acted
upon; conflicts of interest." McNeil Partners and Robert A. McNeil also
recognize that in determining whether the requisite vote of the limited
partners of a McNeil Partnership has been obtained, limited partner units held
by McNeil Partners and its affiliates will not be excluded. McNeil Partners and
Robert A. McNeil considered these factors to be negative factors in their
conclusions that the transaction is fair to the limited partners of each of the
McNeil Partnerships. However, McNeil Partners and Robert A. McNeil believe that
the transaction is procedurally fair to the limited partners of each of the
McNeil Partnerships for the reasons cited by the McNeil Investors board of
directors and the special committee. See "--Factors considered by the McNeil
Investors board of directors and the special committee; fairness of the
transaction."
In view of the wide variety of factors considered in connection with the
evaluation of the fairness of the transaction, McNeil Partners and Robert A.
McNeil did not find it practicable to, and did not attempt to, quantify, rank
or otherwise assign relative weights to the specific factors they considered in
reaching their conclusions regarding the fairness of the transaction.
Position of Whitehall, WXI/MNL Real Estate and WXI/McN Realty (page 140)
Because the transaction may be considered a "going private" transaction, the
rules under the Securities Exchange Act may be interpreted to require each of
Whitehall, WXI/MNL Real Estate and WXI/McN Realty to express its belief as to
the fairness of the transaction to the limited partners of the McNeil
Partnerships because, under a potential interpretation of the rules governing
"going private" transactions, one or more of Whitehall, WXI/MNL Real Estate and
WXI/McN Realty may be deemed to be an affiliate of the Partnership. Although
representatives of Whitehall and WXI/McN Realty negotiated the transaction with
McNeil management and the special committee on an arm's-length basis with
directly opposing interests and subsidiaries of WXI/McN
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Realty will acquire limited partner units held by limited partners of the
participating McNeil Partnerships in the transaction and, therefore, may have
interests that are in conflict with the interests of those limited partners,
each of Whitehall, WXI/MNL Real Estate and WXI/McN Realty believes that the
transaction is fair, from a financial point of view, to the limited partners of
each of the McNeil Partnerships.
In view of the wide variety of factors considered in connection with the
evaluation of the transaction, Whitehall, WXI/MNL Real Estate and WXI/McN
Realty did not find it practicable to, and did not attempt to, quantify, rank
or otherwise assign relative weights to the specific factors they considered in
reaching their conclusions regarding the fairness of the transaction. See
"Special Factors--Position of Whitehall, WXI/MNL Real Estate and WXI/McN
Realty."
Allocation of the aggregate consideration in the transaction (page 165)
The aggregate consideration in the transaction, including all outstanding
mortgage debt of the McNeil Partnerships, is $644,439,803. The Master Agreement
provides that at the effective time of the mergers, all outstanding mortgage
debt of the participating McNeil Partnerships will either be repaid by WXI/McN
Realty or will remain outstanding following the effective time of the mergers
until its expiration or prepayment, in each case as provided in the Master
Agreement. See "The Master Agreement--Aggregate consideration--Prepayment and
assumption of mortgage debt."
Stanger & Co. has allocated the aggregate consideration among (1) the
general partner interests in each of the McNeil Partnerships, (2) each class of
limited partner units in each of the McNeil Partnerships and (3) the management
assets and other assets of McREMI. The allocations and the methodology of the
allocations are described in more detail in "Special Factors--Opinions and
reports of financial advisors-- Allocation analysis and opinions of Stanger &
Co.--Stanger & Co. allocation analysis," and the dollar values of the
individual allocations are set forth in Table 2. The Master Agreement provides
that the allocations of the aggregate consideration by Stanger & Co. are
binding on Sellers and on WXI/McN Realty, its subsidiaries and affiliates.
After the payment of estimated investment banking fees and expenses, an
aggregate of $35,293,000 has been allocated by Stanger & Co. to the management
assets of McREMI and an aggregate of $606,520,000 has been allocated by Stanger
& Co. to the McNeil Partnerships as a group. See "Partial McREMI Allocated
Value" and total "Allocated Partnership Value," respectively, in Table 2.
The $606,520,000 allocated to the McNeil Partnerships as a group has further
been allocated among each of the individual McNeil Partnerships based on the
percentages agreed to between Stanger & Co., in consultation with Eastdil
Realty Company, and WXI/McN Realty and set forth in the Master Agreement. See
"Partnership Percentage" and "Allocated Partnership Value" in Table 2. The
amount of the aggregate consideration allocated to each individual McNeil
Partnership has further been allocated, after subtracting the principal balance
of all outstanding mortgage debt of that McNeil Partnership estimated as of
January 31, 2000, among the general partner interests in that McNeil
Partnership (see "GP Allocation Amount" in Table 2), the other assets of McREMI
(see "Second McREMI Allocated Value" in Table 2) and each class of limited
partner units in that McNeil Partnership (see "LP Allocation Amount" in Table
2). Stanger & Co. also allocated the aggregate consideration allocated to each
class of limited partner units among the limited partner units in that class.
The aggregate consideration allocated by Stanger & Co. to each McNeil
Partnership was allocated by Stanger & Co. between classes of limited partner
units in that McNeil Partnership based upon the provisions of the limited
partnership agreement relating to a liquidation and termination of that McNeil
Partnership. The aggregate consideration allocated to a class of limited
partners was then allocated among the limited partner units in that class by
dividing the aggregate consideration allocated to that class by the number of
outstanding limited partner units in that class. See "Per Unit Merger
Consideration" in Table 2.
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Of the $606,520,000 allocated to the McNeil Partnerships as a group, an
aggregate of $20,311,000 has been allocated by Stanger & Co. to the general
partner interests in the McNeil Partnerships, net of the estimated aggregate
deficit restoration obligations of the general partners of the McNeil
Partnerships of approximately $6,427,000. Of the $20,311,000 allocated to the
general partner interests in the McNeil Partnerships, $0 represents the general
partners' proportionate interests in the profits and losses of the McNeil
Partnerships, based on the general partners' capital contributions, and
$20,311,000 represents certain rights and other assets corresponding to the
McNeil Partnerships which are being contributed to WXI/McN Realty and its
subsidiaries. In addition, an aggregate of $907,000 has been allocated by
Stanger & Co. to the limited partner interests in the Affiliated McNeil
Partnerships, and an aggregate of $8,542,000 has been allocated by Stanger &
Co. to the other assets of McREMI relating to the McNeil Partnerships.
Therefore, if all of the McNeil Partnerships participate in the transaction,
in consideration for the interests, rights and assets being contributed by
McNeil Partners to WXI/McN Realty and its subsidiaries in the transaction,
McNeil Partners will receive membership interests in WXI/McN Realty and a
credit for a capital contribution to WXI/McN Realty in an amount equal to
approximately $65,053,000, representing the amount of the aggregate
consideration allocated by Stanger & Co. to these interests, rights and assets.
See "Total Allocated McNeil Value" in Table 2.
If less than all of the McNeil Partnerships participate in the transaction,
the portion of the aggregate consideration received by McNeil Partners will be
reduced by the amount of the aggregate consideration allocated by Stanger & Co.
to the interests, rights and assets related to any McNeil Partnerships that do
not participate in the transaction. See "MPLP Allocation Amount" in Table 2. In
addition, the amount of the aggregate consideration allocated to the management
assets of McREMI will be reduced in proportion to the aggregate "Partnership
Percentages" (see Table 2) of any McNeil Partnerships that do not participate
in the transaction. See "Partial McREMI Allocated Value" in Table 2.
The allocations of the aggregate consideration with respect to Fund XXI and
the total allocations described in the preceding paragraphs and throughout this
Proxy Statement reflect the fact that McNeil Partners has agreed to subordinate
the receipt of up to $350,000 of the portion of the Second McREMI Allocated
Value attributable to Fund XXI to the receipt by holders of current income
units in Fund XXI of the per unit aggregate amount which such holders are
entitled to receive on the closing date, up to an aggregate per unit amount
equal to the estimated per unit aggregate amount to be received with respect to
such current income units (see "Total Per Unit Estimate" in Table 2). As a
result, the "Second McREMI Allocated Value" for Fund XXI has been decreased by
$350,000, and the "LP Allocation Amount" for current income units in Fund XXI
has been increased by $350,000. McNeil Partners will be entitled to receive the
subordinated amount of the Second McREMI Allocated Value only if and to the
extent that the actual per unit aggregate amount to be received by holders of
current income units in Fund XXI as of the closing date equals or exceeds
McNeil management's estimates, as of the date of this Proxy Statement, of the
estimated per unit aggregate amount to be received with respect to such current
income units (see "Total Per Unit Estimate" in Table 2), and in such a case the
Second McREMI Allocated Value for Fund XXI and the LP Allocation Amount for
current income units in Fund XXI will be adjusted accordingly. In the event
that McNeil Partners receives any amount of the subordinated Second McREMI
Allocated Value attributable to Fund XXI described above, McNeil Partners will
receive membership interests in and a credit for a capital contribution to
WXI/McN Realty in an amount equal to such amount. In the event that McNeil
Partners receives less than all of the subordinated Second McREMI Allocated
Value attributable to Fund XXI described above, McNeil Partners will receive
membership interests in and a credit for a capital contribution to WXI/McN
Realty in an amount equal to one-half of the amount not received.
The foregoing discussion does not take into account the cash merger
consideration payable in respect of growth/shelter units in Funds XXI, XXII and
XXIII. The cash merger consideration into which each growth/shelter unit in
these McNeil Partnerships will be converted is not based on the Stanger & Co.
allocation
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analysis. Under the Stanger & Co. allocation analysis, growth/shelter units in
each of Funds XXI, XXII and XXIII are entitled to receive $0 because under the
provisions of that McNeil Partnership's limited partnership agreement relating
to a liquidation and termination of that McNeil Partnership holders of
growth/shelter units are not entitled to receive any distributions until
holders of current income units have received the specified priority return on
their investment. Instead, the per unit amount was separately agreed upon
between McNeil Partners and WXI/McN Realty with respect to growth/shelter units
in that McNeil Partnership. See "Per Unit Merger Consideration" in Table 2. The
amount payable with respect to growth/shelter units in these McNeil
Partnerships will be paid by WXI/McN Realty independent of and in addition to
the aggregate consideration in the transaction which is being allocated by
Stanger & Co.
Interests of certain persons in matters to be acted upon; conflicts of interest
(page 140)
In considering the recommendation of the McNeil Investors board of
directors, limited partners of the McNeil Partnerships should be aware that the
McNeil Affiliates have interests in the transaction or relationships that may
present actual or potential conflicts of interest in connection with the
transaction.
Relationships among the McNeil Affiliates and the McNeil Partnerships
The McNeil Affiliates and the McNeil Partnerships are affiliates as a result
of common ownership by Robert A. McNeil. McNeil Investors and McREMI also share
directors and executive officers. Robert A. McNeil, his wife Carole J. McNeil,
and Ron K. Taylor, President of McNeil Investors and McREMI, serve as the only
directors of McREMI and hold three of the four seats on the McNeil Investors
board of directors. The fourth director of McNeil Investors is Paul B. Fay,
Jr., an independent director. Mr. Fay also serves as the sole member of the
special committee.
Ownership of limited partner units in the Partnership
In addition to owning limited partner units in the Affiliated McNeil
Partnerships, McNeil Partners and some of its affiliates, other than the
Partnership, beneficially own limited partner units in the Partnership. See "--
Quorum; vote required." McNeil Partners and these affiliates intend to vote all
of the limited partner units in the Partnership beneficially owned by them for
the merger proposal and for the adjournment proposal. If the Partnership
participates in the transaction, McNeil Partners and these affiliates will
receive the same aggregate amount per unit as each other limited partner of the
Partnership. Therefore, McNeil Partners and its affiliates will receive an
aggregate of $874,237.56 in cash for the limited partner units that they own in
the Partnership if the Partnership participates in the transaction.
Structuring of the transaction by the McNeil General Partners
The transaction has been initiated and structured by the McNeil General
Partners and individuals who are executive officers of McNeil Investors and
McREMI. The transaction provides some benefits to the McNeil Affiliates that
may be in conflict with the benefits provided to the limited partners of the
McNeil Partnerships. The transaction also provides some benefits to the McNeil
Affiliates that are not provided to the limited partners of the McNeil
Partnerships. The McNeil Affiliates had an economic interest, separate from
that of the limited partners, in structuring the transaction to achieve these
benefits.
For example, McNeil Partners will receive a significant, although non-
controlling, equity interest in WXI/McN Realty if the transaction is completed.
If all of the McNeil Partnerships participate in the transaction, in
consideration for the interests, rights and assets being contributed by McNeil
Partners to WXI/McN Realty and its subsidiaries in the transaction, McNeil
Partners will receive membership interests in WXI/McN Realty and credit for a
capital contribution to WXI/McN Realty in an amount equal to approximately
$65,053,000 representing the amount of the aggregate consideration allocated by
Stanger & Co.
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to these interests, rights and assets. See "Total Allocated McNeil Value" in
Table 2. See "--Interests of certain persons in matters to be acted upon,
conflicts of interest--Equity interest of McNeil Partners in WXI/McN Realty;
WXI/McN Realty Operating Agreement."
Stanger & Co. valued the membership interests to be received by McNeil
Partners in WXI/McN Realty in connection with the transaction and valued the
contributions being made by McNeil Partners to WXI/McN Realty in exchange for
those membership interests. Stanger & Co. has advised the McNeil Investors
board of directors and the special committee that based on Stanger & Co.'s
analysis, Stanger & Co. concluded that the aggregate value of those membership
interests was no greater than the aggregate value of those contributions. See
"--Interests of certain persons in matters to be acted upon; conflicts of
interest--Equity interest of McNeil Partners in WXI/McN Realty; WXI/McN Realty
Operating Agreement."
In addition, the transaction, as structured, will allow the McNeil
Affiliates to make the contributions to WXI/McN Realty and its subsidiaries on
a tax-deferred basis and will permit the partners of McNeil Partners to defer
substantial income tax liability. If the transaction had been structured as an
acquisition of the entire McNeil portfolio for cash, it is estimated by Arthur
Andersen LLP that the partners of McNeil Partners would have been required to
pay approximately $30,563,000 in taxes in connection with the transaction. The
transaction, as structured, will permit the partners of McNeil Partners to
defer this tax liability until such time as the properties currently owned by
the McNeil Partnerships are sold or until such time as McNeil Partners disposes
of its equity interest in WXI/McN Realty. See "--Federal income tax
consequences."
Equity interest of McNeil Partners in WXI/McN Realty; WXI/McN Realty operating
agreement
McNeil Partners will receive a significant, although non-controlling, equity
interest in WXI/McN Realty if the transaction is completed.
McNeil Partners will receive an aggregate of $65,053,000, if all of the
McNeil Partnerships participate in the transaction, in consideration for the
interests, rights and assets being contributed by McNeil Partners to WXI/McN
Realty and its subsidiaries in the transaction. The consideration to be
received by McNeil Partners for its contributions to WXI/McN Realty will be
paid in membership interests in WXI/McN Realty. See "--Allocation of the
aggregate consideration in the transaction." Under some circumstances, McNeil
Partners also may make cash contributions to WXI/McN Realty in exchange for
additional membership interests in WXI/McN Realty. In addition, some fees,
expenses and disbursements incurred and paid by the McNeil Affiliates in
connection with the transaction will be treated as a contribution in-kind by
McNeil Partners to WXI/McN Realty in exchange for additional membership
interests in WXI/McN Realty.
Stanger & Co. valued the membership interests to be received by McNeil
Partners in WXI/McN Realty in connection with the transaction and valued the
contributions being made by McNeil Partners to WXI/McN Realty in exchange for
those membership interests. Stanger & Co. has advised the McNeil Investors
board of directors and the special committee that based on Stanger & Co.'s
analysis, Stanger & Co. concluded that the aggregate value of those membership
interests is no greater than the aggregate value of those contributions.
McNeil Partners' membership interests in WXI/McN Realty will, subject to
certain limitations, entitle McNeil Partners to receive from WXI/McN Realty
distributions of net cash flow and net proceeds from capital transactions.
Consequently, McNeil Partners and the other McNeil Affiliates, through their
ownership of partnership interests in McNeil Partners, will have a significant,
although non-controlling, interest in WXI/McN Realty and, subject to certain
limitations, will continue to have the opportunity to participate in and to
benefit from, up to a specific capped return on their investment, future
earnings growth and increases in the value of the participating McNeil
Partnerships and their properties, and any other assets acquired by WXI/McN
Realty and its subsidiaries.
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The opportunity of the McNeil Affiliates to participate in any future
earnings growth of WXI/McN Realty or to benefit from any increases in the value
of the participating McNeil Partnerships or their properties is limited to the
percentage return on investment to which their membership interests entitle
them under the WXI/McN Realty Operating Agreement. This percentage return is
limited to 14% or 15% per annum, depending on the initial capital contribution
of McNeil Partners to WXI/McN Realty. See "WXI/McN Realty Operating Agreement."
Under the terms of the WXI/McN Realty Operating Agreement, following the
effective time of the mergers, McNeil Partners also will have the right to
designate two of the five members of WXI/McN Realty's board of managers. The
remaining three members will be designated by WXI/McN Realty's managing member.
Action by WXI/McN Realty's board of managers will require the affirmative vote
of three of the five managers. However, some actions of WXI/McN Realty's board
of managers will require a supermajority vote of four of the five managers.
Therefore, McNeil Partners will have a right to veto any transactions that
require a supermajority vote of WXI/McN Realty's board of managers. These
transactions include:
. material changes in WXI/McN Realty or its membership;
. certain transactions with potential negative tax effects on McNeil
Partners on or prior to the fifth anniversary of the closing date of the
transaction; and
. certain transactions with affiliates of WXI/McN Realty, WXI/McN Realty's
managing member, Whitehall or Goldman, Sachs & Co.
Retention agreements
After the auction process began in late 1997, McNeil management became
concerned that certain officers and key employees would leave McREMI during the
sale process. To encourage these officers to remain employed with McREMI until
the completion of a sale transaction, in March 1998, McREMI entered into
retention agreements with these officers and employees. These agreements, as
amended, provide that upon the closing of the transaction, McREMI will be
obligated to pay those current officers and employees who remained employed by
McREMI until the closing date an aggregate of $3,967,600, of which $2,252,685
will be paid by McREMI and $1,722,915 will be paid by the McNeil Partnerships,
regardless of whether any particular McNeil Partnership participates in the
transaction. The amounts payable under the retention agreements will be paid in
lieu of other amounts that would be payable in connection with the transaction
under the employment agreements that some of these individuals had entered into
in their capacities as officers of McREMI and McNeil Investors.
One of the officers and key employees with whom McREMI entered into a
retention agreement is Ron K. Taylor. Mr. Taylor is a director and President of
McNeil Investors and McREMI, and in these capacities he participated in the
negotiation of the Master Agreement. Pursuant to his retention agreement, upon
the closing of the transaction, Mr. Taylor will be paid $2,000,000, of which
$1,000,000 will be paid by McREMI and $1,000,000 will be paid by the McNeil
Partnerships, regardless of whether any particular McNeil Partnership
participates.
Conditions to the transaction (page 180)
The obligations of each of WXI/McN Realty and Sellers to effect the
transaction are subject to the fulfillment or waiver of various customary
conditions. In addition, the obligations of each of WXI/McN Realty and Sellers
to effect the transaction are subject to the fulfillment or waiver by each
party to the Master Agreement of additional conditions, including, among
others:
. approval of the merger proposal by holders of the requisite number of
limited partner units in each participating McNeil Partnership, other
than Summerhill, whose approval has already been obtained;
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. settlement of the Schofield litigation (see "Special Factors--Background
of the transaction--Background of the Schofield litigation"); and
. determination of the amount of the special distribution for each
participating McNeil Partnership.
The condition to closing described in the second bullet point above has been
satisfied. On July 8, 1999, the court granted final approval to the settlement
of the Schofield litigation and dismissed the action.
The obligations of WXI/McN Realty to effect the transaction also are subject
to the fulfillment or waiver by WXI/McN Realty of the following additional
conditions, among others:
. Sellers having obtained the consent and estoppel certificate of each
lender of mortgage debt which is being indirectly assumed by WXI/McN
Realty;
. title to each property owned by a participating McNeil Partnership being
free and clear of all material encumbrances and property restrictions,
other than permitted restrictions and encumbrances and other than matters
which would not reasonably preclude the continued use of that property as
it is being used as of June 24, 1999 or would not reasonably materially
and adversely affect the value of that property as it is being used as of
June 24, 1999;
. Lawyer's Title Insurance Corporation, or another nationally recognized
title insurance company reasonably acceptable to Sellers and WXI/McN
Realty, being unconditionally obligated and prepared to issue to or for
the benefit of WXI/McN Realty and one or more of its subsidiaries either
(a) an extended coverage ATLA owner's policy of title insurance (or the
equivalent in the applicable jurisdiction) effective as of the closing
date for each property owned by each participating McNeil Partnership or
(b) at the option of WXI/McN Realty, a "date-down" to an existing policy
of owner's title insurance, in each case in accordance with the title
commitments given by Lawyer's Title Insurance Corporation to WXI/McN
Realty, except for some permitted exclusions;
. Sellers having received estoppels from tenants (including tenants leasing
space pursuant to specified commercial leases) leasing at least 75% of
the aggregate square footage leased pursuant to all commercial leases;
. Sellers having received an estoppel from each lessor under a ground
lease;
. the sum of the net operating incomes, calculated as provided in the
Master Agreement, for the participating McNeil Partnerships, as a group,
for the twelve months ended on the last day of the most recently
completed fiscal month prior to the closing date of the transaction being
greater than or equal to the product determined by multiplying (a) 0.8723
by (b) an amount equal to the sum of the net operating incomes,
calculated as provided in the Master Agreement, for the participating
McNeil Partnerships, as a group, for their 1998 fiscal year; and
. consummation of the contributions by McNeil Partners to WXI/McN Realty
and its subsidiaries of its interests in the participating McNeil
Partnerships, assets of McNeil Partners related to the McNeil
Partnerships and certain assets of McREMI.
Termination of the Master Agreement (page 185)
Right to terminate the Master Agreement in its entirety
The Master Agreement provides that it may be terminated in its entirety, at
any time prior to the effective time of the mergers, regardless of whether or
not the requisite approvals of the holders of limited partner units in any of
the McNeil Partnerships have been obtained, as follows:
. by the mutual written consent of each Seller and WXI/McN Realty;
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. by WXI/McN Realty or any Seller if any judgment or injunction has been
issued preventing the consummation of the transaction other than with
respect to any McNeil Partnership that is not a participating McNeil
Partnership;
. by WXI/McN Realty or any Seller if the closing has not occurred on or
before June 24, 2000;
. by any Seller if (a) WXI/McN Realty materially breaches any of its
representations, warranties, covenants, obligations or agreements set
forth in the Master Agreement, (b) that breach cannot be or is not
remedied within 30 days after written notice of the breach and (c) the
conditions to Sellers' obligations to close relating to the accuracy of
WXI/McN Realty's representations and warranties and the performance of
its obligations cannot be satisfied by June 24, 2000; or
. by WXI/McN Realty if (a) any Seller materially breaches any of its
representations, warranties, covenants, obligations or agreements set
forth in the Master Agreement, (b) that breach cannot be or is not
remedied within 30 days after written notice of the breach and (c) the
conditions to WXI/McN Realty's obligations to close relating to the
accuracy of Sellers' representations and warranties and the performance
of their obligations cannot be satisfied by June 24, 2000.
Right to terminate the Master Agreement with respect to one or more McNeil
Partnerships
In addition to the right of WXI/McN Realty and Sellers to terminate the
Master Agreement in its entirety, under some circumstances, the Master
Agreement may be terminated with respect to a particular McNeil Partnership and
that McNeil Partnership will be excluded from the transaction, whether or not
the requisite approval of that McNeil Partnership has been obtained. These
circumstances include, among others:
. by the mutual written consent of each Seller and WXI/McN Realty;
. by WXI/McN Realty or any Seller if any judgment or injunction has been
issued preventing the consummation of the transaction with respect to
that McNeil Partnership;
. by WXI/McN Realty or any Seller if the holders of the requisite number of
limited partner units in that McNeil Partnership have not approved the
merger proposal with respect to that McNeil Partnership;
. by any Seller if prior to the approval of the merger proposal by the
limited partners of that McNeil Partnership the general partner of that
McNeil Partnership, in the exercise of its good faith judgment as to its
fiduciary duties, determines that it is required to terminate the Master
Agreement with respect to that McNeil Partnership because a superior
acquisition proposal (as defined in "The Master Agreement--Material
covenants--No solicitation by Sellers") has been made with respect to
that McNeil Partnership;
. by WXI/McN Realty if the general partner of that McNeil Partnership: (a)
in connection with an acquisition proposal (as defined in "The Master
Agreement--Material covenants--No solicitation by Sellers") by a third
party for that McNeil Partnership, has failed to recommend to the
limited partners of that McNeil Partnership the approval of the merger
proposal, (b) in connection with an acquisition proposal for that McNeil
Partnership, has withdrawn or modified in a manner adverse to WXI/McN
Realty its approval or recommendation that the limited partners of that
McNeil Partnership approve the merger proposal or (c) has approved or
recommended an acquisition proposal for that McNeil Partnership; or
. by any Seller in respect of a McNeil Partnership which Sellers have
decided to exclude from the transaction because that McNeil Partnership
may fail to satisfy the conditions to closing set forth in the Master
Agreement, if WXI/McN Realty has not elected to keep that McNeil
Partnership in the transaction (see "The Master Agreement--Conditions to
closing--Removal notices").
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Effect of termination
If the Master Agreement is validly terminated, either in its entirety or
with respect to one or more McNeil Partnerships, the Master Agreement will
become null and void and of no further force or effect, either in its entirety
in the case of termination of the Master Agreement in its entirety, or with
respect to one or more McNeil Partnerships in the case of termination of the
Master Agreement with respect to those McNeil Partnerships, and none of the
parties to the Master Agreement, or any of their respective subsidiaries, or
any of their respective partners, stockholders, members, equity holders,
directors, officers, employees, affiliates, agents, representatives, successors
or assigns will have any liability or obligation under the Master Agreement
except that:
. in the case of termination of the Master Agreement in its entirety, any
obligations of the parties to the Master Agreement relating to the
following will survive termination of the Master Agreement:
confidentiality; fees and expenses; effect of termination; nonsurvival
of representations, warranties and covenants; payment of break-up fee;
reimbursement of expenses; and the provisions set forth in Article XI of
the Master Agreement;
. one or more of Sellers or WXI/McN Realty may have liability to one or
more of Sellers or WXI/McN Realty if the basis of the termination is a
willful, material breach by one or more of Sellers or WXI/McN Realty of
one or more of the provisions of the Master Agreement; and
. in the case of termination of the Master Agreement in respect of a
McNeil Partnership, the liabilities and obligations of the parties to
the Master Agreement with respect to the other McNeil Partnerships will
remain in effect, and any obligations of the parties to the Master
Agreement relating to the following will survive termination of the
Master Agreement in respect of that McNeil Partnership: confidentiality;
correction and satisfaction of specified items relating to title; public
announcements; fees and expenses; binding effect of Stanger & Co.
allocations; effect of termination; nonsurvival of representations,
warranties and covenants; payment of break-up fee; reimbursement of
expenses; and the provisions set forth in Article XI of the Master
Agreement.
In addition, in some circumstances if the Master Agreement is terminated,
WXI/McN Realty will receive a break-up fee and Sellers and WXI/McN Realty may
be required to reimburse some of the other's expenses incurred in connection
with the transaction.
Termination fees and expenses (page 188)
Except as described in "The Master Agreement--Fees and expenses," all costs
and expenses incurred in connection with the transaction will be paid by the
party incurring those costs and expenses.
In addition, in some circumstances, WXI/McN Realty will receive a break-up
fee, calculated on a partnership by partnership basis, up to a maximum of $18.0
million, if the Master Agreement is terminated. These circumstances include,
among others:
. the circumstances described in the fourth and fifth bullet points above
in "--Right to terminate the Master Agreement with respect to one or more
McNeil Partnerships;"
. if:
-- either (a) a person who is not an affiliate of WXI/McN Realty,
WXI/McN Realty's managing member or Whitehall consummates an
acquisition of more than 10% of the outstanding limited partner units
in a McNeil Partnership following the date of the Master Agreement or
(b) a person who is not an affiliate of WXI/McN Realty, WXI/McN
Realty's managing member or Whitehall makes an acquisition proposal
for a McNeil Partnership;
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-- that McNeil Partnership is excluded from the transaction because the
holders of the requisite number of limited partner units in that
McNeil Partnership have not approved the merger proposal with respect
to that McNeil Partnership; and
-- that McNeil Partnership enters into a definitive agreement relating
to a higher acquisition proposal (as defined in "The Master
Agreement--Fees and expenses--Partnership break-up fee") within six
months of that McNeil Partnership being excluded from the
transaction; or
. the general partner of a McNeil Partnership as of the date of the Master
Agreement is replaced and that McNeil Partnership is excluded from the
transaction because the holders of the requisite number of limited
partner units in that McNeil Partnership have not approved the merger
proposal with respect to that McNeil Partnership.
Each McNeil Partnership that is excluded from the transaction as described
in the immediately preceding bullet points will be severally liable for payment
to WXI/McN Realty of its partnership break-up fee as set forth in the table
under "The Master Agreement--Fees and expenses--Partnership break-up fee." The
break-up fee payable by each McNeil Partnership is calculated based on the
percentage set forth in the column "Partnership Percentage" in Table 2 opposite
the name of that McNeil Partnership. The break-up fee payable by the
Partnership in the circumstances described in the immediately preceding bullet
points is $1,251,306. No other party to the Master Agreement will have any
liability to WXI/McN Realty or to an excluded McNeil Partnership for the
partnership break-up fee of that excluded McNeil Partnership.
In some circumstances in which the Master Agreement is terminated by WXI/McN
Realty, Sellers may be required to reimburse WXI/McN Realty for the actual,
reasonable out-of-pocket expenses incurred by WXI/McN Realty in connection with
the transaction, up to an aggregate maximum amount of $1.5 million. In
addition, in some circumstances in which the Master Agreement is terminated by
Sellers, WXI/McN Realty may be required to reimburse Sellers for the actual,
reasonable out-of-pocket expenses incurred by Sellers in connection with the
transaction, up to an aggregate of $1.5 million. Any receipt by WXI/McN Realty
of any one or more partnership break-up fees will offset any obligation of
Sellers to reimburse WXI/McN Realty for its expenses. See "The Master
Agreement--Fees and expenses--Reimbursement of expenses."
Financing; sources of funds (page 148)
The total amount of funds required by WXI/McN Realty in connection with the
consummation of the transaction (assuming all McNeil Partnerships are
participating McNeil Partnerships) is estimated to be approximately
$442,916,660, including:
. payment of the cash consideration to the limited partners of the McNeil
Partnerships in the amount of approximately $301,567,950;
. repayment of debt of the McNeil Partnerships in the aggregate amount of
approximately $118,900,000;
. payment of prepayment fees relating to mortgage debt of the McNeil
Partnerships that will be repaid at closing and the payment of the
assumption fees that WXI/McN Realty is required to pay pursuant to the
Master Agreement in the aggregate amount of approximately $2,000,000;
. the amount of the shortfall, if any, of the amount of cash on hand held
by each of the participating McNeil Partnerships at the time of the
closing from the estimated amount of the special distribution that each
participating McNeil Partnership is expected to make (as of the date of
this Proxy Statement, the shortfall is estimated to be $0 ); and
. all other expenses expected to be incurred in connection with the
transaction and other amounts that WXI/McN Realty is required to pay
pursuant to the Master Agreement in an aggregate amount estimated to be
approximately $20,448,710.
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The amounts set forth above will vary if one or more of the McNeil
Partnerships are not participating McNeil Partnerships or if the amount of
working capital distributions, expenses or other amounts vary from the
estimated amounts included in calculating the amounts set forth above.
It is expected that the amount of funds required by WXI/McN Realty in
connection with the transaction will be obtained through a combination of
equity and debt financing. It is expected that WXI/McN Realty will obtain third
party mortgage or other financing that will provide a portion of the amount of
required funds described in the five bullet points above. WXI/McN Realty is
currently negotiating with potential lenders to provide up to an aggregate
amount of approximately $303,079,805 in mortgage loans to be made in respect of
the properties currently owned by the McNeil Partnerships and expected to be
owned by WXI/McN Realty and its subsidiaries after the closing. WXI/McN Realty
has entered into a term sheet with a potential lender concerning a mortgage
loan on certain of the commercial properties and has entered into a term sheet
with a second lender concerning a mortgage loan on certain of the multifamily
properties, however WXI/McN Realty has not, as of the date of this Proxy
Statement, entered into any definitive loan agreements with respect to any
third party mortgage or other financing.
Regardless of whether any third party mortgage or other financing is
obtained by WXI/McN Realty, under the terms of the WXI/McN Realty Operating
Agreement, the managing member of WXI/McN Realty, which is owned by Whitehall
and Archon, has agreed to contribute to WXI/McN Realty an amount in cash equal
to the amounts described in the five bullet points above, and pursuant to the
terms of an equity commitment letter from Whitehall to WXI/McN Realty,
Whitehall has agreed to provide, or to cause one or more of its affiliates to
provide, a cash capital contribution to WXI/McN Realty in an amount equal to
the amounts described in the five bullet points above. The funds to be used by
Whitehall to meet its funding commitments are expected to come from capital
contributions from the partners in Whitehall.
Accounting treatment of transaction (page 159)
WXI/McN Realty will account for the transaction under the "purchase" method
of accounting in accordance with generally accepted accounting principles.
Federal income tax consequences (page 156)
Limited partners will recognize gain or loss on the conversion of their
limited partner units into cash in the merger or on receipt of cash pursuant to
the exercise of dissenters' rights]. This gain or loss will be equal to the
difference between the limited partner's "amount realized" as a result of the
merger and the limited partner's adjusted tax basis in the limited partner
units converted. The gain or loss will be treated as capital gain or capital
loss. However, a portion of that gain or loss that is attributable to so-called
"unrealized receivables" (which includes recapture of some depreciation
deductions previously taken) and "inventory items" (as defined in Section 751
of the Internal Revenue Code) may be treated as ordinary income or ordinary
loss. In general, the special distribution of cash will be treated as a return
of capital to the limited partners. The return of capital to a limited partner
will reduce that limited partner's adjusted tax basis in its limited partner
units in the Partnership to the extent of that return of capital and,
therefore, may increase the amount of any gain or decrease the amount of any
loss recognized by that limited partner on the conversion of its limited
partner units into cash in the merger. To the extent that the special
distribution received by a limited partner exceeds that limited partner's
adjusted tax basis in all of its limited partner units, that excess will be
taxable and will be treated as capital gain. Limited partners should consult
their respective tax advisors as to the particular tax consequences of the
transaction.
The transaction, as structured, will allow McNeil Partners to make the
contributions of its interests in the McNeil Partnerships and the assets of
McNeil Partners and McREMI to WXI/McN Realty on a tax-deferred basis and will
permit the partners of McNeil Partners to defer substantial tax liability that
would be incurred if
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the properties were disposed of in a taxable sale. A taxable sale of the
properties would produce taxable gain in excess of the cash proceeds because of
the relief of partnership liabilities allocated to the McNeil Affiliates. If
the transaction had been structured as an acquisition of the entire McNeil
portfolio for cash, it is estimated by Arthur Andersen LLP that the partners of
McNeil Partners would have been required to pay approximately $30,563,000 in
taxes in connection with the transaction. The transaction, as structured, will
permit the partners of McNeil Partners to defer this tax liability until such
time as the properties currently owned by the McNeil Partnerships are sold or
until such time as McNeil Partners disposes of its equity interest in WXI/McN
Realty. See "--Interests of certain persons in matters to be acted upon;
conflicts of interest --Structuring of the transaction by the McNeil General
Partners."
Dissenters' rights (page 154)
Under Article 7.6 of the California Corporations Code, a limited partner of
the Partnership who does not wish to accept the merger consideration may
dissent from the merger proposal and require the Partnership to purchase for
cash, at their fair market value, the limited partner units owned by that
limited partner if:
. the Partnership participates in the transaction and the transaction is
completed,
. the limited partner does not vote for the merger proposal, and
. the limited partner follows specific procedures set forth in the
California Revised Limited Partnership Act.
Article 7.6 of the California Corporations Code is attached to this Proxy
Statement as Appendix E.
Events subsequent to the execution of the Master Agreement (page 81)
Settlement of litigation brought against the McNeil Affiliates by affiliates
of Carl C. Icahn
On December 7, 1999, in connection with the settlement of litigation brought
against McNeil Partners, McNeil Investors, McREMI, Robert A. McNeil and Carole
J. McNeil by affiliates of Carl C. Icahn, Mr. Icahn and his affiliates entered
into a settlement agreement and a voting and standstill agreement with the
McNeil Partnerships, McNeil Partners, McNeil Investors, McREMI, Robert A.
McNeil and Carole J. McNeil.
The settlement agreement settles and disposes of all claims, demands and
causes of action existing as of the date of the agreement and arising out of,
connected with or incidental to the dealings between the parties to the
settlement agreement. For a description of the litigation and the settlement
agreement, see "Special Factors--Events subsequent to the execution of the
Master Agreement." Other than as described in this Proxy Statement, the exact
terms of the settlement agreement are subject to a confidentiality agreement
among the parties to the settlement agreement.
In consideration of the matters described in the settlement agreement,
McNeil Partners, McREMI, McNeil Investors, Robert A. McNeil and Carole J.
McNeil will make a cash settlement payment to High River at the closing of the
transactions contemplated by the Master Agreement, provided that the settlement
agreement has not been terminated. The McNeil Partnerships and their
subsidiaries have no liability or obligation with respect to the settlement
payment. Moreover, Robert A. McNeil and Carole J. McNeil have agreed that
notwithstanding that they may be entitled to indemnification pursuant to the
provisions of the limited partnership agreements governing the McNeil
Partnerships, neither they, nor their affiliates, will seek or accept from any
McNeil Partnership, or any subsidiary corporation or subsidiary partnership of
a McNeil Partnership, payment or reimbursement of any portion of the settlement
payment or related legal fees.
In connection with the settlement agreement, Mr. Icahn and his affiliates
also entered into a voting and standstill agreement (referred to in this Proxy
Statement as the "Icahn Voting and Standstill Agreement") with
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the McNeil Partnerships, McNeil Partners, McNeil Investors, McREMI, Robert A.
McNeil and Carole J. McNeil. Mr. Icahn and his affiliates agreed in the Icahn
Voting and Standstill Agreement to vote all of the limited partner units
beneficially owned and held of record by them in any of the McNeil Partnerships
for the merger proposal and for the adjournment proposal with respect to that
McNeil Partnership. Mr. Icahn and his affiliates also have agreed in the Icahn
Voting and Standstill Agreement to direct the holders of record of any limited
partner units beneficially owned by them but not held of record by them in any
of the McNeil Partnerships to vote those limited partner units for the merger
proposal and for the adjournment proposal with respect to that McNeil
Partnership. For a description of the beneficial ownership of Mr. Icahn and his
affiliates of limited partner units in the Partnership, see "--Quorum; vote
required."
The Icahn Voting and Standstill Agreement also includes a standstill
provision and a no solicitation provision pursuant to which each of the Icahn
parties, its affiliates and its subsidiaries have agreed to certain
restrictions on their actions with respect to the McNeil Partnerships and
related parties. The standstill provision and no solicitation provision
automatically terminate with respect to all of the McNeil Partnerships on
December 7, 2002, and terminate with respect to particular McNeil Partnerships
under certain other circumstances, including:
. automatic termination if that McNeil Partnership becomes an "excluded
McNeil Partnership" pursuant to the Master Agreement (see "--Termination
of the Master Agreement--Right to terminate the Master Agreement with
respect to one or more McNeil Partnerships"); and
. in the case of any of Funds IX, X, XI, XIV, XV, XX, XXIV, XXV, XXVI and
XXVII, termination at the option of the Icahn parties if the per unit
aggregate amount payable or estimated to be payable with respect to
limited partner units in that McNeil Partnership is reduced below a
specified amount (see "Other Agreements With Respect to the
Transaction--Termination of the Icahn Voting and Standstill Agreement").
The Icahn Voting and Standstill Agreement terminates in its entirety on the
date which is the earliest to occur of:
. June 30, 2000, if the closing of the transaction has not occurred on or
prior to June 30, 2000;
. the termination of the Master Agreement in its entirety (see "--
Termination of the Master Agreement--Right to terminate the Master
Agreement in its entirety"); and
. the termination of the Master Agreement with respect to the last
participating McNeil Partnership (see "--Termination of the Master
Agreement--Right to terminate the Master Agreement with respect to
one or more McNeil Partnerships").
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SPECIAL FACTORS
Background of the transaction
At a meeting held on June 24, 1999, the McNeil Investors board of directors
unanimously determined that the transaction is fair to, and in the best
interests of, the Partnership and its limited partners, approved the Master
Agreement and the transactions contemplated by the Master Agreement and
determined to recommend that the limited partners of the Partnership vote for
the merger proposal. See "--Purposes and reasons for the transaction," "--
Effects of the transaction," "--Recommendations of the special committee and
the McNeil Investors board of directors; fairness of the transaction" and "--
Interests of certain persons in matters to be acted upon; conflicts of
interest." In making its determination that the transaction is fair to, and in
the best interests of, the Partnership and its limited partners and in
approving the Master Agreement and the transactions contemplated by the Master
Agreement, the McNeil Investors board of directors considered as positive
factors, among others, the recommendation of the special committee and the
fairness opinion delivered on that date to the McNeil Investors board of
directors by Stanger & Co. on behalf of the McNeil Partnerships to the effect
that each of the aggregate consideration, the allocations of the aggregate
consideration and the estimated per unit aggregate amount to be received with
respect to each class of limited partners of each of the McNeil Partnerships is
fair from a financial point of view to the holders of each class of limited
partner units in each of the McNeil Partnerships. The following discussion sets
forth information relating to the background of the transaction.
Organization of the public McNeil Partnerships
The public McNeil Partnerships were formed in the 1970s and 1980s to engage
in the business of investing in, holding, managing and disposing of real estate
and real estate-related investments. The original principal objectives of the
public McNeil Partnerships were to provide capital appreciation and tax-
deferred income to their partners.
Restructuring of the public McNeil Partnerships
In 1991 and 1992, each of the public McNeil Partnerships was restructured.
In the restructuring, McNeil Partners became the sole new general partner of
each of the public McNeil Partnerships. See "--Interests of certain persons in
matters to be acted upon; conflicts of interest--Relationships among the McNeil
Affiliates and the McNeil Partnerships." In addition, the limited partnership
agreement of each of the public McNeil Partnerships was amended as part of the
restructuring. In the limited partnership agreement, as amended, of each of the
public McNeil Partnerships, McNeil Partners agreed to commence a liquidation of
the properties of that McNeil Partnership seven years after the restructuring
date and to use commercially reasonable efforts to complete the liquidation and
termination of that McNeil Partnerships by December 31, 1999. The limited
partnership agreement of each of the public McNeil Partnerships provides that
the term of that McNeil Partnership will continue until a date beyond December
31, 1999 unless it is terminated earlier.
Icahn tender offers
In August 1995 and September 1996, High River Limited Partnership, a
Delaware limited partnership controlled by Carl C. Icahn ("High River"), made
unsolicited tender offers to purchase outstanding limited partner units in each
of Funds IX, X, XI, XIV, XV, XX, XXIV, XXV, XXVI and XXVII. See "Related
Security Holder Matters--Past contacts, transactions and negotiations."
Although McNeil Partners contemplated making tender offers for some of the
limited partner units at a higher price than the High River tender offers,
McNeil Partners did not make any tender offers for the limited partner units in
any of the public McNeil Partnerships. The beneficial ownership of limited
partner units in the Partnership by Mr. Icahn and his affiliates as of December
10, 1999 is set forth in "Related Security Holder Matters--Principal holders of
limited partner units." The statements filed by McNeil Partners with the SEC in
response to the Icahn tender offers stated that each of the McNeil Partnerships
that was the subject of an Icahn tender offer had determined to begin an
orderly liquidation of all of its assets. See "--Purposes and reasons for the
transaction."
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Background of the Schofield litigation
In August 1995, limited partners of some of the McNeil Partnerships filed
three separate purported class actions, derivative actions or both on behalf of
the limited partners of some of the McNeil Partnerships. Plaintiffs alleged
that McNeil Partners, McNeil Investors, McREMI and three of their senior
officers and/or directors breached their fiduciary duties and some of their
obligations under the respective limited partnership agreements of the McNeil
Partnerships. Plaintiffs alleged that defendants rendered limited partner units
in the McNeil Partnerships highly illiquid, and artificially depressed the
prices that were available for limited partner units in private sales.
Plaintiffs also alleged that defendants engaged in a course of conduct to
prevent the acquisition of limited partner units by High River by disseminating
purportedly false, misleading and inadequate information. Plaintiffs further
alleged that defendants acted to advance their own personal interests at the
expense of the public McNeil Partnerships' limited partners by failing to sell
the properties of the public McNeil Partnerships and failing to make
distributions to the limited partners.
In late 1996, the parties agreed, and the court so ordered, that these
actions would be consolidated under the action, Schofield et al. v. McNeil
Partners, L.P. et al., Superior Court of the State of California for the County
of Los Angeles, Case No. BC133799 (Class and Derivative Action Complaint). On
December 16, 1996, plaintiffs filed a consolidated and amended complaint, suing
for breach of fiduciary duty, breach of contract and an accounting. Plaintiffs
alleged, among other things, that the management fees paid to McNeil Partners
over the last six years were excessive, that these fees should be reduced
retroactively and that the respective limited partnership agreements governing
the McNeil Partnerships were invalid.
On February 14, 1997, defendants filed a demurrer to the consolidated and
amended complaint and a motion to strike, seeking to dismiss the consolidated
and amended complaint in all respects. The court granted defendants' demurrer
on May 5, 1997, dismissing the consolidated and amended complaint with leave to
amend. On October 31, 1997, plaintiffs filed a second consolidated and amended
complaint. Prior to the time defendants were required to move, answer or
otherwise respond, however, the case was stayed pending settlement discussions.
Because the transaction contemplated in the settlement included all of the
McNeil Partnerships and plaintiffs claimed that an effort should be made to
sell all of the McNeil Partnerships, in or around September 1998, plaintiffs
filed a third consolidated and amended complaint which included allegations
with respect to the McNeil Partnerships which had not been named in previously
filed complaints.
On September 15, 1998, the parties signed a Stipulation of Settlement. For
purposes of settlement, the parties stipulated to a class comprised of all
owners of limited partner units in the McNeil Partnerships during the period
beginning June 21, 1991, the earliest date that proxy materials began to be
distributed in connection with the restructuring of the McNeil Partnerships,
through September 15, 1998. As structured, the Stipulation of Settlement
provided for the payment of over $35 million in distributions and the
commitment to market the McNeil Partnerships for sale, together with McREMI,
through a fair and impartial bidding process overseen by a national investment
banking firm. To ensure the integrity of that process, defendants agreed, among
other things, to involve plaintiffs' counsel in oversight of that process, and
plaintiffs' counsel retained an independent advisor to represent the interests
of limited partners of the McNeil Partnerships in the event of a transaction.
The transaction described in this Proxy Statement is a result of that process.
On October 6, 1998, the court gave preliminary approval to the settlement.
It granted final approval to the settlement on July 8, 1999 and entered a Final
Order and Judgment dismissing the consolidated action with prejudice. See "--
Events subsequent to the execution of the Master Agreement--Settlement of
Schofield litigation." As a condition of final approval, the court requested,
and the parties agreed to, a slight modification of the release in the
Stipulation of Settlement with respect to future claims.
The settlement is not conditioned on the consummation of the transaction
described in this Proxy Statement. However, counsel to the plaintiffs in the
Schofield litigation have reviewed the terms of the transaction described in
this Proxy Statement and oversaw the auction process. In addition, the
plaintiffs' lawyers and financial advisors indicated that they would support
the Stanger & Co. allocation analysis. See
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"--Background of the transaction--Negotiation of definitive transaction
documents with Whitehall--Review of Stanger & Co. allocation analysis by the
Schofield plaintiffs."
Plaintiffs' counsel intend to seek an order awarding attorneys' fees in an
amount not to exceed the lesser of (1) $6 million and (2) four times the actual
attorneys' fees incurred by plaintiffs in the Schofield litigation, and
reimbursing their out-of-pocket expenses incurred in prosecution of the
Schofield litigation. These fees and expenses will be allocated among the
McNeil Partnerships on a pro rata basis, based upon tangible net asset value of
each McNeil Partnership, less liabilities, calculated in accordance with the
limited partnership agreements of the McNeil Partnerships, for the quarter most
recently ended. A preliminary allocation of estimated fees and expenses payable
to plaintiffs' counsel has been taken into account in calculating the estimates
of the modified net working capital balance of each of the McNeil Partnerships
as of the estimated closing date of the transaction.
High River Limited Partnership, Unicorn Associates Corporation and Longacre
Corporation, each of which is an affiliate of Carl C. Icahn, opted-out of the
Schofield settlement. On July 23, 1999, High River, Unicorn and Longacre filed
a complaint against McNeil Partners, McNeil Investors, McREMI, Robert A. McNeil
and Carole J. McNeil based on, among other things, their status as opt-outs
from the Schofield settlement. On September 3, 1999, High River, Unicorn and
Longacre filed a Notice of Appeal of the Schofield settlement. See "--Events
subsequent to the execution of the Master Agreement--High River Complaint."
Background of the auction process
The transaction is the result of an auction and marketing process undertaken
on the advice of PaineWebber and designed to achieve the most favorable price
for the McNeil Partnerships in the shortest period of time. The transaction
represents the culmination of nearly two years of efforts by McNeil Partners to
achieve a sale of the McNeil Partnerships and distribution of the sale proceeds
to the limited partners.
In late 1997, executive officers of McNeil Investors and McREMI (referred to
in this Proxy Statement as "McNeil management") began interviewing investment
banks to explore alternatives for maximizing value to the limited partners of
each of the McNeil Partnerships. McNeil management chose to market the McNeil
portfolio for sale to satisfy, in a manner that would be in the best interests
of the limited partners of each of the McNeil Partnerships, the following:
. McNeil Partners' obligations, pursuant to covenants contained in the
limited partnership agreements of the public McNeil Partnerships, to use
commercially reasonable efforts to liquidate the public McNeil
Partnerships prior to the end of 1999;
. McNeil Partners' commitment in statements filed with the SEC in response
to the Icahn tender offers in 1995 and 1996 to begin a sale or orderly
liquidation of all of the assets of the McNeil Partnerships which were
the subject of those tender offers; and
. the commitment of McNeil Partners and its affiliates in the settlement
of the Schofield litigation to market the McNeil Partnerships for sale,
together with McREMI, through a fair and impartial bidding process
overseen by a national investment banking firm.
See "--Purposes and reasons for the transaction." The McNeil Affiliates
retained Skadden, Arps, Slate, Meagher & Flom LLP ("Skadden, Arps") as their
legal advisor.
Engagement of PaineWebber
On November 24, 1997, each of the McNeil Partnerships retained PaineWebber
as its exclusive financial advisor based on PaineWebber's experience in real
estate transactions. PaineWebber was selected from a group of five investment
banks interviewed by McNeil management on October 22, 23 and 24, 1997.
PaineWebber was retained to assist the McNeil Partnerships in connection
with the investigation of alternatives available to the McNeil Partnerships in
furtherance of a transaction which would maximize the
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value of each of the McNeil Partnerships. PaineWebber was also retained to
assist the McNeil Partnerships and McNeil management in the marketing and sale
of the McNeil Partnerships and the outstanding interests in and assets of the
McNeil Partnerships. PaineWebber was not retained by the McNeil Partnerships to
provide tax, accounting or legal advice, to provide an appraisal of any of the
assets of the McNeil Partnerships, to provide any advice in respect of the
Schofield litigation or to provide any fairness opinions or to render any
advice to any party other than the McNeil Partnerships and the McNeil General
Partners, as general partners of the McNeil Partnerships. In addition,
PaineWebber was not engaged to, and did not, evaluate or provide any advice or
analysis with respect to the aggregate consideration to be paid in the
transaction or any allocation of the aggregate consideration in the
transaction. In accordance with the limitations on its engagement, PaineWebber
delivered no opinions, appraisals or any other calculations of value to the
special committee, the McNeil Investors board of directors or any of the other
parties to the transaction.
Pursuant to the terms of its engagement letter with PaineWebber, the McNeil
Partnerships agreed to pay PaineWebber a retention fee and a transaction fee.
The aggregate retention fee for all of the McNeil Partnerships is $50,000 per
month and is payable each month during the term of PaineWebber's engagement.
The transaction fee is payable only upon consummation of the transaction. The
transaction fee is equal to the sum of 1.11% of the aggregate consideration
paid for the Affiliated McNeil Partnerships and 0.57% of the aggregate
consideration paid for the other McNeil Partnerships, McREMI, McNeil Investors
and McNeil Partners. The transaction fee is currently estimated to be
approximately $3,844,000 (assuming all McNeil Partnerships participate in the
transaction). The transaction fee is payable at the closing of the transaction
and will be reduced by previously paid retention fees. In addition, the McNeil
Partnerships have agreed to reimburse PaineWebber for all reasonable out-of-
pocket expenses incurred by it in connection with its engagement, including
reasonable fees and disbursements of its legal counsel. The McNeil Partnerships
have also agreed to indemnify PaineWebber against certain liabilities in
connection with its engagement, including certain liabilities under the federal
securities laws.
Structuring of the transaction
At the commencement of its engagement, PaineWebber advised McNeil Partners
that the most favorable price for the McNeil Partnerships would likely be
achieved by offering the McNeil Partnerships and McREMI together on an all-or-
none basis. See "--Purposes and reasons for the transaction." PaineWebber's
advice to market the McNeil Partnerships and McREMI together in a single
portfolio was consistent with the informal advice received by McNeil Partners
from the other four investment banks interviewed in October 1997. See " --
Background of the transaction--Background of the auction process--Engagement of
PaineWebber." Each of the other four investment banks interviewed by McNeil
management recommended that McNeil management market the McNeil Partnerships
and McREMI as a single portfolio on an all-or-none basis. With respect to each
investment bank interviewed in October 1997, including PaineWebber, McNeil
management inquired into that investment bank's bases for its recommendation.
Each of the investment banks based its recommendation on similar factors. The
specific factors considered by PaineWebber in making its recommendation are
discussed in detail below.
PaineWebber perceived the advantages of an all-or-none transaction as
compared to separate asset sales of individual McNeil Partnerships to include,
among others, relatively quick liquidity, a less time-consuming marketing
period and the likelihood of a higher aggregate purchase price. See "--
Alternatives to the transaction--Liquidation--Disadvantages of liquidation to
the limited partners."
In particular, at the commencement of its engagement, PaineWebber advised
McNeil Partners that potential purchasers of large real estate portfolios were
continuing to raise capital in the debt and equity markets and that some of the
potential purchasers would likely pay a premium to acquire large portfolios of
assets, rather than acquire individual assets on a piecemeal basis. This factor
made a sale of the underlying properties, rather than the McNeil Partnerships,
equally unsatisfactory to McNeil Partners. Among other factors, McNeil Partners
itself preferred an all-or-none transaction because it felt that the uneven
performance
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of the various properties owned by the McNeil Partnerships might allow
prospective purchasers to "cherry-pick" the most desirable assets to the
exclusion of the others.
In addition, PaineWebber believed that because of the age, product mix and
geographic diversity of the McNeil Partnerships' property portfolio, the
marketing process would likely benefit from McREMI's on-going relationship with
the assets because of McREMI's track record in managing the properties and its
intimate familiarity with the operations and physical condition of those
properties which could not be easily replicated in the short-term. In addition,
PaineWebber advised McNeil management that commencing during the final months
of 1997, there was a significant industry-wide shortage of asset and property
management personnel.
PaineWebber's advice as to the all-or-none structure, together with
PaineWebber's reasons for recommending the all-or-none structure as described
above, were presented verbally to the McNeil Investors board of directors. In
accordance with the limitations on its engagement, PaineWebber did not deliver
any verbal or written opinions, appraisals or other calculations of value to
the McNeil Investors board of directors. See "--Background of the transaction--
Background of the auction process--Engagement of PaineWebber."
McNeil management, McNeil Partners and the McNeil Investors board of
directors believed that they were justified in relying on PaineWebber's advice
because of PaineWebber's reputation, PaineWebber's substantial experience in
sales of real estate assets and property portfolios as well as in mergers and
acquisitions, and PaineWebber's extensive familiarity with the real estate
industry, the state of the real estate and capital markets and the activities,
goals and methods of REITs and other real estate companies which could be
potential purchasers of the McNeil portfolio.
Exclusively on the basis of PaineWebber's advice and in recognition of the
fact that PaineWebber's advice was consistent with the informal advice received
by McNeil Partners from the other four investment banks interviewed in October
1997, McNeil management decided (1) to market the McNeil Partnerships, McNeil
Investors, McNeil Partners and McREMI as a single portfolio (referred in this
Proxy Statement as the "McNeil portfolio"), and (2) that prospective purchasers
should be instructed to submit bids only for the entire McNeil portfolio. See
"--Purposes and reasons for the transaction."
Engagement of Stanger & Co. to provide fairness opinions
On January 12, 1998, each of the McNeil Partnerships retained Stanger & Co.
as its independent advisor to render certain opinions as to the fairness from a
financial point of view to the limited partners of each of the McNeil
Partnerships of the consideration to be received by each of the McNeil
Partnerships pursuant to a transaction.
Solicitation of initial bids
During December 1997 and January 1998, PaineWebber performed due diligence
on the McNeil Partnerships and worked with the McNeil Affiliates and McNeil
management to prepare offering materials based upon the McNeil Partnerships'
books and records. The offering materials consisted of (1) a confidential
offering memorandum, which outlined the offering process and timing, identified
the McNeil Affiliates and the McNeil Partnerships and summarized property
operations, historical and projected capital expenditures and existing debt,
and (2) a property information book, which provided portfolio and property
level detail, including individual property photographs and maps. Subsequent to
the distribution of the offering materials, a bid form was distributed to each
potential purchaser. This bid form outlined the bid process and set forth the
requirements for a conforming bid. An attachment to the bid form set forth in
more detail the specifics of the proposed transaction.
The bid form provided that each bidder agreed to be bound by the following
requirements and agreed to make any offer only in accordance with the following
requirements:
. one offer should be submitted, at one price, on an all-or-none basis,
for the McNeil Partnerships, McREMI, McNeil Investors and McNeil
Partners;
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. the McNeil Partnerships are seeking only cash offers for the limited
partner interests in all of the McNeil Partnerships;
. offers to acquire the general partner interests in all of the McNeil
Partnerships and Robert and Carole McNeil's interests in McREMI, McNeil
Investors and McNeil Partners may include cash, operating partnership
units of a REIT operating partnership or a combination of cash and
operating partnership units;
. the McNeil Partnerships are seeking offers for all of the McNeil
Partnerships, McREMI, McNeil Investors and McNeil Partners;
. offers for ownership interests in less than all of the McNeil
Partnerships, McREMI, McNeil Investors and McNeil Partners will not be
considered;
. all communications and inquiries should be addressed to PaineWebber;
. each bidder acknowledges that (1) these procedures may be modified by
the McNeil Partnerships, McREMI, McNeil Investors and McNeil Partners or
PaineWebber upon notice to any bidder, (2) the McNeil Partnerships may
terminate this process as to one or all bidders for any reason at any
time without liability to any bidder or bidders, and (3) the McNeil
Partnerships reserve the right to commence negotiations at any time with
any bidder, whether or not the date for bids has passed;
. each bidder agrees not to bid jointly with any other person without the
prior consent of PaineWebber and not to form any partnership, joint
venture or other entity with respect to any of the McNeil Partnerships
without the prior consent of PaineWebber;
. final bids are due by 3:00 p.m., Pacific Time, on Friday, March 20,
1998;
. each bidder acknowledges that the bid process shall not create any
liability for the McNeil Partnerships, McREMI, McNeil Investors, McNeil
Partners or PaineWebber;
. neither the McNeil Partnerships, McREMI, McNeil Investors or McNeil
Partners nor their advisors are bound by the terms of the bid in any
respect; and
. all obligations of the McNeil Partnerships, McREMI, McNeil Investors and
McNeil Partners are subject to the execution of definitive
documentation.
The attachment to the bid form further stated that:
. bids should be submitted on a gross basis with no deduction for the cash
balance of the McNeil Partnerships ($36.2 million in the aggregate as of
December 31, 1997), and a purchase price adjustment will be made upon
closing, if necessary, to reflect any changes in that cash balance;
. the McNeil Partnerships will be acquired in separate merger agreements;
. if any one McNeil Partnership cannot be acquired for any reason, the
total cash price will be reduced by the cash amount allocated to that
McNeil Partnership in a fairness opinion provided by Stanger & Co.;
. all limited partner units will be acquired for cash in those separate
merger agreements, and the aggregate cash amount will be allocated among
the various McNeil Partnerships with that allocation being subject to a
fairness opinion provided by Stanger & Co.;
. in the event of a bid by a REIT with an operating partnership, all
general partner interests and assets attributable to those general
partner interests, as well as the general partner interests and limited
partner units of Fairfax, will be acquired by a merger for units in that
operating partnership, cash or a combination of both, and the allocation
of value to those interests and assets will be subject to a fairness
opinion provided by Stanger & Co.;
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. in the event of a bid by a private partnership, all general partner
interests and assets attributable to those general partner interests, as
well as the general partner interests and limited partner units of
Fairfax, will be acquired by a merger for limited partner units in that
private partnership, cash or a combination of both, and the allocation
of value to those interests and assets will be subject to a fairness
opinion provided by Stanger & Co.;
. in the event of a bid by a REIT with an operating partnership, the
assets of McREMI will be acquired for units in that operating
partnership, cash or a combination of both, and the allocation of value
to McREMI will be subject to a fairness opinion provided by Stanger &
Co.;
. in the event of a bid by a private partnership, the assets of McREMI
will be acquired for limited partner units in that private partnership,
cash or a combination of both, and the allocation of value to McREMI
will be subject to a fairness opinion provided by Stanger & Co.;
. merger agreements will be drafted substantially in the form utilized in
public company acquisition documents with (1) no post-closing survival
of representations and warranties, (2) release of existing general
partners, partnerships and others affiliated with the sellers, against
all liabilities and (3) indemnification of existing general partners;
. if operating partnership units are received, the seller will receive
piggyback and demand registration rights with respect to the public REIT
shares underlying those operating partnership units on terms and
conditions satisfactory to the seller;
. the transaction will be conditioned on (1) accuracy of buyer's
representations and warranties, (2) limited partner approval by majority
vote, (3) approval, if required, under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, (4) settlement of the Schofield litigation,
and (5) receipt of a fairness opinion from Stanger & Co.;
. a reasonable break-up fee will be considered by the seller in connection
with "topping" bids; and
. a list of consents is being compiled.
The bid form and attachment did not require any of the bids to be structured
to achieve any particular tax result for either the McNeil Affiliates or the
limited partners of the McNeil Partnerships, whether by restricting alienation
of the McNeil Partnership properties or otherwise directly or indirectly
providing tax deferral for or a tax benefit to any of the McNeil Affiliates. A
bid could have provided that the entire McNeil portfolio would be acquired
solely for cash or for a combination of cash and operating partnership units.
Prospective purchasers were instructed that the McNeil Partnerships sought only
cash offers for the limited partner interests in the McNeil Partnerships
because under the limited partnership agreements of the public McNeil
Partnerships, limited partners owning at least 80% of the outstanding limited
partner units must approve a merger or liquidation in which the limited
partners would receive securities. McNeil Partners believed that it would be
difficult on a practical level to obtain the 80% vote. See "--Purposes and
reasons for the transaction."
On January 30, 1998, after reviewing more than 240 potential bidders,
PaineWebber, in consultation with McNeil management, prepared a refined list of
eighteen potential purchasers. The eighteen potential purchasers were
identified based on (1) their financial ability to acquire a large portfolio of
real estate assets with limited financing contingencies and (2) their
experience and track record in closing large real estate portfolio
transactions. One of these eighteen potential purchasers was an affiliate of
Whitehall.
PaineWebber contacted each of the eighteen potential purchasers and verbally
solicited interest in the proposed transaction. PaineWebber received verbal
indications of interest from all of the eighteen potential purchasers.
Beginning on February 3, 1998, a form of confidentiality agreement was
delivered to each of the eighteen potential purchasers which had not previously
signed the form of confidentiality agreement. Because of the confidential
nature of the information disclosed in the offering materials, each of the
eighteen potential purchasers was required to sign the form of confidentiality
agreement prior to receiving the offering materials. Of the eighteen potential
purchasers, two materially amended the form of confidentiality agreement and
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therefore were excluded from the bidding process based on advice from legal
counsel to the McNeil Partnerships, one potential purchaser was excluded from
the bidding process due to a potential conflict of interest, two potential
purchasers did not sign the form of confidentiality agreement and two potential
purchasers were excluded from the process pursuant to instructions from McNeil
Partners. As a result, of the eighteen potential purchasers identified by
PaineWebber, the eleven potential purchasers who signed the form of
confidentiality agreement received offering materials. The offering materials
were distributed by PaineWebber beginning on February 4, 1998.
The auction process included two rounds of bids. The initial due diligence
period extended from February 5, 1998 to March 19, 1998, during which time the
eleven prospective purchasers who received the offering materials performed due
diligence. A data room was established in Dallas, Texas, where due diligence
files and other contracts and financial information were made available. In
addition, senior members of McNeil management were available during this due
diligence period to answer questions from the potential purchasers. Potential
purchasers also had the opportunity to tour individual properties by performing
"drive-by" inspections.
In addition, to facilitate the bidding and due diligence processes and in an
effort to limit potential contingencies in the bids, the McNeil Partnerships
engaged Professional Services Industries, Inc. ("PSI") to perform Phase I
environmental testing on the properties and Phase II environmental testing on
one property. All reports from PSI were available for review by potential
purchasers throughout the offering process.
During the initial due diligence period, two additional potential purchasers
expressed an interest in the transaction for the McNeil portfolio. Each of
these potential purchasers received and signed the form of confidentiality
agreement without significant amendment and, therefore, received the offering
materials.
Initial bids from the thirteen prospective purchasers were due no later than
3:00 p.m., Pacific time, on March 20, 1998. Eight prospective purchasers,
including the Whitehall affiliate, submitted initial bids by the March 20
deadline. The bids ranged from $600.0 million to $750.7 million, with varying
levels of contingencies and numerous financing sources. Pursuant to the bid
form, each of the bids received was to include a cash amount of $36.2 million,
representing the aggregate cash balance for all of the McNeil Partnerships as
of December 31, 1997.
Solicitation of final bids
From March 21, 1998 to April 8, 1998, PaineWebber contacted the remaining
eight bidders to discuss the financing sources and contingencies outlined in
the initial bids. Additionally, PaineWebber contacted each of the eight bidders
to confirm whether or not the bids submitted conformed to the procedures
outlined in the offering materials. On March 25, 1998, pursuant to instructions
from McNeil Partners, PaineWebber informed one of the bidders that McNeil
management had concerns regarding the ability of that bidder's joint venture
partner to close a transaction. As a result, on or about March 31, 1998, this
bidder replaced its joint venture partner with a new joint venture partner.
PaineWebber gave this bidder and each of the other bidders the opportunity to
submit revised bids by April 9, 1998.
By April 9, 1998, five of the eight bidders, including the Whitehall
affiliate, had submitted revised bids. The five revised bids ranged from $681.1
million to $741.5 million, including the McNeil Partnerships' aggregate cash
balance of $36.2 million as of December 31, 1997. On May 12, 1998, a sixth
bidder submitted a revised bid of $645.0 million, including the McNeil
Partnerships' aggregate cash balance of $36.2 million as of December 31, 1997.
PaineWebber and McNeil management reviewed the March 20 initial bids and the
revised bids, and McNeil management, in consultation with PaineWebber, selected
the three highest bidders. The Whitehall affiliate was not one of the three
final bidders. This selection was based on the highest total dollars offered in
the bids, the extent of contingencies contained in the bids, PaineWebber's and
McNeil management's
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assessment as to the ability of the bidders to secure adequate financing for
the transaction and to close the transaction and subsequent discussions among
McNeil management, PaineWebber and the bidders. The bids submitted by the three
highest bidders (taking into account the revised bids and the original bids of
the three bidders which did not submit revised bids) totaled $750.7 million,
$741.5 million and $738.7 million, respectively, including the McNeil
Partnerships' aggregate cash balance of $36.2 million as of December 31, 1997.
From April 13, 1998 to May 29, 1998, a final due diligence period was
established. McNeil management established this additional due diligence period
to allow each of the final bidders every opportunity to complete its due
diligence and submit its highest and best bid. In addition, some of the final
bidders had requested additional time to complete their due diligence.
On April 14, 1998, PaineWebber provided the three final bidders with a
schedule summarizing significant operating and other material events that had
occurred with respect to each McNeil Partnership subsequent to the original
printing and distribution of the offering materials in early February 1998.
On April 24, 1998, PaineWebber distributed to the three final bidders an
overview of the final bid process which informed the three final bidders that
during the final due diligence period PaineWebber and McNeil management would
schedule, at the request of the three final bidders, times for these bidders to
visit the due diligence data room in Dallas, to conduct "walk through" property
inspection tours and to interview both corporate and property-level management
of the McNeil Partnerships and the properties. Also during the due diligence
period, PaineWebber and McNeil management continued to review the McNeil
portfolio and to address outstanding environmental, structural, title and
operational issues. To facilitate the final bidding and due diligence processes
and in an effort to limit potential contingencies in the final bids, PSI, at
the request of the McNeil Partnerships, prepared structural and engineering
reports for the properties, and American Title Insurance Company ("American
Title") was retained to prepare preliminary title reports and commitments. All
reports from PSI and American Title were delivered to the McNeil Partnerships
from May 14, 1998 to May 18, 1998 and were immediately available for review by
the three final bidders.
In addition, on May 22, 1998, PaineWebber provided the three final bidders
with a first quarter unaudited balance sheet for each McNeil Partnership and a
schedule summarizing significant events that had occurred with respect to each
McNeil Partnership subsequent to the original printing and distribution of the
offering materials and subsequent to the April 14 schedule. The May 22 schedule
informed the three final bidders that: from March 31, 1998 to April 30, 1998,
the McNeil Partnerships had sold six assets for total consideration of
approximately $40.1 million; an outstanding note receivable secured by a
mortgage on an unaffiliated property had been paid-off, with the respective
McNeil Partnership's portion being $1,992,000; and one property, which secured
a mortgage with an aggregate balance of $5,957,419, had been foreclosed upon.
On May 27, 1998, PaineWebber provided each of the three final bidders with a
final bid package. The final bid package included a form letter of intent and a
summary schedule of all properties and mortgage loans of each McNeil
Partnership as of March 31, 1998. The form letter of intent served as the final
bid form and indicated the final bidder's intent to negotiate a definitive
acquisition agreement consistent with the terms set forth in the form of
acquisition agreement included in the final bid package.
The final bids were required to conform to the same requirements as the
initial bids. See "--Background of the transaction--Background of the auction
process--Solicitation of initial bids." In addition, the final bids were
required to include a cash amount of approximately $42.0 million, representing
the aggregate cash balance for all of the McNeil Partnerships as of April 30,
1998, adjusted for asset sales, foreclosures and pay-offs of mortgage debt
subsequent to March 31, 1998.
Each final bidder was required to outline the proposed structure for its
acquisition of the McNeil portfolio and to list any contingencies to its bid.
With the exception of those listed contingencies, by executing and returning
the form letter of intent, the final bidder waived all other conditions to
signing the acquisition
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agreement and represented that it had completed its inspections of the
properties and the other assets to be included in the transaction and had
satisfied itself as to the condition of the properties and the other assets.
Final bids were due from the three final bidders no later than 3:00 p.m.,
Pacific time, on May 29, 1998. Two of the three final bidders submitted a bid.
The third final bidder ("Final Bidder 3") delivered a letter of interest to
McNeil management stating that it had received the final bid package on May 27
but was unable to submit a final bid by the May 29 deadline due to insufficient
time to review the bid package and related documents. However, Final Bidder 3
expressed a continued interest in a transaction for the McNeil portfolio.
PaineWebber and McNeil management reviewed the two final bids received, and
McNeil Partners, after consultation with and considering the advice of
PaineWebber, selected the winning final bid. The selection of the winning final
bidder was based on the amount of the bids, the extent of contingencies
contained in the bids, and PaineWebber's and McNeil management's assessment of
the ability of the bidders to secure adequate financing for the transaction and
the ability of the bidders to close the transaction.
The winning bidder ("Final Bidder 1") submitted a final bid of approximately
$727.4 million, including the McNeil Partnerships' aggregate cash balance of
approximately $42.0 million as of April 30, 1998, adjusted for asset sales,
foreclosures and pay-offs of mortgage debt subsequent to March 31, 1998. Final
Bidder 1's final bid also included $20.0 million to be deposited into escrow at
the closing of the transaction by Final Bidder 1 to fund scheduled deferred
maintenance, capital expenditures and undisclosed liabilities, as determined in
Final Bidder 1's sole discretion. Final Bidder 1 indicated a high likelihood
that the entire $20.0 million would be spent. Final Bidder 1's final bid also
was contingent upon negotiation and execution of a definitive acquisition
agreement to provide for customary allocation of closing costs and was subject
to closing conditions and prorations. Net of the escrow amount and the cash
balance, Final Bidder 1's final bid was approximately $665.4 million.
The second final bidder ("Final Bidder 2") submitted a final bid of
approximately $709.2 million, including the McNeil Partnerships' aggregate cash
balance of approximately $42.0 million as of April 30, 1998, adjusted for asset
sales, foreclosures and pay-offs of mortgage debt subsequent to March 31, 1998.
Net of the cash balance, Final Bidder 2's final bid was approximately $667.2
million. Final Bidder 2's bid was subject to the negotiation and execution of a
definitive acquisition agreement and a thirty-day period to review engineering,
title and survey reports; to conduct Phase II environmental testing on certain
properties; and to complete physical inspection of selected multifamily
properties.
Negotiations with the final bidders
McNeil management, PaineWebber, Skadden, Arps, Final Bidder 1 and Final
Bidder 1's advisors immediately commenced negotiating a definitive acquisition
agreement for the McNeil portfolio. Negotiations continued throughout the month
of June 1998. In early July 1998, during the course of these negotiations,
Final Bidder 1 informed McNeil management and its advisors that it was reducing
its proposed purchase price for the McNeil portfolio by $82.0 million. As a
result, Final Bidder 1's revised bid, net of the $20.0 million escrow amount
and the approximately $42.0 million cash balance, was reduced to approximately
$583.4 million. Final Bidder 1 did not provide an explanation for the reduction
in the proposed purchase price. However, McNeil management and PaineWebber
subsequently learned that beginning during the month of May 1998 and continuing
throughout the months of June and July 1998, Final Bidder 1 had been offering
for sale, but was having difficulty in selling, a similar portfolio of
properties that it owned at that time. In addition, during the months of May,
June and July 1998, the real estate market had begun to show signs of weakening
and there was increased volatility in the capital markets.
After consultation with PaineWebber, McNeil management decided to cease
negotiations with Final Bidder 1 and instructed PaineWebber to contact Final
Bidder 2. However, Final Bidder 2 declined to pursue the transaction further,
due to internal issues and volatility in the capital markets.
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McNeil Partners then instructed PaineWebber to contact Final Bidder 3. On
July 26, 1998, Final Bidder 3 was provided with a draft of an acquisition
agreement for the McNeil portfolio. Following discussions among McNeil
management, PaineWebber and the management of Final Bidder 3, on July 28, 1998,
McNeil Partners and Final Bidder 3 entered into a letter agreement, expiring on
August 14, 1998, pursuant to which McNeil Partners agreed to negotiate the
terms of a definitive acquisition agreement with Final Bidder 3 on an
"exclusive basis." During the exclusivity period, McNeil management,
PaineWebber and Skadden, Arps continued to conduct discussions with Final
Bidder 3 and its legal and financial advisors with respect to the terms of a
transaction for the McNeil portfolio, including the structure of the
transaction and the aggregate purchase price.
On August 14, 1998, Final Bidder 3's exclusivity period expired. McNeil
management and PaineWebber met with the management of Final Bidder 3. At that
time, McNeil management and the management of Final Bidder 3 agreed upon an
aggregate purchase price for the McNeil portfolio of approximately $692.4
million, including the McNeil Partnerships' April 30, 1998 aggregate cash
balance of approximately $42.0 million. Net of the cash balance, the agreed
upon purchase price for the McNeil portfolio, net of the cash balance, was
approximately $650.4 million. Final Bidder 3's proposed purchase price for the
McNeil portfolio, net of the cash balance, was later reduced to approximately
$648.1 million to reflect the repayment of a mortgage note receivable.
The structure of the transaction proposed by Final Bidder 3 contemplated
that an off-balance sheet entity to be formed by a joint venture between Final
Bidder 3 and a to-be-determined source of equity financing would acquire the
McNeil portfolio. In addition, the transaction proposed by Final Bidder 3
required Final Bidder 3 to receive debt financing secured by some of the
properties. Negotiations between McNeil management and Final Bidder 3 continued
after August 14, 1998. However, the exclusivity period was not formally
extended.
Solicitation of additional bids; continued discussions with Final Bidder 3
During the period following the expiration of Final Bidder 3's formal
exclusivity period, at McNeil management's request, PaineWebber began
contacting additional potential purchasers who might be interested in bidding
or rebidding on the McNeil portfolio. However, there was little interest at or
near Final Bidder 3's price level because beginning in August 1998, the debt
capital markets had begun to deteriorate. Consequently, in general, lending
sources became more scarce and capital that was available for potential
purchasers was available on less favorable terms. These factors restricted
potential purchasers from competitively pricing revised bids. As a result, from
August 1998 until the first quarter of 1999, many of the formerly aggressive
buyers in the real estate industry, including several of the original bidders
and other potential purchasers of the McNeil portfolio formerly identified by
PaineWebber, had begun disposing of their real estate assets, or reducing the
priority of new acquisitions, and many of the former lenders in the industry
had effectively exited the business of providing debt financing.
Because of the unsettled condition of the real estate and capital markets
prevailing at the time, the difficulty of receiving a bid from a potential
purchaser that was higher than Final Bidder 3's bid at the time, and in
recognition of the progress made in the negotiations with Final Bidder 3,
McNeil management continued its negotiations with Final Bidder 3 during the
period that PaineWebber was contacting additional potential purchasers.
During this period, Final Bidder 3 visited and inspected each property and
performed significant due diligence. McNeil management and PaineWebber
responded to various due diligence issues raised by Final Bidder 3 and its
advisors. Among other things, McNeil management addressed and remediated, as
requested by Final Bidder 3, several environmental issues disclosed in the
environmental reports prepared by PSI. At the request of McNeil management, PSI
performed Phase II environmental testing on eight properties and Phase III
environmental testing on two properties, and American Title updated the
preliminary title reports and
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commitments on the properties. All third party reports were immediately
available for review by Final Bidder 3 and its advisors as soon as the reports
were delivered to McNeil management.
On October 19, 1998, PaineWebber, at McNeil management's request, met with
management of one of the original eight bidders to review the bidder's original
bid and to solicit interest in submitting a revised bid. PaineWebber provided
this bidder with the most recent due diligence information on the McNeil
portfolio, including all available third-party reports from PSI and American
Title. On October 22, 1998, this bidder submitted a revised verbal all-or-none
bid for the McNeil portfolio in the amount of $570.0 million, net of the McNeil
Partnerships' aggregate cash balance.
On November 5, 1998, PaineWebber, at McNeil management's request, met with
management of a potential purchaser who was not an original bidder in the
auction. This potential purchaser executed the form of confidentiality
agreement signed by the other bidders and began a review of the offering
materials and the most recent due diligence information on the McNeil
portfolio, including all available third-party reports from PSI and American
Title. On November 9, 1999, this potential purchaser submitted a verbal all-or-
none bid for the McNeil portfolio in the amount of $575.0 million, net of the
McNeil Partnerships' aggregate cash balance.
On November 16, 1998, after further negotiations and based on property-level
due diligence, Final Bidder 3 decreased its proposed purchase price for the
McNeil portfolio to approximately $646.1 million, net of the McNeil
Partnerships' aggregate cash balance.
On or about December 1, 1998, PaineWebber, at McNeil management's request,
met with management of another of the original eight bidders to review the
bidder's original bid and to solicit interest in submitting a revised bid.
After this bidder signed the form of confidentiality agreement to extend its
confidentiality obligations, PaineWebber provided this bidder with the most
recent due diligence information on the McNeil portfolio, including all
available third-party reports from PSI and American Title. On December 21,
1998, this bidder submitted a revised verbal all-or-none bid for the McNeil
portfolio in the amount of $565.0 million, net of the McNeil Partnerships'
aggregate cash balance.
The McNeil General Partners and their advisors considered the three verbal
bids; however, based on the amount of the bids, McNeil management did not
believe that these bids were fair to, or in the best interests of, the limited
partners of the McNeil Partnerships.
On December 3, 1998, Final Bidder 3 sent a letter to McNeil management
outlining the final issues for discussion in the transaction documents for the
McNeil portfolio and stating that it would be prepared to sign definitive
agreements on February 2, 1999.
On December 30, 1998, McNeil Partners received a proposal from Everest
Properties II, L.L.C. ("Everest"), a limited partner of some of the McNeil
Partnerships, to purchase for $35.0 million in cash the eight self-storage
properties owned by Fund XXVII. The Everest proposal included a fee of 3% of
the purchase price to be paid to a broker affiliated with Everest and an
exclusivity provision that would have prevented the McNeil Affiliates and the
McNeil Partnerships from negotiating with other bidders, including Final Bidder
3. In addition, the Everest proposal failed to take into account the fact that
the sale of the self-storage properties of Fund XXVII would require the
approval of the limited partners of Fund XXVII. The Everest proposal requested
a response by January 8, 1999.
Throughout the month of January 1999, McNeil management, PaineWebber,
Skadden, Arps, Final Bidder 3 and Final Bidder 3's legal and financial advisors
continued to negotiate the terms of an acquisition agreement and related
transaction documents. During this period, however, Final Bidder 3 expressed
concern over its lack of equity or debt financing and the uncertainty of
available financing given the unsettled condition of the capital markets
prevailing at the time and the length of time which would likely transpire
before the closing of the transaction for the McNeil portfolio.
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On or about January 6, 1999, at McNeil management's request, PaineWebber met
with Final Bidder 2. Final Bidder 2 had expressed a renewed interest in a
transaction for the McNeil portfolio and in potentially rebidding on the McNeil
portfolio. Final Bidder 2 informed PaineWebber that it had severed its
relationship with the source of financing indicated in its May 29, 1998 final
bid and had obtained a new source of financing. After Final Bidder 2's new
source of financing executed the form of confidentiality agreement signed by
the other bidders, PaineWebber provided Final Bidder 2 and its financing source
with the most recent due diligence information for the McNeil portfolio,
including all available third-party reports of PSI and American Title.
On January 7, 1999, the McNeil Investors board of directors held a special
meeting to discuss the status of discussions with Final Bidder 3 and the other
prospective purchasers and to discuss how to respond to the proposal received
from Everest. McNeil management and PaineWebber advised the McNeil Investors
board of directors that discussions were advancing between PaineWebber and
Final Bidder 3 with respect to the issues raised in Final Bidder 3's December
3, 1998 letter and that Final Bidder 3 would be meeting with potential equity
financing sources on January 8, 1999.
PaineWebber then reviewed for the McNeil Investors board of directors the
status of discussions with the original bidder who had submitted a revised,
verbal bid on December 21, 1998 and with Final Bidder 2. PaineWebber indicated
that negotiations were continuing with Final Bidder 3 as well as Final Bidder 2
and believed that Final Bidder 2 would submit another bid for the McNeil
portfolio in the next several weeks. In addition, PaineWebber stated that it
believed that the open business issues with Final Bidder 3 could likely be
resolved within a relatively short period of time.
The McNeil Investors board of directors then considered how to respond to
the proposal received from Everest. Skadden, Arps again advised the McNeil
Investors board of its duties in connection with the transaction and with
respect to the limited partners of the McNeil Partnerships. After extensive
discussion and in recognition of the progress of discussions with Final Bidder
3 and Final Bidder 2, the McNeil Investors board of directors decided to send a
letter of response to the Everest proposal, but not to make a definitive
decision with respect to the Everest proposal until bids were received from the
other interested parties it had directed PaineWebber to contact, at which time
the terms of the Everest proposal could be evaluated along with these other
bids.
Also in early January 1999, McNeil management received a letter from High
River expressing an interest in bidding on the McNeil portfolio.
On January 12, 1999, Final Bidder 2 submitted a verbal all-or-none bid for
the McNeil portfolio in the amount of $635.0 million in cash. However, Final
Bidder 2 also requested that the McNeil Partnerships pay for the cost of a
twelve month interest rate hedge to protect Final Bidder 2 against interest
rate volatility during the period from the signing of a definitive acquisition
agreement until the closing of the transaction for the McNeil portfolio. The
estimated cost of the hedge was $12.0 million. Final Bidder 2's bid, net of the
estimated cost of the hedge, was approximately $623.0 million. In addition, one
of the principals of Final Bidder 2's new financing source died on January 23,
1999. After discussions with PaineWebber, McNeil management was of the view
that the death of the principal called into question the ability of the
financing source to close a transaction for the McNeil portfolio on a timely
basis.
On January 13, 1999, the McNeil Investors board of directors held a special
meeting to discuss the progress of discussions with Final Bidder 3, the bid
submitted by Final Bidder 2 and inquiries received from Everest and High River.
PaineWebber reviewed for the McNeil Investors board of directors the status of
negotiations with Final Bidder 2 and Final Bidder 3, and Skadden, Arps updated
the McNeil Investors board of directors on recent inquiries received from High
River and Everest with respect to the McNeil Partnerships. After discussion,
the McNeil Investors board of directors decided to proceed simultaneously with
Final Bidder 3 and Final Bidder 2, and to send to each of High River and
Everest for signature the form of confidentiality agreement signed by the other
bidders in the auction.
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On or about January 25, 1999, McNeil management and Final Bidder 3
tentatively agreed to an additional reduction of approximately $2.4 million in
Final Bidder 3's proposed purchase price for the McNeil portfolio for certain
environmental issues that Final Bidder 3 believed existed at certain properties
at that time. As a result, the purchase price offered by Final Bidder 3 was
reduced to approximately $643.7 million, net of the McNeil Partnerships'
aggregate cash balance.
On January 26, 1999, the form of confidentiality agreement signed by the
other proposed purchasers and bidders in the auction was sent to High River for
signature. On February 4, 1999, counsel to High River responded that the terms
of the form of confidentiality agreement were unacceptable and therefore High
River would not sign the form of confidentiality agreement. The form of
confidentiality agreement signed by the other proposed purchasers and bidders
also was subsequently sent to Everest for its signature. Everest returned the
confidentiality agreement unsigned and with material amendments, which McNeil
Partners, in consultation with its legal advisors, considered unacceptable.
On February 4, 1999, Final Bidder 3 received preliminary approval from its
board of directors to proceed with the transaction for the McNeil portfolio
subject to receipt of equity and debt financing commitments. However, final
approval from Final Bidder 3's board of directors would be needed to permit
Final Bidder 3 to enter into definitive agreements for the transaction for the
McNeil portfolio. On February 5, 1999, in an effort to give Final Bidder 3 an
incentive to incur costs necessary to allow its financing sources to begin due
diligence, McNeil Partners entered into a new exclusivity agreement with Final
Bidder 3. The exclusivity agreement provided for an expiration date of February
9, 1999. At the time of entering into the new exclusivity agreement, Final
Bidder 3 was informed that McNeil management and PaineWebber expected to meet
with Final Bidder 3's financing sources and that these financing sources should
begin their financial due diligence on the McNeil portfolio prior to the end of
the exclusivity period.
During the exclusivity period, Final Bidder 3 informed McNeil management of
the identity of all of its potential debt and equity financing sources. One of
the equity financing sources identified by Final Bidder 3 was an affiliate of
Whitehall. On February 9, 1999, McNeil management and PaineWebber met with
Final Bidder 3 and representatives of Whitehall to determine the level of
commitment of Final Bidder 3's equity financing sources. On that date, Final
Bidder 3 committed to enter into a letter of intent to obtain from an affiliate
of Whitehall the equity financing. Final Bidder 3 also committed to pay a good
faith deposit to Whitehall or its affiliates. The good faith deposit was a
prerequisite for Whitehall to begin its due diligence. As of the expiration of
the agreed-upon exclusivity period, however, none of Final Bidder 3's equity or
debt financing sources had begun financial due diligence on the McNeil
portfolio, and Final Bidder 3 had not paid a good faith deposit.
From February 9, 1999 to February 22, 1999, Final Bidder 3 and McNeil
management continued to negotiate transaction documents. However, during this
time, Final Bidder 3 advised McNeil management and PaineWebber that its
prospective lending sources were very limited and that the lending sources
identified to McNeil management and PaineWebber would require a minimum due
diligence period of 45 to 60 days. In addition, Final Bidder 3 represented that
its debt financing sources would not allow a funding commitment to remain
outstanding for more than 90 days without an initial commitment fee of
approximately $1.0 million. Final Bidder 3 proposed that the McNeil
Partnerships pay this initial commitment fee.
During the first three weeks of February 1999, representatives of Whitehall,
representatives of Final Bidder 3 and their respective advisors discussed the
terms of an equity investment by Whitehall or its affiliates or designees in
the Final Bidder 3 acquisition entity. During this period, Whitehall and Final
Bidder 3 began negotiating a term sheet outlining the preliminary terms of the
proposed investment by Whitehall or its affiliates. Final Bidder 3 provided
copies of this term sheet to McNeil management. The term sheet proposed that
Whitehall or its affiliates would provide the equity financing to the Final
Bidder 3 acquisition entity by means of a special purpose acquisition entity to
be jointly owned by an affiliate of Final Bidder 3 and an affiliate of
Whitehall.
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On February 22, 1999, McNeil management, PaineWebber and Skadden, Arps met
with representatives of Whitehall and Sullivan & Cromwell, Whitehall's legal
advisor, to answer questions from Whitehall and its advisors with respect to
some of the terms of the transaction negotiated between McNeil management and
Final Bidder 3. Final Bidder 3 had previously provided Whitehall with a copy of
the latest draft of the acquisition agreement negotiated between McNeil
management and Final Bidder 3. During the remainder of the week of February 22,
1999, Skadden, Arps and Sullivan & Cromwell continued to discuss some of the
aspects of Final Bidder 3's proposed transaction for the McNeil portfolio
raised in the February 22 meeting, including the structure of the proposed
transaction and the ownership of the Final Bidder 3 acquisition entity. On
February 23, 1999, Final Bidder 3 informed McNeil management that no progress
had been made in negotiating the term sheet with Whitehall.
On February 24, 1999, McNeil management, PaineWebber and Skadden, Arps
contacted representatives of Whitehall and Sullivan & Cromwell. During those
discussions, McNeil management expressed their frustration in the efforts to
reach an agreement with Final Bidder 3 with respect to a possible transaction
between Final Bidder 3 and the McNeil Partnerships. McNeil management also
asked Whitehall whether it would consider entering into a transaction with the
McNeil Partnerships in which Final Bidder 3 was not a participant. Whitehall
informed McNeil management that because of its discussions with Final Bidder 3
concerning Whitehall's potential role as an equity partner with Final Bidder 3
in a transaction between Final Bidder 3 and the McNeil Partnerships, Whitehall
was not willing to consider such a transaction during the time that Final
Bidder 3 and the McNeil Partnerships were negotiating a possible transaction
between them.
On February 25, 1999, Nolan Brothers, Inc. verbally expressed an interest in
acquiring certain real estate assets owned by Fund XXVII.
On March 1, 1999, following a telephonic special meeting, the McNeil
Investors board of directors decided to terminate discussions with Final Bidder
3 based, among other things, on the fact that Final Bidder 3 had not executed a
term sheet with Whitehall and had not paid the good-faith deposit which it had
committed to pay to Whitehall.
On March 3, 1999, at the direction of McNeil Partners, McNeil management
advised management of Final Bidder 3, and McNeil management and PaineWebber
advised representatives of Whitehall, that discussions with Final Bidder 3 were
terminated because it was unlikely that an agreement with Final Bidder 3 would
be reached and a transaction consummated.
Soon thereafter, McNeil management and PaineWebber contacted representatives
of Whitehall regarding the possibility of Whitehall pursuing a transaction for
the McNeil portfolio. During the month of March 1999, McNeil management,
Skadden, Arps, representatives of Whitehall and Sullivan & Cromwell held
exploratory discussions with respect to a possible transaction for the McNeil
portfolio. Also during this time, Whitehall began due diligence on the McNeil
portfolio. After conducting initial due diligence, Whitehall proposed to McNeil
management that a special purpose acquisition entity to be formed by an
affiliate of Whitehall would acquire the McNeil portfolio for a proposed
purchase price of $646,089,803, the same purchase price that had been agreed to
between McNeil management and Final Bidder 3 on November 16, 1998. Whitehall
and McNeil management discussed preliminarily the possibility of the McNeil
Affiliates receiving an equity interest in the special purpose acquisition
entity.
On March 25, 1999, at a special meeting, the McNeil Investors board of
directors resolved to begin initial discussions with Whitehall with respect to
the preliminary terms of a transaction for the McNeil portfolio, and in
recognition of the favorable exploratory discussions with Whitehall, also
approved the form of an exclusivity letter and confidentiality agreement to be
entered into with Whitehall.
Following the meeting of the McNeil Investors board of directors, on March
26, 1999, Whitehall, McNeil Partners, McREMI, Robert A. McNeil and Carole J.
McNeil executed the exclusivity agreement and related confidentiality
agreement. Pursuant to the terms of the exclusivity agreement, the exclusivity
period was
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scheduled to expire in forty-five days, on May 10, 1999, to allow Whitehall
time to complete its due diligence on the McNeil portfolio.
On April 2, 1999, McNeil management sent a letter to Nolan Brothers
acknowledging receipt of Nolan Brothers' February 25, 1999 proposal but
informing Nolan Brothers that McNeil Partners had entered into a forty-five day
exclusivity agreement with Whitehall and therefore was unable to engage in any
discussion during this period with Nolan Brothers regarding Nolan Brothers'
interest in the McNeil Partnerships. On the same date, McNeil management sent a
similar letter to Everest acknowledging receipt of Everest's previous proposal
but informing Everest that it had entered into a forty-five day exclusivity
agreement with Whitehall and therefore was unable to engage in any discussions
with Everest during this period regarding Everest's interest in the McNeil
Partnerships.
Appointment of the special committee
By the end of April, in light of favorable preliminary discussions with
Whitehall, the McNeil Investors board of directors agreed to commence
negotiating mutually acceptable definitive transaction documents with Whitehall
with respect to a transaction for the McNeil portfolio. The McNeil Investors
board of directors also determined that an independent special committee of the
McNeil Investors board of directors should be set up to participate in the
negotiation of the terms of definitive agreements with respect to the
transaction and to evaluate the transaction on behalf of the limited partners
of the McNeil Partnerships. In addition, as a result of discussions between
McNeil management and Whitehall, Whitehall had agreed that the McNeil
Affiliates would receive an equity interest in the Whitehall acquisition entity
in consideration for their ownership interests in the McNeil Partnerships,
assets of McNeil Partners related to the McNeil Partnerships and certain assets
of McREMI. The McNeil Investors board of directors, after consultation with its
legal advisors, determined that an independent special committee was necessary
in light of the actual or potential conflicts of interest created by the
acquisition by the McNeil Affiliates of equity in WXI/McN Realty as a result of
the proposed transaction. See "--Interests of certain persons in matters to be
acted upon; conflicts of interest--Equity interest of McNeil Partners in
WXI/McN Realty."
On May 7, 1999, the McNeil Investors board of directors increased the
authorized number of directors constituting the McNeil Investors board of
directors from three to four and appointed Paul B. Fay, Jr. as an independent
director of McNeil Investors to fill the newly created directorship. The McNeil
Investors board of directors then constituted the special committee with all of
the power and authority of the McNeil Investors board of directors (1) to
participate, through its legal counsel and financial advisor, in negotiating
the forms, terms and conditions of the definitive agreements respecting the
transaction, and (2) with the assistance of its legal counsel and financial
advisor, to review and pass upon the terms of the transaction on behalf of the
limited partners of the McNeil Partnerships. The McNeil Investors board of
directors appointed Mr. Fay as the sole member of the special committee.
The McNeil Partnerships, on behalf of the special committee, retained
Orrick, Herrington & Sutcliffe LLP ("Orrick, Herrington") as the special
committee's legal advisor and Eastdil Realty Company as the special committee's
financial advisor.
Eastdil Realty Company was retained on behalf of the special committee to
review and corroborate all of the analyses of Stanger & Co., including the
analyses supporting the Stanger & Co. allocation analysis and opinions. See "--
Opinions and reports of financial advisors--Allocation analysis and opinions of
Stanger & Co." Eastdil Realty Company agreed to review, among other things, the
methodologies utilized by Stanger & Co., the professional bases for the use of
those methodologies, the factual bases utilized in connection with the
application of those methodologies and other procedures as Eastdil Realty
Company deemed necessary or appropriate. Eastdil Realty Company also agreed to
render to the special committee, subject to such qualifications deemed
appropriate to Eastdil Realty Company and acceptable to the special committee,
opinions with respect to the matters set forth in "--Opinions and reports of
financial advisors--Eastdil Realty Company opinions."
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For a detailed discussion of the reviews undertaken by Eastdil Realty
Company, see "--Opinions and reports of financial advisors--Eastdil Realty
Company opinions--Financial analysis of Eastdil Realty Company; review of
Stanger & Co. analyses and methodologies."
Engagement of Stanger & Co. to render the allocations
Also on May 7, 1999, the McNeil Partnerships entered into an amended and
restated engagement letter with Stanger & Co. which provided that Stanger & Co.
would perform the allocation analysis, render the appraisals if requested and
render certain additional opinions as to the fairness from a financial point of
view to the holders of each class of limited partner units in each of the
McNeil Partnerships of the consideration to be received by the limited partners
in the transaction. See "--Opinions and reports of financial advisors--
Allocation analysis and opinions of Stanger & Co."
Negotiation of definitive transaction documents with Whitehall
May 8, 1999: Presentations to the special committee and its advisors by
McNeil management and Stanger & Co.
On May 8, 1999, the special committee met with Orrick, Herrington and
Eastdil Realty Company to discuss the procedures that would be followed by the
special committee and the roles and responsibilities of its legal advisor and
financial advisor. Later in the meeting, McNeil management provided the special
committee with a detailed review of the auction process and the current status
of the negotiations with Whitehall. In addition, Stanger & Co. provided a
detailed verbal and written review of its activities since its engagement by
the McNeil Partnerships in January 1998, including a discussion of (1) the
history of the auction process and how that process led to Whitehall being the
proposed buyer; (2) the methodologies it was employing in connection with the
allocation analysis and opinions proposed to be delivered by Stanger & Co.; and
(3) the procedures it was following with respect to valuing each of the
properties owned by the McNeil Partnerships.
Negotiations among the special committee, McNeil management and Whitehall
Following the appointment of the special committee, Orrick, Herrington,
McNeil management, PaineWebber, Skadden, Arps, representatives of Whitehall,
and Sullivan & Cromwell met in person and by telephone conference call several
times during the first weeks of May 1999 to discuss open issues and to
negotiate the terms of the Master Agreement, the WXI/McN Realty Operating
Agreement and other documents with respect to the transaction. Among the issues
being discussed were Whitehall's obligations with respect to the funding of the
Whitehall acquisition vehicle and certain environmental, title and survey
issues that Whitehall believed existed at certain properties at that time.
Additional discussions were also held among Orrick, Herrington, McNeil
management, Skadden, Arps, representatives of Whitehall, Sullivan & Cromwell,
representatives of Archon, and Arent Fox Kitner Plotkin & Kahn PLLC ("Arent
Fox"), which represented Whitehall with respect to these title and survey
issues.
On May 10, 1999, Whitehall's exclusivity period expired. Orrick, Herrington,
McNeil management, PaineWebber, Skadden, Arps, representatives of Whitehall,
Sullivan & Cromwell, representatives of Archon, and Arent Fox continued to
discuss and negotiate the terms of the Master Agreement, the WXI/McN Realty
Operating Agreement and the other transaction documents.
On May 13, 1999, Everest submitted a revised offer to purchase the self-
storage properties and the two office buildings owned by Fund XXVII for $52.0
million in cash. The Everest proposal included a fee of one-half of all real
estate commissions to be paid by Sellers, a sixty-day inspection period and
other material contingencies. The Everest proposal also included an exclusivity
provision that would have prevented the McNeil Affiliates and the McNeil
Partnerships from negotiating with other bidders, including Whitehall.
At a telephonic meeting held in the evening of May 13, 1999, the McNeil
Investors board of directors, after consultation with the special committee and
its advisors and in recognition of the significant progress
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made among the parties in negotiating the terms of the definitive transaction
documents, considered and approved a new exclusivity agreement to be entered
into with Whitehall which would extend the exclusivity period to June 4, 1999.
On May 14, 1999, Whitehall, McNeil Partners, McREMI, Robert A. McNeil and
Carole J. McNeil agreed to Whitehall's prior request to extend the exclusivity
period and entered into the new exclusivity agreement.
On May 13 and 14, 1999, lengthy discussions continued among Orrick,
Herrington, McNeil management, PaineWebber, Skadden, Arps, Sullivan & Cromwell,
representatives of Whitehall, representatives of Archon, and Arent Fox
regarding the terms and conditions of the proposed transaction documents.
On May 20, 1999, the special committee met with Orrick, Herrington to review
the status of the negotiations with Whitehall and the current drafts of the
Master Agreement and the WXI/McN Realty Operating Agreement. By telephone,
Eastdil Realty Company provided a status report with respect to its activities
and with respect to the activities of Stanger & Co. In addition, Orrick,
Herrington reviewed with the special committee the duties and responsibilities
of a board of directors and of a special committee in transactions such as the
one proposed with Whitehall.
On May 20 and 21, 1999, Orrick, Herrington, McNeil management, PaineWebber,
Skadden, Arps, representatives of Whitehall, Sullivan & Cromwell,
representatives of Archon, and Arent Fox met to discuss open issues and to
continue to negotiate the terms of the Master Agreement, the WXI/McN Realty
Operating Agreement and the other transaction documents.
On May 24, 1999, McNeil management sent a letter to Everest acknowledging
receipt of Everest's May 13 proposal but informing Everest that the exclusivity
agreement with Whitehall had been extended and that McNeil management therefore
was unable to engage in any discussions with Everest regarding Everest's
interest in the assets of Fund XXVII.
On May 25, 1999, representatives of Whitehall informed McNeil management
that they received approval from Whitehall's investment committee to proceed
with the transaction for the McNeil portfolio.
May 25, 1999: Presentations to the special committee by Eastdil Realty
Company, Stanger & Co. and PaineWebber
Also on May 25, 1999, the special committee met with Orrick, Herrington to
review (1) the status of the negotiations with Whitehall, (2) the current draft
of the Master Agreement, including the provisions regarding the general
partner's obligation to terminate the Master Agreement based upon the exercise
of its fiduciary duties owing to the limited partners, the break-up fee and the
payment of certain expenses should the transaction be terminated, and (3) the
current draft of the WXI/McN Realty Operating Agreement.
At the May 25 meeting, Stanger & Co. discussed with the special committee,
Orrick, Herrington and Eastdil Realty Company the elements of the status report
on the proposed transaction prepared by Stanger & Co. The status report
included, among other things:
. background on Stanger & Co.;
. a chronology of events and an overview of Stanger & Co.'s assignment;
. estimates prepared by Stanger & Co. of liquidation value, net asset value
and going concern value with respect to each of the McNeil Partnerships,
as well as a detailed discussion of the analyses underlying those
estimates;
. recent secondary market prices and high and low tender offer prices with
respect to limited partner units in each of the McNeil Partnerships;
. detailed information on the financial and other reviews undertaken by
Stanger & Co. in support of its opinions, including property level due
diligence, balance sheet review, partnership agreement review, management
company review and a review of the bid solicitation process;
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. a description of the allocation methodology;
. a preliminary allocation analysis, including estimates of the preliminary
per unit aggregate amount to be received in the proposed transaction with
respect to limited partner units in each of the McNeil Partnerships and
an estimate of the preliminary value of the management assets of McREMI;
. estimates of the deficit restoration obligations of the general partners
of the McNeil Partnerships;
. information concerning Stanger & Co.'s review of the terms of the latest
drafts of the Master Agreement and the WXI/McN Realty Operating
Agreement; and
. a discussion of the opinions to be rendered covering the matters
described in "--Opinions and reports of financial advisors--Allocation
analysis and opinions of Stanger & Co.--First Stanger & Co. opinion."
Throughout Stanger & Co.'s presentation, the special committee, Orrick,
Herrington and Eastdil Realty Company made numerous inquiries with respect to
the financial and other reviews undertaken by Stanger & Co. in support of its
opinions and the analyses set forth in the status report.
Following the presentation of Stanger & Co., Eastdil Realty Company made a
verbal and written presentation to the special committee regarding the status
of its review of the work product of Stanger & Co. and of its independent due
diligence and related analysis regarding the allocation analysis and opinions
proposed to be delivered by Stanger & Co. and by Eastdil Realty Company.
Eastdil Realty Company's review included, among other things:
. a full review of all of Stanger & Co.'s files compiled in connection with
the transaction;
. independent property level due diligence;
. a review of the projection assumptions used by Stanger & Co.;
. an analysis of the valuation parameters utilized by Stanger & Co.;
. a review of Stanger & Co.'s office and retail property cash flow
valuation parameters;
. a review of Stanger & Co.'s valuation for McREMI; and
. a review of Stanger & Co.'s valuation of the membership interests in
WXI/McN Realty to be received by McNeil Partners in connection with the
transaction.
Eastdil Realty Company's review of the Stanger & Co. allocation analysis and
opinions is set forth in more detail under "--Opinions and reports of financial
advisors--Eastdil Realty Company opinions--Financial analysis of Eastdil Realty
Company; review of Stanger & Co. analyses and methodologies." During Eastdil
Realty Company's presentation, the special committee, Orrick, Herrington and
Stanger & Co. made several inquiries of Eastdil Realty Company. In addition,
some minor differences between Stanger & Co. and Eastdil Realty Company
regarding projection assumptions and capitalization rate estimates were
discussed with Stanger & Co. and resolved.
Skadden, Arps then made a presentation to the special committee regarding
the pending Schofield litigation described above under "--Background of the
transaction--Background of the Schofield litigation," describing the history of
the litigation, the proposed settlement, including the involvement, in an
oversight capacity, of plaintiffs' counsel, and the schedule set by the court
to finalize the settlement. Following Skadden, Arps' presentation, Skadden,
Arps, the special committee and Orrick, Herrington had further discussions
concerning the Schofield litigation.
In addition, at the May 25, 1999 meeting of the special committee,
PaineWebber made a verbal and written presentation to the special committee
regarding:
. PaineWebber's engagement by the McNeil Partnerships in November 1997 to
act as exclusive financial advisor in connection with the sale of the
McNeil portfolio,
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. PaineWebber's advice as to the structure of a proposed sale that would
most likely maximize value for the limited partners of the McNeil
Partnerships,
. PaineWebber's due diligence with respect to the McNeil Partnerships and
its assistance to McNeil management in preparing appropriate offering
materials with respect to the proposed sale,
. the bidding process, including the form of the bid, the selection of the
entities to be invited to make an initial bid, the results of the initial
bid, the solicitation of the final bids, the negotiations with the final
bidders and the other circumstances leading to the current negotiations
with Whitehall,
. a comparative analysis, from a financial perspective, of the initial,
revised and final bids, and
. summary information with respect to indications of interest received by
PaineWebber during the auction process with respect to certain properties
of certain of the McNeil Partnerships.
PaineWebber's presentation to the special committee was set forth in a
written factual chronology presented to the special committee and its advisors
at the May 25 meeting. During and following PaineWebber's presentation, the
special committee and Orrick, Herrington made a number of inquiries with
respect to the matters presented.
Continued negotiations with Whitehall
On May 26 and May 27, 1999, Stanger & Co., in consultation with Eastdil
Realty Company, held a number of discussions with Whitehall regarding the
percentages by which the aggregate consideration to be allocated to all of the
McNeil Partnerships taken as a whole would be allocated among the individual
McNeil Partnerships. In addition, on May 26 and May 27, 1999, Orrick,
Herrington, McNeil management, Skadden, Arps, representatives of Whitehall,
Sullivan & Cromwell, and representatives of Archon continued their discussions
regarding the open issues and the terms and conditions of the Master Agreement
and the WXI/McN Realty Operating Agreement.
On May 28, 1999, the special committee met with Orrick, Herrington to review
the status of the negotiations with Whitehall and to discuss the principal
unresolved issues, including the proposed provisions regarding the general
partner's obligation to terminate the Master Agreement based upon the exercise
of its fiduciary duties owing to the limited partners, the break-up fee and the
payment of certain expenses should the transaction be terminated. Orrick,
Herrington provided a detailed summary of certain of the provisions of the
current drafts of the Master Agreement and the WXI/McN Realty Operating
Agreement.
On June 1, 1999, Orrick, Herrington, McNeil management, Skadden, Arps,
representatives of Whitehall, Sullivan & Cromwell, representatives of Archon,
and Arent Fox met by telephone to resolve certain material issues with respect
to the Master Agreement and the other transaction documents. At this time,
representatives of McNeil management, the special committee and Whitehall
agreed to an aggregate purchase price reduction of $1.65 million for additional
environmental issues that Whitehall's environmental consultant identified at
certain properties at that time and for the scheduled expiration of a ground
lease at one of the properties. As a result, the aggregate purchase price
offered by Whitehall was reduced to approximately $644.4 million. This purchase
price reduction was tied to each of the specifically identified properties to
which the issues related and to the respective McNeil Partnerships which owned
those properties.
On June 2, 1999, Orrick, Herrington, McNeil management, Skadden, Arps,
Stanger & Co., Houlihan, Lokey, and Eastdil Realty Company met with
representatives of the lawyers representing the plaintiffs in the Schofield
litigation described above under "--Background of the transaction--Background
of the Schofield litigation," and with their financial advisor, to discuss in
general terms the preliminary conclusions of Stanger & Co. with respect to its
proposed allocation analysis as well as the financial analysis of Houlihan,
Lokey with respect to the value of McREMI.
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June 3, 1999: Presentations to the McNeil Investors board of directors and
the special committee
On June 3, 1999, the McNeil Investors board of directors held a meeting at
Skadden, Arps' offices in New York to hear presentations from their financial
advisors and the financial advisors to the McNeil Partnerships and to determine
whether to authorize proceeding with the transaction with Whitehall. In
attendance at the meeting were Robert A. McNeil, Carole J. McNeil, Ron K.
Taylor and Paul B. Fay, Jr., constituting the entire McNeil Investors board of
directors. Representatives of Eastdil Realty Company, Orrick, Herrington and
Skadden, Arps were also in attendance throughout the meeting. Representatives
of Stanger & Co., PaineWebber and Houlihan, Lokey were in attendance during
certain periods of the meeting.
The June 3, 1999 meeting followed separate meetings of the special
committee, held on May 8, 1999 and May 25, 1999, at which the special committee
received presentations from Stanger & Co., Eastdil Realty Company, PaineWebber,
Skadden, Arps and McNeil management. See "--Background of the transaction--
Negotiation of definitive transaction documents with Whitehall--May 8, 1999:
Presentations to the special committee and its advisors by McNeil management
and Stanger & Co." and "--Background of the transaction--Negotiation of
definitive transaction documents with Whitehall--May 25, 1999: Presentations to
the special committee by Eastdil Realty Company, Stanger & Co. and
PaineWebber."
The June 3, 1999 meeting also represented the culmination of numerous
discussions held throughout the month of May among the special committee, its
legal and financial advisors, McNeil management, its advisors and Stanger & Co.
At the June 3 meeting, verbal and written presentations were made to the
McNeil Investors board of directors by representatives of Stanger & Co.,
PaineWebber and Houlihan, Lokey.
Stanger & Co. reviewed in detail its status report on the transaction. The
status report included, among other things:
. background on Stanger & Co.;
. a chronology of events and an overview of Stanger & Co.'s assignment;
. estimates prepared by Stanger & Co. of liquidation value, net asset value
and going concern value with respect to each of the McNeil Partnerships,
as well as a detailed discussion of the analyses underlying those
estimates;
. recent secondary market prices and high and low tender offer prices with
respect to limited partner units in each of the McNeil Partnerships;
. detailed information on the financial and other reviews undertaken by
Stanger & Co. in support of its opinions, including property level due
diligence, balance sheet review, partnership agreement review, management
company review and a review of the bid solicitation process;
. a description of the allocation methodology;
. a preliminary allocation analysis, including estimates of the preliminary
per unit aggregate amount to be received in the proposed transaction with
respect to limited partner units in each of the McNeil Partnerships and
an estimate of the preliminary value of the management assets of McREMI;
. estimates of the deficit restoration obligations of the general partners
of the McNeil Partnerships;
. information concerning Stanger & Co.'s review of the terms of the latest
drafts of the Master Agreement and the WXI/McN Realty Operating
Agreement; and
. a discussion of the opinions to be rendered covering the matters
described in "--Opinions and reports of financial advisors--Allocation
analysis and opinions of Stanger & Co.--First Stanger & Co. opinion."
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Copies of the status report were provided to everyone in attendance at the
meeting. The status report presented at the June 3 meeting updated the status
report which had been previously presented to the special committee at its May
25, 1999 meeting. See "--Background of the transaction--Negotiation of
definitive transaction documents with Whitehall--May 25, 1999: Presentations to
the special committee by Eastdil Realty Company, Stanger & Co. and
PaineWebber."
Throughout Stanger & Co.'s presentation, members of the McNeil Investors
board of directors, Skadden, Arps, the special committee, Orrick, Herrington
and Eastdil Realty Company asked a number of questions with respect to the
financial and other reviews undertaken by Stanger & Co. in support of its
opinions and the analyses set forth in the status report.
PaineWebber then presented a factual chronology of the disposition process.
The factual chronology presented at the meeting was identical in all material
respects to the presentation made by PaineWebber to the special committee on
May 25, 1999. See "--Background of the transaction--Negotiation of definitive
transaction documents with Whitehall--May 25, 1999: Presentations to the
special committee by Eastdil Realty Company, Stanger & Co. and PaineWebber."
The factual chronology included an overview of the background of the auction
process (see "--Background of the transaction--Background of the auction
process"), a summary of the bids received in the auction and a more detailed
summary of the final bids received in the auction. See "Where You Can Find More
Information." During PaineWebber's presentation, the special committee and
Orrick, Herrington made numerous additional inquiries of PaineWebber with
respect to the auction process and the marketing of the McNeil portfolio. In
accordance with the limitations on its engagement, PaineWebber did not deliver
any verbal or written opinions, appraisals or other calculations of value to
the McNeil Investors board of directors. See "--Background of the transaction--
Background of the auction process--Engagement of PaineWebber."
Following PaineWebber's presentation, the meeting of the McNeil Investors
board of directors was recessed and a separate meeting of the special committee
was held. In attendance at this meeting, in addition to the special committee,
were Orrick, Herrington and Eastdil Realty Company. PaineWebber was also
invited to attend a portion of the meeting to provide the special committee the
opportunity to receive a current update on the entire auction process and the
state of the current real estate and financial markets.
PaineWebber described to the special committee the general state of the real
estate capital markets and responded to questions from the special committee,
Orrick, Herrington and Eastdil Realty Company. PaineWebber did not deliver any
verbal or written opinions, appraisals or other calculations of value to the
special committee.
Following the departure of PaineWebber, Eastdil Realty Company provided a
status report to the special committee (1) on its analysis of the status report
of Stanger & Co. which had been presented to the McNeil Investors board of
directors, and (2) on its opinions to be rendered to the special committee
covering the matters described under "--Opinions and reports of financial
advisors--Eastdil Realty Company opinions--First Eastdil Realty Company
opinion." See "Where You Can Find More Information." Eastdil Realty Company's
status report updated the status report presented to the special committee by
Eastdil Realty Company at the special committee's May 25, 1999 meeting. See "--
Background of the transaction--Negotiation of definitive transaction documents
with Whitehall--May 25, 1999: Presentations to the special committee by Eastdil
Realty Company, Stanger & Co. and PaineWebber."
Based on the foregoing and the presentations made at the recessed meeting of
the McNeil Investors board of directors, the special committee concluded that
negotiations with Whitehall should continue.
Following the meeting of the special committee, the special committee and
Orrick, Herrington held several informal sessions with representatives of
Stanger & Co., PaineWebber and Eastdil Realty Company at which the special
committee and Orrick, Herrington asked numerous follow-up questions of the
respective representatives.
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Later in the afternoon of June 3, the full McNeil Investors board of
directors reconvened and received a presentation from Houlihan, Lokey with
respect to the valuation of McREMI. See "Where You Can Find More Information."
Houlihan, Lokey had been retained by McNeil Partners, McREMI, Robert A. McNeil
and Carole J. McNeil on May 21, 1998, as their personal financial advisor to
advocate on their behalf the fair market value of McREMI. Houlihan, Lokey was
not retained to, and in fact did not, participate in any way in the auction
process.
Following the presentation of Houlihan, Lokey, members of the McNeil
Investors board of directors, the special committee, Orrick, Herrington,
Eastdil Realty Company and Skadden, Arps asked a number of questions of the
individuals making the presentation. Pursuant to the terms of Houlihan, Lokey's
engagement letter, however, all conclusions presented, and all documentation
delivered, by Houlihan, Lokey in connection with the valuation of McREMI are
intended solely for the information of McNeil Partners, McREMI, Robert A.
McNeil and Carole J. McNeil and are not to be relied upon by any other persons.
Following the presentation of Houlihan, Lokey, the McNeil Investors board of
directors briefly recessed and representatives of Houlihan, Lokey left the
meeting.
After the McNeil Investors board of directors reconvened, the special
committee then recommended to the McNeil Investors board of directors, and the
McNeil Investors board of directors authorized McNeil management, its advisors,
the special committee and its advisors, to continue with negotiations of
definitive transaction documents with Whitehall.
Review of Stanger & Co. allocation analysis by the Schofield plaintiffs
On June 8, 1999, Orrick, Herrington, Eastdil Realty Company, McNeil
management, Skadden, Arps, Stanger & Co. and Houlihan, Lokey met with
representatives of the lawyers representing the plaintiffs in the Schofield
litigation and with the plaintiffs' financial advisor to discuss further the
preliminary conclusions of Stanger & Co. with respect to its proposed
allocation analysis as well as the financial analysis of Houlihan, Lokey with
respect to the value of McREMI. This meeting was continued on June 9, 1999, and
during this meeting the Schofield plaintiffs' lawyers and the plaintiffs'
financial advisor indicated they would support the proposed Stanger & Co.
allocation analysis.
Further negotiations with Whitehall
During the following three weeks, Orrick, Herrington, McNeil management,
PaineWebber, Skadden, Arps, representatives of Whitehall and Sullivan &
Cromwell continued to negotiate the final issues with respect to the
transaction and the transaction documents, including issues regarding the
general partner's obligation to terminate the Master Agreement based upon the
exercise of its fiduciary duties owing to the limited partners, break-up fees
and certain transaction expenses, as well as certain remaining title and survey
issues which Whitehall believed existed on certain properties at the time.
On June 14, 1999, the special committee met by telephone with Orrick,
Herrington for the purpose of reviewing the current drafts of the Master
Agreement and the WXI/McN Realty Operating Agreement and the principal
remaining open issues, with particular emphasis on the provisions regarding the
general partner's obligation to terminate the Master Agreement based upon the
exercise of its fiduciary duties owing to the limited partners, break-up fees
and the payment of certain fees upon termination of the Master Agreement.
On June 22, 1999, Orrick, Herrington, McNeil management, Skadden, Arps,
Sullivan & Cromwell, representatives of Whitehall, representatives of Archon,
and Arent Fox met by telephone to attempt to resolve the remaining title and
survey issues. At this time, representatives of McNeil management, the special
committee and Archon agreed to certain per property price reconciliations in
the aggregate amount of $200,000 to be deducted on the closing date of the
transaction from the modified net working capital balances of the respective
McNeil Partnerships which own those properties. See "The Master Agreement--The
mergers--Special distribution of positive net working capital balance."
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Beginning in the late afternoon of June 23, 1999, and continuing until the
morning of June 24, 1999, Skadden, Arps, McNeil management and Sullivan &
Cromwell met to finalize remaining legal issues in the Master Agreement, the
WXI/McN Realty Operating Agreement and the other transaction documents. Orrick,
Herrington, as a representative of the special committee, participated in
portions of this meeting by telephone.
June 24, 1999: Approval of the transaction
At meetings held on June 24, 1999, the special committee recommended to the
McNeil Investors board of directors the approval of the transaction, and the
full McNeil Investors board of directors, including the member of the special
committee, thereafter unanimously approved the transaction.
The June 24, 1999 meetings of the special committee and the McNeil Investors
board of directors were in large part a continuation of the respective meetings
held on June 3, 1999. See "--Background of the transaction--Negotiation of
definitive transaction documents with Whitehall--June 3, 1999: Presentations to
the McNeil Investors board of directors and the special committee." The June 24
meetings of the special committee and the full McNeil Investors board of
directors were held for the primary purposes of:
. reviewing final negotiations with Whitehall;
. reviewing final drafts of the Master Agreement, WXI/McN Realty Operating
Agreement and certain related documents;
. reviewing any other material developments that had occurred with respect
to the transaction since the June 3, 1999 meeting;
. reviewing the status report and opinions to be delivered on June 24, 1999
by Stanger & Co. and, in the case of the special committee, Stanger & Co.
and Eastdil Realty Company;
. receiving presentations from Skadden, Arps, PaineWebber, Stanger & Co.
and Eastdil Realty Company with respect to the matters described in the
preceding bullet points; and
. following such reviews and presentations, making the determinations and
recommendations with respect to the transaction and the merger proposal
and, in the case of the McNeil Investors board of directors, approving
the transaction.
Delivery of first Stanger & Co. opinion and first Eastdil Realty Company
opinion. In the morning of June 24, 1999, Stanger & Co. rendered to the McNeil
Partnerships its fairness opinion, including opinions that the aggregate
consideration, the allocations of the aggregate consideration and the estimated
per unit aggregate amount to be received with respect to each class of limited
partners of each of the McNeil Partnerships is fair from a financial point of
view to the holders of each class of limited partner units in each of the
McNeil Partnerships. This opinion is described in more detail in "--Opinions
and reports of financial advisors--Allocation analysis and opinions of Stanger
& Co.--First Stanger & Co. opinion." Copies of this opinion were delivered in
the morning of June 24, 1999 to both the special committee and the McNeil
Investors board of directors. Also in the morning of June 24, 1999, Stanger &
Co. delivered to the special committee and the McNeil Investors board of
directors an updated status report on the transaction. The status report
included Stanger & Co.'s most recent allocation analysis and most recent
estimates of per unit liquidation value, net asset value and going concern
value. The June 24 status report updated the status report presented by Stanger
& Co. at the June 3, 1999 meeting of the McNeil Investors board of directors.
The June 24 Stanger & Co. opinion and the June 24 status report are each
described in "--Opinions and reports of financial advisors--Allocation analysis
and opinions of Stanger & Co." See also "Where You Can Find More Information."
Also in the morning of June 24, 1999, Eastdil Realty Company rendered to the
special committee its fairness opinion, including opinions that the aggregate
consideration, the allocations of the aggregate consideration and the estimated
per unit aggregate amount to be received with respect to each class of limited
partners of each of the McNeil Partnerships is fair from a financial point of
view to the holders of each class of
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limited partner units in each of the McNeil Partnerships. This opinion is
described in more detail in "--Opinions and reports of financial advisors--
Eastdil Realty Company opinions--First Eastdil Realty Company opinion." The
Eastdil Realty Company opinion was rendered by Eastdil Realty Company following
a detailed review of the work product of Stanger & Co. and the allocation
analysis and opinions proposed to be delivered by Stanger & Co. Eastdil Realty
Company's review included, among other things:
. a full review of all of Stanger & Co.'s files compiled in connection with
the transaction;
. independent property level due diligence;
. a review of the projection assumptions used by Stanger & Co.;
. an analysis of the valuation parameters utilized by Stanger & Co.;
. a review of Stanger & Co.'s office and retail property cash flow
valuation parameters;
. a review of Stanger & Co.'s valuation for McREMI; and
. a review of Stanger & Co.'s valuation of the membership interests in
WXI/McN Realty to be received by McNeil Partners in connection with the
transaction.
Meeting of the special committee. Later on June 24, 1999, the special
committee met by telephone with Orrick, Herrington for the purpose of reviewing
the final negotiations with Whitehall and the final drafts of the Master
Agreement, the WXI/McN Realty Operating Agreement and certain related documents
and preparing its recommendation to the McNeil Investors board of directors.
Following a review of the final negotiations, the final form of the Master
Agreement and the final form of the WXI/McN Realty Operating Agreement, the
special committee reviewed and discussed in detail the updated status report
delivered by Stanger & Co., the Stanger & Co. opinion and the Eastdil Realty
Company opinion.
The special committee then spoke by telephone with representatives of:
. PaineWebber as to whether there were any developments with respect to
third parties expressing interest in the acquisition of the McNeil
Partnerships,
. Skadden, Arps as to the status of the settlement discussions in the
Schofield litigation,
. Stanger & Co. with respect to the opinion and status report of Stanger &
Co. mentioned above, and
. Eastdil Realty Company with respect to its opinion delivered to the
special committee earlier that day.
During each of these telephonic presentations, the special committee and
Orrick, Herrington asked a number of questions of PaineWebber, Skadden, Arps,
Stanger & Co. and Eastdil Realty Company, respectively.
Taking into account all of the foregoing, the special committee:
. determined that the transaction is fair to, and in the best interests of,
the limited partners of each of the McNeil Partnerships, and
. recommended to the McNeil Investors board of directors the approval of
the transaction.
Following its meeting, the member of the special committee participated by
telephone in the McNeil Investors board of directors meeting described below.
Meeting of the McNeil Investors board of directors. On June 24, 1999,
beginning in the early afternoon following the meeting of the special committee
and continuing until the early evening, the McNeil Investors board of directors
held a full board meeting for the purposes of:
. reviewing developments which had occurred since the June 3 meeting of the
McNeil Investors board of directors;
. reviewing the final drafts of the transaction documents;
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<PAGE>
. making its determination with respect to the fairness of the transaction
to the limited partners of each of the McNeil Partnerships;
. approving the Master Agreement; and
. preparing its recommendation to the limited partners of the McNeil
Partnerships.
Robert A. McNeil, Carole J. McNeil, Ron K. Taylor and representatives of
Skadden, Arps were present throughout the meeting, and Paul B. Fay, Jr., the
independent director and member of the special committee, and representatives
of Orrick, Herrington were present throughout the second session of the
meeting.
During the first session of the meeting, Skadden, Arps reviewed for the
McNeil Investors board of directors the final terms of the transaction and the
negotiations and developments which had occurred since the June 3 meeting of
the McNeil Investors board of directors. Throughout Skadden, Arps'
presentation, members of the McNeil Investors board of directors made numerous
detailed inquiries with respect to the terms of the transaction documents and
asked numerous questions about recent developments, negotiations with Whitehall
and the overall transaction. Following the presentation of Skadden, Arps,
members of the McNeil Investors board of directors reviewed and discussed in
detail the updated status report and opinion of Stanger & Co. The members of
the McNeil Investors board of directors then received a telephone presentation
from a representative of Stanger & Co. with respect to the opinion and status
report mentioned above. Stanger & Co.'s presentation included a detailed review
of its status report and its opinion. Throughout Stanger & Co.'s presentation,
the members of the McNeil Investors board of directors asked a number of
questions with respect to the financial and other reviews undertaken by Stanger
& Co. in support of its opinions and the analyses set forth in the status
report.
Following the discussions with the representative of Stanger & Co., the
meeting of the McNeil Investors board of directors briefly recessed while Mr.
Fay and representatives of Orrick, Herrington joined the meeting for the second
session. When the second session of the meeting reconvened, the special
committee reported to the McNeil Investors board of directors its above-
described determination and recommendation. The McNeil Investors board of
directors made inquiries of the special committee and its legal advisors with
respect to the reviews undertaken by the special committee and Eastdil Realty
Company and the other factors considered by the special committee in making its
determination and recommendation. The McNeil Investors board of directors then
adopted the recommendation of the special committee.
Following the report of the special committee, the McNeil Investors board of
directors, taking into account the extensive discussions held at both the June
3 meeting and the June 24 meeting and the numerous presentations received at
each of those meetings, and having considered the recommendation of the special
committee, the Stanger & Co. opinion and each of the other factors enumerated
in "-- Recommendations of the special committee and the McNeil Investors board
of directors; fairness of the transaction--Recommendations of the McNeil
Investors board of directors," unanimously:
. determined that the transaction is fair to, and in the best interests of,
the limited partners of each of the McNeil Partnerships,
. approved the Master Agreement and the transactions contemplated by the
Master Agreement, and
. determined to recommend to the limited partners of each of the McNeil
Partnerships that they approve the merger proposal. See "--Purposes and
reasons for the transaction," "--Effects of the transaction," "--
Recommendations of the special committee and the McNeil Investors board
of directors; fairness of the transaction" and "--Interests of certain
persons in matters to be acted upon; conflicts of interest."
In the evening of June 24, 1999, WXI/McN Realty, the McNeil Partnerships,
the McNeil General Partners and McREMI entered into the Master Agreement. On
the morning of June 25, 1999, McNeil Partners issued a press release announcing
that each of the McNeil Partnerships had entered into a definitive agreement
with WXI/McN Realty.
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Amendments to the Master Agreement. On December 2, 1999, to facilitate
future amendments of the Master Agreement, the parties entered into an
amendment to the Master Agreement to provide that any future amendments to the
Master Agreement would require the written agreement of a majority of the
number of participating McNeil Partnerships as of the date of such amendment
and the written agreement of each of the other parties to the Master Agreement
(other than the McNeil Partnerships); provided, however, that no amendment to
the Master Agreement which materially and adversely affects the rights and
obligations of a participating McNeil Partnership under the Master Agreement
shall be effective against that participating McNeil Partnership unless the
amendment is signed by that participating McNeil Partnership. Prior to the
December 2 amendment, an amendment to the Master Agreement required the written
agreement of all of the parties to the Master Agreement.
On December 10, 1999, the parties to the Master Agreement entered into a
second amendment to the Master Agreement to reflect the obligation of WXI/McN
Realty to pay to holders of growth/shelter units in each of Funds XXI, XXII and
XXIII, if such McNeil Partnerships participate in the transaction, the separate
per unit amounts agreed upon between McNeil Partners and WXI/McN Realty with
respect to growth/shelter units in such McNeil Partnerships.
Events subsequent to the execution of the Master Agreement
High River letter
On July 8, 1999, McNeil Partners, McREMI and Robert A. McNeil received a
letter from High River. Subject to the fulfillment of the "commencement
condition" described below, the letter stated that High River and its
affiliates would commence a tender offer for the Partnership and the other
McNeil Partnerships at the per unit prices specified below, reduced for any
distribution made with respect to the limited partner units after June 25,
1999:
<TABLE>
<S> <C>
Fund IX $ 444.99
Fund X 246.33
Fund XI 232.48
Fund XII 83.62
Fund XIV 225.21
Fund XV 168.75
Fund XX 94.82
Fund XXI(*) 125.46
Fund XXII(*) 0.26
Fund XXIII(*) 0.31
Fund XXIV 357.61
Fund XXV 0.52
Fund XXVI 0.28
Fund XXVII 10.76
Hearth Hollow 42,713.43
Midwest Properties 29,117.01
Regency North 79,841.75
</TABLE>
--------
(*)current income units only
The commencement condition was defined by High River as the Los Angeles
County Superior Court rejecting in its entirety the proposed settlement of the
Schofield litigation and directing further that any new settlement not be
approved without due notice to, and an opportunity to object by, the limited
partners of the McNeil Partnerships.
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Settlement of Schofield litigation
On July 8, 1999, the Los Angeles County Superior Court granted final
approval to the settlement of the Schofield litigation. In granting its
approval, the court considered the High River letter described above. See "--
Background of the transaction--Background of the Schofield litigation."
The settlement is not conditioned on the consummation of the transaction
described in this Proxy Statement. However, counsel to the plaintiffs in the
Schofield litigation have reviewed the terms of the transaction described in
this Proxy Statement and oversaw the auction process. In addition, the
plaintiffs' lawyers and financial advisors indicated that they would support
the Stanger & Co. allocation analysis. See "--Background of the transaction--
Negotiation of definitive transaction documents with Whitehall--Review of
Stanger & Co. allocation analysis by the Schofield plaintiffs."
Plaintiffs' counsel intend to seek an order awarding attorneys' fees in an
amount not to exceed the lesser of (1) $6 million and (2) four times the actual
attorneys' fees incurred by plaintiffs in the Schofield litigation, and
reimbursing their out-of-pocket expenses incurred in prosecution of the
Schofield litigation. These fees and expenses will be allocated among the
McNeil Partnerships on a pro rata basis, based upon tangible net asset value of
each McNeil Partnership, less liabilities, calculated in accordance with the
limited partnership agreements of the McNeil Partnerships, for the quarter most
recently ended. A preliminary allocation of estimated fees and expenses payable
to plaintiffs' counsel has been taken into account in calculating the estimates
of the modified net working capital balance of each of the McNeil Partnerships
as of the estimated closing date of the transaction.
High River and two other affiliates of Mr. Icahn (Unicorn Associates
Corporation and Longacre Corporation) opted-out of the Schofield settlement.
High River Complaint
On July 23 1999, High River, Unicorn and Longacre filed a complaint for
damages in the Supreme Court of the State of New York, County of New York,
entitled High River Limited Partnership et al. v. McNeil Partners, L.P. et al.,
Index No. 99 603526. The complaint is referred to in this Proxy Statement as
the "High River Complaint." The complaint named as defendants McNeil Partners,
McNeil Investors, McREMI, Robert A. McNeil and Carole J. McNeil. High River
alleged that the defendants improperly interfered with tender offers made by
High River for limited partner units in several of the McNeil Partnerships by,
among other things, filing purportedly frivolous litigation to delay High
River's offers, issuing purportedly false and misleading statements opposing
the offers and purportedly forcing High River itself to file litigation to
enforce its rights. High River also alleged that as a result the defendants
caused High River to incur undue expense and that the defendants ultimately
prevented High River from acquiring a greater number of limited partner units.
High River also alleged that the defendants improperly excluded High River from
participating in the auction process for the sale of the McNeil Partnerships,
and otherwise took steps to prevent its participation in the auction. In
addition, High River, Unicorn and Longacre, who are limited partners in, among
others, Funds IX, X, XI, XII, XIV, XV, XX, XXIV, XXV, XXVI and XXVII, have sued
the defendants based on their status as opt-outs from the Schofield settlement.
See "--Background of the transaction--Icahn tender offers" and "--Events
subsequent to the execution of the Master Agreement--Settlement of the
Schofield litigation." High River, Unicorn and Longacre sought undisclosed
damages and an accounting.
On July 30, 1999, defendants filed an answer to the High River Complaint,
denying each and every material allegation contained in the High River
Complaint and asserting several affirmative defenses.
On September 3, 1999, High River, Unicorn and Longacre filed a Notice of
Appeal of the Final Order and Judgment in the Schofield litigation.
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Settlement of the High River litigation
On December 7, 1999, the McNeil Partnerships, McNeil Partners, McNeil
Investors, McREMI, Robert A. McNeil and Carole J. McNeil (collectively referred
to in this discussion as the "McNeil parties") reached an agreement with Mr.
Icahn, High River, Unicorn, Longacre and Riverdale LLC, the general partner of
High River (collectively referred to in this discussion as the "Icahn
parties"), to settle and dispose of all claims, demands and causes of action
existing as of the date of the agreement and arising out of, connected with or
incidental to the dealings between the parties to the settlement agreement,
including all claims, demands and causes of action reflected in the Schofield
litigation or the High River litigation, as well as all prior disputes arising
out of events in the years leading up to the execution of the Master Agreement.
Other than as described below, the exact terms of the settlement agreement are
subject to a confidentiality agreement among the McNeil parties and the Icahn
parties.
On December 7, 1999, concurrently with the execution of the settlement
agreement, the Icahn parties dismissed, with prejudice, as to all parties, with
each party bearing its own costs and attorneys' fees, the High River litigation
as well as any appeal of the Final Order and Judgment in the Schofield
litigation.
In consideration of the dismissal of the High River litigation and any
appeal of the Final Order and Judgment in the Schofield litigation, the mutual
general releases and covenant not to sue described below and the other matters
described in the settlement agreement, McNeil Partners, McREMI, McNeil
Investors, Robert A. McNeil and Carole J. McNeil will make a cash settlement
payment to High River at the closing of the transactions contemplated by the
Master Agreement, provided that the settlement agreement has not been
terminated as described below.
The McNeil Partnerships and their subsidiaries have no liability or
obligation with respect to the settlement payment. Moreover, Robert A. McNeil
and Carole J. McNeil have agreed that notwithstanding that they may be entitled
to indemnification pursuant to the provisions of the limited partnership
agreements governing the McNeil Partnerships, neither they, nor their
affiliates, will seek or accept from any McNeil Partnership, or any subsidiary
corporation or subsidiary partnership of a McNeil Partnership, payment or
reimbursement of any portion of the settlement payment or related legal fees.
The settlement agreement provides for mutual general releases by the Icahn
parties, on the one hand, and by the McNeil parties and WXI/McN Realty, on the
other hand. Each of the Icahn parties, on the one hand, and each of the McNeil
parties and WXI/McN Realty, on the other hand, also has agreed not to initiate,
file or pursue any action, claim, suit or proceeding against the other that
concerns any of the matters which are the subject of the releases. The releases
and covenant not to sue also apply to the respective predecessors, successors,
present and former affiliates, subsidiaries, parents, assigns, officers,
directors, equity holders, partners, members, controlling persons, employees,
attorneys, financial advisors, investment bankers and agents of the Icahn
parties, the McNeil parties and, with some exceptions, WXI/McN Realty.
The settlement agreement terminates in its entirety on the date which is the
earliest to occur of:
. June 30, 2000, if the closing of the transactions contemplated by the
Master Agreement has not occurred on or prior to June 30, 2000;
. the termination of the Master Agreement in its entirety (see "The Master
Agreement--Termination of the Master Agreement--Right to terminate the
Master Agreement in its entirety"); and
. the termination of the Master Agreement with respect to the last
participating McNeil Partnership (see "The Master Agreement--Termination
of the Master Agreement--Right to terminate the Master Agreement with
respect to one or more McNeil Partnerships").
The settlement agreement does not constitute an admission of damages,
wrongdoing or liability by any party.
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<PAGE>
Icahn Voting and Standstill Agreement
On December 7, 1999, in consideration of the McNeil parties and the Icahn
parties executing and delivering the settlement agreement, the McNeil parties
and the Icahn parties also entered into a voting and standstill agreement (the
"Icahn Voting and Standstill Agreement") with respect to the limited partner
units beneficially owned by the Icahn parties in the McNeil Partnerships. For a
more detailed description of the Icahn Voting and Standstill Agreement, see
"Other Agreements With Respect to the Transaction."
Mr. Icahn and his affiliates agreed in the Icahn Voting and Standstill
Agreement to vote all of the limited partner units beneficially owned and held
of record by them in any of the McNeil Partnerships for the merger proposal and
for the adjournment proposal with respect to that McNeil Partnership. Mr. Icahn
and his affiliates also agreed in the Icahn Voting and Standstill Agreement to
direct the holders of record of any limited partner units beneficially owned by
them but not held of record by them in any of the McNeil Partnerships to vote
those limited partner units for the merger proposal and for the adjournment
proposal with respect to that McNeil Partnership. As of the record date, Mr.
Icahn and his affiliates held of record and beneficially owned an aggregate of
886,960 limited partner units in the Partnership, representing in the aggregate
approximately 1.0% of the limited partner units outstanding on the record date.
The Icahn Voting and Standstill Agreement also includes a standstill
provision and a no solicitation provision pursuant to which each of the Icahn
parties, its affiliates and its subsidiaries have agreed to certain
restrictions on their actions with respect to the McNeil Partnerships and
related parties. The standstill provision and no solicitation provision
automatically terminate with respect to all of the McNeil Partnerships on
December 7, 2002, and terminate with respect to particular McNeil Partnerships
under certain other circumstances, including:
. automatic termination if that McNeil Partnership becomes an "excluded
McNeil Partnership" pursuant to the Master Agreement (see "The Master
Agreement--Termination of the Master Agreement--Right to terminate the
Master Agreement with respect to one or more McNeil Partnerships"); and
. in the case of any of Funds IX, X, XI, XIV, XV, XX, XXIV, XXV, XXVI and
XXVII, termination at the option of the Icahn parties if the per unit
aggregate amount payable or estimated to be payable with respect to
limited partner units in that McNeil Partnership is reduced below a
specified amount (see "Other Agreements with Respect to the Transaction--
Termination of the Icahn Voting and Standstill Agreement").
The Icahn Voting and Standstill Agreement terminates in its entirety on the
date which is the earliest to occur of:
. June 30, 2000, if the closing of the transaction has not occurred on or
prior to June 30, 2000;
. the termination of the Master Agreement in its entirety (see "The Master
Agreement--Termination of the Master Agreement--Right to terminate the
Master Agreement in its entirety"); and
. the termination of the Master Agreement with respect to the last
participating McNeil Partnership (see "The Master Agreement--Termination
of the Master Agreement--Right to terminate the Master Agreement with
respect to one or more McNeil Partnerships").
Purposes and reasons for the transaction
Purposes and reasons of the McNeil Partnerships and the McNeil Affiliates for
engaging in the transaction
The transaction is the result of an auction and marketing process undertaken
on the advice of PaineWebber and designed to achieve the most favorable price
for the McNeil Partnerships in the shortest period of time. The transaction
represents the culmination of nearly two years of efforts by McNeil Partners to
achieve a sale of the McNeil Partnerships and distribution of the sale proceeds
to the limited partners.
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<PAGE>
In late 1997, McNeil management chose to market the McNeil portfolio for
sale to satisfy, in a manner that would be in the best interests of the limited
partners of each of the McNeil Partnerships, the following:
. McNeil Partners' obligations, pursuant to covenants contained in the
limited partnership agreements of the public McNeil Partnerships, to use
commercially reasonable efforts to liquidate the public McNeil
Partnerships prior to the end of 1999 (see "--Background of the
transaction--Restructuring of the public McNeil Partnerships");
. McNeil Partners' commitment in statements filed with the SEC in response
to the Icahn tender offers in 1995 and 1996 to begin a sale or orderly
liquidation of all of the assets of the McNeil Partnerships which were
the subject of those tender offers (see "--Background of the
transaction--Icahn tender offers"); and
. the commitment of McNeil Partners and its affiliates in the settlement of
the Schofield litigation to market the McNeil Partnerships for sale,
together with McREMI, through a fair and impartial bidding process
overseen by a national investment banking firm (see "--Background of the
transaction--Background of the Schofield litigation").
The McNeil Partnerships and the McNeil Affiliates entered into the
transaction described in this Proxy Statement because, among other things:
. McNeil Partners believes that the transaction satisfies the obligations
described in the three bullet points above in a manner that McNeil
Partners believes is in the best interests of the limited partners of
each of the McNeil Partnerships.
. The transaction provides each of the limited partners of each of the
McNeil Partnerships with an opportunity to dispose of its investment in
the McNeil Partnerships for a greater per unit aggregate amount of cash,
based on the analyses of Stanger & Co., and more quickly than in a
property by property liquidation (see --Alternatives to the transaction--
Liquidation--Disadvantages of liquidation to the limited partners);
. The transaction provides the limited partners of the McNeil Partnerships
with the opportunity to liquidate their investment in the McNeil
Partnerships for cash at a price and on terms that the McNeil Investors
board of directors, McNeil Partners and Robert A. McNeil believe are fair
to the limited partners of each of the McNeil Partnerships.
The McNeil Investors board of directors has unanimously determined, and
McNeil Partners and Robert A. McNeil each has concluded, that the transaction
is fair to each of the McNeil Partnerships and its limited partners. In making
that determination and in reaching that conclusion, the McNeil Investors board
of directors, McNeil Partners and Robert A. McNeil each considered as positive
factors the recommendation of the special committee and a written fairness
opinion delivered to the McNeil Investors board of directors by Stanger & Co.
on behalf of the McNeil Partnerships to the effect that the aggregate
consideration, the allocations of the aggregate consideration and the estimated
per unit aggregate amount to be received with respect to each class of limited
partners of each of the McNeil Partnerships are each fair from a financial
point of view to the holders of each class of limited partner units in each of
the McNeil Partnerships. The McNeil Investors board of directors, McNeil
Partners and Robert A. McNeil also considered the other factors enumerated in
"--Recommendations of the special committee and the McNeil Investors board of
directors; fairness of the transaction." See "--Recommendations of the special
committee and the McNeil Investors board of directors; fairness of the
transaction," "--Position of McNeil Partners and Robert A. McNeil regarding the
fairness of the transaction," "--Effects of the transaction" and "--Opinions
and reports of financial advisors--Allocation analysis and opinions of Stanger
& Co.--First Stanger & Co. opinion."
Moreover, the terms of the transaction have been reviewed and approved by
counsel to the plaintiffs in the Schofield litigation. See "--Background of the
transaction--Background of the Schofield litigation."
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Structuring of the transaction
The transaction is the result of an auction and marketing process undertaken
on the advice of PaineWebber and designed to achieve the most favorable price
for the McNeil Partnerships in the shortest period of time. The structure of
the transaction provides the limited partners of the McNeil Partnerships with
the opportunity to liquidate their investment in the McNeil Partnerships for
cash at a price and on terms that the McNeil Investors board of directors,
McNeil Partners and Robert A. McNeil believe are fair to the limited partners
of each of the McNeil Partnerships. The structure of the transaction also
provides each of the limited partners of each of the McNeil Partnerships with
an opportunity to dispose of its investment in the McNeil Partnerships for a
greater per unit aggregate amount of cash, based on the analyses of Stanger &
Co., and more quickly than in a property by property liquidation. See "--
Alternatives to the transaction--Liquidation--Disadvantages of liquidation to
the limited partners."
At the commencement of its engagement, PaineWebber advised McNeil Partners
that the most favorable price for the McNeil Partnerships would likely be
achieved by offering the McNeil Partnerships and McREMI together on an all-or-
none basis. See "--Background of the transaction--Background of the auction
process--Structuring of the transaction." On the basis of PaineWebber's advice,
McNeil management decided (1) to market the McNeil Partnerships, McNeil
Investors, McNeil Partners and McREMI as a single portfolio, and (2) to
instruct prospective purchasers to submit bids only for the entire portfolio.
See "--Background of the transaction--Background of the auction process--
Structuring of the transaction" and "--Background of the transaction--
Background of the auction process--Solicitation of final bids."
Prospective purchasers also were instructed that the McNeil Partnerships
sought only cash offers for the limited partner interests in the McNeil
Partnerships. See "--Background of the transaction--Background of the auction
process--Structuring of the transaction" and "--Background of the transaction--
Background of the auction process--Solicitation of final bids." Under the
limited partnership agreements of the public McNeil Partnerships, limited
partners owning at least 80% of the outstanding limited partner units must
approve a reorganization transaction. A reorganization transaction includes a
merger or liquidation of a McNeil Partnership in which the limited partners
would receive securities. In contrast, approval by limited partners owning only
a majority of each class of limited partner units is required to approve a
merger in which the limited partners will receive only cash. The supermajority
provision was included in the limited partnership agreements for the purpose of
protecting limited partners against the perceived abuse of "roll-up"
transactions. Because McNeil Partners believed that it would be difficult on a
practical level to obtain the 80% vote, McNeil Partners considered only those
transactions in which the limited partners of the public McNeil Partnerships
would receive cash. See "--Alternatives to the transaction."
In addition, prospective purchasers were instructed that a transaction for
the McNeil Partnerships should be structured as a merger. McNeil Partners
believed that a merger would achieve several benefits to the limited partners
of the McNeil Partnerships that would not be achieved in a property by property
liquidation of the McNeil Partnerships. Among other things, structuring the
transaction as a merger eliminated the difficulties that would have been
encountered if prospective purchasers were allowed to purchase the more
attractive properties, leaving behind the less attractive properties that could
prove time-consuming and expensive for an individual McNeil Partnership to
liquidate. Moreover, a merger also may permit the McNeil Partnerships to avoid
the payment of some of the transfer taxes generally associated with a sale of
the properties. In addition, a merger of the McNeil Partnerships would not
trigger certain due-on-sale covenants in the mortgage debt of some of the
McNeil Partnerships that otherwise might be triggered by a sale of the
individual properties of those McNeil Partnerships.
The bid form and attachment distributed to potential purchasers in the
auction did not require any of the bids to be structured to achieve any
particular tax result for either the McNeil Affiliates or the limited partners
of the McNeil Partnerships, whether by restricting alienation of the McNeil
Partnership properties or otherwise directly or indirectly providing tax
deferral for or a tax benefit to any of the McNeil Affiliates. A bid could have
provided that the entire McNeil portfolio would be acquired solely for cash or
for a combination of cash
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<PAGE>
and operating partnership units. See "--Background of the transaction--
Background of the auction process--Solicitation of initial bids."
The transaction, as structured, provides that McNeil Partners will receive a
significant, although non-controlling, equity interest in WXI/McN Realty if the
transaction is completed. If all of the McNeil Partnerships participate in the
transaction, in consideration for the interests, rights and assets being
contributed by McNeil Partners to WXI/McN Realty and its subsidiaries in the
transaction, McNeil Partners will receive membership interests in WXI/McN
Realty and credit for a capital contribution to WXI/McN Realty in an amount
equal to approximately $65,053,000, representing the amount of the aggregate
consideration allocated by Stanger & Co. to these interests, rights and assets.
See "Total Allocated McNeil Value" in Table 2. See "--Interests of certain
persons in matters to be acted upon, conflicts of interest--Equity interest of
McNeil Partners in WXI/McN Realty."
Stanger & Co. valued the membership interests to be received by McNeil
Partners in WXI/McN Realty in connection with the transaction and valued the
contributions being made by McNeil Partners to WXI/McN Realty in exchange for
those membership interests. Stanger & Co. has advised the McNeil Investors
board of directors and the special committee that based on Stanger & Co.'s
analysis, Stanger & Co. concluded that the aggregate value of those membership
interests is no greater than the aggregate value of those contributions. See
"--Interests of certain persons in matters to be acted upon; conflicts of
interest--Equity interest of McNeil Partners in WXI/McN Realty" and "--Opinions
and reports of financial advisors--Allocation analysis and opinions of Stanger
& Co.--Financial analysis of Stanger & Co.--WXI/McN Realty Operating Agreement
review."
In addition, the transaction, as structured, will allow McNeil Partners to
transfer its general partner interests in the McNeil Partnerships, its limited
partner interests in the Affiliated McNeil Partnerships, assets of McNeil
Partners and assets of McREMI to WXI/McN Realty and WXI/McN Realty's
subsidiaries in exchange for membership interests in WXI/McN Realty on a tax-
deferred basis and will permit the partners of McNeil Partners to defer
substantial income tax liability that would be incurred if there were to be a
taxable sale of the properties. A taxable sale of the properties would produce
taxable gain in excess of cash proceeds because of the relief of partnership
liabilities allocated to them. See "--Federal income tax consequences--Tax
consequences to McNeil Partners" and "--Interests of certain persons in matters
to be acted upon, conflicts of interest--Structuring of the transaction by the
McNeil General Partners."
If the transaction had been structured as an acquisition of the entire
McNeil portfolio for cash, it is estimated by Arthur Andersen LLP that the
partners of McNeil Partners would have been required to pay approximately
$30,563,000 in taxes in connection with the transaction. The transaction, as
structured, will permit the partners of McNeil Partners to defer this tax
liability until such time as the properties currently owned by the McNeil
Partnerships are sold or until such time as McNeil Partners disposes of its
equity interest in WXI/McN Realty. See "--Federal income tax consequences--Tax
consequences to McNeil Partners."
Recommendations of the special committee and the McNeil Investors board of
directors; fairness of the transaction
Recommendations of the special committee
At a meeting held on June 24, 1999, the special committee, considering as
positive factors, among other things, a fairness opinion delivered to the
special committee by Eastdil Realty Company and a fairness opinion delivered to
the McNeil Investors board of directors by Stanger & Co. on behalf of the
McNeil Partnerships (see "--Opinions and reports of financial advisors"):
. determined that the transaction is fair to, and in the best interests of,
the limited partners of each of the McNeil Partnerships; and
. recommended to the McNeil Investors board of directors the approval of
the transaction.
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Positive factors considered. In determining that the transaction is fair to,
and in the best interests of, the limited partners of each of the McNeil
Partnerships and in recommending to the McNeil Investors board of directors the
approval of the transaction, the special committee considered the following
factors, each of which, in the special committee's view, supported the special
committee's determination regarding the fairness of the transaction and its
recommendation:
. The transaction satisfied McNeil Partners' obligations under the limited
partnership agreements of each of the public McNeil Partnerships to use
commercially reasonable efforts to complete the liquidation and
termination of the public McNeil Partnerships by December 31, 1999. In
addition, the transaction also satisfied the commitment of McNeil
Partners in a settlement of the Schofield litigation to market the McNeil
Partnerships for sale, together with McREMI, through a fair and impartial
bidding process overseen by a national investment banking firm. See "--
Background of the transaction--Restructuring of the public McNeil
Partnerships," "--Background of the transaction--Icahn tender offers" and
"--Background of the transaction--Background of the Schofield
litigation."
. The transaction was structured to maximize the value of each of the
McNeil Partnerships. PaineWebber advised McNeil Partners that the most
favorable price for the McNeil Partnerships would likely be achieved by
offering for sale the McNeil Partnerships, McNeil Partners, McNeil
Investors and McREMI as a single portfolio on an all-or-none basis, a
structure that would allow a potential purchaser to acquire a large
portfolio of real estate managed by a competent and experienced
management team with a demonstrated track record of operating the
properties over an extended period of time. This was particularly
important because of the geographic diversity of the properties and the
age of the improvements on most of the properties. In addition, the
structure selected eliminated the difficulties that would have been
encountered if prospective purchasers were allowed to purchase the more
attractive properties, leaving behind the less attractive properties that
could prove time-consuming and expensive for an individual McNeil
Partnership to liquidate. See "--Purposes and reasons for the
transaction."
. The manner in which the auction process with respect to the proposed
transaction was structured, the method and criteria for selection of the
potential bidders, the detailed information with respect to the
properties furnished to the prospective bidders, the conduct of the
initial and final bid stages of the auction process and the lengthy
negotiations that were conducted with the final bidders, ultimately
leading to WXI/McN Realty as the prospective purchaser. See "--Background
of the transaction--Background of the auction process."
. WXI/McN Realty has agreed to an aggregate purchase price for all of the
assets being acquired in the transaction. The special committee took into
account that Stanger & Co., the independent advisor to the McNeil
Partnerships, made the following allocations: (1) the allocation of the
aggregate consideration between the management assets of McREMI, on the
one hand, and the McNeil Partnerships as a group, on the other hand; (2)
the allocation of the aggregate consideration to each individual McNeil
Partnership; and (3) the allocation of the aggregate consideration
allocated to each individual McNeil Partnership among the general partner
interests in that McNeil Partnership, other assets of McREMI related to
that McNeil Partnership and each class of limited partner units in that
McNeil Partnership. The allocations and the methodology of the
allocations are described in more detail in "--Opinions and reports of
financial advisors--Allocation analysis and opinions of Stanger & Co.--
Stanger & Co. allocation analysis" and the dollar values of the
individual allocations are set forth in Table 2.
. If a participating McNeil Partnership has a positive modified net working
capital balance on the closing date of the transaction, limited partners
of that participating McNeil Partnership will receive their pro rata
share of a special distribution of the positive net working capital
balance. The modified net working capital balance of each of the McNeil
Partnerships will be calculated in accordance with the terms of the
Master Agreement and will be based on the net working capital balance of
that McNeil Partnership as of the closing date. This special distribution
will be made in accordance with the provisions of that
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McNeil Partnership's limited partnership agreement governing distributions
of surplus cash, except that the general partner of that McNeil
Partnership will not receive any part of the special distribution.
. The opinion dated June 24, 1999 of Stanger & Co. to the effect that, as
of the date of the opinion, and subject to the assumptions,
qualifications and limitations set forth in the opinion, each of the
aggregate consideration, the allocations of the aggregate consideration
and the estimated per unit aggregate amount to be received with respect
to each class of limited partners of each of the McNeil Partnerships is
fair from a financial point of view to the holders of each class of
limited partner units in each of the McNeil Partnerships. See "--Opinions
and reports of financial advisors--Allocation analysis and opinions of
Stanger & Co.--First Stanger & Co. opinion." In addition, the special
committee has taken into account the opinion dated December 10, 1999 of
Stanger & Co. in which Stanger & Co. rendered fairness opinions with
respect to additional matters. See "--Opinions and reports of financial
advisors--Allocation analysis and opinions of Stanger & Co.--Second
Stanger & Co. opinion." The special committee did not take any specific
actions to adopt Stanger & Co.'s June 24, 1999 opinion or December
10, 1999 opinion. However, these opinions were one of the factors
considered by the special committee in making its determination that the
transaction is fair to, and in the best interests of, the limited
partners of each of the McNeil Partnerships, and in recommending to the
McNeil Investors board of directors the approval of the transaction.
. The fact that the estimated per unit aggregate amount, including both the
merger consideration and the special distribution, to be received with
respect to each class of limited partners of each of the McNeil
Partnerships upon the closing of the transaction was greater than the
Stanger & Co. estimates of (1) the going concern value per limited
partner unit in that McNeil Partnership, (2) the net asset value per
limited partner unit in that McNeil Partnership and (3) the liquidation
value per limited partner unit in that McNeil Partnership. See Table 1
and "--Alternatives to the transaction." For a discussion of the going
concern value, net asset value and liquidation value per limited partner
unit which were considered by the special committee, see Table 1 and "--
Alternatives to the transaction."
. The opinion dated June 24, 1999 of Eastdil Realty Company, which was
engaged by the McNeil Partnerships for the benefit of the special
committee as the financial advisor to the special committee, to the
effect that, as of the date of the opinion, and subject to the
assumptions, qualifications and limitations set forth in the opinion,
each of the aggregate consideration, the allocations of the aggregate
consideration and the estimated per unit aggregate amount to be received
with respect to each class of limited partners of each of the McNeil
Partnerships is fair from a financial point of view to the holders of
each class of limited partner units in each of the McNeil Partnerships.
See "--Opinions and reports of financial advisors--Eastdil Realty Company
opinions--First Eastdil Realty Company opinion." In addition, the special
committee has taken into account the opinion dated December 10, 1999 of
Eastdil Realty Company in which Eastdil Realty Company rendered fairness
opinions with respect to additional matters. See "--Opinions and reports
of financial advisors--Eastdil Realty Company opinions--Second Eastdil
Realty Company opinion." The special committee did not take any specific
actions to adopt Eastdil Realty Company's June 24, 1999 opinion or
December 10, 1999 opinion. However, these opinions were one of the
factors considered by the special committee in making its determination
that the transaction is fair to, and in the best interests of, the
limited partners of each of the McNeil Partnerships, and in recommending
to the McNeil Investors board of directors the approval of the
transaction.
. The fact that the total consideration that would be fairly allocable to
McREMI as determined by Stanger & Co. was below the range of fair market
values of McREMI on a controlling interest basis as determined by
Houlihan, Lokey, who was retained by McNeil Partners, McREMI, Robert A.
McNeil and Carole J. McNeil as their personal financial advisor to
advocate on their behalf the fair market value of McREMI. See "--
Background of the transaction--Negotiation of definitive transaction
documents with Whitehall--June 3, 1999: Presentations to the McNeil
Investors board of directors and the special committee."
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. The fact that Stanger & Co. (1) valued the membership interests to be
received by McNeil Partners in WXI/McN Realty in connection with the
transaction, (2) valued the contributions being made by McNeil Partners
to WXI/McN Realty in exchange for those membership interests and (3)
concluded based on its analysis that the aggregate value of those
membership interests is no greater than the aggregate value of those
contributions. See "--Interests of certain persons in matters to be acted
upon; conflicts of interest--Equity interest of McNeil Partners in
WXI/McN Realty" and "--Opinions and reports of financial advisors--
Allocation analysis and opinions of Stanger & Co.--Financial analysis of
Stanger & Co.--WXI/McN Realty Operating Agreement review."
. The fact that the lawyers representing the plaintiffs in the Schofield
litigation, in connection with settlement proceedings relating to that
litigation, oversaw the auction process, including the allocation
analysis rendered by Stanger & Co. This followed (1) several meetings
plaintiffs' counsel had with Stanger & Co. during which they received
detailed verbal and written presentations with respect to the allocation
analysis and were given the opportunity to ask questions and (2) several
meetings of plaintiffs' financial advisor with Stanger & Co. during which
the financial advisor was given the opportunity to ask questions and
examine the documentation forming the basis of the allocation analysis.
See "--Background of the transaction--Background of the Schofield
litigation."
. The identity of the proposed purchaser and its affiliates and the ability
of WXI/McN Realty to consummate the transaction on the terms specified in
the Master Agreement.
. The provisions in the Master Agreement allowing each of the McNeil
Partnerships to terminate its participation in the transaction if, in the
exercise of the good faith judgment of the general partner as to its
fiduciary duties to its limited partners, the general partner of that
McNeil Partnership determined that termination was required by reason of
a superior acquisition proposal being made by a third party for that
McNeil Partnership. See "The Master Agreement--Termination of the Master
Agreement--Right to terminate the Master Agreement with respect to one or
more McNeil Partnerships." The special committee recognized that any such
termination would require the payment by that terminating McNeil
Partnership to WXI/McN Realty of a break-up fee and certain reimbursable
expenses. See "The Master Agreement--Fees and expenses."
. The terms and conditions of the Master Agreement, taken as a whole, were
favorable to the limited partners of the McNeil Partnerships and thus
supported the special committee's conclusion that the merger proposal is
fair to, and in the best interests of, the limited partners of the McNeil
Partnerships.
. In allocating the aggregate consideration, Stanger & Co. took the
position that the deficit restoration obligations of the general partners
of the McNeil Partnerships were required to be paid to the McNeil
Partnerships. As a result, the aggregate consideration allocated by
Stanger & Co. to the general partner interests in each of the McNeil
Partnerships is net of the estimated deficit restoration obligation with
respect to that McNeil Partnership. See "--Opinions and reports of
financial advisors--Allocation analysis and opinions of Stanger & Co.--
Stanger & Co. allocation analysis."
. In allocating the aggregate consideration, Stanger & Co. took the
position that no asset disposition fees were payable by any of the McNeil
Partnerships to the McNeil General Partners as a result of the
transaction. In a liquidation, the limited partnership agreements of some
of the public McNeil Partnerships provide that McNeil Partners is
entitled to receive an asset disposition fee equal to 3% of the gross
sales price of each property sold in connection with a liquidation of
that McNeil Partnership. No asset disposition fees will be paid by any of
the McNeil Partnerships as a result of the transaction.
. Each of the McNeil General Partners has agreed to irrevocably,
unconditionally and absolutely waive any and all rights it may have to
indemnification, contribution or reimbursement from any of the
participating McNeil Partnerships, whether under the limited partnership
agreement, any contractual arrangement, applicable law or otherwise, with
respect to those matters for which McNeil Partners has agreed to
indemnify WXI/McN Realty's managing member and some of the affiliates of
WXI/McN Realty's managing member. See "Other Agreements Between the
McNeil Affiliates and Affiliates of WXI/McN Realty's--Indemnification and
pledge agreement."
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. Upon the completion of the transaction, the limited partners of the
participating McNeil Partnerships, other than the Affiliated McNeil
Partnerships, would receive cash in exchange for their limited partner
units and, accordingly, those limited partners would no longer bear the
risks inherent in the ownership of real property such as fluctuations in
occupancy rates, operating expenses and rental rates, which in turn may
be affected by general and local economic conditions, the supply and
demand for properties of the type owned by the McNeil Partnerships and
federal and local laws and regulations affecting the ownership and
operation of real estate.
. Commencing with the tax year following the tax year in which the closing
of the transaction occurs, the limited partners of the participating
McNeil Partnerships will no longer need to include in their federal and
state income tax returns the various items of income, loss, deduction and
credit as previously reported on Schedule K-1s delivered by the
participating McNeil Partnerships.
. As to each McNeil Partnership, approval of the merger proposal requires
the affirmative vote of limited partners holding greater than 50% of each
class of limited partner units in that McNeil Partnership outstanding as
of the record date.
. Under the California Revised Limited Partnership Act, a limited partner
of some of the McNeil Partnerships, including the Partnership, who does
not wish to accept the merger consideration may dissent from the merger
proposal and require that McNeil Partnership to purchase for cash, at
their fair market value, the limited partner units owned by that limited
partner, if that McNeil Partnership participates in the transaction, the
transaction is completed, the limited partner does not vote for the
merger proposal, and the limited partner follows specific procedures set
forth in the California Revised Limited Partnership Act.
Negative factors considered. In determining that the transaction is fair to,
and in the best interests of, the limited partners of each of the McNeil
Partnerships and in recommending to the McNeil Investors board of directors the
approval of the transaction, the special committee also considered the
following negative factors:
. Following the transaction, the limited partners of each participating
McNeil Partnership, other than the Affiliated McNeil Partnerships, will
cease to participate in future earnings or growth, if any, of that McNeil
Partnership or benefit from increases, if any, in the value of that
McNeil Partnership.
. The transaction involves the entire McNeil portfolio, including all of
the McNeil Partnerships, assets of McNeil Partners related to the McNeil
Partnerships and certain assets of McREMI. At the commencement of
PaineWebber's engagement, McNeil Partners determined to structure the
transaction to include certain assets of McREMI based on PaineWebber's
belief at that time that the most favorable price for the McNeil
Partnerships would likely be achieved by offering for sale the McNeil
Partnerships and McREMI as an entire portfolio on an all-or-none basis.
See "--Background of the transaction--Background of the auction process--
Structuring of the transaction." However, it is possible that the limited
partners of a McNeil Partnership could have received more consideration
than what they will otherwise receive in the proposed transaction with
WXI/McN Realty if that McNeil Partnership were to be sold or liquidated
in a transaction separate from a transaction involving other McNeil
Partnerships and/or the assets of McREMI.
. The limited partners of each participating McNeil Partnership will forego
alternatives to the transaction. These alternatives include a separate
sale of all of the assets of that McNeil Partnership and subsequent
liquidation of that McNeil Partnership, or the continuation of that
McNeil Partnership under its current ownership structure. See "--
Alternatives to the transaction."
. There are numerous conditions to WXI/McN Realty's and Sellers'
obligations to consummate the transaction. No assurance can be given that
the transaction will be consummated. See "The Master Agreement--
Conditions to closing."
. The Master Agreement provides that in some circumstances WXI/McN Realty
will receive a break-up fee, calculated on a partnership by partnership
basis, up to an aggregate maximum of $18.0 million if
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the Master Agreement is terminated. The amount of the break-up fee payable
by the Partnership is $1,251,306. The obligation of a McNeil Partnership
to pay a break-up fee may discourage third party offers for that
particular McNeil Partnership and may adversely affect the ability of that
McNeil Partnership to engage in another transaction following termination
of the Master Agreement in respect of that McNeil Partnership. In
addition, a McNeil Partnership may be obligated to pay a break-up fee even
if it has not entered into a definitive agreement for, or consummated,
another transaction. As a result, payment of the break-up fee may have an
adverse impact on the financial condition of that McNeil Partnership. See
"The Master Agreement--Fees and expenses--Partnership break-up fee."
. If a participating McNeil Partnership has a negative modified net working
capital balance on the closing date of the transaction, the per unit
merger consideration to be received with respect to each class of limited
partner units in that McNeil Partnership will be reduced by the pro rata
amount of the negative modified net working capital balance allocated by
Stanger & Co. to that class. The modified net working capital balance of
each of the McNeil Partnerships will be calculated in accordance with the
terms of the Master Agreement and will be based upon the net working
capital balance of that McNeil Partnership as of the closing date.
. McNeil Partners has actual or potential conflicts of interest in
connection with recommending the approval of the merger proposal to the
limited partners of the McNeil Partnerships. See "--Effects of the
transaction--Benefits and detriments of the transaction to the McNeil
Affiliates" and "--Interests of certain persons in matters to be acted
upon; conflicts of interest."
. McNeil Partners will receive a significant, although non-controlling,
equity interest in WXI/McN Realty if the transaction is completed. Under
the terms of the WXI/McN Realty Operating Agreement, McNeil Partners will
be entitled to receive from WXI/McN Realty distributions of net cash flow
and net proceeds from capital transactions. Consequently, McNeil Partners
and the other McNeil Affiliates, subject to certain limitations, will
continue to have the opportunity to benefit, up to a specific capped
return on their investment, from future earnings growth and increases in
the value of the participating McNeil Partnerships and their properties.
. The McNeil Affiliates had a separate economic interest in structuring the
transaction to achieve favorable tax treatment. The transaction, as
structured, will allow McNeil Partners to make the contributions of its
interests in the McNeil Partnerships and the assets of McNeil Partners
and McREMI being contributed to WXI/McN Realty on a tax-deferred basis
and will permit the partners of McNeil Partners to defer substantial tax
liability. If the transaction had been structured as an acquisition of
the entire McNeil portfolio for cash, it is estimated by Arthur Andersen
LLP that the partners of McNeil Partners would have been required to pay
approximately $30,563,000 in taxes in connection with the transaction.
. In contrast, limited partners will recognize gain or loss on the
conversion of their limited partner units into cash in the merger or on
receipt of cash pursuant to the exercise of dissenters' rights. In
general, the special distribution will not be taxable and will be treated
as a return of capital to the limited partner. This return of capital
will reduce the limited partner's basis in its limited partner units in
the Partnership to the extent of the return of capital and, therefore,
may increase the amount of any gain or decrease the amount of any loss
recognized by that limited partner on the conversion of its limited
partner units into cash in the merger. In addition, to the extent that
the special distribution received by a limited partner exceeds that
limited partner's adjusted tax basis in all of its limited partner units,
that excess will be taxable and will be treated as capital gain.
. Each of the McNeil Partnerships did not have separate representation in
the transaction. In structuring the transaction, the special committee
represented the interests of the limited partners of all of the McNeil
Partnerships as a group and Stanger & Co. served as independent advisor
to all of the McNeil Partnerships. If separate representation had been
arranged for each McNeil Partnership, issues unique to the value of a
given McNeil Partnership might have received greater attention during the
structuring of the transaction, and the terms of the transaction might
have been different with respect to that McNeil Partnership.
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. If limited partners owning more than 50% of each class of limited partner
units in a McNeil Partnership vote for the merger proposal, their
approval will bind all limited partners of that McNeil Partnership.
Therefore, a limited partner of a McNeil Partnership may vote against the
merger proposal and nevertheless have its limited partner units converted
into the right to receive cash in the transaction if the requisite vote
of the limited partners of that McNeil Partnership is obtained.
. In determining whether the requisite vote of the limited partners of a
McNeil Partnership has been obtained, limited partner units held by
McNeil Partners and its affiliates will not be excluded. McNeil Partners
and its affiliates intend to vote all of the limited partner units
beneficially owned by them in each of the McNeil Partnerships for the
merger proposal with respect to that McNeil Partnership. As of the record
date, McNeil Partners and some of its affiliates beneficially owned an
aggregate of 3,122,277 limited partner units in the Partnership,
representing in the aggregate approximately 3.6% of the limited partner
units in the Partnership outstanding as of the record date.
. Limited partners of some of the McNeil Partnerships do not have any
dissenters' rights or other rights of appraisal, under the state law
which governs those McNeil Partnerships, the limited partnership
agreements of those McNeil Partnerships or otherwise, in connection with
the merger proposal. Therefore, dissenting limited partners do not have
the right to have their limited partner units appraised if they
disapprove of the action of the limited partners that voted for the
merger proposal. The limited partners of other McNeil Partnerships,
including the Partnership, are entitled to the benefits of dissenters'
rights as provided under applicable state law.
In the special committee's view, these negative factors were not sufficient,
either individually or in the aggregate, to outweigh the benefits of the
proposed transaction to the limited partners of the McNeil Partnerships.
Other factors considered. As discussed above, in evaluating the fairness of
the transaction, the special committee considered the liquidation value, net
asset value and going concern value of the limited partner units in each of the
McNeil Partnerships as estimated by Stanger & Co. and presented in the status
report delivered by Stanger & Co. to the special committee and the McNeil
Investors board of directors. See "Liquidation Value," "Net Asset Value" and
"Going Concern Value" in Table 1 and "--Background of the transaction--
Negotiation of definitive transaction documents with Whitehall." The special
committee's consideration of the liquidation value, net asset value and going
concern value involved:
. numerous discussions with Stanger & Co.;
. detailed reviews by the special committee and Eastdil Realty Company of
the factual, financial and numerical information presented to the special
committee and the McNeil Investors board of directors by Stanger & Co.;
. review and corroboration by Eastdil Realty Company of Stanger & Co.'s
estimates of liquidation value, net asset value and going concern value;
. independent review by Eastdil Realty Company, following independent
property level and other due diligence, of the methodologies utilized by
Stanger & Co., the professional bases for the use of those methodologies,
the factual bases utilized in connection with the application of those
methodologies and other procedures as Eastdil Realty Company deemed
necessary or appropriate (see "--Opinions and reports of financial
advisors--Eastdil Realty Company opinions--Financial analysis of Eastdil
Realty Company; review of Stanger & Co. analyses and methodologies");
. numerous inquiries, at meetings of the special committee and the McNeil
Investors board of directors and during a number of telephone conference
calls and informal sessions with Stanger & Co. and Eastdil Realty
Company, into the underlying analyses, methodologies and assumptions
supporting Stanger & Co.'s estimates (see the discussion in "--Background
of the transaction--Negotiation of definitive transaction documents with
Whitehall" of the various meetings of the special committee and the
McNeil Investors board of directors); and
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. numerous inquiries by the special committee, at meetings of the special
committee and during a number of telephone conference calls and informal
sessions with Eastdil Realty Company, into Eastdil Realty Company's
review of Stanger & Co.'s estimates and the analyses, methodologies and
assumptions supporting Stanger & Co's estimates.
The special committee has relied in good faith under applicable law on
Stanger & Co.'s analyses of liquidation value, net asset value and going
concern value and, to that extent, has adopted Stanger & Co.'s analyses of
liquidation value, net asset value and going concern value.
With respect to the Partnership, the special committee noted in particular
that the estimated per unit aggregate amount of $0.28, including both the
merger consideration and the estimated special distribution, to be received
with respect to each limited partner unit in the Partnership is greater than or
equal to each of the following, each as estimated by Stanger & Co.:
. the liquidation value of $0.26 per limited partner unit
. the net asset value of $0.28 per limited partner unit
. the going concern value of $0.24 per limited partner unit
In evaluating the fairness of the transaction, the special committee also
considered the information on weighted average private sales prices and tender
offer ranges for limited partner units in the McNeil Partnerships presented in
the status report delivered by Stanger & Co. to the special committee and the
McNeil Investors board of directors. See "Private Sales Weighted Average" and
"Tender Offer Ranges" in Table 1. However, for the reasons stated below, the
special committee did not place significant emphasis or weight on these prices
and ranges and did not consider these prices and ranges to be material factors
in making their determination and recommendation. The special committee does
not believe that current market prices, historical market prices or recent
tender offer prices are a good measure of the value of the limited partner
units in the McNeil Partnerships. At present, there is no established public
trading market for the limited partner units in the McNeil Partnerships, nor is
one expected to develop. Moreover, liquidity is limited to sporadic private
sales or tender offers for limited partner units which generally involve a
relatively small percentage of the limited partner units outstanding.
The special committee did not consider purchase prices paid by the
Partnership, McNeil Partners, McNeil Investors or Robert A. McNeil for limited
partner units in the Partnership since the commencement of the Partnership's
second full fiscal year preceding the date of this Proxy Statement because
since that time, none of the Partnership, McNeil Partners, McNeil Investors or
Robert A. McNeil has made any purchases of limited partner units in the
Partnership. See "Related Security Holder Matters--Recent transactions in the
Partnership's limited partner units."
Procedural fairness of the transaction. The special committee is aware that
the McNeil Affiliates have interests in the transaction or relationships that
may present actual or potential conflicts of interest in connection with the
transaction and considered these conflicts of interest along with the other
factors enumerated above in making its determination and recommendation. See
"--Interests of certain persons in matters to be acted upon; conflicts of
interest." The special committee also recognizes that in determining whether
the requisite vote of the limited partners of a McNeil Partnership has been
obtained, limited partner units held by McNeil Partners and its affiliates will
not be excluded. As enumerated above, the special committee considered these
factors to be negative factors in its determination that the transaction is
fair to, and in the best interests of, the limited partners of each of the
McNeil Partnerships and its recommendation to the McNeil Investors board of
directors of the approval of the transaction. However, the special committee
believes that the transaction is procedurally fair to the limited partners of
each of the McNeil Partnerships because, among other things:
. The special committee was constituted with all of the power and authority
of the McNeil Investors board of directors (1) to participate, through
its legal counsel and financial advisor, in negotiating the
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forms, terms and conditions of the definitive agreements respecting the
transaction, and (2) with the assistance of its legal counsel and
financial advisor, to review and pass upon the terms of the transaction on
behalf of the limited partners of the McNeil Partnerships.
. Orrick, Herrington was retained on behalf of the special committee as
separate outside legal counsel to the special committee.
. Eastdil Realty Company was retained on behalf of the special committee as
the independent financial advisor to the special committee.
. The special committee, with the assistance of its legal and financial
advisors, engaged in negotiations with respect to the forms, terms and
conditions of the definitive agreements respecting the transaction and
reviewed and passed upon the terms of the transaction on behalf of the
limited partners of the McNeil Partnerships.
. The terms and conditions of the transaction resulted from arm's-length
bargaining among representatives of the special committee,
representatives of the McNeil Affiliates and representatives of
Whitehall.
. As to each McNeil Partnership, approval of the merger proposal requires
the affirmative vote of limited partners holding greater than 50% of each
class of limited partner units in that McNeil Partnership outstanding as
of the record date.
. Although McNeil Partners and its affiliates intend to vote all of the
limited partner units beneficially owned by them in each of the McNeil
Partnerships for the merger proposal with respect to that McNeil
Partnership, McNeil Partners and its affiliates do not beneficially own a
sufficient number of limited partner units in any of the McNeil
Partnerships to approve the merger proposal with respect to that McNeil
Partnership without the affirmative vote of other limited partners of
that McNeil Partnership. As of the record date, McNeil Partners and some
of its affiliates beneficially owned an aggregate of 3,122,277 limited
partner units in the Partnership, representing in the aggregate
approximately 3.6% of the limited partner units in the Partnership
outstanding as of the record date.
. Under the California Revised Limited Partnership Act, a limited partner
of the Partnership who does not wish to accept the merger consideration
may dissent from the merger proposal and require the Partnership to
purchase for cash, at their fair market value, the limited partner units
owned by that limited partner, if the Partnership participates in the
transaction, the transaction is completed, the limited partner does not
vote for the merger proposal, and the limited partner follows specific
procedures set forth in the California Revised Limited Partnership Act.
In view of the wide variety of factors considered in connection with its
evaluation of the fairness of the transaction, the special committee did not
find it practicable to, and did not attempt to, quantify, rank or otherwise
assign relative weights to the specific factors it considered in reaching its
determination and recommendation.
Recommendations of the McNeil Investors board of directors
Following the meeting of the special committee, on June 24, 1999, the entire
McNeil Investors board of directors unanimously:
. determined that the transaction is fair to, and in the best interests of,
the limited partners of each of the McNeil Partnerships;
. approved the Master Agreement and the transactions contemplated by the
Master Agreement; and
. determined to recommend to the limited partners of each of the McNeil
Partnerships that they vote for the merger proposal.
Accordingly, the McNeil Investors board of directors unanimously recommends
that the limited partners of the Partnership vote for the merger proposal and
for the adjournment proposal.
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Positive factors considered. In determining that the transaction is fair to,
and in the best interests of, the limited partners of each of the McNeil
Partnerships, in approving the Master Agreement and the transactions
contemplated by the Master Agreement and in recommending that the limited
partners of each of the McNeil Partnerships vote for the merger proposal, the
McNeil Investors board of directors considered the following factors, each of
which, in the view of the McNeil Investors board of directors, supported the
determination of the McNeil Investors board of directors regarding the fairness
of the transaction, its approval and its recommendation:
. The fact that the special committee determined that the transaction is
fair to, and in the best interests of, the limited partners of each of
the McNeil Partnerships.
. The special committee's recommendation that the McNeil Investors board of
directors approve the transaction.
. The factors enumerated in "--Recommendations of the special committee and
the McNeil Investors board of directors; fairness of the transaction--
Recommendations of the special committee--Positive factors considered,"
each of which factors the McNeil Investors board of directors considered,
and each of which it believed supported its determination regarding the
fairness of the transaction.
. The fairness opinions delivered on June 24, 1999 and December 10, 1999 to
the McNeil Investors board of directors by Stanger & Co. on behalf of the
McNeil Partnerships. See "--Opinions and reports of financial advisors--
Allocation analysis and opinions of Stanger & Co." The McNeil Investors
board of directors did not take any specific actions to adopt Stanger &
Co.'s opinions or analysis. However, Stanger & Co.'s opinions and
analysis were among the factors considered by the McNeil Investors board
of directors in making its determination that the transaction is fair to,
and in the best interests of, the limited partners of each of the McNeil
Partnerships, in approving the Master Agreement and the transactions
contemplated by the Master Agreement and in recommending to the limited
partners of each of the McNeil Partnerships that they vote for the merger
proposal.
Negative factors considered. In determining that the transaction is fair to,
and in the best interests of, the limited partners of each of the McNeil
Partnerships, in approving the Master Agreement and the transactions
contemplated by the Master Agreement and in recommending that the limited
partners of each of the McNeil Partnerships vote for the merger proposal, the
McNeil Investors board of directors also considered the factors enumerated in
"--Recommendations of the special committee and the McNeil Investors board of
directors; fairness of the transaction--Recommendations of the special
committee--Negative factors considered." In the view of the McNeil Investors
board of directors, these negative factors were not sufficient, either
individually or in the aggregate, to outweigh the benefits of the proposed
transaction to the limited partners of the McNeil Partnerships.
Other factors considered. In evaluating the fairness of the transaction, the
McNeil Investors board of directors considered the liquidation value, net asset
value and going concern value of the limited partner units in each of the
McNeil Partnerships as estimated by Stanger & Co. and presented in the status
report delivered by Stanger & Co. to the special committee and the McNeil
Investors board of directors. See "Liquidation Value," "Net Asset Value" and
"Going Concern Value" in Table 1 and "--Background of the transaction--
Negotiation of definitive transaction documents with Whitehall." The McNeil
Investors board of directors' consideration of the liquidation value, net asset
value and going concern value involved:
. numerous discussions with Stanger & Co.;
. review by the McNeil Investors board of directors of the factual,
financial and numerical information presented to the special committee
and the McNeil Investors board of directors by Stanger & Co.;
. numerous inquiries, at both meetings of the McNeil Investors board of
directors and during a number of telephone conference calls and informal
sessions with Stanger & Co., into the underlying analyses, methodologies
and assumptions supporting Stanger & Co.'s estimates (see the discussion
in
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"--Background of the transaction--Negotiation of definitive transaction
documents with Whitehall" of the various meetings of the McNeil Investors
board of directors); and
. a number of inquiries of the special committee and Eastdil Realty Company
with respect to their independent reviews of the matters supporting
Stanger & Co.'s estimates (see "--Recommendations of the special
committee and the McNeil Investors board of directors; fairness of the
transaction-- Recommendations of the special committee--Other factors
considered").
The McNeil Investors board of directors has relied in good faith under
applicable law on Stanger & Co.'s analyses of liquidation value, net asset
value and going concern value and, to that extent, has adopted Stanger & Co.'s
analyses of liquidation value, net asset value and going concern value.
With respect to the Partnership, the McNeil Investors board of directors
noted in particular that the estimated per unit aggregate amount of $0.28,
including both the merger consideration and the estimated special distribution,
to be received with respect to each limited partner unit in the Partnership is
greater than or equal to each of the following, each as estimated by Stanger &
Co.:
. the liquidation value of $0.26 per limited partner unit
. the net asset value of $0.28 per limited partner unit
. the going concern value of $0.24 per limited partner unit
In evaluating the fairness of the transaction, the McNeil Investors board of
directors also considered the information on weighted average private sales
prices and tender offer ranges for limited partner units in the McNeil
Partnerships presented in the status report delivered by Stanger & Co. to the
special committee and the McNeil Investors board of directors. See "Private
Sales Weighted Average" and "Tender Offer Ranges" in Table 1. However, for the
reasons stated in "--Recommendations of the special committee and the McNeil
Investors board of directors--Recommendations of the special committee--Other
factors considered," the McNeil Investors board of directors did not place
significant emphasis or weight on these prices and ranges and did not consider
these prices and ranges to be material factors in reaching its determination
that the transaction is fair to, and in the best interests of, the limited
partners of each of the McNeil Partnerships, in approving the Master Agreement
and the transactions contemplated by the Master Agreement and in recommending
that the limited partners of each of the McNeil Partnerships vote for the
merger proposal.
The McNeil Investors board of directors did not consider purchase prices
paid by the Partnership, McNeil Partners, McNeil Investors or Robert A. McNeil
for limited partner units in the Partnership since the commencement of the
Partnership's second full fiscal year preceding the date of this Proxy
Statement because since that time, none of the Partnership, McNeil Partners,
McNeil Investors or Robert A. McNeil has made any purchases of limited partner
units in the Partnership. See "Related Security Holder Matters--Recent
transactions in the Partnership's limited partner units."
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Procedural fairness of the transaction. The McNeil Investors board of
directors is aware that the McNeil Affiliates have interests in the transaction
or relationships that may present actual or potential conflicts of interest in
connection with the transaction and considered these conflicts of interest
along with the other factors enumerated above in making its determination and
recommendation. See "--Interests of certain persons in matters to be acted
upon; conflicts of interest." The McNeil Investors board of directors also
recognizes that in determining whether the requisite vote of the limited
partners of a McNeil Partnership has been obtained, limited partner units held
by McNeil Partners and its affiliates will not be excluded. The McNeil
Investors board of directors considered these factors to be negative factors in
its determination that the transaction is fair to, and in the best interests
of, the limited partners of each of the McNeil Partnerships, its approval of
the Master Agreement and the transactions contemplated by the Master Agreement
and its recommendation that the limited partners of each of the McNeil
Partnerships vote for the merger proposal. However, the McNeil Investors board
of directors believes that the transaction is procedurally fair to the limited
partners of each of the McNeil Partnerships because, among other things:
. The special committee was constituted with all of the power and
authority of the McNeil Investors board of directors (1) to participate,
through its legal counsel and financial advisor, in negotiating the
forms, terms and conditions of the definitive agreements respecting the
transaction, and (2) with the assistance of its legal counsel and
financial advisor, to review and pass upon the terms of the transaction
on behalf of the limited partners of the McNeil Partnerships.
. Orrick, Herrington was retained on behalf of the special committee as
separate outside legal counsel to the special committee.
. Eastdil Realty Company was retained on behalf of the special committee
as the independent financial advisor to the special committee.
. The special committee, with the assistance of its legal and financial
advisors, engaged in negotiations with respect to the forms, terms and
conditions of the definitive agreements respecting the transaction and
reviewed and passed upon the terms of the transaction on behalf of the
limited partners of the McNeil Partnerships.
. The terms and conditions of the transaction resulted from arm's-length
bargaining among representatives of the special committee,
representatives of the McNeil Affiliates and representatives of
Whitehall.
. As to each McNeil Partnership, approval of the merger proposal requires
the affirmative vote of limited partners holding greater than 50% of
each class of limited partner units in that McNeil Partnership
outstanding as of the record date.
. Although McNeil Partners and its affiliates intend to vote all of the
limited partner units beneficially owned by them in each of the McNeil
Partnerships for the merger proposal with respect to that McNeil
Partnership, McNeil Partners and its affiliates do not beneficially own
a sufficient number of limited partner units in any of the McNeil
Partnerships to approve the merger proposal with respect to that McNeil
Partnership without the affirmative vote of other limited partners of
that McNeil Partnership. As of the record date, McNeil Partners and some
of its affiliates beneficially owned an aggregate of 3,122,277 limited
partner units in the Partnership, representing in the aggregate
approximately 3.6% of the limited partner units in the Partnership
outstanding as of the record date.
. Under the California Revised Limited Partnership Act, a limited partner
of the Partnership who does not wish to accept the merger consideration
may dissent from the merger proposal and require the Partnership to
purchase for cash, at their fair market value, the limited partner units
owned by that limited partner, if the Partnership participates in the
transaction, the transaction is completed, the limited partner does not
vote for the merger proposal, and the limited partner follows specific
procedures set forth in the California Revised Limited Partnership Act.
In view of the wide variety of factors considered in connection with the
evaluation of the fairness of the transaction, the McNeil Investors board of
directors did not find it practicable to, and did not attempt to,
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quantify, rank or otherwise assign relative weights to the specific factors it
considered in reaching its determination and recommendation and in approving
the Master Agreement and the transactions contemplated by the Master Agreement.
Limited partners of the Partnership also should be aware that members of the
McNeil Investors board of directors may have actual or potential conflicts of
interest in making their determinations and recommendation. The special
committee was formed in part to address these conflicts of interest. See "--
Background of the transaction--Appointment of the special committee," "--
Purposes and reasons for the transaction" and "--Interests of certain persons
in matters to be acted upon; conflicts of interest."
Alternatives to the transaction
The McNeil Investors board of directors' assessment of the fairness of the
transaction was based on a review of different alternatives that were
available. The McNeil Investors board of directors considered two alternatives
to the merger: (1) liquidation of the Partnership and distribution of the net
cash proceeds of the liquidation and (2) continuation of the business of the
Partnership, with the Partnership continuing to be owned by the limited
partners and McNeil Partners. The McNeil Investors board of directors has not
considered any liquidation or other form of transaction in which the limited
partners of the Partnership would receive anything other than cash. See "--
Background of the transaction--Background of the auction process--Structuring
of the transaction" and "--Background of the transaction--Background of the
auction process--Solicitation of final bids" and "--Purposes and effects of the
transaction."
Under the limited partnership agreements of the public McNeil Partnerships,
limited partners owning at least 80% of the outstanding limited partner units
must approve a reorganization transaction. A reorganization transaction
includes a merger or liquidation of the McNeil Partnership in which the limited
partners of the McNeil Partnership would receive securities. In contrast,
approval by limited partners owning only a majority of each class of limited
partner units is required to approve a merger in which the limited partners
will receive only cash. The supermajority provision was included in the limited
partnership agreements for the purpose of protecting limited partners against
the perceived abuse of "roll-up" transactions. Because McNeil Partners believed
that it would be difficult on a practical level to obtain the 80% vote, the
McNeil Investors board of directors considered only those transactions in which
the limited partners of the public McNeil Partnerships would receive cash.
Liquidation
An alternative to the transaction considered by the McNeil Investors board
of directors was to liquidate the Partnership's assets, distribute the net cash
proceeds of the liquidation to the partners and then dissolve the Partnership.
In a liquidation, McNeil Partners would market the sale of the Partnership's
properties and, if a potential purchaser is interested in purchasing a property
or properties, McNeil Partners would negotiate and enter into an agreement for
the sale of the property or properties. If a sale of properties would
constitute a sale of all or substantially all of a McNeil Partnership's
properties, McNeil Partners would be required to obtain the approval of limited
partners holding at least 50% of the outstanding limited partner units before
the sale could close. If the limited partners approved the sale and the sale
was closed, McNeil Partners would proceed to liquidate the Partnership in
accordance with the provisions of the Partnership's limited partnership
agreement and California law, which governs the Partnership.
Pursuant to the limited partnership agreement of the Partnership, in a
liquidation, McNeil Partners must distribute the liquidation proceeds in the
following order:
. First, to the payment of creditors of the Partnership;
. Second, to the repayment of any outstanding loans made by McNeil Partners
to the Partnership;
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. Third, after McNeil Partners sets aside funds to pay liquidation expenses
and reserves for contingencies which McNeil Partners believes are
necessary, to McNeil Partners and the limited partners in proportion to
their positive capital accounts after the net liquidation proceeds are
allocated to their capital accounts.
Stanger & Co. estimated that the distribution amount to limited partners in
a liquidation, after payments are made to creditors and to McNeil Partners for
repayment of outstanding loans, if any, would be $0.26 per limited partner
unit. See Table 1.
Benefits of liquidation to the limited partners
The McNeil Investors board of directors considered the primary benefits of a
liquidation to be the following:
. Through a liquidation, the Partnership would provide for a final
disposition and liquidation of its partners' interests in the
Partnership. Limited partners in the Partnership would receive cash
liquidation proceeds.
. A liquidation would satisfy the obligations undertaken by McNeil Partners
to liquidate the Partnership. See "--Background of the transaction--
Restructuring of the public McNeil Partnerships" and "--Background of the
transaction--Icahn tender offers."
. In a liquidation, the Partnership's limited partnership agreement
requires McNeil Partners to restore any deficiency in its capital account
if the assets available for distribution upon the dissolution and
termination of the Partnership are insufficient to allow distributions to
the limited partners of the Partnership of amounts equal to the then
positive balances in their capital accounts.
. Pursuant to the limited partnership agreement of the Partnership, in such
a case, McNeil Partners would be required to contribute in cash to the
capital of the Partnership an amount equal to the lesser of (a) the
deficiency in McNeil Partners' capital account and (b) 1.01% of the
excess of the amount in cash contributed by the limited partners to the
capital of the Partnership for limited partner units over the capital
contributions of McNeil Partners. The deficit restoration obligation of
McNeil Partners with respect to the Partnership, estimated by Arthur
Andersen LLP, based upon a hypothetical sale of the properties and
liquidation of the Partnership at January 31, 2000, is approximately
$255,148. Arthur Andersen LLP's estimate was based, in part, on limited
historical tax records prepared by other accounting firms. Sufficient
records did not exist such that Arthur Andersen LLP could test the
accuracy of prior accountant's work. Further, this estimate was based on
the Partnership's projections of operating results through January 31,
2000 and on hypothetical asset sale/partnership liquidation information
provided by Stanger & Co. Arthur Andersen LLP has not audited or opined
on the projected results of operations or financial information relating
to such hypothetical sale/liquidation.
Disadvantages of liquidation to the limited partners
The McNeil Investors board of directors also considered the relative
disadvantages to the limited partners of the Partnership of liquidating the
Partnership. The McNeil Investors board of directors considered the
disadvantages of liquidating the Partnership relative to the benefits discussed
above and relative to the proposed transaction.
Stanger & Co. liquidation analysis. One of the factors considered by the
McNeil Investors board of directors was Stanger & Co.'s estimates of the value
of the McNeil portfolio and the liquidation value and net asset value of the
limited partner units in each of the McNeil Partnerships. The McNeil Investors
board of directors has relied in good faith under applicable law on Stanger &
Co.'s analyses of the value of the McNeil portfolio and the liquidation value
and net asset value of the limited partner units in each of the McNeil
Partnerships and, to that extent, has adopted Stanger & Co.'s analyses of the
value of the McNeil portfolio and the liquidation value and net asset value of
the limited partner units in each of the McNeil Partnerships.
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An independent determination was made by Stanger & Co. that liquidation of
the McNeil portfolio on a property by property basis would yield a lesser
return to the limited partners of each McNeil Partnership than would the
proposed transaction, which is structured as a single sale of all of the
properties in the McNeil portfolio.
As Table 1 reflects, Stanger & Co. independently estimated both the per unit
liquidation value and the per unit net asset value for each of the McNeil
Partnerships. These estimates are set forth in Table 1 in the columns entitled
"Liquidation Value" and "Net Asset Value," respectively. To calculate the
estimates of per unit liquidation value and per unit net asset value, Stanger &
Co. first estimated the value of the real estate assets of each of the McNeil
Partnerships. Stanger & Co.'s estimates of the real estate assets of each of
the McNeil Partnerships are set forth in Table 2 in the column entitled "Total
Asset Value." Stanger & Co. then made certain assumptions, which are reflected
in Notes (4) and (6) to Table 1, to determine the estimates of per unit net
asset value and per unit liquidation value, respectively.
As Table 1 reflects, with respect to each McNeil Partnership, the per unit
aggregate amount estimated to be received by limited partners in the proposed
transaction (the column entitled "Total Per Unit Estimate" in Table 1) is
greater than the per unit amount which would be received by those limited
partners in a property by property liquidation of that McNeil Partnership (the
column entitled "Liquidation Value" in Table 1). The "Total Per Unit Estimate"
of each McNeil Partnership includes an amount equal to McNeil Partners'
estimated deficit restoration obligation, if any, to that McNeil Partnership.
See "--Opinions and reports of financial advisors--Allocation analysis and
opinions of Stanger & Co.--Stanger & Co. allocation analysis."
Stanger & Co. has advised the McNeil Investors board of directors and the
special committee that Stanger & Co.'s estimates of liquidation value and net
asset value were not based upon or influenced by, and Eastdil Realty Company
has advised the special committee that Eastdil Realty Company's review and
corroboration of Stanger & Co.'s estimates were not based upon or influenced
by, assumptions which require a specific holding period by a potential
purchaser, a continuing interest or other interest by the McNeil General
Partners in the McNeil Partnerships or their properties, a merger, or any other
assumption of contingent or latent liabilities by a potential purchaser. In
recognition of the foregoing, the McNeil Investors board of directors believes
that the estimates of liquidation value and net asset value prepared by Stanger
& Co., and independently reviewed and corroborated by Eastdil Realty Company,
provide an independent comparison between the aggregate amount to be received
per unit by the limited partners of each of the McNeil Partnerships in the
proposed transaction and the aggregate amount which would have been received by
the limited partners of each of the McNeil Partnerships in a transaction
structured without those requirements.
Total Per Unit Estimate exceeds Liquidation Value. Based on the analysis of
Stanger & Co., it is anticipated that limited partners of the Partnership will
receive more cash proceeds per limited partner unit in the proposed transaction
than they would have received in a liquidation of the Partnership. See
"Liquidation Value" and "Total Per Unit Estimate" in Table 1. The "Total Per
Unit Estimate" of the Partnership includes an amount equal to McNeil Partners'
estimated deficit restoration obligation, if any, to the Partnership. See "--
Opinions and reports of financial advisors--Allocation analysis and opinions of
Stanger & Co.--Stanger & Co. allocation analysis."
. It is anticipated that limited partners of the Partnership will receive
an estimated aggregate amount of approximately $0.28 per limited partner
unit in the proposed transaction, including the estimated per unit
special distribution.
. Based on the analysis of Stanger & Co., it is anticipated that limited
partners of the Partnership would receive an aggregate amount of
approximately $0.26 per limited partner unit in a liquidation.
. The aggregate amount to be received for each limited partner unit is
based on the estimates of McNeil management, as of the date of this Proxy
Statement, of the Partnership's modified net working capital balance as
of the estimated closing date of the transaction. While we expect that
you will receive the estimated amounts for each of your limited partner
units, there can be no assurances that you will
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receive the specified cash merger consideration or any special
distribution. You will receive a special distribution only if the
Partnership has a positive modified net working capital balance as of the
closing date. There can be no assurances that the Partnership will have a
positive modified net working capital balance as of the closing date or
that the actual per unit amount of the special distribution will be equal
to the estimated per unit amount of the special distribution. If the
Partnership's modified net working capital balance as of the closing date
is zero, you will receive no special distribution and will receive only
the cash merger consideration of $0.26 for each limited partner unit. If
the Partnership has a negative modified net working capital balance as of
the closing date, you will receive no special distribution and the cash
merger consideration to be received for each limited partner unit will be
reduced by the pro rata amount of that negative modified net working
capital balance.
Total Per Unit Estimate greater than or equal to Net Asset Value. In
addition, based on real estate value estimates of the Partnership's portfolio
included in the analysis by Stanger & Co., it is anticipated that the cash
proceeds per limited partner unit to be received in the proposed transaction
exceed the Partnership's net asset value per limited partner unit. See "Net
Asset Value" and "Total Per Unit Estimate" in Table 1.
. It is anticipated that limited partners of the Partnership will receive
an estimated aggregate amount of approximately $0.28 per limited partner
unit in the proposed transaction, including the estimated per unit
special distribution.
. The net asset value per limited partner unit in the Partnership, based on
the analysis of Stanger & Co., is approximately $0.28 per limited partner
unit.
. The aggregate amount to be received for each limited partner unit is
based on the estimates of McNeil management, as of the date of this Proxy
Statement, of the Partnership's modified net working capital balance as
of the estimated closing date of the transaction. While we expect that
you will receive the estimated amounts for each of your limited partner
units, there can be no assurances that you will receive the specified
cash merger consideration or any special distribution. You will receive a
special distribution only if the Partnership has a positive modified net
working capital balance as of the closing date. There can be no
assurances that the Partnership will have a positive modified net working
capital balance as of the closing date or that the actual per unit amount
of the special distribution will be equal to the estimated per unit
amount of the special distribution. If the Partnership's modified net
working capital balance as of the closing date is zero, you will receive
no special distribution and will receive only the cash merger
consideration of $0.26 for each limited partner unit. If the Partnership
has a negative modified net working capital balance as of the closing
date, you will receive no special distribution and the cash merger
consideration to be received for each limited partner unit will be
reduced by the pro rata amount of that negative modified net working
capital balance.
Other disadvantages of liquidating the Partnership. The McNeil Investors
board of directors also considered the following disadvantages of liquidating
the Partnership:
. There can be no assurance that McNeil Partners would be able to sell the
Partnership's properties for prices that would result in consideration to
the limited partners that is equal or greater than the consideration that
it is estimated they will receive in the proposed transaction.
. McNeil Partners believes that the transaction will allow limited partners
to dispose of their investment in the Partnership for a greater per unit
aggregate amount of cash, based on the analyses of Stanger & Co., and
more quickly than in a property by property liquidation. Limited partners
would not receive distributions in a liquidation as quickly as they would
in the transaction. Distributions would be payable only after the sale of
the properties. There is no assurance that the properties of the
Partnership could be sold at prices comparable to those in the
transaction.
. If the Partnership determined to sell all of its properties and
liquidate, it would not be able to distribute all of the liquidation
proceeds immediately after the sale. Under the Partnership's limited
partnership agreement, McNeil Partners has the authority to set aside net
proceeds from liquidation as well as other
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working capital of the Partnership to pay creditors, including creditors
who may have a contingent claim against the Partnership. The actual timing
and amount of distributions would be subject to McNeil Partners'
determination of when the reserves set aside are no longer necessary.
Accordingly, there could be no assurance as to the precise timing or
amount of distributions to the limited partners.
. In a liquidation, unlike in the proposed transaction, limited partners
would be required to continue to hold interests in the Partnership until
all contingent liabilities had been settled.
. In a liquidation, the limited partnership agreement of the Partnership
provides that McNeil Partners is entitled to receive an asset disposition
fee equal to 3% of the gross sales price of each property sold in
connection with a liquidation of the Partnership. In allocating the
aggregate consideration in the transaction, Stanger & Co. has assumed
that no asset disposition fee is payable by the Partnership to McNeil
Partners. See "--Effects of the transaction--Benefits and detriments of
the transaction to the McNeil Affiliates." No asset disposition fee will
be paid by the Partnership as a result of the transaction.
. Prior to the maturity date of the mortgage debt on some of the
Partnership's properties, McNeil Partners will need to either sell those
properties or refinance the mortgage debt. There is no assurance that
McNeil Partners would be able to refinance the mortgage debt on terms
that are as favorable or more favorable than the terms of the existing
mortgage debt. In addition, the obtaining of new mortgages could preclude
the sale of the Partnership's properties because of the terms of the
mortgage and the costs of terminating the mortgage.
. Limited partners would not be entitled to dissenters' rights in a
liquidation. Therefore, limited partners would not have rights under the
California Revised Limited Partnership Act to contest the amount to be
received in a liquidation.
. Until the properties of the Partnership are sold and the Partnership is
liquidated and terminated, limited partners would continue to receive
Schedule K-1s from the Partnership, and the Partnership would continue to
have SEC reporting obligations.
. Depending on the value of the properties to be sold, it may not be
economically feasible for McNeil Partners to obtain a fairness opinion
with respect to the sale of the Partnership's properties preceding a
liquidation.
When comparing a liquidation to the proposed transaction, the McNeil
Investors board of directors also considered that the proposed transaction
provides the same benefits as described in the bullet points under "--
Alternatives to the transaction--Liquidation--Benefits of liquidation to the
limited partners," including that the allocations of the aggregate
consideration in the transaction to each class of limited partner units in
each of the McNeil Partnerships includes an amount equal to the general
partner's estimated deficit restoration obligation, if any, to that McNeil
Partnership. See "--Purposes and reasons for the transaction" and "--Opinions
and reports of financial advisors--Allocation analysis and opinions of Stanger
& Co.--Stanger & Co. allocation analysis."
Based on the factors described above, the McNeil Investors board of
directors concluded that the disadvantages of liquidating the Partnership on a
property by property basis outweighed the benefits of liquidating the
Partnership on a property by property basis. The McNeil Investors board of
directors also concluded that the proposed transaction would provide greater
benefit to the limited partners of the Partnership than would a liquidation of
the Partnership. See "--Purposes and reasons for the transaction."
Continued ownership of the Partnership
Benefits of continued ownership
Another alternative to the transaction would be to continue the Partnership
in accordance with its existing business plan, with the Partnership continuing
to be owned by the limited partners and McNeil Partners. This
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will be the result if the Partnership does not participate in the transaction.
The McNeil Investors board of directors considered the primary benefits of
continuing the business of the Partnership to be as follows:
. Limited partners of the Partnership would have the potential to continue
to receive indefinitely semiannual distributions of net cash flow arising
from operations and the sale or refinancing of the Partnership's
properties.
. Continued ownership of the Partnership by the limited partners and McNeil
Partners affords the limited partners of the Partnership with the
opportunity to participate in any future appreciation in the
Partnership's properties.
. Continued ownership would mean that there would be no change in the
nature of the investment of the limited partners. Therefore, continued
ownership would avoid whatever disadvantages might result from a change
in the nature of the investment of the limited partners, including any
disadvantages as a result of the proposed transaction.
Disadvantages of continued ownership
The McNeil Investors board of directors also considered the relative
disadvantages to the limited partners of the Partnership of continuing the
Partnership under its current business plan and the disadvantages of continuing
the Partnership relative to the benefits discussed above and relative to the
proposed transaction.
Stanger & Co. going concern analysis. One of the factors considered by the
McNeil Investors board of directors was Stanger & Co.'s estimates of the going
concern value with respect to limited partner units in each of the McNeil
Partnerships. See "Going Concern Value" in Table 1. The McNeil Investors board
of directors has relied in good faith under applicable law on Stanger & Co.'s
analyses of going concern value with respect to limited partner units in each
of the McNeil Partnerships and, to that extent, has adopted Stanger & Co.'s
analyses of going concern value with respect to limited partner units in each
of the McNeil Partnerships.
An independent determination was made by Stanger & Co. that, based on the
assumptions set forth in Note (5) to Table 1, continuing each of the McNeil
Partnerships under its current business plan would yield a lesser return to the
limited partners of that McNeil Partnership than would the proposed
transaction.
As Table 1 reflects, with respect to each McNeil Partnership, the per unit
aggregate amount estimated to be received by limited partners in the proposed
transaction (the column entitled "Total Per Unit Estimate" in Table 1) is
greater than the estimated per unit going concern value of that McNeil
Partnership (the column entitled "Going Concern Value" in Table 1). The "Total
Per Unit Estimate" of each McNeil Partnership includes an amount equal to
McNeil Partners' estimated deficit restoration obligation, if any, to that
McNeil Partnership. See "--Opinions and reports of financial advisors--
Allocation analysis and opinions of Stanger & Co.--Stanger & Co. allocation
analysis."
Total Per Unit Estimate exceeds Going Concern Value. Based on the analysis
of Stanger & Co., it is anticipated that the going concern value of the
Partnership per limited partner unit would be less than the estimated per unit
aggregate amount to be received in the proposed transaction. See "Going Concern
Value" and "Total Per Unit Estimate" in Table 1. The "Total Per Unit Estimate"
of the Partnership includes an amount equal to McNeil Partners' estimated
deficit restoration obligation, if any, to the Partnership. See "--Opinions and
reports of financial advisors--Allocation analysis and opinions of Stanger &
Co.--Stanger & Co. allocation analysis."
. It is anticipated that limited partners of the Partnership will receive
an estimated aggregate amount of approximately $0.28 per limited partner
unit in the proposed transaction, including the estimated per unit
special distribution.
. The going concern value of the Partnership, based on the analysis by
Stanger & Co., is approximately $0.24 per limited partner unit.
104
<PAGE>
. The aggregate amount to be received for each limited partner unit is
based on the estimates of McNeil management, as of the date of this Proxy
Statement, of the Partnership's modified net working capital balance as
of the estimated closing date of the transaction. While we expect that
you will receive the estimated amounts for each of your limited partner
units, there can be no assurances that you will receive the specified
cash merger consideration or any special distribution. You will receive a
special distribution only if the Partnership has a positive modified net
working capital balance as of the closing date. There can be no
assurances that the Partnership will have a positive modified net working
capital balance as of the closing date or that the actual per unit amount
of the special distribution will be equal to the estimated per unit
amount of the special distribution. If the Partnership's modified net
working capital balance as of the closing date is zero, you will receive
no special distribution and will receive only the cash merger
consideration of $0.26 for each limited partner unit. If the Partnership
has a negative modified net working capital balance as of the closing
date, you will receive no special distribution and the cash merger
consideration to be received for each limited partner unit will be
reduced by the pro rata amount of that negative modified net working
capital balance.
Other disadvantages of continuing the Partnership. In addition, the McNeil
Investors board of directors considered the following disadvantages of
continuing the Partnership:
. Under the Partnership's limited partnership agreement, McNeil Partners
agreed to commence a liquidation of the properties of the Partnership
seven years after the Partnership's restructuring date and to use
commercially reasonable efforts to complete the liquidation and
termination of the Partnership by December 31, 1999. Continuation of the
Partnership would not have satisfied the obligations undertaken by McNeil
Partners to use commercially reasonable efforts to liquidate the
Partnership. See "--Background of the transaction--Restructuring of the
public McNeil Partnerships" and "--Background of the transaction--Icahn
tender offers."
. If the merger is not approved and the Partnership is continued, limited
partners will not have any assurance of when or if another liquidation
transaction will occur. In addition, continued ownership of the
Partnership by the limited partners would fail to secure the benefits to
the limited partners that are expected to result from the transaction,
including providing immediate liquidity to the limited partners of their
investment in the Partnership.
. The limited partners would not have the opportunity to liquidate their
investment in the Partnership other than pursuant to sales of their
limited partner units. At present, there is no established public trading
market for the limited partner units in the Partnership and liquidity is
limited to sporadic private sales or tender offers for limited partner
units, both of which are generally at a substantial discount to the
estimated per unit aggregate amount to be received in the transaction,
including the merger consideration and estimated special distribution,
and often involve only a limited number of limited partner units. See
"Private Sales Weighted Average" and "Tender Offer Ranges" in Table 1.
. The Partnership's limited partners would continue to own limited partner
units in the Partnership and therefore would continue to be exposed to
the risks inherent in the ownership of real property, such as
fluctuations in occupancy rates, operating expenses and rental rates,
which in turn may be affected by general and local economic conditions,
the supply and demand for properties of the type owned by the Partnership
and federal and local laws and regulations affecting the ownership and
operation of real estate.
. Until the properties of the Partnership are sold and the Partnership is
liquidated and terminated, limited partners would continue to receive
Schedule K-1s from the Partnership, and the Partnership would continue to
have SEC reporting obligations.
Based on the factors described above, the McNeil Investors board of
directors concluded that the disadvantages of continuing the Partnership under
its current business plan outweighed the benefits of continuing the
Partnership. The McNeil Investors board of directors also concluded that the
proposed transaction would provide greater benefit to the limited partners of
the Partnership than would a continuation of the Partnership under its current
business plan.
105
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Table 1
Unit Value Comparisons of Alternatives to the Transaction(1)
<TABLE>
<CAPTION>
Total
McNeil Units Per Unit Net Asset Going Concern Liquidation
Partnership Outstanding Estimate (2) Value (4) Value (5) Value (6)
- ----------- ----------- ------------ --------- ------------- -----------
<S> <C> <C> <C> <C> <C>
Fund IX.......... 110,170 $ 428 $ 418 $ 374 $ 397
Fund X........... 134,980 232 226 189 213
Fund XI.......... 159,813 220 215 183 204
Fund XII......... 229,666 73 71 42 64
Fund XIV......... 86,534 215 210 195 198
Fund XV.......... 102,796 162 157 145 147
Fund XX.......... 49,512 92 90 64 87
Fund XXI
Current income
units:.......... 24,863 99 90 0(10) 0
Growth/shelter
units:.......... 22,035 15(3) 0 0 0
Fund XXII
Current income
units:.......... 19,493,088 0.26 0.26 0.21 0.24
Growth/shelter
units:.......... 13,201,029 0.008(3) 0 0 0
Fund XXIII
Current income
units:.......... 6,574,985 0.27 0.25 0.16 0.21
Growth/shelter
units:.......... 4,850,711 0.008(3) 0 0 0
Fund XXIV........ 40,000 357 353 280 343
Fund XXV......... 82,943,685 0.51 0.50 0.44 0.48
Fund XXVI........ 86,530,671 0.28 0.28 0.24 0.26
Fund XXVII....... 5,162,909 10.95 10.83 9.72 10.57
Hearth Hollow.... 35 42,003 40,835 37,184 38,263
Midwest
Properties....... 90 25,302 23,828 14,106 20,384
Regency North.... 32 75,929 74,165 62,774 70,102
Fairfax.......... 2 479,061 457,288 178,769 407,288
Summerhill....... 1 35,497 0 N/A(16) 0
<CAPTION>
Private Sales Weighted Average
------------------------------------
Partnership Tender Offer
Stanger & Co. (7) Spectrum (8) Ranges (9)
-------------------- --------------- -----------------
Number
McNeil Number Weighted of Weighted
Partnership of Units Average Units Average Low High
- ----------- -------- ----------- ------ -------- ------ ----------
<S> <C> <C> <C> <C> <C> <C>
Fund IX.......... 1,302 $ 297 74 352 $ 200 $ 350(17)
Fund X........... 385 185 N/A N/A 115 205
Fund XI.......... 442 180 128 190 100 165(17)
Fund XII......... 633 47 185 53 32 50
Fund XIV......... 146 158 N/A N/A 89 151(17)
Fund XV.......... 559 153 130 147 115 140
Fund XX.......... 186 94 N/A N/A 60 125(18)
Fund XXI
Current income
units:.......... N/A N/A N/A N/A 80 105(11)
Growth/shelter
units:.......... 10 32 N/A N/A N/A N/A
Fund XXII
Current income
units:.......... N/A N/A 5,000 0.21 0.07 0.26(12)
Growth/shelter
units:.......... 263,500 0.01 N/A N/A N/A N/A
Fund XXIII
Current income
units:.......... N/A N/A N/A N/A 0.01 0.15(17)
Growth/shelter
units:.......... N/A N/A N/A N/A N/A N/A
Fund XXIV........ 98 327 19 296 275 351(17)
Fund XXV......... 551,367 0.37 35,125 0.40 0.26 0.38(17)
Fund XXVI........ 221,958 0.24 55,000 0.21 0.16 0.23
Fund XXVII....... 28,821 8.46 1,000 8.85 6 8.25
Hearth Hollow.... 3 28,000 N/A N/A 15,000 40,500(17)
Midwest
Properties....... 10 11,294(13) N/A N/A 15,000 26,500(14)
Regency North.... 1 16,000(13) N/A N/A 16,000 77,000(15)
Fairfax.......... N/A N/A N/A N/A N/A N/A
Summerhill....... N/A N/A N/A N/A N/A N/A
</TABLE>
- ----
(1) Based upon balance sheets as of October 31, 1999, with estimates made for
operating activity through January 31, 2000, and includes impact of the
general partner's deficit restoration obligation, if any, to the McNeil
Partnership, as estimated by Arthur Andersen LLP as of January 31, 2000.
Arthur Andersen LLP's estimates were based, in part, on limited
historical tax records prepared by other accounting firms. Sufficient
records did not exist such that Arthur Andersen LLP could test the
accuracy of prior accountants' work. Further, these estimates were based
on the McNeil Partnerships' projections of operating results through
January 31, 2000 and on hypothetical asset sale/partnership liquidation
information provided by Stanger & Co. Arthur Andersen LLP has not audited
or opined on the projected results of operations or financial information
relating to such hypothetical sales/liquidations. See "Where You Can Find
More Information."
(2) Amount includes "Per Unit Merger Consideration" and "Estimated Per Unit
Special Distribution." See Table 2. The aggregate amount to be received
for each limited partner unit in a McNeil Partnership is based on the
estimates of McNeil management, as of the date of this Proxy Statement,
of that McNeil Partnership's modified net working capital balance as of
the estimated closing date of the transaction. While we expect that a
class of limited partners of a participating McNeil Partnership will
receive the "Per Unit Merger Consideration" and "Estimated Per Unit
Special Distribution" set forth in Table 2 with respect to that class,
there can be no assurances that limited partners will receive the
specified cash merger consideration or any special distribution. Limited
partners of a participating McNeil Partnership will receive a special
distribution only if that participating McNeil Partnership has a positive
modified net working capital balance as of the closing date. There can be
no assurances that a participating McNeil Partnership will have a
positive modified net working capital balance as of the closing date or
that the actual per unit amount of the special distribution will be equal
to the estimated per unit amount of the special distribution. If a
participating McNeil Partnership's modified net working capital balance
as of the closing date is zero, each class of limited partners of that
participating McNeil Partnership will receive no special distribution and
will receive only the per unit cash merger consideration with respect to
that class. If a participating McNeil Partnership has a negative modified
net working capital balance as of the closing date, each class of limited
partners of that participating McNeil Partnership will receive no special
distribution and the per unit cash merger consideration to be received
with respect to limited partner units in that class will be reduced by
the pro rata amount of the negative modified net working capital balance
allocated by Stanger & Co. to that class. The foregoing discussion does
not apply to growth/shelter units in each of Funds XXI, XXII and XXIII.
No special distribution will be made in respect of the growth/shelter
units, and the cash merger consideration to be received for each
growth/shelter unit will not be subject to adjustment based on such
McNeil Partnership's modified net working capital balance as of the
closing date. Under the provisions of each such McNeil Partnership's
limited partnership agreement, holders of growth/shelter units are not
entitled to receive any distributions until holders of current income
units have received the specified priority return on their investment.
106
<PAGE>
(3) The "Total Per Unit Estimate" for growth/shelter units in each of Funds
XXI, XXII and XXIII consists solely of the "Per Unit Merger
Consideration." No special distribution will be made in respect of the
growth/shelter units in that McNeil Partnership because under the
provisions of that McNeil Partnership's limited partnership agreement
governing distributions of surplus cash holders of growth/shelter units
are not entitled to receive any distributions until holders of current
income units have received the specified priority return on their
investment. The "Per Unit Merger Consideration" into which each
growth/shelter unit in that McNeil Partnership will be converted is not
based on the Stanger & Co. allocation analysis. Under the Stanger & Co.
allocation analysis, growth/shelter units in that McNeil Partnership are
entitled to receive $0 because under the provisions of that McNeil
Partnership's limited partnership agreement relating to a liquidation and
termination of that McNeil Partnership holders of growth/shelter units
are not entitled to receive any distributions until holders of current
income units have received the specified priority return on their
investment. Instead, the per unit amount was separately agreed upon
between McNeil Partners and WXI/McN Realty." The amount payable with
respect to growth/shelter units in that McNeil Partnership will be paid
by WXI/McN Realty independent of and in addition to the aggregate
consideration in the transaction which is being allocated by Stanger &
Co.
(4) Stanger & Co. estimated the "Net Asset Value" per limited partner unit in
each McNeil Partnership as follows:
(a) Stanger & Co.'s estimate of the value of the real estate assets of the
McNeil Partnership net of the mark-to-market adjustment on the mortgage
debt of that McNeil Partnership, as described in "--Reports and opinions
of financial advisors--Allocation analysis and opinions of Stanger &
Co.--Financial analysis of Stanger & Co.;"
(b) Plus: the book value of the other tangible assets of the McNeil
Partnership estimated as of January 31, 2000;
(c) Plus: the deficit restoration obligation, if any, of the general partner
of the McNeil Partnership, as estimated by Arthur Andersen LLP as of
January 31, 2000, assuming the McNeil Partnership had been liquidated on
that date. Arthur Andersen LLP's estimates were based, in part, on
limited historical tax records prepared by other accounting firms.
Sufficient records did not exist such that Arthur Andersen LLP could
test the accuracy of prior accountants' work. Further, these estimates
were based on the McNeil Partnerships' projections of operating results
through January 31, 2000 and on hypothetical asset sale/partnership
liquidation information provided by Stanger & Co. Arthur Andersen LLP
has not audited or opined on the projected results of operations or
financial information relating to such hypothetical sales/liquidations.
(d) Less: the estimated mortgage debt outstanding as of January 31, 2000;
(e) Less: other liabilities of the McNeil Partnership estimated as of
January 31, 2000, including amounts recorded as liabilities to the
general partner of the McNeil Partnership and its affiliates, including
McREMI; and
(f) Less: the transaction expenses as estimated by McNeil Partners.
The resulting net asset value was divided by the number of limited partner
units outstanding as of December 10, 1999, the record date, to derive the
"Net Asset Value" per limited partner unit.
(5) Stanger & Co. estimated the "Going Concern Value" per limited partner
unit in each McNeil Partnership based upon the continued operation of the
McNeil Partnership for a ten-year period. Real estate cash flows and the
residual value of the real estate at the end of ten years were estimated
by Stanger & Co. Debt service was estimated based on the terms of the
existing mortgages in place. Stanger & Co. assumed the existing mortgages
were refinanced at the earlier of: (a) the expiration of the term of the
mortgage; (b) the date on which any prepayment penalty was eliminated;
and (c) the date on which any prepayment penalty, plus the outstanding
mortgage balance, is less than the present value, discounted at 7.5%, of
the remaining obligations due under the mortgage. The mortgage balance
and any prepayment penalties were assumed refinanced at 7.5% per annum
interest with an amortization period of 30 years. Administrative fees and
expenses were based upon normalized 1997 and 1998 expense levels. Asset
management fees were estimated in accordance with the limited partnership
agreement of the McNeil Partnership. Net cash flows calculated pursuant
to the going concern analysis were discounted to present value at a
premium to the estimated internal rate of return for the real estate
portfolio based upon several factors including illiquidity and leverage,
as estimated by Stanger & Co. The resulting going concern value was
divided by the number of limited partner units outstanding as of December
10, 1999, the record date, to derive the "Going Concern Value" per
limited partner unit.
(6) Stanger & Co. estimated the "Liquidation Value" per limited partner unit
in each McNeil Partnership based upon the "Net Asset Value" of that
McNeil Partnership, adjusted for additional costs, estimated at 2.5% of
real estate value, associated with the sale of the assets, continued
operation of the McNeil Partnership and the wind-down of partnership
operations.
(7) Per database of Stanger & Co. through September 30, 1999, except as
noted.
(8) Trading prices listed in the September/October 1999 edition of the
Partnership Spectrum.
(9) For the period January 1, 1998 to December 10, 1999, as reported by
McREMI. See "Related Security Holder Matters--Past contacts, transactions
and negotiations."
(10) Fund XXI is more than 95% leveraged and therefore "Going Concern Value"
is deemed inapplicable.
(11) On October 15, 1999, Bond Purchase, L.L.C. made a tender offer, which
expired on November 20, 1999, for up to 2,000 current income units, or
approximately 8.0% of the outstanding current income units, in Fund XXI
at a price of $105 per current income unit. See "--Events subsequent to
the execution of the Master Agreement--Mini-tender offers" and "Related
Security Holder Matters--Past contacts, transactions and negotiations."
(12) On October 8, 1999, McDowell Foods, Inc. made a tender offer, which
expired on November 15, 1999, for up to 1,500,000 current income units,
or approximately 7.7% of the outstanding current income units, in Fund
XXII at a price of $0.26 per current income unit. See "--Events
subsequent to the execution of the Master Agreement--Mini-tender offers"
and "Related Security Holder Matters--Past contacts, transactions and
negotiations."
107
<PAGE>
(13) As reported by McREMI. See "Related Security Holder Matters--Past
contacts, transactions and negotiations."
(14) On October 11, 1999, Bond Purchase, L.L.C. offered to purchase up to 30
limited partner units, or approximately 33.3% of the outstanding limited
partner units, in McNeil Midwest Properties at a price of $26,500 per
limited partner unit in cash. The offer expired on November 30, 1999.
(15) On September 17, 1999, Bond Purchase, L.L.C. offered to purchase up to
eleven limited partner units, or approximately 34.4% of the outstanding
limited partner units, in Regency North at a price of $77,000 per limited
partner unit in cash. The offer expired on October 15, 1999. On October
18, 1999, Bond Purchase offered to purchase up to three additional
limited partner units in Regency North at a price of $77,000 per limited
partner unit in cash. The offer expired on November 15, 1999.
(16) Summerhill is more than 95% leveraged and therefore "Going Concern Value"
is deemed inapplicable.
(17) Subsequent to the execution of the Master Agreement, a "mini-tender"
offer was made for less than 5% of such limited partner units at a price
below the "Total Per Unit Estimate." See "Special Factors--Events
subsequent to the execution of the Master Agreement--Mini-tender offers"
and "Related Security Holder Matters--Mini-tender offers."
(18) On November 24, 1999, McDowell Foods, Inc. made a tender offer, which is
scheduled to expire on December 31, 1999, unless extended, for up to
2,400 of the outstanding limited partner units, or approximately 4.8% of
the outstanding limited partner units, in the Partnership at a price of
$96 per limited partner unit. See "--Events subsequent to the execution
of the Master Agreement--Mini-tender offers" and "Related Security Holder
Matters--Past contacts, transactions and negotiations." The high tender
offers at a price of $125 per limited partner unit were made by Madison
Investment Group, LLC during the second quarter of 1998.
108
<PAGE>
Effects of the transaction
The Master Agreement provides that WXI/McN Realty will acquire the general
partner interests and limited partner interests in each of the McNeil
Partnerships, assets of McNeil Partners related to the McNeil Partnerships and
certain assets of McREMI. Each McNeil Partnership's participation in the
transaction is subject to the requisite approval of its limited partners.
Effects of the transaction on the Partnership
If the merger proposal is approved by the limited partners of the
Partnership and the Partnership participates in the transaction, then the
effects of the transaction with respect to the Partnership will be as follows:
. WXI/McN Realty will acquire all of the general partner interests and
limited partner interests in the Partnership, assets of McNeil Partners
related to the Partnership and assets of McREMI related to the
Partnership.
. As a result of the transaction, the Partnership will become a directly
and/or indirectly wholly owned subsidiary of WXI/McN Realty. WXI/McN
Realty or a wholly owned subsidiary of WXI/McN Realty will be the sole
limited partner of the Partnership, and a separate directly or indirectly
wholly owned subsidiary of WXI/McN Realty will be the general partner of
the Partnership and will acquire the assets of McNeil Partners related to
the Partnership. A separate directly or indirectly wholly owned
subsidiary of WXI/McN Realty will own and operate the assets of McREMI.
. Following the completion of the transaction, the current limited partners
of the Partnership will no longer have any interest in and will not be
limited partners of the Partnership and, therefore, will not participate
in the Partnership's future earnings and potential growth.
. Following the completion of the transaction with respect to the
Partnership, the limited partner units in the Partnership will cease to
be registered under the Securities Exchange Act and all SEC reporting
obligations of the Partnership will cease. Limited partners of the
Partnership will receive a final Schedule K-1 from the Partnership after
the closing of the transaction and thereafter will no longer receive
Schedule K-1s from the Partnership.
. Limited partners of the Partnership will receive approximately $0.28 in
cash for each limited partner unit. The aggregate amount to be received
for each limited partner unit consists of merger consideration of $0.26
per unit and a special cash distribution estimated as of January 31, 2000
at $0.02 per unit.
. The aggregate amount to be received for each limited partner unit is
based on the estimates of McNeil management, as of the date of this Proxy
Statement, of the Partnership's modified net working capital balance as
of the estimated closing date of the transaction. While we expect that
you will receive the estimated amounts set forth above for each of your
limited partner units there can be no assurances that you will receive
the specified cash merger consideration or any special distribution.
. You will receive a special distribution only if the Partnership has a
positive modified net working capital balance as of the closing date.
There can be no assurances that the Partnership will have a positive
modified net working capital balance as of the closing date or that the
actual per unit amount of the special distribution will be equal to the
estimated per unit amount of the special distribution. If the
Partnership's modified net working capital balance as of the closing date
is zero, you will receive no special distribution and will receive only
the cash merger consideration of $0.26 for each limited partner unit. If
the Partnership has a negative modified net working capital balance as of
the closing date, you will receive no special distribution and the cash
merger consideration to be received for each limited partner unit will be
reduced by the pro rata amount of that negative modified net working
capital balance.
. The estimated per unit aggregate amount set forth in this Proxy Statement
to be received for each limited partner unit in the Partnership is
greater than the estimated per unit aggregate amount set forth
109
<PAGE>
in the June 25, 1999 press release announcing the transaction because of
an increase in the estimate of the Partnership's modified net working
capital balance as of the estimated closing date of the transaction. This
increase is attributable primarily to an increase in the estimate of the
Partnership's cash flow, for the period through the estimated closing date
of the transaction, as a result of higher than anticipated revenues
generated to date and additional revenue estimated to be generated through
the estimated closing date of the transaction. This increase in the
estimate of the Partnership's cash flow exceeds additional costs to
complete all budgeted capital items with respect to the Partnership
through the estimated closing date of the transaction as required by the
Master Agreement, the Partnership's pro rata share of higher than
anticipated transaction costs and the Partnership's pro rata share of an
increase in the reserve for transaction costs. As described in the
preceding paragraphs, the actual per unit aggregate amount to be received
for each limited partner unit in the Partnership will vary based on the
Partnership's actual modified net working capital balance as of the actual
closing date of the transaction.
. McNeil Partners will receive membership interests in and credit for a
capital contribution to WXI/McN Realty in exchange for its contributions
to WXI/McN Realty and WXI/McN Realty's subsidiaries of its general
partner interests in the Partnership, assets of McNeil Partners related
to the Partnership and assets of McREMI related to the Partnership. The
amount of this capital contribution will be equal to $1,152,000, the
amount of the aggregate consideration allocated by Stanger & Co. to these
contributions. See "--Opinions and reports of financial advisors--
Allocation analysis and opinions of Stanger & Co.--Stanger & Co.
allocation analysis" and the "MPLP Allocation Amount" for the Partnership
in Table 2.
. McNeil Partners also may contribute cash to WXI/McN Realty under some
circumstances, and some fees, expenses and disbursements incurred by the
McNeil Affiliates in connection with the transaction will be treated as a
contribution in-kind by McNeil Partners to WXI/McN Realty. In
consideration for any such cash contribution and any such contribution
in-kind, McNeil Partners will receive additional membership interests in
WXI/McN Realty and credit for capital contribution to WXI/McN Realty in
the amount of any such cash contribution and any such contribution in-
kind. See "--Interests of certain persons in matters to be acted upon;
conflicts of interest--Equity interest of McNeil Partners in WXI/McN
Realty."
Effects of the transaction on all of the other participating McNeil
Partnerships and the McNeil Affiliates
. For each other participating McNeil Partnership, other than the
Affiliated McNeil Partnerships, the effects of the transaction with
respect to that participating McNeil Partnership will be the same as the
effects described above with respect to the Partnership. The merger
consideration and estimated special distribution, if any, per limited
partner unit in each of the McNeil Partnerships is set forth in Table 2
in the columns "Per Unit Merger Consideration" and "Estimated Per Unit
Special Distribution."
. The aggregate amount to be received for each limited partner unit in a
participating McNeil Partnership is based on the estimates of McNeil
management, as of the date of this Proxy Statement, of that participating
McNeil Partnership's modified net working capital balance as of the
estimated closing date of the transaction.
. While we expect that a class of limited partners of a participating
McNeil Partnership will receive the "Per Unit Merger Consideration" and
"Estimated Per Unit Special Distribution," if any, set forth in Table 2
with respect to that class, there can be no assurances that limited
partners will receive the specified cash merger consideration or any
special distribution. Limited partners of a participating McNeil
Partnership will receive a special distribution only if that
participating McNeil Partnership has a positive modified net working
capital balance as of the closing date. There can be no assurances that a
participating McNeil Partnership will have a positive modified net
working capital balance as of the closing date or that the actual per
unit amount of the special distribution will be equal to the estimated
per unit amount of the special distribution. If a participating McNeil
Partnership's modified net working capital balance as of the closing date
is zero, each class of limited partners of that participating McNeil
110
<PAGE>
Partnership will receive no special distribution and will receive only the
per unit cash merger consideration with respect to that class. If a
participating McNeil Partnership has a negative modified net working
capital balance as of the closing date, each class of limited partners of
that participating McNeil Partnership will receive no special distribution
and the per unit cash merger consideration to be
received with respect to limited partner units in that class will be
reduced by the pro rata amount of the negative modified net working
capital balance allocated by Stanger & Co. to that class. The foregoing
discussion does not apply to growth/shelter units in each of Funds XXI,
XXII and XXIII. No special distribution will be made in respect of the
growth/shelter units, and the cash merger consideration to be received for
each growth/shelter unit will not be subject to adjustment based on such
McNeil Partnership's modified net working capital balance as of the
closing date. Under the provisions of each such McNeil Partnership's
limited partnership agreement, holders of growth/shelter units are not
entitled to receive any distributions until holders of current income
units have received the specified priority return on their investment.
. The "Total Per Unit Estimate" set forth in Table 2 to be received for
limited partner units in some of the McNeil Partnerships differs from the
estimated per unit aggregate amount set forth with respect to that McNeil
Partnership in the June 25, 1999 press release announcing the transaction
because of changes in the estimate of that McNeil Partnership's modified
net working capital balance as of the estimated closing date of the
transaction. These changes are attributable primarily to additional costs
to complete all budgeted capital items with respect to that McNeil
Partnership through the estimated closing date of the transaction as
required by the Master Agreement, that McNeil Partnership's pro rata
share of higher than anticipated transaction costs and that McNeil
Partnership's pro rata share of an increase in the reserve for
transaction costs. If these amounts are in the aggregate less than the
increase in the estimate of a McNeil Partnership's cash flow, for the
period through the estimated closing date, as a result of higher than
anticipated revenues generated to date and additional revenue estimated
to be generated through the estimated closing date of the transaction,
both the estimate of that McNeil Partnership's modified net working
capital balance as of the estimated closing date and the estimated per
unit aggregate amount to be received for limited partner units in that
McNeil Partnership increased. If, on the other hand, these amounts are in
the aggregate greater than the increase in the estimate of a McNeil
Partnership's cash flow, for the period through the estimated closing
date, as a result of higher than anticipated revenues generated to date
and additional revenue estimated to be generated through the estimated
closing date of the transaction, both the estimate of that McNeil
Partnership's modified net working capital balance as of the estimated
closing date and the estimated per unit aggregate amount to be received
for limited partner units in that McNeil Partnership decreased. The
foregoing discussion does not apply to growth/shelter units in each of
Funds XXI, XXII and XXIII because no special distribution will be made in
respect of the growth/shelter units. Under the provisions of each such
McNeil Partnership's limited partnership agreement, holders of
growth/shelter units are not entitled to receive any distributions until
holders of current income units have received the specified priority
return on their investment.
. The amount of the capital contribution by McNeil Partners to WXI/McN
Realty in exchange for its contributions to WXI/McN Realty and WXI/McN
Realty's subsidiaries of its general partner interests in each
participating McNeil Partnership, certain assets of McNeil Partners
related to that McNeil Partnership and certain assets of McREMI related
to that McNeil Partnership is set forth in Table 2 in the column entitled
"MPLP Allocation Amount."
. McNeil Partners also will receive membership interests in and credit for
a capital contribution to WXI/McN Realty in exchange for its
contributions to WXI/McN Realty and WXI/McN Realty's subsidiaries of the
limited partner interests in the Affiliated McNeil Partnerships and the
management assets of McREMI. The amount of this capital contribution will
be equal to the aggregate consideration allocated by Stanger & Co. to
these contributions.
. If all of the McNeil Partnerships are participating McNeil Partnerships,
the portion of the aggregate consideration to be received by McNeil
Partners in the form of membership interests and credit for a
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capital contribution in exchange for the contributions described in the
immediately preceding two bullet points will equal approximately
$65,053,000. See "--Interests of certain persons in matters to be acted
upon; conflicts of interest--Equity interest of McNeil Partners in WXI/McN
Realty" and "Total Allocated McNeil Value" in Table 2.
Benefits and detriments of the transaction to the McNeil Affiliates
Benefits. The primary benefits of the transaction to the McNeil Affiliates
are the following:
. The transaction satisfies McNeil Partners' obligations pursuant to
covenants contained in the limited partnership agreements of the public
McNeil Partnerships, to use commercially reasonable efforts to complete
the liquidation and termination of the public McNeil Partnerships by
December 31, 1999. See "--Background of the transaction--Restructuring
of the public McNeil Partnerships."
. The transaction satisfies the commitment of McNeil Partners and its
affiliates in the Stipulation of Settlement of the Schofield litigation
to market the McNeil Partnerships for sale, together with McREMI,
through a fair and impartial bidding process overseen by a national
investment banking firm. See "--Background of the transaction--
Background of the Schofield litigation." The settlement was not
conditioned on the consummation of the transaction described in this
Proxy Statement.
. The transaction satisfies McNeil Partners' commitment in statements
filed with the SEC in response to the Icahn tender offers in 1995 and
1996 to begin a sale or orderly liquidation of all of the assets of the
McNeil Partnerships which were the subject of those tender offers. See
"--Background of the transaction--Icahn tender offers."
. McNeil Partners will receive a portion of the aggregate consideration
equal to $65,053,000 in consideration for the interests, rights and
assets being contributed by McNeil Partners to WXI/McN Realty and its
subsidiaries in the transaction. This portion of the aggregate
consideration will be paid to McNeil Partners in the form of membership
interests in and credit for a capital contribution to WXI/McN Realty in
exchange for its contribution to WXI/McN Realty and its subsidiaries of
the following: (1) its general partner interests in each of the
participating McNeil Partnerships, (2) the limited partner units in the
Affiliated McNeil Partnerships, (3) certain assets of McNeil Partners
related to the participating McNeil Partnerships and (4) certain assets
of McREMI. The amount of this capital contribution will be equal to the
aggregate consideration allocated by Stanger & Co. to these
contributions. See the "Total Allocated McNeil Value" set forth in
Table 2. See "--Opinions and reports of financial advisors--Allocation
Analysis and opinions of Stanger & Co.--Stanger & Co. allocation
analysis" and "--Interests of certain persons in matters to be acted
upon; conflicts of interest--Equity interest of McNeil Partners in
WXI/McN Realty."
. Stanger & Co. valued the membership interests to be received by McNeil
Partners in WXI/McN Realty in connection with the transaction and valued
the contributions being made by McNeil Partners to WXI/McN Realty in
exchange for those membership interests. Stanger & Co. has advised the
McNeil Investors board of directors and the special committee that based
on Stanger & Co.'s analysis, Stanger & Co. concluded that the aggregate
value of those membership interests is no greater than the aggregate
value of those contributions. See "--Interests of certain persons in
matters to be acted upon; conflicts of interest--Equity interest of
McNeil Partners in WXI/McN Realty" and "--Opinions and reports of
financial advisors--Allocation analysis and opinions of Stanger & Co.--
Financial Analysis of Stanger & Co.--WXI/McN Realty Operating Agreement
review."
. McNeil Partners and its affiliates also will receive a portion of the
aggregate consideration for the limited partner units that they own in
the McNeil Partnerships. McNeil Partners and these affiliates will
receive the same cash consideration for each of their limited partner
units in the participating McNeil Partnerships, other than the Affiliated
McNeil Partnerships, as the other limited partners of that McNeil
Partnership. If all of the McNeil Partnerships, other than the Affiliated
McNeil Partnerships, in which McNeil Partners and these affiliates own
limited partner units are participating McNeil Partnerships, McNeil
Partners and these affiliates will receive aggregate cash consideration
of approximately
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$11,747,000. This figure is the sum of the per unit merger consideration
and estimated per unit special distribution for those McNeil Partnerships.
As described in the second bullet point above, McNeil Partners will
receive membership interests in WXI/McN Realty in consideration for its
contribution to WXI/McN Realty and WXI/McN Realty's subsidiaries of its
limited partner units in the Affiliated McNeil Partnerships.
. McNeil Partners also may contribute cash to WXI/McN Realty under certain
circumstances and will receive equity interests in WXI/McN Realty and
credit for a capital contribution to WXI/McN Realty in the amount of any
cash contributed. In addition, some fees, expenses and disbursements
incurred by the McNeil Affiliates in connection with the transaction will
be treated as a contribution in-kind by McNeil Partners to WXI/McN
Realty. McNeil Partners will receive membership interests in WXI/McN
Realty and credit for capital contribution to WXI/McN Realty in the
amount of that contribution in-kind. See "--Interests of certain persons
in matters to be acted upon; conflicts of interest--Equity interest of
McNeil Partners in WXI/McN Realty."
. McNeil Partners will receive a significant, although non-controlling,
equity interest in WXI/McN Realty if the transaction is completed. It is
anticipated that immediately following the effective time of the mergers,
McNeil Partners will own in the aggregate between approximately 30% and
50% of the then outstanding membership interests in WXI/McN Realty,
depending on the amount of financing obtained by WXI/McN Realty as of the
closing and the amount of the capital contributions of McNeil Partners to
WXI/McN Realty. The other McNeil Affiliates will indirectly beneficially
own an equity interest in WXI/McN Realty following the effective time of
the mergers as a result of their ownership of partnership interests in
McNeil Partners. See "The Master Agreement--The contributions--
Contributions to McNeil Partners by the other McNeil Affiliates."
. The membership interests received by McNeil Partners in WXI/McN Realty
will entitle McNeil Partners to receive a specified percentage return on
its investment in WXI/McN Realty and to receive distributions of WXI/McN
Realty's net cash flow and net proceeds from capital transactions in the
priority set forth in the WXI/McN Realty Operating Agreement.
Consequently, McNeil Partners and the other McNeil Affiliates, through
their ownership of partnership interests in McNeil Partners, will have a
significant interest in WXI/McN Realty and will continue to have the
opportunity to participate in and to benefit from, up to a specific
capped return on their investment, future earnings growth and increases
in the value of the participating McNeil Partnerships and their
properties, and any other assets acquired by WXI/McN Realty and its
subsidiaries. This percentage return is limited to 14% or 15% per annum,
depending on McNeil Partners' initial capital contribution to WXI/McN
Realty. Following the effective time of the mergers, McNeil Partners and
WXI/McN Realty's managing member will be the sole members of WXI/McN
Realty.
. Under the terms of the WXI/McN Realty Operating Agreement, following the
effective time of the mergers, McNeil Partners also will have the right
to designate two of the five members of WXI/McN Realty's board of
managers. The remaining three members will be designated by WXI/McN
Realty's managing member. Action by WXI/McN Realty's board of managers
will require the affirmative vote of three of the five managers. However,
some actions of WXI/McN Realty's board of managers will require a
supermajority vote of four of the five managers. Therefore, McNeil
Partners will have a right to veto any transactions that require a
supermajority vote of WXI/McN Realty's board of managers. See "WXI/McN
Realty Operating Agreement."
. WXI/McN Realty will repay or indirectly assume all outstanding mortgage
debt of each of the participating McNeil Partnerships. McNeil Partners
and McNeil Investors currently are parties to existing indemnification
obligations or agreements relating to mortgage debt on some of the McNeil
Partnership properties and agreements with lenders or affiliates of
lenders of some mortgage debt on some of the properties. Under these
existing indemnification obligations and agreements, McNeil Partners or
McNeil Investors or both have assumed liability on behalf of one or more
McNeil Partnerships or their subsidiaries for exceptions to non-recourse
provisions contained in that mortgage debt. In the Master Agreement,
WXI/McN Realty has agreed to deliver at the closing of the transaction
any replacement agreements and documents necessary to assume all of the
obligations of Sellers (other
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than the participating McNeil Partnerships) and their affiliates as
indemnitor under all of those existing indemnification obligations or
agreements, and to use its reasonable efforts to ensure that those
replacement agreements and documents delivered at the closing release
Sellers (other than the participating McNeil Partnerships) and their
affiliates from all of Sellers' (other than the participating McNeil
Partnerships) and their affiliates' obligations under those existing
indemnification obligations and agreements. See "The Master Agreement--
Replacement indemnification agreements."
. The Master Agreement provides that if Summerhill is a participating
McNeil Partnership, WXI/McN Realty will contribute adequate cash to
Summerhill to, and will cause Summerhill to, repay at the effective time
of the mergers the demand note, dated November 17, 1997, payable by
Summerhill to Robert A. McNeil and Carole J. McNeil, together with all
accrued but unpaid interest to the effective time on the demand note. See
"--Interests of certain persons in matters to be acted upon; conflicts of
interest." As of November 30, 1999, the outstanding principal balance of
this demand note was $6,624,307, and the accrued and unpaid interest on
the demand note was $486,442. However, the modified net working capital
balance of Summerhill for purposes of determining the special
distribution for Summerhill will be calculated as if the demand note was
not repaid and WXI/McN Realty had not contributed cash to Summerhill. See
"The Master Agreement--The mergers--Special distribution of positive net
working capital balance."
. The transaction, as structured, will allow McNeil Partners to make the
contributions of its interests in the participating McNeil Partnerships
and the assets of McNeil Partners and McREMI being contributed to WXI/McN
Realty on a tax-deferred basis and will permit the partners of McNeil
Partners to defer substantial income tax liability that would be incurred
if the properties were disposed of in a taxable sale. A taxable sale of
the properties would produce taxable gain in excess of the cash proceeds
because of the relief of partnership liabilities allocated to the McNeil
Affiliates. If the transaction had been structured as an acquisition of
the entire McNeil portfolio for cash, it is estimated by Arthur Andersen
LLP that the partners of McNeil Partners would have been required to pay
approximately $30,563,000 in taxes in connection with the transaction.
See "--Federal income tax consequences--Tax consequences to McNeil
Partners."
Detriments. The primary detriments of the transaction to the McNeil
Affiliates are the following:
. Each of the McNeil General Partners has agreed to irrevocably,
unconditionally and absolutely waive any and all rights it may have to
indemnification, contribution or reimbursement from any of the
participating McNeil Partnerships, whether under the limited partnership
agreement, any contractual arrangement, applicable law or otherwise ,
with respect to those matters for which McNeil Partners has agreed to
indemnify WXI/McN Realty's managing member and some of the affiliates of
WXI/McN Realty's managing member.
. McNeil Partners and Robert A. McNeil have agreed to indemnify WXI/McN
Realty's managing member and some of the affiliates of WXI/McN Realty's
managing member for all actual and out-of-pocket costs, expenses,
judgments, fines, losses, claims, damages and liabilities arising from
certain matters described in "Other Agreements Between the McNeil
Affiliates and Affiliates of WXI/McN Realty--Indemnification and pledge
agreement."
. In allocating the aggregate consideration, Stanger & Co. took the
position that the deficit restoration obligations of the general partners
of the McNeil Partnerships were required to be paid to the McNeil
Partnerships. As a result, the aggregate consideration allocated by
Stanger & Co. to the general partner interests in each of the McNeil
Partnerships is net of the estimated deficit restoration obligation with
respect to that McNeil Partnership. The aggregate amount of the deficit
restoration obligations payable in respect of all of the McNeil
Partnerships, estimated by Arthur Andersen LLP, based upon a hypothetical
sale of the properties and liquidation of the McNeil Partnerships at
January 31, 2000, is approximately $6,427,000. The estimated deficit
restoration obligation payable in respect of the Partnership, estimated
by Arthur Andersen LLP, based upon a hypothetical sale of the properties
and liquidation of the Partnership at January 31, 2000, is $255,148.
Arthur Andersen LLP's estimates were based, in part, on limited
historical tax records prepared by other accounting firms. Sufficient
records
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did not exist such that Arthur Andersen LLP could test the accuracy of
prior accountants' work. Further, these estimates were based on the McNeil
Partnerships' projections of operating results through January 31, 2000
and on hypothetical asset sale/partnership liquidation information
provided by Stanger & Co. Arthur Andersen LLP has not audited or opined on
the projected results of operations or financial information relating to
such hypothetical sales/liquidations. See "--Opinions and reports of
financial advisors--Allocation analysis and opinions of Stanger & Co.--
Stanger & Co. allocation analysis."
. In allocating the aggregate consideration, Stanger & Co. took the
position that no asset disposition fee is payable by any of the McNeil
Partnerships to the McNeil General Partners as a result of the
transaction. In a liquidation, the limited partnership agreements of some
of the public McNeil Partnerships provide that McNeil Partners is
entitled to receive an asset disposition fee equal to 3% of the gross
sales price of each property sold in connection with a liquidation of
that McNeil Partnership. No asset disposition fees will be paid by any of
the McNeil Partnerships as a result of the transaction.
. The McNeil General Partners will cease to be the general partners of the
participating McNeil Partnerships following the transaction. As a result,
the McNeil General Partners will no longer be entitled to any of the
rights and benefits of a general partner of the participating McNeil
Partnerships, including the right to receive fees and other distributions
from the participating McNeil Partnerships under the limited partnership
agreements of the participating McNeil Partnerships.
. The McNeil Affiliates will no longer be in control of the participating
McNeil Partnerships and the assets of McREMI following the transaction.
See "--Interests of certain persons in matters to be acted upon;
conflicts of interest--Relationships among the McNeil Affiliates and the
McNeil Partnerships." Although McNeil Partners will own membership
interests in WXI/McN Realty following the effective time of the
transaction, McNeil Partners will not be in control of WXI/McN Realty.
McNeil Partners will have the right to designate only two of the five
members of WXI/McN Realty's board of managers. The remaining three
members of WXI/McN Realty's board of managers will be designated by
WXI/McN Realty's managing member. Except in some limited circumstances in
which the vote of four of five of the managers is required, decisions of
WXI/McN Realty's board of managers require a vote of only three of the
five members. Therefore, action generally may be taken by WXI/McN
Realty's board of managers without the approval of McNeil Partners. See
"WXI/McN Realty Operating Agreement."
. The opportunity of the McNeil Affiliates to participate in any future
earnings growth of WXI/McN Realty is limited to the percentage return on
investment to which they are entitled under the WXI/McN Realty Operating
Agreement. This percentage return is limited to 14% or 15%, depending on
McNeil Partners' initial capital contribution to WXI/McN Realty. See
"WXI/McN Realty Operating Agreement."
Opinions and reports of financial advisors
Allocation analysis and opinions of Stanger & Co.
Each of the McNeil Partnerships engaged Stanger & Co. as its independent
advisor on January 12, 1998. Stanger & Co. was engaged based on its experience
and expertise. Stanger & Co., founded in 1978, has provided information,
research, investment banking and consulting services to clients throughout the
United States, including major New York Stock Exchange, Inc. firms and
insurance companies and over 70 companies engaged in the management and
operation of partnerships and REITs. The investment banking activities of
Stanger & Co. include financial advisory services, asset and securities
valuations, industry and company research and analysis, litigation support and
expert witness services, and due diligence investigations in connection with
both publicly registered and privately placed securities transactions.
First Stanger & Co. opinion
At the June 24, 1999 meeting of the McNeil Investors board of directors,
Stanger & Co. delivered its allocation analysis of the aggregate consideration
described below in "--Opinions and reports of financial advisors--Allocation
analysis and opinions of Stanger & Co.--Stanger & Co. allocation analysis" and
a
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written opinion of fairness to the effect that as of the date of the opinion,
and subject to the assumptions, qualifications and limitations set forth in the
opinion, each of the five matters set forth below was fair from a financial
point of view to the holders of each class of limited partner units in each of
the McNeil Partnerships:
. the aggregate consideration in the transaction;
. the allocation of the aggregate consideration between the management
assets of McREMI, on the one hand, and the McNeil Partnerships as a
group, on the other hand;
. the aggregate consideration allocated to each individual McNeil
Partnership;
. the methodology of allocation of the aggregate consideration allocated to
each individual McNeil Partnership, less the principal amount of all
outstanding mortgage debt of that McNeil Partnership, among the general
partner interests in that McNeil Partnership, the other assets of McREMI
related to that McNeil Partnership and each class of limited partner
units in that McNeil Partnership; and
. with respect to each class of limited partner units in each McNeil
Partnership, the estimated per unit aggregate amount to be received with
respect to limited partner units in that class, consisting of the sum of
(1) the amount of the aggregate consideration allocated to a limited
partner unit in that class and (2) the pro rata amount of the estimated
modified net working capital balance with respect to a limited partner
unit in that class, determined as of March 31, 1999, based upon the
balance sheet of each McNeil Partnership as of March 31, 1999, adjusted
for transaction expenses and the allocation of transaction expenses, as
estimated by the McNeil General Partners.
The written fairness opinion delivered by Stanger & Co. to the McNeil
Investors board of directors on behalf of the McNeil Partnerships on June 24,
1999 is referred to in this Proxy Statement as the "first Stanger & Co.
opinion." In determining that the transaction is fair to, and in the best
interests of, the limited partners of each of the McNeil Partnerships and in
recommending approval of the transaction, the McNeil Investors board of
directors and the special committee considered as positive factors the Stanger
& Co. allocation analysis and the first Stanger & Co. opinion. See "--
Recommendations of the special committee and the McNeil Investors board of
directors; fairness of the transaction."
The full text of the first Stanger & Co. opinion, which sets forth the
assumptions made, matters considered and qualifications and limitations on the
review undertaken by Stanger & Co., is incorporated in this Proxy Statement by
reference. The first Stanger & Co. opinion is attached as Appendix C-1 to this
Proxy Statement. The limited partners of the Partnership are urged to read
carefully the first Stanger & Co. opinion in its entirety.
Second Stanger & Co. opinion
On December 10, 1999, Stanger & Co. delivered a second written opinion to
the McNeil Investors board of directors on behalf of the McNeil Partnerships.
In this second opinion, Stanger & Co. rendered additional opinions as to the
fairness from a financial point of view to the holders of each class of limited
partner units in each of the McNeil Partnerships as to the allocation of the
consideration described in the fourth bullet point in "--Opinions and reports
of financial advisors--Allocation analysis and opinions of Stanger & Co.--First
Stanger & Co. opinion." The second opinion delivered by Stanger & Co. on
December 10, 1999 is referred to in this Proxy Statement as the "second Stanger
& Co. opinion." The second Stanger & Co. opinion is described in more detail
below.
The full text of the second Stanger & Co. opinion, which sets forth the
assumptions made, matters considered and qualifications and limitations on the
review undertaken by Stanger & Co., is incorporated in this Proxy Statement by
reference. The second Stanger & Co. opinion is attached as Appendix C-2 to this
Proxy Statement. The limited partners of the Partnership are urged to read
carefully the second Stanger & Co. opinion in its entirety.
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The second Stanger & Co. opinion was to the effect that, as of the date of
the second Stanger & Co. opinion, and subject to the assumptions,
qualifications and limitations set forth in the second Stanger & Co. opinion,
each of the matters set forth below was fair from a financial point of view to
the holders of each class of limited partner units in each of the McNeil
Partnerships:
. the aggregate consideration allocated to the general partner interests in
each McNeil Partnership (see "GP Allocation Amount" in Table 2);
. the aggregate consideration allocated to the other assets of McREMI
related to each McNeil Partnership (see "Second McREMI Allocated Value"
in Table 2);
. the aggregate consideration allocated to each class of limited partner
units in each McNeil Partnership (see "LP Allocation Amount" in Table 2);
and
. with respect to each class of limited partner units in each McNeil
Partnership, the estimated per unit aggregate amount to be received with
respect to limited partner units in that class, consisting of the sum of
(1) the amount of the aggregate consideration allocated to a limited
partner unit in that class (see "Per Unit Merger Consideration" in Table
2) and (2) the pro rata amount of the estimated modified net working
capital balance with respect to a limited partner unit in that class (see
"Estimated Per Unit Special Distribution" in Table 2). See "Total Per
Unit Estimate" in Table 2.
In considering the opinions described above, limited partners of the
Partnership should be aware that each of the Stanger opinions:
. was provided to the McNeil Partnerships for their information and is
directed only to the fairness, from a financial point of view, to the
holders of each class of limited partner units in each McNeil
Partnership;
. did not constitute a recommendation to the McNeil Partnerships or the
McNeil General Partners in connection with the transactions;
. did not address the merits of the underlying decision by McNeil
Partnerships or the General Partners to engage in the transactions or the
price or range of prices at which each class of limited partner units in
each McNeil Partnership may trade subsequent to the announcement or
consummation of the transactions; and
. does not constitute a recommendation to any limited partner of any McNeil
Partnership as to how that limited partner should vote on the merger
proposal, or any matter related to the merger proposal.
Although Stanger & Co. evaluated the fairness, from a financial point of
view, of the aggregate consideration and the allocation of the aggregate
consideration in the transaction to the holders of limited partner units in
each McNeil Partnership, the terms were determined through arm's-length
negotiations among McNeil management, the special committee, WXI/McN Realty and
their respective representatives. Stanger & Co. provided advice to the McNeil
Partnerships during the course of those negotiations. The McNeil Partnerships
did not provide specific instructions to, or place any limitations on, Stanger
& Co. with respect to the procedures to be followed or factors to be considered
by it in performing its analyses or providing its opinions.
In arriving at the opinions described above, Stanger & Co., among other
things:
. reviewed the Master Agreement and the WXI/McN Realty Operating Agreement
(see "--Opinions and reports of financial advisors--Allocation analysis
and opinions of Stanger & Co.--Financial analysis of Stanger & Co.--
WXI/McN Realty Operating Agreement review" below);
. reviewed, in the case of the second Stanger opinion, the latest draft of
this Proxy Statement made available to it;
. reviewed the financial statements of each McNeil Partnership for the
years ended December 31, 1997 and 1998, the three months ended March 31,
1999 and the nine months ended September 30, 1999;
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. reviewed the McNeil General Partners' estimates as of January 31, 2000 of
the modified net working capital balance of each McNeil Partnership,
calculated in accordance with the terms of the Master Agreement;
. reviewed information provided by McREMI, as property manager, the McNeil
General Partners and each McNeil Partnership for each property owned by
that McNeil Partnership, including: property description, rentable square
footage, unit mix, year built, historical and projected operating
statements, rent rolls, tenant improvement allowances, expense
reimbursements, tax information, capital expenditure estimates, deferred
maintenance estimates, and estimates of costs to remediate environmental
conditions;
. conducted site inspections of each property and discussed with management
of McREMI, the McNeil General Partners and the McNeil Partnerships the
conditions in local rental markets and market conditions for sales and
acquisitions of properties of the type owned by each McNeil Partnership
and the historical financial statements and budgeted and projected
operations of the properties;
. reviewed surveys of competing properties prepared by or on behalf of
McREMI, the McNeil General Partners and the McNeil Partnerships,
including rental rates, vacancies, and tenant improvement allowances;
. reviewed information on acquisition criteria used by real estate
investors for properties similar to the McNeil Partnerships' properties
during 1999;
. reviewed the financial statements of McREMI and its affiliates for the
years ended December 31, 1997 and 1998, the three months ended March 31,
1999 and the nine months ended September 30, 1999;
. interviewed PaineWebber regarding the bid solicitation process relating
to the transaction; and
. conducted such other studies, analyses, inquiries and investigations as
it deemed appropriate.
In connection with its review and analysis in support of its opinions,
Stanger & Co. advised the McNeil Investors board of directors and the special
committee that it observed that the form of the transaction may provide
favorable tax results to the McNeil General Partners and their affiliates.
However, Stanger & Co. advised the McNeil Investors board of directors and the
special committee that the tax results of the McNeil General Partners and their
affiliates were irrelevant to Stanger & Co.'s determinations of fairness.
Stanger & Co. has not rendered any opinion regarding the tax consequences of
the transaction to any party. In addition, Stanger & Co. has not expressed any
opinion to Robert A. McNeil or Carole J. McNeil in their capacities as direct
or indirect holders of general partner interests or limited partner units in
the McNeil Partnerships or in McNeil Partners or of capital stock in McREMI.
In rendering the Stanger & Co. opinions, Stanger & Co. relied, without
independent verification, on the accuracy and completeness in all material
respects of all financial and other information that was furnished or otherwise
communicated to Stanger & Co. by McREMI, the McNeil General Partners and the
McNeil Partnerships. Stanger & Co. did not perform an independent appraisal of
the assets and liabilities of the McNeil Partnerships or the McREMI assets.
Stanger & Co. did not conduct any engineering studies and relied on the
estimates of the management of McREMI with respect to deferred maintenance and
the estimated cost to remediate environmental conditions for each property.
Stanger & Co. relied on the assurance of McREMI, the McNeil General Partners
and the McNeil Partnerships, that:
. the property budgets and discounted cash flow analyses provided to
Stanger & Co. were in the judgment of McREMI, the McNeil General Partners
and the McNeil Partnerships reasonably prepared on bases consistent with
actual historical experience and reflect the best currently available
estimates and good faith judgments;
. any estimates of costs to remediate environmental conditions were
adequately considered in the capital expenditure estimates provided to
Stanger & Co. and that no additional environmental conditions were
present at the McNeil Partnerships' properties;
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. any historical financial data, balance sheet data, transaction cost
estimates and estimates of the deficit restoration obligation of the
McNeil General Partners which would be due upon a liquidation were
accurate in all material respects;
. no material changes have occurred in the information reviewed or in the
value of the McNeil Partnerships' properties or the McREMI assets between
the date the information was provided to Stanger & Co. and the date of
its opinion; and
. McREMI, the McNeil General Partners and the McNeil Partnerships were not
aware of any information or facts regarding the McNeil Partnerships, the
McNeil Partnerships' properties, the McREMI assets or WXI/McN Realty that
would cause the information supplied to Stanger & Co. to be incomplete or
misleading in any material respect.
Stanger & Co. did not determine or negotiate the amount or form of the
aggregate consideration in the transaction. Stanger & Co. was not requested to,
and therefore did not, make any recommendation to McREMI, the McNeil General
Partners or the limited partners of any of the McNeil Partnerships with respect
to whether to approve or reject the transaction or express any opinion as to:
. the impact of the transaction with respect to McREMI, the McNeil General
Partners or the limited partners of any McNeil Partnership that does not
participate in the transaction;
. the tax consequences of the transaction for McREMI, the McNeil General
Partners or the limited partners of any McNeil Partnership;
. WXI/McN Realty's ability to qualify as a partnership or real estate
investment trust, or the consequences of WXI/McN Realty's failure to so
qualify;
. the potential capital structure of WXI/McN Realty or its impact on the
financial performance of WXI/McN Realty's membership interests;
. WXI/McN Realty's ability to finance its obligations pursuant to the
Master Agreement or the impact of a failure to obtain financing on the
financial performance of WXI/McN Realty or the McNeil Partnerships;
. whether or not alternative methods of determining or allocating the
aggregate consideration to be received by any of the McNeil Affiliates or
the limited partners of any of the McNeil Partnerships would have also
provided fair results or results substantially similar to those of the
methodology to be used;
. alternatives to the transaction; or
. any other terms of the transaction other than the aggregate consideration
and the allocation of the aggregate consideration.
Stanger & Co. did not express any opinion to Robert A. McNeil or Carole J.
McNeil in their capacities as direct or indirect holders of general partner
interests or limited partner units in the McNeil Partnerships or in McNeil
Partners or of capital stock in McREMI. Furthermore, Stanger & Co. did not
express any opinion as to the fairness of any terms of the transaction other
than as described in the Stanger & Co. opinions, including without limitation
the fairness of the amounts or allocations of transaction costs, or the prices
at which the membership interests in WXI/McN Realty may trade, if the
membership interests were traded, following the transaction, or the trading
value of the membership interests in WXI/McN Realty compared with the current
fair market value of any assets contributed to WXI/McN Realty in connection
with the transaction if WXI/McN Realty were to be liquidated in the current
real estate market. See "--Opinions and reports of financial advisors--
Allocation analysis and opinions of Stanger & Co.--Financial analysis of
Stanger & Co.--WXI/McN Realty Operating Agreement review" below.
The foregoing description does not purport to be a complete description of
the analyses performed or the matters considered in rendering the Stanger & Co.
opinions. The analyses and the summary set forth in the
119
<PAGE>
Stanger & Co. opinions must be considered as a whole, and selecting portions of
such summary or analyses, without considering all factors and analyses, would
create an incomplete view of the processes underlying the Stanger & Co.
opinions. In rendering the Stanger & Co. opinions, judgment was applied to a
variety of complex analyses and assumptions. The assumptions made and the
judgments applied in rendering the Stanger & Co. opinions are not readily
susceptible to partial analysis or summary description. The fact that any
specific analysis is referred to in the Stanger & Co. opinions or in this Proxy
Statement is not meant to indicate that such analysis was given greater weight
than any other analysis.
Financial analysis of Stanger & Co.
Stanger & Co.'s financial analysis began with an estimate of the real estate
values of each of the McNeil Partnerships. To determine the value of the real
estate of each McNeil Partnership, Stanger & Co. performed a property level
review, a balance sheet review, a partnership agreement review and a bid
solicitation review, each described more fully below.
Property level due diligence. Stanger & Co. performed a site inspection of
each property. In the course of the site visit, the physical facilities of each
property were observed, rental and occupancy information was obtained, local
market conditions were reviewed, similar competing properties were identified,
and local property management personnel were interviewed concerning the
property and local market conditions. Stanger & Co. also reviewed and relied
upon information provided by each McNeil Partnership and its agents including,
but not limited to, financial schedules of historical and current rental rates,
occupancy, income, expenses, reserve requirements, and related financial
information, property descriptive information including unit mix or square
footage, deferred maintenance estimates, capital budgets, and other factors
affecting the physical condition of the properties.
For each property, Stanger & Co. estimated net operating income for 1999
based upon the above review as well as a review of actual net operating income
for such property for 1995, 1996, 1997 and 1998 and the three months ended
March 31, 1999 and the 1999 budget prepared by McREMI management.
Stanger & Co. estimated the value of each property using the income approach
to valuation. For apartment and self-storage properties, Stanger & Co. relied
primarily on the direct capitalization method of the income approach. In the
direct capitalization method of the income approach, net operating income is
capitalized at a capitalization rate to derive value. The capitalization rate
used for each property was based upon Stanger & Co.'s review of: (1) published
survey data by Korpacz & Associates, Real Estate Research Corporation, Cushman
& Wakefield and National Real Estate Index; and (2) data collected by Stanger &
Co. from local market inquiries. For office and retail properties, Stanger &
Co. relied primarily on the discounted cash flow method of the income approach.
In the discounted cash flow method of the income approach, a ten-year cash flow
projection was made based upon leases in place and various assumptions
regarding renewals of such leases over a ten year period. A residual value for
the property was based upon year eleven net operating income capitalized at a
terminal capitalization rate and reduced by selling expenses. The cash flow for
the ten-year period and the residual value were discounted to present value at
a discount rate. The terminal capitalization rate and discount rate were
derived from published surveys of such data by Korpacz & Associates, Real
Estate Research Corporation and Cushman & Wakefield. The real estate value
derived under the income approach was reduced by deferred maintenance estimates
and by closing costs estimated at 2.5% and further reduced by any mark-to-
market adjustment associated with the debt encumbering each property based upon
a 7.5% per annum interest rate. Where debt was prepayable without penalty, no
mark-to-market adjustment was made. Where debt was subject to a yield
maintenance prepayment penalty, (1) the present value of the obligations under
the mortgage through the remaining term was compared to (2) the present value
of such obligations and any non-yield maintenance prepayment penalty at the
earliest possible prepayment date after the yield maintenance prepayment
penalty expired. The lower of the two calculations described in clauses (1) and
(2) in the preceding sentence were compared to the mortgage debt outstanding.
Where the present value of the remaining obligations exceeded the mortgage
balance, a mark-to-market adjustment for such excess was included in Stanger &
Co.'s analysis.
120
<PAGE>
The following table summarizes the range of the direct capitalization rates,
terminal capitalization rates and discount rates utilized by Stanger & Co. in
its analysis of the value of the real estate assets of each McNeil Partnership.
<TABLE>
<CAPTION>
Primary
Asset Type Valuation Method Parameter Ranges
---------- --------------------- -------------------------------------------
<S> <C> <C>
Apartments.............. Direct capitalization Direct capitalization rate 8.5% to 11.0%
Self-storage............ Direct capitalization Direct capitalization rate 9.5% to 9.75%
Office.................. Discounted cash flow Terminal capitalization rate 9.5% to 11.0%
Discount rate 11.25% to 12.5%
Retail.................. Discounted cash flow Terminal capitalization rate 10.0% to 12.0%
Discount rate 11.5% to 13.5%
</TABLE>
Based on the above analysis, Stanger & Co. estimated the real estate value
of the McNeil Partnerships as a group at $601,479,000 (see "Total Asset Value"
in Table 2), as follows:
<TABLE>
<CAPTION>
McNeil Partnership Real Estate Value
- ------------------ -----------------
<S> <C>
Fund IX............. $92,748,000
Fund X.............. 68,636,000
Fund XI............. 71,138,000
Fund XII............ 56,243,000
Fund XIV............ 40,944,000
Fund XV............. 40,170,000
Fund XX............. 5,989,000
Fund XXI............ 19,222,000
Fund XXII........... 12,996,000
Fund XXIII.......... 6,430,000
</TABLE>
<TABLE>
<CAPTION>
McNeil Partnership Real Estate Value
- ------------------ -----------------
<S> <C>
Fund XXIV........... $ 15,220,000
Fund XXV............ 46,800,000
Fund XXVI........... 41,813,000
Fund XXVII.......... 52,350,000
Hearth Hollow....... 3,643,000
Midwest Properties.. 11,817,000
Regency North....... 5,030,000
Fairfax............. 3,880,000
Summerhill.......... 6,410,000
------------
Total............. $601,479,000
============
</TABLE>
Balance sheet review. Stanger & Co. reviewed the balance sheets of each of
the McNeil Partnerships for the years ended December 31, 1997 and 1998 and for
the three months ended March 31, 1999. Stanger & Co. identified capitalized
costs, deferred gains and other liabilities, which would not result in an asset
to be sold or liability to be assumed, and excluded such items, as appropriate,
from the analysis. Stanger & Co. also reviewed each mortgage payable by the
McNeil Partnerships and estimated liability of each mortgage payable based upon
(1) principal outstanding, (2) monthly payments, (3) interest rate, (4)
maturity date, (5) prepayment terms and (6) estimated mark-to-market adjustment
using a 7.5% per annum interest rate.
Partnership agreement review. Stanger & Co. reviewed the limited partnership
agreement of each of the McNeil Partnerships, including the provisions relating
to the fee structure, allocation of income and term of the McNeil Partnership.
Bid solicitation review. Stanger & Co. next reviewed the bid solicitation
process, including reviewing the offering materials and the bids received by
PaineWebber in care of McNeil Partners and the status of negotiations. Stanger
& Co. noted that PaineWebber identified eighteen potential purchasers and
provided the confidential offering memorandum describing the McNeil portfolio
to thirteen potential purchasers. See "--Background of the transaction--
Background of the auction process--Solicitation of initial bids." Ten of the
thirteen prospective purchasers submitted bids to PaineWebber. Stanger & Co.
concluded that the bid solicitation process was reasonable.
Management company review. Stanger & Co. next determined the value of the
management assets and other assets of McREMI based on a management company
review. Stanger & Co. interviewed McNeil management personnel regarding the
history of McREMI and future business prospects and business plan and
interviewed certain accounting, financial reporting, property management,
property acquisitions and other
121
<PAGE>
personnel regarding existing resources and the ability to manage existing
assets and the ability to manage a larger asset base. Stanger & Co. reviewed
fee agreements associated with property management, asset management,
partnership management, asset disposition and expense reimbursements. Stanger &
Co. reviewed operating expenses and expense estimates and prepared estimates of
multi-year cash flow and reviewed cash flow multiples for comparable management
companies.
Stanger & Co. prepared a five-year discounted cash flow analysis by
projecting cash flow from continued management of the properties for five years
and a residual value at the end of the fifth year based upon a range of cash
flow multiples of 4 to 6. The cash flow for the five-year period and the
residual value at the end of the fifth year were discounted to present value at
discount rates ranging from 12.5% to 20%, resulting in a value range of
approximately $35 million to $38 million. Stanger & Co. also reviewed eleven
comparable management company transactions with a cash flow multiple range of
5.4 to 11.4, with an average of 7.8. The midpoint of the multiple range used by
Stanger & Co. in its analysis represents a 36% discount to the average among
the comparable transactions. As a result of the management company review,
Stanger & Co. estimated the value of the management assets of McREMI at
$35,000,000. See "Value of Management Assets" in Table 2.
WXI/McN Realty Operating Agreement review. Stanger & Co. also considered the
terms of the WXI/McN Realty Operating Agreement, valued the membership
interests to be received by McNeil Partners in WXI/McN Realty in connection
with the transaction and compared the value of those membership interests to
the value of the contributions being made by McNeil Partners to WXI/McN Realty
and its subsidiaries in the transaction.
Stanger & Co.'s analysis of the value of the membership interests to be
received by McNeil Partners in WXI/McN Realty consisted of four main steps:
(1) Stanger & Co. estimated the value of the real estate portfolio of
each of the McNeil Partnerships and the value of the management assets of
McREMI. See "--Opinions and reports of financial advisors--Allocation
analysis and opinions of Stanger & Co.--Financial analysis of Stanger
& Co."
(2) Stanger & Co. allocated the aggregate consideration in the
transaction among the general partner interests in each of the McNeil
Partnerships, each class of limited partner units in each of the McNeil
Partnerships, and the management assets and other assets of McREMI. The
value of the real estate portfolio of each of the McNeil Partnerships and
the value of the management assets of McREMI served as the basis for
Stanger & Co.'s allocation analysis. See "--Opinions and reports of
financial advisors--Allocation analysis and opinions of Stanger & Co.--
Stanger & Co. allocation analysis."
(3) Stanger & Co. valued the membership interests to be received by
McNeil Partners in WXI/McN Realty in exchange for the rights, interests and
assets being contributed by McNeil Partners to WXI/McN Realty and its
subsidiaries in the transaction. The factors considered by Stanger & Co. in
valuing these membership interests are discussed in more detail below.
(4) Stanger & Co. compared the value determined in step (3) above with
the total value of the aggregate consideration allocated in step (2) above
to the rights, interests and assets being contributed by McNeil Partners to
WXI/McN Realty and its subsidiaries in the transaction.
Based on this analysis, Stanger & Co. concluded that the aggregate value of
the membership interests to be received by McNeil Partners in exchange for its
contributions to WXI/McN Realty and its subsidiaries in the transaction is no
greater than the aggregate value of those contributions.
122
<PAGE>
In valuing the membership interests to be received by McNeil Partners,
Stanger & Co. reviewed in detail the terms of the WXI/McN Realty Operating
Agreement and took into account the various restrictions on McNeil Partners'
membership interests set forth in the WXI/McN Realty Operating Agreement,
including the capped rate of return on investment, lack of control of the board
of managers and illiquidity of the investment. In particular, Stanger & Co.
made the following observations:
. the membership interests in WXI/McN Realty to be issued to McNeil
Partners in connection with the transaction entitle McNeil Partners to a
maximum percentage return on its investment of 14% or 15% per annum,
depending on the amount of McNeil Partners' initial capital contribution
to WXI/McN Realty;
. WXI/McN Realty's managing member, which is owned 99% by Whitehall and 1%
by Archon, is entitled to receive all returns in excess of the stated
return which the members are entitled to receive under the WXI/McN Realty
Operating Agreement (see "WXI/McN Realty Operating Agreement--
Distributions to members of WXI/McN Realty");
. if WXI/McN Realty does not generate sufficient cash flow to provide
McNeil Partners with its stated percentage return on its investment,
McNeil Partners will receive an actual percentage return which is lower
than its 14% or 15% per annum stated return;
. McNeil Partners' initial capital contribution to WXI/McN Realty will
represent approximately 30% to 50% of the estimated total debt and equity
of WXI/McN Realty at the effective time of the mergers, depending on the
amount of financing obtained by WXI/McN Realty as of the closing and the
amount of the capital contributions of McNeil Partners (see "--Interests
of certain persons in matters to be acted upon; conflicts of interest--
Equity interest of McNeil Partners in WXI/McN Realty");
. under the terms of the WXI/McN Realty Operating Agreement, following the
effective time of the mergers, McNeil Partners will have the right to
designate two of the five members of the WXI/McN Realty board of managers
and the remaining three members will be designated by WXI/McN Realty's
managing member;
. action by the WXI/McN Realty board of managers will require the
affirmative vote of three of the five managers, except for some actions
which will require a supermajority vote of four of the five managers (see
"WXI/McN Realty Operating Agreement--Supermajority voting rights"); and
. adjustments if any, to the value of the membership interests due to lack
of control, illiquidity, performance or other issues will be borne solely
by McNeil Partners and not by the limited partners of the McNeil
Partnerships.
Stanger & Co. has not expressed any opinion as to the prices at which the
membership interests in WXI/McN Realty may trade, if the membership interests
were traded, following the transaction, or the trading value of the membership
interests in WXI/McN Realty compared with the current fair market value of any
assets contributed to WXI/McN Realty in connection with the transaction if
WXI/McN Realty were to be liquidated in the current real estate market. In
addition, Stanger & Co. has not expressed any opinion to Robert A. McNeil or
Carole J. McNeil in their capacities as direct or indirect holders of general
partner interests or limited partner units in the McNeil Partnerships or in
McNeil Partners or of capital stock in McREMI.
Stanger & Co. observations regarding aggregate consideration
Stanger & Co. noted that its estimate of the aggregate value of the real
estate assets of the McNeil Partnerships and the management assets of McREMI
was $636,479,000 (see "Total Asset Value" and "Value of Management Assets" in
Table 2), as follows:
<TABLE>
<S> <C>
Real estate value of McNeil Partnerships..................... $601,479,000
Value of management assets................................... 35,000,000
------------
Total real estate and management assets.................... $636,479,000
</TABLE>
123
<PAGE>
Stanger & Co. noted that the $636,479,000 total value of the assets being
acquired was less than the aggregate consideration of $644,439,803, thus
indicating an acquisition premium for the McNeil portfolio. Taking into account
Stanger & Co.'s estimate of the total fees payable to PaineWebber, the premium
totaled $5,333,803.
<TABLE>
<S> <C>
Aggregate consideration.................................... $ 644,439,803
Less: Stanger & Co.'s estimate of transaction fees payable
to PaineWebber (net of previously paid retention fees).... (2,627,000)
-------------
Adjusted consideration..................................... $ 641,812,803
Less: Total value of assets being acquired................. (636,479,000)
-------------
Premium for the McNeil portfolio......................... $ 5,333,803
</TABLE>
Stanger & Co. concluded that because the amount of the adjusted
consideration, taking into account Stanger & Co.'s estimate of the fees payable
to PaineWebber, exceeded the total value of the assets being acquired by
WXI/McN Realty, the aggregate consideration was fair, from a financial point of
view, to the holders of each class of limited partner units in each of the
McNeil Partnerships.
Stanger & Co. allocation analysis
Pursuant to the terms of the Master Agreement, the parties agreed that
Stanger & Co. would allocate the aggregate consideration among (1) the general
partner interests in each of the McNeil Partnerships, (2) each class of limited
partner units in each of the McNeil Partnerships and (3) the management assets
and other assets of McREMI.
The results of the Stanger & Co. allocation analysis are discussed in more
detail below and are set forth in Table 2 immediately following that
discussion. The Master Agreement provides that the Stanger & Co. allocations of
the aggregate consideration are binding on Sellers and on WXI/McN Realty, its
subsidiaries and affiliates.
The aggregate consideration in the transaction, including all outstanding
mortgage debt of the McNeil Partnerships, is $644,439,803. After taking into
account Stanger & Co.'s estimate of the fees payable to PaineWebber, Stanger &
Co. first allocated the aggregate consideration between:
(1) the management assets of McREMI, on the one hand (see "Partial
McREMI Allocated Value" in Table 2); and
(2) the McNeil Partnerships as a group, on the other hand (see total
"Allocated Partnership Value" in Table 2).
This allocation was based on a ratio, the numerator of which is the sum of
the total real estate values for all of the McNeil Partnerships and the
denominator of which is the sum of the total real estate values for all of the
McNeil Partnerships and the value of the management assets of McREMI. See
"Total Asset Value" in Table 2. An aggregate of $35,293,000 has been allocated
by Stanger & Co. to the management assets of McREMI. An aggregate of
$606,520,000 has been allocated by Stanger & Co. to the McNeil Partnerships as
a group.
The $606,520,000 allocated to the McNeil Partnerships as a group was then
further allocated among each of the individual McNeil Partnerships. See
"Allocated Partnership Value" in Table 2. This allocation was based on the
percentages agreed to between Stanger & Co., in consultation with Eastdil
Realty Company, and WXI/McN Realty and set forth in the Master Agreement. See
"Partnership Percentage" in Table 2. These percentages were based on the
relative real estate values of each McNeil Partnership relative to the sum of
the real estate values for all of the McNeil Partnerships, including
adjustments with respect to specific properties to take into account the June
1, 1999 aggregate purchase price reduction of $1.65 million for additional
environmental issues that Whitehall's environmental consultant identified at
those properties at that time and for
124
<PAGE>
the scheduled expiration of a ground lease at one of the properties. See "--
Background of the transaction--Negotiation of definitive transaction documents
with Whitehall."
The amount of the aggregate consideration allocated to each individual
McNeil Partnership was further allocated, after subtracting the outstanding
principal balance, determined as of January 31, 2000, of all outstanding
mortgage debt of that McNeil Partnership, between:
(1) the general partner interests taken as a whole in that McNeil
Partnership and the other assets of McREMI related to that McNeil
Partnership (see "MPLP Allocation Amount" in Table 2), net of any deficit
restoration obligation, as estimated by Arthur Andersen LLP, of the general
partner of that McNeil Partnership; and
(2) each class of limited partner units in that McNeil Partnership,
taken as a whole (see "LP Allocation Amount" in Table 2).
Arthur Andersen LLP's estimates of the deficit restoration obligations of
the general partners of the McNeil Partnerships were based, in part, on limited
historical tax records prepared by other accounting firms. Sufficient records
did not exist such that Arthur Andersen LLP could test the accuracy of prior
accountants' work. Further, these estimates were based on the McNeil
Partnerships' projections of operating results through January 31, 2000 and on
hypothetical asset sale/partnership liquidation information provided by Stanger
& Co. Arthur Andersen LLP has not audited or opined on the projected results of
operations or financial information relating to such hypothetical
sales/liquidations. See "Where You Can Find More Information."
The aggregate consideration allocated to each McNeil Partnership was
allocated between classes of limited partner units in a McNeil Partnership
based upon the provisions of the limited partnership agreement relating to a
liquidation and termination of that McNeil Partnership. The aggregate
consideration allocated to a class of limited partners was then allocated among
the limited partner units in that class by dividing the aggregate consideration
allocated to that class by the number of outstanding limited partner units in
that class. See "Per Unit Merger Consideration" in Table 2.
The amount of the aggregate consideration allocated in paragraph (1) above
with respect to each McNeil Partnership includes (a) an amount representing the
general partner's proportionate interest in the profits and losses of that
McNeil Partnership, based on the general partner's capital contribution, and an
amount representing the rights and other assets of that McNeil Partnership
which are being contributed to WXI/McN Realty and its subsidiaries (see "GP
Allocation Amount" in Table 2) and (b) an amount equal to the aggregate
consideration allocated by Stanger & Co. to the other assets of McREMI related
to that McNeil Partnership (see "Second McREMI Allocated Value" in Table 2). Of
the $20,311,000 allocated to the general partner interests in all of the McNeil
Partnerships, $0 represents the general partners' proportionate interests of
the profits and losses of the McNeil Partnerships, based on the general
partners' capital contributions, and $20,311,000 represents the rights and
other assets corresponding to the McNeil Partnerships which are being
contributed to WXI/McN Realty and its subsidiaries. An aggregate of $8,542,000
has been allocated to the other assets of McREMI. The aggregate consideration
allocated by Stanger & Co. to all of the assets of McREMI being acquired by
WXI/McN Realty and its subsidiaries, assuming all McNeil Partnerships
participate in the transaction, is equal to the sum of the "Partial McREMI
Allocated Value" in Table 2 and the total of the amounts set forth under
"Second McREMI Allocated Value." Assuming all of the McNeil Partnerships
participate in the transaction, the "Total McREMI Allocated Value" is equal to
$43,835,000.
The allocations of the aggregate consideration with respect to Fund XXI and
the total allocations described in the preceding paragraphs and throughout this
Proxy Statement reflect the fact that McNeil Partners has agreed to subordinate
the receipt of up to $350,000 of the portion of the Second McREMI Allocated
Value attributable to Fund XXI to the receipt by holders of current income
units in Fund XXI of the per unit aggregate amount which such holders are
entitled to receive on the closing date, up to an aggregate per unit amount
equal to the estimated per unit aggregate amount to be received with respect to
such current income units (see "Total Per Unit Estimate" in Table 2). As a
result, the "Second McREMI Allocated Value" for Fund
125
<PAGE>
XXI has been decreased by $350,000, and the "LP Allocation Amount" for current
income units in Fund XXI has been increased by $350,000. McNeil Partners will
be entitled to receive the subordinated amount of the Second McREMI Allocated
Value only if and to the extent that the actual per unit aggregate amount to be
received by holders of current income units in Fund XXI as of the closing date
equals or exceeds McNeil management's estimates, as of the date of this Proxy
Statement, of the estimated per unit aggregate amount to be received with
respect to such current income units (see "Total Per Unit Estimate" in Table
2), and in such a case the Second McREMI Allocated Value for Fund XXI and the
LP Allocation Amount for current income units in Fund XXI will be adjusted
accordingly. In the event that McNeil Partners receives any amount of the
subordinated Second McREMI Allocated Value attributable to Fund XXI described
above, McNeil Partners will receive membership interests in and a credit for a
capital contribution to WXI/McN Realty in an amount equal to such amount. In
the event that McNeil Partners receives less than all of the subordinated
Second McREMI Allocated Value attributable to Fund XXI described above, McNeil
Partners will receive membership interests in and a credit for a capital
contribution to WXI/McN Realty in an amount equal to one-half of the amount not
received.
The foregoing discussion does not take into account the cash merger
consideration payable in respect of growth/shelter units in Funds XXI, XXII and
XXIII. The cash merger consideration into which each growth/shelter unit in
these McNeil Partnerships will be converted is not based on the Stanger & Co.
allocation analysis. Under the Stanger & Co. allocation analysis,
growth/shelter units in each of Funds XXI, XXII and XXIII are entitled to
receive $0 because under the provisions of that McNeil Partnership's limited
partnership agreement relating to a liquidation and termination of that McNeil
Partnership holders of growth/shelter units
are not entitled to receive any distributions until holders of current income
units have received the specified priority return on their investment. Instead,
the per unit amount was separately agreed upon between McNeil Partners and
WXI/McN Realty with respect to growth/shelter units in that McNeil Partnership.
See "Per Unit Merger Consideration" in Table 2. The amount payable with respect
to growth/shelter units in these McNeil Partnerships will be paid by WXI/McN
Realty independent of and in addition to the aggregate consideration in the
transaction which is being allocated by Stanger & Co.
126
<PAGE>
Table 2
Summary of Stanger & Co. Allocation Analysis and Related Master Agreement
Calculations
(amounts in thousands, except unit and per unit amounts)(1)
<TABLE>
<CAPTION>
Real Estate Valuations
-------------------------------
Relative Percentage
Based on Allocated
Total Asset Total Partnership Partnership
McNeil Value Asset Value Percentage Value
Partnership (2) (3) (4) (5)
- ----------- ----------- ------------------- ----------- -----------
<S> <C> <C> <C> <C>
Fund IX......... $ 92,748 14.57% 15.4200% $ 93,525
Fund X.......... 68,636 10.78 11.4113 69,212
Fund XI......... 71,138 11.18 11.8272 71,735
Fund XII........ 56,243 8.84 9.3507 56,714
Fund XIV........ 40,944 6.43 6.8073 41,287
Fund XV......... 40,170 6.31 6.6786 40,507
Fund XX......... 5,989 0.94 0.9957 6,039
Fund XXI........ 19,222 3.02 3.1957 19,383
Fund XXII....... 12,996 2.04 2.1607 13,105
Fund XXIII...... 6,430 1.01 1.0690 6,484
Fund XXIV....... 15,220 2.39 2.5304 15,348
Fund XXV........ 46,800 7.35 7.7808 47,192
Fund XXVI....... 41,813 6.57 6.9517 42,164
Fund XXVII...... 52,350 8.22 8.7036 52,789
Hearth Hollow... 3,643 0.57 0.6056 3,673
Midwest
Properties...... 11,816 1.86 1.9645 11,915
Regency North... 5,030 0.79 0.8364 5,073
Fairfax......... 3,880 0.61 0.6451 3,913
Summerhill...... 6,410 1.01 1.0657 6,464
--------- ------ -------- --------
TOTAL TO LIMITED
PARTNERS
(assuming all
McNeil
Partnerships
participate).... $ 601,479 94.50% 100.0000% $606,520
VALUE OF
MANAGEMENT
ASSETS.......... 35,000 5.50 -- --
--------- ------ -------- --------
PARTIAL McREMI
ALLOCATED
VALUE(14)
(assuming all
McNeil
Partnerships
participate).... -- -- -- 35,293
TRANSACTION
TOTALS.......... $ 636,479 100.00% 100.0000% $641,813(15)
========= ====== ======== ========
TOTAL McREMI
ALLOCATED
VALUE(16)
(assuming all
McNeil
Partnerships
participate).... -- -- -- $ 35,293
========= ====== ======== ========
TOTAL ALLOCATED
McNEIL VALUE
(17) (assuming
all McNeil
Partnerships
participate).... -- -- -- $ 35,293
========= ====== ======== ========
<CAPTION>
Allocated Partnership Value
--------------------------------------------------------------------------------
Net Allocated
Partnership Value
---------------------------------------------------------
MPLP Allocation
Amount
(8)
------------------------
Principal Net Second
Amount of Allocated GP McREMI
Mortgage Partnership Allocation Allocated LP Allocation
McNeil Debt Value Amount Value Amount
Partnership (6) (7) (9) (10) (12) Total
- ----------- ---------- ----------- ---------- ------------- -------------------------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Fund IX......... $ (47,960) $ 45,565 $ 687 $ (988) $ 45,264
Fund X.......... (35,725) 33,487 (2,595) (719) 30,173
Fund XI......... (35,275) 36,460 (2,396) (623) 33,441
Fund XII........ (37,087) 19,627 (2,800) (241) 16,586
Fund XIV........ (23,178) 18,109 (618) (439) 17,052
Fund XV......... (22,813) 17,694 (985) (375) 16,334
Fund XX......... (2,584) 3,455 (216) (182) 3,057
Fund XXI........ (12,234) 7,149 (4,177) (1,341)(11) Current income units: 1,631(13)
Growth/shelter units: 0
Fund XXII....... (6,918) 6,187 (1,601) (735) Current income units: 3,851
Growth/shelter units: 0
Fund XXIII...... (4,179) 2,305 (360) (281) Current income units: 1,664
Growth/shelter units: 0
Fund XXIV....... (1,626) 13,722 (505) (364) 12,853
Fund XXV........ (7,200) 39,992 (1,430) (403) 38,159
Fund XXVI....... (18,627) 23,537 (797) (355) 22,385
Fund XXVII...... 0 52,789 (1,213) (544) 51,032
Hearth Hollow... (2,109) 1,564 (33) (305) 1,226
Midwest
Properties...... (8,807) 3,108 (484) (393) 2,231
Regency North... (2,359) 2,714 (10) (195) 2,509
Fairfax......... (2,238) 1,675 (797) (6) 872
Summerhill...... (5,656) 808 18 (53) 773
---------- ----------- ---------- ------------- --------------------------------
TOTAL TO LIMITED
PARTNERS
(assuming all
McNeil
Partnerships
participate).... $(276,574) $329,946 $(20,311) $(8,542)(11) $301,093(13) $301,093(13)
VALUE OF
MANAGEMENT
ASSETS.......... -- -- -- -- --
---------- ----------- ---------- ------------- --------------------------------
PARTIAL McREMI
ALLOCATED
VALUE(14)
(assuming all
McNeil
Partnerships
participate).... -- -- -- -- -- $ 35,293(14)
TRANSACTION
TOTALS.......... $(276,574) $329,946 $(20,311) $(8,542)(11) $301,093(13)
========== =========== ========== ============= ================================
TOTAL McREMI
ALLOCATED
VALUE(16)
(assuming all
McNeil
Partnerships
participate).... -- -- -- $ 8,542 (11) -- $ 43,835(16)
========== =========== ========== ============= ================================
TOTAL ALLOCATED
McNEIL VALUE
(17) (assuming
all McNeil
Partnerships
participate).... -- -- $ 20,311 $ 8,542 (11) $907(18) $ 65,053(11),(17)
========== =========== ========== ============= ================================
</TABLE>
127
<PAGE>
Table 2--Continued
<TABLE>
<CAPTION>
Estimated
Total Net Estimated
Per Unit Working Per Unit Total
Units Merger Capital Special Per Unit
McNeil Outstanding Consideration Balance Distribution Estimate
Partnership (19) (20) (22) (23) (25), (26)
- ----------- ----------- ------------- --------- ------------ ----------
<S> <C> <C> <C> <C> <C>
Fund IX................. 110,170 $ 411 $1,867 $ 17 $ 428
Fund X.................. 134,980 224 1,136 8 232
Fund XI................. 159,813 209 1,787 11 220
Fund XII................ 229,666 72 268 1 73
Fund XIV................ 86,534 197 1,563 18 215
Fund XV................. 102,796 159 283 3 162
Fund XX................. 49,512 62 1,480 30 92
Fund XXI
Current income units:.. 24,863 66(13) 832 33 99
Growth/shelter units:.. 22,035 15(21) 0 (24) 15
Fund XXII
Current income units:.. 19,493,088 0.20 1,281 0.06 0.26
Growth/shelter units:.. 13,201,029 0.008(21) 0 (24) 0.008
Fund XXIII
Current income units:.. 6,574,985 0.26 81 0.01 0.27
Growth/shelter units:.. 4,850,711 0.008(21) 0 (24) 0.008
Fund XXIV............... 40,000 321 1,445 36 357
Fund XXV................ 82,943,685 0.46 3,772 0.05 0.51
Fund XXVI............... 86,530,671 0.26 1,949 0.02 0.28
Fund XXVII.............. 5,162,909 9.88 5,481 1.07 10.95
Hearth Hollow........... 35 35,030 244 6,972 42,003
Midwest Properties...... 90 24,802 45 500 25,302
Regency North........... 32 78,398 (79) (2,469) 75,929
Fairfax................. 2 436,000 86 43,061 479,061
Summerhill.............. 1 773,497 (738) (738,000) 35,497
</TABLE>
- ----
(1) The numbers set forth in this Table 2 have been estimated based on the
financial statements of each of the McNeil Partnerships as of October 31,
1999, with estimates made for operating activity through January 31,
2000.
(2) As determined by Stanger & Co.
(3) For each McNeil Partnership, this column equals (1) the "Total Asset
Value" for that McNeil Partnership divided by (2) $636,479, which is the
sum of the "Total Asset Values" for all McNeil Partnerships and the
"Value of Management Assets."
(4) As set forth in the Master Agreement.
(5) For each McNeil Partnership, the "Allocated Partnership Value" equals the
product of (1) $606,520, which is the portion of the aggregate
consideration allocated by Stanger & Co. to the McNeil Partnerships as a
group, and (2) the "Partnership Percentage" for that McNeil Partnership.
(6) Represents outstanding principal estimated as of January 31, 2000.
(7) For each McNeil Partnership, the "Net Allocated Partnership Value" equals
(1) the "Allocated Partnership Value" less (2) the "Principal Amount of
Mortgage Debt."
(8) For each McNeil Partnership, the "MPLP Allocation Amount" equals the sum
of the "GP Allocation Amount" and the "Second McREMI Allocated Value."
The "MPLP Allocation Amount" includes all amounts payable to the McNeil
based on estimated December 31, 1999 financial statements of the McNeil
Partnerships, less the estimated deficit restoration obligation, if any,
of the general partner, as estimated by Arthur Andersen LLP based upon a
hypothetical sale of properties and liquidation of the McNeil Partnership
at January 31, 2000. Arthur Andersen LLP's estimates were based, in part,
on limited historical tax records prepared by other accounting firms.
Sufficient records did not exist such that Arthur Andersen LLP could test
the accuracy of prior accountants' work. Further, these estimates were
based on the McNeil Partnerships' projections of operating results
through January 31, 2000 and on hypothetical asset sale/partnership
liquidation information provided by Stanger & Co. Arthur Andersen LLP has
not audited or opined on the projected results of operations or financial
information relating to such hypothetical sales/liquidations. See "Where
You Can Find More Information." The estimated amounts payable to the
McNeil Affiliates for the month of January 2000 have been taken into
account in determining the "Estimated Total Net Working Capital Balance"
and "Estimated Per Unit Special Distribution" of the McNeil Partnership.
(9) For each McNeil Partnership, the "GP Allocation Amount" is the portion of
the aggregate consideration allocated by Stanger & Co. to the general
partner interests taken as a whole in that McNeil Partnership.
(10) For each McNeil Partnership, the "Second McREMI Allocated Value" is the
portion of the aggregate consideration allocated by Stanger & Co. to the
other assets of McREMI related to that McNeil Partnership.
(11) This amount has been reduced by $350,000 to reflect the fact that McNeil
Partners has agreed to subordinate the receipt of up to $350,000 of the
portion of the Second McREMI Allocated Value attributable to Fund XXI to
the receipt by holders of current income units in Fund XXI of the per
unit aggregate amount which such holders are entitled to receive on the
closing date, up to an aggregate per unit amount equal to the estimated
per unit aggregate amount to be received with respect to such current
income units (see "Total Per Unit Estimate" for Fund XXI). McNeil
Partners will be entitled to receive the subordinated amount of the
Second McREMI Allocated Value only if and to the extent that the actual
per unit aggregate amount to be received by holders of current income
units in Fund XXI as of the closing date equals or exceeds McNeil
management's estimates, as of the date of this Proxy Statement, of the
estimated per unit aggregate amount to be received with respect to such
current income units (see "Total Per Unit Estimate" in Table 2), and in
such a case the Second McREMI Allocated Value for Fund XXI and the LP
Allocation Amount for current income units in Fund XXI will be adjusted
accordingly. In the absence of this arrangement, the "Second McREMI
Allocated Value" for Fund XXI would have been equal to $1,631 and the
total "Second McREMI Allocated Value" for all of the McNeil Partnerships
would have been equal to $8,892. See note (13) below.
128
<PAGE>
(12) For each class limited partner units in each McNeil Partnership, the "LP
Allocation Amount" is the portion of the aggregate consideration
allocated by Stanger & Co. to that class of limited partner units taken
as a whole. The aggregate consideration allocated by Stanger & Co. to
each McNeil Partnership was allocated by Stanger & Co. between classes of
limited partner units in that McNeil Partnership based upon the
provisions of the limited partnership agreement relating to a liquidation
and termination of that McNeil Partnership. Under the Stanger & Co.
allocation analysis, growth/shelter units in each of Funds XXI, XXII and
XXIII have been allocated $0 because under the provisions of that McNeil
Partnership's limited partnership agreement relating to a liquidation and
termination of that McNeil Partnership holders of growth/shelter units
are not entitled to receive any distributions until holders of current
income units have received the specified priority return on their
investment.
(13) This amount has been increased by $350,000 to reflect the fact that
McNeil Partners has agreed to subordinate the receipt of up to $350,000
of the portion of the Second McREMI Allocated Value attributable to Fund
XXI to the receipt by holders of current income units in Fund XXI of the
per unit aggregate amount which such holders are entitled to receive on
the closing date, up to an aggregate per unit amount equal to the
estimated per unit aggregate amount to be received with respect to such
current income units (see "Total Per Unit Estimate" for Fund XXI). McNeil
Partners will be entitled to receive the subordinated amount of the
Second McREMI Allocated Value only if and to the extent that the actual
per unit aggregate amount to be received by holders of current income
units in Fund XXI as of the closing date equals or exceeds McNeil
management's estimates, as of the date of this Proxy Statement, of the
estimated per unit aggregate amount to be received with respect to such
current income units (see "Total Per Unit Estimate" in Table 2), and in
such a case the Second McREMI Allocated Value for Fund XXI and the LP
Allocation Amount for current income units in Fund XXI will be adjusted
accordingly. In the absence of this arrangement, the "LP Allocation
Amount" for current income units Fund XXI would have been equal to
$1,281, the total "LP Allocation Amount" for all of the McNeil
Partnerships would have been equal to $300,643, and the "Per Unit Merger
Consideration" for current income units in Fund XXI would have been equal
to approximately $52.00 per current income unit. See note (11) above.
(14) The "Partial McREMI Allocated Value" is the portion of the aggregate
consideration allocated by Stanger & Co. to the management assets of
McREMI. The "Partial McREMI Allocated Value" equals the product of (1)
the aggregate consideration of approximately $641,813, which takes into
account Stanger & Co.'s estimate of transaction fees payable to
PaineWebber (net of previously paid retention fees) of $2,627 (see note
(15) below), and (2) 5.50%, which is for McREMI the "Relative Percentage
Based on Total Asset Value."
(15) Aggregate consideration of approximately $644,440, taking into account
Stanger & Co.'s estimate of transaction fees payable to PaineWebber (net
of previously paid retention fees) of $2,627.
(16) The "Total McREMI Allocated Value" is the portion of the aggregate
consideration allocated by Stanger & Co. to all of the assets of McREMI
being contributed by McNeil Partners to WXI/McN Realty and its
subsidiaries in the transaction. The "Total McREMI Allocated Value"
equals the sum of (1) the "Partial McREMI Allocated Value" (see note (14)
above) and (2) the sum of the "Second McREMI Allocated Value" for each of
the McNeil Partnerships. If all of the McNeil Partnerships participate in
the transaction, the "Total McREMI Allocated Value" will equal
approximately $43,835. The Master Agreement provides that the "Total
McREMI Allocated Value" will be reduced by the sum of the following:
(a) the "Second McREMI Allocated Value" for each McNeil Partnership that
does not participate in the transaction, and
(b) the product of the "Partial McREMI Allocated Value" and the
"Partnership Percentage" for each McNeil Partnership that does not
participate in the transaction.
(17) The "Total Allocated McNeil Value" is the portion of the aggregate
consideration allocated by Stanger & Co. to interests, rights and assets
being contributed by McNeil Partners to WXI/McN Realty and its
subsidiaries in the transaction. If all of the McNeil Partnerships
participate in the transaction, the "Total Allocated McNeil Value" will
equal approximately $65,053.
(18) Sum of "LP Allocation Amounts" for the Affiliated McNeil Partnerships,
less the absolute value of any negative "Estimated Total Net Working
Capital Balance" of any Affiliated McNeil Partnership.
(19) As of December 10, 1999, the record date.
(20) For each class of limited partner units in a McNeil Partnership, other
than growth/shelter units in each of Funds XXI, XXII and XXIII, the "Per
Unit Merger Consideration" equals (1) the "LP Allocation Amount" for that
class divided by (2) the "Units Outstanding" for that class. In the case
of each of Funds XXI, XXII and XXII, the "Per Unit Merger Consideration"
into which each growth/shelter unit in these McNeil Partnerships will be
converted is not based on the Stanger & Co. allocation analysis. Under
the Stanger & Co. allocation analysis, growth/shelter units in each of
Funds XXI, XXII and XXIII are entitled to receive $0 because under the
provisions of that McNeil Partnership's limited partnership agreement
relating to a liquidation and termination of that McNeil Partnership
holders of growth/shelter units are not entitled to receive any
distributions until holders of current income units have received the
specified priority return on their investment. Instead, the per unit
amount was separately agreed upon between McNeil Partners and WXI/McN
Realty with respect to growth/shelter units in that McNeil Partnership.
The amount payable with respect to growth/shelter units in these McNeil
Partnerships will be paid by WXI/McN Realty independent of and in
addition to the aggregate consideration in the transaction which is being
allocated by Stanger & Co. See note (12) above and note (21) below.
(21) In the case of each of Funds XXI, XXII and XXII, the "Per Unit Merger
Consideration" into which each growth/shelter unit in these McNeil
Partnerships will be converted is not based on the Stanger & Co.
allocation analysis. Under the Stanger & Co. allocation analysis,
growth/shelter units in each of Funds XXI, XXII and XXIII are entitled to
receive $0 because under the provisions of that McNeil Partnership's
limited partnership agreement relating to a liquidation and termination
of that McNeil Partnership holders of growth/shelter units are not
entitled to receive any distributions until holders of current income
units have received the specified priority return on their investment.
Instead, the per unit amount was separately agreed upon between McNeil
Partners and WXI/McN Realty with respect to growth/shelter units in that
McNeil Partnership. The amount payable with respect to growth/shelter
units in these McNeil Partnerships will be paid by WXI/McN Realty
independent of and in addition to the aggregate consideration in the
transaction which is being allocated by Stanger & Co. See notes (12) and
(20) above.
(22) Calculated in accordance with the terms of the Master Agreement and
estimated based upon, among other things, the balance sheet of each
McNeil Partnership as of October 31, 1999, with estimates made for
operating activity through January 31, 2000. The "Estimated Total Net
Working Capital Balance" will be adjusted at closing to reflect the then
modified net working capital balance of that McNeil Partnership. There
can be no assurances that a McNeil Partnership will have a positive
modified net working capital balance as of the closing date or that the
actual modified net working capital balance of a McNeil Partnership as of
the closing date will be equal to the "Estimated Total Net Working
Capital Balance."
(23) For each class of limited partner units in a McNeil Partnership, the
"Estimated Per Unit Special Distribution" equals the portion of the
"Estimated Total Net Working Capital Balance" which each limited partner
unit of that class is entitled to receive based on the provisions of that
McNeil Partnership's limited partnership agreement governing
distributions of surplus cash, except that the general partner of that
McNeil Partnership will not receive any part of the special distribution.
The actual amount of the special distribution which will be distributed
to limited partners of a participating McNeil Partnership will be based
upon the positive modified net working capital balance of that McNeil
Partnership as of the closing date. There can be no assurances that a
participating McNeil Partnership will have a positive modified net
working capital balance as of the closing date or that the actual per
unit amount of the special distribution will be equal to the "Estimated
Per Unit Special Distribution."
(24) No special distribution will be made in respect of the growth/shelter
units in each of Funds XXI, XXII and XXIII because under the provisions
of that McNeil Partnership's limited partnership agreement governing
distributions of surplus cash holders of growth/shelter units are not
entitled to receive any distributions until holders of current income
units have received the specified priority return on their investment.
(25) For each class of limited partner units in a McNeil Partnership, the
"Total Per Unit Estimate" equals the sum of (1) the "Per Unit Merger
Consideration" for that class and (2) the "Estimated Per Unit Special
Distribution" for that class. The aggregate amount to be received for
each limited partner unit in a participating McNeil Partnership is based
on the estimates of McNeil management, as of the date of this Proxy
Statement, of that participating McNeil Partnership's modified net
working capital balance as of the estimated closing date of the
transaction. While we expect that a class of limited partners of a
participating McNeil Partnership will receive the "Per Unit Merger
Consideration" and "Estimated Per Unit Special Distribution" set forth in
Table 2 with respect to that class, there can be no assurances that
limited partners will receive the specified cash merger consideration or
any special distribution. Limited partners of a participating McNeil
Partnership will receive a special distribution only if that
participating McNeil Partnership has a positive modified net working
capital balance as of the closing date. There can be no assurances that a
participating McNeil Partnership will have a positive modified net
working capital balance as of the closing date or that the actual per
unit amount of the special distribution will be equal to the estimated
per unit amount of the special distribution. If a participating McNeil
Partnership's modified net
129
<PAGE>
working capital balance as of the closing date is zero, each class of limited
partners of that participating McNeil Partnership will receive no special
distribution and will receive only the per unit cash merger consideration
with respect to that class. If a participating McNeil Partnership has a
negative modified net working capital balance as of the closing date, each
class of limited partners of that participating McNeil Partnership will
receive no special distribution and the per unit cash merger consideration to
be received with respect to limited partner units in that class will be
reduced by the pro rata amount of the negative modified net working capital
balance allocated by Stanger & Co. to that class. The foregoing discussion
does not apply to growth/shelter units in each of Funds XXI, XXII and XXIII.
No special distribution will be made in respect of the growth/shelter units,
and the cash merger consideration to be received for each growth/shelter unit
will not be subject to adjustment based on such McNeil Partnership's modified
net working capital balance as of the closing date. Under the provisions of
each such McNeil Partnership's limited partnership agreement, holders of
growth/shelter units are not entitled to receive any distributions until
holders of current income units have received the specified priority return
on their investment.
(26) The "Total Per Unit Estimate" set forth in this Table 2 to be received
for limited partner units in some of the McNeil Partnerships differs from
the estimated per unit aggregate amount set forth with respect to that
McNeil Partnership in the June 25, 1999 press release announcing the
transaction because of changes in the estimate of that McNeil
Partnership's modified net working capital balance as of the estimated
closing date of the transaction. These changes are attributable primarily
to additional costs to complete all budgeted capital items with respect
to that McNeil Partnership through the estimated closing date of the
transaction as required by the Master Agreement, that McNeil
Partnership's pro rata share of higher than anticipated transaction costs
and that McNeil Partnership's pro rata share of an increase in the
reserve for transaction costs. If these amounts are in the aggregate less
than the increase in the estimate of a McNeil Partnership's cash flow,
for the period through the estimated closing date, as a result of higher
than anticipated revenues generated to date and additional revenue
estimated to be generated through the estimated closing date of the
transaction, both the estimate of that McNeil Partnership's modified net
working capital balance as of the estimated closing date and the
estimated per unit aggregate amount to be received for limited partner
units in that McNeil Partnership increased. If, on the other hand, these
amounts are in the aggregate greater than the increase in the estimate of
a McNeil Partnership's cash flow, for the period through the estimated
closing date, as a result of higher than anticipated revenues generated
to date and additional revenue estimated to be generated through the
estimated closing date of the transaction, both the estimate of that
McNeil Partnership's modified net working capital balance as of the
estimated closing date and the estimated per unit aggregate amount to be
received for limited partner units in that McNeil Partnership decreased.
The foregoing discussion does not apply to growth/shelter units in each
of Funds XXI, XXII and XXIII because no special distribution will be made
in respect of the growth/shelter units. Under the provisions of each such
McNeil Partnership's limited partnership agreement, holders of
growth/shelter units are not entitled to receive any distributions until
holders of current income units have received the specified priority
return on their investment.
130
<PAGE>
Fee arrangements
Pursuant to the terms of the engagement letter with Stanger & Co., the
McNeil Partnerships have agreed to pay Stanger & Co. a total fee equal to $1.72
million. The total fee is payable as follows:
. $970,000 was payable prior to execution of the Master Agreement and prior
to delivery of the first Stanger & Co. opinion;
. $500,000 became payable upon the delivery of the first Stanger & Co.
opinion; and
. $250,000 became payable upon delivery of the second Stanger & Co.
opinion.
In addition, the McNeil Partnerships have agreed to reimburse Stanger & Co.
for all reasonable out-of-pocket expenses incurred by Stanger & Co. in
connection with the proposed transaction, including reasonable fees and
disbursements of Stanger & Co.'s legal counsel, if any. The McNeil Partnerships
have also agreed to indemnify Stanger & Co. against certain liabilities in
connection with its engagement, including certain liabilities under the federal
securities laws. In general, each of the McNeil Partnerships will be liable to
pay its ratable share of Stanger & Co.'s fees and expenses based upon its
"Partnership Percentage" set forth in Table 2. See "The Master Agreement--Fees
and expenses."
Eastdil Realty Company opinions
On May 7, 1999, the McNeil Partnerships, on behalf of the special committee,
engaged Eastdil Realty Company as the special committee's financial advisor.
Eastdil Realty Company, founded in 1967, is a private real estate investment
banking firm that specializes in the structuring and placement of debt and
equity capital for institutional grade real estate assets. Headquartered in New
York City, Eastdil Realty Company has offices in Chicago, Dallas and Los
Angeles. Its aggregate transaction experience exceeds $125 billion and
encompasses all of the major United States markets. Since January 1998, Eastdil
Realty Company has participated in completed transactions with an aggregate
value of $14.4 billion, including transactions involving 61 million square feet
of office properties, 18.5 million square feet of retail properties, 17,000
apartment units and 11,700 hotel rooms.
First Eastdil Realty Company opinion
At the June 24, 1999 meeting of the special committee, Eastdil Realty
Company delivered a verbal fairness opinion, which was subsequently confirmed
in writing, to the effect that, as of the date of the opinion, and subject to
the assumptions, qualifications and limitations set forth in the opinion:
. the Stanger & Co. allocation analysis and the opinions set forth in the
first Stanger & Co. opinion were based upon the application of
appropriate methodologies, and the factual bases utilized by Stanger &
Co. in the application of these methodologies have a reasonable basis;
. the conclusions reached in the Stanger & Co. allocation analysis and the
first Stanger & Co. opinion have a reasonable basis;
. the special committee is entitled to rely upon those conclusions; and
. each of the five matters described below which were set forth in the
first Stanger & Co. opinion is fair from a financial point of view to the
holders of each class of limited partner units in each of the McNeil
Partnerships:
-- the aggregate consideration in the transaction;
-- the allocation of the aggregate consideration between the management
assets of McREMI, on the one hand, and the McNeil Partnerships as a
group, on the other hand;
-- the aggregate consideration allocated to each individual McNeil
Partnership;
131
<PAGE>
--the methodology of allocation of the aggregate consideration
allocated to each individual McNeil Partnership, less the principal
amount of all outstanding mortgage debt of that McNeil Partnership,
among the general partner interests in that McNeil Partnership, the
other assets of McREMI related to that McNeil Partnership and each
class of limited partner units in that McNeil Partnership; and
--with respect to each class of limited partner units in each McNeil
Partnership, the estimated per unit aggregate amount to be received
with respect to limited partner units in that class, consisting of
the sum of (1) the amount of the aggregate consideration allocated to
a limited partner unit in that class and (2) the pro rata amount of
the estimated modified net working capital balance with respect to a
limited partner unit in that class, determined as of March 31, 1999,
based upon the balance sheet of each McNeil Partnership as of March
31, 1999, adjusted for transaction expenses and the allocation of
transaction expenses, as estimated by the McNeil General Partners.
The written fairness opinion delivered by Eastdil Realty Company to the
special committee on June 24, 1999 is referred to in this Proxy Statement as
the "first Eastdil Realty Company opinion." In making the determinations
described in "--Recommendations of the special committee and the McNeil
Investors board of directors; fairness of the transaction--Recommendations of
the special committee," the special committee considered as positive factors
the first Stanger & Co. opinion and the first Eastdil Realty Company opinion.
The full text of the first Eastdil Realty Company opinion, which sets forth
the assumptions made, matters considered and qualifications and limitations on
the review undertaken by Eastdil Realty Company, is incorporated in this Proxy
Statement by reference. The first Eastdil Realty Company opinion is attached as
Appendix D-1 to this Proxy Statement. The limited partners of the Partnership
are urged to read carefully the first Eastdil Realty Company opinion in its
entirety.
Second Eastdil Realty Company opinion
On December 10, 1999, Eastdil Realty Company delivered a second written
opinion to the special committee. In this second opinion, Eastdil Realty
Company rendered additional opinions as to the fairness from a financial point
of view to the holders of each class of limited partner units in each McNeil
Partnership as to the additional matters set forth in the second Stanger & Co.
opinion. The second opinion delivered by Eastdil Realty Company on December 10,
1999 is referred to in this Proxy Statement as the "second Eastdil Realty
Company opinion." The second Eastdil Realty Company opinion is described in
more detail below.
The full text of the second Eastdil Realty Company opinion, which sets forth
the assumptions made, matters considered and qualifications and limitations on
the review undertaken by Eastdil Realty Company, is incorporated in this Proxy
Statement by reference. The second Eastdil Realty Company opinion is attached
as Appendix D-2 to this Proxy Statement. The limited partners of the
Partnership are urged to read carefully the second Eastdil Realty Company
opinion in its entirety.
The second Eastdil Realty Company opinion was to the effect that, as of the
date of the second Eastdil Realty Company opinion, and subject to the
assumptions, qualifications and limitations set forth in the second Eastdil
Realty Company opinion:
. the Stanger & Co. allocation analysis and the opinions set forth in the
second Stanger & Co. opinion were based upon the application of
appropriate methodologies, and the factual bases utilized by Stanger &
Co. in the application of these methodologies have a reasonable basis;
. the conclusions reached in the Stanger & Co. allocation analysis and the
second Stanger & Co. opinion have a reasonable basis;
. the special committee is entitled to rely upon those conclusions; and
132
<PAGE>
. each of the four matters described below which were set forth in the
second Stanger & Co. opinion is fair from a financial point of view to
the holders of each class of limited partner units in each of the McNeil
Partnerships:
--the aggregate consideration allocated to the general partner
interests in each McNeil Partnership;
--the aggregate consideration allocated to the other assets of McREMI
related to each McNeil Partnership;
--the aggregate consideration allocated to each class of limited
partner units in each McNeil Partnership;
--with respect to each class of limited partner units in each McNeil
Partnership, the estimated per unit aggregate amount to be received
with respect to limited partner units in that class, consisting of
the sum of (1) the estimated amount of the aggregate consideration
allocated to a limited partner unit in that class McNeil Partnership
and (2) the pro rata amount of the estimated modified net working
capital balance with respect to a limited partner unit in that class,
based on the McNeil General Partners' estimates as of January 31,
2000 of the modified net working capital balance of each McNeil
Partnership, calculated in accordance with the terms of the Master
Agreement.
In considering the opinions described in the second Eastdil Realty Company
opinion and in reading the discussion of the second Eastdil Realty Company
opinion set forth below, the limited partners of the Partnership should be
aware that Eastdil Realty Company:
. reviewed the Master Agreement and the WXI/McN Realty Operating Agreement;
. reviewed the latest draft of this Proxy Statement made available to it;
. reviewed the summary information provided by McREMI, as property manager,
the McNeil General Partners and the McNeil Partnerships for each of the
properties owned by the McNeil Partnerships, including: property
description, rentable square footage, unit mix, year built, historical
and projected operating statements, rent rolls, tenant improvement
allowances, expense reimbursements, tax information, capital expenditure
estimates, deferred maintenance estimates and estimates of costs to
remediate environmental conditions;
. conducted limited site inspections of certain of the McNeil Partnerships'
properties;
. discussed with management of McREMI and Stanger & Co. the conditions in
local rental markets and market conditions for sales and acquisitions of
properties of the type owned by the McNeil Partnerships and the
historical financial statements and budgeted and projected operations of
the McNeil Partnerships' properties;
. reviewed surveys of competing properties prepared by or on behalf of
McREMI, the McNeil General Partners and the McNeil Partnerships,
including rental rates, vacancies and tenant improvement allowances;
. reviewed information on acquisition criteria used by real estate
investors for properties similar to the McNeil Partnerships' properties
during 1999;
. reviewed the financial statements of McREMI and its affiliates for the
years ended December 31, 1997 and 1998, the three months ended March 31,
1999 and the nine months ended September 30, 1999;
. reviewed Form 10-Q statements for the McNeil Partnerships for the period
ending September 30, 1999;
. reviewed the estimates as of January 31, 2000, prepared by Arthur
Andersen LLP, of the deficit restoration obligations of the general
partners of the McNeil Partnerships, assuming the McNeil Partnerships
had been liquidated on that date;
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. reviewed the McNeil General Partners' estimates as of January 31, 2000
of the modified net working capital balance of each McNeil Partnership,
calculated in accordance with the terms of the Master Agreement;
. discussed with Stanger & Co. the methodology used to formulate the
Stanger & Co. allocation analysis and the second Stanger & Co. opinion;
. interviewed PaineWebber regarding the bid solicitation process relating
to the transaction;
. discussed with Stanger & Co. the activities of Stanger & Co. since
January 1998 with respect to the Stanger & Co. allocation analysis and
the Stanger opinions;
. discussed with Houlihan, Lokey its valuation analysis of McREMI; and
. conducted such other studies, analyses, inquiries and investigations as
it deemed appropriate.
In connection with its review and analysis in support of its opinions,
Eastdil Realty Company advised the special committee that it observed that the
form of the transaction may provide favorable tax results to the McNeil General
Partners and their affiliates. However, Eastdil Realty Company advised the
special committee that the tax results of the McNeil General Partners and their
affiliates were irrelevant to Eastdil Realty Company's determinations of
fairness. Eastdil Realty Company has not rendered any opinion regarding the tax
consequences of the transaction to any party. In addition, Eastdil Realty
Company has not expressed any opinion to Robert A. McNeil or Carole J. McNeil
in their capacities as direct or indirect holders of general partner interests
or limited partner units in the McNeil Partnerships or in McNeil Partners or of
capital stock in McREMI.
In rendering its opinion, Eastdil Realty Company relied, without independent
verification, on the accuracy and completeness in all material respects of all
financial and other information that was furnished or otherwise communicated to
Eastdil Realty Company by McREMI, the McNeil General Partners and the McNeil
Partnerships. Eastdil Realty Company did not perform an independent appraisal
of the assets and liabilities of the McNeil Partnerships or the assets of
McREMI. Eastdil Realty Company did not conduct any engineering studies and
relied on the estimated cost to remediate environmental conditions for each
property.
Eastdil Realty Company relied on the assurance of McREMI, the McNeil General
Partners and the McNeil Partnerships that:
. the property budgets and discounted cash flow analyses provided to
Eastdil Realty Company were, in the judgment of McREMI, the McNeil
General Partners and the McNeil Partnerships, reasonably prepared on
bases consistent with actual historical experience and reflect the best
currently available estimates and good faith judgments;
. any estimates of costs to remediate environmental conditions were
adequately considered in the capital expenditure estimates provided to
Eastdil Realty Company and that no additional environmental conditions
are present at the properties;
. any historical financial data, balance sheet data, transaction cost
estimates and estimates of the deficit restoration obligation of the
McNeil General Partners which would be due upon a liquidation were
accurate in all material respects;
. no material changes have occurred in the information reviewed or in the
value of the properties or the business or other assets of McREMI between
the date the information was provided to Eastdil Realty Company and the
date of its opinion; and
. McREMI, the McNeil General Partners and the McNeil Partnerships were not
aware of any information or facts regarding the McNeil Partnerships, the
properties, the business or other assets of McREMI or WXI/McN Realty that
would cause the information supplied to Eastdil Realty Company to be
incomplete or misleading in any material respect.
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Eastdil Realty Company did not determine or negotiate the amount or form of
the aggregate consideration in the transaction. Eastdil Realty Company was not
requested to, and therefore did not:
. make any recommendation to McREMI, the McNeil General Partners or the
limited partners of the McNeil Partnerships with respect to whether to
approve or reject the transaction; or
. express any opinion as to:
-- the impact of the transaction with respect to McREMI, the McNeil
General Partners, or the limited partners of any McNeil Partnership
that does not participate in the transaction;
-- the tax consequences of the transaction for McREMI, the McNeil
General Partners or the limited partners of any McNeil Partnership;
-- WXI/McN Realty's ability to qualify as a partnership or real estate
investment trust, or the consequences of WXI/McN Realty's failure to
so qualify;
-- the potential capital structure of WXI/McN Realty or its impact on
the financial performance of WXI/McN Realty's membership interests;
-- WXI/McN Realty's ability to finance its obligations pursuant to the
Master Agreement or the impact of a failure to obtain financing on
the financial performance of WXI/McN Realty or the McNeil
Partnerships;
-- whether or not alternative methods of determining or allocating the
aggregate consideration to be received by the McNeil General
Partners, the limited partners of the McNeil Partnerships or McREMI
would have also provided fair results or results substantially
similar to those of the methodology used;
-- alternatives to the transaction; or
-- any other terms of the transaction other than the aggregate
consideration and the allocation of the aggregate consideration.
Furthermore, Eastdil Realty Company did not express any opinion to Robert A.
McNeil or Carole J. McNeil in their capacities as direct or indirect holders of
general partner interests or limited partner units in the McNeil Partnerships
or McNeil Partners or of capital stock in McREMI. Further, Eastdil Realty
Company did not express any opinion as to the fairness of any terms of the
transaction other than as described in the Eastdil Realty Company opinions,
including, without limitation:
. the fairness of the amounts or allocations of transaction costs;
. the prices at which the membership interests in WXI/McN Realty may trade,
if the membership interests were traded, following the transaction; and
. the trading value of the membership interests in WXI/McN Realty, if the
membership interests were traded, compared with the current fair market
value of any assets contributed to WXI/McN Realty in connection with the
transaction if WXI/McN Realty were to be liquidated in the current real
estate market.
The second Eastdil Realty Company opinion did not purport to be a complete
description of the analyses performed or the matters considered in rendering
the second Eastdil Realty Company opinion. The analyses and the summary set
forth in the second Eastdil Realty Company opinion must be considered as a
whole, and selecting portions of such summary or analyses, without considering
all factors and analyses, would create an incomplete view of the processes
underlying the second Eastdil Realty Company opinion. In rendering the second
Eastdil Realty Company opinion, judgment was applied to a variety of complex
analyses and assumptions. The assumptions made and the judgments applied in
rendering the second Eastdil Realty Company opinion are not readily susceptible
to partial analysis or summary description. The fact that any
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specific analysis is referred to in the second Eastdil Realty Company opinion
or in this Proxy Statement is not meant to indicate that such analysis was
given greater weight than any other analysis.
Financial analysis of Eastdil Realty Company; review of Stanger & Co.
analyses and methodologies
Eastdil Realty Company completed a full review of all Stanger & Co.'s files
compiled in connection with the transaction. These files contained base
information such as property inspection reports, rent and sale comparable
properties reports, market supply and demand trends, description of physical
and environmental issues (if any), appraisals (available for a limited number
of properties), offers to purchase, historic and projected revenues, operating
expenses and real estate taxes. Eastdil Realty Company did conduct limited site
inspections of certain properties to confirm or clarify base file information.
From McREMI, Eastdil Realty Company reviewed market surveys, historic and
projected income statements, property occupancy trends and other related
information to confirm and better understand Stanger & Co. file information and
conclusions. This base information was then reviewed in the context of detailed
cash flow projections prepared by Stanger & Co. See "--Opinions and reports of
financial advisors--Allocation analysis and opinions of Stanger & Co.--
Financial analysis of Stanger & Co."
Eastdil Realty Company then determined if the projection assumptions, such
as market rental rates, market rental rate growth, vacancy (both current and
stabilized) expense ratios, projected capital expenditures, expense growth
rates, timing for lease-up of vacant space/vacant units and capital costs
associated with leasing vacant space in the retail and office properties, were
reasonable given the base file information and Eastdil Realty Company's
understanding of investor underwriting parameters in the current capital market
environment. Several minor disagreements regarding projection assumptions were
discussed and resolved with Stanger & Co.
Eastdil Realty Company then analyzed the valuation parameters used by
Stanger & Co. Apartments and self-storage facilities were valued by both
Stanger & Co. and Eastdil Realty Company primarily based on direct
capitalization; discounted cash flow analysis was used as a secondary valuation
method. Valuations for office and retail properties by both Stanger & Co. and
Eastdil Realty Company were based on discounted cash flow analysis. For
apartment and self-storage properties, Eastdil Realty Company prepared summary
1999 net operating income projections and applied capitalization rates based on
Eastdil Realty Company's current market experience and information contained in
the Stanger & Co. files. Nearly all of Eastdil Realty Company's capitalization
rate assumptions fell within Stanger & Co.'s range of 8.5% to 11.0% for
apartments and 9.5% to 9.75% for self storage. Some minor differences in
capitalization rate estimates were adequately addressed and resolved.
Eastdil Realty Company reviewed Stanger & Co.'s office and retail property
cash flow valuation parameters against Eastdil Realty Company's current market
experience. Cash flow projections were reproduced with Eastdil Realty Company's
valuation parameters; these results were then compared with Stanger & Co.'s
valuation results. After reconciliation of minor discrepancies and
interpretation differences, nearly all of Eastdil Realty Company's office and
retail valuation results used valuation parameters in the range used by Stanger
& Co. For office properties, a discount rate range of 11.25% to 12.5% and a
terminal capitalization rate range of 9.5% to 11.0% was used. For retail
properties, the discount rate range is 11.5% to 13.5%, and the terminal
capitalization rate range is 10.0% to 12.0%. These valuation parameters were
used for a ten-year cash flow projection, the predominant projection period
used by investors in today's market.
Eastdil Realty Company reviewed Stanger & Co.'s valuation for McREMI. This
review included analysis of Stanger & Co.'s six-year cash flow projection
beginning in 1999; the cash flow projection included property management fees,
asset management fees, expense reimbursements and operating expenses.
Compilation of the cash flow line items was discussed with McNeil management
and the underlying assumptions were examined by Eastdil Realty Company and
compared with historic results. No discrepancies or unreasonable assumptions
were identified. Eastdil Realty Company then reviewed Stanger & Co.'s valuation
methodology, which is a discounted cash flow analysis over a five-year holding
period; the residual calculation is a cash flow multiple applied to year six
cash flow. Eastdil Realty Company concluded that this methodology is
appropriate. Stanger & Co. utilizes a discount rate range of 12.5% to 20.0% and
a reversion multiple of 4x to 6x year six cash flow. Eastdil Realty Company
concluded that these valuation parameters are reasonable.
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Eastdil Realty Company also reviewed Stanger & Co.'s valuation of the
membership interests to be received by McNeil Partners in WXI/McN Realty in
connection with the transaction. This review included a review of the terms of
the WXI/McN Realty Operating Agreement, including the restrictions on McNeil
Partners' membership interests set forth in the WXI/McN Realty Operating
Agreement, and a review of Stanger & Co.'s observations with respect to the
terms of the WXI/McN Realty Operating Agreement. See "--Opinions and reports of
financial advisors--Allocation analysis and opinions of Stanger & Co.--
Financial analysis of Stanger & Co.--WXI/McN Realty Operating Agreement
review."
Fee arrangements
Pursuant to the terms of the engagement letter with Eastdil Realty Company,
on behalf of the special committee, the McNeil Partnerships have agreed to pay
Eastdil Realty Company a total fee equal to $500,000. The total fee is payable
as follows:
. $100,000 was payable prior to execution of the Master Agreement and prior
to delivery of the first Eastdil Realty Company opinion;
. $300,000 became payable upon the delivery of the first Eastdil Realty
Company opinion; and
. $100,000 became payable upon the delivery of the second Eastdil Realty
Company opinion.
In addition, the McNeil Partnerships have agreed to reimburse Eastdil Realty
Company for all reasonable out-of-pocket expenses incurred by Eastdil Realty
Company in connection with Eastdil Realty Company's services, but not including
the fees or disbursements of Eastdil Realty Company's legal counsel, if any.
The McNeil Partnerships also have agreed to indemnify Eastdil Realty Company
against certain liabilities in connection with its engagement, including
certain liabilities under the federal securities laws. In general, each of the
McNeil Partnerships will be liable to pay its ratable share of Eastdil Realty
Company's fees and expenses based upon its "Partnership Percentage" set forth
in Table 2. See "The Master Agreement--Fees and expenses."
Position of McNeil Partners and Robert A. McNeil regarding the fairness of the
transaction
Each of McNeil Partners and Robert A. McNeil has concluded that the
transaction is fair to the limited partners of each of the McNeil Partnerships.
Positive factors considered. In concluding that the transaction is fair to
the limited partners of each of the McNeil Partnerships, McNeil Partners and
Robert A. McNeil considered the following factors, each of which, in the view
of McNeil Partners and Robert A. McNeil, supported their conclusions regarding
the fairness of the transaction:
. The fact that the special committee and the McNeil Investors board of
directors each unanimously determined that the transaction is fair to,
and in the best interests of, the limited partners of each of the McNeil
Partnerships.
. The special committee's recommendation that the McNeil Investors board of
directors approve the transaction.
. The unanimous approval by the McNeil Investors board of directors of the
Master Agreement and the transactions contemplated by the Master
Agreement.
. The unanimous recommendation of the McNeil Investors board of directors
that the limited partners of each of the McNeil Partnerships vote for the
merger proposal.
. The factors enumerated in "--Recommendations of the special committee and
the McNeil Investors board of directors; fairness of the transaction--
Recommendations of the special committee--Positive factors considered,"
each of which factors McNeil Partners and Robert A. McNeil considered,
and each of which they believed supported their conclusions regarding the
fairness of the transaction.
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. Notwithstanding the fact that the Stanger & Co. opinions were delivered
to the McNeil Investors board of directors on behalf of the McNeil
Partnerships and that McNeil Partners and Robert A. McNeil are not
entitled to rely on such opinions, the fact that the McNeil Investors
board of directors received the fairness opinions dated June 24, 1999 and
December 10, 1999 from Stanger & Co. on behalf of the McNeil
Partnerships. See "--Opinions and reports of financial advisors--
Allocation analysis and opinions of Stanger & Co."
. Notwithstanding the fact that the Eastdil Realty Company opinions were
delivered to the special committee and that McNeil Partners and Robert A.
McNeil are not entitled to rely on such opinions, the fact that the
special committee received the fairness opinions dated June 24, 1999 and
December 10, 1999 from Eastdil Realty Company. See "--Opinions and
reports of financial advisors--Eastdil Realty Company opinions."
Negative factors considered. In concluding that the transaction is fair to
the limited partners of each of the McNeil Partnerships, McNeil Partners and
Robert A. McNeil also considered the factors enumerated in "--Recommendations
of the special committee and the McNeil Investors board of directors; fairness
of the transaction--Recommendations of the special committee--Negative factors
considered." In the view of McNeil Partners and Robert A. McNeil, these
negative factors were not sufficient, either individually or in the aggregate,
to outweigh the benefits of the proposed transaction to the limited partners of
the McNeil Partnerships.
Other factors considered. In evaluating the fairness of the transaction,
McNeil Partners and Robert A. McNeil also considered the liquidation value, net
asset value and going concern value of the limited partner units in each of the
McNeil Partnerships as estimated by Stanger & Co. and presented in the status
report delivered by Stanger & Co. to the special committee and the McNeil
Investors board of directors. See "Liquidation Value," "Net Asset Value" and
"Going Concern Value" in Table 1. The consideration by McNeil Partners and
Robert A. McNeil of the liquidation value, net asset value and going concern
value involved:
. discussions among representatives of McNeil Partners, Robert A. McNeil
and Stanger & Co.;
. participation by Robert A. McNeil in meetings of the McNeil Investors
board of directors at which Stanger & Co. presented and discussed its
status report;
. review by McNeil Partners and Robert A. McNeil of the factual, financial
and numerical information presented in the status report; and
. numerous inquiries into the underlying analyses, methodologies and
assumptions supporting Stanger & Co.'s estimates. See the discussion in
"--Background of the transaction--Negotiation of definitive transaction
documents with Whitehall" of the various meetings of the McNeil Investors
board of directors.
McNeil Partners, as the general partner of the Partnership, and Robert A.
McNeil, as a member of the McNeil Investors board of directors, have each
relied in good faith under applicable law on Stanger & Co.'s analyses of
liquidation value, net asset value and going concern value and, to that extent,
have each adopted Stanger & Co.'s analyses of liquidation value, net asset
value and going concern value.
With respect to the Partnership, McNeil Partners and Robert A. McNeil each
noted in particular that the estimated per unit aggregate amount of $0.28,
including both the merger consideration and the estimated special distribution,
to be received with respect to each limited partner unit in the Partnership is
greater than or equal to each of the following, each as estimated by Stanger &
Co.:
. the liquidation value of $0.26 per limited partner unit
. the net asset value of $0.28 per limited partner unit
. the going concern value of $0.24 per limited partner unit
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In evaluating the fairness of the transaction, McNeil Partners and Robert A.
McNeil considered the information on weighted average private sales prices and
tender offer ranges for limited partner units in the McNeil Partnerships
presented in the status report delivered by Stanger & Co. to the special
committee and the McNeil Investors board of directors. See "Private Sales
Weighted Average" and "Tender Offer Ranges" in Table 1. However, for the
reasons set forth under "--Recommendations of the special committee and the
McNeil Investors board of directors--Recommendations of the special committee--
Other factors considered," McNeil Partners and Robert A. McNeil did not place
significant emphasis or weight on these prices and ranges and did not consider
these prices to be material factors in reaching their conclusions that the
transaction is fair to the limited partners of each of the McNeil Partnerships.
McNeil Partners and Robert A. McNeil did not consider purchase prices paid
by the Partnership, McNeil Partners, McNeil Investors or Robert A. McNeil for
limited partner units in the Partnership since the commencement of the
Partnership's second full fiscal year preceding the date of this Proxy
Statement because since that time, none of the Partnership, McNeil Partners,
McNeil Investors or Robert A. McNeil has made any purchases of limited partner
units in the Partnership. See "Related Security Holder Matters--Recent
transactions in the Partnership's limited partner units."
Procedural fairness of the transaction. As disclosed in the section entitled
"--Interests of certain persons in matters to be acted upon; conflicts of
interest," each of McNeil Partners, Robert A. McNeil and the other McNeil
Affiliates has a financial interest in the transaction and interests or
relationships that may present actual or potential conflicts of interest in
connection with the transaction. In evaluating the fairness of the transaction,
McNeil Partners and Robert A. McNeil considered these conflicts of interest
along with the other factors enumerated above in reaching their conclusions
that the transaction is fair to the limited partners of each of the McNeil
Partnerships. See "--Interests of certain persons in matters to be acted upon;
conflicts of interest." McNeil Partners and Robert A. McNeil also recognize
that in determining whether the requisite vote of the limited partners of a
McNeil Partnership has been obtained, limited partner units held by McNeil
Partners and its affiliates will not be excluded. McNeil Partners and Robert A.
McNeil considered these factors to be negative factors in their conclusions
that the transaction is fair to the limited partners of each of the McNeil
Partnerships. However, McNeil Partners and Robert A. McNeil believe that the
transaction is procedurally fair to the limited partners of each of the McNeil
Partnerships for the reasons cited by the McNeil Investors board of directors
and the special committee. See "--Recommendations of the special committee and
the McNeil Investors board of directors; fairness of the transaction."
In view of the wide variety of factors considered in connection with their
evaluation of the fairness of the transaction, McNeil Partners and Robert A.
McNeil did not find it practicable to, and did not attempt to, quantify, rank
or otherwise assign relative weights to the specific factors they considered in
reaching their conclusions regarding the fairness of the transaction.
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Position of Whitehall, WXI/MNL Real Estate and WXI/McN Realty
Because the transaction may be considered a "going private" transaction, the
rules under the Securities Exchange Act may be interpreted to require each of
Whitehall, WXI/MNL Real Estate and WXI/McN Realty to express its belief as to
the fairness of the transaction to the limited partners of the McNeil
Partnerships because, under a potential interpretation of the rules governing
"going private" transactions, one or more of Whitehall, WXI/MNL Real Estate and
WXI/McN Realty may be deemed to be an affiliate of the Partnership. Although
representatives of Whitehall and WXI/McN Realty negotiated the transaction with
McNeil management and the special committee on an arm's-length basis with
directly opposing interests and subsidiaries of WXI/McN Realty will acquire
limited partner units held by limited partners of the participating McNeil
Partnerships in the transaction and, therefore, may have interests that are in
conflict with the interests of those limited partners, each of Whitehall,
WXI/MNL Real Estate and WXI/McN Realty believes that the transaction is fair,
from a financial point of view, to the limited partners of each of the McNeil
Partnerships, on the basis of the following factors, in each case, based only
on the more limited facts and information available to them:
. Whitehall, WXI/MNL Real Estate and WXI/McN Realty have considered the
factors listed above in "--Position of McNeil Partners and Robert A.
McNeil regarding the fairness of the transaction," including the factors
enumerated in "--Recommendations of the special committee and the McNeil
Investors board of directors; fairness of the transaction--
Recommendations of the special committee." These factors were taken into
consideration by the special committee and the McNeil Investors board of
directors, in each case based, however, only on the more limited facts
and information available to them.
. Each of Whitehall, WXI/MNL Real Estate and WXI/McN Realty has also
reviewed the opinions of each of Stanger & Co. and Eastdil Realty Company
as set forth in this Proxy Statement with respect to the fairness of the
consideration to be received by the limited partners of the McNeil
Partnerships based on the analyses of such firms as set forth in this
Proxy Statement, subject, in each case, to the assumptions and
limitations of such conclusions and analyses as set forth in each of
their respective opinions and this Proxy Statement. See "--Opinions and
reports of financial advisors." Although Whitehall, WXI/MNL Real Estate
and WXI/McN Realty reviewed and considered as positive factors the
Stanger & Co. opinions and the Eastdil Realty Company opinions, the
Stanger & Co. opinions were delivered to the McNeil Investors board of
directors on behalf of the McNeil Partnerships and the Eastdil Realty
Company opinions were delivered to the special committee, and none of
Whitehall, WXI/MNL Real Estate or WXI/McN Realty is entitled to rely on
the Stanger & Co. opinions or the Eastdil Realty Company opinions.
. In addition, each of Whitehall, WXI/MNL Real Estate and WXI/McN Realty
considered the measures taken by the McNeil Investors board of directors,
including the formation of the special committee, the retention of legal
and financial advisors for the special committee and the arm's-length
nature of the negotiations. See "--Recommendations of the special
committee and the McNeil Investors board of directors; fairness of the
transaction."
In view of the wide variety of factors considered in connection with the
evaluation of the transaction, Whitehall, WXI/MNL Real Estate and WXI/McN
Realty did not find it practicable to, and did not attempt to, quantify, rank
or otherwise assign relative weights to the specific factors they considered in
reaching their conclusions regarding the fairness of the transaction.
Interests of certain persons in matters to be acted upon; conflicts of interest
In considering the recommendation of the McNeil Investors board of
directors, limited partners of the McNeil Partnerships should be aware that the
McNeil Affiliates, including some members of the McNeil Investors board of
directors, have interests in the transaction or relationships, including those
referred to below, that may present actual or potential conflicts of interest
in connection with the transaction. The special committee was formed in part to
address these conflicts of interest. See "--Background of the transaction--
Appointment of the special committee" and "--Purposes and reasons for the
transaction."
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The special committee, the McNeil Investors board of directors, McNeil
Partners and Robert A. McNeil were aware of these actual or potential conflicts
of interest and considered them (as described in "--Recommendations of the
special committee and the McNeil Investors board of directors; fairness of the
transaction" and "--Position of McNeil Partners and Robert A. McNeil regarding
the fairness of the transaction") along with other factors described in "--
Recommendations of the special committee and the McNeil Investors board of
directors; fairness of the transaction," "--Position of McNeil Partners and
Robert A. McNeil regarding the fairness of the transaction" and "--Effects of
the transaction--Benefits and detriments to the McNeil Affiliates." The special
committee, the McNeil Investors board of directors, McNeil Partners and Robert
A. McNeil also recognize that in determining whether the requisite vote of the
limited partners of a McNeil Partnership has been obtained, limited partner
units held by McNeil Partners and its affiliates will not be excluded. The
special committee, the McNeil Investors board of directors, McNeil Partners and
Robert A. McNeil considered these factors to be negative factors in their
determinations and conclusions that the transaction is fair to the limited
partners of each of the McNeil Partnerships. See "--Recommendations of the
special committee and the McNeil Investors board of directors; fairness of the
transaction" and "--Position of McNeil Partners and Robert A. McNeil regarding
the fairness of the transaction." However, the special committee, the McNeil
Investors board of directors, McNeil Partners and Robert A. McNeil each believe
that the transaction is procedurally fair for the reasons set forth in "--
Recommendations of the special committee and the McNeil Investors board of
directors; fairness of the transaction" and "--Position of McNeil Partners and
Robert A. McNeil regarding the fairness of the transaction" and believe that
these factors provide sufficient procedural safeguards to minimize the effects
of any actual or potential conflicts of interest of the McNeil Affiliates in
the transaction.
In addition, regardless of the actual or potential conflicts of interest of
the McNeil Affiliates, each McNeil General Partner is accountable to each of
the McNeil Partnerships of which it is a general partner, whether directly or
indirectly, and has fiduciary duties and is obligated to exercise good faith
and fair dealing toward the limited partners of each of the McNeil Partnerships
of which it is a general partner. The McNeil Investors board of directors also
has fiduciary duties and is obligated to exercise good faith and fair dealing
toward the limited partners of the McNeil Partnerships of which McNeil Partners
is the general partner.
Relationships among the McNeil Affiliates and the McNeil Partnerships
The relationships among the McNeil Affiliates and the McNeil Partnerships
may create significant conflicts of interest in connection with the
transaction. See "Summary--Structure of the transaction-- Structure and
ownership prior to the transaction." McNeil Investors is the general partner of
McNeil Partners. McNeil Investors is wholly owned by Robert A. McNeil. The sole
limited partner of McNeil Partners is Robert A. McNeil. Robert A. McNeil and
Carole J. McNeil also hold two of the four seats on the McNeil Investors board
of directors and each serves as a Co-Chairman of the McNeil Investors board of
directors. The third board seat is held by Ron K. Taylor, the President of
McNeil Investors and McREMI. The fourth board seat is held by Paul B. Fay, Jr.,
an independent director. Mr. Fay is also the sole member of the special
committee. See "Controlling Persons, Directors and Executive Officers of McNeil
Partners, McNeil Investors, WXI/MNL Real Estate, L.L.C., WH Advisors, L.L.C. XI
and The Goldman Sachs Group, Inc.--Background of named persons--McNeil Partners
and McNeil Investors."
McNeil Partners is the general partner of all of the McNeil Partnerships
except Regency North, Fairfax and Summerhill. Robert A. McNeil is the 5%
general partner of Regency North. Prior to August 17, 1999, an unaffiliated
third person, First Associated Management Inc., owned a 1% general partner
interest in the capital and profits of Regency North and Robert A. McNeil owned
a 4% general partner interest in the capital and profits of Regency North. On
August 17, 1999, First Associated Management and Robert A. McNeil entered into
an agreement pursuant to which First Associated Management agreed to resign and
withdraw as a general partner of Regency North, effective October 7, 1999, in
accordance with the limited partnership agreement of Regency North. In
connection with that agreement, on August 17, 1999, First Associated Management
transferred, conveyed and assigned to Robert A. McNeil all of its economic
interest in Regency North.
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Robert A. McNeil is the 1% general partner of Fairfax, and Robert A. McNeil
and his former wife, Sallie B. McNeil, are the only limited partners of
Fairfax. Robert A. McNeil is a 49% limited partner of Fairfax and Sallie B.
McNeil is a 50% limited partner of Fairfax. Neither First Associated
Management, Inc. nor Sallie B. McNeil is included in the definition of "McNeil
Affiliates" for purposes of this Proxy Statement.
McNeil Summerhill, Inc., a corporation wholly owned by Robert A. McNeil and
Carole J. McNeil, is the general partner of Summerhill. Robert A. McNeil and
Carole J. McNeil are the only limited partners of Summerhill. In addition,
Robert A. McNeil and Carole J. McNeil are the only directors of McNeil
Summerhill, Inc. and each serves as a Co-Chairman of the McNeil Summerhill,
Inc. board of directors. Carole J. McNeil also serves as President of McNeil
Summerhill, Inc.
McREMI also is wholly owned by Robert A. McNeil. Robert A. McNeil and Carole
J. McNeil hold two of the three seats on the McREMI board of directors and each
serves as a Co-Chairman of the McREMI board of directors. The third board seat
is held by Ron K. Taylor, the President of McNeil Investors and McREMI. McREMI
has management agreements with the McNeil Partnerships and McNeil Partners.
McREMI provides on-site management of the McNeil Partnerships' properties in
exchange for a monthly management fee.
The table below sets forth the amounts paid or accrued for the benefit of
McNeil Partners, McREMI or their affiliates by each of the public McNeil
Partnerships pursuant to the limited partnership agreement for that McNeil
Partnership since January 1, 1997.
<TABLE>
<CAPTION>
For the Nine Months For the Year
Ended September 30, Ended December 31,
------------------- -----------------------
McNeil Partnership 1999 1998 1997
- ------------------ ------------------- ----------- -----------
<S> <C> <C> <C>
Fund IX............................. $ 2,112,462 $ 2,682,313 $ 2,583,259
Fund X.............................. 1,571,813 2,109,616 2,380,588
Fund XI............................. 1,431,426 2,108,346 2,174,286
Fund XII............................ 1,289,452 1,730,168 1,853,109
Fund XIV............................ 946,861 1,188,269 1,263,797
Fund XV............................. 808,085 1,076,747 1,065,932
Fund XX............................. 183,449 281,042 450,330
Fund XXI............................ 579,743 1,018,797 1,140,532
Fund XXII........................... 286,015 358,735 342,265
Fund XXIII.......................... 169,182 215,602 214,150
Fund XXIV........................... 444,027 898,512 768,878
Fund XXV............................ 1,132,605 1,465,725 1,381,014
Fund XXVI........................... 890,696 1,338,691 1,249,867
Fund XXVII.......................... 1,096,746 1,411,384 1,342,221
----------- ----------- -----------
Total............................... $12,942,562 $17,883,947 $18,210,228
=========== =========== ===========
</TABLE>
Ownership of limited partner units in the McNeil Partnerships by the McNeil
Affiliates
In addition to owning limited partner units in the Affiliated McNeil
Partnerships, McNeil Partners and some of its affiliates beneficially own
limited partner units in some of the other McNeil Partnerships. McNeil Partners
and these affiliates intend to vote all of the limited partner units
beneficially owned by them in each of the McNeil Partnerships for the merger
proposal and for the adjournment proposal with respect to that McNeil
Partnership. See "Related Security Holder Matters--Principal holders of limited
partner units."
McNeil Partners and its affiliates are entitled to receive the same
estimated per unit aggregate amount for each of the limited partner units owned
by them in a participating McNeil Partnership, other than an Affiliated McNeil
Partnership, as all of the other limited partners in that McNeil Partnership
are entitled to receive. If all of the McNeil Partnerships in which McNeil
Partners and its affiliates own limited partner units are participating McNeil
Partnerships, McNeil Partners and these affiliates will have the right to
receive an
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aggregate amount of approximately $11,747,000 in cash. This amount consists of
both the merger consideration and the estimated special distribution to be
received for those limited partner units.
The following table sets forth the ownership of limited partner units in the
McNeil Partnerships by McNeil Partners and its affiliates:
<TABLE>
<CAPTION>
Total Per
Number of Unit
units Estimate Aggregate cash
McNeil beneficially Percentage from consideration
Name of Owner of Units Partnership owned ownership Table 2 (1)
---------------------- ----------- ------------ ---------- --------- --------------
<S> <C> <C> <C> <C> <C>
McNeil Partners, L.P..... Fund XX 4.5 * $ 92 414
McNeil Partners, L.P..... Fund XXIII 5,000(4) * 0.008 40
Opal Partners, L.P. (2).. Fund IX 5,715 5.2% 428 2,446,020
Opal Partners, L.P....... Fund X 1,732 1.3% 232 401,824
Opal Partners, L.P....... Fund XI 313 * 220 68,860
Opal Partners, L.P....... Fund XII 1,551.5 * 73 113,259.50
Opal Partners, L.P....... Fund XIV 872.384 1.0% 215 187,562.56
Opal Partners, L.P....... Fund XV 1,357 1.3% 162 219,834
Opal Partners, L.P....... Fund XXV 27,322 * 0.51 13,934.22
Opal Partners, L.P....... Fund XXVI 2,995,000 3.5% 0.28 838,600
Opal Partners, L.P....... Fund XXVII 670,634 13.0% 10.95 7,343,442.30
Dean Lontos (3).......... Fund IX 20 * 428 8,560
Dean Lontos.............. Fund XIV 20 * 215 4,300
Dean Lontos.............. Fund XV 10 * 162 1,620
Dean Lontos.............. Fund XX 174 * 92 16,008
Dean Lontos.............. Fund XXV 7,000 * 0.51 3,570
Dean Lontos.............. Fund XXVI 127,277 * 0.28 35,637.56
Dean Lontos.............. Fund XXVII 4,000 * 10.95 43,800
-----------
Total.................. $11,747,286.14
===========
</TABLE>
- --------
* Less than 1%.
(1) Product of "Number of units beneficially owned" and the "Total Per Unit
Estimate from Table 2."
(2) Opal Partners, L.P., a California limited partnership ("Opal Partners"), is
an affiliate of Carole J. McNeil. The general partner of Opal Partners is
DDC&R, Inc., a California corporation wholly owned by Carole J. McNeil.
Carole J. McNeil is also the sole director and sole executive officer of
DDC&R, Inc. Opal Partners was established for the benefit of Carole J.
McNeil and certain members of her family and acquired the limited partner
units owned by it in the McNeil Partnerships for investment purposes. See
"Related Security Holder Matters--Past contacts, transactions and
negotiations."
(3) Dean Lontos is the Senior Vice President, Portfolio Management, of McREMI.
(4) Growth/shelter units.
Structuring of the transaction by the McNeil General Partners
The transaction has been initiated and structured by the McNeil General
Partners and individuals who are executive officers of McNeil Investors and
McREMI. See "--Purposes and reasons for the transaction" and "--Background of
the transaction--Background of the auction process--Structuring of the
transaction." The transaction provides some benefits to the McNeil Affiliates
that may be in conflict with the benefits provided to the limited partners of
the McNeil Partnerships. See "--Effects of the transaction--Benefits and
detriments to the McNeil Affiliates." The transaction also provides some
benefits to the McNeil Affiliates that are not provided to the limited partners
of the McNeil Partnerships. The McNeil Affiliates had an economic interest,
separate from that of the limited partners, in structuring the transaction to
achieve these benefits.
For example, McNeil Partners will receive a significant, although non-
controlling, equity interest in WXI/McN Realty if the transaction is completed.
If all of the McNeil Partnerships participate in the
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transaction, in consideration for the interests, rights and assets being
contributed by McNeil Partners to WXI/McN Realty and its subsidiaries in the
transaction, McNeil Partners will receive membership interests in WXI/McN
Realty and credit for a capital contribution to WXI/McN Realty in an amount
equal to approximately $65,053,000, representing the amount of the aggregate
consideration allocated by Stanger & Co. to these interests, rights and assets.
See "Total Allocated McNeil Value" in Table 2. See "--Interests of certain
persons in matters to be acted upon, conflicts of interest--Equity interest of
McNeil Partners in WXI/McN Realty."
Stanger & Co. valued the membership interests to be received by McNeil
Partners in WXI/McN Realty in connection with the transaction and valued the
contributions being made by McNeil Partners to WXI/McN Realty in exchange for
those membership interests. Stanger & Co. has advised the McNeil Investors
board of directors and the special committee that based on Stanger & Co.'s
analysis, Stanger & Co. concluded that the aggregate value of those membership
interests is no greater than the aggregate value of those contributions. See
"--Interests of certain persons in matters to be acted upon; conflicts of
interest--Equity interest of McNeil Partners in WXI/McN Realty" and "--Opinions
and reports of financial advisors--Allocation analysis and opinions of Stanger
& Co.--Financial analysis of Stanger & Co.--WXI/McN Realty Operating Agreement
review."
In addition, the transaction, as structured, will allow the McNeil
Affiliates to make the contributions to WXI/McN Realty and its subsidiaries on
a tax-deferred basis and will permit the partners of McNeil Partners to defer
substantial income tax liability. If the transaction had been structured as an
acquisition of the entire McNeil portfolio for cash, it is estimated by Arthur
Andersen LLP that the partners of McNeil Partners would have been required to
pay approximately $30,563,000 in taxes in connection with the transaction. The
transaction, as structured, will permit the partners of McNeil Partners to
defer this tax liability until such time as the properties currently owned by
the McNeil Partnerships are sold or until such time as McNeil Partners disposes
of its equity interest in WXI/McN Realty. See "--Federal income tax
consequences--Tax consequences to McNeil Partners."
In recognition of the actual or potential conflicts of interest of the
McNeil General Partners and some members of the McNeil Investors board of
directors in negotiating the terms of the transaction and in evaluating the
transaction on behalf of the limited partners of the McNeil Partnerships, the
McNeil Partnerships retained Stanger & Co. as their independent advisor and
following preliminary discussions with Whitehall, the McNeil Investors board of
directors constituted the special committee. See "--Background of the
transaction--Background of the auction process."
Stanger & Co. has performed the Stanger & Co. allocation analysis and
rendered the Stanger & Co. opinions to the effect that each of the aggregate
consideration, the allocations of the aggregate consideration and the estimated
aggregate amount to be received per limited partner unit in each of the McNeil
Partnerships is fair from a financial point of view to the holders of each
class of limited partner units in each of the McNeil Partnerships. The
aggregate consideration in the transaction has been allocated by Stanger & Co.
as described in the Stanger & Co. allocation analysis and as set forth in Table
2. See "--Opinions and reports of financial advisors--Allocation analysis and
opinions of Stanger & Co." In addition, Eastdil Realty Company, the financial
advisor to the special committee, has reviewed the analyses and opinions of
Stanger & Co. and has rendered the Eastdil Realty Company opinions. See "--
Opinions and reports of financial advisors--Eastdil Realty Company opinions."
The special committee participated, through its legal counsel and financial
advisor, in negotiating the forms, terms and conditions of the definitive
agreements in respect of the transaction. The special committee, with the
assistance of its legal counsel and financial advisor, also reviewed and passed
upon the terms of the transaction on behalf of the limited partners of the
McNeil Partnerships.
The special committee has determined that the transaction is fair to, and in
the best interests of, the limited partners of each of the McNeil Partnerships
and has recommended to the McNeil Investors board of directors
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<PAGE>
the approval of the transaction. In making its determination and
recommendation, the special committee considered as positive factors, among
others, the Stanger & Co. opinions and the Eastdil Realty Company opinions. See
"--Recommendations of the special committee and the McNeil Investors board of
directors; fairness of the transaction--Recommendations of the special
committee."
In addition, the McNeil Investors board of directors has unanimously
determined that the transaction is fair to, and in the best interests of, the
limited partners of each of the McNeil Partnerships, has approved the Master
Agreement and the transactions contemplated by the Master Agreement and
recommends that the limited partners of each of the McNeil Partnerships vote
for the merger proposal. In making its determination and recommendation, and in
approving the Master Agreement and the transactions contemplated by the Master
Agreement, the McNeil Investors board of directors considered as positive
factors, among others, the recommendation of the special committee and the
Stanger & Co. opinions. See "--Recommendations of the special committee and the
McNeil Investors board of directors; fairness of the transaction--
Recommendations of the McNeil Investors board of directors."
Each of McNeil Partners and Robert A. McNeil also has concluded that the
transaction is fair to the limited partners of each of the McNeil Partnerships.
See "--Position of McNeil Partners and Robert A. McNeil regarding the fairness
of the transaction."
In addition, the terms of the transaction have been reviewed and approved by
counsel to the plaintiffs in the Schofield litigation. See "--Background of the
transaction--Background of the Schofield litigation."
Receipt of aggregate consideration by the McNeil Affiliates
The aggregate consideration in the transaction has been allocated by Stanger
& Co. as described in the Stanger & Co. allocation analysis and as set forth in
Table 2. See "--Opinions and reports of financial advisors--Allocation analysis
and opinions of Stanger & Co.--Stanger & Co. allocation analysis." Based upon
the Stanger & Co. allocation analysis and the Stanger & Co. opinions, the
McNeil Investors board of directors and the special committee have unanimously
approved the allocations of the aggregate consideration. The special committee
also relied on the Eastdil Realty Company opinions in approving the allocations
of the aggregate consideration.
McNeil Partners will receive an aggregate of $65,053,000, if all of the
McNeil Partnerships participate in the transaction, in consideration for the
interests, rights and assets being contributed by McNeil Partners to WXI/McN
Realty and its subsidiaries in the transaction. See "Total Allocated McNeil
Value" in Table 2. The "Total Allocated McNeil Value" is equal to the aggregate
consideration allocated by Stanger & Co. to the general partner interests in
the McNeil Partnerships, the limited partner interests in the Affiliated McNeil
Partnerships and the assets of McREMI being contributed to WXI/McN Realty and
its subsidiaries. See "--Opinions and reports of financial advisors--Allocation
analysis and opinions of Stanger & Co.--Stanger & Co. allocation analysis." If
not all the McNeil Partnerships participate in the transaction, the Total
Allocated McNeil Value will be equal to the sum of the following: (1) for each
participating McNeil Partnership, the sum of the amounts set forth in the
column entitled "GP Allocation Amount;" (2) for Fairfax, if it is a
participating McNeil Partnership, the amount set forth in the column entitled
"LP Allocation Amount" (net of the amount of any negative modified net working
capital balance of Fairfax); (3) for Summerhill, if it is a participating
McNeil Partnership, the amount set forth in the column entitled "LP Allocation
Amount" (net of the amount of any negative modified net working capital balance
of Summerhill); and (4) the "Total McREMI Allocated Value," adjusted for non-
participating McNeil Partnerships as described in Table 2. The portion of the
aggregate consideration to be received by McNeil Partners in consideration of
these contributions will be paid in membership interests in WXI/McN Realty. See
"--Interests of certain persons in matters to be acted upon; conflicts of
interest--Equity interest of McNeil Partners in WXI/McN Realty" and "WXI/McN
Realty Operating Agreement." The other McNeil Affiliates will own partnership
interests in McNeil Partners following the effective time of the mergers. See
"The Master Agreement--The contributions--Contributions to McNeil Partners by
the other McNeil Affiliates."
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<PAGE>
McNeil Partners and its affiliates also will receive cash consideration for
the limited partner units that they own in the McNeil Partnerships, other than
the Affiliated McNeil Partnerships. See "--Interests of certain persons in
matters to be acted upon; conflicts of interest--Ownership of limited partner
units in the McNeil Partnerships by the McNeil Affiliates."
Equity interest of McNeil Partners in WXI/McN Realty
McNeil Partners will receive a significant, although non-controlling, equity
interest in WXI/McN Realty if the transaction is completed.
Following the effective time of the mergers, McNeil Partners and WXI/McN
Realty's managing member will be the sole members of WXI/McN Realty. See
"WXI/McN Realty Operating Agreement." It is anticipated that immediately
following the effective time of the mergers, McNeil Partners will own in the
aggregate between approximately 30% and 50% of the then outstanding membership
interests in WXI/McN Realty, depending on the amount of financing obtained by
WXI/McN Realty as of the closing and the amount of the capital contributions of
McNeil Partners. The other McNeil Affiliates will indirectly beneficially own
an equity interest in WXI/McN Realty as a result of their ownership of
partnership interests in McNeil Partners. See "The Master Agreement--The
contributions--Contributions to McNeil Partners by the other McNeil
Affiliates."
Because the limited partners of the McNeil Partnerships will receive cash in
exchange for their limited partner units in the participating McNeil
Partnerships, other than the Affiliated McNeil Partnerships, the McNeil
Affiliates, as a result of their right to receive membership interests in
WXI/McN Realty, may have an economic interest in the transaction that is in
conflict with the economic interest of the other limited partners of the McNeil
Partnerships.
McNeil Partners will receive membership interests in and credit for a
capital contribution to WXI/McN Realty in exchange for the following:
(1) the contributions of interests, rights, and assets to WXI/McN Realty
and its subsidiaries described above in "--Interests of certain
persons in matters to be acted upon; conflicts of interest--Receipt of
aggregate consideration by the McNeil Affiliates;"
(2) cash contributions to WXI/McN Realty under the circumstances described
below; and
(3) the treatment as a contribution-in-kind to WXI/McN Realty of some
fees, expenses and disbursements incurred by the McNeil Affiliates in
connection with the transaction, as further described below.
Stanger & Co. valued the membership interests to be received by McNeil
Partners in WXI/McN Realty in connection with the transaction and valued the
contributions being made by McNeil Partners to WXI/McN Realty in exchange for
those membership interests. Stanger & Co. has advised the McNeil Investors
board of directors and the special committee that based on Stanger & Co.'s
analysis, Stanger & Co. concluded that the aggregate value of those membership
interests is no greater than the aggregate value of those contributions. See
"--Opinions and reports of financial advisors--Allocation analysis and opinions
of Stanger & Co.--Financial analysis of Stanger & Co.--WXI/McN Realty Operating
Agreement review." The aggregate value of these contributions and the
membership interests to be received by McNeil Partners in exchange for these
contributions is equal to the sum of the following:
(1) the aggregate consideration allocated by Stanger & Co. to the
interests, rights and assets referred to in clause (1) above;
(2) the amount of any cash contribution described in clause (2) above; and
(3) the amount of any contribution-in-kind described in clause (3) above.
The amount of the cash contribution of McNeil Partners described in
paragraph (2) above may range from zero to a maximum amount equal to the
difference determined by subtracting the Total Allocated McNeil Value
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<PAGE>
from $100 million. Notwithstanding the foregoing, if the Total Allocated McNeil
Value is less than the Minimum Investment (as defined below), McNeil Partners
is required by the Master Agreement to make a cash contribution to WXI/McN
Realty in an amount equal to the difference determined by subtracting the Total
Allocated McNeil Value from the Minimum Investment. "Minimum Investment" means
the product determined by multiplying $60 million by the sum of the percentages
set forth in the column "Partnership Percentage" in Table 2 opposite the name
of each participating McNeil Partnership.
The Master Agreement also provides that any fees, expenses and
disbursements, including assumption fees, prepayment fees and other transaction
expenses, incurred and paid by the McNeil Affiliates in connection with the
transaction, subject to the limitations set forth in the following two
sentences, will be treated as a contribution in-kind to WXI/McN Realty by
McNeil Partners in exchange for membership interests in WXI/McN Realty. These
fees, expenses and disbursements are subject to documentation and approval by
the WXI/McN Realty board of managers, which approval shall not be unreasonably
withheld or delayed. In addition, the amount of the fees, expenses and
disbursements that are treated as a contribution in-kind to WXI/McN Realty by
McNeil Partners may not exceed one-half of the aggregate amount of fees,
expenses and disbursements charged to WXI/McN Realty, its subsidiaries and
affiliates by Sullivan & Cromwell with respect to negotiating and documenting
the transaction.
Retention agreements
After the auction process began in late 1997, McNeil management became
concerned that certain officers and key employees would leave McREMI during the
sale process. To encourage these officers to remain employed with McREMI until
the completion of a sale transaction, in March 1998, McREMI entered into
retention agreements with these officers and employees. These agreements, as
amended, provide that upon the closing of the transaction, McREMI will be
obligated to pay those officers and employees that remain employed by McREMI on
the closing date an aggregate of $3,967,600, of which $2,252,685 will be paid
by McREMI and $1,722,915 will be paid by the McNeil Partnerships, regardless of
whether any particular McNeil Partnership participates in the transaction. The
amounts payable under the retention agreements will be paid in lieu of other
amounts that would have been payable in connection with the transaction under
the employment agreements that some of these individuals had entered into in
their capacities as officers of McREMI and McNeil Investors.
One of the officers and key employees with whom McREMI entered into a
retention agreement is Ron K. Taylor. Mr. Taylor is a director and President of
McNeil Investors and McREMI, and in these capacities he participated in the
negotiation of the Master Agreement. Pursuant to his retention agreement, upon
the closing of the transaction, Mr. Taylor will be paid $2,000,000, of which
$1,000,000 will be paid by McREMI and $1,000,000 will be paid by the McNeil
Partnerships, regardless of whether any particular McNeil Partnership
participates.
Special committee
The special committee met eight times from the time of its formation in May
1999 through the date of this Proxy Statement. The special committee member is
entitled to receive from McNeil Investors a fee in the amount of $25,000 for
each meeting of the McNeil Investors board of directors at which he is present
and for each meeting of the special committee, up to a maximum fee of $125,000.
In addition, the special committee member will be reimbursed by McNeil
Investors for his out-of-pocket travel and other reasonable expenses, including
reasonable attorneys' fees and expenses, incurred in connection with his
service as an independent director of McNeil Investors and as a member of the
special committee, in a manner consistent with McNeil Investors' policies and
procedures pertaining to the reimbursement of the expenses incurred by members
of its board of directors. The special committee member also is entitled to
certain indemnification rights from McNeil Investors, Robert A. McNeil and
Carole J. McNeil and to directors' and officers' liability insurance which will
be continued by McNeil Investors following the closing of the transaction.
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Financing; sources of funds
The total amount of funds required by WXI/McN Realty in connection with the
consummation of the transaction, assuming all McNeil Partnerships participate
in the transaction, is estimated to be approximately $442,916,660, including:
. payment of the cash merger consideration to the limited partners of the
McNeil Partnerships in the amount of approximately $301,567,950;
. repayment of mortgage debt of the McNeil Partnerships in the aggregate
amount of approximately $118,900,000;
. payment of prepayment fees relating to mortgage debt of the McNeil
Partnerships that will be repaid at closing and the payment of the
assumption fees that WXI/McN Realty is required to pay pursuant to the
Master Agreement in the aggregate amount of approximately $2,000,000 (see
"The Master Agreement--Aggregate consideration--Prepayment and assumption
of mortgage debt");
. the amount of the shortfall, if any, of the amount of cash on hand held
by each of the participating McNeil Partnerships at the time of the
closing from the estimated special distribution that each participating
McNeil Partnership is expected to make (which shortfall, as of the date
of this Proxy Statement, is estimated to be $0); and
. all other expenses expected to be incurred in connection with the
transaction and other amounts that WXI/McN Realty is required to pay
pursuant to the terms of the Master Agreement in the aggregate amount of
approximately $20,448,710.
The above amounts would vary in the event that one or more of the McNeil
Partnerships are not participating McNeil Partnerships or in the event that the
amount of special distributions, expenses or other amounts vary from the
estimated amounts included above.
It is expected that the amount of funds required by WXI/McN Realty in
connection with the transaction will be obtained through a combination of
equity and debt financing. It is expected that WXI/McN Realty will obtain third
party mortgage or other financing that will provide a portion of the amount of
required funds described in the five bullet points above, although WXI/McN
Realty has not, as of the date of this Proxy Statement, entered into any
definitive loan agreements with respect to any third party mortgage or other
financing. Regardless of whether any third party mortgage or other financing is
obtained by WXI/McN Realty, under the terms of the WXI/McN Realty Operating
Agreement, the managing member of WXI/McN Realty, which is owned by Whitehall
and Archon, has agreed to contribute to WXI/McN Realty an amount in cash equal
to the amounts described in the five bullet points above. Pursuant to the terms
of an equity commitment letter from Whitehall to WXI/McN Realty, Whitehall has
agreed to provide, or to cause one or more of its affiliates to provide, a cash
capital contribution to WXI/McN Realty in an amount equal to the amounts
described in the five bullet points above. See "The Master Agreement--Material
representations and warranties." The funds to be used by Whitehall to meet its
funding commitments are expected to come from capital contributions from the
partners in Whitehall.
WXI/McN Realty is currently negotiating with potential lenders to provide up
to an aggregate amount of approximately $303,079,805 in mortgage loans to be
made in respect of the properties currently owned by the McNeil Partnerships
and expected to be owned by WXI/McN Realty and its subsidiaries after the
closing. WXI/McN Realty and the entities that will own such properties upon
consummation of the transaction are referred to as the "Borrower". WXI/McN
Realty is currently negotiating with one potential lender to provide up to an
aggregate of approximately $193,479,805 in mortgage loans with a term of seven
years in respect of multifamily properties that will be owned by the Borrower
after consummation of the transaction (the "Multifamily Loan") and with another
potential lender to provide up to an aggregate of $109,600,000 in mortgage
loans with a term of three years in respect of commercial properties that will
be owned by the Borrower after consummation of the transaction (the "Commercial
Loan"). If either the Multifamily Loan or the Commercial Loan or both are
obtained, WXI/McN Realty currently has no plans to refinance or repay the
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<PAGE>
Multifamily Loan or the Commercial Loan, as applicable, except in accordance
with its terms. As of the date of this Proxy Statement, WXI/McN Realty has not
entered into any definitive loan agreements with respect to the Multifamily
Loan or the Commercial Loan, and no assurance can be given that WXI/McN Realty
will enter into agreements with respect to the Multifamily Loan or the
Commercial Loan or that the Multifamily Loan or Commercial Loan will be
obtained.
Commercial Loan. WXI/McN Realty has entered into a term sheet with General
Electric Capital Corporation ("GECC") concerning the Commercial Loan (the "GECC
Term Sheet"). The GECC Term Sheet contemplates that the total amount of the
Commercial Loan will be $119,600,000, $109,600,000 of which will be funded at
closing and the remainder of which will be available to be drawn upon by the
Borrower as a capital expenditure and leasing facility. The amount of the
Commercial Loan will be reduced in the event that the Borrower does not acquire
assets that are expected to provide security for the Commercial Loan and may
also be reduced in order to meet certain underwriting criteria (including
certain loan-to-cost, loan-to-value and debt service coverage tests).
Under the terms of the GECC Term Sheet, the Commercial Loan will have an
initial maturity date of 36 months from the closing date, subject to the right
of the Borrower to extend the term of the Commercial Loan for two 12-month
periods upon the payment of an extension fee and the satisfaction of certain
other conditions. The interest rate with respect to the Commercial Loan will be
an amount equal to the London Inter-Bank Offer Rate for loans with a 30-day
maturity ("LIBOR") plus 3.25% and will float with LIBOR during the term of the
Commercial Loan. The GECC Term Sheet contemplates that the Borrower will pay
GECC a commitment fee of 1% of the total amount of the Commercial Loan and will
reimburse GECC for all costs and expenses incurred in connection with the
negotiating and making of the Commercial Loan. The GECC Term Sheet contemplates
that the Borrower will make monthly payments of interest in respect of the
Commercial Loan during the initial 36 months of the loan and payments of
interest and principal during any extension period, calculated on an
amortization period of 25 years. The GECC Term Sheet contemplates that the
Commercial Loan may not be prepaid in whole during the first 18 months of the
Commercial Loan. After the initial 18 months, the Commercial Loan may be repaid
in whole or in part by the Borrower. During the entire period of the Commercial
Loan, the Commercial Loan may be repaid in connection with sales of properties
securing the Commercial Loan upon the payment of a release price of 120% of the
amount of the Commercial Loan allocated to the transferred property.
The GECC Term Sheet contemplates that the Commercial Loan will be secured
primarily by mortgages on 22 commercial assets currently owned by the McNeil
Partnerships and that will be owned by the entities comprising the Borrower
after consummation of the transaction. The Commercial Loan will generally be
non-recourse to the Borrower and the owners of the Borrower; however, the
Borrower and certain of its affiliates will be required to provide GECC with an
indemnity for losses resulting from certain customary specified matters and
litigation raised by limited partners of the McNeil Partnerships.
The GECC Term Sheet contemplates that the obligation of GECC to make the
Commercial Loan is subject to the approval of the loan by GECC and subject to
the negotiation of definitive documentation, the receipt of customary legal
opinions, satisfactory completion of due diligence, the obtaining of title
insurance, the receipt of satisfactory evidence that all required consents have
been obtained, no pending or threatened litigation raised by the limited
partners of the McNeil Partnerships having a material adverse effect on the
Borrower, the assets or the priority of GECC's proposed first mortgage liens on
the properties to provide security for the Commercial Loan and other customary
conditions.
The GECC Term Sheet is not a commitment by GECC to make the loans
contemplated by the GECC Term Sheet. No assurance can be given that the
Borrower will incur the loans contemplated by the GECC Term Sheet or that if
such loans are incurred the terms of such loans will not differ from the terms
contemplated by the GECC Term Sheet.
Multifamily Loan. WXI/McN Realty has entered into a loan application with
AMRESCO Capital, L.P. ("AMRESCO") concerning the Multifamily Loan (the "AMRESCO
Loan Application"). The AMRESCO
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Loan Application contemplates that the total amount of the Multifamily Loan
will be $193,479,805, all of which will be funded at closing. The principal
amount of the Multifamily Loan may be reduced in order to meet certain
underwriting criteria (including certain loan-to-cost, loan-to value and debt
service coverage tests).
Under the terms of the AMRESCO Loan Application, the Multifamily Loan will
have an initial maturity date of 84 months from the closing date. The interest
rate with respect to the Multifamily Loan will be an amount determined at the
time of rate lock for such loan and will be based on:
. spreads for Fannie Mae mortgage backed securities at the time of rate
lock, plus the 5 year U.S. Treasury Note rate at the time of rate lock;
or
. spreads for Fannie Mae mortgage backed securities at the time of rate
lock, plus the sum of the 5-year and 10-year U.S. Treasury Note rates
divided by the 7 year blended rate.
The AMRESCO Loan Application contemplates that the Borrower will pay AMRESCO
a commitment fee of 0.5% of the total amount of the Multifamily Loan actually
funded (but in no event less than $600,000) and will reimburse AMRESCO for all
costs and expenses incurred in connection with the negotiation and making of
the Multifamily Loan.
The AMRESCO Loan Application contemplates that the Borrower will make
monthly payments of interest and principal calculated on the basis of an
amortization period of 30 years. The AMRESCO Loan Application contemplates that
the Multifamily Loan may be prepaid in full at any time, with payment of a
premium equal to:
. during the first 5 years of the loan, the greater of 1% of the
outstanding principal balance of the loan or the amount calculated using
Fannie Mae's yield maintenance formula;
. during the sixth and seventh years of the loan, excluding the last 90
days of the loan, 1% of the outstanding principal balance of the loan
(subject to Borrower's option to eliminate such premium by electing a
higher interest rate spread for the loan); and
. during the last 90 days of the loan, without premium.
Generally, during the entire period of the Multifamily Loan, the Multifamily
Loan may be prepaid in connection with the release of a specific property
securing the Multifamily Loan upon the payment of a release price equal to the
principal amount of the Multifamily Loan allocated to such property.
The AMRESCO Loan Application contemplates that the Multifamily Loan will be
secured primarily by mortgages on 26 multifamily assets currently owned by the
McNeil Partnerships and that will be owned by entities comprising the Borrower
after consummation of the transaction. The Multifamily Loan will generally be
nonrecourse to the Borrower and the owners of Borrower; however, the Borrower
and certain affiliates will be personally liable for losses resulting from
certain customary specified matters.
The AMRESCO Loan Application contemplates that the obligation of AMRESCO to
make the Multifamily Loan (or to make the allocable portion of the Multifamily
Loan, as applicable) is subject to the approval of the loan by AMRESCO and
subject to the negotiation of definitive documentation, the receipt of
customary legal opinions, satisfactory completion of due diligence, the
obtaining of title insurance, the receipt of satisfactory evidence that all
required consents have been obtained, no substantial pending or threatened
condemnation, no casualty or condemnation affecting more than 25% of a
particular property since the date of the Loan Application, and other customary
conditions.
The AMRESCO Loan Application is not a commitment by AMRESCO to make the
loans contemplated by the AMRESCO Loan Application. No assurance can be given
that the Borrower will incur the loans contemplated by the AMRESCO Loan
Application or that if such loans are incurred the terms of such loans will not
differ from the terms contemplated by the AMRESCO Loan Application.
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Fees and expenses relating to the transaction
Except as described in "The Master Agreement--Fees and expenses," whether or
not the transaction is consummated, all costs and expenses incurred in
connection with the Master Agreement and the other transaction documents will
be paid by the party incurring those costs and expenses.
Without limiting the generality of the foregoing paragraph, whether or not
the transaction is consummated, McREMI has agreed that it will be liable for
the transaction expenses incurred by McREMI on behalf of itself and not on
behalf of the McNeil Partnerships or the McNeil Partnerships' subsidiaries.
Whether or not the transaction is consummated, each McNeil Partnership has
agreed that it will be liable for the amount of transaction expenses actually
incurred by it on behalf of itself and its subsidiaries and an amount equal to
that McNeil Partnership's ratable share of transaction expenses incurred by
Sellers that are not specifically identifiable to individual McNeil
Partnerships based on the relative percentage set forth in the column
"Partnership Percentage" in Table 2 opposite the name of that McNeil
Partnership.
In addition, in some circumstances, WXI/McN Realty will receive a break-up
fee, calculated on a partnership by partnership basis, up to an aggregate
maximum of $18.0 million, if the Master Agreement is terminated. These
circumstances are described in "The Master Agreement--Fees and expenses--
Partnership break-up fees." In addition, in some circumstances if the Master
Agreement is terminated, Sellers and WXI/McN Realty may be required to
reimburse some of the other's expenses incurred in connection with the
transaction. See "The Master Agreement--Fees and expenses--Reimbursement of
expenses."
The following are estimates of the fees and expenses which are expected to
be paid by the Partnership, the McNeil Partnerships as a group, the McNeil
Affiliates and WXI/McN Realty in connection with the transaction:
<TABLE>
<CAPTION>
To Be Paid
To Be Paid by the To Be Paid To Be Paid
by McNeil Partnerships, by the by
the Partnership as a group McNeil Affiliates WXI/McN Realty
--------------- -------------------- ----------------- --------------
<S> <C> <C> <C> <C>
Financial advisor fees
and expenses (1)....... $ 378,513 $ 5,420,998 $ 451,327 $ 0
Special committee fees
and expenses (2)....... 73,400 1,037,808 79,506 0
SEC filing fees......... 4,500 58,756 0 0
Legal fees and expenses
(3).................... 798,826 11,294,528 477,412 4,200,000
Accounting fees......... 26,245 371,074 28,427 50,000
Printing and mailing
fees................... 208,551 2,948,676 31,971 0
Payment agent fees (4).. 13,903 196,579 2,131 198,710
Solicitation fees....... 34,486 487,600 5,528 0
Other third-party fees
and expenses (5)....... 33,526 542,176 9,996 0
Mortgage prepayment fees
and assumption fees
(6).................... 72,016 569,027 0 2,000,000
Partnership wind-up and
severance expenses..... 83,494 1,970,023 114,462 0
Success and retention
fees; D&O insurance
(7).................... 150,245 2,124,309 2,305,089 0
Miscellaneous........... 58,707 796,012 52,839 16,000,000
---------- ----------- ---------- -----------
Total................. $1,936,412 $27,817,566 $3,558,688 $22,448,710
========== =========== ========== ===========
</TABLE>
- --------
(1) Consists of fees payable to PaineWebber and Stanger & Co. and reimbursement
of reasonable out-of-pocket expenses estimated to be incurred by
PaineWebber and Stanger & Co. in connection with the transaction. See "--
Background of the transaction--Background of the auction process--
Engagement of
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PaineWebber" and "--Opinions and reports of financial advisors--Allocation
analysis and opinions of Stanger & Co.--Fee arrangements."
(2) Consists of fees payable to the member of the special committee and
reimbursement of reasonable out-of-pocket expenses, including fees and
expenses of Orrick, Herrington and Eastdil Realty Company, estimated to be
incurred by the special committee in connection with the transaction. See
"--Interests of certain persons in matters to be acted upon; conflicts of
interest--Special committee" and "--Opinions and reports of financial
advisors--Eastdil Realty Company opinions--Fee arrangements."
(3) Includes estimated fees and expenses payable to plaintiffs' counsel in
connection with the Schofield litigation. Plaintiffs' counsel intend to
seek an order awarding attorneys' fees in an amount not to exceed the
lesser of (A) $6 million and (B) four times the actual attorneys' fees
incurred by plaintiffs in the Schofield litigation, and reimbursing their
out-of-pocket expenses incurred in prosecution of the Schofield
litigation. See "--Background of the transaction--Background of the
Schofield litigation."
(4) The Master Agreement provides that the McNeil Partnerships will pay all
charges and expenses relating to the mergers, and WXI/McN Realty will
reimburse the McNeil Partnerships, on the closing date and immediately
prior to the special distribution, in an amount in cash equal to one-half
of the amount of the expenses relating to the payment agent. See "The
Master Agreement--The mergers--Exchange of certificates."
(5) Consists of amounts payable to PSI for performing environmental testing on
and preparing structural and engineering reports for the McNeil
Partnership properties, and amounts payable to American Title for
preparing preliminary title reports and commitments for the McNeil
Partnership properties, each in connection with the auction. See "--
Background of the transaction--Background of the auction process."
(6) The Master Agreement provides that some prepayment fees and assumption
fees will be paid by WXI/McN Realty and some prepayment fees and
assumption fees will be paid by the McNeil Partnership which owns the
property subject to the mortgage debt. See "The Master Agreement--
Aggregate consideration--Prepayment and assumption of mortgage debt."
(7) Includes amounts payable under retention agreements with certain officers
and key employees of McREMI. See "--Interests of certain persons in
matters to be acted upon; conflicts of interest--Retention agreements."
Plans for the McNeil Partnerships that participate in the transaction
As a result of the transaction, each of the participating McNeil
Partnerships will become a directly and/or indirectly wholly owned subsidiary
of WXI/McN Realty. WXI/McN Realty or a wholly owned subsidiary of WXI/McN
Realty will become the sole limited partner of each of the participating
McNeil Partnerships, and a separate directly or indirectly wholly owned
subsidiary of WXI/McN Realty will become the sole general partner of one or
more of the participating McNeil Partnerships and will acquire the assets of
McNeil Partners related to the participating McNeil Partnerships. A separate
directly or indirectly wholly owned subsidiary of WXI/McN Realty will own and
operate the assets of McREMI contributed to WXI/McN Realty and its
subsidiaries.
Following consummation of the transaction, WXI/McN Realty will own,
directly or indirectly, all of the participating McNeil Partnerships and their
respective properties. It is expected that WXI/McN Realty will own, directly
or indirectly, and operate the participating McNeil Partnerships and their
properties after consummation of the transaction in a manner that is, except
as otherwise described below, generally consistent with past practice. WXI/McN
Realty may, however, increase capital expenditures made with respect to the
properties of the participating McNeil Partnerships, including with a view to
"repositioning" those properties, and make other changes as are deemed
appropriate by WXI/McN Realty.
As discussed above in "--Financing; sources of funds," it is expected that
WXI/McN Realty will, contemporaneous with the closing of the transaction,
cause some of the participating McNeil Partnerships or
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their subsidiaries to incur mortgage and other financing in an aggregate amount
of approximately $303,079,805 and that the proceeds of that financing will,
among other things, be used to repay the indebtedness that will be repaid at
the closing of the transaction. In addition, at times as WXI/McN Realty may
determine, WXI/McN Realty may cause some of the participating McNeil
Partnerships or their subsidiaries to refinance currently existing indebtedness
that will not be repaid in connection with the closing of the transaction. In
both cases, the principal amount of that indebtedness incurred by the
participating McNeil Partnerships or their subsidiaries may be materially
greater than the principal amount of indebtedness currently owed by the
participating McNeil Partnerships or their subsidiaries. As a result, the
"leverage" of the participating McNeil Partnerships would increase.
As described under "WXI/McN Realty Operating Agreement--Supermajority voting
rights," the WXI/McN Realty Operating Agreement imposes some restrictions on
the ability of WXI/McN Realty to sell multifamily assets of the participating
McNeil Partnerships prior to the fifth anniversary of the closing of the
transaction. Although WXI/McN Realty has not made any definite decisions
relating to sales of assets as of the date of this Proxy Statement, WXI/McN
Realty currently plans to dispose of some of the multifamily assets of the
participating McNeil Partnerships following the fifth anniversary of the
closing date. In addition, WXI/McN Realty plans to dispose of some of the
commercial assets of the participating McNeil Partnerships over time following
the closing of the transaction.
The subsidiary of WXI/McN Realty which will own and operate the assets of
McREMI contributed to WXI/McN Realty and its subsidiaries is referred to in
this Proxy Statement as "Management LLC." The Master Agreement provides that
for a period ending no sooner than December 31 of the calendar year following
the calendar year in which the closing occurs, WXI/McN Realty will cause
Management LLC to continue using certain of the assets of McREMI contributed in
the transaction to WXI/McN Realty and its subsidiaries, subject to certain
rights to cease using McREMI assets if WXI/McN Realty reasonably determines
that the continued use of those assets is not supported by sound business
practices and to substitute more appropriate assets if WXI/McN Realty
determines that substitution would be sound business practice. The Master
Agreement also provides that Management LLC will make offers of employment to
some employees of McREMI. See "The Master Agreement--Material covenants--
Operation of McREMI assets."
Under the terms of the WXI/McN Realty Operating Agreement, Management LLC
will be engaged as the property manager for the multifamily properties owned by
the participating McNeil Partnerships, and Management LLC or another property
manager, such as Archon, will initially be engaged as the property manager for
the commercial properties owned by the participating McNeil Partnerships. In
addition, the WXI/McN Realty Operating Agreement provides that Archon will
initially be engaged as the portfolio manager for the properties owned by the
participating McNeil Partnerships.
WXI/McN Realty intends to evaluate the business, assets, organizational
structure, policies, management and personnel of the participating McNeil
Partnerships over time and consider what other changes, if any, would be
desirable in the operations of the participating McNeil Partnerships and the
properties following the closing date. There is no assurance that the plans
described above will be realized or that WXI/McN Realty will not change its
current intentions in light of the circumstances existing at the time of those
evaluations.
Plans for the McNeil Partnerships that do not participate in the transaction
If the limited partners of the Partnership do not approve the merger
proposal, the Partnership will not participate in the transaction. If the
Partnership does not participate in the transaction, whether because of failure
to obtain the approval of the limited partners of the merger proposal or
otherwise, the limited partners of the Partnership will continue to own limited
partner units in the Partnership and McNeil Partners will continue to serve as
the general partner of the Partnership. Because McNeil Partners is obligated
under the Partnership's limited partnership agreement to use commercially
reasonable efforts to complete the liquidation and termination of the
Partnership by December 31, 1999, if the Partnership does not participate in
the transaction, McNeil Partners will continue to explore alternative
transactions to liquidate the Partnership. There is no
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assurance, however, that, if the Partnership does not participate in the
transaction, McNeil Partners could arrange an alternative transaction involving
the Partnership or that any alternative transaction would result in
distributions to limited partners of equal or greater value than are estimated
in connection with the transaction. In the meantime, if the Partnership does
not participate in the transaction, McREMI, or another property manager
selected by McNeil Partners, will manage the Partnership's properties pending a
liquidation.
Dissenters' rights
Under Article 7.6 of the California Revised Limited Partnership Act, any
limited partner of the Partnership who does not wish to accept the merger
consideration may dissent from the merger proposal and require the Partnership
to purchase for cash, at their fair market value, the limited partner units
owned by that limited partner, provided that the Partnership participates in
the transaction, the transaction is completed and the limited partner complies
with the provisions of Article 7.6 of the California Revised Limited
Partnership Act.
The following discussion is not a complete statement of the law pertaining
to dissenters' rights under California law, and is qualified in its entirety by
the full text of Article 7.6, which is provided in its entirety in Appendix E
to this Proxy Statement. All references in Article 7.6 and in this summary to a
"limited partner" are to the record holder of the limited partner units in the
Partnership as to which dissenters' rights are being asserted. A person having
a beneficial interest in limited partner units held of record in the name of
another person, such as a broker or nominee, must act promptly to cause the
record holder to follow properly the steps summarized below and in timely
manner to perfect dissenters' rights.
Any limited partner who wishes to exercise dissenters' rights or who wishes
to preserve the right to do so should review carefully the following discussion
and Appendix E. Failure to timely and properly comply with the procedures
specified in Article 7.6 will result in the loss of dissenters' rights.
Moreover, because of the complexity of the procedures for exercising
dissenters' rights, the Partnership believes that limited partners who consider
exercising their dissenters' rights should seek the advice of counsel.
Requirements for exercise of dissenters' rights
Any limited partner wishing to exercise the right under Article 7.6 to
dissent from the merger proposal and demand that the Partnership purchase for
cash, at their fair market value, the limited partner units owned by that
limited partner must satisfy each of the following conditions:
(1) The limited partner must make a written demand upon the Partnership
for the purchase of its limited partner units and the payment to the
limited partner in cash of the fair market value of its limited partner
units. The demand must be received by the Partnership within 30 days after
the date on which notice of the approval of the merger proposal is mailed
by the Partnership to the Partnership's limited partners. See "--
Dissenters' rights--Determination of fair market value" below.
(2) The demand must state the number of limited partner units in the
Partnership held by the limited partner and must contain a statement of
what that limited partner claims to be the fair market value of those
limited partner units on the day before the announcement of the proposed
merger. The statement of fair market value constitutes an offer by the
limited partner to sell its limited partner units at that price.
(3) The limited partner must not vote its limited partner units in favor
of the merger proposal. Because a proxy which does not contain voting
instructions will, unless revoked, be voted for the merger proposal, a
limited partner who votes by proxy and who wishes to exercise dissenters'
rights must vote against the merger proposal or abstain from voting on the
merger proposal.
(4) The limited partner must submit to the Partnership the certificate
representing the limited partner units which the limited partner demands
that the Partnership purchase, to be stamped or endorsed with a statement
that the interest is a dissenting interest or to be exchanged for
certificates of appropriate denomination so stamped or endorsed.
Neither voting in person or by proxy against, abstaining from voting on or
failing to vote on the merger proposal will constitute a written demand upon
the Partnership for the purchase of limited partner units or the
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payment of their fair market value in cash within the meaning of Article 7.6.
The written demand upon the Partnership for the purchase, for cash, at their
fair market value, of limited partner units in the Partnership must be in
addition to and separate from any proxy or vote.
Only a holder of record of limited partner units issued and outstanding on
December 10, 1999, the record date fixed by McNeil Partners for the
determination of limited partners entitled to vote on the merger proposal, or
an assignee of record of such an interest, is entitled to exercise dissenters'
rights for the limited partner units registered in that limited partner's name.
A limited partner who wishes to exercise dissenters' rights under Article
7.6 should mail or deliver a written demand, meeting the requirements of
Article 7.6, to: McNeil Partners, L.P., 13760 Noel Road, Suite 600, LB70,
Dallas, Texas 75240. A dissenting limited partner may not withdraw a demand for
payment unless the Partnership consents to that withdrawal.
Limited partners exercising dissenters' rights should be aware that the fair
market value of their limited partner units as determined under Article 7.6
could be more, the same as or less than the aggregate amount they would receive
in the transaction if they did not exercise dissenters' rights. Limited
partners also should be aware that opinions of financial advisors are not
opinions as to fair market value under Article 7.6.
Determination of fair market value
The fair market value of a dissenting interest is determined as of the day
before the first announcement of the terms of the proposed merger, excluding
any appreciation or depreciation in fair market value as a consequence of the
proposed merger. The transaction was first announced on June 25, 1999. See "--
Background of the transaction--Background of the auction process." Therefore,
the fair market value of limited partner units in the Partnership would be
determined as of June 24, 1999.
Within ten days after the date of approval of the merger proposal by the
required approval of the limited partners of the Partnership, the Partnership
must send a notice of that approval to the limited partners of the Partnership.
The notice must be accompanied by a copy of specified sections of Article 7.6
and a statement of the price determined by the Partnership to represent the
fair market value of the outstanding limited partner units in the Partnership.
The notice also must include a brief description of the procedure to be
followed if the limited partner desires to exercise the limited partner's
rights under those sections. The statement of the price determined by the
Partnership to represent the fair market value of the outstanding limited
partner units in the Partnership constitutes an offer by the Partnership to
purchase at that price any dissenting interests in the Partnership, unless
those interests lose their status as dissenting interests. See "--Dissenters'
rights--Loss of status of dissenting interests."
If the Partnership and a dissenting limited partner agree that the
dissenting limited partner's interest is a dissenting interest and agree upon
the price to be paid for the dissenting interest, the dissenting limited
partner is entitled to the agreed price, together with interest at the legal
rate on judgments from the date of the effective time of the merger. All
agreements fixing the fair market value of any dissenting limited partner's
interest between the Partnership and that limited partner must be in writing
and filed in the records of the Partnership. Subject to fraudulent transfer
laws, payment of the fair market value for a dissenting interest must be made
within 30 days after the later of (1) agreement as to the amount of that
payment or (2) satisfaction of all statutory or contractual conditions to the
merger. As a condition to receiving this payment, the limited partner must
surrender the certificates evidencing its dissenting interests.
Right to seek judicial determination
A limited partner may ask a court to determine whether its interest is a
dissenting interest, or to determine the fair market value of the dissenting
interest, or both, if either:
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. the Partnership denies that the limited partner's interest in the
Partnership is a dissenting interest, or
. the Partnership and a dissenting limited partner fail to agree upon the
fair market value of that limited partner's dissenting interest.
If either of these two requirements are met, the limited partner, within
six months after the date on which notice of the approval of the merger by the
required vote of the limited partners was mailed to the limited partner, may
file a complaint in the superior court of the proper county praying the court
to determine whether the interest is a dissenting interest, or to determine
the fair market value of the dissenting interest, or both, or may intervene in
any action pending on such a complaint. The court may appoint one or more
impartial appraisers to determine the fair market value of a dissenting
interest.
If the court determines that an interest is a dissenting interest, judgment
will be rendered against the Partnership for payment of the fair market value,
as determined by the court, of that dissenting interest, together with
interest at the legal rate on judgments from the effective time of the merger.
The judgment will be payable by the Partnership upon the endorsement and
delivery to the Partnership of the certificates representing the dissenting
interests. Any party may appeal from the judgment. The costs of the action,
including reasonable compensation for the appraisers, to be fixed by the
court, will be assessed or apportioned as the court considers equitable.
However, if the appraisal exceeds the price offered by the Partnership, the
Partnership will pay the costs, including, under some circumstances,
attorneys' fees and fees of expert witnesses. The Partnership may credit any
cash distributions made by the Partnership to a dissenting limited partner
after the effective time of the merger against any unpaid amounts remaining to
be paid by the Partnership for that dissenting interest. If litigation has
been instituted to test the sufficiency or regularity of the vote of the
limited partners in authorizing the merger, any judicial proceedings described
above will be suspended until final determination of that litigation.
Loss of status of dissenting interests
A limited partner will no longer be entitled to require the Partnership to
purchase a dissenting interest if:
. the Partnership abandons the merger;
. the limited partner transfers its interest prior to its submission for
endorsement as described in paragraph (4) above in "--Dissenter's
rights--Requirements for exercise of dissenters' rights;"
. the dissenting limited partner and the Partnership do not agree upon the
status of the interest of a dissenting partner or upon the purchase price
of the dissenting interest and neither files a complaint nor intervenes
in a pending action, as provided above in "--Dissenter's rights--Right to
seek judicial determination," within six months after the date on which
notice of the approval of the merger by the required vote of the limited
partners was mailed to the limited partner; or
. the dissenting limited partner, with the consent of the Partnership,
withdraws its demand for purchase of the dissenting interest.
Failure to comply strictly with all of the procedures set forth in Article
7.6 will result in the loss of a limited partner's statutory dissenters'
rights. Consequently, any limited partner wishing to exercise dissenters'
rights is urged to consult legal counsel before attempting to exercise
dissenters' rights.
Federal income tax consequences
The following summary is a general discussion of some of the federal income
tax consequences that are relevant to limited partners of the Partnership.
This summary is based on the Internal Revenue Code of 1986, as amended,
applicable Treasury regulations under the Internal Revenue Code,
administrative rulings, practice and procedures and judicial authority, all as
effective as of the date of the transaction. All of the foregoing are subject
to change or alternative construction with possible retroactive effect, and
any change or alternative construction could affect the continuing accuracy of
this summary. This summary does not discuss all aspects
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of federal income taxation that may be relevant to a particular limited partner
in light of that limited partner's specific circumstances or to limited
partners subject to special treatment under the federal income tax laws (for
example, except where otherwise noted, foreign persons, dealers in securities,
banks, insurance companies and tax-exempt organizations). In addition, except
as otherwise expressly indicated, this summary does not describe any aspect of
state, local, foreign or other tax laws.
Each limited partner should consult its tax advisor as to the particular tax
consequences to that limited partner of the transaction.
Taxation of special distribution of cash
The special distribution of cash will not generally be subject to tax, but
will reduce a limited partner's adjusted tax basis in its limited partner units
by the amount of the distribution (but not below zero). To the extent that the
distribution received by a limited partner exceeds that limited partner's
adjusted tax basis in all of its limited partner units in the Partnership, the
excess will be taxable and will be treated as capital gain.
Taxable gain or loss pursuant to the merger
In general, a limited partner will recognize gain or loss on the conversion
of limited partner units into cash in the merger or on receipt of cash pursuant
to the exercise of dissenters' rights. This gain or loss will be equal to the
difference between the limited partner's "amount realized" from the merger and
the limited partner's adjusted tax basis in the limited partner units
converted. The "amount realized" will be a sum equal to the amount of cash
received by the limited partner for the limited partner units in the merger,
plus the amount of the Partnership's liabilities allocable to the limited
partner units (as determined under Section 752 of the Internal Revenue Code).
In general, a limited partner's initial tax basis in its limited partner units
equals its cash investment in the Partnership increased by that limited
partner's share of the Partnership's liabilities at the time the limited
partner units were acquired.
A limited partner's initial basis is generally increased by:
. that limited partner's share of Partnership taxable income (including its
allocable share of taxable income for the year in which the merger
occurs) and
. any increases in that limited partner's share of liabilities of the
Partnership.
A limited partner's initial basis is generally decreased (but not below zero)
by:
. that limited partner's share of Partnership cash distributions (including
the special distribution of cash on the closing date of the transaction)
(see "--Federal income tax consequences--Taxation of special distribution
of cash" above),
. any decreases in that limited partner's share of liabilities of the
Partnership,
. that limited partner's share of losses of the Partnership (including an
allocable share of taxable loss for the year in which the merger occurs),
and
. that limited partner's share of nondeductible expenditures of the
Partnership that are not chargeable to capital.
If a limited partner's adjusted tax basis is less than its share of the
Partnership's liabilities (for example, as a result of the effect of net loss
allocations and/or distributions exceeding the cost of its limited partner
units), that limited partner's gain will exceed the cash proceeds it receives
pursuant to the merger.
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Character of gain or loss recognized pursuant to the merger
Except as described below, the gain or loss recognized by a limited partner
upon receipt of cash in the merger will generally be treated as a capital gain
or loss if the limited partner units were held by the limited partner as a
capital asset. Such capital gain or loss will be treated as long-term capital
gain or loss if the limited partner's holding period for the limited partner
units exceeds one year.
If any portion of the amount realized by a limited partner is attributable
to "unrealized receivables," which includes recapture of certain depreciation
deductions previously taken, or "inventory items," as defined in Section 751 of
the Internal Revenue Code, then a portion of the limited partner's gain or loss
may be ordinary rather than capital. In addition, a limited partner will be
allocated its pro rata share of the Partnership's taxable income or loss for
the year in which the merger occurs, and therefore, will recognize ordinary
income in an amount equal to its allocable share of the Partnership's ordinary
income. As described above, this allocation and any cash distributed by the
Partnership to the limited partner for the year in which the merger occurs will
affect the limited partner's tax basis in its limited partner units and,
therefore, the taxation of the special distribution of cash and the amount of
that limited partner's taxable gain or loss upon the conversion of its limited
partner units into cash in the merger.
Passive activity losses
Under Section 469 of the Internal Revenue Code, a non-corporate taxpayer or
personal service corporation generally can deduct "passive activity losses" in
any year only to the extent of the person's passive activity income for that
year. Closely-held corporations may not offset such losses against so-called
"portfolio" income. Substantially all post-1986 losses of limited partners from
the Partnership should be considered passive activity losses. Limited partners
may have "suspended" passive losses from the Partnership (i.e., post-1986 net
taxable losses in excess of statutorily permitted "phase-in" amounts which have
not been used to offset income from other passive activities) which may be
available to shelter gain from the receipt of cash in the merger in the manner
described below.
Limited partners that recognize a gain on the conversion of their limited
partner units into cash in the merger will be entitled to use their current and
"suspended" passive activity losses (if any) from the Partnership and other
passive sources to offset that gain. Limited partners that recognize a loss on
the conversion of their limited partner units into cash in the merger will be
entitled to deduct that loss currently (subject to other applicable
limitations) against the sum of their passive activity income from the
Partnership for that year (if any) plus any passive activity income from other
sources for that year. The balance of any "suspended" losses that were not
otherwise utilized against passive activity income as described in the two
preceding sentences will no longer be suspended and will therefore be
deductible (subject to any other applicable limitations) by that limited
partner against any other income of that limited partner for that year,
regardless of the character of that income. Accordingly, limited partners
should consult their tax advisors concerning whether, and the extent to which,
they have available suspended passive activity losses from the Partnership or
other investments that may be used to offset gain from the conversion of their
limited partner units into cash in the merger.
Information reporting, backup withholding and FIRPTA
A limited partner whose limited partner units are converted into cash in the
merger must file an information statement with its federal income tax return
for the year in which the merger occurs which provides the information
specified in Treasury Regulation (S) 1.751-1(a)(3).
Limited partners (other than tax-exempt persons, corporations and some
foreign persons) may be subject to 31% backup withholding unless they provide a
taxpayer identification number and certify that the taxpayer identification
number is correct or properly certify that they are awaiting a taxpayer
identification number. See the instructions to the letter of transmittal which
will be sent to you after the merger is completed.
Gain realized by a foreign limited partner on the conversion of limited
partner units into cash in the merger will be subject to federal income tax
under the Foreign Investment in Real Property Tax Act
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("FIRPTA"). Under the FIRPTA provisions of the Internal Revenue Code, the
transferee of an interest held by a foreign person in a partnership which owns
United States real property generally is required to deduct and withhold 10% of
the amount realized on the disposition. Amounts withheld would be creditable
against a foreign limited partner's federal income tax liability and, if in
excess thereof, a refund could be obtained from the Internal Revenue Service by
filing a United States income tax return. See the instructions to the letter of
transmittal which will be sent to you after the merger is completed.
Tax consequences to McNeil Partners
McNeil Partners will generally not recognize gain or loss for United States
federal income tax purposes upon its transfer of assets to WXI/McN Realty
solely in exchange for membership interests in WXI/McN Realty. McNeil Partners
will have a tax basis in the membership interests in WXI/McN Realty equal to
McNeil Partners' adjusted basis in the transferred general partner interests
increased or decreased by any increase or decrease of its share of Partnership
liabilities. One of the reasons why McNeil Partners is exchanging its general
partner interests for membership interests in WXI/McN Realty is that a taxable
purchase of the general partner interests for cash would cause McNeil Partners
to recognize taxable gain in excess of any cash proceeds received, because of
the relief of partnership liabilities allocated to them. See "--Purposes and
reasons for the transaction."
The transaction, as structured, will allow McNeil Partners to make the
contributions of its interests in the participating McNeil Partnerships and the
assets of McNeil Partners and McREMI being contributed to WXI/McN Realty on a
tax-deferred basis and will permit the partners of McNeil Partners to defer
substantial tax liability that would be incurred if the properties were
disposed of in a taxable sale. If the transaction had been structured as an
acquisition of the entire McNeil portfolio for cash, it is estimated by Arthur
Andersen LLP that the partners of McNeil Partners would have been required to
pay approximately $30,563,000 in taxes in connection with the transaction. The
transaction, as structured, will permit the partners of McNeil Partners to
defer this tax liability until such time as the properties currently owned by
the McNeil Partnerships are sold or until such time as McNeil Partners disposes
of its equity interest in WXI/McN Realty. See "--Interests of certain persons
in matters to be acted upon; conflicts of interest--Structuring of the
transaction by the McNeil General Partners."
Anticipated accounting treatment
WXI/McN Realty will account for the transaction under the "purchase" method
of accounting in accordance with generally accepted accounting principles.
Regulatory requirements
Except for the filing of the certificate of merger with the Secretary of
State of the State of California pursuant to the California Revised Limited
Partnership Act, after the approval of the merger proposal and compliance with
federal and state securities laws, neither the Partnership nor WXI/McN Realty
is aware of any material United States federal or state or foreign governmental
regulatory requirement necessary to be complied with or approval that must be
obtained in connection with the transaction.
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THE MEETING
Time, date and place of the meeting
This Proxy Statement is being furnished to limited partners of the
Partnership in connection with the solicitation of proxies by and on behalf of
McNeil Partners, as general partner of the Partnership, for use at the meeting
of limited partners of the Partnership to be held at 11:30 a.m., local time, on
Friday, January 21, 2000, at R.R. Donnelley Financial, Reverchon Plaza, 3500
Maple Avenue, 8th Floor, Dallas, Texas 75219-3901, and at any adjournments or
postponements of the meeting.
Matters to be considered at the meeting
At the meeting, limited partners of the Partnership will be asked to
consider and vote on the merger proposal and the adjournment proposal and to
consider any other matters as may properly come before the meeting. A vote for
the merger proposal is not also a vote for the adjournment proposal. You must
vote separately on each proposal.
Approval of the merger proposal by the limited partners of the Partnership
is a condition to the Partnership's participation in the transaction.
Approval of the adjournment proposal will permit the adjournment of the
meeting to solicit additional proxies in the event that there are not
sufficient votes at the time of the meeting to approve the merger proposal. The
Master Agreement provides that McNeil Partners will recommend the adjournment
of the meeting for ten days if on the date of the meeting the Partnership has
not received duly executed proxies which, when added to the number of votes
represented in person at the meeting by persons who intend to vote for the
merger proposal, will constitute a sufficient number of votes to approve the
merger proposal. However, if limited partners holding greater than a majority
of the outstanding limited partner units in the Partnership have indicated
their intention to vote against, and have submitted duly executed proxies
voting against, the merger proposal, the Master Agreement does not require
McNeil Partners to recommend adjournment of the meeting. See "The Master
Agreement--Limited partner meetings; proxy material." Approval of the
adjournment proposal by the limited partners of the Partnership is not a
condition to the Partnership's participation in the transaction.
Other than the merger proposal and the adjournment proposal, McNeil Partners
does not expect to ask the limited partners of the Partnership to vote on any
other matters at the meeting. However, if matters other than the merger
proposal and the adjournment proposal are properly brought before the meeting,
or any adjournments or postponements of the meeting, the persons appointed as
proxies will have discretion to vote or act on those matters according to their
best judgment.
Recommendations of the McNeil Investors board of directors
The McNeil Investors board of directors, considering, among other factors,
the recommendation of the special committee and the Stanger & Co. opinions, has
unanimously determined that the transaction is fair to, and in the best
interests of, the Partnership and its limited partners. Accordingly, the McNeil
Investors board of directors has unanimously approved the Master Agreement and
the transactions contemplated by the Master Agreement. See "Special Factors--
Recommendations of the special committee and the McNeil Investors board of
directors; fairness of the transaction--Recommendations of the McNeil Investors
board of directors."
The McNeil Investors board of directors unanimously recommends that limited
partners of the Partnership vote for the merger proposal and for the
adjournment proposal.
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Record date; voting power
McNeil Partners has fixed the close of business on December 10, 1999, as the
record date for determination of the limited partners entitled to notice of and
to vote at the meeting and any adjournment or postponement of the meeting. Only
holders of record of limited partner units at the close of business on December
10, 1999, are entitled to notice of and to vote at the meeting. As of the
record date, there were 86,530,671 limited partner units in the Partnership
issued and outstanding and held of record by 5,972 holders of record. Holders
of record of limited partner units in the Partnership are entitled to one vote
for each unit that they hold on the merger proposal, the adjournment proposal
and any other matter that may properly come before the meeting.
Quorum
The necessary quorum for the transaction of business at the meeting is the
presence in person or by proxy of limited partners holding a majority of the
limited partner units in the Partnership outstanding on the record date. For
purposes of determining the presence of a quorum, proxies marked "ABSTAIN" will
be counted by McNeil Partners as present at the meeting.
In the event that there are insufficient votes present at the meeting to
constitute a quorum, and proxies and votes against the merger proposal
represent fewer than 50% of the limited partner units, the limited partner
units for which proxies have been received may be voted to adjourn the meeting
to a later date. Notice of the adjourned meeting need not be given if the time
and place of the adjourned meeting is announced at the meeting, or the
adjourned meeting, and the adjournment is for not more than forty-five days
from the date of the original meeting and no new record date is set.
Vote required
A vote for the merger proposal is not also a vote for the adjournment
proposal. You must vote separately on each proposal.
The affirmative vote of limited partners holding greater than 50% of the
limited partner units in the Partnership outstanding on the record date is
required to approve the merger proposal.
The affirmative vote of limited partners holding more than 50% of the
limited partner units present in person or by proxy at the meeting is required
to approve the adjournment proposal.
Limited partners of the Partnership are urged to complete, date, sign and
promptly return the enclosed proxy. All properly executed proxies received by
McNeil Partners prior to the meeting that are not revoked will be voted at the
meeting in accordance with the instructions indicated on the proxies.
If a limited partner fails to return a proxy and does not vote in person at
the meeting, the effect will be the same as a vote against the merger proposal.
If a limited partner marks "ABSTAIN" on the proxy and does not vote in person
at the meeting, the effect will be the same as a vote against the merger
proposal. If a limited partner fails to return a proxy and does not vote in
person at the meeting, it will have no effect on the adjournment proposal. If a
limited partner marks "ABSTAIN" on the proxy and does not vote in person at the
meeting, the effect will be the same as a vote against the adjournment
proposal. If a limited partner returns the proxy but does not give instructions
on the proxy, that limited partner's limited partner units will be voted for
the merger proposal and for the adjournment proposal.
Approval of the merger proposal by the limited partners of the Partnership
is a condition to the Partnership's participation in the transaction. See "The
Master Agreement--Conditions to closing." Therefore, if we do not receive votes
for the merger proposal from limited partners holding greater than 50% of the
limited partner units in the Partnership, the merger proposal will not be
approved and the Partnership will not participate in the transaction.
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Approval of the adjournment proposal by the limited partners of the
Partnership is not a condition to the Partnership's participation in the
transaction. Approval of the adjournment proposal by the limited partners of
the Partnership will permit the adjournment of the meeting to solicit
additional proxies in the event that there are not sufficient votes at the time
of the meeting to approve the merger proposal.
Changing your vote
You may revoke your proxy at any time before it is voted at the meeting (1)
by sending in a later dated, signed proxy, (2) by written notice to McNeil
Partners or (3) by attending the meeting and voting in person.
Ownership of limited partner units in the Partnership
As of the record date, McNeil Partners and some of its affiliates, other
than the Partnership, beneficially owned an aggregate of 3,122,277 limited
partner units in the Partnership, representing in the aggregate approximately
3.6% of the limited partner units outstanding on the record date. McNeil
Partners and these affiliates intend to vote all of the limited partner units
beneficially owned by them in the Partnership for the merger proposal and for
the adjournment proposal.
In addition, in connection with the settlement of litigation brought against
McNeil Partners, McNeil Investors, McREMI, Robert A. McNeil and Carole J.
McNeil by affiliates of Carl C. Icahn, Mr. Icahn and his affiliates have
entered into the Icahn Voting and Standstill Agreement with the McNeil
Partnerships, McNeil Partners, McNeil Investors, McREMI, Robert A. McNeil and
Carole J. McNeil. For a description of the Icahn Voting and Standstill
Agreement, see "Other Agreements With Respect to the Transaction."
Mr. Icahn and his affiliates have agreed in the Icahn Voting and Standstill
Agreement to vote all of the limited partner units beneficially owned and held
of record by them in any of the McNeil Partnerships for the merger proposal and
for the adjournment proposal with respect to that McNeil Partnership. Mr. Icahn
and his affiliates also have agreed in the Icahn Voting and Standstill
Agreement to direct the holders of record of any limited partner units
beneficially owned by them but not held of record by them in any of the McNeil
Partnerships to vote those limited partner units for the merger proposal and
for the adjournment proposal with respect to that McNeil Partnership. As of the
record date, Mr. Icahn and his affiliates held of record and beneficially owned
an aggregate of 886,960 limited partner units in the Partnership, representing
in the aggregate approximately 1.0% of the limited partner units outstanding on
the record date.
The Icahn Voting and Standstill Agreement also includes a standstill
provision and a no solicitation provision pursuant to which each of the Icahn
parties, its affiliates and its subsidiaries have agreed to certain
restrictions on their actions with respect to the McNeil Partnerships and
related parties. The standstill provision and no solicitation provision
automatically terminate with respect to all of the McNeil Partnerships on
December 7, 2002, and terminate with respect to particular McNeil Partnerships
under certain other circumstances. See "Other Agreements With Respect to the
Transaction--No solicitation by the Icahn parties; Icahn standstill."
As of the record date, no individual or group as defined in Section 13(d)(3)
of the Securities Exchange Act, except the individuals and groups, if any, set
forth in "Related Security Holder Matters--Principal holders of limited partner
units," was known by the Partnership to beneficially own more than 5% of the
limited partner units in the Partnership.
Solicitation of proxies
Proxies are being solicited by and on behalf of McNeil Partners, as general
partner of the Partnership. The Partnership will initially pay the costs of
soliciting proxies with respect to the Partnership. In addition to
solicitation by mail, McNeil Partners and the officers, directors and employees
of McNeil Investors may solicit proxies by telephone, telegram or otherwise.
The directors, officers and employees of McNeil Investors will not
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receive compensation for that solicitation but may receive reimbursement by the
Partnership for out-of-pocket expenses incurred in connection with that
solicitation. The Partnership will request that brokerage firms, fiduciaries
and other custodians forward copies of this Proxy Statement and the enclosed
form of proxy to the beneficial owners of limited partner units in the
Partnership held of record by them, and the Partnership will reimburse those
brokerage firms, fiduciaries and other custodians for their reasonable expenses
incurred in forwarding such material. The Partnership has retained persons to
aid it in the solicitation. McNeil Partners anticipates that fees plus expenses
of these persons will be approximately $293,972 in the aggregate for all of the
McNeil Partnerships (approximately $20,569 of which is attributable to the
Partnership). McNeil Partners anticipates that the total cost of soliciting
proxies on behalf of all of the McNeil Partnerships will be approximately
$493,128 (approximately $34,486 of which is attributable to the Partnership),
of which approximately $79,947 of which has been incurred to date
(approximately $5,965 of which is attributable to the Partnership). See
"Special Factors--Fees and expenses relating to the transaction."
The matters to be considered at the meeting are of great importance to the
Partnership and to the limited partners of the Partnership. Please read and
carefully consider the information presented in this Proxy Statement and the
other documents to which we have referred you and complete, date, sign and
promptly return the enclosed proxy. Completed proxies should be returned as
soon as possible. You may return your proxy as follows:
by regular mail, in the enclosed postage-paid envelope, to:
McNeil Partners, L.P.
Investor Services
P.O. Box 800359
Dallas, Texas 75380
or by fax to:
1-877-638-5640 (Toll Free)
or by hand or overnight delivery to:
McNeil Partners, L.P.
Investor Services
13760 Noel Road, Suite 600
Dallas, Texas 75240.
YOU SHOULD NOT SEND ANY CERTIFICATES REPRESENTING LIMITED PARTNER UNITS WITH
YOUR PROXY.
A transmittal form with instructions for the surrender of certificates in
exchange for the cash merger consideration will be mailed to you as soon as
practicable after completion of the transaction. For more information regarding
the procedures for exchanging your certificates for the cash merger
consideration, please see "The Master Agreement--The mergers--Exchange of
certificates."
List of limited partners of the Partnership
Under the federal securities laws, a limited partner of the Partnership who
is entitled to vote at the meeting may request in writing a list of the other
limited partners of the Partnership entitled to vote at the meeting to enable
the requesting limited partner to mail soliciting materials to the other
limited partners of the Partnership. Alternatively, a limited partner of the
Partnership who is entitled to vote at the meeting may request that the
Partnership mail copies of any proxy statement, form of proxy or other
soliciting material furnished by the requesting limited partner to the other
limited partners of the Partnership. The requesting limited partner must
reimburse the Partnership for the Partnership's reasonable expenses incurred in
connection with performing these services. Any requests referred to in this
paragraph should be made in writing to: McNeil Partners, L.P., P.O. Box 800359,
Dallas, Texas 75380.
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At the time of making the request, the requesting limited partner must, if
its limited partner units are held through a nominee, provide the Partnership
with a statement from the nominee or other independent third party confirming
the limited partner's beneficial ownership. In addition, the requesting limited
partner must provide the Partnership with an affidavit or similar document
that:
. identifies the proposal that will be the subject of the limited partner's
solicitation;
. states that the limited partner will not use the list for any purpose
other than to solicit limited partners of the Partnership with respect to
the same action for which the Partnership is soliciting votes; and
. states that the limited partner will not disclose the information
provided to it to any person other than a beneficial owner for whom the
request was made and an employee or agent to the extent necessary to
effectuate the communication or solicitation.
Upon termination of any solicitation by the requesting limited partner, the
requesting limited partner must return to the Partnership, without keeping any
copies, the information provided by the Partnership and any information derived
from that information. A limited partner is only entitled to the foregoing
information with respect to a McNeil Partnership in which the limited partner
holds limited partner units.
The limited partnership agreement of the Partnership provides that a current
list of limited partners of the Partnership is open to inspection, examination
and copying by a limited partner of the Partnership or that limited partner's
duly authorized representative at all reasonable times. A reasonable charge for
copying may be charged by the Partnership. The California Revised Limited
Partnership Act also permits a limited partner of the Partnership to request a
list of other limited partners of the Partnership. The Partnership must deliver
the list of limited partners to the requesting limited partner at the
Partnership's expense.
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THE MASTER AGREEMENT
This section of the Proxy Statement describes various aspects of the
proposed transaction, including material provisions of the Master Agreement.
The description of the Master Agreement contained in this Proxy Statement does
not purport to be complete and is qualified in its entirety by reference to the
Master Agreement, a copy of which is attached to this Proxy Statement as
Appendix A, and which is incorporated in this Proxy Statement by reference.
Limited partners of the Partnership are urged to read carefully the Master
Agreement in its entirety.
Parties to the Master Agreement
For a description of the parties to the transaction, see "Summary--Parties
to the transaction."
Structure of the transaction
For an overview of the structure of the transaction and the steps involved
in the transaction, see "Summary--Structure of the transaction." These steps
are described in more detail below in "--The mergers" and "--The
contributions."
Closing of the transaction
The closing of the transaction will take place at a time and on a date which
will be no later than five business days after the later of:
. satisfaction or waiver of all conditions precedent to the closing of the
transaction set forth in the Master Agreement (see "--Conditions to
closing") and
. three full business days following the date of WXI/McN Realty's receipt
of any Pre-Closing Removal Notice described in "--Conditions to closing--
Removal notices" with respect to one or more McNeil Partnerships,
unless another time or date is agreed to by Sellers and WXI/McN Realty. See "--
Conditions to closing--Removal notices."
Aggregate consideration
Allocation of aggregate consideration
The aggregate consideration in the transaction, including all outstanding
mortgage debt of the McNeil Partnerships, is $644,439,803. The aggregate
consideration in the transaction has been allocated by Stanger & Co. as
described in "Special Factors--Opinions and reports of financial advisors--
Allocation analysis and opinions of Stanger & Co.--Stanger & Co. allocation
analysis." The individual allocations of the aggregate consideration are set
forth in Table 2.
Prepayment and assumption of mortgage debt
The aggregate consideration in the transaction includes an amount equal to
the outstanding mortgage debt of the McNeil Partnerships. At the effective time
of the mergers, all outstanding mortgage debt of the participating McNeil
Partnerships will either be prepaid by WXI/McN Realty or will remain
outstanding following the effective time of the mergers until its expiration or
prepayment. Some outstanding mortgage debt on the properties will be prepaid at
the effective time if the McNeil Partnerships which own those properties are
participating McNeil Partnerships, and WXI/McN Realty will pay all prepayment
fees with respect to the prepayment of that mortgage debt. Other mortgage debt
will be repaid at the effective time of the mergers if the McNeil Partnership
which owns those properties is a participating McNeil Partnership, and that
McNeil Partnership will pay the respective prepayment fees related to the
prepayment of that mortgage debt. The
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mortgage debt secured by the remainder of the properties will remain
outstanding at and after the effective time of the mergers until its expiration
or prepayment. WXI/McN Realty will pay one-half of the assumption fees, up to a
maximum of $250,000, related to the indirect assumption by WXI/McN Realty of
the mortgage debt that is not being prepaid at the effective time. The
respective participating McNeil Partnerships which own the properties that
secure the assumed mortgage debt will pay all remaining assumption fees.
The mergers
WXI/McN Realty will acquire by merger all of the participating McNeil
Partnerships except the Affiliated McNeil Partnerships. WXI/McN Realty will
acquire the Affiliated McNeil Partnerships in the manner described below in "--
The contributions." For each participating McNeil Partnership other than the
Affiliated McNeil Partnerships, a separate newly formed subsidiary limited
partnership of WXI/McN Realty will be merged with and into that participating
McNeil Partnership, with the participating McNeil Partnership surviving as a
subsidiary limited partnership of WXI/McN Realty. See "Summary--Structure of
the transaction." Figure 7 in that section depicts the mergers, assuming all
McNeil Partnerships participate in the transaction, and Figure 8 in that
section depicts the ownership of the McNeil Partnerships following the mergers.
The merger of each participating McNeil Partnership will become effective at
the time on the closing date of the transaction specified in the merger
certificate for that participating McNeil Partnership or at a later time agreed
upon by the parties to the Master Agreement and set forth in each of the merger
certificates for the participating McNeil Partnerships.
Limited partners of each of the participating McNeil Partnerships, other
than the Affiliated McNeil Partnerships, will receive cash consideration in the
transaction. The aggregate amount to be received in the transaction by limited
partners of the participating McNeil Partnerships consists of two components--
the merger consideration and a special cash distribution. See "--The mergers--
Merger consideration" and "--The mergers--Special distribution of positive net
working capital balance."
Merger consideration
The first component of the aggregate amount to be received by limited
partners of each of the participating McNeil Partnerships is the merger
consideration. At the effective time, as a result of the mergers, each limited
partner unit in a participating McNeil Partnership other than the Affiliated
McNeil Partnerships will be converted into the right to receive the amount in
cash set forth in the column "Per Unit Merger Consideration" in Table 2
opposite the name of that McNeil Partnership.
The per unit merger consideration to be received with respect to each class
of limited partner units in a participating McNeil Partnership, other than
growth/shelter units in Funds XXI, XXII and XXIII, is equal to the amount of
the aggregate consideration in the transaction allocated by Stanger & Co. to a
limited partner unit in that class.
The per unit merger consideration to be received with respect to
growth/shelter unit in each of Funds XXI, XXII and XXIII is not based on the
Stanger & Co. allocation analysis. Under the Stanger & Co. allocation analysis,
growth/shelter units in each of Funds XXI, XXII and XXIII are entitled to
receive $0 because under the provisions of that McNeil Partnership's limited
partnership agreement relating to a liquidation and termination of that McNeil
Partnership holders of growth/shelter units are not entitled to receive any
distributions until holders of current income units have received the specified
priority return on their investment. Instead, the per unit amount was
separately agreed upon between McNeil Partners and WXI/McN Realty with respect
to growth/shelter units in that McNeil Partnership. The amount payable with
respect to growth/shelter units in each of Funds XXI, XXII and XXIII will be
paid by WXI/McN Realty independent of and in addition to the aggregate
consideration in the transaction which is being allocated by Stanger & Co.
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There can be no assurances that limited partners of a participating McNeil
Partnership will receive the specified merger consideration. If a participating
McNeil Partnership has a negative modified net working capital balance as of
the closing date, the per unit merger consideration to be received with respect
to each class of limited partner units in that participating McNeil Partnership
will be reduced by the pro rata amount of the negative modified net working
capital balance allocated by Stanger & Co. to that class. See "--The mergers--
Special distribution of positive net working capital balance."
The discussion in the prior paragraph does not apply to growth/shelter units
in each of Funds XXI, XXII and XXIII. No special distribution will be made in
respect of the growth/shelter units, and the cash merger consideration to be
received for each growth/shelter unit will not be subject to adjustment based
on such McNeil Partnership's modified net working capital balance as of the
closing date. Under the provisions of each such McNeil Partnership's limited
partnership agreement, holders of growth/shelter units are not entitled to
receive any distributions until holders of current income units have received
the specified priority return on their investment.
For a description of how the per unit merger consideration and estimated per
unit special distribution were determined with respect to the Partnership, see
"Questions and Answers About the Transaction--How was the amount that I will
receive for my limited partner units in the Partnership determined?"
At the effective time, each limited partner unit in a participating McNeil
Partnership will no longer be outstanding and will automatically be cancelled
and retired and will cease to exist and the limited partner that holds that
limited partner unit will cease to have any rights with respect to that limited
partner unit, except the right to receive the per unit merger consideration and
the portion of the special distribution, if any, in respect of that
participating McNeil Partnership, in each case, without interest, to which that
limited partner unit is entitled.
Exchange of certificates
Immediately following the effective time of the mergers, the payment agent
will mail to each limited partner a letter of transmittal and instructions for
surrendering that limited partner's certificates in exchange for the per unit
merger consideration to which that holder is entitled.
Upon surrender of its certificates, a limited partner will be entitled to
receive a check in an amount equal to the product obtained by multiplying the
number of limited partner units held by that limited partner by the per unit
merger consideration set forth in Table 2 opposite the name of that McNeil
Partnership. Any certificates surrendered to the payment agent as described
above will be cancelled. Until surrendered as described above, each certificate
will be deemed at and after the effective time of the mergers to represent only
the right to receive upon that certificate's surrender the per unit merger
consideration.
In the event of a transfer of ownership of limited partner units in a McNeil
Partnership which is not registered in the transfer records of that McNeil
Partnership, payment of the per unit merger consideration which the limited
partner that holds those limited partner units has the right to receive may be
made to a transferee if the certificate representing those limited partner
units is presented to the payment agent accompanied by all documentation
required to evidence and effect that transfer.
In the event that any certificate has been lost, stolen or destroyed, the
limited partner that holds that certificate will be required to make an
affidavit that the certificate has been lost, stolen or destroyed. The payment
agent will then issue in exchange for that affidavit the per unit merger
consideration to which the limited partner that holds that certificate has the
right to receive. Unless WXI/McN Realty determines otherwise, the payment agent
will require the delivery of a suitable bond or indemnity in a form acceptable
to WXI/McN Realty.
All merger consideration paid upon the surrender or exchange of limited
partner units in the participating McNeil Partnerships will be deemed to have
been paid in full satisfaction of the rights pertaining to those
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limited partner units. The surviving limited partnership of each of the mergers
will continue to have an obligation following the effective time of the mergers
to pay distributions with a record date prior to the effective time which may
have been declared by a participating McNeil Partnership on limited partner
units in that participating McNeil Partnership and which remain unpaid as of
the effective time, and to distribute to the former limited partners of each
participating McNeil Partnership the special distribution of that participating
McNeil Partnership as described below in "--The mergers--Special distribution
of positive net working capital balance." After the effective time of the
mergers, no further registration of transfers of limited partner units in the
participating McNeil Partnerships outstanding immediately prior to the
effective time will be made on the books of the surviving limited partnerships.
If after the effective time certificates are presented to the surviving
partnerships for any reason, these certificates will be canceled and exchanged
for the per unit merger consideration as provided above.
The McNeil Partnerships will pay all charges and expenses relating to the
mergers, and WXI/McN Realty will reimburse the McNeil Partnerships, on the
closing date and immediately prior to the special distribution contemplated
below under "--The mergers--Special distribution of positive net working
capital balance," in an amount in cash equal to one-half of the amount of the
expenses relating to the payment agent. None of the payment agent, WXI/McN
Realty, WXI/McN Realty's subsidiaries, the Sellers nor any of their respective
affiliates will be liable to any limited partner of a participating McNeil
Partnership for any merger consideration delivered to a public official
pursuant to any applicable abandoned property, escheat or similar law.
Special distribution of positive net working capital balance
The second component of the aggregate amount to be received by limited
partners of each of the participating McNeil Partnerships, including the
Affiliated McNeil Partnerships, is the special cash distribution. The Master
Agreement provides that on the closing date of the transaction and immediately
prior to the effective time of the mergers, a special distribution in cash of a
participating McNeil Partnership's positive modified net working capital
balance will be declared to the limited partners of that participating McNeil
Partnership.
The aggregate amount of the special distribution which will be distributed
to limited partners of a participating McNeil Partnership will be based upon
the positive modified net working capital balance of that participating McNeil
Partnership as of the closing date. The modified net working capital balance of
a McNeil Partnership will be calculated in accordance with the terms of the
Master Agreement and will be based upon the net working capital balance of that
McNeil Partnership as of the closing date. The per unit amount of the special
distribution will be determined in accordance with the provisions of that
McNeil Partnership's limited partnership agreement governing distributions of
surplus cash, except that the general partner of that McNeil Partnership will
not receive any part of the special distribution.
The estimated per unit amount of the special distribution expected to be
received by each class of limited partners of each of the McNeil Partnerships,
assuming that McNeil Partnership participates in the transaction, is set forth
in the column "Estimated Per Unit Special Distribution" in Table 2 opposite the
name of that McNeil Partnership.
The estimated per unit amount of the special distribution is based on the
estimates of McNeil management, as of the date of this Proxy Statement, of that
participating McNeil Partnership's modified net working capital balance as of
the estimated closing date of the transaction. While we expect that each class
of limited partners of a participating McNeil Partnership will receive the
estimated per unit amount of the special distribution set forth in the column
"Estimated Per Unit Special Distribution" in Table 2 with respect to that
class, there can be no assurances that limited partners of a participating
McNeil Partnership will receive any special distribution. Limited partners of a
participating McNeil Partnership will receive a special distribution only if
that participating McNeil Partnership has a positive modified net working
capital balance as of the closing date. There can be no assurances that a
participating McNeil Partnership will have a positive modified net working
capital balance as of the closing date. If a participating McNeil Partnership's
modified net working
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capital balance as of the closing date is zero, limited partners of that
participating McNeil Partnership will receive no special distribution and will
receive only the specified merger consideration for each of their limited
partner units. If a participating McNeil Partnership has a negative modified
net working capital balance as of the closing date, limited partners of that
participating McNeil Partnership will receive no special distribution and the
per unit merger consideration to be received with respect to each class of
limited partner units in that participating McNeil Partnership will be reduced
by the pro rata amount of the negative modified net working capital balance
allocated by Stanger & Co. to that class. See "--The mergers--Merger
consideration."
The discussion in the preceding paragraphs does not apply to growth/shelter
units in each of Funds XXI, XXII and XXIII. No special distribution will be
made in respect of the growth/shelter units, and the cash merger consideration
to be received for each growth/shelter unit will not be subject to adjustment
based on such McNeil Partnership's modified net working capital balance as of
the closing date. Under the provisions of each such McNeil Partnership's
limited partnership agreement, holders of growth/shelter units are not entitled
to receive any distributions until holders of current income units have
received the specified priority return on their investment.
The contributions
Contributions to McNeil Partners by the other McNeil Affiliates
The Master Agreement provides that prior to the effective time of the
mergers and following the holding of all of the limited partner meetings of the
McNeil Partnerships (see "--Material covenants--Limited partner meetings; proxy
materials"), the following transactions will occur:
(1) if Regency North is a participating McNeil Partnership, Robert A.
McNeil, a general partner of Regency North, will contribute, transfer and
assign to McNeil Partners or to an affiliate of McNeil Partners all of the
general partner interests in Regency North owned by him in exchange for
limited partner interests in McNeil Partners;
(2) if Fairfax is a participating McNeil Partnership, Robert A. McNeil,
the general partner of Fairfax and a limited partner of Fairfax, will
contribute transfer and assign to McNeil Partners or to an affiliate of
McNeil Partners all of the general partner interests in Fairfax and all of
the limited partner units in Fairfax owned by him, in each case, in
exchange for limited partner interests in McNeil Partners;
(3) if Summerhill is a participating McNeil Partnership, McNeil
Summerhill, Inc., the general partner of Summerhil, will contribute,
transfer and assign to McNeil Partners or to an affiliate of McNeil
Partners all of the general partner interests in Summerhill and Robert A.
McNeil and Carole J. McNeil, the limited partners of Summerhill, will
contribute, transfer and assign to McNeil Partners or to an affiliate of
McNeil Partners all of the limited partner units in Summerhill, in each
case, in exchange for limited partner interests in McNeil Partners; and
(4) McREMI will contribute, transfer and assign to McNeil Partners or to
an affiliate of McNeil Partners certain assets of McREMI related to the
participating McNeil Partnerships in exchange for limited partner interests
in McNeil Partners.
As of the date of this Proxy Statement, Sallie B. McNeil, a former wife of
Robert A. McNeil, owns a 50% limited partner interest in Fairfax. If Fairfax is
a participating McNeil Partnership, it is contemplated that prior to the
contributions described in paragraphs (1) through (4) above, McNeil Partners or
an affiliate of McNeil Partners will acquire all of the limited partner
interest owned by Sallie B. McNeil in Fairfax.
See "Summary--Structure of the transaction." Figure 3 in that section
depicts the contributions to McNeil Partners by the other McNeil Affiliates,
assuming all McNeil Partnerships participate in the transaction, and Figure 4
in that section depicts the ownership of the McNeil Partnerships and assets of
McREMI following the contributions, assuming all McNeil Partnerships
participate in the transaction.
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Replacement of general partner
Following the contributions to McNeil Partners described in paragraphs (1)
through (4) above under "--The contributions--Contributions to McNeil Partners
by the other McNeil Affiliates" and immediately prior to the effective time of
the mergers, the Master Agreement provides that McNeil Partners will
contribute, transfer and assign to the applicable subsidiaries of WXI/McN
Realty, at the direction of WXI/McN Realty, in the case of each participating
McNeil Partnership, all of the general partner interests owned by McNeil
Partners in that participating McNeil Partnership and certain assets of McNeil
Partners related to that participating McNeil Partnership.
Following these contributions, transfers and assignments, in the case of
each participating McNeil Partnership, the WXI/McN Realty subsidiary to which
those contributions, transfers and assignments have been made will replace
McNeil Partners as the general partner of that participating McNeil
Partnership. In consideration for these contributions, transfers and
assignments by McNeil Partners, WXI/McN Realty will issue membership interests
in WXI/McN Realty to McNeil Partners. For each participating McNeil
Partnership, McNeil Partners will receive credit for a capital contribution to
WXI/McN Realty in an amount equal to the "MPLP Allocation Amount" set forth in
Table 2 opposite the name of that participating McNeil Partnership.
See "Summary--Structure of the transaction." Figure 5 in that section
depicts, among other things, the replacement of the general partner of the
McNeil Partnership, assuming all McNeil Partnerships participate in the
transaction.
Other contributions by McNeil Partners to WXI/McN Realty and WXI/McN Realty's
subsidiaries
Following the contributions to McNeil Partners described above under "--The
contributions--Contributions to McNeil Partners by the other McNeil Affiliates"
and immediately prior to the effective time of the mergers, McNeil Partners or
an affiliate of McNeil Partners will contribute, transfer and assign to WXI/McN
Realty or the applicable subsidiaries of WXI/McN Realty, at the direction of
WXI/McN Realty:
(1) if Fairfax is a participating McNeil Partnership, all of the
outstanding limited partner units in Fairfax;
(2) if Summerhill is a participating McNeil Partnership, all of the
outstanding limited partner units in Summerhill; and
(3) the assets of McREMI being contributed to WXI/McN Realty and its
subsidiaries.
In consideration for the contributions, transfers and assignments described
in paragraphs (1) through (3) above, WXI/McN Realty will issue membership
interests in WXI/McN Realty to McNeil Partners, and McNeil Partners will
receive credit for a capital contribution to WXI/McN Realty in an amount equal
to the following amounts:
(1) With respect to all of the limited partner units in Fairfax, McNeil
Partners will receive credit for a capital contribution to WXI/McN Realty
in an amount equal to the product determined by multiplying the "Per Unit
Merger Consideration" for Fairfax set forth in Table 2 (net of any per unit
negative modified net working capital balance of Fairfax) by the number of
limited partner units of Fairfax outstanding at the time of the
contribution.
(2) With respect to all of the limited partner units in Summerhill,
McNeil Partners will receive credit for a capital contribution to WXI/McN
Realty in an amount equal to the product determined by multiplying the "Per
Unit Merger Consideration" for Summerhill set forth in Table 2 (net of any
per unit negative modified net working capital balance of Summerhill) by
the number of limited partners units of Summerhill outstanding at the time
of the contribution.
(3) With respect to the assets of McREMI being contributed to WXI/McN
Realty and its subsidiaries, McNeil Partners will receive credit for a
capital contribution to WXI/McN Realty in an amount equal to
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the "Total McREMI Allocated Value," adjusted as described in Table 2, to
take into account any McNeil Partnerships which do not participate in the
transaction.
McNeil Partners also may make cash contributions to WXI/McN Realty at the
effective time and treat some fees, expenses and disbursements incurred and
paid on behalf of the McNeil Affiliates in connection with the transaction as a
contribution in-kind to WXI/McN Realty, in each case in exchange for membership
interests in WXI/McN Realty and credit for a capital contribution to WXI/McN
Realty in the amount of any such cash contribution and such contribution in-
kind. See "Special Factors--Interests of certain persons in matters to be acted
upon; conflicts of interest--Equity interest of McNeil Partners in WXI/McN
Realty."
See "Summary--Structure of the transaction." Figure 5 in that section
depicts, among other things, the other contributions by McNeil Partners to
WXI/McN Realty and WXI/McN Realty's subsidiaries, assuming Fairfax and
Summerhill both participate in the transaction, and Figure 6 in that section
depicts the ownership of the McNeil Partnerships and the assets of McREMI
following the replacement of the general partner of the McNeil Partnerships
described in "--The contributions--Replacement of general partner" and the
other contributions by McNeil Partners to WXI/McN Realty and WXI/McN Realty's
subsidiaries, assuming all McNeil Partnerships participate in the transaction.
Material covenants
Interim operations of Sellers
From June 24, 1999 until the effective time of the mergers, each Seller and
each of the McNeil Partnerships' subsidiaries is required to conduct its
business only in the ordinary course and in substantially the same manner as
conducted prior to the date of the Master Agreement, including diligent
performance of its landlord obligations, and to preserve intact its business
organizations and goodwill and use its reasonable efforts to keep available the
services of its officers and employees.
In addition, during this period, each Seller and each of the McNeil
Partnerships' subsidiaries is required to take the following actions, among
others:
. regularly report on material operational matters to WXI/McN Realty's
representatives;
. promptly notify WXI/McN Realty of any material emergency or change in the
condition of its business, properties, assets, liabilities or the normal
course of its businesses or in the operation of its properties, or of any
material governmental complaints, investigations or hearings;
. maintain its books and records in accordance with generally accepted
accounting principles applied consistently with past practice, and not
change in any material manner any of its methods, principles or practices
of accounting in effect as of December 31, 1998, except as may be or may
have been required by applicable law or generally accepted accounting
principles; and
. duly and timely file all reports, tax returns and other documents
required to be filed with federal, state and local authorities under the
Internal Revenue Code and maintain existing insurance coverage.
In addition, from June 24, 1999 until the effective time of the mergers, no
Seller and none of the McNeil Partnerships' subsidiaries may, without WXI/McN
Realty's prior written consent, take the following actions, among others:
. make or rescind any express or deemed election relating to taxes;
. amend its organizational documents;
. change the number of its shares of capital stock or its units of
partnership interest issued and outstanding, other than limited partner
units of partnership interest abandoned by a limited partner and
cancelled by the partnership. This paragraph will not prevent Fund XXVII
from repurchasing limited partner units in Fund XXVII in accordance with
its limited partnership agreement in effect on June 24, 1999;
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. grant any options or other right or commitment relating to the issuance
of its shares of capital stock or its units of partnership interest, or
any security convertible into its shares of capital stock or its units of
partnership interest, or any security the value of which is measured by
its shares of capital stock or its units of partnership interest, or any
security subordinated to the claim of its general creditors;
. authorize, declare or set aside or pay any non-cash dividend or make any
other non-cash distribution or payment with respect to any of its shares
of capital stock or its units of partnership interest. Nothing in this
paragraph will prevent any Seller or any of the McNeil Partnerships'
subsidiaries from making or receiving cash distributions, cash dividends
or cash payments or will prevent Fund XXVII from repurchasing limited
partner units in Fund XXVII in accordance with its limited partnership
agreement in effect on June 24, 1999;
. directly or indirectly redeem, purchase or otherwise acquire any of its
shares of capital stock or its units of partnership interest or any
option, warrant or right to acquire, or security convertible into, its
shares of capital stock or its units of partnership interest, other than
units of partnership interest abandoned by a limited partner and
cancelled by the partnership. Nothing in this paragraph will prevent any
Seller or any of the McNeil Partnerships' subsidiaries from making or
receiving cash distributions, cash dividends or cash payments or will
prevent Fund XXVII from repurchasing limited partner units in Fund XXVII
in accordance with its limited partnership agreement in effect on June
24, 1999;
. make any payment to McREMI or McNeil Partners in respect of any accrued
and unpaid asset management amounts, management incentive distributions,
deferred distributions, advances, overhead reimbursements or other
amounts owed or payable by McREMI, McNeil Investors, McNeil Partners or
any of the McNeil Partnerships to any one or more of McREMI, McNeil
Investors, McNeil Partners or to any of their respective stockholders or
general partners as the case may be, or to any general partner of any
McNeil Partnership, in each case that accrued in respect of any period
prior to December 31, 1999. Nothing in this paragraph will prevent any
Seller or any of the McNeil Partnerships' subsidiaries from making or
receiving cash distributions, cash dividends or cash payments or will
prevent Fund XXVII from repurchasing limited partner units in Fund XXVII
in accordance with its limited partnership agreement in effect on June
24, 1999;
. sell, lease or amend any existing lease, other than residential leases on
approved lease forms and in conformance with WXI/McN Realty approved
rental guidelines, or grant any easement, right of way, declaration or
restriction, or mortgage, encumber, subject to any lien or otherwise
dispose of any of its real properties;
. sell, lease, mortgage, subject to any lien or otherwise dispose of any of
its personal property or intangible property, except in the ordinary
course of business or unless that property is replaced with equal quality
items;
. make any loans, advances or capital contributions to, or investments in,
any other person other than in the ordinary course of business and other
than with respect to any accrued and unpaid asset management amounts,
management incentive distributions, deferred distributions, advances,
overhead reimbursements or other amounts owed or payable by McREMI,
McNeil Investors, McNeil Partners or any of the McNeil Partnerships to
any one or more of McREMI, McNeil Investors, McNeil Partners or to any of
their respective stockholders or general partners as the case may be, or
to any general partner of any McNeil Partnership, in each case that have
accrued in respect of any period on or after December 31, 1999 through to
and ending on the closing date of the transaction;
. pay, discharge or satisfy any claims, liabilities or obligations, other
than the payment, discharge or satisfaction (a) of all transaction costs
in connection with the transactions contemplated by the Master Agreement
and the other transaction documents; (b) of claims, liabilities and
obligations in the ordinary course of business consistent with past
practice; (c) in accordance with their terms, of claims, liabilities and
obligations reflected or reserved against in, or contemplated by, the
financial statements of Sellers or the notes to such financial statements
included in the reports filed by Sellers with the SEC prior to June
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24, 1999 or in the financial statements of Sellers or the notes to such
financial statements made available to WXI/McN Realty prior to June 24,
1999 or in the financial statements of the McNeil Partnerships'
subsidiaries or the notes to such financial statements; (d) of suits,
actions or proceedings not subject to the following paragraph in the
ordinary course of business; and (e) of the amount in excess of $190,000
per month of any accrued and unpaid asset management amounts, management
incentive distributions, deferred distributions, advances, overhead
reimbursements or other amounts owed or payable by McREMI, McNeil
Investors, McNeil Partners or any of the McNeil Partnerships to any one or
more of McREMI, McNeil Investors, McNeil Partners or to any of their
respective stockholders or general partners as the case may be, or to any
general partner of any McNeil Partnership, in each case that have accrued
in respect of any period on or after December 31, 1999 through to and
ending on the closing date of the transaction;
. settle or compromise any claim relating to the transaction that is
brought against any Seller by any current, former or purported holder of
securities of any McNeil Partnership, unless the settlement meets certain
requirements;
. guarantee the indebtedness of another person, enter into any "keep well"
or other agreement to maintain any financial statement condition of
another person or enter into any arrangement having the economic effect
of any of the foregoing;
. except for regular year-end bonuses consistent with past practice, except
for budgeted salary increases and except for increases in salary in the
ordinary course consistent with past practice, increase any compensation
or enter into or amend any employment agreement with any of its officers,
directors or employees earning more than $70,000 per year;
. adopt any new employee benefit plan or amend any existing plans or
rights;
. merge or consolidate with any person;
. acquire or agree to acquire any business or any person;
. enter into or amend any existing leasing commission agreements, service
contracts or management agreements, or enter into any new or amend any
existing agreement with any governmental entity regarding any real
property of any McNeil Partnership;
. take any action which at the time of taking that action that party knew
or reasonably should have known would cause any representation or
warranty of Sellers set forth in the Master Agreement to become untrue in
any material respect;
. increase the number of property employees or corporate employees of
McREMI, in each case by more than 1% over the aggregate number of
employees projected in the most recent budget of McREMI; or
. agree in writing or otherwise to take any of the foregoing actions or
agree in writing or otherwise not to take any of the actions to be taken
by Sellers or the McNeil Partnerships' subsidiaries from the date of
execution of the Master Agreement until the effective time of the
mergers.
Limited partner meetings; proxy material
Sellers have agreed to prepare, and in the case of each of the public McNeil
Partnerships, file with the SEC, as soon as practicable after the date of the
Master Agreement but in any event not later than August 31, 1999, this Proxy
Statement. The August 31 deadline for preparing, and in the case of each of the
public McNeil Partnerships filing with the SEC, may be extended by Sellers
subject to the approval of WXI/McN Realty, which approval shall not be
unreasonably withheld or delayed. In addition, if required by law, Sellers and
any person that may be deemed an affiliate of any public McNeil Partnership
have agreed to prepare and file concurrently with the filing of this Proxy
Statement for the public McNeil Partnerships a Rule 13e-3 Transaction Statement
on Schedule 13E-3 (a "Schedule 13E-3") with the SEC with respect to each public
McNeil Partnership. The Partnership, McNeil Partners, McNeil Investors and
Robert A. McNeil have filed a
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Schedule 13E-3 with the SEC. In addition, under a potential interpretation of
the rules governing "going private" transactions, one or more of Whitehall,
WXI/MNL Real Estate and WXI/McN Realty may be deemed to be an affiliate of the
Partnership. Therefore, each of Whitehall, WXI/MNL Real Estate and WXI/McN
Realty has been included as a filing person on such Schedule 13E-3. See "Where
You Can Find More Information." WXI/McN Realty has agreed, upon request of
Sellers, to furnish Sellers with any information concerning itself, WXI/McN
Realty's managing member and Whitehall as may be required by law or by any
governmental entity in connection with this Proxy Statement, any Schedule 13E-3
or any other statement, filing, notice or application made by or on behalf of
WXI/McN Realty to any third party or any governmental entity or both in
connection with the merger proposal.
The Master Agreement provides that each McNeil Partnership other than the
Affiliated McNeil Partnerships will, as soon as practicable, subject to the
time periods set forth in its organizational documents and in applicable laws,
duly call, give notice of, convene and hold a meeting of its limited partners
for the purpose of obtaining requisite approval by its limited partners of the
merger proposal. See "The Meeting." The Master Agreement provides that the
meeting of the limited partners of each McNeil Partnership will be held at the
earliest practicable date following the date this Proxy Statement is mailed to
the limited partners of that McNeil Partnership. The Master Agreement also
provides that unless otherwise prohibited by law, each McNeil Partnership and
its general partner are required to hold the limited partner meeting with
respect to that McNeil Partnership, regardless of whether the general partner
of that McNeil Partnership has withdrawn, amended or modified its
recommendation that the limited partners of that McNeil Partnership approve the
merger proposal, unless that McNeil Partnership has become an excluded McNeil
Partnership pursuant to the terms of the Master Agreement. See "--Termination
of the Master Agreement--Right to terminate the Master Agreement with respect
to one or more McNeil Partnerships."
The Master Agreement also provides that the general partner of each of the
McNeil Partnerships, other than the Affiliated McNeil Partnerships, will
recommend to the limited partners of that McNeil Partnership approval of the
merger proposal. See "Special Factors--Recommendations of the special committee
and the McNeil Investors board of directors; fairness of the transaction" and
"Special Factors--Position of McNeil Partners and Robert A. McNeil regarding
the fairness of the transaction." Notwithstanding the foregoing, prior to the
limited partner meeting for a McNeil Partnership or any adjournment of the
limited partner meeting, the recommendation of the general partner of that
McNeil Partnership may be withdrawn, amended or modified as a result of the
commencement or receipt of a proposal constituting a superior acquisition
proposal (as defined below under "--Material covenants--No solicitation by
Sellers") with respect to that McNeil Partnership, but only to the extent
described below in "--Material covenants--No solicitation by Sellers."
The Master Agreement further provides that if on the date of the limited
partner meeting for a McNeil Partnership, that McNeil Partnership has not
received duly executed proxies which, when added to the number of votes
represented in person at the meeting by persons who intend to vote to adopt the
Master Agreement, will constitute a sufficient number of votes to adopt the
Master Agreement and limited partners holding greater than a majority of the
outstanding limited partner units in that McNeil Partnership have not indicated
their intention to vote against, and have not submitted duly executed proxies
voting against, the adoption of the Master Agreement, then that McNeil
Partnership and its general partner are required by the Master Agreement to
recommend the adjournment of that limited partner meeting until the date ten
days after the originally scheduled date of that limited partner meeting.
No solicitation by Sellers
Prior to the effective time of the mergers, each Seller has agreed that:
. it will not, directly or indirectly, through any of its officers,
directors, employees or agents or representatives (including any
investment banker, attorney or accountant) retained by it, and it will
not authorize or permit its officers, directors, employees or agents or
representatives (including any investment banker, attorney or accountant)
retained by it to, initiate, solicit or encourage any inquiries or the
making or implementation of any acquisition proposal (as defined below)
or engage in any
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negotiations concerning or provide any confidential information or data
to, or have any discussions with, any person relating to an acquisition
proposal, or otherwise facilitate any efforts to attempt to make or
implement an acquisition proposal;
. it will immediately cease and cause to be terminated any existing
activities, discussions or negotiations with any parties conducted prior
to the date of the Master Agreement with respect to any acquisition
proposal and will take the necessary steps to inform its officers,
directors, employees or agents or representatives (including any
investment banker, attorney or accountant) retained by it of the
obligations undertaken by it as described in "--Material covenants--No
solicitation by Sellers;" and
. it will notify WXI/McN Realty immediately if it receives any inquiries or
proposals, or any requests for information described in the first bullet
point above, or if any negotiations or discussions described in the
second bullet point above are sought to be initiated or continued with
it.
As used in this Proxy Statement, "acquisition proposal" means any proposal
or offer with respect to a merger, acquisition, purchase, tender offer,
exchange offer, consolidation or similar transaction involving all or any
significant portion of the assets (whether owned directly or indirectly) or
equity securities of one or more of Sellers, other than the transactions with
WXI/McN Realty contemplated by the Master Agreement and the other transaction
documents.
As used in this Proxy Statement, "superior acquisition proposal" means a
bona fide acquisition proposal made by a third party for one or more of the
McNeil Partnerships which the general partner of that McNeil Partnership
determines in good faith to be more favorable to the limited partners of that
McNeil Partnership from a financial point of view than the merger proposal,
and which the general partner of that McNeil Partnership determines in good
faith is reasonably likely to be consummated.
Notwithstanding the foregoing, the general partner of any McNeil
Partnership may furnish information to, or enter into discussions or
negotiations with, any person that makes an unsolicited acquisition proposal
for that McNeil Partnership, if, and only to the extent that, (a) such general
partner determines in good faith that such unsolicited acquisition proposal
could result in a superior acquisition proposal and that such action is
required for that general partner to comply with its duties to its limited
partners imposed by law; (b) prior to furnishing that information to, or
entering into discussions or negotiations with, that person, that general
partner provides written notice to WXI/McN Realty to the effect that it is
furnishing information to, or entering into discussions with, that person; (c)
subject to the following clause (d), that general partner keeps WXI/McN Realty
informed of the status but not the terms of any such discussions or
negotiations with that person; and (d) that McNeil Partnership does not enter
into a binding written agreement with respect to an acquisition proposal
without providing WXI/McN Realty with at least four business days prior notice
of its intent to do so, which notice shall disclose the material terms of the
acquisition proposal. In addition, the general partner of any McNeil
Partnership may take and disclose to the limited partners of that McNeil
Partnership a position, with respect to that McNeil Partnership, contemplated
by the tender offer rules--Rule 14d-9, "Solicitation/Recommendation Statements
with Respect to Certain Tender Offers," and Rule 14e-2, "Position of Subject
Company with Respect to a Tender Offer," under the Securities Exchange Act--
with regard to an acquisition proposal for that McNeil Partnership.
The general partner of any McNeil Partnership may approve and recommend a
superior acquisition proposal and, in connection with such approval and
recommendation, withdraw or modify its approval or recommendation of the
Master Agreement, the transactions contemplated by the Master Agreement and
the merger proposal, prior to the approval of the merger proposal by the
limited partners of that McNeil Partnership at the limited partner meeting or
any adjournment of the limited partner meeting of that McNeil Partnership.
The Master Agreement also provides that any disclosure that the general
partner of any McNeil Partnership may be compelled to make with respect to the
receipt of an acquisition proposal for that McNeil Partnership in order to
comply with its duties to its limited partners or that the general partner of
any McNeil Partnership may be compelled to make in order to comply with Rule
14d-9 or 14e-2 under the Securities
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Exchange Act, will not constitute a violation of any of the foregoing
paragraphs, provided that such disclosure states that no action will be taken
by that general partner with respect to the withdrawal of its recommendation of
the transactions contemplated by the Master Agreement or the approval or
recommendation of any acquisition proposal except in accordance with the
foregoing paragraphs.
Reasonable best efforts
The Master Agreement provides that Sellers and WXI/McN Realty will use their
reasonable best efforts, without the payment of any consideration for those
efforts and without compromising their respective rights and without incurring
additional liabilities or obligations, to take, or cause to be taken, all other
action and do, or cause to be done, all other things necessary, proper or
appropriate to consummate and make effective the transactions contemplated by
the Master Agreement and the other transaction documents.
In addition, the Master Agreement provides that Sellers will use their
reasonable best efforts:
. to cooperate with WXI/McN Realty in assisting WXI/McN Realty to obtain
new financing in connection with the mergers and the other transactions
contemplated by the Master Agreement and the other transaction documents;
. to obtain from Stanger & Co. the Stanger & Co. opinions, the Stanger &
Co. allocation analysis and, if requested, the appraisals (see "Special
Factors--Opinions and reports of financial advisors--Allocation analysis
and opinions of Stanger & Co."), and to obtain from Eastdil Realty
Company the Eastdil Realty Company opinions (see "Special Factors--
Opinions and reports of financial advisors--Eastdil Realty Company
opinions"), in each case on or prior to the date on which this Proxy
Statement is mailed to the limited partners of the McNeil Partnerships;
and
. to obtain the consent and estoppel certificates and the consents
specified in section 8.2(d) of the Master Agreement (see paragraphs (5)
and (6) under "--Conditions to closing--Conditions to WXI/McN Realty's
obligations to close"), estoppels from commercial tenants and ground
lessors and, if requested in writing by WXI/McN Realty, subordination,
non-disturbance and attornment agreements.
Sellers also have agreed to use their reasonable efforts to cooperate with
WXI/McN Realty in assisting WXI/McN Realty in its efforts to correct or satisfy
specified items relating to title to certain of the properties.
Replacement indemnification agreements
McNeil Partners and McNeil Investors currently are parties to existing
indemnification obligations or agreements relating to mortgage debt on some of
the McNeil Partnership properties and agreements with lenders or affiliates of
lenders of some mortgage debt on some of the properties. Under these existing
indemnification obligations and agreements, McNeil Partners or McNeil Investors
or both have assumed liability on behalf of one or more McNeil Partnerships or
their subsidiaries for exceptions to non-recourse provisions contained in that
mortgage debt.
In the Master Agreement, WXI/McN Realty has agreed to deliver at the closing
of the transaction any replacement agreements or other documents necessary to
assume all of the obligations of Sellers (other than the participating McNeil
Partnerships) and their affiliates as indemnitor under all of those existing
indemnification obligations or agreements, and to use its reasonable efforts to
ensure that those replacement agreements and other documents delivered at the
closing release Sellers (other than the participating McNeil Partnerships) and
their affiliates from all of Sellers' (other than the participating McNeil
Partnerships) and their affiliates' obligations under those existing
indemnification obligations and agreements. See "Special Factors--Effects of
the transaction--Benefits and detriments to the McNeil Affiliates."
In addition, WXI/McN Realty has agreed in the Master Agreement to indemnify
and hold harmless Sellers and their pre-closing affiliates (other than the
participating McNeil Partnerships and their subsidiaries) from and
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against all obligations incurred under those existing indemnification
obligations and agreements after the closing date of the transaction.
McNeil Partners, to the extent that the obligations of McNeil Partners or
McNeil Investors as an indemnitor under any of those existing indemnification
obligations or agreements are not discharged, has agreed in the Master
Agreement to indemnify and hold harmless WXI/McN Realty from any and all
obligations incurred by McNeil Partners or McNeil Investors as an indemnitor
under any of those existing indemnification obligations or agreements prior to
the closing date of the transaction.
Reimbursable proposals
The Master Agreement provides that during the period from June 24, 1999 to
the closing date of the transaction, Sellers have the option of presenting to
WXI/McN Realty for approval, which approval shall not be unreasonably withheld
or delayed, one or more proposals for capital expenditures, tenant inducements
(e.g., free rent, other cash-equivalent inducements and out-of-pocket
inducements) or commissions, specifying the budgeted amounts for these
proposals, that one or more McNeil Partnerships are contemplating in connection
with one or more new commercial leases or the lease of additional space to an
existing commercial tenant.
To the extent that any one or more of these proposals with respect to a
participating McNeil Partnership have been approved by WXI/McN Realty, WXI/McN
Realty will make a cash contribution to that participating McNeil Partnership
prior to the special distribution described in "--The mergers--Special
distribution of positive net working capital balance" in an aggregate amount
equal to the sum of the "capital expenditure reimbursement amount," calculated
as described below, for each proposal approved by WXI/McN Realty with respect
to that participating McNeil Partnership.
For any proposal that has been completed as of the estimated closing date of
the transaction, the "capital expenditure reimbursement amount" for that
proposal will equal the product determined by multiplying:
(1) an amount equal to the lesser of (a) the aggregate amount expended
or incurred through to the closing date of the transaction in connection
with that proposal and (b) the total budgeted amounts of that proposal, by
(2) a fraction, the numerator of which is the number of months,
including any fraction of a month, in the period beginning on the estimated
closing date of the transaction and ending on the last day of the initial
term of the applicable commercial lease, and the denominator of which is
the aggregate number of months in the initial term of the applicable
commercial lease. In no event will this fraction be greater than one.
For any proposal that has not been completed as of the estimated closing
date of the transaction, the "capital expenditure reimbursement amount" for
that proposal will equal the product determined by multiplying:
(1) the difference determined by subtracting
(a) the excess, if any, of (x) the sum of the aggregate amount
expended or incurred through to the closing date of the transaction in
connection with that proposal and the estimated additional amount
reasonably and in good faith jointly determined by WXI/McN Realty and
McNeil Partners required to be expended or incurred following the
estimated closing date of the transaction to complete that proposal
over (y) the total budgeted amounts for that proposal, from
(b) the aggregate amount expended or incurred through to the
closing date of the transaction in connection with that proposal, by
(2) a fraction, the numerator of which is the number of months,
including any fraction of a month, in the period beginning on the estimated
closing date of the transaction and ending on the last day of the initial
term of the applicable commercial lease, and the denominator of which is
the aggregate number of
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months in the initial term of the applicable commercial lease. In no event
will this fraction be greater than one.
The capital expenditure reimbursement amounts with respect to a
participating McNeil Partnership will be taken into account in the
determination of the modified net working capital balance and special
distribution of that participating McNeil Partnership. See "--The mergers--
Special distribution of positive net working capital balance."
Operation of McREMI assets
The Master Agreement provides that following the completion of the
transaction, Management LLC will own and operate the assets of McREMI
contributed in the transaction to WXI/McN Realty and its subsidiaries. The
Master Agreement provides that for a period ending no sooner than December 31
of the calendar year following the calendar year in which the closing occurs,
WXI/McN Realty will cause Management LLC to continue using certain of the
assets of McREMI contributed in the transaction to WXI/McN Realty and its
subsidiaries, subject to some rights to cease using McREMI assets if WXI/McN
Realty reasonably determines that the continued use of those assets is not
supported by sound business practices and to substitute more appropriate assets
if WXI/McN Realty determines that substitution would be sound business
practice. See "Special Factors--Plans for the McNeil Partnerships that
participate in the transaction."
The Master Agreement also provides that Management LLC will make offers of
employment to some employees of McREMI.
At the effective time of the mergers, McREMI will terminate the employment
of each employee that accepts an offer of employment from WXI/McN Realty or a
subsidiary of WXI/McN Realty as of the closing date and will cause the
termination of each other employee of the participating McNeil Partnerships and
their respective subsidiaries.
Material representations and warranties
The Master Agreement contains customary representations and warranties by
each of Sellers and WXI/McN Realty relating to, among other things:
. due incorporation or formation, valid existence and good standing;
. capitalization;
. power and authority to enter into the transaction;
. authorization, execution, delivery and performance of the Master
Agreement and the other transaction documents;
. no conflicts with, violations of or defaults under organizational
documents, material agreements or applicable laws as a result of the
transaction;
. governmental approvals required in connection with the transaction;
. compliance with laws;
. litigation;
. brokers;
. compliance with the Investment Company Act of 1940; and
. compliance with the Hart-Scott-Rodino Antitrust Improvements Act of 1976.
These representations and warranties are subject, in certain cases, to
specified exceptions and qualifications, including, with respect to Sellers, a
"Seller material adverse effect" qualification.
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"Seller material adverse effect" means a material adverse effect on the
business, properties, financial condition or results of operations of the
participating McNeil Partnerships, taken as a whole. Notwithstanding the
foregoing, the following are to be excluded from the definition of "Seller
material adverse effect" and from any determination as to whether any Seller
material adverse effect has occurred or may occur:
. the effects of changes that are generally applicable to (1) the
residential real estate industry or the commercial real estate industry
or both or (2) any material change in the financial, banking, currency or
capital markets in general, either in the United States or any
international market;
. any facts or circumstances relating to WXI/McN Realty or its affiliates;
and
. any adverse effect from and after June 24, 1999 if that effect is clearly
related to or caused by, the execution of the Master Agreement, the
transactions contemplated by the Master Agreement or by the other
transaction documents or the announcement of the Master Agreement,
including the identity of WXI/McN Realty or any of its affiliates or
subsidiaries, or the transactions contemplated by the Master Agreement.
In addition, Sellers have made representations and warranties to WXI/McN
Realty regarding:
. good and valid title to the general partner interests in the McNeil
Partnerships and the limited partner interests in Fairfax and Summerhill
and good and marketable title to the assets of McREMI being contributed;
. filings with the SEC;
. financial statements;
. undisclosed liabilities;
. absence of certain changes since December 31, 1998;
. real properties;
. environmental matters;
. taxes;
. payments to employees, officers or directors;
. related party transactions;
. employee benefits and other employee matters;
. material contracts and debt instruments;
. management agreements;
. exemption of the transaction from state takeover statutes;
. insurance;
. institution of a year 2000 compliance program;
. books and records; and
. personal property.
These representations and warranties are subject, in some cases, to
specified exceptions and qualifications, including a Seller material adverse
effect qualification.
WXI/McN Realty has also made representations and warranties to Sellers
regarding financing, including:
. that WXI/McN Realty has entered into a commitment letter for financing
from Whitehall and that Sellers have received a written limited guarantee
of WXI/McN Realty's obligations under the Master Agreement from
Whitehall, and
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. that regardless of whether or not the transactions contemplated by that
commitment letter or the obligations under that guarantee are performed,
WXI/McN Realty will have sufficient funds to consummate the transactions
contemplated by the Master Agreement and the other transaction documents.
WXI/McN Realty has also acknowledged and agreed in the Master Agreement that
its obligation to effect the transactions contemplated by the Master Agreement
and the other transaction documents is not subject to the availability to
WXI/McN Realty, WXI/McN Realty's managing member or Whitehall or any of their
respective affiliates or subsidiaries of any debt or equity or other financing
in any amount. See "Special Factors--Financing; sources of funds."
All of the representations and warranties set forth in the Master Agreement
terminate as of the effective time of the mergers and following the effective
time of the mergers have no further force or effect.
Conditions to closing
Conditions to each party's obligations to close
The obligations of Sellers and WXI/McN Realty to effect the transaction are
subject to the fulfillment, or waiver by each party to the Master Agreement, at
or prior to the effective time of the mergers of the following conditions:
. the approval of the merger proposal by the requisite number of limited
partner units in each participating McNeil Partnership, other than
Summerhill, whose approval has already been obtained;
. no court or governmental entity having enacted any statute, rule,
regulation, judgment, decree, injunction or other order (1) that is in
effect and prohibits consummation of the transaction with respect to the
participating McNeil Partnerships or (2) that is enacted, issued,
promulgated, enforced or entered after the date of the Master Agreement
and is in effect and imposes restrictions on WXI/McN Realty or the
participating McNeil Partnerships with respect to the business operations
of the participating McNeil Partnerships which would result in a Seller
material adverse effect;
. no governmental entity having instituted any proceeding or threatened to
institute any proceeding seeking any statute, rule, regulation, judgment,
decree, injunction or other order described in clause (1) or (2) of the
immediately preceding bullet point, and no other person having instituted
any proceeding seeking any statute, rule, regulation, judgment, decree,
injunction or other order described in clause (1) or (2) of the
immediately preceding bullet point, which is reasonably likely to
succeed;
. the obtaining or making, as the case may be, of all material actions by,
and all consents, approvals, orders or authorizations from, or filings
with, governmental entities necessary for the consummation of the
transaction with respect to the participating McNeil Partnerships;
. settlement on terms satisfactory to McNeil Partners, and substantially in
the form of the settlement agreement delivered by Sellers to WXI/McN
Realty, of all claims with respect to the participating McNeil
Partnerships, the general partners of the participating McNeil
Partnerships and the assets of McREMI asserted in connection with the
Schofield litigation (see "Special Factors--Background of the
transaction--Background of the Schofield litigation"); and
. determination of the modified net working capital balance for each
participating McNeil Partnership calculated in accordance with the Master
Agreement (see "--The mergers--Special distribution of positive net
working capital balance").
The condition described in the fifth bullet point above has been satisfied.
On July 8, 1999, the court granted final approval to the settlement of the
Schofield litigation and dismissed the action.
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Conditions to WXI/McN Realty's obligations to close
WXI/McN Realty's obligations to effect the transaction are subject to the
fulfillment, or waiver by WXI/McN Realty, at or prior to the effective time of
the mergers of the following additional conditions:
(1) the representations and warranties of Sellers set forth in the
Master Agreement (other than the representations and warranties that are
the subject of paragraph (2) below) being true and correct at and as of the
closing date of the transaction, as though made on and as of the closing
date of the transaction, but immediately prior to the transfers of assets,
rights and interests and the other transactions described in "--The
contributions" and "--The mergers" except that:
. each representation and warranty is deemed to be amended as of the
closing date (a) as described below in "--Conditions to closing--
Certain exclusions from conditions to closing" and (b) so as not to
give effect to any materiality or Seller material adverse effect
qualifiers contained in the representation or warranty,
. to the extent any representation or warranty is expressly limited by
its terms to a specific date, that representation or warranty must be
true and correct at and as of that date, and
. the condition is satisfied unless the failure of the representations
and warranties to be true and correct constitutes, individually or in
the aggregate, a Seller material adverse effect;
(2) the representations and warranties of Sellers relating to:
. due incorporation, valid existence and good standing of McNeil
Investors and McREMI,
. complete and correct copies of organizational documents of Sellers,
. good and marketable title to the assets of McREMI being contributed,
. power and authority to enter into the transaction and authorization,
execution, delivery and performance of the Master Agreement and the
other transaction documents, and
. governmental approvals required in connection with the transaction,
being true and correct in all material respects at and as of the closing
date of the transaction, as though made on and as of the closing date of
the transaction, but immediately prior to the transfers of assets, rights
and interests and the other transactions described in "--The contributions"
and "--The mergers" except that:
. each representation and warranty is deemed to be amended as of the
closing date as described below in "--Conditions to closing--Certain
exclusions from conditions to closing;"
. to the extent any representation or warranty is expressly limited by
its terms to a specific date, that representation or warranty must be
true and correct at and as of that date; and
. the representations and warranties having a materiality or Seller
material adverse effect qualifier must be true and correct in all
respects;
(3) performance in all material respects by Sellers of all obligations
required to be performed by Sellers under the Master Agreement at or prior
to the effective time of the mergers, other than obligations with respect
to excluded McNeil Partnerships (see "--Termination of the Master
Agreement--Right to terminate the Master Agreement with respect to one or
more McNeil Partnerships"), including the execution and delivery of the
ancillary agreements in respect of the transaction to which any Seller is a
party;
(4) receipt by WXI/McN Realty of a certificate signed on behalf of
Sellers by an executive officer of Sellers certifying the accuracy of the
statements set forth in paragraphs (1), (2) and (3) above;
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(5) Sellers having obtained the consent and estoppel certificate of each
lender of mortgage debt which is being indirectly assumed by WXI/McN
Realty;
(6) Sellers having obtained any consents or approvals which if not
obtained would have, individually or in the aggregate, a Seller material
adverse effect;
(7) on the closing date,
. title to each property owned by a participating McNeil Partnership
being free and clear of all encumbrances and property restrictions
other than permitted restrictions and encumbrances and matters which
would not reasonably preclude the continued use of that property as
it is being used as of June 24, 1999 or would not reasonably
materially and adversely affect the value of that property as it is
being used as of June 24, 1999;
. Lawyer's Title Insurance Corporation, or another nationally
recognized title insurance company reasonably acceptable to Sellers
and WXI/McN Realty, being unconditionally obligated and prepared,
subject to the payment of the applicable title insurance premium and
related charges at WXI/McN Realty's sole cost and expense, to issue
to or for the benefit of WXI/McN Realty and one or more of its
subsidiaries, either (a) an extended coverage ATLA owner's policy of
title insurance (or the equivalent in the applicable jurisdiction)
effective as of the closing date of the transaction for each property
owned by each participating McNeil Partnership in an amount requested
by WXI/McN Realty, which amount shall be commercially reasonable, or
(b) at the option of WXI/McN Realty, a "date-down" to an existing
policy of owner's title insurance; and
. the title insurance policies referred to in clause (a) of the
immediately preceding bullet point being issued in accordance with
the title commitments given by Lawyer's Title Insurance Corporation
to WXI/McN Realty, except for some permitted exclusions;
(8) Sellers having received estoppels from tenants (including tenants
leasing space pursuant to specified commercial leases) leasing at least 75%
of the aggregate square footage leased pursuant to all commercial leases,
provided that, subject to some limitations, in lieu of tenant estoppels for
up to 10% of the aggregate square footage leased pursuant to all commercial
leases, McNeil Partners may deliver landlord estoppels;
(9) Sellers having received an estoppel from each lessor under a ground
lease, addressed to WXI/McN Realty and its lender;
(10) the sum of the net operating incomes, calculated as provided in the
Master Agreement, for the participating McNeil Partnerships, as a group,
for the twelve months ended on the last day of the most recently completed
fiscal month prior to the closing date of the transaction being greater
than or equal to the product determined by multiplying (a) 0.8723 by (b) an
amount equal to the sum of the net operating incomes, calculated as
provided in the Master Agreement, for the participating McNeil
Partnerships, as a group, for their 1998 fiscal year;
(11) WXI/McN Realty having received an opinion from Skadden, Arps or
other counsel to Sellers reasonably acceptable to WXI/McN Realty, dated as
of the closing date of the transaction, in respect of certain matters
relating to the pledge by McNeil Partners of its McNeil Class A Interests
in WXI/McN Realty and the Indemnification and Pledge Agreement (see
"Special Factors--Effects of the transaction--Benefits and detriments to
the McNeil Affiliates," "WXI/McN Realty Operating Agreement," and "Other
Agreements Between the McNeil Affiliates and Affiliates of WXI/McN Realty--
Indemnification and pledge agreement"); and
(12) consummation of the transactions described in "--The
contributions--Replacement of general partner."
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Conditions to Sellers' obligations to close
Sellers' obligations to effect the transaction are subject to the
fulfillment, or waiver by Sellers', at or prior to the effective time of the
mergers of the following conditions:
(1) the representations and warranties of WXI/McN Realty set forth in
the Master Agreement being true and correct at and as of the closing date,
as though made on and as of the closing date, but immediately prior to the
transfers of assets, rights and interests and the other transactions
described in "--The mergers" and "--The contributions" except that:
. each representation and warranty shall be deemed to be amended as of
the closing date so as not to give effect to any materiality
qualifiers contained in the representation or warranty;
. to the extent any representation or warranty is expressly limited by
its terms to a specific date, that representation or warranty must be
true and correct at and as of that date; and
. the condition is satisfied unless the failure of the representations
and warranties to be true and correct prevents WXI/McN Realty or any
of its subsidiaries from consummating the transaction;
(2) performance in all material respects by WXI/McN Realty of all
obligations required to be performed by WXI/McN Realty under the Master
Agreement at or prior to the effective time of the mergers, other than
obligations with respect to excluded McNeil Partnerships ( see "--
Termination of the Master Agreement--Right to terminate the Master
Agreement with respect to one or more McNeil Partnerships"), including the
execution and delivery of the ancillary agreements to which either WXI/McN
Realty or any of its subsidiaries is a party;
(3) receipt by each Seller of a certificate signed on behalf of WXI/McN
Realty by a senior officer of WXI/McN Realty certifying the accuracy of the
statements set forth in paragraphs (1) and (2) above;
(4) Stanger & Co. having delivered to Sellers the allocation analysis,
the appraisals, if they had been requested by Sellers prior to the date of
the mailing of this Proxy Statement, and the Stanger & Co. opinions, in
each case, prior to the date of the mailing of this Proxy Statement, and
Sellers having received the Stanger & Co. opinions to the effect that each
of the matters opined upon therein and each of the allocations is fair from
a financial point of view to the holders of each class of limited partner
units in each McNeil Partnership (see "Special Factors--Opinions and
reports of financial advisors--Allocation analysis and opinions of Stanger
& Co."); and
(5) Eastdil Realty Company having delivered to the special committee the
Eastdil Realty Company opinions prior to the date of the mailing of this
Proxy Statement, and the special committee having received the Eastdil
Realty Company opinions to the effect that each of the matters opined upon
therein is fair from a financial point of view to the holders of each class
of limited partner units in each McNeil Partnership (see "Special Factors--
Opinions and reports of financial advisors--Eastdil Realty Company
opinions").
Certain exclusions from conditions to closing
The parties to the Master Agreement have agreed that because no excluded
McNeil Partnership is subject to the closing, none of the conditions to closing
described above in "--Conditions to closing" needs to be satisfied with respect
to any excluded McNeil Partnership or the subsidiaries, properties, etc. of any
excluded McNeil Partnership. See "--Termination of the Master Agreement--Right
to terminate the Master Agreement with respect to one or more McNeil
Partnerships."
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The Master Agreement also provides that the following shall not be
considered in determining whether or not any or all of the conditions to
closing described above in "--Conditions to closing--Conditions to each party's
obligations to close" and "--Conditions to closing--Conditions to WXI/McN
Realty's obligations to close" have been fulfilled:
. any effect on any of the participating McNeil Partnerships' business,
properties, financial condition or results of operations resulting,
directly or indirectly, from WXI/McN Realty's failure to consent to a
commercial lease or any amendment to any commercial lease as requested by
Sellers in good faith; and
. any effect on any of the participating McNeil Partnerships' business,
properties, financial condition or results of operations resulting,
directly or indirectly, from WXI/McN Realty's failure to consent to a
proposal described in "--Material covenants--Reimbursable proposals"
proposed by Sellers in good faith.
The parties to the Master Agreement have agreed that none of the conditions
to closing described in paragraphs (1), (2), (3), (5), (6), (7), (8), (9) and
(10) under "--Conditions to closing--Conditions to WXI/McN Realty's obligations
to close," after giving effect to the paragraphs above, needs to be satisfied
with respect to any one or more McNeil Partnerships designated by WXI/McN
Realty as "Included Partnerships" (or the subsidiaries, properties, etc. of any
Included Partnership) or with respect to any one or more matters designated by
WXI/McN Realty as "Included Partnership Matters." See "--Conditions to
closing--Removal notices."
Removal notices
The Master Agreement provides that Sellers have the right to exclude one or
more McNeil Partnerships from the transaction in their discretion. For example,
Sellers may choose to exclude a particular McNeil Partnership because that
McNeil Partnership potentially may fail to satisfy the conditions to closing
described above in "--Conditions to closing--Conditions to WXI/McN Realty's
obligations to close" and therefore could result in the entire transaction
failing to close with respect to all of the participating McNeil Partnerships
unless that particular McNeil Partnership was excluded.
At any time until and including the date of the limited partner meeting for
a participating McNeil Partnership, Sellers may provide a written "Matter
Removal Notice" to WXI/McN Realty identifying that McNeil Partnership as a
"Removable Partnership" and describing in reasonable detail matters relating to
that McNeil Partnership that Sellers believe in good faith may cause that
McNeil Partnership to become an excluded McNeil Partnership as described in "--
Termination of the Master Agreement--Right to terminate the Master Agreement
with respect to one or more McNeil Partnerships." Upon WXI/McN Realty's receipt
of any Matter Removal Notice, WXI/McN Realty has a limited amount of time to
provide written notice to Sellers identifying which, if any, of the matters
described in the Matter Removal Notice WXI/McN Realty designates as an
"Included Partnership Matter." By designating a matter as an "Included
Partnership Matter," WXI/McN Realty agrees to close the transaction with the
McNeil Partnership to which that matter relates, provided that the McNeil
Partnership is not otherwise excluded, even if, as a result of one or more
included Partnership Matters, that McNeil Partnership does not satisfy the
specified conditions to closing described below.
At any time following the date of the limited partner meeting of a
participating McNeil Partnership, Sellers may provide a written "Pre-Closing
Removal Notice" to WXI/McN Realty identifying that McNeil Partnership as a
"Pre-Closing Removable Partnership" which Sellers desire to exclude from the
transaction. Upon WXI/McN Realty's receipt of any Pre-Closing Removal Notice,
WXI/McN Realty has a limited amount of time to provide written notice to
Sellers identifying which, if any, of the Pre-Closing Removable Partnerships
WXI/McN Realty designates as an "Included Partnership." By designating a McNeil
Partnership as an "Included Partnership," WXI/McN Realty agrees to close the
transaction with that McNeil Partnership, provided that it is not otherwise
excluded, even if that McNeil Partnership does not satisfy the specified
conditions to closing described in the following paragraph.
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The parties to the Master Agreement have agreed that none of the conditions
to closing described in paragraphs (1), (2), (3), (5), (6), (7), (8), (9) and
(10) under "--Conditions to closing--Conditions to WXI/McN Realty's obligations
to close," after giving effect to the paragraphs in "--Conditions to closing--
Certain exclusions from conditions to closing," needs to be satisfied with
respect to any one or more Included Partnership Matters or any one or more
Included Partnerships (or any subsidiaries, properties, etc. of any Included
Partnership).
Termination of the Master Agreement
Right to terminate the Master Agreement
The Master Agreement provides that it may be terminated in its entirety at
any time prior to the effective time of the mergers, regardless of whether or
not the requisite approvals of the respective limited partners of each of the
McNeil Partnerships have been obtained, as follows:
(1) by the mutual written consent of each Seller and WXI/McN Realty;
(2) by WXI/McN Realty, on the one hand, or any Seller, on the other
hand:
(a) if any judgment, injunction, order, decree or action by any
governmental entity of competent authority preventing the consummation
of the transaction other than with respect to any excluded McNeil
Partnerships (see "--Termination of the Master Agreement--Right to
terminate the Master Agreement with respect to one or more McNeil
Partnerships"), has become final and nonappealable; or
(b) if the closing has not occurred on or before June 24, 2000;
(3) by any Seller if (a) WXI/McN Realty materially breaches any of its
representations, warranties, covenants, obligations or agreements set forth
in the Master Agreement, (b) that breach cannot be or is not remedied
within 30 days after written notice of that breach is given by any Seller
and (c) the conditions set forth in paragraphs (1) and (2) under "--
Conditions to closing--Conditions to Sellers' obligations to close" cannot
be satisfied by June 24, 2000; or
(4) by WXI/McN Realty if (a) any Seller materially breaches any of its
representations, warranties, covenants, obligations or agreements set forth
in the Master Agreement, (b) that breach cannot be or is not remedied
within 30 days after written notice of that breach is given by WXI/McN
Realty and (c) the conditions set forth in paragraphs (1), (2) and (3)
under "--Conditions to Closing--Conditions to WXI/McN Realty's obligations
to close" cannot be satisfied by June 24, 2000.
Right to terminate the Master Agreement with respect to one or more McNeil
Partnerships
In addition, under some circumstances, the Master Agreement may be
terminated with respect to a particular McNeil Partnership (an "excluded McNeil
Partnership") and that McNeil Partnership will be excluded from the
transaction, whether or not the requisite approvals of that McNeil Partnership
have been obtained, except as indicated to the contrary below. These
circumstances include, among others:
(1) by the mutual written consent of each Seller and WXI/McN Realty;
(2) by WXI/McN Realty, on the one hand, or any Seller, on the other
hand:
(a) if, upon a vote at a duly held limited partner meeting or any
adjournment of the limited partner meeting for that McNeil Partnership,
the requisite approval of the limited partners of that McNeil
Partnership of the merger proposal has not been obtained;
(b) with respect to a McNeil Partnership if any judgment,
injunction, order, decree or action by any governmental entity of
competent authority preventing the consummation of the transaction with
respect to that McNeil Partnership has become final and nonappealable;
or
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(c) in respect of Fairfax only, following the date which is the
tenth business day after the date of the mailing of this Proxy
Statement, if the requisite approval of the limited partners of Fairfax
of the replacement of general partner and the appointment of the
applicable WXI/McN Realty subsidiary as the general partner of Fairfax
described under "--The contributions--Replacement of general partner"
and the other transactions contemplated by the Master Agreement with
respect to Fairfax has not been obtained.
(3) by any Seller:
(a) if prior to the approval of the merger proposal by the limited
partners of that McNeil Partnership the general partner of that McNeil
Partnership, in the exercise of its good faith judgment as to its
fiduciary duties to the limited partners of that McNeil Partnership
and, as advised by counsel, determines that it is required to terminate
the Master Agreement with respect to that McNeil Partnership because a
superior acquisition proposal (as defined in "--Material covenants--No
solicitation by Sellers") has been made with respect to that McNeil
Partnership (see "--Material covenants--No solicitation by Sellers");
(b) in respect of any one or more of the Pre-Closing Removable
McNeil Partnerships which WXI/McN Realty has not designated in writing
as an Included Partnership by a certain date (see "--Conditions to
closing--Removal notices"); or
(c) in respect of any one or more of the Removable McNeil
Partnerships with respect to which WXI/McN Realty has not designated in
writing as Included Partnership Matters all of the matters described in
the Matter Removal Notice by a certain date (see "--Conditions to
closing--Removal notices"); or
(4) by WXI/McN Realty with respect to a McNeil Partnership, if the
general partner of that McNeil Partnership:
(a) has failed to recommend to the limited partners of that McNeil
Partnership the approval of the merger proposal, in connection with an
acquisition proposal by a third party in respect of that McNeil
Partnership;
(b) has withdrawn or modified in a manner adverse to WXI/McN Realty
its approval or recommendation that the limited partners of that McNeil
Partnership approve the merger proposal, in connection with an
acquisition proposal for that McNeil Partnership; or
(c) has approved or recommended an acquisition proposal for that
McNeil Partnership.
Effect of termination of the Master Agreement
If the Master Agreement is validly terminated in its entirety by any Seller
or WXI/McN Realty as described above under "--Termination of the Master
Agreement--Right to terminate the Master Agreement," or is validly terminated
by any Seller or WXI/McN Realty with respect to one or more McNeil Partnerships
as described above under "--Termination of the Master Agreement--Right to
terminate the Master Agreement with respect to one or more McNeil
Partnerships," the Master Agreement will become null and void and of no further
force or effect, in its entirety if it is terminated in its entirety or with
respect to one or more McNeil Partnerships if it is terminated with respect to
those McNeil Partnerships, as the case may be, and none of Sellers or WXI/McN
Realty, or any of their respective subsidiaries, or any of their respective
partners, stockholders, members, equity holders, directors, officers,
employees, affiliates, agents, representatives, successors or assigns will have
any liability or obligation under the Master Agreement except that:
. in the case of termination of the Master Agreement in its entirety, any
obligations of the parties to the Master Agreement relating to the
following will survive termination of the Master Agreement:
confidentiality; fees and expenses; effect of termination; nonsurvival of
representations, warranties and covenants; no recourse of WXI/McN Realty
and related parties to parties other than Sellers; payment of
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break-up fee; reimbursement of expenses; and the provisions set forth in
Article XI of the Master Agreement;
. one or more of Sellers or WXI/McN Realty may have liability to one or
more of Sellers or WXI/McN Realty if the basis of the termination is a
willful, material breach by one or more of Sellers or WXI/McN Realty of
one or more of the provisions of the Master Agreement; and
. in the case of termination of the Master Agreement in respect of a McNeil
Partnership, the liabilities and obligations of the parties to the Master
Agreement with respect to the other McNeil Partnerships will remain in
effect, and any obligations of the parties to the Master Agreement
relating to the following will survive termination of the Master
Agreement in respect of that McNeil Partnership: confidentiality;
correction and satisfaction of specified items relating to title; public
announcements; fees and expenses; binding effect of Stanger allocations;
effect of termination; nonsurvival of representations, warranties and
covenants; no recourse of WXI/McN Realty and related parties to parties
other than Sellers; payment of break-up fee; reimbursement of expenses;
and the provisions set forth in Article XI of the Master Agreement.
The confidentiality agreement entered into as of March 25, 1999 among
Whitehall, McNeil Partners and McREMI will continue in effect notwithstanding
the termination of the Master Agreement in its entirety or the termination of
the Master Agreement with respect to one or more McNeil Partnerships. WXI/McN
Realty's obligation to hold any nonpublic information relating to Sellers or
the McNeil Partnerships' subsidiaries or any of their respective businesses or
properties in confidence to the extent required by, and in accordance with, the
provisions of the confidentiality agreement, and the obligation of WXI/McN
Realty to cause its subsidiaries and affiliates and each of its and their
officers, employees, accountants, counsel, financial advisors and other
representatives to do the same, will survive the termination of the Master
Agreement in its entirety and the termination of the Master Agreement with
respect to one or more McNeil Partnerships. Notwithstanding the foregoing,
immediately following the closing of the transaction, the rights and
obligations under the confidentiality agreement of the parties to the
confidentiality agreement will terminate with respect to any participating
McNeil Partnership and the subsidiaries of that participating McNeil
Partnership.
WXI/McN Realty has agreed in the Master Agreement that following termination
of the Master Agreement in its entirety or with respect to one or more McNeil
Partnerships, as the case may be, it will not, and will cause its affiliates
not to, oppose or seek to prevent or frustrate any transaction or agreement
that Sellers or any of their subsidiaries may propose or enter into relating to
any business combination between Sellers and any third party if the Master
Agreement is terminated in its entirety, or between Sellers and any third party
in respect of one or more excluded McNeil Partnerships if the Master Agreement
is terminated in respect of those McNeil Partnerships. Notwithstanding the
foregoing, if Goldman, Sachs & Co. and its affiliates, including, without
limitation, Whitehall and WXI/McN Realty's managing member, (a) are not using
all or any portion of the material provided by the Sellers to Whitehall in
connection with Whitehall's evaluation of the transaction in violation of the
confidentiality agreement, and (b) are not using all or any portion of the
material provided by the Sellers to Whitehall in connection with Whitehall's
evaluation of the transaction in any of the activities specified below and (c)
are not in violation of their obligation to hold any nonpublic information
relating to Sellers or the McNeil Partnerships' subsidiaries or any of their
respective businesses or properties in confidence to the extent required by,
and in accordance with, the provisions of the confidentiality agreement, and to
cause its subsidiaries and affiliates and each of its and their officers,
employees, accountants, counsel, financial advisors and other representatives
to do the same, then nothing in the Master Agreement will in any manner apply
to or restrict the activities of Goldman, Sachs & Co. and its affiliates from
engaging in asset management, brokerage, investment advisory, investment
banking, financial advisory, anti-raid advisory, financing, trading, market
making, arbitrage and other similar activities conducted in the ordinary course
of its and its affiliates' business.
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<PAGE>
Fees and expenses
General
Except as described in the following paragraph and in "--Aggregate
consideration--Prepayment and assumption of mortgage debt," "--The mergers--
Exchange of certificates," "--Fees and expenses--Partnership break-up fee" and
"--Fees and expenses--Reimbursement of expenses," whether or not the
transaction is consummated, all costs and expenses incurred in connection with
the Master Agreement and the other transaction documents including, without
limitation, the fees, expenses and disbursements of counsel, financial advisors
and accountants, will be paid by the party incurring those costs and expenses.
See "Special Factors--Fees and expenses relating to the transaction."
Without limiting the generality of the foregoing paragraph, whether or not
the transaction is consummated, McREMI has agreed that it will be liable for
the transaction expenses incurred by McREMI on behalf of itself and not on
behalf of the McNeil Partnerships or the McNeil Partnerships' subsidiaries.
Whether or not the transaction is consummated, each McNeil Partnership has
agreed that it will be liable for the amount of transaction expenses actually
incurred by it on behalf of itself and its subsidiaries and an amount equal to
that McNeil Partnership's ratable share of transaction expenses incurred by
Sellers that are not specifically identifiable to individual McNeil
Partnerships based on the relative percentage set forth in the column
"Partnership Percentage" in Table 2 opposite the name of that McNeil
Partnership. Notwithstanding the foregoing, a McNeil Partnership which becomes
an excluded McNeil Partnership as described in paragraph (2)(a) in "--
Termination of the Master Agreement--Right to terminate the Master Agreement
with respect to one or more McNeil Partnerships" will not be liable for
transaction expenses incurred by Sellers following the date on which that
McNeil Partnership became an excluded McNeil Partnership as described in such
paragraph (2)(a), and the participating McNeil Partnerships will share those
transaction expenses ratably, based on the relative percentages set forth in
the column "Partnership Percentage" in Table 2 opposite the name of the
participating McNeil Partnerships.
Partnership break-up fee
In addition, in some circumstances, WXI/McN Realty will receive a break-up
fee, calculated on a partnership by partnership basis, up to an aggregate
maximum of $18.0 million, if the Master Agreement is terminated with respect to
one or more McNeil Partnerships. In the case of termination of the Master
Agreement in these circumstances, each McNeil Partnership with respect to which
the Master Agreement has been terminated will be severally, but not jointly,
liable for payment to WXI/McN Realty of its respective partnership break-up
fee. These circumstances are as follows:
(1) a Seller terminates the Master Agreement with respect to that McNeil
Partnership because prior to the approval of the merger proposal by the
limited partners of that McNeil Partnership, the general partner of that
McNeil Partnership, in the exercise of its good faith judgment as to its
fiduciary duties to the limited partners of that McNeil Partnership and, as
advised by counsel, determines that it is required to terminate the Master
Agreement with respect to that McNeil Partnership because a superior
acquisition proposal has been made with respect to that McNeil Partnership
(see paragraph 3(a) in "--Termination of the Master Agreement--Right to
terminate the Master Agreement with respect to one or more McNeil
Partnerships");
(2) WXI/McN Realty terminates the Master Agreement with respect to that
McNeil Partnership because the general partner of that McNeil Partnership:
. has failed to recommend to the limited partners of that McNeil
Partnership the approval of the merger proposal, in connection with
an acquisition proposal by a third party in respect of that McNeil
Partnership;
. has withdrawn or modified in a manner adverse to WXI/McN Realty its
approval or recommendation that the limited partners of that McNeil
Partnership approve the merger proposal, in connection with an
acquisition proposal for that McNeil Partnership; or
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<PAGE>
. has approved or recommended an acquisition proposal for that McNeil
Partnership (see paragraphs 4(a), (b) and (c) in "--Termination of
the Master Agreement--Right to terminate the Master Agreement with
respect to one or more McNeil Partnerships");
(3) if each of the following occurs:
. either (A) a person who is not an affiliate of WXI/McN Realty,
Whitehall or WXI/McN Realty's managing member consummates an
acquisition of more than 10% of the outstanding limited partner units
in that McNeil Partnership following the date of the Master Agreement
or (B) a person who is not an affiliate of WXI/McN Realty, WXI/McN
Realty's managing member or Whitehall makes an acquisition proposal
for that McNeil Partnership;
. WXI/McN Realty or any Seller terminates the Master Agreement with
respect to that McNeil Partnership because, upon a vote at a duly
held limited partner meeting or any adjournment of the limited
partner meeting for that McNeil Partnership, the requisite approval
of the limited partners of that McNeil Partnership of the merger
proposal has not been obtained (see paragraph 2(a) in "--Termination
of the Master Agreement--Right to terminate the Master Agreement with
respect to one or more McNeil Partnerships"); and
. that McNeil Partnership enters into a definitive agreement relating
to a higher acquisition proposal (as defined below) within six months
of that McNeil Partnership becoming an excluded McNeil Partnership;
or
(4) (A) the general partner of that McNeil Partnership as of the date of
the Master Agreement is replaced and (B) WXI/McN Realty or any Seller
terminates the Master Agreement with respect to that McNeil Partnership
because, upon a vote at a duly held limited partner meeting or any
adjournment of the limited partner meeting for that McNeil Partnership, the
requisite approval of the limited partners of that McNeil Partnership of
the merger proposal has not been obtained (see paragraph 2(a) in "--
Termination of the Master Agreement--Right to terminate the Master
Agreement with respect to one or more McNeil Partnerships").
No partnership break-up fee will be payable by any particular McNeil
Partnership merely because the requisite approval of the limited partners of
that McNeil Partnership has not been obtained, unless the additional
circumstances set forth in paragraph (1), (2), (3) or (4) above also exist.
As used in this Proxy Statement "higher acquisition proposal" means an
acquisition proposal made by one or more persons which are not affiliates of
WXI/McN Realty, Whitehall or WXI/McN Realty's managing member with respect to a
McNeil Partnership, which WXI/McN Realty and the general partner of that McNeil
Partnership jointly determine to be more favorable to the limited partners of
that McNeil Partnership from a financial point of view than the merger
proposal. Notwithstanding the foregoing, the payment of the partnership break-
up fee by such person(s) will not be taken into consideration in determining
whether or not that acquisition proposal is more favorable to the limited
partners of that McNeil Partnership from a financial point of view than the
merger proposal. If WXI/McN Realty and the general partner of the applicable
McNeil Partnership are unable to reach agreement as to whether or not that
acquisition proposal is more favorable to the limited partners of that McNeil
Partnership from a financial point of view than the merger proposal within
three business days of that McNeil Partnership's execution of definitive
documents relating to that acquisition proposal, then WXI/McN Realty and that
McNeil Partnership agree to submit their dispute to the financial advisor,
selected as described in the following sentence, whose determination will be
final and binding upon all of the parties to the Master Agreement. In the case
of a higher acquisition proposal in which the consideration offered to the
limited partners is solely cash consideration, the financial advisor will be
Stanger & Co., and Stanger & Co. will make its determination within ten
business days. In the case of a higher acquisition proposal in which the
consideration offered to the limited partners involves non-cash consideration,
the financial advisor will be an investment bank which has been selected by the
mutual agreement of the parties, or failing that, an investment bank which has
been selected jointly by an investment bank selected by McNeil Partners and an
investment bank selected by WXI/McN Realty.
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<PAGE>
In the case of termination of the Master Agreement as set forth in
paragraphs (1) through (4) above, each McNeil Partnership with respect to which
the Master Agreement has been terminated will be severally, but not jointly,
liable for payment to WXI/McN Realty of a fee equal to the partnership break-up
fee set forth opposite the name of that excluded McNeil Partnership in the
table below:
<TABLE>
<CAPTION>
Partnership
break-
Partnership up fee
----------- -----------
<S> <C>
Fund IX................. $ 2,775,600
Fund X.................. 2,054,034
Fund XI................. 2,128,896
Fund XII................ 1,683,126
Fund XIV................ 1,225,314
Fund XV................. 1,202,148
Fund XX................. 179,226
Fund XXI................ 575,226
Fund XXII............... 388,926
Fund XXIII.............. 192,420
</TABLE>
<TABLE>
<CAPTION>
Partnership
break-
Partnership up fee
----------- -----------
<S> <C>
Fund XXIV................. $ 455,472
Fund XXV.................. 1,400,540
Fund XXVI................. 1,251,306
Fund XXVII................ 1,566,648
Hearth Hollow............. 109,009
Midwest Properties........ 353,611
Regency North............. 150,552
Fairfax................... 116,119
Summerhill................ 191,827
-----------
Total................... $18,000,000
</TABLE>
The partnership break-up fees set forth in the foregoing table were
calculated based on the percentage set forth in the column "Partnership
Percentage" in Table 2 opposite the name of each McNeil Partnership. Each
excluded McNeil Partnership will be severally liable for payment of its
partnership break-up fee as set forth in the foregoing table and no other party
to the Master Agreement will have any liability to WXI/McN Realty or to an
excluded McNeil Partnership for the partnership break-up fee of that excluded
McNeil Partnership.
Any payment of a partnership break-up fee required to be made as a result of
termination of the Master Agreement pursuant to paragraph (1) or (2) above will
be made not later than the earlier of (a) 90 days after the date of the
termination of the Master Agreement pursuant to paragraph (1) or (2) above and
(b) three business days after the date on which a definitive agreement relating
to an acquisition proposal is entered into. Any payment of a partnership break-
up fee required to be made pursuant to paragraph (1) or (2) above will accrue
interest at 10% per annum, compounded annually, from the date of the
termination of the Master Agreement pursuant to paragraph (1) or (2) above, and
no distribution or other payment will be made to the general partner or any
limited partner of that excluded McNeil Partnership until the partnership
break-up fee and the related accrued interest is paid in full.
Any payment of a partnership break-up fee required to be made as a result of
termination of the Master Agreement pursuant to paragraph (3) above will be
made not later than the earlier of (a) 90 days after the date of the
termination of the Master Agreement pursuant to paragraph (3) above and (b)
three business days after the date on which a definitive agreement relating to
a higher acquisition proposal is entered into. Any payment required to be made
pursuant to paragraph (4) above will be made not later than three business days
after the date of the termination of the Master Agreement in respect of that
excluded McNeil Partnership pursuant to paragraph (4) above. Any payment of the
partnership break-up fee required to be made pursuant to paragraph (3) or (4)
above will accrue interest at 10% per annum, compounded annually, from the date
that payment is due, and no distribution or other payment will be made to the
general partner or any limited partner of that excluded McNeil Partnership
until the partnership break-up fee and the related accrued interest is paid in
full.
The payment of the partnership break-up fee with respect to an excluded
McNeil Partnership is compensation and liquidated damages for any loss suffered
by WXI/McN Realty or any one or more of its affiliates or subsidiaries as a
result of the failure of the transaction with respect to that excluded McNeil
Partnership to be consummated and to avoid the difficulty of determining
damages under the circumstances, and will be the sole and exclusive remedy of
WXI/McN Realty, its affiliates and subsidiaries against Sellers and the McNeil
Partnerships' subsidiaries and their respective subsidiaries, partners,
stockholders, members, equity holders, directors, officers, employees,
affiliates, agents, representatives, successors and assigns with respect to the
occurrence giving rise to that payment.
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<PAGE>
Any receipt by WXI/McN Realty of any one or more partnership break-up fees
will offset any obligation of Sellers to pay WXI/McN Realty's expenses as
described below in "--Fees and expenses--Reimbursement of expenses--WXI/McN
Realty's reimbursable expenses."
Notwithstanding the foregoing paragraphs, WXI/McN Realty will not be
entitled to receive any partnership break-up fee if at the time any party to
the Master Agreement terminates the rights and obligations under the Master
Agreement in respect of one or more excluded McNeil Partnerships as described
in "--Termination of the Master Agreement--Right to terminate the Master
Agreement with respect to one or more McNeil Partnerships," WXI/McN Realty had
breached any of its representations, warranties, covenants, obligations or
agreements set forth in the Master Agreement and, as a result, the conditions
set forth in paragraph (1) or (2) in "--Conditions to closing--Conditions to
Sellers' obligations to close" cannot be satisfied by June 24, 2000.
Reimbursement of expenses
WXI/McN Realty's reimbursable expenses
Sellers are required to pay WXI/McN Realty's and its affiliates' actual,
reasonable out-of-pocket expenses incurred in connection with the transaction
if:
(1) (a) notwithstanding the satisfaction or waiver of all of the
conditions set forth in "--Conditions to closing--Conditions to each
party's obligations to close" and "--Conditions to closing--Conditions to
Sellers' obligations to close," Sellers, exclusive of any excluded McNeil
Partnership, fail to consummate the transaction prior to June 24, 2000; or
(b) Sellers have failed to use their reasonable best efforts to
satisfy the conditions set forth in "--Conditions to closing--
Conditions to each party's obligations to close" and "--Conditions to
closing--Conditions to Sellers' obligations to close;" and
(2) WXI/McN Realty terminates the Master Agreement because:
(a) the closing has not occurred on or before June 24, 2000 (see
paragraph (2)(b) in "--Termination of the Master Agreement--Right to
terminate the Master Agreement"); or
(b) a Seller:
. materially breaches any of its representations, warranties,
covenants, obligations or agreements set forth in the Master
Agreement,
. that breach cannot be or is not remedied within 30 days after
written notice of that breach is given by WXI/McN Realty, and
. the conditions set forth in paragraphs (1), (2) and (3) in "--
Conditions to closing--Conditions to WXI/McN Realty's
obligations to close" cannot be satisfied by June 24, 2000
(see paragraph (4) in "--Termination of the Master Agreement--
Right to terminate the Master Agreement").
Sellers' obligation to pay WXI/McN Realty's expenses is limited to an amount
equal to the lesser of (a) $1,500,000 and (b) WXI/McN Realty's and its
affiliates' actual, reasonable out-of-pocket expenses incurred in connection
with the transaction, including, without limitation, all attorneys',
accountants' and investment bankers' fees and expenses. Sellers will be jointly
and severally liable for the payment of those expenses.
Notwithstanding the forgoing, Sellers will not be obligated to pay WXI/McN
Realty's expenses if, at the time of termination of the Master Agreement by
WXI/McN Realty as described in paragraph (2) above, Sellers would have been
entitled to terminate the Master Agreement because WXI/McN materially breached
one or more of its representations, warranties, covenants, obligations or
agreements set forth in the Master Agreement, that breach cannot be or is not
remedied within 30 days after written notice of that breach is given by any
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<PAGE>
Seller, and the conditions set forth in paragraphs (1) and (2) in "--Conditions
to closing--Conditions to Sellers' obligations to close" cannot be satisfied by
June 24, 2000 (see paragraph (3) in "--Termination of the Master Agreement--
Right to terminate the Master Agreement"). Any payment of WXI/McN Realty's
expenses required to be made by Sellers is required to be made not later than
90 days after Sellers have received reasonably detailed documents from WXI/McN
Realty evidencing those costs and expenses.
Notwithstanding the foregoing paragraphs, any receipt by WXI/McN Realty of
any one or more partnership break-up fees will offset any obligation of Sellers
to pay WXI/McN Realty's expenses.
Notwithstanding the foregoing paragraphs, WXI/McN Realty will not be
entitled to receive any reimbursement of expenses by Sellers if at the time any
party to the Master Agreement terminates the rights and obligations under the
Master Agreement in respect of one or more excluded McNeil Partnerships as
described in "--Termination of the Master Agreement--Right to terminate the
Master Agreement with respect to one or more McNeil Partnerships," WXI/McN
Realty had breached any of its representations, warranties, covenants,
obligations or agreements set forth in the Master Agreement and, as a result,
the conditions set forth in paragraph (1) or (2) under "--Conditions to
closing--Conditions to Sellers' obligations to close" cannot be satisfied by
June 24, 2000.
Sellers' reimbursable expenses
WXI/McN Realty is required to pay Sellers' actual, reasonable out-of-pocket
expenses incurred in connection with the transaction if:
(1) (a) notwithstanding the satisfaction or waiver of all of the
conditions set forth in "--Conditions to closing--Conditions to each
party's obligations to close" and "--Conditions to closing--Conditions to
WXI/McN Realty's obligations to close," WXI/McN Realty fails to consummate
the transaction prior to June 24, 2000; or
(b) WXI/McN Realty has failed to use its reasonable best efforts to
satisfy the conditions set forth in "--Conditions to closing--
Conditions to each party's obligations to close" and "--Conditions to
closing--Conditions to WXI/McN Realty's obligations to close;" and
(2) Sellers terminate the Master Agreement because:
(a) the closing has not occurred on or before June 24, 2000 (see
paragraph (2)(b) in "--Termination of the Master Agreement--Right to
terminate the Master Agreement"); or
(b) WXI/McN Realty:
. materially breaches any of its representations, warranties,
covenants, obligations or agreements set forth in the Master
Agreement,
. that breach cannot be or is not remedied within 30 days after
written notice of that breach is given by any Seller, and
. the conditions set forth in paragraphs (1) and (2) in "--
Conditions to closing--Conditions to Sellers' obligations to
close" cannot be satisfied by June 24, 2000 (see paragraph (3)
in "--Termination of the Master Agreement--Right to terminate
the Master Agreement").
WXI/McN Realty's obligation to pay Sellers' expenses is limited to an amount
equal to the lesser of (a) $1,500,000 and (b) Sellers' actual, reasonable out-
of-pocket expenses incurred in connection with the transaction, including,
without limitation, all attorneys', accountants' and investment bankers' fees
and expenses.
Notwithstanding the forgoing, WXI/McN Realty will not be obligated to pay
Sellers' expenses if, at the time of termination of the Master Agreement by
Sellers as described in paragraph (2) above, WXI/McN Realty
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would have been entitled to terminate the Master Agreement because a Seller
materially breached one or more of its representations, warranties, covenants,
obligations or agreements set forth in the Master Agreement, that breach cannot
be or is not remedied within 30 days after written notice of that breach is
given by WXI/McN Realty, and the conditions set forth in paragraphs (1), (2)
and (3) in "--Conditions to closing--Conditions to WXI/McN Realty's obligations
to close" cannot be satisfied by June 24, 2000 (see paragraph (4) in "--
Termination of the Master Agreement--Right to terminate the Master Agreement").
Any payment of Sellers' expenses required to be made by WXI/McN Realty is
required to be made not later than 90 days after WXI/McN Realty has received
reasonably detailed documents from Sellers evidencing those costs and expenses.
Amendments, modification, waiver; reservation of right to revise the
transaction
The Master Agreement may be amended only by an instrument or instruments in
writing signed (i) by a majority of the number of participating McNeil
Partnerships as of the date of the amendment and (ii) by each of the other
parties hereto (other than the McNeil Partnerships); provided, however, that no
amendment to the Master Agreement which materially and adversely affects the
rights and obligations of a participating McNeil Partnership under the Master
Agreement shall be effective against that participating McNeil Partnership
unless that amendment is signed by that participating McNeil Partnership. The
Master Agreement may be amended as described in the immediately preceding
sentence at any time (a) before or after any requisite approvals of the
respective partners, limited partners or stockholders, as the case may be, of
each of the parties are obtained and (b) prior to the filing of any of the
merger certificates. However, after the requisite approvals of the limited
partners of any McNeil Partnership are obtained, no amendment, modification or
supplement shall be made which by law requires the further approval of those
limited partners without obtaining that further approval.
At any time prior to the effective time of the mergers, the parties to the
Master Agreement may in writing (a) extend the time for the performance of any
of the obligations or other acts of any other party, (b) waive any inaccuracies
in the representations and warranties of any other party, or (c) waive
compliance with any of the agreements or conditions of any other party, in each
case, contained in the Master Agreement, the other transaction documents or in
any document delivered pursuant to the Master Agreement or the other
transaction documents. Any agreement on the part of a party to any extension or
waiver will be valid only if set forth in an instrument in writing signed on
behalf of that party. The failure of any party to the Master Agreement to
assert any of its rights under the Master Agreement or otherwise will not
constitute a waiver of those rights.
Sellers and WXI/McN Realty may agree in writing to change the method of
effecting the business combination between any one or more Sellers and WXI/McN
Realty, including to provide for different forms of merger. Each party to the
Master Agreement is required to cooperate in those efforts. However, no change
may (a) alter or change the amount or kind of consideration to be received by
limited partners or general partners of the participating McNeil Partnerships,
(b) adversely affect the proposed tax treatment to limited partners or general
partners of the participating McNeil Partnerships or (c) materially delay the
consummation of the mergers or the other transactions contemplated by the
Master Agreement.
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WXI/McN REALTY OPERATING AGREEMENT
This section of the Proxy Statement describes material provisions of the
WXI/McN Realty Operating Agreement. The description of the WXI/McN Realty
Operating Agreement contained in this Proxy Statement does not purport to be
complete and is qualified in its entirety by reference to the form of the
WXI/McN Realty Operating Agreement attached to this Proxy Statement as Appendix
B, and which is incorporated in this Proxy Statement by reference. Limited
partners of the Partnership are urged to read carefully the form of the WXI/McN
Realty Operating Agreement in its entirety.
The Master Agreement provides that at the effective time of the mergers,
McNeil Partners and WXI/McN Realty's managing member will enter into the
WXI/McN Realty Operating Agreement which will govern the relationship between
McNeil Partners and WXI/McN Realty's managing member following the effective
time of the mergers.
Membership interests
The WXI/McN Realty Operating Agreement provides for the issuance of five
classes of membership interests in WXI/McN Realty, depending on the amount of
financing obtained by WXI/McN Realty as of the closing and the amount of the
capital contributions made by McNeil Partners. Each class of membership
interests will entitle its holder to receive a specified percentage return on
its investment in WXI/McN Realty and to receive distributions of WXI/McN
Realty's net cash flow and net proceeds from capital transactions in the
priority set forth in the WXI/McN Realty Operating Agreement. Consequently,
McNeil Partners and the other McNeil Affiliates, through their ownership of
partnership interests in McNeil Partners, will have a significant interest in
WXI/McN Realty and will continue to have the opportunity to participate in and
to benefit from, up to a specific capped return on their investment, future
earnings growth and increases in the value of the participating McNeil
Partnerships and their properties, and any other assets acquired by WXI/McN
Realty and its subsidiaries.
The opportunity of the McNeil Affiliates to participate in any future
earnings growth of WXI/McN Realty is limited to the percentage return on
investment to which McNeil Partners is entitled. This percentage return is
limited to 14% or 15% per annum, depending on the amount of McNeil Partners'
initial capital contribution to WXI/McN Realty. WXI/McN Realty's managing
member is entitled to receive all returns in excess of the stated return which
the members are entitled to receive under the WXI/McN Realty Operating
Agreement. See "--Distributions to members of WXI/McN Realty."
A summary of the five classes of membership interests in WXI/McN Realty,
including the percentage returns on investment to which the holders of those
interests are entitled, is set forth below. In calculating the returns on
investment, the amount of the investment will be reduced by the sum of all
distributions of net cash flow and net proceeds from capital transactions made
pursuant to the WXI/McN Realty Operating Agreement to the holders of the class
of interests corresponding to that investment.
McNeil Class A Interests
The McNeil Class A Interests will be issued in consideration for the McNeil
Class A Investment. The McNeil Class A Investment is the portion of McNeil
Partners' initial capital contribution equal to the greater of: (1) the
aggregate consideration allocated by Stanger & Co. to the general partner
interests in the participating McNeil Partnerships, the limited partner
interests in the Affiliated McNeil Partnerships, the assets of McNeil Partners
related to the participating McNeil Partnership and certain assets of McREMI
contributed to WXI/McN Realty and its subsidiaries and (2) the Minimum
Investment. "Minimum Investment" means the product determined by multiplying
$60 million by the sum of the percentages set forth in the column "Partnership
Percentage" in Table 2 opposite the name of each participating McNeil
Partnership. See "Special Factors--Interests of certain persons in matters to
be acted upon; conflicts of interest--Equity interest of McNeil Partners in
WXI/McN Realty."
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The rate of return on the McNeil Class A Investment is equal to 14% per
annum, compounded annually, if McNeil Partners' initial capital contribution is
less than the $70 Million Threshold (as defined below). If McNeil Partners'
initial capital contribution is equal to or greater than the $70 Million
Threshold, the rate of return on the McNeil Class A Investment is 15% per
annum, compounded annually. The "$70 Million Threshold" means the product
determined by multiplying $70 million by the sum of the percentages set forth
in the column "Partnership Percentage" in Table 2 opposite the name of each
participating McNeil Partnership.
McNeil Class B Interests
The McNeil Class B Interests will be issued in consideration for the McNeil
Class B Investment. The McNeil Class B Investment is the sum of (1) the portion
of McNeil Partners' initial capital contribution, if any, that was not included
in the McNeil Class A Investment or the McNeil Class C Investment (as described
below) and (2) additional capital contributions made by McNeil Partners. McNeil
Partners does not have the right to make additional capital contributions to
WXI/McN Realty except in some limited circumstances.
The rate of return on the McNeil Class B Investment is the same as the rate
of return on the McNeil Class A Investment.
McNeil Class C Interests
The McNeil Class C Interests will be issued in consideration for the McNeil
Class C Investment. The McNeil Class C Investment is the portion of McNeil
Partners' initial capital contribution that is in excess of the $70 Million
Threshold. Notwithstanding the foregoing, McNeil Partners will receive no
McNeil Class C Interests unless McNeil Partners' initial capital contribution
equals or exceeds the product determined by multiplying $75 million by the sum
of the percentages set forth in the column "Partnership Percentage" in Table 2
opposite the name of each participating McNeil Partnership.
The rate of return on the McNeil Class C Investment is 13% per annum,
compounded annually.
Whitehall Class A Interests
The Whitehall Class A Interests will be issued in consideration for the
Whitehall Class A Investment. The Whitehall Class A Investment is the sum of
(1) the portion of Whitehall's initial capital contribution that was not
included in the Whitehall Class B Investment and (2) the portion of any
additional capital contribution made by Whitehall that was not included in the
Whitehall Class B Investment (as described below).
The rate of return on the Whitehall Class A Investment is the same as the
rate of return on the McNeil Class A Investment and the McNeil Class B
Investment.
Whitehall Class B Interests
The Whitehall Class B Interests will be issued in consideration for the
Whitehall Class B Investment. The Whitehall Class B Investment is the portion
of Whitehall's capital contribution equal to the sum of (1) the portion of
Whitehall's initial capital contribution that, if treated as "preferred equity
financing" (as defined below), would cause the total debt to total value ratio
of WXI/McN Realty to equal 80% and (2) the portion of any additional capital
contribution to fund working capital expenses that if treated as preferred
equity financing would cause the total debt to total value ratio of WXI/McN
Realty with respect to amounts used or incurred to funding working capital
expenses to equal 80%. The Whitehall Class B Investment is capped at
approximately $95 million, assuming all of the McNeil Partnerships participate
in the transaction. If one or more of the McNeil Partnerships do not
participate in the transaction, this cap will be reduced by the expected
preferred equity financing amounts that have been determined by WXI/McN Realty
with respect to each of the non-participating McNeil Partnerships.
The rate of return on the Whitehall Class B Investment is 14% per annum,
compounded annually.
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"Preferred equity financing" as used in this Proxy Statement means (1) debt
incurred by WXI/McN Realty or its subsidiaries secured by equity interests in
one or more of WXI/McN Realty's subsidiaries or (2) preferred equity issued by
any of WXI/McN Realty's subsidiaries, which by its terms has a final redemption
or maturity date.
Distributions to members of WXI/McN Realty
Each class of membership interests in WXI/McN Realty entitles its holder to
receive distributions of WXI/McN Realty's net cash flow and net proceeds from
capital transactions in the priority set forth in the WXI/McN Realty Operating
Agreement. These priorities are summarized in the table below:
<TABLE>
<S> <C> Distributions of Net Proceeds from
Capital Transactions
Distributions of Net Cash Flow
1. Repayment of senior indebtedness
1. Payment of the 14% return on the secured by any property that is
Whitehall Class B Interests. the subject of the capital
transaction and any other amounts
2. Payment of the 13% return on the required to be paid as a result
McNeil Class C Interests. of that capital transaction
pursuant to the terms of any loan
3. Payment of the 14% return on the agreement or preferred equity
McNeil Class B Interests and the financing document to which
McNeil Class A interests pro WXI/McN Realty or any of its
rata. subsidiaries is a party.
4. Payment of the portfolio advisory 2. Payment of any accrued and unpaid
fee to WXI/McN Realty's portfolio return on the Whitehall Class B
advisor. The portfolio advisory Interests.
fee is equal to 1% per annum of
the average monthly balance of 3. Payment of any accrued and unpaid
WXI/McN Realty's assets, return on the McNeil Class C
calculated as set forth in the Interests.
WXI/McN Realty Operating
Agreement. See "Special Factors-- 4. Payment of any accrued and unpaid
Plans for the McNeil Partnerships return on the McNeil Class A
that participate in the Interests and the McNeil Class B
transaction." Interests, pro rata.
5. Payment of the 14% return on the 5. Payment of any accrued and unpaid
Whitehall Class A Interests. portfolio advisory fee. The
portfolio advisory fee accrues at
6. To holders of the Whitehall Class a rate equal to 6% per annum,
B Interest to return the compounded annually.
Whitehall Class B Investment.
6. Payment of any accrued and unpaid
7. To holders of the McNeil Class C return on the Whitehall Class A
Interest to return the McNeil Interests.
Class C Investment (provided that
for the first five years 7. Return of the Whitehall Class B
following the closing, McNeil Investment.
Partners may elect to defer the
return of its McNeil Class C 8. Return of the McNeil Class C
Investment). Investment (provided that for the
first five years following the
8. If the amount of McNeil Partners' closing, McNeil Partners may
initial capital contribution is elect to defer the return of its
equal to or greater than the $70 McNeil Class C Investment).
Million Threshold, pro rata to
holders of the McNeil Class A 9. If the amount of McNeil Partners'
Interests, McNeil Class B initial capital contribution is
Interests and Whitehall Class A equal to or greater than the $70
Interests to achieve the 15% Million Threshold, payment of any
return. accrued and unpaid 15% return on
the McNeil Class A Interests,
9. Pro rata return of the McNeil McNeil Class B Interests and
Class A Investment, the McNeil Whitehall Class A Interests, pro
Class B Investment and the rata.
Whitehall Class A Investment, in
proportion to the balances of the 10. Return of the McNeil Class A
McNeil Class A Investment, the Investment, the McNeil Class B
McNeil Class B Investment and the Investment and the Whitehall
Whitehall Class A Investment. Class A Investment, pro rata.
10. 100% to the Whitehall Class A 11. 100% to the Whitehall Class A
Interests. Interests.
</TABLE>
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Supermajority voting rights
Under the terms of the WXI/McN Realty Operating Agreement, following the
effective time of the mergers, McNeil Partners will have the right to designate
two of the five members of WXI/McN Realty's board of managers. The remaining
three members will be designated by WXI/McN Realty's managing member. Action by
WXI/McN Realty's board of managers generally will require the affirmative vote
of three of the five managers. However, some actions of WXI/McN Realty's board
of managers will require a supermajority vote of four of the five managers.
Therefore, McNeil Partners will have a right to veto any transactions that
require a supermajority vote of WXI/McN Realty's board of managers. These
transactions include:
. material changes in WXI/McN Realty or its membership, including:
--amendment or repeal of the WXI/McN Realty Operating Agreement;
--a change in the nature of WXI/McN Realty's business;
--liquidation or dissolution of WXI/McN Realty except following
disposition of all of its assets;
--commencement of bankruptcy or a similar proceeding involving WXI/McN
Realty or a significant number of its subsidiaries or properties; and
--admission of a new member to WXI/McN Realty, transfer of interests in
WXI/McN Realty, or admission of new members, partners or stockholders
to a significant number of WXI/McN Realty's subsidiaries;
. transactions with potential negative tax effects on McNeil Partners on or
prior to the fifth anniversary of the closing date, including:
--mergers, consolidations, sales, non-ordinary course leases or
transfers of assets involving multifamily properties;
--transfers of membership interests in WXI/McN Realty or a change of
control of WXI/McN Realty; and
--repayment, refinancing or amendment of any loan agreement to the
extent it would result in McNeil Partners' share of "qualified
nonrecourse liabilities" being less than a minimum threshold; and
. certain transactions with affiliates of WXI/McN Realty, WXI/McN Realty's
managing member, Whitehall or Goldman, Sachs & Co. including:
--entering into or amending any transaction outside the ordinary course
with affiliates of WXI/McN Realty, other than retaining Goldman,
Sachs & Co. as exclusive financial advisor and Archon as portfolio
advisor or property manager;
--entering into or amending any non-market transaction outside the
ordinary course with affiliates of WXI/McN Realty; and
--entering into a transaction in which WXI/McN Realty's managing member
or Whitehall becomes the owner of an interest in any subsidiary of
WXI/McN Realty, other than as a result of its ownership of interests
in WXI/McN Realty or as a result of providing preferred equity
financing.
Management of WXI/McN Realty and its managing member
WXI/McN Realty is a Delaware limited liability company. The business and
affairs of WXI/McN Realty are controlled by WXI/MNL Real Estate, L.L.C., a
Delaware limited liability company which is currently the sole member of
WXI/McN Realty. After the effective time of the mergers, WXI/MNL Real Estate
and McNeil Partners will be the sole members of WXI/McN Realty, and WXI/MNL
Real Estate will be the sole managing member of WXI/McN Realty. Following the
effective time of the mergers, McNeil Partners will have rights to
representation on the board of managers of WXI/McN Realty and to approve some
transactions involving
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WXI/McN Realty or the participating McNeil Partnerships, in each case as
described above in "--Supermajority voting rights."
WXI/MNL Real Estate was formed in connection with the formation of WXI/McN
Realty. WXI/MNL Real Estate is owned 99% by Whitehall, a Delaware limited
partnership that was formed for the purpose of investing in debt and equity
interests in real estate assets and businesses. WH Advisors, L.L.C. XI, a
Delaware limited liability company ("WH Advisors"), acts as the sole general
partner of Whitehall. Goldman, Sachs & Co., a New York limited partnership, is
an investment banking firm and a member of the New York Stock Exchange, Inc.
and other national exchanges. Goldman, Sachs & Co. is the investment manager
for Whitehall. The Goldman Sachs Group, Inc. is a Delaware corporation and
holding company that, directly or indirectly through subsidiaries or affiliated
companies or both, is a leading investment banking organization and is a
successor-in-interest to The Goldman Sachs Group, L.P., which was merged with
and into The Goldman Sachs Group, Inc. on May 7, 1999. The Goldman Sachs Group,
Inc. owns directly and indirectly all of the partnership interests in Goldman,
Sachs & Co. and is the sole member of WH Advisors.
The principal business address of WXI/MNL Real Estate, L.L.C., Whitehall, WH
Advisors, Goldman, Sachs & Co. and The Goldman Sachs Group, Inc. is 85 Broad
Street, New York, New York 10004. The name, business address, present principal
occupation or employment and the citizenship of each manager and executive
officer of WXI/MNL Real Estate, L.L.C., each manager and executive officer of
WH Advisors and each director of The Goldman Sachs Group, Inc. is set forth in
"Controlling Persons, Directors and Executive Officers of McNeil Partners,
McNeil Investors, WXI/MNL Real Estate, L.L.C., WH Advisors, L.L.C. XI and The
Goldman Sachs Group, Inc."
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OTHER AGREEMENTS BETWEEN THE McNEIL AFFILIATES
AND AFFILIATES OF WXI/McN REALTY
Indemnification and pledge agreement
The Master Agreement provides that on the closing date of the transaction,
McNeil Partners and WXI/McN Realty's managing member will enter into an
Indemnification and Pledge Agreement. Under the Indemnification and Pledge
Agreement, McNeil Partners, and, under some circumstances, Robert A. McNeil,
has agreed to indemnify WXI/McN Realty's managing member and some of its
affiliates for all actual and out-of-pocket costs, expenses, judgments, fines,
losses, claims, damages and liabilities arising from certain matters. See
"Special Factors--Effects of the transaction--Benefits and detriments to the
McNeil Affiliates."
These matters include the following:
. claims made in derivative or class action lawsuits or both, other than
lawsuits relating to hazardous materials or any violation of any
environmental law, filed prior to the closing date of the transaction
against one or more of McREMI, the participating McNeil Partnerships and
their affiliates;
. any litigation challenging the fairness of the transaction or
challenging the fairness of the bidding process leading up to the
transaction;
. lawsuits, other than lawsuits relating to hazardous materials or any
violation of any environmental law, brought by persons who were limited
partners of a participating McNeil Partnership prior to the closing of
the transaction against that participating McNeil Partnership's general
partner, the subsidiary of WXI/McN Realty which replaced that general
partner or their affiliates for breach of fiduciary duty, usurping of
partnership opportunity or similar breach of care or loyalty claims,
which allege a disproportionate economic or personal benefit has accrued
to the McNeil Affiliates or their affiliates to the detriment of those
limited partners and which was not otherwise protected by the business
judgment rule (in other words, acts of self-dealing or acts contrary to
the best interests of the McNeil Partnership);
. any exercise of any statutory dissenters' rights or statutory rights of
appraisal by limited partners of the participating McNeil Partnerships
in connection with the mergers, to the extent that the aggregate amount
of actual and out-of-pocket costs, expenses, judgments, fines, losses,
claims, damages and liabilities exceeds the portion of the merger
consideration which the dissenting limited partner had the right to
receive and which was not paid to the dissenting limited partner;
. any obligations of McNeil Partners under any landlord estoppels
delivered by McNeil Partners to WXI/McN Realty to satisfy the condition
to closing requiring the delivery of commercial tenant estoppels (see
"The Master Agreement--Conditions to closing--Conditions to WXI/McN
Realty's obligations to close");
. any breach by McNeil Partners of its obligations to indemnify WXI/McN
Realty from obligations incurred by McNeil Partners or McNeil Investors
prior to the closing date of the transaction as an indemnitor under some
existing indemnification obligations and agreements relating to mortgage
debt on McNeil Partnership properties (see "The Master Agreement--
Material covenants--Replacement indemnification agreements"); and
. any payment required to be made by an affiliate of WXI/McN Realty's
managing member, as the indemnifying party, to other affiliates of
WXI/McN Realty, as the indemnified parties, which the affiliate of
WXI/McN Realty's managing member has agreed to indemnify for the same
matters for which McNeil Partners, and, under some circumstances, Robert
A. McNeil, has agreed to indemnify WXI/McN Realty's managing member.
To secure the payment of McNeil Partners' indemnification obligations
described above, McNeil Partners has agreed to pledge and grant a security
interest in its McNeil Class A Interests to WXI/McN Realty's managing member
for the benefit of the affiliates of WXI/McN Realty that are being indemnified
under the
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Indemnification and Pledge Agreement and under the indemnification agreement
between the affiliate of WXI/McN Realty's managing member and the other
affiliates of WXI/McN Realty described in the final bullet point above. See
"WXI/McN Realty Operating Agreement--Membership interests." The sole recourse
of WXI/McN Realty and each of the other indemnified parties against McNeil
Partners with respect to the indemnifiable matters is against the pledged
interests. If McNeil Partners' investment in WXI/McN Realty with respect to the
pledged interests decreases below a minimum threshold amount because of the
receipt of a distribution of capital from WXI/McN Realty with respect to the
pledged interests or because all of the pledged interests are "cashed out" or
exchanged for non-cash consideration, cash consideration or both pursuant to
the terms of the WXI/McN Realty Operating Agreement, McNeil Partners has agreed
to cause Robert A. McNeil to execute and deliver to WXI/McN Realty's managing
member a personal indemnity for the amount necessary to make up the difference
between that minimum threshold amount and the amount of the investment, taking
into account any such personal indemnities previously delivered by Robert A.
McNeil.
The indemnification obligations of McNeil Partners and Robert A. McNeil
described above will terminate on the earlier of:
. the later of the fifth anniversary of the closing date of the
transaction and the date of the final determination, after expiration of
all appeals, of all indemnified proceedings commenced prior to the fifth
anniversary of the closing date of the transaction and payment of all
indemnifying amounts with respect to those proceedings, and
. subject to the delivery by Robert A. McNeil of the personal indemnity
described above, the date on which all of the pledged interests are
"cashed out" or exchanged for non-cash consideration, cash consideration
or both pursuant to the terms of the WXI/McN Realty Operating Agreement.
Whitehall standstill agreement
On March 25, 1999, Whitehall, McNeil Partners and McREMI entered into a
confidentiality agreement. In the confidentiality agreement, Whitehall, its
affiliates and subsidiaries agreed that for a period until and including March
25, 2000, Whitehall, its affiliates and subsidiaries would not, without the
prior written consent of McNeil Partners, McREMI, Robert A. McNeil and their
affiliates, take certain actions with respect to McNeil Partners, McNeil
Investors, McREMI, McNeil Summerhill, Inc., the McNeil Partnerships or their
subsidiaries. To induce Sellers and Robert A. McNeil to enter into the Master
Agreement, on June 24, 1999, Whitehall agreed to an extension to December 31,
2000 of the standstill provision contained in the confidentiality agreement.
The agreement extending Whitehall's standstill provision contained in the
confidentiality agreement provides that for the period commencing on June 24,
1999 and ending on and including December 31, 2000, Whitehall, its affiliates
and subsidiaries will not, without the prior written consent of McNeil
Partners, take any of those actions prohibited by the standstill provision in
the confidentiality agreement, subject to limited exceptions.
The prohibited actions include, among others:
. acquiring, attempting to acquire or making an offer with respect to, or
a proposal to acquire, directly or indirectly, any securities or
property of Sellers or the McNeil Partnerships' subsidiaries, except as
expressly contemplated by the Master Agreement as a result of the
consummation of the transaction;
. proposing to enter into, directly or indirectly, any merger or business
combination involving any of Sellers or the McNeil Partnerships'
subsidiaries or the purchase, directly or indirectly, of any of the
assets of Sellers or the McNeil Partnerships' subsidiaries, except as
expressly contemplated by the Master Agreement as a result of the
consummation of the transaction;
. making or in any way participating, directly or indirectly, in any
"solicitation" of "proxies," as those terms are used in the SEC proxy
rules, to vote, or seek to advise or influence any person with respect
to the voting of any securities of any of Sellers or the McNeil
Partnerships' subsidiaries, except as contemplated by this Proxy
Statement;
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. forming, joining or otherwise participating in a "group," within the
meaning of Section 13(d)(3) of the Securities Exchange Act, with respect
to any voting securities of any of Sellers or the McNeil Partnerships'
subsidiaries;
. otherwise acting, alone or in concert with others, to seek to control or
influence the management or policies of Sellers or the McNeil
Partnerships' subsidiaries or the McNeil Investors board of directors,
except as expressly contemplated by the Master Agreement as a result of
the consummation of the transaction;
. disclosing any intention, plan or arrangement inconsistent with the
foregoing; or
. loaning money to, advising, assisting or encouraging any person in
connection with any of the actions described above.
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OTHER AGREEMENTS WITH RESPECT TO THE TRANSACTION
This section of the Proxy Statement describes some of the provisions of the
Icahn Voting and Standstill Agreement entered into among the McNeil
Partnerships, McNeil Partners, McNeil Investors, McREMI, Robert A. McNeil,
Carole J. McNeil, Carl C. Icahn, High River, Unicorn, Riverdale and Longacre.
See "Special Factors--Events subsequent to the execution of the Master
Agreement--Icahn Voting and Standstill Agreement." The description of the Icahn
Voting and Standstill Agreement contained in this Proxy Statement does not
purport to be complete and is qualified in its entirety by reference to the
Icahn Voting and Standstill Agreement which has been filed as an exhibit to the
Rule 13e-3 Transaction Statement on Schedule 13E-3 filed by the Partnership,
McNeil Partners, McNeil Investors, Robert A. McNeil, WXI/McN Realty, WXI/MNL
Real Estate and Whitehall in connection with the transaction. See "Where You
Can Find More Information."
Voting agreement of the Icahn parties
On December 7, 1999, in consideration of the execution and delivery of the
settlement agreement, Carl C. Icahn, High River, Unicorn, Riverdale and
Longacre (collectively referred to in this discussion as the "Icahn parties")
entered into the Icahn Voting and Standstill Agreement with the McNeil
Partnerships, McNeil Partners, McNeil Investors, McREMI, Robert A. McNeil and
Carole J. McNeil (collectively referred to in this discussion as the "McNeil
parties") with respect to the limited partner units beneficially owned by the
Icahn parties in the McNeil Partnerships. See "Special Factors--Events
subsequent to the execution of the Master Agreement" and "Related Security
Holder Matters--Principal holders of limited partner units."
Each of the Icahn parties has agreed to vote, at any meeting of the limited
partners of any McNeil Partnership or in connection with any written consent of
the limited partners of that McNeil Partnership, all of the limited partner
units in that McNeil Partnership that are held of record by that Icahn party as
follows:
. for the merger proposal, the adjournment proposal and any other
transactions contemplated by the Master Agreement and the other
transaction documents which require approval of the limited partners of
that McNeil Partnership;
. against any acquisition proposal (as defined in "The Master Agreement--No
solicitation by Sellers"); and
. against any verbal or written agreement that would impede, frustrate,
prevent or nullify the Icahn Voting Agreement, the settlement agreement
or the Master Agreement, that would result in any breach of any covenant,
representation or warranty or any other obligation or agreement of
Sellers under the Master Agreement, or would result in any of the
conditions to closing set forth in the Master Agreement not being
satisfied. See "The Master Agreement."
In addition, in the case of limited partner units in Fund XXVII beneficially
owned but not held of record by the Icahn parties, each of the Icahn parties
has agreed to direct the record holder of those limited partner units to vote
those limited partner units in accordance with the three bullet points above.
Grant of irrevocable proxy by the Icahn parties
Each of the Icahn parties also has irrevocably granted to, and has
appointed, Robert A. McNeil, Ron K. Taylor and Barbara Smith its proxy and
attorney-in-fact to vote all of the limited partner units beneficially owned by
that Icahn party, its affiliates and subsidiaries in any of the McNeil
Partnerships in accordance with the three bullet points set forth under "--
Voting agreement of the Icahn parties" above.
In the case of limited partner units in Fund XXVII beneficially owned but
not held of record by the Icahn parties, the Icahn parties have not granted a
proxy with respect to those limited partner units, but instead each of the
Icahn parties has agreed to direct the record holder of those limited partner
units to vote those limited partner units in accordance with the three bullet
points set forth under "--Voting agreement of the Icahn parties" above.
202
<PAGE>
Waiver of dissenters' rights by the Icahn parties
Each of the Icahn parties also has irrevocably waived any and all rights it
may have to assert dissenters' rights, appraisal rights or other similar rights
with respect to the mergers and any other transactions contemplated by the
Master Agreement or the other transaction documents.
No solicitation by the Icahn parties; Icahn standstill
For the period commencing on the date of the Icahn Voting and Standstill
Agreement and ending on December 7, 2002, the third anniversary of the date of
the Icahn Voting and Standstill Agreement, each of the Icahn parties, its
affiliates and its subsidiaries have agreed to certain restrictions on their
actions with respect to the McNeil Partnerships and related parties. These
actions are described in more detail below.
For the period commencing on the date of the Icahn Voting and Standstill
Agreement and ending on December 7, 2002, each of the Icahn parties has agreed
that it, its affiliates and subsidiaries will (and has agreed to cause its and
its affiliates' and subsidiaries' officers, directors, partners, members,
equity holders, controlling persons, employees, representatives and agents,
including, but not limited to, investment bankers, attorneys and accountants
who are acting as agents or representatives of any such Icahn party, affiliate
or subsidiary, to):
. not directly or indirectly encourage, solicit, participate in or initiate
discussions or negotiations with, or provide any information to, any
person (other than the McNeil parties or any of their representatives)
concerning any acquisition proposal (as defined in "The Master
Agreement--No solicitation by Sellers"); and
. immediately cease any existing activities, discussions or negotiations
with any persons conducted prior to the date of execution of the Icahn
Voting and Standstill Agreement with respect to any acquisition proposal.
In addition, for the period commencing on the date of the Icahn Voting and
Standstill Agreement and ending on December 7, 2002, each of the Icahn parties
has agreed that neither it nor any of its affiliates or subsidiaries will,
without the prior written consent of McNeil Partners, take any of the following
actions:
. in any manner acquire, attempt to acquire, make an offer or seek to make
an offer with respect to, or a proposal to acquire, directly or
indirectly, any securities or property of Sellers or the McNeil
Partnerships' subsidiaries;
. propose to enter into, directly or indirectly, any merger or business
combination involving any of Sellers or the McNeil Partnerships'
subsidiaries or to purchase, directly or indirectly, of any of the assets
of Sellers or the McNeil Partnerships' subsidiaries;
. make or in any way participate, directly or indirectly, in any
"solicitation" of "proxies," as those terms are used in the SEC proxy
rules, to vote or seek to advise or influence any person with respect to
the voting of any securities of any of Sellers or the McNeil
Partnerships' subsidiaries;
. form, join or otherwise participate in a "group," within the meaning of
Section 13(d)(3) of the Securities Exchange Act, with respect to any
voting securities of any of Sellers or the McNeil Partnerships'
subsidiaries;
. otherwise act, alone or in concert with others, to seek to control or
influence the management or policies of Sellers or the McNeil
Partnerships' subsidiaries or the McNeil Investors board of directors;
. loan money to, advise, assist or encourage any person in connection with
any of the actions described above; or
. disclose any intention, plan or arrangement inconsistent with the
foregoing.
203
<PAGE>
Termination of the Icahn Voting and Standstill Agreement
Except as described below, the representations, warranties, covenants and
agreements contained in the Icahn Voting and Standstill Agreement remain in
full force and effect indefinitely.
The obligations of the Icahn parties described above under "--No
solicitation by the Icahn parties; Icahn standstill" automatically terminate on
December 7, 2002.
The rights and obligations of the parties to the Icahn Voting and Standstill
Agreement with respect to a particular McNeil Partnership automatically
terminate if that McNeil Partnership becomes an "excluded McNeil Partnership"
pursuant to the Master Agreement. See "The Master Agreement--Termination of the
Master Agreement--Right to terminate the Master Agreement with respect to one
or more McNeil Partnerships."
In the case of any of Funds IX, X, XI, XIV, XV, XX, XXIV, XXV, XXVI and
XXVII, the Icahn parties also have the right to terminate the rights and
obligations of the parties to the Icahn Voting and Standstill Agreement with
respect to that McNeil Partnership if the definitive proxy statement, any proxy
statement supplement or any press release announcing a reduction in the per
unit aggregate amount payable with respect to limited partner units in that
McNeil Partnership (or a reduction in the estimate of that per unit aggregate
amount) provides that the per unit aggregate amount payable (or estimated to be
payable) with respect to those limited partner units is less than the amount
set forth below opposite the name of that McNeil Partnership:
<TABLE>
<S> <C>
Fund IX $381.60
Fund X 210.60
Fund XI 198.90
Fund XIV 181.90
Fund XV 136.00
Fund XX 73.60
Fund XXIV 294.95
Fund XXV 0.45
Fund XXVI 0.243
Fund XXVII 9.486
</TABLE>
If at any time subsequent to the date of the definitive proxy statement of
any of the McNeil Partnerships listed above the per unit aggregate amount
payable with respect to limited partner units in that McNeil Partnership (or
the estimate of that per unit aggregate amount) is reduced to an amount less
than the amount set forth above opposite the name of that McNeil Partnership,
McNeil Partners has agreed in the Icahn Voting and Standstill Agreement to
issue a press release regarding that reduction.
The Icahn Voting and Standstill Agreement terminates in its entirety on the
date which is the earliest to occur of:
. June 30, 2000, if the closing of the transaction has not occurred on or
prior to June 30, 2000;
. the termination of the Master Agreement in its entirety (see "The Master
Agreement--Termination of the Master Agreement--Right to terminate the
Master Agreement in its entirety"); and
. the termination of the Master Agreement with respect to the last
participating McNeil Partnership (see "The Master Agreement--Termination
of the Master Agreement--Right to terminate the Master Agreement with
respect to one or more McNeil Partnerships").
204
<PAGE>
CONTROLLING PERSONS, DIRECTORS AND EXECUTIVE OFFICERS OF
McNEIL PARTNERS, McNEIL INVESTORS, WXI/MNL REAL ESTATE, L.L.C.,
WH ADVISORS, L.L.C. XI AND THE GOLDMAN SACHS GROUP, INC.
Because the transaction may be considered a "going private" transaction, the
Partnership, McNeil Partners, McNeil Investors and Robert A. McNeil have filed
a Schedule 13E-3 with the SEC with respect to the transaction. In addition,
under a potential interpretation of the rules governing "going private"
transactions, one or more of Whitehall, WXI/MNL Real Estate and WXI/McN Realty
may be deemed to be an affiliate of the Partnership. Therefore, each of
Whitehall, WXI/MNL Real Estate and WXI/McN Realty has been included as a filing
person on such Schedule 13E-3. See "Where You Can Find More Information." The
Schedule 13E-3 requires the persons filing the Schedule 13E-3 to furnish
additional information with respect to themselves and their controlling
persons, directors and executive officers. This information is set forth below
with respect to each of the filing persons.
Background of McNeil named persons
McNeil Partners and McNeil Investors
Information concerning the Partnership, McNeil Partners and McNeil Investors
is set forth in "Summary--Parties to the transaction." Information concerning
each director and executive officer of McNeil Investors, including that
person's name, position and present principal occupation or employment, is set
forth below. Neither the Partnership nor McNeil Partners has any directors or
executive officers. Unless otherwise indicated below, the business address of
each director and executive officer is 13760 Noel Road, Suite 600, LB70,
Dallas, Texas 75240, telephone number 1-800-576-7907. Each of the directors and
executive officers of McNeil Investors is a citizen of the United States.
<TABLE>
<CAPTION>
Name Business Address and Principal Occupation
---- -----------------------------------------
<C> <S>
Robert A. McNeil Robert A. McNeil has served as Co-Chairman of the board of directors
of McNeil Investors since November 1990. Mr. McNeil also is Co-
Chairman of the board of directors of McREMI and McNeil Summerhill,
Inc.
Carole J. McNeil Carole J. McNeil has served as Co-Chairman of the Board of McNeil
Investors since January 1993. Ms. McNeil also is Co-Chairman of the
board of directors of McREMI and McNeil Summerhill, Inc. Ms. McNeil
also serves as President of McNeil Summerhill, Inc.
Ron K. Taylor Ron K. Taylor has been a director and President of McNeil Investors
since March 1997. Mr. Taylor served as Vice-President of McNeil
Investors from August 1994 to March 1997. Mr. Taylor also is a
director and President of McREMI and Senior Vice President of McNeil
Summerhill, Inc.
Paul B. Fay, Jr. Paul B. Fay, Jr. has served since May 1999 as a director of McNeil
Investors and as the sole member of the special committee of the
McNeil Investors board of directors formed in connection with the
transaction. Mr. Fay is the owner of The Fay Improvement Company, a
financial consulting firm. Mr Fay serves as a director of First
American Financial Corporation, Compensation Resource Group, Vestar
Securities, Inc. and Phoenix/Seneca Capital Management. Mr. Fay has
served on the respective oversight committees for each of the public
McNeil Partnerships since the restructuring date of that McNeil
Partnership. The oversight committee is an advisory body composed of
members appointed by but unaffiliated with McNeil Partners.
</TABLE>
All information in this Proxy Statement concerning the McNeil named persons
and any referenced affiliates and associates is to the best knowledge of the
Partnership and has not been independently verified by any of Whitehall,
WXI/MNL Real Estate, WXI/McN Realty or any of their respective affiliates.
205
<PAGE>
Background of WXI/McN Realty named persons
WXI/MNL Real Estate, L.L.C.
The name, position and present principal occupation of each executive
officer of WXI/MNL Real Estate, L.L.C. are set forth below. Whitehall is the
sole managing member of WXI/MNL Real Estate, L.L.C.
The business address of all the executive officers listed below except
Edward M. Siskind, G. Douglas Gunn, Todd A. Williams and Angie D. Madison is 85
Broad Street, New York, New York 10004. The business address of Edward M.
Siskind is 133 Fleet Street, London EC4A 2BB, England. The business address of
G. Douglas Gunn, Todd A. Williams and Angie Madison is 100 Crescent Court,
Suite 1000, Dallas, Texas 75201.
All executive officers and managers listed below are United States citizens.
<TABLE>
<CAPTION>
Name Position Present Principal Occupation
---- ---------------------------------- ---------------------------------
<S> <C> <C>
Neidich, Daniel M. President Managing Director of Goldman,
Sachs & Co.
Rothenberg, Stuart M. Vice President Managing Director of Goldman,
Sachs & Co.
Weil, David M. Vice President Managing Director of Goldman,
Sachs & Co.
Rosenberg, Ralph F. Vice President/Assistant Secretary Managing Director of Goldman,
Sachs & Co.
Williams, Todd A. Vice President/Assistant Managing Director of Goldman,
Secretary/ Assistant Treasurer Sachs & Co.
Naughton, Kevin D. Vice President/Secretary/Treasurer Vice President of Goldman, Sachs
& Co.
Siskind, Edward M. Vice President/Assistant Treasurer Managing Director of Goldman
Sachs International
Klingher, Michael K. Vice President Managing Director of Goldman,
Sachs & Co.
Kava, Alan S. Vice President Vice President of Goldman, Sachs
& Co.
Feldman, Steven M. Vice President Managing Director of Goldman,
Sachs & Co.
Lauer, Kate Vice President/Assistant Secretary Vice President of Goldman, Sachs
& Co.
Langer, Jonathan A. Vice President/Assistant Secretary Vice President of Goldman, Sachs
& Co.
Sack, Susan L. Vice President/Assistant Secretary Vice President of Goldman, Sachs
& Co.
Burban, Elizabeth M. Vice President/Assistant Secretary Vice President of Goldman, Sachs
& Co.
Lahey, Brian J. Vice President Vice President of Goldman, Sachs
& Co.
Gunn, G. Douglas Vice President Vice President of Goldman, Sachs
& Co.
Madison, Angie D. Vice President Vice President of Goldman, Sachs
& Co.
Brooks, Adam Assistant Vice President Associate of Goldman, Sachs & Co.
</TABLE>
206
<PAGE>
WH Advisors, L.L.C. XI
The name, position and present principal occupation of each manager and
executive officer of WH Advisors, L.L.C. XI, which is the sole general partner
of Whitehall, the sole managing member of WXI/MNL Real Estate, L.L.C., are set
forth below.
The business address of all the executive officers and managers listed below
except G. Douglas Gunn, Todd A. Williams, Angie D. Madison, Edward M. Siskind,
Paul R. Milosevich, Elizabeth A. O'Brien, Zubin P. Irani and Eli Muraidekh is
85 Broad Street, New York, New York 10004. The business address of G. Douglas
Gunn, Todd A. Williams, Angie D. Madison and Paul R. Milosevich is 100 Crescent
Court, Suite 1000, Dallas, Texas 75201. The business address of Edward M.
Siskind, Zubin P. Irani and Eli Muraidekh is 133 Fleet Street, London EC4A 2BB,
England. The business address of Elizabeth A. O'Brien is 3 Garden Road,
Central, Hong Kong.
Except for Brahm S. Cramer, who is a Canadian citizen, all executive
officers and managers listed below are United States citizens.
<TABLE>
<CAPTION>
Name Position Present Principal Occupation
---- ---------------------------------- ---------------------------------
<S> <C> <C>
Rothenberg, Stuart M. Manager/Vice President Managing Director of Goldman,
Sachs & Co.
Neidich, Daniel M. Manager/President Managing Director of Goldman,
Sachs & Co.
O'Brien, Elizabeth A. Vice President/Assistant Secretary Vice President of Goldman Sachs
(Asia) L.L.C.
Weil, David M. Vice President Managing Director of Goldman,
Sachs & Co.
Rosenberg, Ralph F. Manager/Vice President/Assistant Managing Director of Goldman,
Secretary Sachs & Co.
Williams, Todd A. Vice President/Assistant Managing Director of Goldman,
Secretary/ Assistant Treasurer Sachs & Co.
Naughton, Kevin D. Vice President/Secretary/Treasurer Vice President of Goldman, Sachs
& Co.
Siskind, Edward M. Vice President/Assistant Treasurer Managing Director of Goldman
Sachs International
Klingher, Michael K. Vice President Managing Director of Goldman,
Sachs & Co.
Gunn, G. Douglas Vice President/Assistant Secretary Vice President of Goldman, Sachs
& Co.
Lahey, Brian J. Vice President/Treasurer Vice President of Goldman, Sachs
& Co.
Kava, Alan S. Vice President Vice President of Goldman, Sachs
& Co.
Feldman, Steven M. Vice President Managing Director of Goldman,
Sachs & Co.
Madison, Angie D. Vice President/Assistant Secretary Vice President of Goldman, Sachs
& Co.
Weiss, Mitchell S. Assistant Treasurer Vice President of Goldman, Sachs
& Co.
Cramer, Brahm S. Vice President Vice President of Goldman, Sachs
& Co.
Karr, Jerome S. Vice President Vice President of Goldman, Sachs
& Co.
Lauer, Kate Vice President/Assistant Secretary Vice President of Goldman, Sachs
& Co.
Milosevich, Paul R. Vice President Vice President of Goldman, Sachs
& Co.
Mortelliti, Josephine Vice President Vice President of Goldman, Sachs
& Co.
Muraidekh, Eli Vice President Vice President of Goldman Sachs
International
Sack, Susan L. Vice President/Assistant Secretary Vice President of Goldman, Sachs
& Co.
Langer, Jonathan A. Vice President/Assistant Secretary Vice President of Goldman, Sachs
& Co.
Burban, Elizabeth M. Vice President/Assistant Secretary Vice President of Goldman, Sachs
& Co.
Bernstein, Ronald L. Assistant Vice President/Assistant Vice President of Goldman, Sachs
Secretary & Co.
Irani, Zubin P. Assistant Vice President/Assistant Vice President of Goldman Sachs
Secretary International
</TABLE>
207
<PAGE>
The Goldman Sachs Group, Inc.
The name of each director of The Goldman Sachs Group, Inc. is set forth
below.
The business address of each person listed below except John L. Thornton,
Sir John Browne and James A. Johnson is 85 Broad Street, New York, NY 10004.
The business address of John L. Thornton is 133 Fleet Street, London EC4A 2BB,
England. The business address of Sir John Browne is BP Amoco plc, Brittanic
House, 1 Finsbury Circus, London EC2M, England. The business address of James
A. Johnson is Fannie Mae, 3900 Wisconsin Avenue NW, Washington, D.C. 20016.
Each person is a citizen of the United States of America except for Sir John
Browne, who is a citizen of the United Kingdom. The present principal
occupation or employment of each of the listed persons is set forth below.
<TABLE>
<CAPTION>
Name Present Principal Occupation
---- ----------------------------
<S> <C>
Henry M. Paulson, Jr. Chairman and Chief Executive Officer of The Goldman Sachs Group, Inc.
Robert J. Hurst Vice Chairman of The Goldman Sachs Group, Inc.
John A. Thain President and Co-Chief Operating Officer of The Goldman Sachs Group, Inc.
John L. Thornton President and Co-Chief Operating Officer of The Goldman Sachs Group, Inc.
Sir John Browne Group Chief Executive of BP Amoco plc
James A. Johnson Chairman of the Executive Committee of the Board of Fannie Mae
John L. Weinberg Senior Chairman of The Goldman Sachs Group, Inc.
</TABLE>
All information contained in this Proxy Statement relating to WXI/McN
Realty, WXI/MNL Real Estate, Whitehall, WH Advisors, L.L.C. XI and The Goldman
Sachs Group, Inc., or to their respective actions, purposes, beliefs,
intentions or plans, has been supplied by WXI/McN Realty for inclusion in this
Proxy Statement and has not been independently verified by any of the McNeil
Partnerships or the McNeil Affiliates.
208
<PAGE>
RELATED SECURITY HOLDER MATTERS
Because the transaction may be considered a "going private" transaction, the
Partnership, McNeil Partners, McNeil Investors and Robert A. McNeil have filed
a Schedule 13E-3 with the SEC with respect to the transaction. In addition,
under a potential interpretation of the rules governing "going private"
transactions, one or more of Whitehall, WXI/MNL Real Estate and WXI/McN Realty
may be deemed to be an affiliate of the Partnership. Therefore, each of
Whitehall, WXI/MNL Real Estate and WXI/McN Realty has been included as a filing
person on such Schedule 13E-3. See "Where You Can Find More Information." The
Schedule 13E-3 requires the persons filing the Schedule 13E-3 to furnish
certain additional information with respect to transactions of the filing
persons involving the Partnership or the limited partner units in the
Partnership. This information is set forth below under "--Past contacts,
transactions and negotiations," "--Recent transactions in the Partnership's
limited partner units," "--Contracts, arrangements or understandings with
respect to limited partner units in the Partnership" and "--Plans or
proposals."
Additional information concerning limited partner units
As of December 10, 1999, there were 86,530,671 limited partner units
outstanding and 5,972 holders of record of those limited partner units.
At present, there is no established public trading market for the limited
partner units in the Partnership, nor is one expected to develop. Liquidity is
limited to sporadic private sales or tender offers for limited partner units.
See "Special Factors--Alternatives to the transaction--Continued ownership--
Disadvantages of continued ownership" and "Special Factors--Recommendations of
the special committee and the McNeil Investors board of directors; fairness of
the transaction--Recommendations of the special committee."
The Partnership made aggregate distributions of $29.33 per thousand limited
partner units and $8.67 per thousand limited partner units to its limited
partners in 1998 and 1997, respectively. In March 1999, the Partnership made a
distribution of $5.80 per thousand limited partner units to its limited
partners. See "Selected Financial Data of the Partnership." Distributions to
limited partners of the Partnership are made in the discretion of McNeil
Partners, the general partner of the Partnership, in accordance with the
Partnership's limited partnership agreement.
Principal holders of limited partner units
The following table sets forth as of December 10, 1999, certain information
regarding the beneficial ownership of limited partner units in the Partnership
by McNeil Partners, all officers, directors and employees of McNeil Investors
and McREMI, and all affiliates of McNeil Partners, and by each individual or
"group," as defined in Section 13(d)(3) of the Securities Exchange Act, if any,
known by the Partnership to own more than 5% of the outstanding limited partner
units in the Partnership. See "Special Factors--Interests of certain persons in
matters to be acted upon; conflicts of interest--Ownership of limited partner
units in the McNeil Partnerships by the McNeil Affiliates."
<TABLE>
<CAPTION>
Number of Percentage
Limited Partner Beneficially
Name Units Owned
---- --------------- ------------
<S> <C> <C>
Opal Partners, L.P.(1)....................... 2,995,000 3.5%
Four Embarcadero Center
Suite 3250
San Francisco, California 94111
Dean Lontos(2)............................... 127,277 *
13760 Noel Road
Suite 600, LB70
Dallas, Texas 75240
</TABLE>
- --------
* Less than 1%
209
<PAGE>
(1) The general partner of Opal Partners is DDC&R, Inc. The sole director, sole
executive officer and sole stockholder of DDC&R is Carole J. McNeil.
(2) Mr. Lontos is the Senior Vice President, Portfolio Management, of McREMI.
According to the Icahn Voting and Standstill Agreement and Exhibit A to the
High River Complaint, Carl C. Icahn and his affiliates High River Limited
Partnership ("High River"), Riverdale LLC ("Riverdale") and Unicorn Associates
Corporation ("Unicorn") beneficially own an aggregate of 886,960 limited
partner units in the Partnership, representing in the aggregate approximately
1.0% of the outstanding limited partner units in the Partnership. See "Special
Factors--Events subsequent to the execution of the Master Agreement." Mr.
Icahn, High River, Riverdale and Unicorn have agreed in the Icahn Voting and
Standstill Agreement to vote all of the limited partner units beneficially
owned by them in the Partnership for the merger proposal and for the
adjournment proposal. For a description of the Icahn Voting and Standstill
Agreement, see "Other Agreements With Respect to the Transaction."
Past contacts, transactions and negotiations
In addition to any past contacts, transactions and negotiations described in
this Proxy Statement, described below are any contacts, transactions or
negotiations concerning a merger, consolidation, acquisition, tender offer or
other acquisition of limited partner units, election of directors or sale or
other transfer of a material amount of assets of the Partnership which are
known by the Partnership to have been entered into or to have occurred since
January 1, 1997, between any affiliates of the Partnership or between the
Partnership or any of its affiliates and any person who is not affiliated with
the Partnership and who would have a direct interest in those matters. All
information set forth below is to the best knowledge of the Partnership as of
the date of this Proxy Statement.
For other past contacts, transactions and negotiations described in this
Proxy Statement, see "--Recent transactions in the Partnership's limited
partner units," "Special Factors--Interests of certain persons in matters to be
acted upon; conflicts of interest," "Special Factors--Background of the
transaction," "Special Factors--Events subsequent to the execution of the
Master Agreement" and "Special Factors--Purposes and reasons for the
transaction."
On January 9, 1997, Mr. Icahn, High River, Riverdale and Unicorn filed the
final amendment to the Schedule 14D-1 tender offer statement which they had
previously filed with respect to limited partner units in the Partnership to
reflect the acquisition by High River of limited partner units in the tender
offer commenced in September 1996. See "Special Factors--Background of the
transaction--Icahn tender offers." Mr. Icahn and his affiliates reported that
an aggregate of 812,764 limited partner units were tendered to High River
pursuant to the tender offer at a price of $0.096 per limited partner unit, and
that following the expiration of the tender offer, Mr. Icahn and his affiliates
beneficially owned an aggregate of 920,245 limited partner units, representing
in the aggregate approximately 1.1% of the limited partner units in the
Partnership outstanding at that time. See "--Principal holders of limited
partner units."
Since January 1, 1997, Everest Properties II, L.L.C., MacKenzie Patterson,
Inc. and Madison Avenue Investment Partners or their respective affiliates each
has made one or more "mini-tender" offers for less than 5% of the outstanding
limited partner units in the Partnership. These tender offers ranged in price
from $0.16 to $0.23 per limited partner unit. See Table 1 in "Special Factors--
Alternatives to the transaction." To the best knowledge of the Partnership, the
most recent tender offer for limited partner units in the Partnership prior to
the date of this Proxy Statement was made by Madison Avenue Investment Partners
at $0.18 per limited partner unit and expired on March 28, 1999.
Recent transactions in the Partnership's limited partner units
Since January 1, 1997, none of the Partnership, McNeil Partners, McNeil
Investors or Robert A. McNeil has made any purchases of limited partner units
in the Partnership. Since June 24, 1999, the date of execution
210
<PAGE>
of the Master Agreement, none of WXI/McN Realty, WXI/MNL Real Estate or
Whitehall has made any purchases of limited partner units in the Partnership.
In addition, during the past 60 days, none of the Partnership, McNeil Partners,
McNeil Investors, Robert A. McNeil, WXI/McN Realty, WXI/MNL Real Estate or
Whitehall, any pension, profit sharing or similar plan of the Partnership,
McNeil Partners, McNeil Investors, Robert A. McNeil, WXI/McN Realty, WXI/MNL
Real Estate or Whitehall, any of the other McNeil named persons, any of the
WXI/McN Realty named persons, or any associate or majority owned subsidiary of
the Partnership, McNeil Partners, McNeil Investors, Robert A. McNeil, WXI/McN
Realty, WXI/MNL Real Estate or Whitehall, has engaged in any transaction
involving limited partner units in the Partnership.
Contracts, arrangements and understandings with respect to limited partner
units in the Partnership
Except as described in this Proxy Statement, none of the Partnership, McNeil
Partners, McNeil Investors, Robert A. McNeil, WXI/McN Realty, WXI/MNL Real
Estate or Whitehall, or any of the other McNeil named persons, or any of the
WXI/McN Realty named persons, has any arrangement, contract, relationship or
understanding with any person with respect to any limited partner units in the
Partnership, including any arrangement, contract, relationship or understanding
concerning the transfer or the voting of any limited partner units in the
Partnership, any joint venture, any loan or option arrangement, any put or
call, any guarantee of a loan, any guarantee against loss, or any giving or
withholding of any authorization, consent or proxy. See "The Master Agreement,"
"WXI/McN Realty Operating Agreement," "Other Agreements Between the McNeil
Affiliates and Affiliates of WXI/McN Realty," "Other Agreements With Respect to
the Transaction," "The Meeting--Ownership of limited partner units in the
Partnership" and "Special Factors--Interests of certain persons in matters to
be acted upon; conflicts of interest--Ownership of limited partner units in the
McNeil Partnerships by the McNeil Affiliates."
Plans or proposals
Except as generally described in this Proxy Statement, none of the
Partnership, McNeil Partners, McNeil Investors, Robert A. McNeil, WXI/McN
Realty, WXI/MNL Real Estate or Whitehall, or any of the other McNeil named
persons, or any of the WXI/McN Realty named persons, has any plan or proposal
regarding any action or transaction which is to occur after the transaction to
which this Proxy Statement relates and which relates to or would result in any
extraordinary corporate transaction involving the Partnership, any sale or
transfer of a material amount of the Partnership's assets, any change in the
Partnership's management, any material change in the Partnership's present
distribution rate or policy or indebtedness or capitalization, or any other
material change in the Partnership's structure or business. See "Special
Factors--Financing; sources of funds," "Special Factors--Plans for the McNeil
Partnerships that participate in the transaction," "Special Factors--Effects of
the transaction," "Special Factors--Interests of certain persons in matters to
be acted upon; conflicts of interest," "The Master Agreement," "WXI/McN Realty
Operating Agreement" and "Other Agreements Between the McNeil Affiliates and
Affiliates of WXI/McN Realty."
211
<PAGE>
SELECTED FINANCIAL DATA OF THE PARTNERSHIP
The following table sets forth a summary of certain financial data for the
Partnership. This summary should be read in conjunction with the Partnership's
financial statements and notes thereto appearing in the Partnership's Quarterly
Report on Form 10-Q for the quarter ended September 30, 1999, and in the
Partnership's Annual Report on Form 10-K for the year ended December 31, 1998,
each of which is included with this Proxy Statement.
<TABLE>
<CAPTION>
Nine Months Ended
September 30, Years Ended December 31,
------------------------ --------------------------------------------------------------
Statements of Operations 1999 1998 1998 1997 1996 1995 1994
- ------------------------ ----------- ----------- ----------- ----------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Rental revenue.......... $ 6,543,501 $ 6,675,894 $ 8,985,277 $ 8,824,653 $8,579,073 $ 7,568,361 $ 6,385,998
Write-down for
impairment of real
estate................. -- -- -- -- (1,087,000) (2,200,000) --
Net loss................ (791,355) (441,103) (695,742) (1,003,689) (2,347,920) (5,063,046) (1,938,063)
Loss per thousand
limited partner units.. $ (9.05) $ (5.05) $ (7.96) $ (11.48) $ (26.86) $ (57.91) $ (22.17)
=========== =========== =========== =========== ========== =========== ===========
Distributions per
thousand limited
partner units.......... $ 5.80 $ 29.33 $ 29.33 $ 8.67 $ 4.33 $ -- $ --
=========== =========== =========== =========== ========== =========== ===========
<CAPTION>
As of September 30, As of December 31,
------------------------ --------------------------------------------------------------
Balance Sheets 1999 1998 1998 1997 1996 1995 1994
- -------------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Real estate investments,
net.................... $34,149,932 $35,882,680 $35,608,688 $37,259,312 38,979,116 $44,629,001 $41,738,690
Asset held for sale..... -- -- -- 3,047,765 3,008,374 -- --
Total assets............ 39,140,814 42,614,370 40,048,693 45,464,752 47,124,512 54,217,223 45,208,188
Mortgage notes payable.. 18,738,705 21,150,903 18,981,387 21,442,045 21,815,746 23,097,459 9,350,045
Partners' equity........ 18,334,912 19,882,785 19,628,145 22,862,247 24,615,924 27,338,809 32,401,855
</TABLE>
The Partnership sold Edison Ford Square on April 28, 1998.
212
<PAGE>
CERTAIN FINANCIAL PROJECTIONS OF THE PARTNERSHIP
The Partnership does not as a matter of course publicly disclose internal
budgets, plans, estimates, forecasts or projections as to future revenues,
earnings or other financial information. The projected financial data set forth
below reflect information which was contained in projections prepared by McNeil
Partners and delivered to bidders in the auction. See "Special Factors--
Background of the transaction--Background of the auction process." These
projections were based upon a variety of estimates and assumptions, the
material ones of which are set forth below. The estimates and assumptions
underlying the projections involved judgments with respect to, among other
things, future economic, competitive, and financial market conditions and
future business decisions which may not be realized and are inherently subject
to significant business, economic and competitive uncertainties, all of which
are difficult to predict and many of which are beyond the control of the
Partnership. While McNeil Partners believes these estimates and assumptions are
reasonable, there can be no assurance that the projections will be accurate,
and actual results may vary materially from those shown. In light of the
uncertainties inherent in forward-looking information of any kind, the
inclusion of these projections herein should not be regarded as a
representation by the Partnership, McNeil Partners or any other person that the
anticipated results will be achieved and limited partners are cautioned not to
place undue reliance on such information.
Except as required by law, the Partnership does not intend to update or
otherwise revise any of the projections set forth below. The information set
forth below should be read together with the information contained in the
Partnership's Annual Report on Form 10-K for the year ended December 31, 1998,
and the Partnership's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1999, which are being mailed with this Proxy Statement to all
limited partners of the Partnership, and the other information included or
incorporated by reference in this Proxy Statement.
In the normal course of operations, McNeil Partners drafted a five-year
business plan in 1998. Subject to the qualifications and limitations stated
above, the information set forth below reflects the material assumptions used
in the Partnership's 1999 Business Plan. These assumptions are set forth
immediately following the projections.
<TABLE>
<CAPTION>
Forecast
----------------------------------------
Financial forecast--5-year (in
thousands) 1999 2000 2001 2002 2003
- ------------------------------ ------ ------ ------ ------- -------
<S> <C> <C> <C> <C> <C>
Operating revenues.................. $8,834 $9,567 $9,914 $10,193 $10,484
Operating expenses.................. (4,523) (4,704) (4,842) (4,980) (5,121)
------ ------ ------ ------- -------
Net operating income................ $4,311 $4,863 $5,072 $ 5,213 $ 5,363
Debt service........................ (1,757) (1,758) (1,767) (1,767) (1,705)
Capital improvements................ (600) (730) (481) (491) (504)
Tenant improvements................. (906) (777) (536) (331) (482)
------ ------ ------ ------- -------
Cash flow--property operations...... $1,048 $1,598 $2,288 $ 2,624 $ 2,672
Interest income..................... 51 53 54 56 57
General & administrative............ (71) (73) (75) (78) (80)
General & administrative--affil. ... (177) (182) (188) (193) (199)
Asset mgt fee/MID................... (517) (399) (276) (142) (146)
------ ------ ------ ------- -------
Cash flow........................... $ 334 $ 996 $1,803 $ 2,267 $ 2,304
====== ====== ====== ======= =======
</TABLE>
Assumptions underlying the projections:
(1) 1999 projections are based on budgets prepared by property management
personnel.
(2) The growth rate for revenues and expenses for years 2000 to 2003 is
estimated at 3% per year. Recurring replacements, a component of
operating expenses, are projected at historical norms for years 2000 to
2003.
(3) Debt service is projected based on terms of current mortgage notes. As
mortgages mature, the outstanding debt is refinanced at currently
available market rates.
213
<PAGE>
(4) Capital improvements for 1999 are based on the capital business plan.
Capital improvements for years 2000 to 2003 are based on historical
capital expenditure norms.
(5) Projected tenant improvements are based on management's estimate of
costs and historical norms associated with releasing retail and office
space as leases expire.
(6) Interest income, general and administrative, and general and
administrative-affiliate projections are based on actual historical
results with a 3% growth factor for years 2000 to 2003.
(7) Asset management fee/MID projections are based on calculations detailed
in the Partnership's limited partnership agreement. The fee percentage
is 1.00% for 1999, 0.75% for 2000, 0.50% for 2001 and 0.25% thereafter.
214
<PAGE>
FORWARD-LOOKING STATEMENTS
This Proxy Statement and the documents incorporated by reference contain
certain forward-looking statements regarding the operations and business of the
Partnership. Statements in this document that are not historical facts are
"forward-looking statements." Such forward-looking statements include those
relating to:
. the Partnership's future business prospects,
. possible acquisitions, and
. projected revenues, working capital, liquidity, capital needs, interest
costs and income.
The words "estimate," "project," "intend," "expect" and similar expressions
are intended to identify forward-looking statements. These forward-looking
statements are found at various places throughout this Proxy Statement.
Wherever they occur in this Proxy Statement or in other statements attributable
to the Partnership, McNeil Partners or the McNeil Affiliates, forward-looking
statements are necessarily estimates reflecting best judgments. However, these
statements still involve a number of risks and uncertainties that could cause
actual results to differ materially from those suggested by the forward-looking
statements. Discussions in this Proxy Statement under the captions "Summary,"
"Special Factors," "WXI/McN Realty Operating Agreement" and "Certain Financial
Projections of the Partnership" are particularly susceptible to risks and
uncertainties. Such forward-looking statements should, therefore, be considered
in light of various important factors, including those set forth in this Proxy
Statement and other factors set forth from time to time in the Partnership's
reports and other information filed with the SEC. You are cautioned not to
place undue reliance on these forward-looking statements, which speak only as
of the date hereof. The Partnership disclaims any intent or obligation to
update forward-looking statements, except as required by law. Moreover, the
Partnership, through senior management of McNeil Investors, the general partner
of McNeil Partners, and McREMI may from time to time make forward-looking
statements about the matters described herein or other matters concerning the
Partnership.
INDEPENDENT AUDITORS
The consolidated financial statements and schedule of the Partnership as of
December 31, 1998 and 1997, and for the three years in the period ended
December 31, 1998, incorporated by reference into this Proxy Statement, have
been audited by Arthur Andersen LLP, independent public accountants, as
indicated in their reports with respect thereto, and are included herein in
reliance upon the authority of said firm as experts in accounting and auditing
in giving said reports. It is expected that representatives of Arthur Andersen
LLP will be present at the meeting, both to respond to appropriate questions of
limited partners and to make a statement if they so desire.
LIMITED PARTNER PROPOSALS
If the merger of the Partnership is consummated, there will be no limited
partners of the Partnership other than WXI/McN Realty or its indirectly wholly
owned subsidiary. If the transaction is not consummated with respect to the
Partnership, limited partners of the Partnership would continue to be entitled
to participate in future meetings in accordance with the terms of the limited
partnership agreement. Other than the meeting scheduled to consider and vote on
the merger proposal, there are no meetings scheduled, and McNeil Partners
cannot predict when, if ever, future meetings may be called. Meetings may be
called upon notice by McNeil Partners to the limited partners or by notice to
McNeil Partners by limited partners holding at least 10% of the outstanding
units of limited partner interest. Any proposals by limited partners intended
to be presented at a meeting must be received by McNeil Partners not less than
60 nor more than 90 days prior to such meeting, provided that, in the event
that the Partnership gives less than 10 days' notice or prior public disclosure
of the date of the meeting, notice must be received by McNeil Partners no later
than the close of business on the tenth
215
<PAGE>
day following such notice or prior public disclosure. For a limited partner to
bring other business before a meeting, timely notice must be received by McNeil
Partners within the time limits described above. Such notice must include a
description of the proposed business, the reasons therefore, and other specific
matters. In each case, the notice must be given to McNeil Partners at the
Partnership's principal address. Any limited partner desiring a copy of the
Partnership's limited partnership agreement will be furnished a copy without
charge upon written request to McNeil Partners.
WHERE YOU CAN FIND MORE INFORMATION
As required by law, the Partnership files reports, proxy statements and
other information with the SEC. You can read and copy these materials at the
public reference facilities maintained by the SEC at:
Room 1024
450 Fifth Street, N.W.
Washington, D.C. 20549
and at the following regional offices of the SEC:
7 World Trade Center
13th Floor
New York, New York 10048
and
Suite 1400
500 West Madison Street
Chicago, Illinois 60661.
For further information concerning the SEC's public reference rooms, you may
call the SEC at 1-800-SEC-0330. Some of this information may also be accessed
on the World Wide Web through the SEC's Internet address at
"http://www.sec.gov."
Because the transaction may be considered a "going private" transaction, the
Partnership, McNeil Partners, McNeil Investors and Robert A. McNeil have filed
a Schedule 13E-3 under the Securities Exchange Act with respect to the
transaction. In addition, under a potential interpretation of the rules
governing "going private" transactions, one or more of Whitehall, WXI/MNL Real
Estate and WXI/McN Realty may be deemed to be an affiliate of the Partnership.
Therefore, each of Whitehall, WXI/MNL Real Estate and WXI/McN Realty has been
included as a filing person on such Schedule 13E-3. The Schedule 13E-3 contains
additional information about the Partnership, McNeil Partners, McNeil
Investors, Robert A. McNeil, WXI/McN Realty, WXI/MNL Real Estate and Whitehall.
See "Summary--Parties to the transaction" and "Controlling Persons, Directors
and Executive Officers of McNeil Partners, McNeil Investors, WXI/MNL Real
Estate, L.L.C., WH Advisors, L.L.C. and The Goldman Sachs Group, Inc."
A copy of each of the Master Agreement, the WXI/McN Realty Operating
Agreement, the Stanger & Co. opinions and the Eastdil Realty Company opinions
are attached as appendices to this Proxy Statement. See "Special Factors--
Opinions and reports of financial advisors." This Proxy Statement has also been
filed as an exhibit to the Schedule 13E-3. In addition, each of the following
documents has been filed as an exhibit to the Schedule 13E-3:
(1) the status report of Stanger & Co. delivered to the McNeil Investors
board of directors and the special committee on June 24, 1999 (see "Special
Factors--Background of the transaction--Negotiation of definitive
transaction documents with Whitehall--June 3, 1999: Presentations to the
McNeil Investors board of directors and the special committee" and "Special
Factors--Background of the transaction--Negotiation of definitive
transaction documents with Whitehall--June 24, 1999: Approval of the
transaction.");
216
<PAGE>
(2) the status report of Stanger & Co. delivered to the McNeil Investors
board of directors and the special committee on December 10, 1999;
(3) the factual chronology prepared by PaineWebber and presented to the
special committee on May 25, 1999 and to the McNeil Investors board of
directors on June 3, 1999 (see "Special Factors--Background of the
transaction--Negotiation of definitive transaction documents with
Whitehall--May 25,1999: Presentations to the special committee by Eastdil
Realty Company, Stanger &
Co. and PaineWebber" and "Special Factors--Background of the transaction--
Negotiation of definitive transaction documents with Whitehall--June 3,
1999: Presentations to the McNeil Investors board of directors and the
special committee");
(4) the status report of Eastdil Realty Company, dated May 25, 1999,
presented to the special committee on June 3, 1999 (see "Special Factors--
Background of the transaction--Negotiation of definitive transaction
documents with Whitehall--May 25, 1999: Presentations to the special
committee by Eastdil Realty Company, Stanger & Co. and PaineWebber" and
"Special Factors--Background of the transaction--Negotiation of definitive
transaction documents with Whitehall--June 3, 1999: Presentations to the
McNeil Investors board of directors and the special committee");
(5) estimates of the deficit restoration obligations of the general
partners of the McNeil Partnerships as of January 31, 2000, prepared by
Arthur Andersen LLP (see "Special Factors--Opinions and reports of
financial advisors--Allocation analysis and opinions of Stanger & Co.--
Stanger & Co. allocation analysis");
(6) report of Houlihan, Lokey presented to the McNeil Investors board of
directors on June 3, 1999 (see "Special Factors--Background of the
transaction--Negotiation of definitive transaction documents with
Whitehall--June 3, 1999: Presentations to the McNeil Investors board of
directors and the special committee");
(7) the Icahn Voting and Standstill Agreement, dated as of December 7,
1999, by and among McNeil Partners, on behalf of itself and each of the
McNeil Partnerships (other than Regency North, Fairfax and McNeil
Summerhill I, L.P.), Regency North, Fairfax, McNeil Summerhill I, L.P.,
McREMI, McNeil Investors, Robert A. McNeil, Carole J. McNeil, Carl C.
Icahn, High River, Unicorn, Riverdale and Longacre (see "Special Factors--
Events subsequent to the execution of the Master Agreement--Icahn Voting
and Standstill Agreement" and "Other Agreements With Respect to the
Transaction").
Copies of the Schedule 13E-3 may be read and copied at the public reference
facilities maintained by the SEC, which facilities are listed above, or may be
accessed on the World Wide Web through the SEC's Internet address at
"http://www.sec.gov." Copies of the Schedule 13E-3 and copies of the documents
listed in (1) through (7) above are also available for inspection and copying
at the principal executive offices of the Partnership during its regular
business hours by any interested limited partner of the Partnership or a
representative of that limited partner who has been so designated in writing.
You should rely only on the information contained in (or incorporated by
reference into) this Proxy Statement in connection with your consideration of
the merger proposal. Neither McNeil Partners nor the Partnership has authorized
anyone to give any information different from the information contained in (or
incorporated by reference into) this Proxy Statement. This Proxy Statement is
dated December 14, 1999. You should not assume that the information contained
in this Proxy Statement is accurate as of any later date, and the mailing of
this Proxy Statement to limited partners shall not create any implication to
the contrary.
ANNUAL REPORT AND QUARTERLY REPORT
The Partnership's Annual Report on Form 10-K for the year ended December 31,
1998, and the Partnership's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1999 (in each case, not including exhibits to those reports), are
being mailed with this Proxy Statement to all limited partners of the
Partnership.
217
<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The SEC allows us to "incorporate by reference" the information we file with
them, which means that we can disclose important information to you by
referring you to those documents. The information incorporated by reference is
an important part of this Proxy Statement. We incorporate by reference the
documents listed below:
. Annual Report on Form 10-K for the year ended December 31, 1998;
. Quarterly Report on Form 10-Q/A for the quarter ended March 31, 1999,
Quarterly Report on Form 10-Q for the quarter ended June 30, 1999 and
Quarterly Report on Form 10-Q for the quarter ended September 30, 1999;
. Current Reports on Form 8-K dated June 29, 1999 and July 9, 1999; and
. The description of our limited partner units contained in the
Partnership's registration statement (File No. 33-5568) filed July 22,
1986 with the SEC and the Partnership's registration statement on Form 8-
A (File No. 0-15460) filed with the SEC.
We will mail these filings within one business day to any person, including
any beneficial owner, to whom this Proxy Statement is delivered, at no cost,
upon written or oral request to McNeil Partners at 13760 Noel Road, Suite 600,
LB70, Dallas, Texas 75240, telephone number 1-800-576-7907.
OTHER MATTERS
McNeil Partners does not know of any matter other than those described in
this Proxy Statement that will be presented for action at the meeting. If other
matters properly come before the meeting, the persons named as proxies intend
to vote the limited partner units represented by those proxies in accordance
with the judgment of McNeil Partners.
218
<PAGE>
APPENDIX A
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
MASTER AGREEMENT
by and among
WXI/McN Realty L.L.C.
THE McNEIL PARTNERSHIPS
(as defined herein),
McNEIL PARTNERS, L.P.,
McNEIL INVESTORS, INC.,
McNEIL REAL ESTATE MANAGEMENT, INC.,
McNEIL SUMMERHILL, INC.
and
ROBERT A. McNEIL
Dated as of June 24, 1999,
As amended as of December 2, 1999 and December 10, 1999.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
ARTICLE I
The Acquisition
<C> <S> <C>
Section 1.1 The Acquisition; Consideration............................ A-2
Section 1.2 Closing................................................... A-4
Section 1.3 Allocation of the Aggregate Consideration................. A-4
Section 1.4 Additional Consideration.................................. A-5
Section 1.5 Indebtedness.............................................. A-5
Section 1.6 Reservation of Right to Revise Transaction................ A-6
ARTICLE II
Transactions Related to the Mergers
Section 2.1 Certain Company Acquisition Vehicles...................... A-6
Section 2.2 Contributions to MPLP..................................... A-6
Section 2.3 Contributions by MPLP..................................... A-7
Section 2.4 Pre-Closing Distribution.................................. A-8
ARTICLE III
The Mergers
Section 3.1 The Mergers............................................... A-11
Section 3.2 Effective Time............................................ A-11
Section 3.3 Effects of the Mergers; LLC Agreement..................... A-11
Section 3.4 Conversion of Partnership Interests....................... A-12
Section 3.5 Payment of Merger Consideration........................... A-12
ARTICLE IV
Representations and Warranties of Sellers
Section 4.1 Organization, Standing and Power.......................... A-14
Section 4.2 Capital Structure; Title and Ownership of McREMI Assets... A-15
Section 4.3 Authority; Noncontravention; Consents..................... A-17
Section 4.4 Compliance with Laws...................................... A-18
Section 4.5 SEC Documents; Financial Statements; Undisclosed
Liabilities............................................... A-19
Section 4.6 Absence of Certain Changes................................ A-20
Section 4.7 Litigation................................................ A-21
Section 4.8 Properties................................................ A-21
Section 4.9 Environmental Matters..................................... A-25
Section 4.10 Taxes..................................................... A-26
Section 4.11 No Payments to Employees, Officers or Directors........... A-26
Section 4.12 Related Party Transactions................................ A-27
Section 4.13 Employee Benefits......................................... A-27
Section 4.14 Employee Matters.......................................... A-28
Section 4.15 Contracts; Debt Instruments............................... A-28
Section 4.16 Brokers................................................... A-29
Section 4.17 Management Agreements..................................... A-29
Section 4.18 INTENTIONALLY OMITTED..................................... A-29
Section 4.19 State Takeover Statutes................................... A-29
Section 4.20 Investment Company Act of 1940............................ A-30
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Page
----
<C> <S> <C>
Section 4.21 Insurance................................................. A-30
Section 4.22 Year 2000................................................. A-30
Section 4.23 Books and Records......................................... A-30
Section 4.24 Personal Property......................................... A-30
ARTICLE V
Representations and Warranties of the Company
Section 5.1 Organization, Standing and Power of the Company, the
Company LLCs and the Transitory Partnerships.............. A-30
Section 5.2 Capital Structure......................................... A-31
Section 5.3 Authority; Noncontravention; Consents..................... A-32
Section 5.4 Compliance with Laws...................................... A-33
Section 5.5 Litigation................................................ A-34
Section 5.6 Brokers................................................... A-34
Section 5.7 Investment Company Act of 1940............................ A-34
Section 5.8 Financing................................................. A-34
ARTICLE VI
Conduct of Business Pending Merger
Section 6.1 Conduct of Business of Sellers Prior to the Effective
Time...................................................... A-35
Section 6.2 Conduct of Business of the Company, the Transitory
Partnerships and the Company LLCs Prior to the Effective
Time...................................................... A-37
Section 6.3 Reimbursable Proposals.................................... A-39
ARTICLE VII
Additional Covenants
Section 7.1 Preparation of the Proxy Statement; Recommendation of
Mergers................................................... A-40
Section 7.2 Acquisition Proposals..................................... A-41
Section 7.3 Access to Information; Confidentiality.................... A-42
Section 7.4 Reasonable Best Efforts; Notification..................... A-43
Section 7.5 Public Announcements...................................... A-44
Section 7.6 Benefit Plans and Other Employee Arrangements............. A-44
Section 7.7 Ancillary Agreements...................................... A-46
Section 7.8 Support Agreements; Financing............................. A-46
Section 7.9 Fees and Expenses......................................... A-47
Section 7.10 Allocations............................................... A-47
Section 7.11 Related Party Transactions................................ A-48
Section 7.12 Stanger Reports........................................... A-48
Section 7.13 Estoppels................................................. A-48
Section 7.14 Harbour Club.............................................. A-49
Section 7.15 Material Encumbrances..................................... A-50
Section 7.16 Additional Seller Tax Covenant............................ A-50
Section 7.17 Title Deliveries.......................................... A-50
ARTICLE VIII
Conditions
Section 8.1 Conditions to Each Party's Obligation to Effect the
Mergers................................................... A-51
Section 8.2 Conditions to Obligations of the Company.................. A-51
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
Page
----
<C> <S> <C>
Section 8.3 Conditions to Obligations of Sellers..................... A-54
Section 8.4 Certain Exclusions from Conditions to Closing............ A-54
Section 8.5 Removal Notices.......................................... A-55
ARTICLE IX
Termination
Section 9.1 Termination of this Agreement Prior to the Effective
Time..................................................... A-56
Section 9.2 Effect of Termination Pursuant to Section 9.1............ A-56
Section 9.3 Termination of Certain Rights and Obligations Prior to
the Effective Time....................................... A-57
Section 9.4 Effect of Termination Pursuant to Section 9.3............ A-58
Section 9.5 Payment of Break-Up Fee.................................. A-59
Section 9.6 Reimbursement of Expenses................................ A-60
ARTICLE X
Certain Definitions; Other Matters
Section 10.1 Definitions.............................................. A-61
Section 10.2 Seller Disclosure Letter................................. A-68
Section 10.3 Interpretation........................................... A-68
ARTICLE XI
General Provisions
Section 11.1 Nonsurvival of Representations, Warranties and
Covenants................................................ A-68
Section 11.2 Non-Recourse............................................. A-69
Section 11.3 Amendment................................................ A-69
Section 11.4 Extension; Waiver........................................ A-69
Section 11.5 Notices.................................................. A-70
Section 11.6 Counterparts............................................. A-70
Section 11.7 Entire Agreement; No Third Party Beneficiaries........... A-70
Section 11.8 GOVERNING LAW............................................ A-70
Section 11.9 Assignment............................................... A-71
Section 11.10 Consent to Jurisdiction.................................. A-71
Section 11.11 Severability............................................. A-71
Section 11.12 Arbitration.............................................. A-71
</TABLE>
iii
<PAGE>
INDEX OF DEFINED TERMS
<TABLE>
<CAPTION>
Section
---------
<S> <C>
1940 Act............................................................. 4.20
Acquisition Proposal................................................. 10.1
Additional McNeil Contribution....................................... 2.3
Affected Employee.................................................... 7.6
affiliate............................................................ 10.1
Aggregate Consideration.............................................. 10.1
Agreement............................................................ Heading
Allocated McNeil Value............................................... 10.1
Allocation Analysis.................................................. 10.1
Allocations.......................................................... 10.1
Ancillary Agreements................................................. 10.1
Appraisals........................................................... 10.1
Archon............................................................... 7.7
Assignment Agreement................................................. 10.1
Assumption Fees...................................................... 1.5
Audit Date........................................................... 4.6
Board of Managers.................................................... 7.9
business day......................................................... 10.1
Buyer Plans.......................................................... 7.6
California Partnerships.............................................. 10.1
Capital Expenditure Reimbursement.................................... 6.3
Capital Expenditure Reimbursement Amount............................. 6.3
Capitalized McNeil Expenses.......................................... 7.9
Certificates......................................................... 3.5
Closing.............................................................. 1.2
Closing Date......................................................... 1.2
COBRA................................................................ 7.6
Code................................................................. 4.10
Commercial Leases.................................................... 4.8
Commercial Tenants................................................... 4.8
Commitment Letter.................................................... 5.8
Company.............................................................. Heading
Company Interests.................................................... 1.1
Company LLCs......................................................... 2.1
Company Person....................................................... 10.1
Company Reimbursable Expenses........................................ 10.1
Completed Amount..................................................... 6.3
Confidentiality Agreement............................................ 7.3
Construction Contracts............................................... 4.15
Contributing Partners................................................ 10.1
Corporate Employees.................................................. 10.1
Corporate Listed Employees........................................... 7.6
CPA Firm............................................................. 2.4
CRLPA................................................................ 10.1
Designated Partnership Matters....................................... 8.5
Designated Partnership Properties.................................... 8.5
Discretionary Closing Conditions..................................... 10.1
DLLCA................................................................ 10.1
DRULPA............................................................... 10.1
</TABLE>
iv
<PAGE>
<TABLE>
<CAPTION>
Section
---------
<S> <C>
Eastdil.............................................................. 10.1
Eastdil Engagement Letter............................................ 10.1
Eastdil Opinions..................................................... 10.1
Effective Time....................................................... 3.2
Employment List...................................................... 7.6
Encumbrance Notice................................................... 7.15
Encumbrances......................................................... 4.8
Environmental Complaints............................................. 4.9
Environmental Law.................................................... 4.9
ERISA................................................................ 4.13
Estoppel............................................................. 8.2
Excess Cash Balance.................................................. 2.4
Excess Cash Balance Schedule......................................... 2.4
Exchange Act......................................................... 4.5
Excluded McNeil Partnership.......................................... 9.3
Excluded McREMI Assets............................................... 10.1
Excluded MPLP Assets................................................. 10.1
Existing Loans....................................................... 1.5
Existing Support Agreements.......................................... 10.1
Expiration Time...................................................... 7.15
Fairfax.............................................................. Heading
First McNeil Threshold............................................... 10.1
FRULPA............................................................... 10.1
GAAP................................................................. 2.4
Governing Laws....................................................... 10.1
Governmental Entity.................................................. 4.3
GP Allocation Amount................................................. 1.3
GP Interest.......................................................... 10.1
Ground Leases........................................................ 4.8
Growth/Shelter Per Unit Special Amount............................... 10.1
Growth/Shelter Special Amount........................................ 10.1
Growth/Shelter Unit.................................................. 10.1
Guarantee............................................................ 5.8
Harbour Club I....................................................... 7.14
Hazardous Material................................................... 4.9
Hearth Hollow........................................................ Heading
Higher Acquisition Proposal.......................................... 10.1
HSR Act.............................................................. 4.3
Included McNeil Partnership.......................................... 8.5
Included Partnership Matter.......................................... 8.5
Indebtedness......................................................... 4.15
Indemnification Agreement............................................ 10.1
Insurance Policies................................................... 4.21
Knowledge of Sellers................................................. 10.1
Knowledge of the Company............................................. 10.1
Known Defects........................................................ 10.1
KRULPA............................................................... 10.1
laws................................................................. 4.3
Leases............................................................... 4.8
Liens................................................................ 10.1
Listed Employee...................................................... 7.6
</TABLE>
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<TABLE>
<CAPTION>
Section
---------
<S> <C>
LLC Agreement........................................................ 10.1
LP Allocation Amount................................................. 1.3
LP Interest.......................................................... 10.1
Management Agreements................................................ 4.17
Management LLC....................................................... 2.1
Managing Member...................................................... 5.2
Material Contract.................................................... 4.15
Material Encumbrance................................................. 7.15
Matter Removal Notice................................................ 8.5
Matter Removal Notice Date........................................... 8.5
Matter Removal Notice Time........................................... 8.5
McNeil Cash Contribution............................................. 2.3
McNeil Limited Partner Meeting....................................... 7.1
McNeil Partnership Properties........................................ 4.8
McNeil Partnership Statements........................................ 4.5
McNeil Partnerships.................................................. Heading
McNeil Person........................................................ 10.1
McREMI............................................................... Heading
McREMI Assets........................................................ 10.1
McREMI ERISA Affiliate............................................... 4.13
McREMI 401(k) Savings Plan........................................... 7.6
McREMI Plans......................................................... 4.13
McREMI Reduction Amount.............................................. 10.1
McREMI Transaction Expenses.......................................... 10.1
Merger Certificate................................................... 3.2
Merger Consideration................................................. 3.5
Merger Expense Reimbursement......................................... 3.5
Merger Fund.......................................................... 3.5
Mergers.............................................................. 3.1
Merging Partnership.................................................. 10.1
Merging Private Partnerships......................................... 10.1
Midwest Properties................................................... Heading
MII.................................................................. Heading
MPLP................................................................. Heading
MPLP Allocation Amount............................................... 1.3
MPLP Contributions................................................... 2.3
MPLP GP Subsidiaries................................................. 10.1
MPLP Interests....................................................... 2.2
MPLP Subsidiary Corporation.......................................... 10.1
MREF IX.............................................................. Heading
MREF X............................................................... Heading
MREF XI.............................................................. Heading
MREF XII............................................................. Heading
MREF XIV............................................................. Heading
MREF XV.............................................................. Heading
MREF XX.............................................................. Heading
MREF XXI............................................................. Heading
MREF XXII............................................................ Heading
MREF XXIII........................................................... Heading
MREF XXIV............................................................ Heading
MREF XXV............................................................. Heading
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Section
---------
<S> <C>
MREF XXVI............................................................ Heading
MREF XXVII........................................................... Heading
MULPL................................................................ 10.1
Negative Excess Cash Balance......................................... 2.4
Net McREMI Allocated Value........................................... 10.1
Net Operating Income................................................. 10.1
Net Per Partnership Allocated Value.................................. 1.3
New GP LLC........................................................... 2.1
New Preliminary Excess Cash Balance.................................. 2.4
New Preliminary Excess Cash Balance Schedule......................... 2.4
New Preliminary Pre-Closing Balance Sheet............................ 2.4
Non-Terminated Loans................................................. 1.5
NOI Amount........................................................... 10.1
NOI Determination Date............................................... 8.2
Objection Period..................................................... 2.4
Objection Statement.................................................. 2.4
Option Price......................................................... 7.14
Order................................................................ 8.1
Original LLC Agreement............................................... 10.1
Other Consents....................................................... 7.13
Other Estoppels...................................................... 7.13
Other Interests...................................................... 4.2
Other Harbour Club Properties........................................ 7.14
Other Items.......................................................... 4.8
Paid Assumption Fees................................................. 1.5
Partial McREMI Allocated Value....................................... 1.3
Participating McNeil Partnership..................................... 10.1
Participating Merging Partnership.................................... 10.1
Participating Partnership Consideration Amount....................... 10.1
Partnership Break-Up Fee............................................. 10.1
Partnership Percentage............................................... 10.1
Payment Agent........................................................ 3.5
Per Partnership Allocated Value...................................... 1.3
Per Partnership Transaction Expenses................................. 10.1
Per Unit Allocation Amount........................................... 1.3
Per Unit Consideration Amount........................................ 10.1
Permitted Restrictions and Encumbrances.............................. 4.8
person............................................................... 10.1
Portfolio Advisory Agreement......................................... 10.1
Positive Excess Cash Balance......................................... 2.4
Post-Allocation Upstream Amounts..................................... 10.1
Post-Allocation Upstream Payables.................................... 10.1
Pre-Allocation Upstream Payable...................................... 10.1
Pre-Closing Balance Sheet............................................ 2.4
Pre-Closing Removable Partnership.................................... 8.5
Preferred Equity Financing........................................... 10.1
Preliminary Excess Cash Balance...................................... 10.1
Preliminary Excess Cash Balance Schedule............................. 2.4
Preliminary Pre-Closing Balance Sheet................................ 2.4
Prepayment Fees...................................................... 1.5
Private McNeil Partnership........................................... 10.1
</TABLE>
vii
<PAGE>
<TABLE>
<CAPTION>
Section
----------
<S> <C>
Property Employees.................................................. 10.1
Property Listed Employees........................................... 7.6
Property Restrictions............................................... 4.8
Proxy Statement..................................................... 7.1
Proxy Mailing Date.................................................. 7.6
Public McNeil Partnership Statements................................ 4.5
Public McNeil Partnerships.......................................... 4.5
Regency North....................................................... Heading
Reimbursable Proposal............................................... 6.3
Reimbursable Proposal Amount........................................ 6.3
Related Party Transaction........................................... 10.1
Removable Partnership............................................... 8.5
Pre-Closing Removal Notice.......................................... 8.5
Pre-Closing Removal Notice Date..................................... 8.5
Pre-Closing Removal Notice Time..................................... 9.3
Rent Roll........................................................... 4.8
Replacement Support Agreements...................................... 7.8
Residential Leases.................................................. 4.8
Resolution Period................................................... 2.4
SNDA Agreements..................................................... 7.13
Schedule 13E-3...................................................... 7.1
SEC................................................................. 4.3
Second McREMI Allocated Value....................................... 1.3
Securities Act...................................................... 4.5
Seller Disclosure Letter............................................ Article IV
Seller Material Adverse Effect...................................... 10.1
Seller Reimbursable Expenses........................................ 10.1
Seller SEC Documents................................................ 4.5
Seller Statements................................................... 4.5
Seller Subsidiaries................................................. 10.1
Sellers............................................................. Heading
Severance Obligations............................................... 4.11
Shortfall Agreement................................................. 10.1
Stanger............................................................. Recitals
Stanger Determination Date.......................................... 10.1
Stanger Engagement Letter........................................... 10.1
Stanger Opinions.................................................... 10.1
Sub LLC............................................................. 2.1
subsidiary.......................................................... 10.1
Subsidiary Corporations............................................. 10.1
Subsidiary Financial Statements..................................... 4.5
Subsidiary Partnerships............................................. 10.1
Summerhill.......................................................... Heading
Summerhill GP....................................................... Heading
Summerhill Note..................................................... 7.11
Superior Acquisition Proposal....................................... 10.1
Support Agreements.................................................. 10.1
Survey Materials.................................................... 7.15
Surviving Partnership............................................... 3.1
Takeover Statute.................................................... 4.19
Taxes............................................................... 4.10
</TABLE>
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<TABLE>
<CAPTION>
Section
---------
<S> <C>
Terminated Employees................................................. 7.6
Terminated Loans..................................................... 1.5
Termination Date..................................................... 9.1
Threshold Amount..................................................... 7.6
Title Commitments.................................................... 4.8
Title Insurance Policies............................................. 4.8
Title Policies....................................................... 8.2
Total Allocated Partnership Value.................................... 1.3
Total McREMI Allocated Value......................................... 1.3
Tranche A Terminated Loans........................................... 1.5
Tranche B Terminated Loans........................................... 1.5
Transaction Documents................................................ 10.1
Transaction Expenses................................................. 10.1
Transitory Partnership............................................... 2.1
TRLPA................................................................ 10.1
Underbudgeted Amount................................................. 6.3
Upstream Payables.................................................... 10.1
Waiver Letter........................................................ 10.1
Whitehall............................................................ 5.2
</TABLE>
ix
<PAGE>
MASTER AGREEMENT
MASTER AGREEMENT (this "Agreement"), dated as of June 24, 1999, by and among
WXI/McN Realty L.L.C., a Delaware limited liability company (the "Company"),
McNeil Real Estate Fund IX, Ltd., a California limited partnership ("MREF IX"),
McNeil Real Estate Fund X, Ltd., a California limited partnership ("MREF X"),
McNeil Real Estate Fund XI, Ltd., a California limited partnership ("MREF XI"),
McNeil Real Estate Fund XII, Ltd., a California limited partnership ("MREF
XII"), McNeil Real Estate Fund XIV, Ltd., a California limited partnership
("MREF XIV"), McNeil Real Estate Fund XV, Ltd., a California limited
partnership ("MREF XV"), McNeil Real Estate Fund XX, L.P., a California limited
partnership ("MREF XX"), McNeil Real Estate Fund XXI, L.P., a California
limited partnership ("MREF XXI"), McNeil Real Estate Fund XXII, L.P., a
California limited partnership ("MREF XXII"), McNeil Real Estate Fund XXIII,
L.P., a California limited partnership ("MREF XXIII"), McNeil Real Estate Fund
XXIV, L.P., a California limited partnership ("MREF XXIV"), McNeil Real Estate
Fund XXV, L.P., a California limited partnership ("MREF XXV"), McNeil Real
Estate Fund XXVI, L.P., a California limited partnership ("MREF XXVI"), McNeil
Real Estate Fund XXVII, L.P., a Delaware limited partnership ("MREF XXVII"),
Fairfax Associates II, Ltd., a Florida limited partnership ("Fairfax"), Hearth
Hollow Associates, L.P., a Kansas limited partnership ("Hearth Hollow"), McNeil
Midwest Properties I, L.P., a Missouri limited partnership ("Midwest
Properties"), Regency North Associates, L.P., a Missouri limited partnership
("Regency North"), McNeil Summerhill I, L.P., a Texas limited partnership
("Summerhill" and, together with MREF IX, MREF X, MREF XI, MREF XII, MREF XIV,
MREF XV, MREF XX, MREF XXI, MREF XXII, MREF XXIII, MREF XXIV, MREF XXV, MREF
XXVI, MREF XXVII, Fairfax, Hearth Hollow, Midwest Properties and Regency North,
the "McNeil Partnerships"), McNeil Partners, L.P., a Delaware limited
partnership ("MPLP"), McNeil Investors, Inc., a Delaware corporation ("MII"),
McNeil Real Estate Management, Inc., a Delaware corporation ("McREMI"), McNeil
Summerhill, Inc., a Texas corporation ("Summerhill GP" and, together with MII,
MPLP, McREMI and the McNeil Partnerships, "Sellers") and Robert A. McNeil.
Certain capitalized and uncapitalized terms used in this Agreement shall have
the meanings ascribed to such terms in Section 10.1 hereof.
W I T N E S S E T H :
WHEREAS, the governing body of each of the parties to this Agreement which
are legal entities has determined that it is in the best interests of such
party's partners, limited partners, stockholders or members, as the case may
be, to enter into this Agreement and the Ancillary Agreements to which it is a
party;
WHEREAS, subject to the terms and conditions of this Agreement, in respect
of each Participating Merging Partnership, (i) the Company or, at the direction
of the Company, a subsidiary of the Company will acquire all of the LP
Interests in such Participating Merging Partnership in consideration for (A)
cash equal to the Participating Partnership Consideration Amount for such
Participating Merging Partnership, (B) the Company's repayment of the Tranche A
Terminated Loans and the Tranche B Terminated Loans of such Participating
Merging Partnership and the Company's payment of certain related fees in
accordance with Section 1.5 hereof and (C) the Company's indirect assumption of
the Non-Terminated Loans to which the properties of such Participating Merging
Partnership are subject, and (ii) a subsidiary of the Company, at the direction
of the Company, will acquire all of the GP Interests in such Participating
Merging Partnership and certain assets of MPLP relating to such Participating
Merging Partnership (including, without limitation, all of the GP Interests and
shares of capital stock owned by MPLP in any Seller Subsidiaries of such
Participating Merging Partnership) in consideration for the Company's issuance
of Company Interests to MPLP (or another designee of the Contributing
Partners), and MPLP (or another designee of the Contributing Partners) will
receive credit for a capital contribution to the Company in an amount equal to
the GP Allocation Amount for such Participating Merging Partnership in
accordance with Section 1.1 hereof;
WHEREAS, subject to the terms and conditions of this Agreement, if Fairfax
or Summerhill or both are a Participating McNeil Partnership, (i) the Company
or, at the direction of the Company, a subsidiary of the Company will acquire
all of the LP Interests in such Participating McNeil Partnership in
consideration for the
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Company's issuance of Company Interests to MPLP (or another designee of the
Contributing Partners), and MPLP (or another designee of the Contributing
Partners) will receive credit for a capital contribution to the Company in an
amount equal to the LP Allocation Amount for such Participating McNeil
Partnership in accordance with Section 1.1 hereof and (ii) a subsidiary of the
Company, at the direction of the Company, will acquire all of the GP Interests
in such Participating McNeil Partnership and certain assets of MPLP relating to
such Participating McNeil Partnership (including, without limitation, all of
the GP Interests and shares of capital stock owned by MPLP in any Seller
Subsidiaries of such Participating McNeil Partnership) in consideration for the
Company's issuance of Company Interests to MPLP (or another designee of the
Contributing Partners), and MPLP (or another designee of the Contributing
Partners) will receive credit for a capital contribution to the Company in an
amount equal to the GP Allocation Amount for such Participating McNeil
Partnership in accordance with Section 1.1 hereof;
WHEREAS, subject to the terms and conditions of this Agreement, a subsidiary
of the Company, at the direction of the Company, will acquire the McREMI Assets
in consideration for the Company's issuance of Company Interests to MPLP (or
another designee of the Contributing Partners), and MPLP (or another designee
of the Contributing Partners) will receive credit for a capital contribution to
the Company in an amount equal to the Net McREMI Allocated Value in accordance
with Section 1.1 hereof;
WHEREAS, subject to the terms and conditions of this Agreement, immediately
prior to the Effective Time, in consideration for certain cash contributions
(if any) to the Company and certain expenses incurred by Sellers, the Company
will issue Company Interests to MPLP (or another designee of the Contributing
Partners) in accordance with Section 1.4 hereof, and MPLP (or another designee
of the Contributing Partners) will receive credit for a capital contribution to
the Company in an amount equal to the sum of the McNeil Cash Contribution (if
any), the Capitalized McNeil Expenses and the Additional McNeil Contribution
(if any);
WHEREAS, subject to the terms and conditions of this Agreement, on the
Closing Date and immediately prior to the Effective Time, a distribution will
be declared to the limited partners in each Participating McNeil Partnership in
an amount in cash equal to the Positive Excess Cash Balance (if any) for such
Participating McNeil Partnership;
WHEREAS, subject to the terms and conditions of this Agreement, after the
date of this Agreement and prior to the Effective Time, Robert A. Stanger &
Co., Inc. ("Stanger") will allocate the Aggregate Consideration in accordance
with Section 1.3 hereof; and
WHEREAS, the consideration being paid by the Company for the LP Interests,
the Allocations and certain related matters will be the subject of "fairness"
opinions by Stanger confirming that the Aggregate Consideration, the
Allocations and such matters are fair from a financial point of view to the
limited partners of each of the McNeil Partnerships.
NOW, THEREFORE, for and in consideration of the mutual representations,
warranties, covenants, agreements and undertakings set forth below, the parties
to this Agreement, intending to be legally bound hereby, agree as follows:
ARTICLE I
The Acquisition
Section 1.1 The Acquisition; Consideration. Upon the terms and subject to
the conditions set forth in this Agreement, the parties hereto agree that:
(a) With respect to each Participating Merging Partnership, subsidiaries of
the Company, at the direction of the Company, shall acquire all of the GP
Interests in such Participating Merging Partnership, and the Company or, at the
direction of the Company, one or more of its subsidiaries shall acquire all of
the LP Interests in such Participating Merging Partnership and certain assets
of MPLP relating to such Participating
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<PAGE>
Merging Partnership (including without limitation all of the GP Interests and
shares of capital stock owned by MPLP in any Seller Subsidiaries of such
Participating Merging Partnership). In consideration for all of the GP
Interests and all of the LP Interests in such Participating Merging Partnership
and such MPLP assets, the Company shall:
(i) at the Effective Time, in accordance with Section 3.5 hereof,
deliver to the Payment Agent cash in an amount equal to the Participating
Partnership Consideration Amount for such Participating Merging
Partnership;
(ii) immediately prior to the Effective Time, in accordance with Section
2.3 hereof and Section 6.1 of the LLC Agreement, issue to MPLP (or another
designee of the Contributing Partners) membership interests in the Company
(the "Company Interests"), and MPLP (or another designee of the
Contributing Partners) shall receive credit for a capital contribution to
the Company in an amount equal to the GP Allocation Amount for such
Participating Merging Partnership. Such Company Interests shall upon
issuance be duly authorized, validly issued, fully paid and nonassessable
and free and clear of all Liens (except as provided in the Indemnification
Agreement, the LLC Agreement or the DLLCA), and shall be issued to MPLP (or
another designee of the Contributing Partners); and
(iii) at the Effective Time, in accordance with Sections 1.5(b) and
1.5(c) hereof, pay all Tranche A Terminated Loans secured by McNeil
Partnership Properties of such Participating Merging Partnership and all
Prepayment Fees relating thereto and pay all Tranche B Terminated Loans
secured by McNeil Partnership Properties of such Participating Merging
Partnership.
(b) If Fairfax or Summerhill or both are a Participating McNeil Partnership,
with respect to each such Participating McNeil Partnership, subsidiaries of the
Company, at the direction of the Company, shall acquire all of the GP Interests
in such Participating McNeil Partnership, and the Company or, at the direction
of the Company, one or more of its subsidiaries shall acquire all of the LP
Interests in such Participating McNeil Partnership and certain assets of MPLP
relating to such Participating McNeil Partnership (including without limitation
all of the GP Interests and shares of capital stock owned by MPLP in any Seller
Subsidiaries of such Participating McNeil Partnership). In consideration for
all of the GP Interests and all of the LP Interests in such Participating
McNeil Partnership and such MPLP assets, the Company shall:
(i) immediately prior to the Effective Time, in accordance with Section
2.3 hereof and Section 6.1 of the LLC Agreement, issue to MPLP (or another
designee of the Contributing Partners) Company Interests, and MPLP (or
another designee of the Contributing Partners) shall receive credit for a
capital contribution to the Company in an amount equal to the Participating
Partnership Consideration Amount for such Participating McNeil Partnership.
Such Company Interests shall upon issuance be duly authorized, validly
issued, fully paid and nonassessable and free and clear of all Liens
(except as provided in the Indemnification Agreement, the LLC Agreement or
the DLLCA), and shall be issued to MPLP (or another designee of the
Contributing Partners);
(ii) immediately prior to the Effective Time, in accordance with Section
2.3 hereof and Section 6.1 of the LLC Agreement, issue to MPLP (or another
designee of the Contributing Partners) Company Interests, and MPLP (or
another designee of the Contributing Partners) shall receive credit for a
capital contribution to the Company in an amount equal to the GP Allocation
Amount for such Participating McNeil Partnership. Such Company Interests
shall upon issuance be duly authorized, validly issued, fully paid and
nonassessable and free and clear of all Liens (except as provided in the
Indemnification Agreement, the LLC Agreement or the DLLCA), and shall be
issued to MPLP (or another designee of the Contributing Partners); and
(iii) at the Effective Time, in accordance with Sections 1.5(b) and
1.5(c) hereof, pay all Tranche A Terminated Loans secured by McNeil
Partnership Properties of such Participating McNeil Partnership and all
Prepayment Fees relating thereto and pay all Tranche B Terminated Loans
secured by McNeil Partnership Properties of such Participating McNeil
Partnership.
(c) A subsidiary of the Company, at the direction of the Company, shall
acquire all of the McREMI Assets. In consideration for the McREMI Assets, the
Company shall issue to MPLP (or another designee of the
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<PAGE>
Contributing Partners) Company Interests, and MPLP (or another designee of the
Contributing Partners) shall receive credit for a capital contribution to the
Company in an amount equal to the Net McREMI Allocated Value. Such Company
Interests shall upon issuance be duly authorized, validly issued, fully paid
and nonassessable and free and clear of all Liens (except as provided in the
Indemnification Agreement, the LLC Agreement or the DLLCA), and shall be issued
to MPLP (or another designee of the Contributing Partners).
Section 1.2 Closing. The closing of the Mergers and the other transactions
contemplated by this Agreement to take place at the Effective Time (the
"Closing") shall take place at a time and on a date (the "Closing Date") to be
specified by the parties hereto, which shall be no later than the fifth
business day after the later of (i) the date upon which the last unsatisfied or
unwaived condition to Closing set forth in Sections 8.1, 8.2 and 8.3 hereof is
satisfied or waived and (ii) the Pre-Closing Removal Notice Date, at the
offices of Sullivan & Cromwell, 125 Broad Street, New York, New York 10004,
unless another time, date or place is agreed to in writing by Sellers and the
Company.
Section 1.3 Allocation of the Aggregate Consideration.
(a) As promptly as practicable following the date hereof and prior to the
Effective Time, Sellers shall cause Stanger to allocate the Aggregate
Consideration between (i) certain assets of McREMI, taken as a whole (the
"Partial McREMI Allocated Value"), and (ii) all of the McNeil Partnerships,
taken as a whole, including certain other assets of MPLP (assuming the
contributions in Section 2.2 hereof have been consummated) (the matters in this
clause (ii), collectively, the "Total Allocated Partnership Value").
(b) Upon the completion of the allocation described in Section 1.3(a)
hereof, the Total Allocated Partnership Value shall be allocated among the
McNeil Partnerships (the portion of the Total Allocated Partnership Value
attributable to a McNeil Partnership pursuant to this Section 1.3(b), the "Per
Partnership Allocated Value" for such McNeil Partnership), by multiplying, with
respect to each McNeil Partnership (i) the Total Allocated Partnership Value by
(ii) the Partnership Percentage of such McNeil Partnership.
(c) As promptly as practicable following the completion of the allocations
described in Sections 1.3(a) and 1.3(b) hereof and assuming that the
contributions described in Section 2.2 hereof have been consummated, Sellers
shall cause Stanger to allocate the Net Per Partnership Allocated Value of each
McNeil Partnership among (i) the GP Interests, taken as a whole, in such McNeil
Partnership and certain other assets of MPLP (for each McNeil Partnership, the
"MPLP Allocation Amount" for such McNeil Partnership) and (ii) each class of LP
Interests, taken as a whole, in such McNeil Partnership (for each class of LP
Interests in each McNeil Partnership, the "LP Allocation Amount" for such class
of LP Interests in such McNeil Partnership). For purposes of this Agreement,
"Net Per Partnership Allocated Value" of a McNeil Partnership means an amount
equal to the difference determined by subtracting (i) the aggregate outstanding
principal amount, determined as of the Stanger Determination Date, of all
Existing Loans of such McNeil Partnership from (ii) the Per Partnership
Allocated Value of such McNeil Partnership.
(d) As promptly as practicable following the completion of the allocations
described in Sections 1.3(a), 1.3(b) and 1.3(c) hereof, (i) Sellers shall cause
Stanger to render a per unit allocation of the LP Allocation Amount for each LP
Interest for each class of LP Interests in each McNeil Partnership (the "Per
Unit Allocation Amount" for such LP Interest) and (ii) Sellers shall cause
Stanger to allocate the MPLP Allocation Amount for each McNeil Partnership
among (1) certain McREMI Assets (the "Second McREMI Allocated Value") and (2)
the GP Interests, taken as a whole, in such McNeil Partnership (the "GP
Allocation Amount" for such McNeil Partnership). For purposes of this
Agreement, the "Total McREMI Allocated Value" shall equal the sum of the
Partial McREMI Allocated Value and the aggregate of the Second McREMI Allocated
Values.
(e) Each party to this Agreement agrees to be unconditionally and
irrevocably bound by the Allocations, except for manifest error in the
allocation described in Section 1.3(d) hereof.
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<PAGE>
(f) Each party to this Agreement acknowledges and agrees that each of the
Growth/Shelter Per Unit Special Amounts has been determined by mutual agreement
among the parties hereto independent of, separate from, and in addition to the
Allocations and the Aggregate Consideration, and that the payment of any
Growth/Shelter Per Unit Special Amount shall not offset, or affect in any
manner, the Allocations or the Aggregate Consideration.
Section 1.4 Additional Consideration. Immediately prior to the Effective
Time, in accordance with Sections 2.3 and 7.9(b) hereof and Section 6.1 of the
LLC Agreement, the Company shall issue to MPLP (or another designee of the
Contributing Partners) Company Interests, and MPLP (or another designee of the
Contributing Partners) shall receive credit for a capital contribution to the
Company in an amount equal to the sum of (A) the McNeil Cash Contribution (if
any), (B) the Capitalized McNeil Expenses and (C) the Additional McNeil
Contribution (if any). Such Company Interests shall upon issuance be duly
authorized, validly issued, fully paid and nonassessable and free and clear of
all Liens (except as provided in the Indemnification Agreement, the LLC
Agreement or the DLLCA), and shall be issued to MPLP (or another designee of
the Contributing Partners). Nothing in this Section 1.4 shall offset, or affect
in any manner, the Company Interests being issued to MPLP (or another designee
of the Contributing Partners) pursuant to Section 1.1 hereof.
Section 1.5 Indebtedness.
(a) Schedule 1.5 of the Seller Disclosure Letter sets forth all of the
indebtedness of each of the McNeil Partnerships, which indebtedness is secured
by the McNeil Partnership Properties (the "Existing Loans"), the outstanding
principal balance thereof, all accrued and unpaid interest thereon, the
interest rate thereof and the remaining term thereof, in each case, as of the
date specified on such Schedule 1.5.
(b) Notwithstanding anything to the contrary in this Agreement, the Company
shall repay at the Effective Time (including all accrued but unpaid interest
thereon through to the Effective Time) all of the Existing Loans set forth on
Annex A hereto which are secured by McNeil Partnership Properties of the
Participating McNeil Partnerships (the "Tranche A Terminated Loans").
Notwithstanding anything to the contrary in this Agreement, the Company shall
pay at the Effective Time all Prepayment Fees relating to the Tranche A
Terminated Loans. For purposes of this Agreement, the term "Prepayment Fees"
means any fees, costs and premiums charged by the lender of an Existing Loan in
connection with its prepayment.
(c) Notwithstanding anything to the contrary in this Agreement, the Company
shall repay at the Effective Time (including all accrued but unpaid interest
thereon through to the Effective Time) all of the Existing Loans set forth on
Annex B hereto which are secured by McNeil Partnership Properties of the
Participating McNeil Partnerships (the "Tranche B Terminated Loans" and,
together with the Tranche A Terminated Loans, the "Terminated Loans").
Notwithstanding anything to the contrary in this Agreement, each Participating
McNeil Partnership shall pay at the Effective Time all Prepayment Fees relating
to the Tranche B Terminated Loans secured by McNeil Partnership Properties of
such Participating McNeil Partnership.
(d) Other than the Terminated Loans, all Existing Loans outstanding
immediately prior to the Effective Time shall continue to remain outstanding at
and after the Effective Time until their expiration or prepayment (all Existing
Loans other than the Terminated Loans, the "Non-Terminated Loans").
(e) Notwithstanding anything to the contrary in this Agreement, each
Participating McNeil Partnership shall pay at the Effective Time all Assumption
Fees relating to those Non-Terminated Loans set forth on Annex C hereto which
are secured by McNeil Partnership Properties of such Participating McNeil
Partnership in an amount with respect to each such Non-Terminated Loan (the
aggregate amount of all Assumption Fees payable in respect of all such Non-
Terminated Loans, the "Paid Assumption Fees") equal to the lesser of (1) the
Assumption Fees for such Non-Terminated Loan and (2) the Prepayment Fees for
such Non-Terminated Loan; provided, however, that the Company shall pay a
portion of such Assumption Fees equal to the lesser of (1) one-half of the Paid
Assumption Fees and (2) two hundred fifty thousand dollars ($250,000). For
purposes of
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this Agreement, the term "Assumption Fees" means any fees, costs and premiums
charged by the lender of a Non-Terminated Loan as a result of the change of
control of the GP Interests of any Participating McNeil Partnership, the change
in the ownership of a majority of the LP Interests in any Participating McNeil
Partnership, the change (or change in control) of the management company for
the properties of any Participating McNeil Partnership, the Merger in respect
of such Participating McNeil Partnership or the other transactions expressly
contemplated by this Agreement with respect to such Participating McNeil
Partnership.
Section 1.6 Reservation of Right to Revise Transaction. If Sellers and the
Company agree in writing, the method of effecting the business combination
between any one or more Sellers and the Company may be changed, and each party
hereto shall cooperate in such efforts, including to provide for different
forms of merger; provided, however, that no such change shall (i) alter or
change the amount or kind of consideration to be received by holders of LP
Interests and holders of GP Interests in the Participating McNeil Partnerships,
(ii) adversely affect the proposed tax treatment to holders of LP Interests and
holders of GP Interests in the Participating McNeil Partnerships or (iii)
materially delay the consummation of any of the Mergers or the other
transactions contemplated by this Agreement.
ARTICLE II
Transactions Related to the Mergers
Section 2.1 Certain Company Acquisition Vehicles.
(a) Prior to the consummation of any of the transactions contemplated by
Section 2.3(a) hereof, the Company shall (or, in only the case of clause (i)
below, may) form or cause to be formed the following entities:
(i) a single Delaware limited liability company (the "Sub LLC") which
prior to the Effective Time shall have as its sole member the Company and
at and after the Effective Time shall have as its members the Company and
after the Effective Time may have as its members one or more third persons;
(ii) separate Delaware limited liability companies (each, a "New GP
LLC") each of which shall have as its sole member the Company or the Sub
LLC; and, a New GP LLC shall be the sole general partner, together with the
Company or the Sub LLC as the sole limited partner, of the Transitory
Partnership for each Participating Merging Partnership;
(iii) for each Participating Merging Partnership, a separate limited
partnership (each, a "Transitory Partnership") formed in the state of
formation of such Participating Merging Partnership, as set forth on
Schedule 4.1(c) of the Seller Disclosure Letter, for which its
corresponding New GP LLC shall be its sole general partner and for which
the Company or the Sub LLC shall be its sole limited partner; and
(iv) an additional single Delaware limited liability company (the
"Management LLC" and, together with the Sub LLC (if the Sub LLC is formed)
and the New GP LLCs, the "Company LLCs") which shall have as its sole
member the Company or the Sub LLC.
(b) On or prior to the Effective Time, no person shall have any interest in
the Company, any Company LLC or any Transitory Partnership except as expressly
provided in this Agreement or, in the case of the Sub LLC, except as expressly
provided in the limited liability company operating agreement of the Sub LLC.
Section 2.2 Contributions to MPLP. Following the Allocations of the
Aggregate Consideration pursuant to Section 1.3 hereof and following the
holding of all of the McNeil Limited Partner Meetings, but prior to the
Effective Time:
(a) if Fairfax is a Participating McNeil Partnership, then Robert A.
McNeil shall contribute, transfer and assign to MPLP, free and clear of all
Liens, (i) all of the GP Interests in Fairfax owned by him and (ii) all of
the LP Interests in Fairfax owned by him (which shall not include any
rights to receive any Positive
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Excess Cash Balance). In consideration of the contribution of such GP
Interests and such LP Interests, MPLP shall issue LP Interests in MPLP
("MPLP Interests") in such names and denominations as Robert A. McNeil may
request. Such MPLP Interests shall upon issuance be duly authorized,
validly issued, fully paid and nonassessable and free and clear of all
Liens;
(b) if Regency North is a Participating McNeil Partnership, then Robert
A. McNeil shall contribute, transfer and assign to MPLP, free and clear of
all Liens, all of the GP Interests in Regency North owned by him. In
consideration of the contribution of such GP Interests, MPLP shall issue
MPLP Interests in such names and denominations as Robert A. McNeil may
request. Such MPLP Interests shall upon issuance be duly authorized,
validly issued, fully paid and nonassessable and free and clear of all
Liens;
(c) if Summerhill is a Participating McNeil Partnership, then (i)
Summerhill GP shall contribute, transfer and assign to MPLP, free and clear
of all Liens, all of the GP Interests in Summerhill owned by Summerhill GP,
and (ii) Robert A. McNeil and Carole J. McNeil shall contribute, transfer
and assign to MPLP, free and clear of all Liens, all of the LP Interests in
Summerhill (which shall not include any rights to receive any Positive
Excess Cash Balance). In consideration of the contribution of such GP
Interests and such LP Interests, MPLP shall issue MPLP Interests in such
names and denominations as Robert A. McNeil and Carole J. McNeil may
request. Such MPLP Interests shall upon issuance be duly authorized,
validly issued, fully paid and nonassessable and free and clear of all
Liens; and
(d) McREMI shall contribute, transfer and assign to MPLP, free and clear
of all Liens, the McREMI Assets. In consideration of the contribution of
the McREMI Assets, MPLP shall issue MPLP Interests in such names and
denominations as McREMI may request. Such MPLP Interests shall upon
issuance be duly authorized, validly issued, fully paid and nonassessable
and free and clear of all Liens.
(e) All contributions, transfers and assignments described in this
Section 2.2 shall be effected pursuant to an instrument of assignment in
the form of the Assignment Agreement.
Section 2.3 Contributions by MPLP.
(a) Following the contributions described in Section 2.2 hereof:
(i) immediately prior to the Effective Time, at the direction of the
Company, MPLP shall contribute, transfer and assign to the applicable New
GP LLC, free and clear of all Liens, with the delivery of any applicable
certificate or power of transfer (A) all of the GP Interests owned by MPLP
in the Participating McNeil Partnership corresponding to such New GP LLC,
(B) all of the GP Interests and shares of capital stock owned by MPLP in
any Seller Subsidiaries of the Participating McNeil Partnership
corresponding to such New GP LLC, (C) all rights of MPLP related to the GP
Interests in the Participating McNeil Partnership corresponding to such New
GP LLC (other than the Excluded MPLP Assets and the McREMI Assets) and (D)
all of MPLP's rights, title and interest in and to the other assets of MPLP
(other than the Excluded MPLP Assets and the McREMI Assets) (clauses (A)
through (D), collectively, the "MPLP Contributions"). In consideration of
the contribution, transfer and assignment of the MPLP Contributions, the
Company shall issue Company Interests to MPLP (or another designee of the
Contributing Partners) in accordance with Section 1.1 hereof;
(ii) immediately prior to the Effective Time, at the direction of the
Company, MPLP shall contribute, transfer and assign to the Company or the
Sub LLC, free and clear of all Liens, (A) all of the LP Interests owned by
MPLP in Fairfax if Fairfax is a Participating McNeil Partnership and (B)
all of the LP Interests owned by MPLP in Summerhill if Summerhill is a
Participating McNeil Partnership. In consideration of the contribution,
transfer and assignment of such LP Interests, the Company shall issue
Company Interests to MPLP (or another designee of the Contributing
Partners) in accordance with Section 1.1 hereof;
(iii) immediately prior to the Effective Time, at the direction of the
Company, MPLP shall contribute, transfer and assign to Management LLC, free
and clear of all Liens, the McREMI Assets. In consideration of the
contribution, transfer and assignment of the McREMI Assets to Management
LLC, the Company shall issue Company Interests to MPLP (or another designee
of the Contributing Partners) in accordance with Section 1.1 hereof;
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(iv) at the Effective Time, in the event that the Allocated McNeil Value
is less than the First McNeil Threshold, MPLP (or another designee of the
Contributing Partners) shall contribute to the Company cash in an amount
equal to the difference (such difference, the "McNeil Cash Contribution")
determined by subtracting the Allocated McNeil Value from the First McNeil
Threshold. In consideration of the contribution of the McNeil Cash
Contribution, the Company shall issue Company Interests to MPLP (or another
designee of the Contributing Partners) in accordance with Section 1.4
hereof; and
(v) at the Effective Time, in the event that the sum of the Allocated
McNeil Value and the McNeil Cash Contribution is less than one hundred
million dollars ($100,000,000), MPLP (or another designee of the
Contributing Partners) shall have the right, in its sole discretion, but
not the obligation, to contribute to the Company, upon at least thirty (30)
days notice to the Company prior to the estimated Closing Date, additional
cash (the "Additional McNeil Contribution") in an aggregate amount not to
exceed the difference determined by subtracting (i) an amount equal to the
sum of the Allocated McNeil Value and the McNeil Cash Contribution (if any)
from (ii) one hundred million dollars ($100,000,000). In consideration of
the contribution of the Additional McNeil Contribution, the Company shall
issue Company Interests to MPLP (or another designee of the Contributing
Partners) in accordance with Section 1.4 hereof.
(b) Immediately following the MPLP Contributions, each applicable New GP LLC
shall be the sole general partner of its corresponding Participating McNeil
Partnership, and, immediately following the contributions, transfers and
assignments described in Section 2.3(a)(ii) hereof, the Company or the Sub LLC
shall be the sole limited partner of each of Fairfax and Summerhill.
Immediately following the contributions, transfers and assignments described in
Section 2.3(a) hereof, none of McREMI, MII, MPLP, Summerhill GP, Robert A.
McNeil or Carole J. McNeil shall have any interest as a partner, stockholder or
other equity holder in any Participating McNeil Partnership or any Seller
Subsidiary of a Participating McNeil Partnership, other than as holders of LP
Interests in the Participating Merging Partnerships and other than as a result
of the beneficial ownership of Company Interests by MPLP (or another designee
of the Contributing Partners).
(c) All contributions, transfers and assignments described in Sections
2.3(a)(i), 2.3(a)(ii) and 2.3(a)(iii) hereof shall be effected pursuant to an
instrument of assignment in the form of the Assignment Agreement.
Section 2.4 Pre-Closing Distribution.
(a) No less than ten (10) business days prior to the estimated Closing Date,
MPLP shall cause to be prepared and delivered to the Company an unaudited
balance sheet for each McNeil Partnership as of the last day (which shall be a
date within forty-five (45) days of the estimated Closing Date) of the most
recently completed fiscal month for which an unaudited balance sheet for such
McNeil Partnership is available (each, a "Preliminary Pre-Closing Balance
Sheet"). The Preliminary Pre-Closing Balance Sheet for each McNeil Partnership
shall be prepared in accordance with generally accepted accounting principles
("GAAP") applied consistently with past practice. The Preliminary Pre-Closing
Balance Sheet for each McNeil Partnership shall be accompanied by a schedule
setting forth the Preliminary Excess Cash Balance for such McNeil Partnership
in the form attached as Annex D hereto (the "Preliminary Excess Cash Balance
Schedule"), which shall be prepared in accordance with the methodology and
principles set forth on Annex D hereto.
(b)(i) Within four (4) business days (the "Objection Period") after the
delivery by MPLP to the Company of the Preliminary Pre-Closing Balance Sheet
and Preliminary Excess Cash Balance Schedule for a McNeil Partnership and all
relevant books and records and any work papers (including those of Arthur
Andersen LLP, Sellers' accountants) relating to the preparation of such
Preliminary Pre-Closing Balance Sheet and such Preliminary Excess Cash Balance
Schedule (including unaudited statements of operations and cash flows (prepared
in accordance with GAAP applied consistently with past practice), bills,
receipts and other written correspondence evidencing any amounts of Transaction
Expenses), the Company and its accountants shall complete their review of such
Preliminary Pre-Closing Balance Sheet and such Preliminary Excess Cash Balance
Schedule. Sellers shall make readily available to the Company, on a timely
basis during the Objection Period, all relevant books and records and any work
papers (including those of Arthur Andersen LLP, Sellers'
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accountants) relating to the preparation of the Preliminary Pre-Closing Balance
Sheets and the Preliminary Excess Cash Balance Schedules (including unaudited
statements of operations and cash flows, bills, receipts and other written
correspondence evidencing any amounts of Transaction Expenses) and all other
items reasonably requested by the Company. In addition, Sellers and the Company
shall make their relevant personnel reasonably available to each other to
respond to inquiries relating to any of the materials described in the
preceding sentence or any matters raised by the Company. On or before the last
day of the Objection Period, the Company shall deliver to MPLP a reasonably
detailed written statement of any objections or disagreements, including the
reasons therefor, with respect to any Preliminary Pre-Closing Balance Sheet and
Preliminary Excess Cash Balance Schedule (the "Objection Statement") (it being
understood that neither the inclusion on any Preliminary Excess Cash Balance
Schedule of any line item not listed on Annex D hereto nor the exclusion from
any Preliminary Excess Cash Balance Schedule of any line item listed on Annex D
hereto shall be the subject of any such objection or disagreement). If the
Company does not provide MPLP with the Objection Statement with respect to the
Preliminary Pre-Closing Balance Sheet or the Preliminary Excess Cash Balance
Schedule with respect to a McNeil Partnership within the Objection Period, the
parties hereto shall be deemed to have unconditionally accepted and agreed to,
and shall be unconditionally bound by, the Preliminary Pre-Closing Balance
Sheet, the Preliminary Excess Cash Balance Schedule and the Preliminary Excess
Cash Balance set forth on such Preliminary Excess Cash Balance Schedule, in
each case, with respect to such McNeil Partnership, other than with respect to
the Specified Transaction Expenses which shall be updated to a subsequent date
in accordance with Note 17 to the Excess Cash Balance Schedule.
(ii) In the event that the Company delivers to MPLP an Objection
Statement with respect to a Preliminary Pre-Closing Balance Sheet or the
Preliminary Excess Cash Balance Schedule with respect to a McNeil
Partnership within the Objection Period, the Company and MPLP shall have
two (2) business days (the "Resolution Period") following the receipt by
MPLP of such Objection Statement to resolve any disagreements set forth in
the Objection Statement. If the Company and MPLP are unable to resolve all
of their disagreements set forth in the Objection Statement within the
Resolution Period, the Company and MPLP shall, promptly following the
Resolution Period, submit their remaining differences to a nationally
recognized firm of independent public accountants which shall be chosen by
mutual agreement of the Company and MPLP or, in the event the Company and
MPLP are unable to agree, a firm chosen jointly by the accountants of each
of them (the "CPA Firm"). The CPA Firm, acting as experts and not as
arbitrators, shall determine, by applying the methodology and principles
set forth on Annex D hereto, and only with respect to the remaining
differences so submitted, whether and to what extent, if any, the
Preliminary Pre-Closing Balance Sheet or the amounts set forth on the
Preliminary Excess Cash Balance Schedule should be revised. The Company and
MPLP shall instruct the CPA Firm to deliver its written determination to
the Company and MPLP no later than two (2) business days after such
remaining differences are referred to the CPA Firm (unless the Company and
MPLP agree in writing, upon request of the CPA Firm, to provide the CPA
Firm with additional time to make its determination); provided, however,
that such determination shall be made no later than the day immediately
prior to the estimated Closing Date. The CPA Firm's determination relating
to each Preliminary Pre-Closing Balance Sheet and each Preliminary Excess
Cash Balance Schedule submitted to it shall be conclusive and binding upon
the parties hereto. The fees and disbursements of the CPA Firm shall be
shared equally by the Company, on the one hand, and Sellers, on the other
hand. Sellers shall make readily available to the CPA Firm, on a timely
basis during the period the CPA Firm is making its determination pursuant
to this Section 2.4(b)(ii), all relevant books and records and any work
papers (including those of Arthur Andersen LLP, Sellers' accountants)
relating to the preparation of the Preliminary Pre-Closing Balance Sheets
and Preliminary Excess Cash Balance Schedules (including unaudited
statements of operations and cash flows, bills, receipts and other written
correspondence evidencing any amounts of Transaction Expenses) and all
other items reasonably requested by the CPA Firm. In addition, Sellers and
the Company shall make their relevant personnel reasonably available to the
CPA Firm and each other to respond to any inquiries relating to the
disagreements submitted to the CPA Firm.
(iii) Each Preliminary Pre-Closing Balance Sheet, Preliminary Excess
Cash Balance Schedule and Preliminary Excess Cash Balance set forth on such
Preliminary Excess Cash Balance Schedule after
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having been deemed to be accepted by the parties hereto pursuant to the
last sentence of Section 2.4(b)(i) hereof or the CPA Firm's determinations
in respect thereof pursuant to Section 2.4(b)(ii) hereof are, respectively,
referred to herein as the "Pre-Closing Balance Sheet," "Excess Cash Balance
Schedule" and the "Excess Cash Balance."
(c) For each Participating McNeil Partnership for which the Excess Cash
Balance is greater than zero (a "Positive Excess Cash Balance"), MPLP shall
cause such Participating McNeil Partnership, on the Closing Date and
immediately prior to the consummation of any of the transactions contemplated
by Section 2.3(a) hereof, to irrevocably declare a cash distribution, in an
amount equal to the Positive Excess Cash Balance for such Participating McNeil
Partnership, to the persons who were limited partners (prior to the
consummation of any of the transactions contemplated by Section 2.3(a) hereof)
of such Participating McNeil Partnership as a special distribution in
accordance with the limited partnership agreement of such Participating McNeil
Partnership. For each Participating McNeil Partnership for which the Excess
Cash Balance is less than zero, the "Negative Excess Cash Balance" in respect
of such Participating McNeil Partnership shall be an amount equal to such
negative Excess Cash Balance. The Company and the Participating McNeil
Partnerships agree to take such actions as may be necessary to effect the
distributions contemplated by this Section 2.4(c) concurrently with the payment
of the Merger Consideration to former holders of LP Interests pursuant to
Section 3.5 hereof.
(d) On and following the date of the Preliminary Pre-Closing Balance Sheet
for a McNeil Partnership, such McNeil Partnership shall not declare any
distributions with respect to any GP Interest or LP Interest in such McNeil
Partnership prior to the Effective Time, except for the distributions
contemplated by Section 2.4(c) hereof in the event such McNeil Partnership is a
Participating McNeil Partnership and except for Post-Allocation Upstream
Payables accruing through to the Closing Date.
(e) The parties hereto acknowledge and agree that immediately upon the
declaration of the Positive Excess Cash Balance, the amount of such special
distribution shall become final and binding upon the parties hereto and shall
not be offset against any other amounts due, payable or owing by any person
under this Agreement or the Ancillary Agreements (regardless of any subsequent
recalculation of the Excess Cash Balance).
(f) If the estimated Closing Date is delayed for more than ten (10) business
days and such estimated Closing Date falls more than forty-five days after the
last date of the fiscal month for which the preceding Preliminary Pre-Closing
Balance Sheet and Preliminary Pre-Closing Excess Cash Schedule for a McNeil
Partnership were prepared, MPLP and the Company shall each have the right to
cause to be reprepared and redelivered, in accordance with Section 2.4(a)
hereof, a new Preliminary Pre-Closing Balance Sheet (the "New Preliminary Pre-
Closing Balance Sheet") and a new Preliminary Excess Cash Balance Schedule (the
"New Preliminary Excess Cash Balance Schedule"), setting forth a new
Preliminary Excess Cash Balance (the "New Preliminary Excess Cash Balance"),
for such McNeil Partnership. Each such New Preliminary Pre-Closing Balance
Sheet, New Preliminary Excess Cash Balance Schedule and New Preliminary Excess
Cash Balance shall be subject to the provisions of Sections 2.4(a) through
2.4(e) hereof and shall become final and binding on the parties hereto in
accordance with Section 2.4(b) hereof; provided, however, that each party
hereto acknowledges and agrees that none of the preparation, delivery,
acceptance or resolution of disagreements with respect to any New Preliminary
Pre-Closing Balance Sheet, New Preliminary Excess Cash Balance Schedule or New
Preliminary Excess Cash Balance shall delay the Closing if the Closing would
otherwise be required to occur pursuant to the terms of this Agreement had the
preparation and delivery of such items not been requested. If the Closing would
otherwise be required to occur, or has otherwise occurred prior to the time at
which the New Preliminary Pre-Closing Balance Sheet, New Preliminary Excess
Cash Balance Schedule and New Preliminary Excess Cash Balance for a McNeil
Partnership becomes final and binding on the parties hereto in accordance with
Section 2.4(b) hereof, the parties acknowledge and agree that they shall be
bound by the immediately preceding Pre-Closing Balance Sheet, Excess Cash
Balance Schedule and Excess Cash Balance for such McNeil Partnership which has
become final and binding on the parties hereto in accordance with Section
2.4(b) hereof. Without limiting the foregoing, in the event that prior to the
Closing a New Preliminary Pre-Closing Balance Sheet, a New Preliminary Excess
Cash Balance Schedule and a New Preliminary Excess Cash Balance for a McNeil
Partnership have been deemed to be accepted by all parties
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hereto pursuant to the last sentence of Section 2.4(b)(i) hereof or all
disputes in connection therewith are resolved pursuant to Section 2.4(b)(ii)
hereof, respectively, references herein to the "Pre-Closing Balance Sheet," the
"Excess Cash Balance Schedule" and the "Excess Cash Balance" for such McNeil
Partnership shall be deemed to refer to such New Preliminary Pre-Closing
Balance Sheet, such New Excess Cash Balance Schedule and such New Excess Cash
Balance, respectively.
(g) Notwithstanding anything to the contrary set forth in this Agreement, in
connection with the matters contemplated by this Section 2.4, the parties
hereto acknowledge and agree that Sellers shall not be required to deliver any
work papers of Arthur Andersen LLP if the recipients thereof do not execute a
confidentiality agreement substantially comparable to the one entered into by
representatives of the Company prior to the date hereof.
ARTICLE III
The Mergers
Section 3.1 The Mergers. Upon the terms and subject to the conditions set
forth in this Agreement, and in accordance with the applicable Governing Laws,
the Transitory Partnership corresponding to each Participating Merging
Partnership shall merge with and into its respective Participating Merging
Partnership at the Effective Time. Following the Effective Time, (i) each such
Participating Merging Partnership shall be the surviving partnership (the
"Surviving Partnership") in such merger and (ii) the applicable New GP LLC that
was the general partner of such Participating Merging Partnership immediately
following the MPLP Contributions and immediately prior to the Effective Time
shall be the sole general partner of its corresponding Surviving Partnership
and the Company or the Sub LLC shall be the sole limited partner of each
Surviving Partnership. The mergers described in this Section 3.1 are
collectively referred to in this Agreement as the "Mergers."
Section 3.2 Effective Time.
(a) Subject to the terms and conditions set forth in this Agreement, for
each Participating Merging Partnership and its respective Transitory
Partnership, a certificate of merger, articles of merger, certificate of
cancellation, statement of merger or such other documents as may be required by
the Governing Law applicable to such Participating Merging Partnership and its
corresponding Transitory Partnership (each, a "Merger Certificate"), shall be
duly executed and acknowledged by the applicable New GP LLC (or its designee),
as the general partner of such Participating Merging Partnership and its
corresponding Transitory Partnership, and thereafter delivered to the Secretary
of State of the state of formation of such Participating Merging Partnership,
as set forth on Schedule 4.1(c) of the Seller Disclosure Letter.
(b) The Mergers shall become effective at such time on the Closing Date (or
such later time as the parties may agree upon and set forth in each of the
Merger Certificates) (the "Effective Time" in respect of each such Merger) as
specified in properly executed and certified copies of the Merger Certificate
for each Participating Merging Partnership and its corresponding Transitory
Partnership are duly filed with the Secretary of State of the state of
formation of such Participating Merging Partnership, as set forth on Schedule
4.1(c) of the Seller Disclosure Letter, in accordance with the Governing Law
applicable to each such Merger. To the extent permitted by the applicable
Governing Law, each Merger Certificate shall be so filed at least one (1)
business day prior to the Closing Date.
Section 3.3 Effects of the Mergers; LLC Agreement.
(a) Each of the Mergers shall have the effects set forth under the Governing
Law applicable to such Merger.
(b) At the Effective Time, the Original LLC Agreement shall be amended and
restated in its entirety in the form of the LLC Agreement. The LLC Agreement
shall be the organizational document of the Company from and after the
Effective Time, until thereafter amended as provided therein or pursuant to
applicable law.
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Section 3.4 Conversion of Partnership Interests. As of the Effective Time,
by virtue of the Mergers and without any action on the part of any party
hereto, any of the Transitory Partnerships, any Company LLC, any holder of any
LP Interest or any holder of any GP Interest:
(a) Each LP Interest of each class of LP Interests (other than a
Growth/Shelter Unit) in each of the Participating Merging Partnerships
outstanding immediately prior to the Effective Time shall be converted into and
shall become the right to receive cash (without interest thereon) in an amount
equal to the Per Unit Consideration Amount to which such LP Interest is
entitled under the respective limited partnership agreement of such
Participating Merging Partnership upon surrender of the Certificate(s)
representing such LP Interest for cancellation (or, in the case of an LP
Interest in a Participating Merging Partnership which is a Merging Private
Partnership, upon the delivery of the affidavit made in accordance with Section
3.5(d) hereof) to the Payment Agent. Each Growth/Shelter Unit in each of MREF
XXI, MREF XXII and MREF XXIII, if such McNeil Partnership is a Participating
McNeil Partnership, outstanding immediately prior to the Effective Time shall
be converted into and shall become the right to receive cash (without interest
thereon) in an amount equal to the Growth/Shelter Per Unit Special Amount for
each Growth/Shelter Unit in such Participating McNeil Partnership upon
surrender of the Certificate(s) representing such Growth/Shelter Unit for
cancellation to the Payment Agent. As of the Effective Time, each LP Interest
in each of the Participating Merging Partnerships shall no longer be
outstanding and shall automatically be cancelled and retired and shall cease to
exist, and each holder of an LP Interest in a Participating Merging Partnership
shall cease to have any rights with respect thereto, except the right to
receive (i) the Per Unit Consideration Amount and (ii) in the case of an LP
Interest other than a Growth/Shelter Unit, the Positive Excess Cash Balance (if
any) in respect of such Participating Merging Partnership, in the case of each
of clauses (i) and (ii), without interest thereon, to which such LP Interest is
entitled pursuant to this Section 3.4.
(b) As of the Effective Time, each LP Interest in each Transitory
Partnership issued and outstanding as of the Effective Time shall be converted
into one fully issued and nonassessable LP Interest in the Surviving
Partnership in each Merger between such Transitory Partnership and its
corresponding Participating Merging Partnership.
(c) Each GP Interest in each of the Participating Merging Partnerships
outstanding immediately prior to the Effective Time shall be converted into and
shall become one fully paid and nonassessable GP Interest in the Surviving
Partnership in each Merger. As of the Effective Time, each GP Interest in each
Transitory Partnership shall no longer be outstanding and shall automatically
be cancelled and retired and shall cease to exist, and each holder of such GP
Interests shall cease to have any rights in respect thereto.
Section 3.5 Payment of Merger Consideration.
(a) At the Effective Time, as required by Section 3.5(b) hereof, the Company
shall deposit with such agent or agents as may be appointed by the Company (the
"Payment Agent") for the benefit of the holders of LP Interests in the
Participating Merging Partnerships, cash in an aggregate amount equal to the
sum of the Participating Partnership Consideration Amounts for each
Participating McNeil Partnership (such sum, the "Merger Consideration," and the
Merger Consideration deposited with the Payment Agent is referred to as the
"Merger Fund").
(b) Immediately following the Effective Time, the Payment Agent shall mail
to each holder of record of certificate(s) which immediately prior to the
Effective Time represented outstanding LP Interests in the Participating
Merging Partnerships (the "Certificates") and which were converted into the
right to receive the Merger Consideration pursuant to Section 3.4 hereof (or,
in the case of any Participating Merging Partnership which is a Merging Private
Partnership, each holder of record of an LP Interest in such Merging Private
Partnership): (i) a letter of transmittal (which shall specify that delivery
shall be effected and risk of loss and title to the LP Interests shall pass to
the Company only upon delivery of the Certificates (or, in the case of any
Participating Merging Partnership which is a Merging Private Partnership, upon
the delivery by such holder of record of appropriate documentation and the
delivery by MPLP of the affidavit specified in Section 3.5(d)
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hereof) to the Payment Agent and shall be in such form and have such other
provisions as the Company may reasonably specify); and (ii) instructions for
effecting the surrender of the Certificates (or delivery of such appropriate
documentation and affidavit) in exchange for the Per Unit Consideration Amount
which such holder has the right to receive pursuant to Section 3.4 hereof
(taking into account different classes (if any) of LP Interests in such
Participating Merging Partnership). Upon surrender of a Certificate for
cancellation (or delivery of such appropriate documentation and affidavit) to
the Payment Agent together with such letter of transmittal duly executed, the
holder of such LP Interests shall be entitled to receive in exchange therefor a
check representing the Per Unit Consideration Amount which such holder has the
right to receive pursuant to Section 3.4 hereof, and any Certificates so
surrendered shall forthwith be cancelled. In the event of a transfer of
ownership of LP Interests in a Participating Merging Partnership which is not
registered in the transfer records of such Participating Merging Partnership,
payment of the Per Unit Consideration Amount which such holder has the right to
receive pursuant to Section 3.4 hereof may be made to a transferee if the
Certificate representing such LP Interests (or, in the case of any
Participating Merging Partnership which is a Merging Private Partnership, if
the affidavit specified in Section 3.5(d) hereof and a suitable bond or
indemnity) is presented to the Payment Agent accompanied by all documents
required to evidence and effect such transfer. Until surrendered as
contemplated by this Section 3.5, each Certificate shall be deemed at and after
the Effective Time to represent only the right to receive upon such
Certificate's surrender the Per Unit Consideration Amount which the holder of
such Certificate has the right to receive pursuant to Section 3.4 hereof. The
Surviving Partnerships shall have the right to, and shall, take all steps
necessary to ensure compliance, and shall comply, with all withholding
obligations with respect to any foreign holders of LP Interests in connection
with the payment of any Per Unit Consideration Amount. No interest will be paid
or will accrue on any Per Unit Consideration Amount upon the surrender of any
Certificate.
(c) In the event that any Certificate shall have been lost, stolen or
destroyed, the Payment Agent shall issue in exchange therefor, upon the making
of an affidavit of that fact by the holder thereof, the Per Unit Consideration
Amount which the holder of such Certificate has the right to receive pursuant
to Section 3.4 hereof; provided, however, that the Payment Agent shall (unless
the Company determines otherwise) require the delivery of a suitable bond or
indemnity, the form of which bond or indemnity shall be acceptable to the
Company.
(d) In the case of LP Interests in the Participating Merging Partnerships
which are Merging Private Partnerships, the Payment Agent shall issue in
exchange therefor, upon the making of an affidavit as to the identity of each
owner of LP Interests in such Merging Private Partnership by MPLP (in the case
of Hearth Hollow and Midwest Properties) and Robert A. McNeil (in the case of
Regency North), the Per Unit Consideration Amount which the holder of LP
Interests therein has the right to receive pursuant to Section 3.4 hereof.
(e) All Merger Consideration paid upon the surrender for exchange of LP
Interests in the Participating Merging Partnerships in accordance with the
terms of this Agreement shall be deemed to have been paid in full satisfaction
of all rights pertaining to such LP Interests; provided, however, that
notwithstanding anything to the contrary contained in this Agreement, the
Surviving Partnership in each of the Mergers shall continue to have an
obligation following the Effective Time (i) to pay distributions with a record
date prior to the Effective Time which may have been declared by a
Participating Merging Partnership on LP Interests in such Participating McNeil
Partnership in accordance with the terms of this Agreement or declared prior to
the date of this Agreement and, in either case, which remain unpaid at the
Effective Time and (ii) to distribute to the former limited partners of each
Participating Merging Partnership the Positive Excess Cash Balance (if any) in
respect of such Participating Merging Partnership in accordance with Section
2.4(c) hereof. From and after the Effective Time, there shall be no further
registration of transfers on the transfer books of the Surviving Partnerships
of LP Interests in the Participating Merging Partnerships which were
outstanding immediately prior to the Effective Time. If, after the Effective
Time, Certificates are presented to the Surviving Partnerships for any reason,
such Certificates shall be canceled and exchanged as provided in this Section
3.5. If, after the Effective Time, owners of LP Interests in any Merging
Private Partnerships who are identified on the affidavits
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described in Section 3.5(d) hereof request payment in respect of such LP
Interests from the Surviving Partnerships for any reason, the Per Unit
Consideration Amount which such owner has the right to receive pursuant to
Section 3.4 hereof and which has not theretofore been paid to such owner shall
be delivered to such owner in exchange for such LP Interests.
(f) None of the Payment Agent, the parties to this Agreement, the Transitory
Partnerships, the Company LLCs or any of their respective affiliates shall be
liable to any holder of an LP Interest in a Participating Merging Partnership
for cash from the Merger Fund delivered to a public official pursuant to any
applicable abandoned property, escheat or similar law.
(g) Any portion of the Merger Fund which remains undistributed to the
holders of LP Interests in the Participating Merging Partnerships for a period
of six months after the Effective Time shall be delivered to the Company, upon
demand of the Company, and any such holder who has not theretofore complied
with this Section 3.5 shall thereafter look only to the Company for payment of
the Per Unit Consideration Amount which such holder had the right to receive
pursuant to Section 3.4 hereof, and any unpaid distributions, subject to
applicable escheat and other similar laws. The McNeil Partnerships shall pay
all charges and expenses relating to the Mergers, and the Company shall
reimburse the McNeil Partnerships, on the Closing Date and immediately prior to
the distributions contemplated by Section 2.4(c) hereof, in an amount in cash
equal to one-half of the amount of the charges and expenses relating to the
Payment Agent (the "Merger Expense Reimbursement").
ARTICLE IV
Representations and Warranties of Sellers
Except as set forth in the disclosure letter delivered by Sellers to the
Company prior to the execution of this Agreement (the "Seller Disclosure
Letter") and referenced in the particular section of this Agreement to which
exception is being taken, (i) MPLP, in its capacity as general partner of each
of the McNeil Partnerships (other than Fairfax, Regency North and Summerhill),
represents and warrants to the Company as of the date of this Agreement as to
each of the McNeil Partnerships (other than Fairfax, Regency North and
Summerhill) and such McNeil Partnership's respective Seller Subsidiaries (if
any), (ii) MII, in its capacity as general partner of MPLP, represents and
warrants to the Company as of the date of this Agreement as to MPLP and as to
each of the McNeil Partnerships (other than Fairfax, Regency North and
Summerhill) and such McNeil Partnership's respective Seller Subsidiaries (if
any), (iii) each McNeil Partnership severally (and not jointly) represents and
warrants to the Company as of the date of this Agreement as to itself and its
respective Seller Subsidiaries (if any), (iv) Robert A. McNeil, in his capacity
as the general partner of Fairfax and a general partner of Regency North,
represents and warrants to the Company as of the date of this Agreement as to
each of Fairfax and Regency North and Regency North's Seller Subsidiaries, (v)
Fairfax represents and warrants to the Company as of the date of this Agreement
as to itself, (vi) Regency North represents and warrants to the Company as of
the date of this Agreement as to itself and its Seller Subsidiaries, (vii)
Summerhill GP, in its capacity as general partner of Summerhill, represents and
warrants to the Company as of the date of this Agreement as to Summerhill,
(viii) Summerhill represents and warrants to the Company as of the date of this
Agreement as to itself and its Seller Subsidiaries, (ix) MPLP represents and
warrants to the Company as of the date of this Agreement as to itself, (x) MII
represents and warrants to the Company as of the date of this Agreement as to
itself, (xi) Summerhill GP represents and warrants to the Company as of the
date of this Agreement as to itself and (xii) McREMI represents and warrants to
the Company as of the date of this Agreement as to itself, in each case, as
follows:
Section 4.1 Organization, Standing and Power.
(a) Each of McREMI and MII is a corporation duly incorporated, validly
existing and in good standing under the laws of the State of Delaware, and
Summerhill GP is a corporation duly incorporated, validly existing and in good
standing under the laws of the State of Texas, and each of McREMI, MII and
Summerhill GP has
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the requisite corporate power and authority to carry on its business as now
being conducted and is duly qualified or licensed to do business as a foreign
corporation and is in good standing (with respect to jurisdictions which
recognize such concept) in each jurisdiction in which the nature of its
business or the ownership or leasing of its properties makes such qualification
or licensing necessary, other than in such jurisdictions where the failure to
be so qualified or licensed or to be in good standing, individually or in the
aggregate, would not have a Seller Material Adverse Effect.
(b) MPLP is a limited partnership duly formed, validly existing and in good
standing under the laws of the State of Delaware, has the requisite partnership
power and authority to carry on its business as now being conducted and is duly
qualified or licensed to do business as a foreign limited partnership and is in
good standing (with respect to jurisdictions which recognize such concept) in
each jurisdiction in which the nature of its business or the ownership or
leasing of its properties makes such qualification or licensing necessary,
other than in such jurisdictions where the failure to be so qualified or
licensed or to be in good standing, individually or in the aggregate, would not
have a Seller Material Adverse Effect.
(c) Each McNeil Partnership is a limited partnership duly formed, validly
existing and in good standing under the laws of the state of formation set
forth opposite the name of such partnership on Schedule 4.1(c) of the Seller
Disclosure Letter, has the requisite partnership power and authority to carry
on its business as now being conducted and is duly qualified or licensed to do
business as a foreign limited partnership and is in good standing (with respect
to jurisdictions which recognize such concept) in each jurisdiction in which
the nature of its business or the ownership or leasing of its properties makes
such qualification or licensing necessary, other than in such jurisdictions
where the failure to be so qualified or licensed or to be in good standing,
individually or in the aggregate, would not have a Seller Material Adverse
Effect.
(d) Complete and correct copies of the respective charters and bylaws of
McREMI, MII and Summerhill GP and complete and correct copies of the respective
certificate of limited partnership and limited partnership agreements of MPLP
and the McNeil Partnerships, in each case as amended or supplemented to the
date of this Agreement, have been made available to the Company.
(e) Each Subsidiary Corporation is a corporation duly incorporated and
validly existing under the laws of its jurisdiction of incorporation and has
the requisite corporate power and authority to carry on its business as now
being conducted, and each Subsidiary Partnership is a partnership duly formed
and validly existing under the laws of its jurisdiction of formation and has
the requisite partnership power and authority to carry on its business as now
being conducted. Each Seller Subsidiary is duly qualified or licensed to do
business and is in good standing (with respect to jurisdictions which recognize
such concept) in each jurisdiction in which the nature of its business or the
ownership or leasing of its properties makes such qualification or licensing
necessary, other than in such jurisdictions where the failure to be so
qualified or licensed, individually or in the aggregate, would not have a
Seller Material Adverse Effect. True and correct copies of the respective
certificate of incorporation, by-laws, partnership agreement, limited
partnership agreement, certificate of partnership and certificate of limited
partnership, as applicable, and other organizational documents of each Seller
Subsidiary, in each case as amended or supplemented to the date of this
Agreement, have been made available to the Company.
Section 4.2 Capital Structure; Title and Ownership of McREMI Assets.
(a) Schedule 4.2(a) of the Seller Disclosure Letter sets forth the following
information with respect to MPLP and each of the McNeil Partnerships, opposite
the name of such partnership: (i) the capital structure of such partnership
(including, with respect to each McNeil Partnership, the number of limited
partners of such partnership as of the date specified in such Schedule 4.2(a));
(ii) as of the date specified in such Schedule 4.2(a), to the best Knowledge of
Sellers, the ownership of any holders of five percent or more of the
partnership interests of such partnership; (iii) the general partners of such
partnership; (iv) any other names such partnership was formerly known as; and
(v) with respect to each McNeil Partnership, each real property owned directly
by such McNeil Partnership or owned by a Seller Subsidiary of such McNeil
Partnership. MII is
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the sole general partner of MPLP. Except as set forth in this Section 4.2 or on
Schedule 4.2(a) of the Seller Disclosure Letter and except as contemplated by
the terms of this Agreement, no other units of partnership interest or other
equity interests in the McNeil Partnerships were issued, reserved for issuance
or outstanding. All outstanding units of partnership interest or other equity
interest of each McNeil Partnership (i) have been duly authorized and are
validly issued, fully paid and nonassessable and (ii) are subject to no
restrictions except as set forth in the limited partnership agreement of such
McNeil Partnership. Except as set forth on Schedule 4.2(a) of the Seller
Disclosure Letter, none of the McNeil Partnerships has issued or granted or is
a party to any outstanding commitments, agreements, options, arrangements or
undertakings of any kind relating to units of partnership interest or any other
equity interest of such McNeil Partnership or securities convertible into units
of partnership interest or any other equity interest of such McNeil
Partnership.
(b) Except as set forth on Schedule 4.2(b) of the Seller Disclosure Letter,
as of the date of this Agreement, McREMI has, and immediately prior to the
contributions described in Section 2.3(a)(iii) hereof MPLP will have, good and
marketable title to all of the McREMI Assets free and clear of all Liens.
(c) As of the date of this Agreement, except as set forth on Schedule 4.2(c)
of the Seller Disclosure Letter, (i) Robert A. McNeil has good and valid title
to all of the GP Interests in Fairfax, (ii) Robert A. McNeil has good and valid
title to all of the GP Interests in Regency North owned by him, (iii)
Summerhill GP has good and valid title to all of the GP Interests in
Summerhill, (iv) MPLP has good and valid title to (A) all of the GP Interests
in each McNeil Partnership (other than Fairfax, Regency North and Summerhill),
(B) all of the GP Interests in the MPLP GP Subsidiaries, and (C) all of the
shares of capital stock in the MPLP Subsidiary Corporations, (v) Robert A.
McNeil has good and valid title to all of the LP Interests in Fairfax owned by
him, and (vi) Robert A. McNeil and Carole J. McNeil have good and valid title
to all of the LP Interests in Summerhill, in the case of each of clauses (i)
through (vi) above, free and clear of all Liens.
(d) Immediately prior to the contributions described in Sections 2.3(a)(i),
2.3(a)(ii) and 2.3(a)(iii) hereof, MPLP shall have (i) good and valid title to
(A) all of the GP Interests in each Participating McNeil Partnership, (B) all
of the GP Interests in the MPLP GP Subsidiaries of the Participating McNeil
Partnerships, and (C) all of the shares of capital stock in the MPLP Subsidiary
Corporation of the Participating McNeil Partnerships, in each case, free and
clear of all Liens, (ii) good and valid title to all of the LP Interests in
Fairfax, free and clear of all Liens, if Fairfax is a Participating McNeil
Partnership, (iii) good and valid title to all of the LP Interests in
Summerhill, free and clear of all Liens, if Summerhill is a Participating
McNeil Partnership, and (iv) good and marketable title to all of the McREMI
Assets, free and clear of all Liens.
(e) Except as set forth on Schedule 4.2(e) of the Seller Disclosure Letter,
all distributions to holders of LP Interests in the McNeil Partnerships which
have been declared by any McNeil Partnership prior to the date of this
Agreement have been paid in full.
(f) Except as set forth on Schedule 4.2(f) of the Seller Disclosure Letter
and except for interests in certain of the Seller Subsidiaries and certain of
the McNeil Partnerships, none of the McNeil Partnerships or MPLP owns directly
or indirectly any interest or investment (whether equity or debt) in any
corporation, partnership, joint venture, business trust or other entity (other
than investments in investment securities) ("Other Interest"). None of the
Seller Subsidiaries owns directly or indirectly any Other Interest other than
its interest (if any) in other Seller Subsidiaries.
(g) Schedule 4.2(a) of the Seller Disclosure Letter sets forth, with respect
to each Seller Subsidiary: (i) the identity (including any names it was
formerly known as) and equity interest of any person with any equity interest
in such Seller Subsidiary and (ii) each real property owned by such Seller
Subsidiary. Except as set forth in this Section 4.2, no other shares of capital
stock, partnership interests or other equity interests in the Seller
Subsidiaries were issued, reserved for issuance or outstanding. Each of the
outstanding shares of capital stock or outstanding partnership interests in
each of the Seller Subsidiaries of the McNeil Partnerships is duly authorized,
validly issued, fully paid and nonassessable (other than to secure any
outstanding indebtedness to third party lenders with respect to any McNeil
Partnership Property owned directly or indirectly by such Seller
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Subsidiary). Other than as set forth on Schedule 4.2(a) of the Seller
Disclosure Letter, each Seller Subsidiary of a McNeil Partnership is wholly-
owned, directly or indirectly, by MPLP, such McNeil Partnership or other Seller
Subsidiaries of such McNeil Partnership, free and clear of all Liens. None of
the Seller Subsidiaries has issued or granted or is a party to any outstanding
commitments, agreements, options, arrangements or undertakings of any kind
relating to shares of capital stock, partnership interests or other equity
interests of such Seller Subsidiary or securities convertible into shares of
capital stock, partnership interests or other equity interests of such Seller
Subsidiary.
Section 4.3 Authority; Noncontravention; Consents.
(a) Each of MII, McREMI and Summerhill GP has the requisite corporate power
and authority to enter into this Agreement and the other Transaction Documents
to which it is a party and to consummate the transactions contemplated by this
Agreement and the other Transaction Documents to which it is a party. MPLP has
the requisite partnership power and authority to enter into this Agreement and
the other Transaction Documents to which it is a party and to consummate the
transactions contemplated by this Agreement and the other Transaction Documents
to which it is a party. Each McNeil Partnership has the requisite partnership
power and authority to enter into this Agreement and the other Transaction
Documents to which it is a party and, subject to the requisite approvals of its
partners, to consummate the transactions contemplated by this Agreement and the
other Transaction Documents to which it is a party. The execution and delivery
by each Seller of this Agreement and the other Transaction Documents to which
such Seller is a party and the consummation by such Seller of the transactions
contemplated by this Agreement and the other Transaction Documents to which
such Seller is a party have been duly authorized by all necessary action on the
part of such Seller, except for and subject to the approval by each Merging
Partnership of the Merger in respect of such Merging Partnership, the MPLP
Contributions in respect of such Merging Partnership and the appointment of the
applicable New GP LLC as the successor general partner of such Merging
Partnership by the requisite approval of the limited partners of such Merging
Partnership. This Agreement has been duly executed and delivered by each
Seller, and each of the other Transaction Documents has been duly executed and
delivered by each Seller which is a party thereto, and, assuming the due
execution and delivery of this Agreement and each such other Transaction
Document by every other party hereto and thereto, respectively, this Agreement
and each of such other Transaction Documents each constitutes a valid and
binding obligation of such Seller, enforceable against such Seller in
accordance with and subject to its terms, subject, as to enforcement, to (i)
applicable bankruptcy, insolvency, reorganization, moratorium or similar laws
now or hereinafter in effect affecting creditors' rights generally and (ii)
general principles of equity. The board of directors of MII (as general partner
of the general partner of each of the McNeil Partnerships, other than Fairfax,
Regency North and Summerhill), the board of directors of Summerhill GP (as the
general partner of Summerhill), Robert A. McNeil (as the general partner of
Fairfax and a general partner of Regency North) and the limited partners of
Summerhill have duly and validly approved, and taken all action required to be
taken by them for the consummation of, the Mergers, the MPLP Contributions, the
appointments of the applicable New GP LLCs as the successor general partners of
the McNeil Partnerships and the other transactions contemplated by this
Agreement and the other Transaction Documents.
(b) With respect to each Seller, except as set forth on Schedule 4.3(b) of
the Seller Disclosure Letter, the execution, delivery and performance by such
Seller of this Agreement and the other Transaction Documents to which such
Seller is a party do not, and the consummation by such Seller of the
transactions contemplated by this Agreement and the other Transaction Documents
to which such Seller is a party and compliance by such Seller with the
provisions of this Agreement and the other Transaction Documents to which such
Seller is a party shall not, conflict with, or result in any violation of, or
default (with or without notice or lapse of time, or both) under, or give rise
to a right of termination, cancellation or acceleration of any obligation or to
loss of a benefit under, or any other change in rights or obligations of any
party under (including the right to amend or modify or refuse to perform or
comply with), or result in the creation of any Lien upon any of the properties
or assets of such Seller or its Seller Subsidiaries under, (i) (A) in the case
of McREMI, MII, Summerhill GP and each Subsidiary Corporation, the respective
charter and bylaws of McREMI, MII, Summerhill GP and each such Subsidiary
Corporation, each as amended or supplemented to the date of this Agreement, and
(B) in the
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case of MPLP, each McNeil Partnership and each such Subsidiary Partnership, the
respective certificate of partnership, certificate of limited partnership,
partnership agreement or limited partnership agreement of MPLP, each McNeil
Partnership and each such Subsidiary Partnership, each as amended or
supplemented to the date of this Agreement, (ii) any loan or credit agreement,
note, bond, mortgage, indenture, lease or other material agreement or
obligation applicable to such Seller or its Seller Subsidiaries or their
respective properties or assets, or (iii) subject to the governmental filings
and other matters referred to in the following sentence of this Section 4.3(b),
any judgment, order, decree, statute, law, ordinance, rule, regulation,
arbitration award, agency requirement, license or permit of any Governmental
Entity (collectively, "laws") applicable to such Seller or its Seller
Subsidiaries or their respective properties or assets, other than, in the case
of clause (ii) or (iii) above, any such conflicts, violations, defaults,
rights, losses, changes or Liens that, individually or in the aggregate, would
not have a Seller Material Adverse Effect or prevent the consummation by such
Seller of the transactions contemplated by this Agreement and the other
Transaction Documents to which such Seller is a party. With respect to each
Seller, no consent, approval, order or authorization of, or filing with, any
federal, state or local government or any court, administrative or regulatory
agency or commission or other governmental authority or agency, domestic or
foreign (each, a "Governmental Entity"), or third party is required by or with
respect to such Seller or its Seller Subsidiaries in connection with the
execution and delivery by such Seller of this Agreement or the other
Transaction Documents to which such Seller is a party, or the consummation by
such Seller of the transactions contemplated by this Agreement and the other
Transaction Documents to which such Seller is a party, except for (i) the
filing with the Securities and Exchange Commission (the "SEC") by the Public
McNeil Partnerships of the Proxy Statements and, if required by applicable law,
the Schedule 13E-3, (ii) the acceptance for record of the Merger Certificate
and any other documents required by the Governing Law applicable to each
Merging Partnership and each Transitory Partnership, by the Secretary of State
of the state of formation of such Merging Partnership and such Transitory
Partnership, (iii) requisite approval of the limited partners of the Merging
Partnerships, and (iv) such other consents, approvals, orders or authorizations
of, or filings with, any Governmental Entity or third party (A) as are set
forth on Schedule 4.3(b) of the Seller Disclosure Letter or (B) which, if not
obtained or made, would not have, individually or in the aggregate, a Seller
Material Adverse Effect or prevent the consummation by such Seller of the
transactions contemplated by this Agreement and the other Transaction Documents
to which such Seller is a party.
(c) Solely for purposes of determining compliance with the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the "HSR Act"), each Seller
confirms that the conduct of its business consists solely of investing in,
owning, developing and operating, directly or indirectly through its
subsidiaries, real estate for the benefit of its stockholders or partners, as
the case may be, and that the McREMI Assets consist of management contracts
relating to the McNeil Partnership Properties owned by the Participating McNeil
Partnerships or their Seller Subsidiaries and other assets directly relating to
the Participating McNeil Partnerships or their Seller Subsidiaries.
Section 4.4 Compliance with Laws. Other than in respect of Environmental
Laws and except as set forth on Schedule 4.4 of the Seller Disclosure Letter,
Sellers and the Seller Subsidiaries are not violating or failing to comply
with, and have not violated or failed to comply with, any law of any
Governmental Entity applicable to their business, properties or operations,
except to the extent that such violation or failure to comply, individually or
in the aggregate, would not have a Seller Material Adverse Effect or prevent
the consummation by any Seller of the transactions contemplated by this
Agreement and the other Transaction Documents to which such Seller is a party.
Except as set forth in the Seller SEC Documents filed prior to the date hereof,
and, except as set forth on Schedules 4.4, 4.7, 4.8(b), 4.8(c), 4.9 and 4.10 of
the Seller Disclosure Letter, no investigation or review by any Governmental
Entity with respect to any of Sellers or Seller Subsidiaries is pending or, to
the Knowledge of Sellers, threatened, nor has any Governmental Entity indicated
an intention to conduct the same, except for those the outcome of which would
not, individually or in the aggregate, have a Seller Material Adverse Effect or
prevent the consummation by any Seller of the transactions contemplated by this
Agreement and the other Transaction Documents to which such Seller is a party.
To the Knowledge of Sellers, no material change is required in Sellers' or the
Seller Subsidiaries' processes, properties
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or procedures in connection with any such laws, and except as set forth on
Schedules 4.4, 4.7, 4.8(b), 4.8(c), 4.9 and 4.10 of the Seller Disclosure
Letter, Sellers have not received any written notice or communication of any
material noncompliance with any such laws that has not been cured. Except as
set forth on Schedules 4.4, 4.8(a), 4.8(b), 4.8(c), 4.8(e) and 4.9 of the
Seller Disclosure Letter, each of Sellers and each of the Seller Subsidiaries
has all permits, licenses, trademarks, trade names, copyrights, service marks,
franchises, variances, exemptions, orders and other authorizations, consents
and approvals from Governmental Entities necessary to conduct its business as
presently conducted except those the absence of which would not, individually
or in the aggregate, have a Seller Material Adverse Effect or prevent the
consummation by any Seller of the transactions contemplated by this Agreement
and the other Transaction Documents to which such Seller is a party.
Section 4.5 SEC Documents; Financial Statements; Undisclosed Liabilities.
(a) The McNeil Partnerships that are required to file reports with the SEC
pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), are identified on Schedule 4.5(a) of the Seller
Disclosure Letter (collectively, the "Public McNeil Partnerships"), and have
filed all required reports, schedules, forms, statements and other documents
with the SEC since January 1, 1996 (collectively, including any such reports
filed in the period subsequent to the date hereof but prior to the Closing
Date, and as amended, the "Seller SEC Documents," and the financial statements
of the Public McNeil Partnerships included in the Seller SEC Documents, the
"Public McNeil Partnership Statements"). All of the Seller SEC Documents (other
than preliminary material), as of their respective filing dates, complied (or,
in the case of any Seller SEC Documents filed in the period subsequent to the
date hereof but prior to the Closing Date, will comply as of their respective
filing dates) in all material respects with all applicable requirements of the
Securities Act of 1933, as amended (the "Securities Act"), and the Exchange
Act, and, in each case, the rules and regulations promulgated thereunder
applicable to such Seller SEC Documents. None of the Seller SEC Documents at
the time of filing contained (or, in the case of any Seller SEC Documents filed
in the period subsequent to the date hereof but prior to the Closing Date, will
contain at the time of filing) any untrue statement of a material fact or at
the time of filing omitted (or, in the case of any Seller SEC Documents filed
in the period subsequent to the date hereof but prior to the Closing Date, will
omit at the time of filing) to state any material fact required to be stated
therein or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading.
(b) Each of the Private McNeil Partnerships has made available to the
Company copies of its unaudited balance sheets as of March 31, 1999 and
December 31, 1998 and its related unaudited statements of operations and cash
flows for the three-month period ended March 31, 1999 and for the year ended
December 31, 1998 (such financial statements, collectively with the Public
McNeil Partnership Statements, the "McNeil Partnership Statements"). In
addition: Regency North has made available to the Company copies of the audited
balance sheet as of December 31, 1998 and the related audited statements of
operations and cash flows for the year ended December 31, 1998 for Regency
North Apartments Limited Partnership, a Subsidiary Partnership of Regency
North; Hearth Hollow has made available to the Company copies of the audited
balance sheet as of December 31, 1998 and the related audited statements of
operations and cash flows for the year ended December 31, 1998 for Hearth
Hollow Apartments Limited Partnership, a Subsidiary Partnership of Hearth
Hollow; and Midwest Properties has made available to the Company copies of its
audited balance sheet as of December 31, 1998 and its audited statements of
operations and cash flows for the year ended December 31, 1998 and copies of
the audited balance sheets as of December 31, 1998 and the related audited
statements of operations and cash flows for the year ended December 31, 1998
for each of Cedarwood Hills Associates and East Bay Village Apartments Limited
Partnership, each of which is a Subsidiary Partnership of Midwest Properties
(all such financial statements described in this sentence, the "Subsidiary
Financial Statements"). McREMI has made available to the Company copies of its
unaudited balance sheet as of March 31, 1999 and its audited balance sheet as
of December 31, 1998, and its related unaudited statements of operations and
cash flows for the three-month period ended March 31, 1999 and its related
audited statements of operations and cash flows for the year ended December 31,
1998. MII and MPLP have made available to the Company copies of their unaudited
consolidated balance sheet as of March 31, 1999 and their audited consolidated
balance sheet as of December 31, 1998, and their related unaudited consolidated
statements of operations and cash flows for
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the three-month period ended March 31, 1999 and their related audited
consolidated statements of operations and cash flows for the year ended
December 31, 1998. The financial statements of McREMI and the consolidated
financial statements of MII and MPLP made available to the Company in
accordance with this paragraph (b), together with the McNeil Partnership
Statements, are referred to in this Agreement as the "Seller Statements."
(c) The Public McNeil Partnership Statements complied (or, in the case of
Public McNeil Partnership Statements contained in any Seller SEC Documents
filed in the period subsequent to the date hereof but prior to the Closing
Date, will comply) as to form in all material respects with the published rules
and regulations of the SEC with respect thereto in effect at the time of such
filing, and the audited Seller Statements have been prepared (or, in the case
of any Seller Statements prepared for any period subsequent to the date hereof
but prior to the Closing Date, will be prepared) in accordance with GAAP in
effect at the time of such preparation applied on a consistent basis during the
periods involved (except as may be indicated in the notes thereto). Each of the
Seller Statements fairly presented (or, in the case of any Seller Statements
for such Seller prepared for any period subsequent to the date hereof but prior
to the Closing Date, will fairly present) in all material respects the
financial position of the applicable Seller (and its consolidated subsidiaries,
if applicable) for which such Seller Statements were prepared as of the date
thereof and fairly presented (or, in the case of any Seller Statements for such
Seller prepared for any period subsequent to the date hereof but prior to the
Closing Date, will fairly present) in all material respects the results of
operations, cash flows and changes in financial position of such Seller or the
consolidated results of operations, cash flows and changes in financial
position of the applicable Seller or Seller Subsidiary for which such Seller
Statements were prepared for the period then ended (subject, in the case of
unaudited statements, to normal year-end audit adjustments).
(d) Except for liabilities and obligations set forth in the Seller SEC
Documents filed prior to the date hereof, in the Seller Statements (including
the notes thereto) made available to the Company or contained in Seller SEC
Documents filed prior to the date hereof or in the Subsidiary Financial
Statements (including the notes thereto) or on Schedule 4.5(d) of the Seller
Disclosure Letter and except for liabilities and obligations incurred in the
ordinary course since the respective dates of the balance sheets included in
the Seller Statements made available to the Company or contained in Seller SEC
Documents filed prior to the date hereof, there are no liabilities or
obligations of the Seller (or its consolidated subsidiaries, if applicable) in
respect of which such Seller Statement was prepared of any nature (whether
accrued, absolute, contingent or otherwise) required by GAAP to be set forth on
the respective balance sheets of such Seller (and its consolidated
subsidiaries, if applicable) included in the Seller Statements made available
to the Company or contained in the Seller SEC Documents filed prior to the date
hereof or in the notes thereto and which, individually or in the aggregate,
would have a Seller Material Adverse Effect or prevent the consummation by
Sellers of the transactions contemplated by this Agreement and the other
Transaction Documents to which Sellers are parties.
Section 4.6 Absence of Certain Changes. Except as disclosed in the Seller
SEC Documents filed prior to the date hereof, in the Seller Statements
(including the notes thereto) made available to the Company prior to the date
hereof or the Subsidiary Financial Statements (including the notes thereto) or
on Schedule 4.6 of the Seller Disclosure Letter, since December 31, 1998 (the
"Audit Date"), the McNeil Partnerships have conducted their businesses only in
the ordinary course and there has not been: (i)(x) any change in the financial
condition, properties, businesses or results of operations of the McNeil
Partnerships and their consolidated subsidiaries (taken as a whole) or (y) to
the Knowledge of Sellers, any development or combination of developments with
respect to the McNeil Partnerships and their consolidated subsidiaries (taken
as a whole) that in the case of clause (x) or (y), individually or in the
aggregate, has had or would have a Seller Material Adverse Effect; (ii) any
damage, destruction, loss, whether or not covered by insurance, or other event
with respect to the McNeil Partnerships and their consolidated subsidiaries
(taken as a whole) which, individually or in the aggregate, has had or would
have a Seller Material Adverse Effect; (iii) except for regular semiannual
distributions in an amount not to exceed ten million dollars ($10,000,000) in
the aggregate for each such semiannual period or except as otherwise provided
in this Agreement, any authorization, declaration, setting aside or payment of
any dividend or other distribution (whether in cash, stock or property) with
respect to the units of partnership interest of the McNeil Partnerships; (iv)
any reclassification of the units of partnership interest of the McNeil
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Partnerships or any issuance or the authorization of any issuance of any other
securities in respect of, in lieu of or in substitution for units of
partnership interest in the McNeil Partnerships; (v) any change in accounting
methods, principles or practices of the McNeil Partnerships materially
affecting the assets, liabilities or business of the McNeil Partnerships (taken
as a whole), except insofar as may have been required by a change in Law or
GAAP; (vi) except as permitted by the terms of this Agreement, any amendment of
any employment, consulting, severance, retention or any other similar agreement
between the McNeil Partnerships and any officer or director of the McNeil
Partnerships; or (vii) any acquisition or disposition of any real property of
the McNeil Partnerships or their Seller Subsidiaries, or any commitment to do
so, made by any Seller or the Seller Subsidiaries. Since the date of this
Agreement, there has not been any increase in the compensation payable or that
would become payable by the McNeil Partnerships or their Seller Subsidiaries to
officers or key employees of Sellers or the Seller Subsidiaries, or any
amendment of any compensation or benefit plans (if any) of, McREMI, the McNeil
Partnerships or their Seller Subsidiaries, other than regular year-end bonuses
consistent with past practice, budgeted salary increases, increases in salary
in the ordinary course consistent with past practice, any such increase in
compensation or amendment that would not result in any liability or obligation
of the Company or any of the Participating McNeil Partnerships or their
respective subsidiaries after the Closing Date.
Section 4.7 Litigation. Schedule 4.7 of the Seller Disclosure Letter sets
forth a list of all litigation in which service of process has been received by
any Seller or any Seller Subsidiary or which, to the Knowledge of Sellers, is
threatened against any Seller or any Seller Subsidiary or affects any Seller,
any Seller Subsidiary or any McNeil Partnership Property, in each case as of
the date specified in such Schedule 4.7. Except as disclosed on Schedule 4.7 of
the Seller Disclosure Letter, as of the date of this Agreement, there is no
suit, action or proceeding pending in which service of process has been
received by the McNeil Partnerships or any Seller Subsidiary or, to the
Knowledge of Sellers, threatened against any McNeil Partnership or any Seller
Subsidiary or affects any McNeil Partnership, any Seller Subsidiary or any
McNeil Partnership Property. Other than as indicated on Schedule 4.7 of the
Seller Disclosure Letter, (i) none of the suits, actions or proceedings pending
with respect to which service of process has been received by any McNeil
Partnership or any Seller Subsidiary or, to the Knowledge of Sellers,
threatened against any McNeil Partnership or any Seller Subsidiary or affecting
any McNeil Partnership, any Seller Subsidiary or any McNeil Partnership
Property, individually or in the aggregate, would have a Seller Material
Adverse Effect or prevent the consummation by any Seller of the transactions
contemplated by this Agreement and the other Transaction Documents to which
such Seller is a party, and (ii) there is no judgment, decree, rule or order of
any Governmental Entity or arbitrator outstanding against or affecting any
McNeil Partnership or any Seller Subsidiary or any McNeil Partnership Property
having, or which in the future would have, a Seller Material Adverse Effect or
prevent the consummation by any Seller of the transactions contemplated by this
Agreement and the other Transaction Documents to which such Seller is a party.
Section 4.8 Properties.
(a) (i) Except as set forth on Schedule 4.8(a) of the Seller Disclosure
Letter, the McNeil Partnerships or the Seller Subsidiaries own good and
insurable fee simple title (or, with respect to those real properties listed on
Schedule 4.8(a) of the Seller Disclosure Letter as being leasehold interests,
own good and valid leasehold estates) to each of the real properties identified
on Schedule 4.8(a) of the Seller Disclosure Letter (the "McNeil Partnership
Properties"), which are all of the real estate properties owned by them as of
the date of this Agreement, and no other person has any ownership interest in
the McNeil Partnership Properties or any contract, option, right of first
refusal or other agreement to purchase any McNeil Partnership Property or any
part thereof, except as set forth on such Schedule 4.8(a) or otherwise provided
in this Agreement. As of the date of this Agreement, Schedule 4.8(a) of the
Seller Disclosure Letter contains a list of the latest surveys and owner's
title policies obtained by Sellers with respect to each of the McNeil
Partnership Properties, true and complete copies of which surveys and title
policies have been made available to the Company. Each of the McNeil
Partnership Properties is owned by the McNeil Partnerships or the Seller
Subsidiaries, free and clear of all Liens, mortgages or deeds of trust,
security interests or other encumbrances on title (collectively,
"Encumbrances") and is not subject to any rights of way, easements, restrictive
covenants, declarations, written
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agreements, laws, ordinances and regulations affecting building use or
occupancy, or reservations of any interest in title (collectively, "Property
Restrictions"), except for the following (collectively, except for the matters
set forth under the caption "Other Items" on Schedule 4.8(a) of the Seller
Disclosure Letter (such matters, the "Other Items"), the "Permitted
Restrictions and Encumbrances"): (i) Property Restrictions and Encumbrances
disclosed on the title commitments attached to the letter agreement between
Lawyer's Title Insurance Corporation and Arent Fox Kintner Plotkin & Kahn PLLC,
dated as of June 23, 1999 (such title commitments, as marked, together with
such letter agreement, the "Title Commitments"), or of which the Company has
knowledge (other than the Other Items, matters disclosed by new surveys of a
McNeil Partnership Property obtained by the Company after June 1, 1999 (unless
such matters were specifically and expressly disclosed by, and were readily and
directly apparent from, the existing surveys referenced on Schedule 4.8(a)),
matters marked "omit", "delete" or otherwise noted as being required to be
omitted or satisfied on the Title Commitments, and matters identified as the
"Task List" (excluding the matters listed on Schedule A to the Task List) on
Schedule 4.8(a) of the Seller Disclosure Letter); (ii) Property Restrictions
imposed or promulgated by law or any Governmental Entity with respect to real
property, including zoning regulations, which would not materially and
adversely affect the continued use or value of any McNeil Partnership Property
as it is being used as of the date of this Agreement; (iii) mechanics',
carriers', workmen's and repairmen's liens, which are being contested in good
faith, have heretofore been bonded or which, individually or in the aggregate,
do not exceed one hundred thousand dollars ($100,000); (iv) Property
Restrictions and Encumbrances which (A) could not reasonably preclude the
continued use of such McNeil Partnership Property as it is being used as of the
date of this Agreement or (B) could not reasonably materially and adversely
affect the value of such McNeil Partnership Property as it is being used as of
the date of this Agreement; (v) Taxes that are not yet delinquent; (vi) as of
the date of this Agreement, the Existing Loans; and (vii) as of the Closing
Date, the Non-Terminated Loans.
(i) Schedule 4.8(a) of the Seller Disclosure Letter contains a true and
complete list of all of the ground leases affecting the McNeil Partnership
Properties (the "Ground Leases"). To the Knowledge of Sellers, each such
Ground Lease is in full force and effect, has not been modified or amended
in any way except by a document listed in Schedule 4.8(a) of the Seller
Disclosure Letter. Each of Sellers and its Seller Subsidiaries has fully
performed all of their material obligations under such Ground Leases.
Except as set forth on Schedule 4.8(a) of the Seller Disclosure Letter,
neither any of Sellers nor any of the Seller Subsidiaries has received any
written notice of any default by it, as tenant, under any Ground Lease and,
to the Knowledge of Sellers, there is no fact or circumstance which, with
the giving of notice or the passage of time, would result in a material
default under such Ground Lease.
(b) Except for Permitted Restrictions and Encumbrances, except as disclosed
on Schedule 4.8(b) or 4.8(o) of the Seller Disclosure Letter or in the
documents referenced in such Schedule 4.8(b) or 4.8(o) and except as otherwise
set forth in the most recent capital expenditure budget of the McNeil
Partnerships, true and complete copies of which have been made available to the
Company: (i) there is no certificate, permit or license from any Governmental
Entity having jurisdiction over the McNeil Partnership Properties, and there is
no agreement, easement or other right which is necessary to permit the lawful
use and operation of the buildings and improvements on the McNeil Partnership
Properties as they are being used as of the date of this Agreement, or which is
necessary to permit the lawful use and operation of all driveways, roads and
other means of lawful egress and ingress to and from the McNeil Partnership
Properties, that has not been obtained and is not in full force and effect, and
there is no pending threat of modification or cancellation thereof, except
where the failure to obtain the same would not have a Seller Material Adverse
Effect or prevent the consummation by any Seller of the transactions
contemplated by this Agreement and the other Transaction Documents to which
such Seller is a party; (ii) to the Knowledge of Sellers, all of the McNeil
Partnership Properties have sufficient parking that complies with all laws and
that is part of the McNeil Partnership Properties; (iii) none of Sellers or the
Seller Subsidiaries has received any written notice of any violation of any
federal, state or municipal Law issued by a Governmental Entity materially and
adversely affecting any portion of any McNeil Partnership Property; (iv) to the
Knowledge of Sellers, except for Known Defects, there are no structural defects
relating to any individual McNeil Partnership Property which would cost more
than twenty thousand dollars ($20,000) to repair or which,
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individually or in the aggregate, would have a Seller Material Adverse Effect;
(v) to the Knowledge of Sellers, except for Known Defects, there are no
individual McNeil Partnership Properties whose building systems and fixtures
are not in working order and repair and which would cost more than twenty
thousand dollars ($20,000) to repair or which, individually or in the
aggregate, would have a Seller Material Adverse Effect; (vi) there is no
physical damage to any McNeil Partnership Property for which there is no
insurance in effect covering the cost of restoration, except for such physical
damage that would not have a Seller Material Adverse Effect; and (vii) each
McNeil Partnership Property is an independent property that does not rely on
any facilities (other than public facilities and public roads) located on any
property not included in such McNeil Partnership Property to fulfill any
requirement of any Governmental Entity or for the furnishing to such McNeil
Partnership Property of any essential building systems or utilities, except for
any such reliance for which such McNeil Partnership Property has a legal or
equitable right with respect thereto.
(c) Except for Permitted Restrictions and Encumbrances and except as
disclosed on Schedule 4.8(a) or 4.8(c) of the Seller Disclosure Letter or in
the documents referenced in such Schedule 4.8(a) or 4.8(c), none of the McNeil
Partnerships has received written notice to the effect that there are, and, to
the Knowledge of Sellers, there are no, (i) condemnation or rezoning
proceedings that are pending or threatened with respect to the McNeil
Partnership Properties that would have a Seller Material Adverse Effect or (ii)
any zoning, building or similar laws, codes, ordinances, orders or regulations
or condition or agreements contained in any easement, restrictive covenant or
any similar instrument or agreement affecting any McNeil Partnership Property
that are or will be violated by the continued maintenance, operation or use of
any buildings or other improvements on the McNeil Partnership Properties or by
the continued maintenance, operation or use of the parking areas where such
violation would have a Seller Material Adverse Effect. Except for Known Defects
and except as disclosed on Schedule 4.8(a) or 4.8(c) of the Seller Disclosure
Letter, in the documents referenced in such Schedule 4.8(a) or 4.8(c) or in the
Seller Statements (including the notes thereto) or the Subsidiary Financial
Statements (including the notes thereto) made available to the Company or
contained in Seller SEC Documents filed prior to the date hereof, or except as
would not have a Seller Material Adverse Effect, all work to be performed,
payments to be made and actions to be taken by Sellers or the Seller
Subsidiaries prior to the date of this Agreement pursuant to any agreement
entered into with a Governmental Entity in connection with a site approval,
zoning reclassification or similar action relating to any McNeil Partnership
Property (e.g., Local Improvement District or Road Improvement District, but
excluding any such approval, reclassification or action relating to
environmental matters) or as required as a condition to the issuance of any
building permit, certificate of occupancy or zoning variance relating to any
McNeil Partnership Property (e.g., off-site improvements or services or zoning
proffers), has been performed, paid or taken, as the case may be, and, to the
Knowledge of Sellers, there is no planned or proposed work, payments or actions
that may be required after the date of this Agreement pursuant to such
agreements.
(d) As of the date hereof, to the Knowledge of Sellers, other than Permitted
Restrictions and Encumbrances, there are no Encumbrances or defects in title to
any McNeil Partnership Property or any matters affecting title to, or ownership
of, the McNeil Partnership Properties which would materially and adversely
affect the continued use or value of the McNeil Partnership Properties as they
are being used as of the date of this Agreement.
(e) Except as disclosed on Schedule 4.8(e) of the Seller Disclosure Letter,
(i) as of the date hereof, valid policies of title insurance (the "Title
Insurance Policies") have been issued insuring the applicable McNeil
Partnership's or Seller Subsidiary's fee simple (or ground leasehold, as
applicable) title to each of the McNeil Partnership Properties in amounts at
least equal to the purchase price thereof paid by such Seller or Seller
Subsidiary or their respective predecessor, (ii) the Title Insurance Policies
are in full force and effect and (iii) as of the date hereof, to the Knowledge
of Sellers, no claim has been made against any Title Insurance Policy.
(f) Each of the rent rolls for each McNeil Partnership Property as set forth
in Schedule 4.8(f) of the Seller Disclosure Letter dated as of May 1999 (except
for a date otherwise indicated therein) and each of the updated rent rolls to
be made available to the Company within 15 days prior to the estimated Closing
Date (each, a "Rent Roll") is true, complete and accurate as of its date.
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(g) Sellers have made available to the Company true, complete and accurate
copies of all leases for space as of the date of this Agreement in the McNeil
Partnership Properties identified on Annex E hereto as "Commercial Properties"
(the "Commercial Leases"), and all amendments, modifications and supplements
thereto through to the date hereof. Sellers have made available to the Company
true, complete and accurate copies of (i) all Commercial Leases as of the date
of this Agreement and (ii) the form of lease for leases for space as of the
date of this Agreement in the McNeil Partnership Properties not identified on
Annex E hereto as "Commercial Properties" (the "Residential Leases" and,
together with the Commercial Leases, the "Leases"). As of the date of each Rent
Roll, there are no Leases not shown on such Rent Roll, and, to the Knowledge of
Sellers, except for Permitted Restrictions and Encumbrances, as of the date of
each Rent Roll no third party has any occupancy or use rights with respect to
any McNeil Partnership Properties except pursuant to the Leases shown on such
Rent Roll. As of the date of the Rent Roll, except as set forth on Schedule
4.8(g) of the Seller Disclosure Letter, all Leases shown on the Rent Roll are
in full force and effect, each tenant has commenced paying rent thereunder, and
all construction and other obligations of the landlord to be performed as of
the date hereof in connection with the commencement of each Lease have been
performed in full, except where the failure to be in full force or effect, the
failure to commence payment of rent or to perform such obligations would not
have a Seller Material Adverse Effect.
(h) Except as set forth on Schedule 4.8(h) of the Seller Disclosure Letter,
as of the date specified in such Schedule 4.8(h), no tenant is in default under
its Lease for failure to pay rent or other sums when due under its Lease. To
the Knowledge of Sellers, except as set forth on Schedule 4.8(h) of the Seller
Disclosure Letter, no tenant is in default under its Lease which default would
have a Seller Material Adverse Effect. To the Knowledge of Sellers, as of the
date of each Rent Roll, no tenant thereunder is entitled to any free rent,
rebate, rent concession, deduction or offset not set forth in the Leases or not
otherwise approved as a Reimbursable Proposal.
(i) (A) No Seller nor any Seller Subsidiary has failed to perform its
material obligations under any Lease, (B) no Seller nor any Seller Subsidiary
has received any written notice of its default under any of the Leases, and (C)
except as set forth in the Leases, as of the date of each Rent Roll, no tenant
thereunder is entitled to receive money, or any contribution from any Seller or
any Seller Subsidiary, either in money or in kind, on account of the
construction of any improvements, or setoff any amounts against its rental
obligations, which has not otherwise been approved as a Reimbursable Proposal,
except in the case of clauses (A), (B) and (C) as set forth on Schedule 4.8(i)
of the Seller Disclosure Letter or except where such failure to perform, such
default or such entitlement would not have a Seller Material Adverse Effect.
Except as set forth on Schedule 4.8(i) of the Seller Disclosure Letter, to the
Knowledge of Sellers, there are no bankruptcy, reorganization, insolvency or
similar proceedings pending against any tenants under Commercial Leases (the
"Commercial Tenants").
(j) To the Knowledge of Sellers, as of the date of each Rent Roll, there are
no verbal agreements with any tenant, and, to the Knowledge of Sellers, there
are no parties in adverse possession of any part of any McNeil Partnership
Property.
(k) INTENTIONALLY OMITTED.
(l) (i) All tenant improvements and other tenant inducement costs that are
the responsibility of the landlord under any Lease executed prior to the date
hereof have been completed or fully paid or will be completed or fully paid by
the McNeil Partnerships or their respective Seller Subsidiaries, as applicable,
on or prior to the Closing Date and (ii) there is no tenant improvement work in
process for which the landlord is responsible nor any unspent tenant allowance,
other than, in the case of clauses (i) and (ii), for Reimbursable Proposals.
(m) All tenant security deposits are noted in the accounting records of the
applicable McNeil Partnerships or their respective Seller Subsidiaries and are
held in segregated accounts identified as set forth on Schedule 4.8(m) of the
Seller Disclosure Letter.
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(n) Except as set forth on Schedule 4.8(n) of the Seller Disclosure Letter,
there has been no delivery of any written notice to the McNeil Partnerships or
the Seller Subsidiaries regarding any, and to the Knowledge of Sellers there is
no, pending cancellation of any insurance on any McNeil Partnership Property or
repairs, alterations or other work thereon which have been required by any
insurance policy or any Governmental Entities.
(o) Schedule 4.8(o) of the Seller Disclosure Letter sets forth a true and
complete list, as of the date of this Agreement, of all structural reports
regarding the McNeil Partnership Properties that have been ordered and secured
by Sellers or the Seller Subsidiaries, and true and complete copies of such
reports have been made available to the Company. The parties hereto acknowledge
and agree that all Known Defects are deemed to be incorporated by reference
into such Schedule 4.8(o).
(p) All of the McNeil Partnership Properties are managed by McREMI or are
self-managed.
(q) Schedule 4.8(q) of the Seller Disclosure Letter sets forth a true and
complete list, as of the date of this Agreement, of all delinquent real
property tax bills for the McNeil Partnership Properties, true and complete
copies of which have been made available to the Company prior to the date
hereof. True and complete copies of all real property tax bills for the McNeil
Partnership Properties for the most recent fiscal year have been made available
to the Company prior to the date hereof. To the Knowledge of Sellers, true and
complete copies of all real property tax bills for the McNeil Partnership
Properties for the fiscal year ended December 31, 1997 have been made available
to the Company prior to the date hereof. To the Knowledge of Sellers, none of
Sellers nor any Seller Subsidiary has received any written notice of any
proposed special assessments or proposed reassessments relating to the McNeil
Partnership Properties.
Section 4.9 Environmental Matters. For purposes of this Section 4.9, the
term "Hazardous Material" means any substance, material or waste which is
regulated in any concentration or is otherwise defined by any federal, state or
local governmental body under Environmental Law as a "hazardous waste,"
"hazardous material," "hazardous substance," "extremely hazardous waste,"
"restricted hazardous waste," "contaminant," "toxic waste" or "toxic substance"
under any provision of Environmental Law, which includes petroleum, petroleum
products or by-products, asbestos, presumed asbestos-containing material or
asbestos-containing material, lead-containing paint or plumbing, radioactive
material or radon, urea formaldehyde and polychlorinated biphenyls. Except as
disclosed on Schedule 4.9 of the Seller Disclosure Letter or in the reports
referenced in such Schedule 4.9 and except for Known Defects and except for
matters which would not have, individually or in the aggregate, a Seller
Material Adverse Effect:
(a) To the Knowledge of Sellers, there is not present in, on or under any
McNeil Partnership Property any Hazardous Material in such form or quantities
as to create, and Sellers and the Seller Subsidiaries have not created, any
liability or obligation under federal, state, local or other governmental
statute, law (including common law), ordinance or regulation, relating to, or
dealing with the protection of human health or the environment in effect as of
the date of this Agreement ("Environmental Law") for any McNeil Partnership;
(b) There is no pending request, claim, written notice, investigation,
demand, administrative proceeding, hearing or litigation, nor, to the Knowledge
of Sellers, is one threatened, alleging liability under, violation of, or
noncompliance with any Environmental Law or any license, permit or other
authorization issued pursuant thereto ("Environmental Complaints") relating to
any McNeil Partnership Property (or any real property formerly owned or
operated by any of the McNeil Partnerships or any of the Seller Subsidiaries)
and against Sellers or the Seller Subsidiaries, and there is no reasonable
basis for believing that circumstances or conditions exist which would support
any such Environmental Complaint against Sellers or the Seller Subsidiaries
relating to the McNeil Partnership Properties;
(c) Sellers have developed and implemented appropriate operation and
maintenance programs for all of the McNeil Partnership Properties which contain
"Asbestos Containing Materials," have complied with all applicable regulations
of the Occupational Health and Safety Administration regarding asbestos
notification to
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workers and tenants, and have complied with all applicable provisions of the
Lead Based Paint Hazard Reduction Act of 1992 and all regulations promulgated
thereto;
(d) The McNeil Partnership Properties comply with all Environmental Laws;
(e) To the actual knowledge, without any inquiry of or investigation by, the
individuals listed on Schedule 10.1(a) of the Seller Disclosure Letter, no real
property formerly owned or operated by any of the McNeil Partnerships or any of
the Seller Subsidiaries was contaminated with any Hazardous Material during or
prior to such period of ownership or operations; and
(f) Sellers have made available to the Company copies of all material
environmental reports, studies, assessments, sampling data and other
environmental information, in each case, that is in their possession and that
relates to Sellers or the Seller Subsidiaries or their respective current
properties or operations.
Section 4.10 Taxes.
(a) Except as set forth on Schedule 4.10 of the Seller Disclosure Letter,
each McNeil Partnership and its respective Seller Subsidiaries has prepared in
good faith and timely filed all Tax returns and reports required to be filed by
it (after giving effect to any filing extension properly granted by a
Governmental Entity having authority to do so) and has paid (or has had paid on
its behalf) all Taxes shown on such returns and reports as required to be paid
by it or that each McNeil Partnership is obligated to withhold from amounts
owing to any employee, creditor or third party. Except as set forth on Schedule
4.10 of the Seller Disclosure Letter, to the Knowledge of Sellers, all Tax
returns are complete, correct and accurate and the McNeil Partnerships and
their respective Seller Subsidiaries are not required to pay any Taxes other
than as shown on such returns. Except for Taxes that are being contested in
good faith by appropriate proceedings and for which such McNeil Partnership
shall have set aside on its books adequate reserves, which are set forth on
Schedule 4.10 of the Seller Disclosure Letter, none of the McNeil Partnerships
is being audited by any Governmental Entity and there are no pending or, to the
Knowledge of Sellers, threatened audits, examinations, investigations or other
proceedings in respect of Taxes or Tax matters. The most recent audited McNeil
Partnership Statements contained in the Seller SEC Documents or made available
to the Company, as the case may be, reflect an adequate reserve for all
material Taxes payable by the McNeil Partnerships and their respective Seller
Subsidiaries for all taxable periods and portions thereof through the date of
such financial statements, which Taxes are material to the McNeil Partnerships
and their respective Seller Subsidiaries taken as a whole. Except as set forth
on Schedule 4.10 of the Seller Disclosure Letter, to the Knowledge of Sellers,
no deficiencies for any Taxes have been proposed, asserted or assessed against
the McNeil Partnerships and their respective Seller Subsidiaries, and no
requests for waivers of the time to assess any such Taxes are pending. As used
in this Agreement, "Taxes" includes all federal, state, local and foreign
income, property, franchise, employment, excise and other taxes together with
penalties, interest or additions to Tax with respect thereto (but shall not
include any sales or use taxes).
(b) The McNeil Partnerships and the Seller Subsidiaries that have been
partnerships, joint ventures or disregarded entities or limited liability
companies since formation have at all times qualified as partnerships or
disregarded entities for federal income tax purposes. The McNeil Partnerships
and the Seller Subsidiaries that have been partnerships, joint ventures or
disregarded entities or limited liability companies since formation are not
publicly traded partnerships within the meaning of Section 7704 of the Internal
Revenue Code of 1986, as amended (the "Code"), or otherwise taxable as an
association for federal income tax purposes.
Section 4.11 No Payments to Employees, Officers or Directors. Except for the
contracts listed on Schedule 4.11 of the Seller Disclosure Letter or as
otherwise provided for in this Agreement, there is no employment or severance
contract, or other plan, arrangement or agreement, entitling any employees of
McREMI or the officers of any Seller Corporation to severance pay, or
requiring, accelerating the time of payment or vesting, increasing or
triggering payments or funding (through a grantor trust or otherwise) of
compensation or benefits, cancellation of indebtedness or other obligation
(collectively, "Severance Obligations") to be made on a change of control or
otherwise as a result of the consummation of the
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transactions contemplated by this Agreement and the other Transaction
Documents, with respect to any present or former employee, officer or director
of McREMI or such Seller Corporation.
Section 4.12 Related Party Transactions. Set forth on Schedule 4.12 of the
Seller Disclosure Letter is a list of all Related Party Transactions as of the
date of this Agreement. Complete and correct copies, to the extent available,
documenting the Related Party Transactions have been made available to the
Company.
Section 4.13 Employee Benefits.
(a) Schedule 4.13 of the Seller Disclosure Letter contains a true and
complete list as of the date of this Agreement of each: "welfare plan," fund,
contract, policy or program (within the meaning of section 3(1) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA")); "pension plan,"
fund or program (within the meaning of section 3(2) of ERISA); employment,
termination or severance agreement; and other employee benefit plan, fund,
program, contract agreement or arrangement, in each case, that is sponsored,
maintained or contributed to or required to be contributed to by McREMI or by
any trade or business, whether or not incorporated, that together with McREMI
would be deemed a "single employer" within the meaning of section 4001(b) of
ERISA (a "McREMI ERISA Affiliate"), or to which McREMI or any McREMI ERISA
Affiliate is party, for the benefit of any employee or former employee of
McREMI (the "McREMI Plans").
(b) With respect to each McREMI Plan, McREMI has heretofore made available
to the Company true and complete copies of such McREMI Plan and any amendments
thereto, any related trust insurance contract or other funding vehicle, any
reports or summaries required under ERISA or the Code and the most recent
determination letter received from the Internal Revenue Service with respect to
each McREMI Plan intended to qualify under section 401 of the Code.
(c) No liability under Title IV or section 302 of ERISA has been incurred by
McREMI or any McREMI ERISA Affiliate with respect to any ongoing, frozen or
terminated "single-employer plan," within the meaning of Section 4001(a)(15) of
ERISA, currently or formerly maintained by any of them, or the single-employer
plan of a McREMI ERISA Affiliate, that has not been satisfied in full, and, to
the Knowledge of Sellers, no condition exists that presents a material risk to
McREMI or any McREMI ERISA Affiliate of incurring any such liability, other
than liability for premiums due the Pension Benefit Guaranty Corporation (which
premiums have been paid when due).
(d) No McREMI Plan is a "multiemployer pension plan," as defined in section
3(37) of ERISA, and neither McREMI nor any McREMI ERISA Affiliate has
contributed to a multiemployer plan at any time on or after September 1, 1980.
No notice of a "reportable event", within the meaning of Section 4043 of ERISA
for which the 30-day reporting requirement has not been waived, has been
required to be filed for any McREMI Plan or by any McREMI ERISA Affiliate
within the twelve-month period ending on the date hereof or will be required to
be filed in connection with the transactions contemplated by this Agreement.
(e) Each McREMI Plan has been operated and administered in all material
respects in accordance with its terms and applicable law, including but not
limited to ERISA and the Code.
(f) Each McREMI Plan intended to be "qualified" within the meaning of
section 401(a) of the Code has received a favorable determination letter from
the Internal Revenue Service stating that it is so qualified, and, to the
Knowledge of Sellers, no event has occurred since the date of such
determination that would adversely affect such determination.
(g) There are no pending or, to the Knowledge of Sellers, anticipated claims
by or on behalf of any McREMI Plan, by any employee or beneficiary covered
under any such McREMI Plan, or otherwise involving any such McREMI Plan (other
than routine claims for benefits). None of Sellers nor any of the Seller
Subsidiaries has engaged in a transaction with respect to any McREMI Plan that,
assuming the taxable period of such transaction expired as of the date hereof
or as of the Closing Date, could subject McREMI, any McNeil
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Partnership or any Seller Subsidiary to a tax or penalty imposed by either
Section 4975 of the Code or Section 502(i) of ERISA in an amount which would be
material.
(h) All contributions required to be made under the terms of any McREMI Plan
have been timely made or have been reflected on the audited or unaudited
balance sheet of McREMI made available to the Company.
(i) McREMI has no obligations for retiree health and life benefits under any
McREMI Plan. McREMI may amend or terminate any such McREMI Plan at any time
without incurring any liability thereunder, other than claims for benefits
accrued prior to the Effective Time.
Section 4.14 Employee Matters.
(a) Except for the officers of the Seller Corporations set forth on Schedule
4.14(a) of the Seller Disclosure Letter, none of the McNeil Partnerships nor
any of their respective Seller Subsidiaries has any employees.
(b) Schedule 4.14(b) of the Seller Disclosure Letter lists the employee
handbooks of McREMI in effect as of the date of this Agreement. A copy of each
such employee handbook has been made available to the Company. Except as set
forth on Schedule 4.14(b) of the Seller Disclosure Letter, such handbooks
fairly and accurately summarize all material employee policies, vacation
policies and payroll practices of McREMI.
Section 4.15 Contracts; Debt Instruments.
(a) Except as set forth on Schedule 4.15(a) of the Seller Disclosure Letter,
none of Sellers or the Seller Subsidiaries has received a written notice that
any Seller or any Seller Subsidiary is in violation of or in default under, nor
does there exist any condition which upon the passage of time or the giving of
notice or both would cause such a violation of or default under, any loan or
credit agreement, note, bond, mortgage, indenture, lease, permit, concession,
franchise, license or any other material contract, agreement, arrangement or
understanding (each, a "Material Contract"), to which it is a party or by which
it or any of its properties or assets is bound, nor does such a violation or
default exist, except to the extent that such violation or default,
individually or in the aggregate, would not have a Seller Material Adverse
Effect or prevent the consummation of the transactions contemplated by this
Agreement and the other Transaction Documents to which such Seller is a party.
Each Material Contract which has not been filed as an exhibit to any of the
Seller SEC Documents has been previously made available to the Company (except
as noted on Schedule 4.15(a) of the Seller Disclosure Letter) and a list of all
Material Contracts that have not been so filed is set forth in Schedule 4.15(a)
of the Seller Disclosure Letter. Except as set forth in the Seller SEC
Documents filed prior to the date hereof or on Schedule 4.15(a) of the Seller
Disclosure Letter, there is no contract or agreement that purports to limit in
any material respect the geographic location in which McREMI, any of the McNeil
Partnerships or any of the Seller Subsidiaries may conduct its business.
(b) Except for any of the following expressly identified in the Seller SEC
Documents, Schedule 4.15(b) of the Seller Disclosure Letter sets forth a list,
as of the date of this Agreement, of each loan or credit agreement, note, bond,
mortgage, indenture, security agreement, financing statement and any other
material agreement and instrument and all amendments thereto pursuant to which
any Indebtedness of Sellers or any Seller Subsidiary is outstanding or may be
incurred or secured. For purposes of this Agreement, "Indebtedness" means
(i) indebtedness for borrowed money, whether secured or unsecured, (ii)
obligations under conditional sale or other title retention agreements relating
to property purchased by such person, (iii) capitalized lease obligations, (iv)
obligations under any interest rate cap, swap, collar or similar transaction or
currency hedging transactions (valued at the termination value thereof) and (v)
guarantees of any such Indebtedness of any other person.
(c) Except as set forth on Schedule 4.15(b) of the Seller Disclosure Letter,
as of the date of this Agreement, there is no interest rate cap, interest rate
collar, interest rate swap, currency hedging transaction or any other agreement
relating to a similar transaction to which any Seller or any Seller Subsidiary
is a party or an obligor with respect thereto.
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(d) Except as set forth on Schedule 4.15(d) of the Seller Disclosure Letter,
none of Sellers nor any Seller Subsidiary is party to any agreement which would
restrict any of them from prepaying any of their material Indebtedness without
penalty or premium at any time or which requires any of them to maintain any
amount of Indebtedness with respect to any McNeil Partnership Property.
(e) Except as set forth on Schedule 4.15(e) of the Seller Disclosure Letter,
none of Sellers nor any Seller Subsidiary is a party to any agreement relating
to the management or leasing of any McNeil Partnership Property by any person
other than McREMI, except the commercial listing agreements listed on
Schedule 4.15(e) of the Seller Disclosure Letter and except for any service
agreement which either (i) is cancellable upon no greater than sixty (60) days'
notice or (ii) which requires Sellers to make annual payments pursuant thereto
not in excess of fifty thousand dollars ($50,000) per year. Complete and
correct copies of such commercial listing agreements and such service
agreements have been made available to the Company.
(f) None of Sellers nor any Seller Subsidiary is a party to any agreement
pursuant to which any Seller or any Seller Subsidiary manages any real
properties other than the McNeil Partnership Properties, except for the
agreements listed on Schedule 4.15(f) of the Seller Disclosure Letter.
(g) Except for budgeted construction disclosed in the most recent capital
expenditure budget of the McNeil Partnership Properties (a true and complete
copy of which has been made available to the Company), Schedule 4.15(g) of the
Seller Disclosure Letter lists all agreements entered into by any Seller or any
Seller Subsidiary relating to the development or construction of, or additions
or expansions to, any McNeil Partnership Property which are currently in effect
as of the date specified in such Schedule 4.15(g) (collectively, the
"Construction Contracts") and under which Sellers or any Seller Subsidiary
currently has, or expects to incur, an obligation in excess of twenty-thousand
dollars ($20,000). Complete and correct copies of Construction Contracts in
effect as of the date specified in Schedule 4.15(g) of the Seller Disclosure
Letter and under which Sellers or any Seller Subsidiary currently has, or
expects to incur, an obligation in excess of fifty thousand dollars ($50,000)
in any calendar year have been made available to the Company.
(h) Schedule 4.15(h) of the Seller Disclosure Letter lists all agreements,
which are currently in effect as of the date hereof, entered into by any Seller
or any Seller Subsidiary or affecting any McNeil Partnership Property providing
for the sale of, or option to sell, any McNeil Partnership Properties or the
purchase of, or option to purchase, any real estate.
(i) Except as set forth on Schedule 4.15(i) of the Seller Disclosure Letter,
none of Sellers nor any Seller Subsidiary has any continuing contractual
liability (i) for indemnification or otherwise under any agreement relating to
the sale of real estate previously owned, whether directly or indirectly, by
any Seller or any Seller Subsidiary or (ii) to pay any additional purchase
price for any McNeil Partnership Property.
Section 4.16 Brokers. No broker, investment banker, financial advisor or
other person, other than PaineWebber Incorporated, Eastdil, Susan Barlow,
Stanger, and Houlihan, Lokey, Howard & Zukin, the arrangements with which have
previously been made available to the Company, is entitled to any broker's,
finder's, financial advisor's, valuation or other similar fee or commission in
connection with the transactions contemplated by this Agreement or the other
Transaction Documents based upon arrangements made by or on behalf of Sellers,
and Sellers shall pay all such fees at or prior to the Closing.
Section 4.17 Management Agreements. The management agreements listed on
Schedule 4.17 of the Seller Disclosure Letter (the "Management Agreements") are
in full force and effect and no violations of such agreements currently are
occurring by Sellers or the Seller Subsidiaries or, to the Knowledge of
Sellers, parties other than Sellers or the Seller Subsidiaries.
Section 4.18 INTENTIONALLY OMITTED.
Section 4.19 State Takeover Statutes. Each Seller has taken all actions
necessary to exempt the transactions contemplated by this Agreement and the
other Transaction Documents to which it is a party from
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the operation of any "fair price," "moratorium," "control share acquisition" or
any other anti-takeover statute or similar statute that applies to such Seller
(a "Takeover Statute") or any antitakeover provision contained in the limited
partnership agreement, certificate of incorporation or by-laws of any Seller.
Section 4.20 Investment Company Act of 1940. None of Sellers or the Seller
Subsidiaries is, or at the Effective Time will be, required to be registered
under the Investment Company Act of 1940, as amended (the "1940 Act").
Section 4.21 Insurance.
(a) Schedule 4.21(a) of the Seller Disclosure Letter sets forth a true,
correct and complete list, as of the date of this Agreement, of all material
fire and casualty, general liability, business interruption, product liability,
and sprinkler and water damage insurance policies maintained by Sellers (the
"Insurance Policies"). To the Knowledge of Sellers, such Insurance Policies
have been in full force and effect since January 1, 1999.
(b) To the Knowledge of Sellers, Schedule 4.21(b) sets forth a true and
correct list of all Insurance Policies (together with the names of the
respective carriers of such Insurance Policies) maintained by Sellers for any
period since January 1, 1992.
Section 4.22 Year 2000. Sellers are taking steps to institute a program
which is intended to ensure (it being acknowledged and agreed by the parties
hereto that such intention may never be realized) that software systems of
Sellers do not cause the McNeil Partnerships or the Seller Subsidiaries to
experience invalid or incorrect results or abnormal software operation related
to calendar year 2000 except where such invalid or incorrect results or
abnormal software operation would not, individually or in the aggregate, have a
Seller Material Adverse Effect.
Section 4.23 Books and Records. The books and records of each of Sellers and
the Seller Subsidiaries (including, without limitation, the books of account,
minute books and LP Interest record books) are complete and correct in all
material respects. The minute books of each of Sellers and the Seller
Subsidiaries contain accurate and complete records in all material respects of
all meetings held of, and corporate or other action taken by, the equity
holders and the boards of directors (or similar governing body) of the
respective entities and no meetings of or actions by such equity holders or any
such boards of directors (or similar governing body) have been held or taken
for which minutes have not been prepared and are not contained in such minute
books.
Section 4.24 Personal Property. The McNeil Partnerships or the Seller
Subsidiaries have good title to, or a valid leasehold interest in, or other
good and sufficient right to use, all tangible personal properties that are
material to the business and operations of the McNeil Partnerships and the
Seller Subsidiaries taken as a whole.
ARTICLE V
Representations and Warranties of The Company
The Company represents and warrants to each Seller as follows:
Section 5.1 Organization, Standing and Power of the Company, the Company
LLCs and the Transitory Partnerships.
(a) The Company is a limited liability company duly formed and validly
existing under the laws of the State of Delaware and has the requisite power
and authority to carry on its business as now being conducted and on or prior
to the Effective Time will be duly qualified or licensed to do business and
will be in good standing (with respect to jurisdictions which recognize such
concept) in each jurisdiction in which the nature of its business or the
ownership, leasing or use of its properties makes such qualification or
licensing necessary, other than in jurisdictions where the failure to be so
qualified or licensed or to be in good standing, individually
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or in the aggregate, would not prevent the consummation by the Company of the
transactions contemplated by this Agreement and the other Transaction Documents
to which the Company is a party. The Company has delivered to Sellers complete
and correct copies of the Original LLC Agreement, as amended or supplemented to
the date of this Agreement. The Company was formed solely for the purpose of
engaging in the transactions contemplated by this Agreement and has not engaged
in any business activities or conducted any operations other than as expressly
provided for in this Agreement. Other than the Transitory Partnerships and the
Company LLCs upon their formation, the Company has never owned any capital
stock or other equity interests in any other person.
(b) Prior to the contributions described in Section 2.3(a) hereof and in
Section 6.1 of the LLC Agreement, the Company will have no assets or
liabilities or obligations whatsoever (other than the rights and obligations
set forth in this Agreement, the LLC Agreement, the Commitment Letter and any
debt commitment letter the Company may obtain) (the parties hereto acknowledge
and agree that nothing in this Section 5.1(b) shall affect or be deemed to
amend or modify any provision of this Agreement, including Sections 8.1, 8.2
and 8.3 hereof).
(c) From the time of their formation through to the Effective Time, each
Company LLC and each Transitory Partnership will be an entity duly formed and
validly existing under the laws of the state of its formation and shall have
the requisite power and authority to carry on its business and will be duly
qualified or licensed to do business and will be in good standing (with respect
to jurisdictions which recognize such concept) in each jurisdiction in which
the nature of its business or the ownership, leasing or use of its properties
makes such qualification or licensing necessary, other than in such
jurisdictions where the failure to be so qualified or licensed or to be in good
standing, individually or in the aggregate, would not prevent the consummation
of the transactions contemplated by this Agreement. The Company will deliver to
Sellers complete and correct copies of the formation documents of each Company
LLC and each Transitory Partnership. Each Company LLC and each Transitory
Partnership will be formed solely for the purpose of engaging in the
transactions contemplated by this Agreement and will not engage in any business
activities or conduct any operations other than as expressly provided for in
this Agreement. Other than as expressly contemplated by this Agreement, from
the date of their formation through to the Effective Time, each of the Company
LLCs and each of the Transitory Partnerships will not own any capital stock or
other equity interests in any other person (other than the Transitory
Partnerships and the Company LLCs), will conduct no business and will have no
assets or liabilities or obligations whatsoever.
(d) The Company has delivered to Sellers complete and correct copies of the
certificate of formation, limited liability company operating agreement and
other organizational documents of the Company, each as amended and supplemented
to the date of this Agreement. The Company will deliver to Sellers upon
formation complete and correct copies of the certificate of limited
partnership, limited partnership agreement, certificate of formation, limited
liability company operating agreement and other organizational documents of
each of the Company LLCs and each of the Transitory Partnerships, each as
amended and supplemented to the date of this Agreement.
Section 5.2 Capital Structure.
(a) As of the date of this Agreement and as of the time immediately prior to
the contributions described in Section 2.3(a) hereof, WXI/MCN Real Estate,
L.L.C., a Delaware limited liability company (the "Managing Member"), owns all
of the outstanding interests in and is the sole member of the Company. As of
the date of this Agreement and as of the Closing Date, Whitehall Street Real
Estate Limited Partnership XI, a Delaware limited partnership ("Whitehall"), is
the managing member of the Managing Member. At any and all times prior to the
Effective Time, Whitehall shall continue to be the managing member of the
Managing Member, and the Managing Member shall continue to own all of the
outstanding interests in the Company and shall be the sole member of the
Company. All outstanding interests in the Company (i) have been duly authorized
and are validly issued, fully paid and nonassessable and (ii) are subject to no
restriction, except as provided in the Original LLC Agreement. Except as set
forth in this Section 5.2, no interests in the Company are issued, reserved for
issuance or outstanding, and none of the Managing Member, the Company or any
affiliate or
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subsidiary of the Company has outstanding any obligations the holders of which
have the right to vote (or which are convertible, exchangeable or exercisable
for interests having the right to vote) with members of the Company on any
matter. Except as set forth above, there are no outstanding securities,
interests, options, warrants, calls, rights, commitments, agreements,
arrangements or undertakings of any kind obligating the Managing Member, the
Company or any affiliate or subsidiary of the Company to issue, deliver or
sell, or cause to be issued, delivered or sold, additional interests in the
Company or securities or interests convertible, exchangeable or exercisable
into interests in the Company. There are no agreements, arrangements or
understandings of any kind with respect to the voting of interests in the
Company or which restrict the transfer of any such interests, except as
provided in the Original LLC Agreement.
(b) Upon the formation of each Company LLC and each Transitory Partnership,
all outstanding interests in each Company LLC and each Transitory Partnership
(i) will have been duly authorized and validly issued, fully paid and
nonassessable and (ii) will be subject to no restriction, except as provided in
the organizational documents of such entities. As of its formation and through
to the Effective Time, the Company will own all of the outstanding interests in
the Sub LLC (if the Sub LLC is formed), and the Company or the Sub LLC will own
all of the outstanding interests in the other Company LLCs. As of their
formation and through to the Effective Time, the Company or the Sub LLC will
own all of the outstanding LP Interests in, and the applicable New GP LLC will
own all of the outstanding GP Interests in, each Transitory Partnership. Except
as expressly provided for in this Agreement, from their formation through to
the Effective Time, no interests in the Company LLCs or the Transitory
Partnerships will be issued, reserved for issuance or outstanding, and there
will be no outstanding securities, interests, options, warrants, calls, rights,
commitments, agreements, arrangements or undertakings of any kind obligating
any such entity to issue, deliver or sell, or cause to be issued, delivered or
sold, additional interests in such entity or securities or interests
convertible, exchangeable or exercisable into interests in such entity.
Section 5.3 Authority; Noncontravention; Consents.
(a) The Company has the requisite power and authority to enter into this
Agreement and the other Transaction Documents to which it is a party, and to
consummate the transactions contemplated by this Agreement and the other
Transaction Documents to which it is a party. The execution and delivery by the
Company of this Agreement and the other Transaction Documents to which it is a
party and the consummation by the Company of the transactions contemplated by
this Agreement and the other Transaction Documents to which it is a party have
been duly authorized by all necessary action on the part of the Company. This
Agreement has been duly executed and delivered by the Company, and each of the
other Transaction Documents to which the Company is a party has been duly
executed and delivered by the Company, and, assuming the due execution and
delivery of this Agreement and such other Transaction Documents by every other
party hereto and thereto, respectively, this Agreement and such other
Transaction Documents each constitutes a valid and binding obligation of the
Company enforceable against the Company in accordance with and subject to its
terms, subject, as to enforcement, to (i) applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws now or hereinafter in effect
affecting creditors' rights generally and (ii) general principles of equity.
The governing body of the Company has duly and validly approved, and taken all
action required to be taken by them for the consummation of the Mergers, the
MPLP Contributions, the appointments of the applicable New GP LLCs as the
successor general partners of the McNeil Partnerships and the other
transactions contemplated by this Agreement and the other Transaction
Documents.
(b) Prior to the Effective Time, the Company shall have taken all necessary
action to permit the issuance of the Company Interests required to be issued to
the Contributing Partners pursuant to Sections 1.1 and 1.4 hereof. The issuance
and delivery by the Company of such Company Interests shall be, prior to any of
the contributions described in Section 2.3(a) hereof, duly and validly
authorized by all necessary action on the part of the Company. Such Company
Interests, when issued to the Contributing Partners in accordance with the
terms of this Agreement and the LLC Agreement, shall have been duly authorized
and shall be validly issued, fully paid and nonassessable and not subject to
any Liens or any rights or restrictions other than such rights and
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restrictions with respect to such Company Interests as set forth in the LLC
Agreement, the Indemnification Agreement or the DLLCA.
(c) The execution, delivery and performance by the Company of this Agreement
and the other Transaction Documents to which it is a party do not, and the
consummation by the Company of the transactions contemplated by this Agreement
and the other Transaction Documents to which it is a party and compliance by
the Company with the provisions of this Agreement and the other Transaction
Documents to which it is a party shall not, conflict with, or result in any
violation of, or default (with or without notice or lapse of time, or both)
under, or give rise to a right of termination, cancellation or acceleration of
any obligation or to loss of a benefit under, or any other change in rights or
obligations of any party under (including the right to amend or modify or
refuse to perform or comply with), or result in the creation of any Lien upon
any of the properties or assets of the Managing Member, the Company or any of
its subsidiaries under (i) the certificate of formation, operating agreement or
other organizational documents of the Company or the Managing Member, the
charter, bylaws or other organizational documents of any such subsidiary which
is a corporation or the partnership agreement, certificate of partnership, or
limited partnership agreement, certificate of limited partnership or other
organizational documents or operating or similar agreements (as the case may
be) of any such subsidiary which is an entity other than a corporation, each as
amended or supplemented to the date of this Agreement, (ii) any loan or credit
agreement, note, bond, mortgage, indenture, lease or other material agreement
or other obligation, applicable to the Managing Member, the Company or to any
of its subsidiaries or to their respective properties or assets, or (iii)
subject to the governmental filings and other matters referred to in Section
5.3(d) hereof, any Laws applicable to the Managing Member, the Company or to
any of its subsidiaries or to their respective properties or assets, other
than, in the case of clause (ii) or (iii) above, any such conflicts,
violations, defaults, rights, losses or Liens that, individually or in the
aggregate, would not prevent the consummation of the transactions contemplated
by this Agreement and the other Transaction Documents to which the Company, any
Company LLC or any Transitory Partnership is a party.
(d) No consent, approval, order or authorization of, or filing with any
Governmental Entity or third party is required by or with respect to the
Managing Member, the Company or any of the Company's affiliates or subsidiaries
in connection with the execution and delivery of this Agreement or the other
Transaction Documents or the consummation by the Company of the transactions
contemplated by this Agreement and the other Transaction Documents, except for
(i) the acceptance for record of the Merger Certificate and any other documents
required by the Governing Law applicable to each Participating McNeil
Partnership and its respective Transitory Partnership, by the Secretary of
State of the state of formation of such Participating McNeil Partnership and
such Transitory Partnership or (ii) such other consents, approvals, orders or
authorizations of, or filings with, any Governmental Entity or third party
which, if not obtained or made, would not prevent the consummation of the
transactions contemplated by this Agreement and the other Transaction Documents
to which the Company, any Company LLC or any Transitory Partnership is a party.
(e) For purposes of determining compliance with the HSR Act only, the
Company confirms that the conduct of its business and the business of its
subsidiaries consists solely of investing in, owning, developing, managing and
operating real estate, directly or through one or more subsidiaries, for the
benefit of its stockholders or members, as the case may be.
Section 5.4 Compliance with Laws. None of the Managing Member, the Company
nor any of the Company's subsidiaries is violating or failing to comply with,
or has violated or failed to comply with, any Law of any Governmental Entity
applicable to its business, properties or operations, except to the extent that
such violation or failure to comply, individually or in the aggregate, would
not prevent the consummation of the transactions contemplated by this Agreement
and the other Transaction Documents to which the Company, any Company LLC or
any Transitory Partnership is a party. No investigation or review by any
Governmental Entity with respect to the Managing Member, the Company or any
subsidiary of the Company is pending or, to the Knowledge of the Company,
threatened, nor has any Governmental Entity indicated an intention to conduct
the same, except for those the outcome of which would not, individually or in
the aggregate, prevent the consummation of the transactions contemplated by
this Agreement and the other Transaction Documents to
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which the Company, any Company LLC or any Transitory Partnership is a party. To
the Knowledge of the Company, no material change is required in the processes,
properties or procedures of the Managing Member, the Company or any subsidiary
of the Company in connection with any such Laws, and neither the Managing
Member, the Company nor any subsidiary of the Company has received any written
notice or communication of any material noncompliance with any such Laws that
has not been cured. Each of the Managing Member, the Company and each of the
subsidiaries of the Company has all permits, licenses, trademarks, trade names,
copyrights, service marks, franchises, variances, exemptions, orders and other
authorizations, consents and approvals from Governmental Entities necessary to
conduct its business as presently conducted except those the absence of which
would not, individually or in the aggregate, prevent the consummation of the
transactions contemplated by this Agreement and the other Transaction Documents
to which the Company, any Company LLC or any Transitory Partnership is a party.
Section 5.5 Litigation. (i) There is no suit, action or proceeding pending
in which service of process has been received by or, to the Knowledge of the
Company, threatened against or affecting, the Managing Member, the Company or
any subsidiary of the Company that, individually or in the aggregate, would
prevent the consummation of the transactions contemplated by this Agreement and
the other Transaction Documents to which the Company, any Company LLC or any
Transitory Partnership is a party, and (ii) there is no judgment, decree, rule
or order of any Governmental Entity or arbitrator outstanding against the
Managing Member, the Company or any subsidiary of the Company as of the date of
this Agreement which would prevent the consummation of the transactions
contemplated by this Agreement and the other Transaction Documents to which the
Company, any Company LLC or any Transitory Partnership is a party.
Section 5.6 Brokers. Neither the Managing Member, the Company nor any
affiliate or subsidiary of the Company has entered into any agreement with any
broker, investment banker, financial advisor or other person which would
require the Company or Sellers, individually or in the aggregate, to pay any
broker's, finder's, financial advisor's, valuation or other similar fee or
commission in connection with the transactions contemplated by this Agreement
or the other Transaction Documents.
Section 5.7 Investment Company Act of 1940. Neither the Managing Member, the
Company nor any subsidiary of the Company is, or at the Effective Time will be,
required to be registered under the 1940 Act.
Section 5.8 Financing. The Company has entered into a written commitment
letter for financing from Whitehall (the "Commitment Letter"), and Sellers have
received a written guarantee of the Company's obligations under this Agreement
from Whitehall (the "Guarantee"). Regardless of whether or not the transactions
contemplated by the Commitment Letter are consummated or the obligations under
the Guarantee are performed, immediately prior to the Effective Time, the
Company will have sufficient funds to consummate the transactions contemplated
to occur at or after the Effective Time by this Agreement and the other
Transaction Documents. A true, correct and complete copy of the Commitment
Letter and the Guarantee have been delivered to Sellers prior to the date
hereof. The Commitment Letter and the Guarantee are, and have been at all times
since entered into, in full force and effect and have not been withdrawn or
amended or breached by any party thereto. Notwithstanding anything to the
contrary in this Agreement or the other Transaction Documents or the Commitment
Letter or the Guarantee (in each case, whether express or implied), the Company
acknowledges and agrees that its obligation to effect the transactions
contemplated by this Agreement and the other Transaction Documents is not
subject to the availability to Whitehall, the Managing Member, the Company or
any of their respective affiliates or subsidiaries (including affiliates and
subsidiaries both prior to and following the Effective Time) of any debt or
equity or other financing in any amount whatsoever. The parties hereto
acknowledge and agree that nothing in this Section 5.8 shall affect the
condition to Closing set forth in Section 8.2(d)(i) hereof.
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ARTICLE VI
Conduct of Business Pending Merger
Section 6.1 Conduct of Business of Sellers Prior to the Effective
Time. Prior to the Effective Time, except as consented to in writing by the
Company (which consent shall not be unreasonably withheld or delayed), except
as expressly provided for in this Agreement or the other Transaction Documents,
and except as set forth in Schedule 6.1 of the Seller Disclosure Letter, each
Seller covenants that it shall, and shall cause each of its respective Seller
Subsidiaries to:
(a) conduct its business only in the ordinary course and in
substantially the same manner as conducted prior to the date of this
Agreement (including diligent performance of their landlord obligations);
(b) preserve intact its business organizations and goodwill and use its
reasonable efforts to keep available the services of its officers and
employees;
(c) confer on a regular basis with one or more representatives of the
Company to report on material operational matters (it being understood that
all such conversations and exchange of documents (if any) shall be subject
to the Confidentiality Agreement);
(d) promptly notify the Company of any material emergency or other
material change in the condition (financial or otherwise), of its business,
properties, assets, liabilities or the normal course of its businesses or
in the operation of its properties, or of any material governmental
complaints, investigations or hearings (including any fire or casualty
losses or receipt of any written violation notices);
(e) maintain its books and records in accordance with GAAP applied
consistently with past practice and not change in any material manner any
of its methods, principles or practices of accounting in effect at the
Audit Date, except as may be (or may have been) required by applicable law
or GAAP;
(f) duly and timely file all reports, tax returns and other documents
required to be filed with federal, state, local and other authorities,
under the Code and maintain existing insurance coverage;
(g) not make or rescind any express or deemed election relating to
Taxes;
(h) not amend its certificate of incorporation, bylaws, certificate of
limited partnership, limited partnership agreement, certificate of
partnership, partnership agreement or similar organizational documents, as
the case may be, except to cure any ambiguity, to correct or supplement any
provision therein which may be inconsistent with any other provision
therein, or with law, or as may otherwise be required in connection with
the filing of the Proxy Statements and the review of the Proxy Statements
by the SEC;
(i) not make any change in the number of its shares of capital stock or
units of partnership interest issued and outstanding, other than with
respect to units of partnership interest abandoned by a limited partner and
cancelled by the partnership; provided, however, that nothing contained in
this paragraph (i) shall prevent MREF XXVII from repurchasing units of its
LP Interests in accordance with its limited partnership agreement in effect
on the date hereof;
(j) not grant any options or other right or commitment relating to the
issuance of its shares of capital stock or units of partnership interest or
any security convertible into its shares of capital stock or units of
partnership interest, or any security the value of which is measured by its
shares of capital stock or units of partnership interest or any security
subordinated to the claim of its general creditors;
(k) not (i) authorize, declare, set aside or pay any non-cash dividend
or make any other non-cash distribution or payment with respect to any of
its shares of capital stock or units of partnership interest, (ii) directly
or indirectly redeem, purchase or otherwise acquire any of its shares of
capital stock or units of partnership interest or any option, warrant or
right to acquire, or security convertible into, its shares of capital stock
or units of partnership interest, other than units of partnership interest
abandoned by a limited partner and cancelled by the partnership or (iii)
make any payment to McREMI or MPLP in respect of any
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Pre-Allocation Upstream Payable; provided, however, that nothing contained
in this paragraph (k): (1) shall prevent any Seller or any Seller
Subsidiary from making or receiving cash distributions, cash dividends or
cash payments (including, without limitation, Post-Allocation Upstream
Payables); or (2) shall prevent MREF XXVII from repurchasing units of its
LP Interests in accordance with its limited partnership agreement in effect
on the date hereof;
(l) not sell, lease, or amend any existing lease (other than Residential
Leases on lease forms previously approved by the Company and in conformance
with rental guidelines previously approved by the Company), or grant any
easement, right of way, declaration, restriction, mortgage, encumber,
subject to any Lien or otherwise dispose of any of its real properties;
provided, however, that following a request by Sellers to enter into a new
Commercial Lease or to renew an existing Commercial Lease, the Company
shall be required to notify Sellers in writing as to whether or not the
Company consents to such new Commercial Lease or such renewal within five
(5) business days after Sellers' request therefor; provided further,
however, that nothing contained in this paragraph (l) shall prevent any
Seller or any Seller Subsidiary from replacing existing mortgage debt on
any of its properties (whether real, personal or intangible) prior to the
Stanger Determination Date, without the consent of the Company, so long as
such replacement debt is prepayable at any time without penalty, premium,
exit fees or similar charges and has terms substantially similar to those
of mortgage debt incurred by any Seller or any Seller Subsidiary in the
ordinary course of business and does not contain any participating or
contingent interest features;
(m) not sell, lease, mortgage, subject to any Lien or otherwise dispose
of any of its personal property or intangible property, except in the
ordinary course of business or unless such property is replaced with equal
quality items;
(n) not make any loans, advances or capital contributions to, or
investments in, any other person, other than in the ordinary course of
business and other than with respect to Post-Allocation Upstream Payables;
provided, however, that nothing contained in this paragraph (n) shall
prevent any Seller or any Seller Subsidiary from replacing existing
mortgage debt on any of its properties (whether real, personal or
intangible) prior to the Stanger Determination Date, without the consent of
the Company, so long as such replacement debt is prepayable any time
without penalty, premium, exit fees or similar charges and has terms
substantially similar to those of mortgage debt incurred by any Seller or
any Seller Subsidiary in the ordinary course of business and does not
contain any participating or contingent interest features;
(o) not pay, discharge or satisfy any claims, liabilities or obligations
(absolute, accrued, asserted or unasserted, contingent or otherwise), other
than the payment, discharge or satisfaction (i) of all transaction costs in
connection with the transactions contemplated by this Agreement and the
other Transaction Documents, (ii) of claims, liabilities and obligations in
the ordinary course of business consistent with past practice, (iii) in
accordance with their terms, of claims, liabilities and obligations
reflected or reserved against in, or contemplated by, the Seller Statements
(or the notes thereto) included in the Seller SEC Documents filed prior to
the date hereof or in the Seller Statements (or the notes thereto) made
available to the Company prior to the date hereof or in the Subsidiary
Financial Statements (or the notes thereto); (iv) of suits, actions or
proceedings not subject to Section 6.1(v) hereof in the ordinary course of
business; and (v) of Post-Allocation Upstream Payables;
(p) not guarantee the indebtedness of another person, enter into any
"keep well" or other agreement to maintain any financial statement
condition of another person or enter into any arrangement having the
economic effect of any of the foregoing;
(q) except for regular year-end bonuses consistent with past practice,
except for budgeted salary increases and except for increases in salary in
the ordinary course consistent with past practice, not increase any
compensation or enter into or amend any employment agreement with any of
its officers, directors or employees earning more than seventy thousand
dollars ($70,000) per annum, other than waivers by employees of benefits
under such agreements and other than any such increase in compensation,
agreement or amendment that would not result in any increased liability or
obligation upon the Company or any of the Participating McNeil Partnerships
or their subsidiaries after the Closing Date;
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(r) not adopt any new employee benefit plan or amend any existing plans
or rights, except for changes which are required by law, except for changes
which are not in the aggregate more favorable to participants than
provisions presently in effect, and except for changes which would not
result in any increased liability or obligation upon the Company or any of
the Participating McNeil Partnerships or their subsidiaries after the
Closing Date;
(s) not merge or consolidate with any person;
(t) in any transaction or series of related transactions involving
capital, securities, other assets (including cash) or indebtedness of such
Seller or its respective Seller Subsidiaries, not acquire or agree to
acquire by merging or consolidating with, or by purchasing all or any
portion of the equity securities or all or any assets of, or by any other
manner, any business or any person;
(u) not enter into any new or amend any existing leasing commission
agreements, service contracts or management agreements, and not enter into
any new or amend any existing agreement with any Governmental Entity
regarding any McNeil Partnership Property, other than, in either case, (1)
agreements entered into in the ordinary course of business which are
cancellable upon no greater than sixty (60) days' notice and (2) agreements
which are terminable upon the Closing without causing the Company or its
subsidiaries to incur fees and costs or creating any liabilities for the
Company or the Participating McNeil Partnerships or their subsidiaries
after the Closing Date;
(v) not settle or compromise any claim relating to the transactions
contemplated by this Agreement that is brought against any Seller by any
current, former or purported holder of any securities of any McNeil
Partnership without the prior written consent of the Company, which consent
shall not be unreasonably withheld or delayed, other than settlements or
compromises of such claim (i) which involve the making of a lump sum cash
payment as the only obligation of the applicable Sellers or Seller
Subsidiaries as a result of such settlements or compromises, (ii) which
irrevocably and unconditionally release the applicable Sellers, Seller
Subsidiaries, the Company and their affiliates in form consented to by the
Company (which consent shall not be unreasonably withheld or delayed) from
all claims brought, (iii) where any payment under clause (i) above is made
prior to the date of the Pre-Closing Balance Sheets or no payment is
required to be paid by any Participating McNeil Partnership or its Seller
Subsidiaries, and (iv) which do not involve any admission of wrongdoing on
the part of the applicable Participating McNeil Partnerships, their
respective Seller Subsidiaries or the Company;
(w) not take any action which, at the time of the taking of such action,
such party knew or reasonably should have known would cause any
representation or warranty of Sellers set forth in Article IV hereof to
become untrue in any material respect;
(x) not increase the number of Property Employees or Corporate
Employees, in each case by more than 1% over the aggregate number of
employees projected in the most recent budget of McREMI; and
(y) not agree in writing or otherwise to not take any of the actions
described in paragraphs (a) through (f) of this Section 6.1 or not agree in
writing or otherwise to take any of the actions described in paragraphs (g)
through (x) of this Section 6.1.
Section 6.2 Conduct of Business of the Company, the Transitory Partnerships
and the Company LLCs Prior to the Effective Time. Prior to the Effective Time,
except as consented to in writing by MPLP on behalf of Sellers (which consent
shall not be unreasonably withheld or delayed) or except as expressly provided
for in this Agreement or the other Transaction Documents, the Company covenants
that it shall and, as applicable, shall cause the Managing Member and each of
the Company's subsidiaries to:
(a) not conduct any business whatsoever directly or indirectly through
the Company, the Transitory Partnerships or the Company LLCs;
(b) promptly notify Sellers of any material emergency or other material
change in the condition (financial or otherwise) of its assets or the
incurrence of any liabilities or any material emergency or other material
change (financial or otherwise) in Whitehall;
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(c) duly and timely file all reports, tax returns and other documents
required to be filed with federal state, local and other authorities;
(d) not amend the limited partnership agreement, certificate of limited
partnership, operating agreement or other organizational documents of the
Company, the Managing Member, any of the Transitory Partnerships or any of
the Company LLCs;
(e) not make any change (including without limitation in the number
thereof) in any membership or other equity interests in the Company, the
Managing Member, any of the Transitory Partnerships or any of the Company
LLCs, in each case, issued or outstanding;
(f) not grant any options or other right or commitment relating to any
membership or other equity interests in the Company, the Managing Member,
any of the Transitory Partnerships or any of the Company LLCs or any
security convertible into any membership or other equity interests in the
Company, the Managing Member, any of the Transitory Partnerships or any of
the Company LLCs, or any security the value of which is measured by any
membership or other equity interests in the Company, the Managing Member,
any of the Transitory Partnerships or any of the Company LLCs or any
security subordinated to the claim of its general creditors; provided,
however, that nothing contained in this paragraph (f) shall prevent the
formation of the Sub LLC and the issuance of the Preferred Equity Financing
(the parties hereto acknowledge and agree that nothing in this Section
6.2(f) shall affect or be deemed to amend or modify any provision of this
Agreement, including Sections 5.8, 8.1, 8.2 and 8.3 hereof);
(g) (i) not authorize, declare, set aside or pay any dividend or make
any other distribution or payment with respect to any membership or other
equity interests in the Company, the Managing Member, any of the Transitory
Partnerships or any of the Company LLCs and (ii) not directly or indirectly
redeem, purchase or otherwise acquire any membership or other equity
interests in the Company, the Managing Member, any of the Transitory
Partnerships or any of the Company LLCs or any option, warrant or right to
acquire, or security convertible into, membership or other equity interests
in the Company, the Managing Member, any of the Transitory Partnerships or
any of the Company LLCs;
(h) not permit the Company, the Managing Member, any of the Transitory
Partnerships or any of the Company LLCs to make any loans, advances or
capital contributions to, or investments in, any other person; provided,
however, that nothing contained in this paragraph (h) shall prevent the
formation of the Sub LLC and the issuance of the Preferred Equity Financing
(the parties hereto acknowledge and agree that nothing in this Section
6.2(h) shall affect or be deemed to amend or modify any provision of this
Agreement, including Sections 5.8, 8.1, 8.2 and 8.3 hereof);
(i) not permit the Company, the Managing Member, any of the Transitory
Partnerships or any of the Company LLCs to incur any claims, liabilities or
obligations (absolute, accrued, asserted or unasserted, contingent or
otherwise) of any kind or nature whatsoever (other than claims, liabilities
and obligations against any such person for breaches of this Agreement or
any other agreements to which any such person is a party and other than the
Preferred Equity Financing and other financing that the Company or its
subsidiaries may enter into to effect the transactions contemplated by this
Agreement) (the parties hereto acknowledge and agree that nothing in this
Section 6.2(i) shall affect or be deemed to amend or modify any provision
of this Agreement, including Sections 5.8, 8.1, 8.2 and 8.3 hereof);
(j) not permit the Company, the Managing Member, any of the Transitory
Partnerships or any of the Company LLCs to issue or sell any equity
interests, or grant, confer or award any options, warrants or rights of any
kind to acquire any equity interests, including securities convertible or
exchangeable for equity interests in one or more of the Company, the
Managing Member, any of the Transitory Partnerships or any of the Company
LLCs; provided, however, that nothing contained in this paragraph (j) shall
prevent the formation of the Sub LLC and the issuance of the Preferred
Equity Financing (the parties hereto acknowledge and agree that nothing in
this Section 6.2(j) shall affect or be deemed to amend or modify any
provision of this Agreement, including Sections 5.8, 8.1, 8.2 and 8.3
hereof);
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(k) not permit the Company, the Managing Member, any of the Transitory
Partnerships or any of the Company LLCs to incur, guarantee the
indebtedness of another person, enter into any "keep well" or other
agreement to maintain any financial statement condition of another person
or enter into any arrangement having the economic effect of any of the
foregoing;
(l) not permit the Company, the Managing Member, any of the Transitory
Partnerships or any of the Company LLCs to merge or consolidate with any
person;
(m) not permit the Company, the Managing Member, any of the Transitory
Partnerships or any of the Company LLCs to sell, assign, convey, lease,
mortgage, pledge, transfer or otherwise dispose of any of its assets or
properties or adopt any plan of liquidation, dissolution or winding-up;
(n) not take any action which, at the time of the taking of such action,
such party knew or reasonably should have known would cause any
representation or warranty of the Company set forth in Article V hereof to
become untrue in any material respect; and
(o) not agree in writing or otherwise to not take any of the actions
described in paragraphs (b) and (c) of this Section 6.2 or not agree in
writing or otherwise to take any of the actions described in paragraph (a)
and paragraphs (d) through (n) of this Section 6.2.
Section 6.3 Reimbursable Proposals.
(a) During the period from the date hereof through to the Closing Date,
Sellers shall have the option of presenting to the Company one or more
proposals for capital expenditures, tenant inducements (e.g., free rent, other
cash-equivalent inducements, and out-of-pocket inducements) or commissions,
specifying the budgeted amounts therefor, that one or more McNeil Partnerships
are contemplating in connection with one or more new Commercial Leases or the
lease of additional space to an existing Commercial Tenant (each such capital
expenditure, tenant inducement or commission proposal, a "Reimbursable
Proposal"). In addition, the parties hereto acknowledge that on or prior to the
date of this Agreement, Sellers have presented to the Company, and the Company
has approved, the Reimbursable Proposals and the budgeted amounts therefor
listed on Schedule 6.3 of the Seller Disclosure Letter.
(b) To the extent any one or more Reimbursable Proposals with respect to any
Participating McNeil Partnership have been approved by the Company on or prior
to the date hereof or are approved by the Company (which approval shall not be
unreasonably withheld or delayed) subsequent to the date hereof, the Company
shall make a cash contribution to such Participating McNeil Partnership, prior
to the distributions contemplated by Section 2.4(c) hereof, in an amount equal
to the Capital Expenditure Reimbursement for such Participating McNeil
Partnership which shall be taken into consideration in the determination of the
Excess Cash Balance of such Participating McNeil Partnership in accordance with
the Excess Cash Balance Schedule for such Participating McNeil Partnership.
(c) For purposes of this Agreement, the following terms shall have the
following meanings:
(i) "Capital Expenditure Reimbursement" means, for any McNeil
Partnership, the sum of the Capital Expenditure Reimbursement Amounts for
each Reimbursable Proposal for such McNeil Partnership.
(ii) "Capital Expenditure Reimbursement Amount" means, for each
Reimbursable Proposal, an amount equal to the product determined by
multiplying (A) the Reimbursable Proposal Amount for such Reimbursable
Proposal by (B) a fraction (in no event shall such fraction be greater than
one (1)), the numerator of which is the number of months (including any
fraction thereof) in the period beginning on the estimated Closing Date and
ending on the last day of the initial term of the applicable Commercial
Lease and the denominator of which is the aggregate number of months in the
initial term of the applicable Commercial Lease.
(iii) "Completed Amount" means, for any Reimbursable Proposal, an amount
equal to the aggregate amount expended or incurred through to the estimated
Closing Date in connection with such Reimbursable Proposal.
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(iv) "Reimbursable Proposal Amount" means, for any Reimbursable
Proposal, an amount equal to the lesser of (1) the Completed Amount and (2)
the total budgeted amounts for such Reimbursable Proposal; provided,
however, that for any Reimbursable Proposal which will be uncompleted as of
the estimated Closing Date, the "Reimbursable Proposal Amount" for such
Reimbursable Proposal shall be an amount equal to the difference determined
by subtracting (x) the Underbudgeted Amount (if any) for such Reimbursable
Proposal from (y) the Completed Amount for such Reimbursable Proposal.
(v) "Underbudgeted Amount" means, for any Reimbursable Proposal, the
excess (if any) of (1) the sum of (A) the Completed Amount and (B) the
estimated additional amount (which is reasonably and in good faith jointly
determined by the Company and MPLP) required to be expended or incurred
following the estimated Closing Date to complete such Reimbursable Proposal
over (2) the total budgeted amounts for such Reimbursable Proposal.
ARTICLE VII
Additional Covenants
Section 7.1 Preparation of the Proxy Statement; Recommendation of Mergers.
(a) With respect to each Merging Partnership, Sellers shall prepare (and, in
the case of each of the Public McNeil Partnerships, file with the SEC) as soon
as practicable after the date of this Agreement, but in any event not later
than August 31, 1999, which date may be extended by Sellers (subject to
approval of the Company, which shall not be unreasonably withheld or delayed)
or by the Company, a proxy statement with respect to the McNeil Limited Partner
Meeting of such Merging Partnership to approve the Merger in respect of such
Merging Partnership, the MPLP Contributions with respect to such Merging
Partnership, the appointment of the applicable New GP LLC as the successor
general partner of such Merging Partnership and the other transactions
contemplated by this Agreement (each, a "Proxy Statement"). If required by law,
Sellers and any person that may be deemed to be an affiliate of any Public
McNeil Partnership shall prepare and file concurrently with the filing of the
Proxy Statement for such Public McNeil Partnership a Statement on Schedule 13E-
3 (each, a "Schedule 13E-3") with the SEC with respect to such Public McNeil
Partnership. The Company shall, upon request by Sellers, furnish Sellers with
such information concerning itself, the Managing Member and Whitehall as may be
required by law or by any Governmental Entity in connection with any Proxy
Statement, any Schedule 13E-3 or any other statement, filing, notice or
application made by or on behalf of the Company to any third party or any
Governmental Entity or both in connection with the Mergers, the MPLP
Contributions, the appointments of the applicable New GP LLCs as the successor
general partners of the McNeil Partnerships and the other transactions
contemplated by this Agreement. Sellers shall use their reasonable best efforts
to (i) promptly respond to any comments of the SEC and (ii) cause the
respective Proxy Statements to be mailed to the limited partners of the
respective Merging Partnerships as promptly as practicable after the date of
this Agreement. Sellers shall notify the Company promptly of the receipt of any
comments from the SEC and of any request by the SEC for amendments or
supplements to any Proxy Statement or any Schedule 13E-3 or for additional
information and shall supply the Company with copies of all correspondence
between Sellers or any of their representatives, on the one hand, and the SEC,
on the other hand, with respect to any Proxy Statement or any Schedule 13E-3.
The Proxy Statements for the Public McNeil Partnerships and the Schedule 13E-3s
shall comply in all material respects with all applicable requirements of law
and the rules and regulations of the SEC. Whenever any event occurs which is
required to be set forth in an amendment or supplement to any Proxy Statement,
Sellers and the Company each shall promptly inform the other of such
occurrences and Sellers shall prepare (and, in the case of the Public McNeil
Partnerships, file with the SEC) and mail to the limited partners of the
applicable Merging Partnership such amendment or supplement to such Proxy
Statement. Whenever any event occurs which is required to be set forth in an
amendment or supplement to any Schedule 13E-3, Sellers shall promptly inform
the Company of such occurrence, and Sellers and the affiliates of the
applicable Public McNeil Partnership shall file such amendment or supplement.
The Proxy Statements (at the respective dates thereof and at the dates of the
respective McNeil Limited Partner Meetings) and Schedule 13E-3s (at the
respective dates thereof) will not include an untrue
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statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading; provided, however,
that the foregoing shall not apply to the extent that any such untrue statement
of a material fact or omission to state a material fact was made by Sellers in
reliance upon and in conformity with information concerning the Company or any
affiliates of the Company or concerning the Transitory Partnerships or the
Company LLCs furnished to Sellers in writing by the Company specifically for
use in any such Proxy Statements or Schedule 13E-3s.
(b) Each Merging Partnership shall, as soon as practicable following the
date of this Agreement, subject to the time periods set forth in its
organizational documents and in applicable laws, duly call, give notice of,
convene and hold a meeting of its limited partners (a "McNeil Limited Partner
Meeting") to be held at the earliest practicable date following the date the
applicable Proxy Statement is mailed to its limited partners for the purpose of
obtaining requisite approval by its limited partners of the Merger in respect
of such Merging Partnership, the MPLP Contributions with respect to such
Merging Partnership, the appointment of the applicable New GP LLC as the
general partner of such Merging Partnership and the other transactions
contemplated by this Agreement. Unless otherwise prohibited by law, each
Merging Partnership and its general partner shall be required to hold the
McNeil Limited Partner Meeting with respect to such Merging Partnership,
regardless of whether the general partner of such Merging Partnership has
withdrawn, amended or modified its recommendation that the limited partners of
such Merging Partnership approve the Merger in respect of such Merging
Partnership, the MPLP Contributions with respect to such Merging Partnership,
the appointment of the applicable New GP LLC as the general partner of such
Merging Partnership and the other transactions contemplated by this Agreement,
unless this Agreement has been terminated in respect of such Merging
Partnership pursuant to the provisions of Section 9.3 hereof. The general
partner of each of the Merging Partnerships shall recommend to the limited
partners of such Merging Partnership approval of the Merger in respect of such
Merging Partnership, the MPLP Contributions with respect to such Merging
Partnership, the appointment of the applicable New GP LLC as the successor
general partner of such Merging Partnership and the other transactions
contemplated by this Agreement; provided, however, that prior to the McNeil
Limited Partner Meeting for such Merging Partnership (or any adjournment
thereof), the recommendation of the general partner of such Merging Partnership
may be withdrawn, modified or amended as a result of the commencement or
receipt of a proposal constituting a Superior Acquisition Proposal with respect
to such Merging Partnership, but only to the extent expressly permitted under
Section 7.2 hereof.
(c) If on the date of the McNeil Limited Partner Meeting for a Merging
Partnership, such Merging Partnership has not received duly executed proxies
which, when added to the number of votes represented in person at the meeting
by persons who intend to vote to adopt this Agreement, will constitute a
sufficient number of votes to adopt this Agreement (and limited partners
holding greater than a majority of the outstanding LP Interests in such Merging
Partnership have not indicated their intention to vote against, and have not
submitted duly executed proxies voting against, the adoption of this
Agreement), then such Merging Partnership and its general partner shall
recommend the adjournment of its McNeil Limited Partner Meeting until the date
ten (10) days after the originally scheduled date of such McNeil Limited
Partner Meeting.
Section 7.2 Acquisition Proposals. Prior to the Effective Time, each Seller
agrees that:
(a) it shall not, directly or indirectly, through any of its officers,
directors, employees or agents or representatives (including any investment
banker, attorney or accountant) retained by it, and it shall not authorize or
permit its officers, directors, employees or agents or representatives
(including any investment banker, attorney or accountant) retained by it to,
initiate, solicit or encourage any inquiries or the making or implementation of
any Acquisition Proposal or engage in any negotiations concerning or provide
any confidential information or data to, or have any discussions with, any
person relating to an Acquisition Proposal, or otherwise facilitate any efforts
to attempt to make or implement an Acquisition Proposal;
(b) it shall immediately cease and cause to be terminated any existing
activities, discussions or negotiations with any parties conducted heretofore
with respect to any Acquisition Proposal and shall take the
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necessary steps to inform its officers, directors, employees or agents or
representatives (including any investment banker, attorney or accountant)
retained by it of the obligations undertaken in this Section 7.2; and
(c) it shall notify the Company immediately if it receives any such
inquiries or proposals, or any requests for such information, or if any such
negotiations or discussions are sought to be initiated or continued with it;
provided, however, that nothing contained in this Section 7.2: (i) shall
prohibit the general partner of any McNeil Partnership from furnishing
information to or entering into discussions or negotiations with, any person
that makes an unsolicited Acquisition Proposal for such McNeil Partnership, if,
and only to the extent that, (A) such general partner determines in good faith
that such unsolicited Acquisition Proposal could result in a Superior
Acquisition Proposal and that such action is required for such general partner
to comply with its duties to its limited partners imposed by law, (B) prior to
furnishing such information to, or entering into discussions or negotiations
with, such person, such general partner provides written notice to the Company
to the effect that it is furnishing information to, or entering into
discussions with, such person and (C) (1) subject to clause (2) below, such
general partner keeps the Company informed of the status (not the terms) of any
such discussions or negotiations and (2) such general partner complies with the
last sentence of Section 9.3(b) hereof; or (ii) to the extent applicable, shall
prohibit the general partner of any McNeil Partnership from taking and
disclosing to the limited partners of such McNeil Partnership a position, with
respect to such McNeil Partnership, contemplated by Rules 14d-9 and 14e-2 under
the Exchange Act with regard to an Acquisition Proposal for such McNeil
Partnership; provided further, however, that the general partner of any McNeil
Partnership may approve and recommend a Superior Acquisition Proposal and, in
connection therewith, withdraw or modify its approval or recommendation of this
Agreement, the Merger in respect of such McNeil Partnership, the MPLP
Contributions with respect to such McNeil Partnership, the appointment of the
applicable New GP LLC as the successor general partner of such McNeil
Partnership and the other transactions contemplated by this Agreement, prior to
the approval by the holders of LP Interests of such McNeil Partnership of this
Agreement, the Merger in respect of such McNeil Partnership, the MPLP
Contributions with respect to such McNeil Partnership, the appointment of the
applicable New GP LLC as the successor general partner of such McNeil
Partnerships and the other transactions contemplated by this Agreement at the
McNeil Limited Partner Meeting (or any adjournment thereof) of such McNeil
Partnership. Any disclosure that the general partner of any McNeil Partnership
may be compelled to make with respect to the receipt of an Acquisition Proposal
for such McNeil Partnership in order to comply with its duties to its limited
partners or that the general partner of any McNeil Partnership may be compelled
to make in order to comply with Rule 14d-9 or 14e-2, shall not constitute a
violation of this Section 7.2, provided that such disclosure states that no
action shall be taken by such general partner with respect to the withdrawal of
its recommendation of the transactions contemplated hereby or the approval or
recommendation of any Acquisition Proposal except in accordance with this
Section 7.2.
Section 7.3 Access to Information; Confidentiality.
(a) Subject to the requirements of confidentiality agreements entered into
with third parties and subject to all other legal limitations (including
attorney-client and work product privileges, confidentiality, antitrust and
fair trade limitations), Sellers shall (and shall cause their respective Seller
Subsidiaries to) afford to the Company and to the officers, employees,
accountants, counsel, financial advisors and other representatives of the
Company, reasonable access during normal business hours prior to the Effective
Time to such Sellers' and such Seller Subsidiaries' respective properties,
books, contracts, commitments, personnel and records, and Sellers shall (and
shall cause their respective Seller Subsidiaries to) promptly make available to
the Company or its representatives all information concerning such Sellers' and
such Seller Subsidiaries' respective business, properties and personnel as the
Company or its representatives may reasonably request; provided, however, that
no investigation pursuant to this Section 7.3 shall affect or be deemed to
modify any representation or warranty made by Sellers.
(b) Following the date of this Agreement and until and including the Closing
Date, Sellers will prepare in accordance with GAAP applied consistently with
past practice and make available to the Company (i) within forty-five (45) days
following the end of any fiscal quarter, a copy of the unaudited quarterly
balance sheet and
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related unaudited statements of operations and cash flows for such quarter for
each Private McNeil Partnership that is a Participating McNeil Partnership at
such time and (ii) within fifteen (15) days following the end of each fiscal
month, a copy of the unaudited monthly balance sheet and related unaudited
statements of operations and cash flows for such month for each Participating
McNeil Partnership and a Preliminary Excess Cash Balance Schedule for each such
Participating McNeil Partnership. Sellers and the Company will use their best
efforts to respond to any inquiries any such party may have concerning such
quarterly and monthly financial statements and monthly Preliminary Excess Cash
Balance Schedules. No such discussion or failure to raise issues shall become
final and binding upon any party hereto except pursuant to Section 2.4(b)
hereof.
(c) The Company shall, and shall cause its subsidiaries and affiliates to,
and shall cause each of their officers, employees, accountants, counsel,
financial advisors and other representatives to, hold any nonpublic information
relating to Sellers or the Seller Subsidiaries or any of their respective
businesses or properties in confidence to the extent required by, and in
accordance with, the provisions of the letter agreement dated as of March 25,
1999 among Whitehall, MPLP and McREMI (the "Confidentiality Agreement"),
regardless of whether such information was disclosed pursuant to this Section
7.3 or any other provision of this Agreement.
Section 7.4 Reasonable Best Efforts; Notification.
(a) Subject to the terms and conditions provided in this Agreement, Sellers,
on the one hand, and the Company, on the other hand, shall use their respective
reasonable best efforts: (i) to cooperate with one another in (A) determining
which consents, approvals, orders or authorizations of, or filings with, any
Governmental Entities are required to be obtained or made prior to the
Effective Time in connection with the execution and delivery of this Agreement
and the other Transaction Documents, and the consummation of the transactions
contemplated hereby and thereby, and (B) timely making all such filings and
timely seeking all such consents, approvals, orders or authorizations; (ii)
subject to Section 7.8 hereof, without the payment of any consideration
therefor (except as expressly contemplated by this Agreement) and without
compromising their respective rights and without incurring additional
liabilities or obligations, to obtain in writing any consents, approvals,
orders or authorizations required from non-governmental third parties to
effectuate the Mergers, the MPLP Contributions, the appointments of the
applicable New GP LLCs as the successor general partners of the McNeil
Partnerships and the other transactions contemplated by this Agreement and the
other Transaction Documents, such consents, approvals, orders or authorizations
to be in form reasonably satisfactory to Sellers and the Company (it being
acknowledged and agreed that nothing in this Section 7.4(a)(ii) shall affect or
be deemed to amend or modify any provision of this Agreement, including
Sections 5.8, 8.1, 8.2 and 8.3 hereof); and (iii) without the payment of any
consideration therefor and without compromising their respective rights and
without incurring additional liabilities or obligations, to take, or cause to
be taken, all other action and do, or cause to be done, all other things
necessary, proper or appropriate to consummate and make effective the
transactions contemplated by this Agreement and the other Transaction Documents
(it being acknowledged and agreed that nothing in this Section 7.4(a)(iii)
shall affect or be deemed to amend or modify any provision of this Agreement,
including Sections 5.8, 8.1, 8.2 and 8.3 hereof).
(b) If at any time after the Effective Time any further action is necessary
or desirable to carry out the purpose of this Agreement, without the payment of
any consideration therefor and without compromising their respective rights and
without incurring additional liabilities or obligations, each Seller and the
Company shall, and each shall cause its respective affiliates and subsidiaries
to, take all such necessary action. Without the payment of any consideration
therefor and without compromising their respective rights and without incurring
additional liabilities or obligations, Sellers shall use their reasonable
efforts to cooperate with the Company in assisting the Company in its efforts
to correct or satisfy the items set forth on Schedule A to the Seller's Task
List. The Company shall indemnify and hold Sellers harmless for any and all
losses or damages (including reasonable attorneys' fees) that Sellers may
suffer in connection with such cooperative efforts.
(c) Promptly following the Effective Time, McREMI or MPLP shall file
Schedule K-1s with supporting documents (not including Form 15s) with respect
to the Participating McNeil Partnerships to reflect the change of status of
each Participating McNeil Partnership as a result of the transactions
contemplated hereby.
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Section 7.5 Public Announcements.
(a) Sellers, on the one hand, and the Company, on the other hand, shall
consult with each other before the issuance by any of them or by any of their
affiliates, and shall provide each other the opportunity to review and comment
upon, any press release or other written public statements with respect to the
transactions contemplated by this Agreement and the other Transaction
Documents, and shall not, and shall cause their affiliates not to, issue any
such press release or make any such written public statement prior to such
consultation, except as may be required by applicable law, court process or by
obligations pursuant to any listing agreement with any national securities
exchange. The parties agree that the initial press release to be issued with
respect to the transactions contemplated by this Agreement and the other
Transaction Documents shall be in the form mutually agreed to by the parties to
this Agreement prior to the execution of this Agreement.
(b) Prior to the Closing, the Company shall not, and shall cause its
subsidiaries and affiliates not to, and shall cause each of their respective
partners, equity holders, members, officers, directors, managers, employees,
agents, accountants, counsel, financial advisors and other representatives not
to, publicly announce or disclose to any person (other than to senior
management of Sellers and, after notifying such lenders and prospective third
party property managers verbally of the confidential nature of such proposal or
intention, any existing or prospective lenders of the Company and any
prospective third party property managers for the Commercial Properties),
whether verbally or in writing, any proposal or intention to sell, transfer or
otherwise dispose of, in any manner (including by way of merger, consolidation,
exchange, business combination or any other transaction), directly or
indirectly, any of the McNeil Partnerships, Seller Subsidiaries, McNeil
Partnership Properties or assets of McREMI.
Section 7.6 Benefit Plans and Other Employee Arrangements.
(a)(i) Prior to the date of the mailing of the Proxy Statements for the
Participating McNeil Partnerships (the "Proxy Mailing Date"), the Company shall
provide a written list (the "Employment List") to Sellers of each employee of
Sellers or any Seller Subsidiary to whom, as of the Effective Time, the Company
shall cause Management LLC to offer employment (each such employee, a "Listed
Employee") provided that such employee is still an employee of McREMI as of the
Effective Time. The Listed Employees shall be comprised of two groups: one
group shall be comprised of Property Employees for Multifamily Properties and
shall be designated on the Employment List as the "Property Listed Employees"
(the "Property Listed Employees") and the other group shall be comprised of
Corporate Employees and shall be designated on the Employment List as the
"Corporate Listed Employees" (the "Corporate Listed Employees"). The Property
Listed Employees shall not constitute less than 75% of those employees of
McREMI who, as of the Proxy Mailing Date, were Property Employees for
Multifamily Properties with respect to the Participating McNeil Partnerships.
The Corporate Listed Employees shall not constitute less than the Threshold
Amount of those employees of McREMI, who, as of the Proxy Mailing Date, were
Corporate Employees. For purposes of this Agreement, the "Threshold Amount"
shall be an amount equal to the product determined by multiplying (A) the
number of Corporate Employees as of the Proxy Mailing Date by (B) 0.5 by (C) a
fraction, the numerator of which is the total number of McNeil Partnership
Properties of the Participating McNeil Partnerships and their Seller
Subsidiaries and the denominator of which is the total number of McNeil
Partnership Properties of the McNeil Partnerships and their Seller
Subsidiaries. The Company shall cause Management LLC to make such offers of
employment on terms and conditions that are considered reasonable and customary
in the real estate asset/property management industry as of the Closing Date,
taking into account the geographic location of the employee to whom such offer
of employment is being made. All such offers of employment may be made subject
to drug testing, criminal background checks and credit checks.
(ii) The Company shall cause Management LLC to continue the employment of
any Property Employee and any Corporate Employee who accepts such offer of
employment for a period ending on December 31st of the calendar year following
the calendar year in which the Closing occurs subject to termination for cause,
resignation, retirement, performance reasons or business reasons. For purposes
of this Agreement, any employee that accepts an offer of employment from the
Company (or a subsidiary or affiliate of the Company) as of the Closing Date
shall be referred to as an "Affected Employee."
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(iii) In addition to continuing the workforce of McREMI in accordance with
this Section 7.6, the Company shall cause Management LLC, for a period ending
on December 31st of the calendar year following the calendar year in which the
Closing occurs to continue utilizing the McREMI Assets listed on Annex H hereto
to the extent those assets are transferred at Closing; provided, however, that,
to the extent the Company reasonably determines that the continued utilization
of a specific McREMI Asset is not supported by sound business practices,
Management LLC may cease utilization of such asset and, if the Company
reasonably determines that a substitution (which can be accomplished by way of
purchasing, licensing, or leasing such substituted asset from a third party or
an affiliate of the Company or developing such substituted asset in Management
LLC) of such asset would be sound business practice, substitute a more
appropriate asset in its stead; provided further, however, that if the Company
determines not to substitute an asset for a discontinued asset it will not
permit Management LLC to utilize an asset of Archon or its subsidiaries to
provide the underlying function of the discontinued asset. In the event that
Management LLC requires additional employees (because of any Affected
Employee's termination, resignation, death, or retirement), such additional
employees shall become employees of Management LLC.
(iv) Neither the Company (nor any subsidiary or affiliate of the Company)
shall have any obligation to continue the employment of any Affected Employee
that is not a Property Listed Employee or a Corporate Listed Employee for any
specified period of time following the Closing.
(b) At the Effective Time, McREMI shall terminate the employment of each
Affected Employee and shall cause the termination of employment of each other
employee of the Participating McNeil Partnerships and their respective Seller
Subsidiaries, and the employment of each Affected Employee by the Company,
Management LLC or their respective subsidiaries, as the case may be, shall
commence. The Company shall, or shall cause the appropriate subsidiary or
affiliate to, provide health, pension, retirement, disability and other
employee benefits to each Affected Employee on the same terms as, or on terms
not less favorable in the aggregate than, those provided to such Affected
Employee immediately prior to the Effective Time (such benefits, the "Buyer
Plans"). Prior to the Effective Time, McREMI and each applicable Seller
Subsidiary shall cause the cancellation of all employment related agreements
(including, without limitation, all of the agreements listed on Schedule 4.11
of the Seller Disclosure Letter) between it and any of its officers or
directors and shall pay all fees and costs related to such cancellation.
Subject to the provisions of this Section 7.6(b), the Company retains the right
to amend or terminate any of the Buyer Plans at any time.
(c) As of the Effective Time, Affected Employees shall cease to participate
in the McREMI Plans and shall commence participation or shall become eligible
to participate in all Buyer Plans maintained after the Effective Time in
accordance with the second sentence of Section 7.6(b) hereof. McREMI shall
retain responsibility for all McREMI Plan claims incurred by Affected Employees
prior to the Effective Time regardless of when such claim is reported or made.
For purposes of this Section 7.6(c), a claim shall be deemed to have been
incurred when the medical or other service giving rise to the claim is
performed, except that disability claims shall be deemed to have been incurred
on the date the Affected Employee becomes disabled.
(d) The Company shall, or shall cause its appropriate subsidiary or
affiliate to, give each Affected Employee full credit for up to five accrued
vacation days (in accordance with Item I of Note 18 to the applicable
Participating McNeil Partnership's Excess Cash Balance Schedule) and full
credit for purposes of eligibility, vesting, accruing subsequent vacation days
and determination of the level of benefits under each Buyer Plan (other than
incentive compensation plans) for such Affected Employee's service with McREMI
to the same extent recognized by such Seller or Seller Subsidiary immediately
prior to the Effective Time.
(e) The Company shall, or shall cause its appropriate subsidiary or
affiliate to, waive all limitations as to preexisting conditions exclusions and
waiting periods with respect to participation and coverage requirements
applicable to each Affected Employee under any Buyer Plan (except for
preexisting conditions with respect to life insurance coverage), other than
limitations or waiting periods that are already in effect with respect to such
Affected Employee and that have not been satisfied as of the Effective Time
under any McREMI Plan maintained for the Affected Employee immediately prior to
the Effective Time.
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(f) Prior to the Effective Time, McREMI shall terminate any 401(k) Savings
Plan of McREMI (each, a "McREMI 401(k) Savings Plan"), and each employee who is
a participant in any such terminated McREMI 401(k) Savings Plan shall have the
right to elect to receive a distribution of all of such employee's account
balance in such McREMI 401(k) Savings Plan (subject to, and in accordance with,
the provisions of such McREMI 401(k) Savings Plan and applicable law). The
Company shall, or shall cause its appropriate subsidiary or Archon to, take any
and all necessary action (subject to, and in accordance with, the provisions of
the Buyer Plan and applicable law) to cause the trustee of a defined
contribution plan of the Company (or its subsidiaries or Archon), if requested
to do so by a distributee who is an Affected Employee, to accept the direct
"roll over" of all or a portion of any such distribution from any McREMI 401(k)
Savings Plan.
(g) Except as set forth in Section 7.6(h) hereof, McREMI shall be liable for
and be responsible for the administration of all claims, losses, damages and
expenses and other liabilities and obligations relating to or arising out of
all workers' compensation claims of Affected Employees pending as of the
Effective Time, or made after the Effective Time but relating to events
occurring prior to the Effective Time. The Company and its subsidiaries that
employ such Affected Employees shall be liable for and be responsible for the
administration of all claims, losses, damages and expenses and other
liabilities and obligations relating to or arising out of all workers'
compensation claims of Affected Employees made after the Effective Time and
relating to events occurring after the Effective Time.
(h) McREMI shall give or arrange for written notice to be provided to those
employees (and their spouses) of McREMI who are not deemed Affected Employees
(the "Terminated Employees") of their right to elect to pay continuation
coverage under Section 4980B of the Code ("COBRA") in accordance with
applicable law. With respect to continuation coverage under COBRA required to
be provided by McREMI, the Company shall, if requested by McREMI, be
responsible following the Effective Time for administering on behalf of McREMI
(without cost to McREMI) the provision of such coverage for (A) all former
McREMI employees and their present or former dependents covered under COBRA at
the Effective Time and (B) all Terminated Employees and their present or former
dependents; provided, however, that the Company shall not be responsible for
any liabilities associated with COBRA benefit claims (other than liabilities
associated with the failure by the Company to pay-over to the appropriate
insurers the insurance premiums collected from COBRA participants).
(i) Sellers shall, or shall cause their respective Seller Subsidiaries to,
take all necessary action to satisfy, or set aside sufficient funds to satisfy,
all Severance Obligations for the Terminated Employees on or prior to the
Closing Date.
Section 7.7 Ancillary Agreements.
(a) Immediately prior to the Effective Time, each party hereto shall, and
shall cause its affiliates to, execute and deliver each Ancillary Agreement to
which such party or such party's affiliate is a party.
(b) At the Closing, the Company shall, and the Company shall cause Archon
Group, L.P. ("Archon") to, execute and deliver the Portfolio Advisory
Agreement.
Section 7.8 Support Agreements; Financing.
(a) The Company shall, and shall cause the Company's subsidiaries to,
deliver at the Closing such agreements, instruments and other documents
(collectively, the "Replacement Support Agreements") as may be necessary to
assume all of Sellers' and their affiliates' (other than the Participating
McNeil Partnerships' and their subsidiaries') obligations as an indemnitor
under any and all Existing Support Agreements on terms no less favorable than
those under the Existing Support Agreements on the date hereof. The Company
shall use its reasonable efforts to ensure that the Replacement Support
Agreements shall contain provisions releasing Sellers and their pre-Closing
affiliates (other than the Participating McNeil Partnerships and their
subsidiaries) from all obligations thereunder. Without limiting the foregoing,
the Company hereby agrees to indemnify and hold
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harmless Sellers and their pre-Closing affiliates (other than the Participating
McNeil Partnerships and their subsidiaries) from and against all obligations
incurred under the Existing Support Agreements from and after the Closing Date.
MPLP, to the extent that the obligations of MPLP or MII as an indemnitor under
any Existing Support Agreement are not discharged thereunder, agrees to
indemnify and hold harmless the Company from and against all obligations
incurred by MPLP or MII as an indemnitor under any such Existing Support
Agreement prior to the Closing Date.
(b) Without the payment of any consideration therefor (other than as
expressly contemplated by this Agreement), without compromising any rights and
without incurring additional liabilities or obligations, Sellers shall take all
necessary action (including using their reasonable best efforts to obtain any
third party consents) and the Company shall, and shall cause its subsidiaries
and affiliates to, take all necessary action (including cooperating with
Sellers to obtain any third party consents), (i) to enable the Company to repay
all Terminated Loans at the Effective Time and (ii) to permit the Non-
Terminated Loans to continue to remain outstanding without penalty at and after
the Effective Time until their expiration or prepayment as indebtedness of the
persons which incurred the Non-Terminated Loans prior to the Effective Time (it
being acknowledged and agreed that nothing in this Section 7.8(b) shall affect
or shall be deemed to amend or modify any provision of this Agreement,
including Sections 1.5, 8.1, 8.2 and 8.3 hereof).
(c) Without limiting, amending or modifying any other provision of this
Agreement (including Sections 5.8, 8.1, 8.2 and 8.3 hereof), without the
payment of any consideration therefor, without compromising any rights and
without incurring additional liabilities or obligations, Sellers shall
cooperate with the Company to assist the Company in obtaining new financing in
connection with the Mergers and the other transactions contemplated by this
Agreement and the other Transaction Documents.
Section 7.9 Fees and Expenses.
(a) Except as expressly provided to the contrary in this Agreement, whether
or not the transactions contemplated by this Agreement or the other Transaction
Documents are consummated, all costs and expenses incurred in connection with
this Agreement and the other Transaction Documents including, without
limitation, the fees, expenses and disbursements of counsel, financial advisors
and accountants, shall be paid by the party incurring such costs and expenses.
Without limiting the generality of the foregoing, whether or not the
transactions contemplated by this Agreement or the other Transaction Documents
are consummated, McREMI agrees that it shall be liable for the McREMI
Transaction Expenses and each McNeil Partnership agrees that it shall be liable
for its Per Partnership Transaction Expenses; provided, however, that a McNeil
Partnership which becomes an Excluded McNeil Partnership pursuant to Section
9.3(a) hereof shall not be liable for its Per Partnership Transaction Expenses
incurred following the date on which such McNeil Partnership became an Excluded
McNeil Partnership pursuant to Section 9.3(a) hereof, and the Participating
McNeil Partnerships shall share such expenses ratably, based on their relative
Partnership Percentages.
(b) Any Assumption Fees, Prepayment Fees and Transaction Expenses (including
without limitation the McREMI Transaction Expenses) paid by the Contributing
Partners or any Seller (other than a McNeil Partnership) and any fees, expenses
and disbursements incurred and paid by the Contributing Partners or any Seller
(other than a McNeil Partnership) in connection with this Agreement and the
other Transaction Documents, subject to documentation and approval (which shall
not be unreasonably withheld or delayed) by the Board of Managers of the
Company (the "Board of Managers"), in an aggregate amount not to exceed one-
half of the aggregate amount of fees, expenses and disbursements charged to the
Company, its subsidiaries and affiliates by Sullivan & Cromwell with respect to
negotiating and documenting the transactions contemplated by this Agreement and
the other Transaction Documents, shall be treated as a contribution in-kind to
the Company (the "Capitalized McNeil Expenses") by MPLP (or another designee of
the Contributing Partners) in exchange for Company Interests in accordance with
Section 1.4 hereof.
Section 7.10 Allocations. The Company and Sellers each covenant (which
covenant shall survive the Closing and the Effective Time), and the LLC
Agreement shall provide (until thereafter changed in accordance
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with the terms of the LLC Agreement or applicable law), that the Allocations
shall be binding on Sellers and on the Company, its subsidiaries and affiliates
and shall be adhered to by Sellers and by the Company, its subsidiaries and
affiliates for the purposes of reporting the book and tax basis of the
Company's assets.
Section 7.11 Related Party Transactions.
(a) Prior to the Effective Time, except as consented to in writing by the
Company (which consent shall not be unreasonably withheld or delayed), or
except as expressly provided for in this Agreement or the other Transaction
Documents, Sellers shall, and shall cause the Seller Subsidiaries to, settle
all Related Party Transactions with respect to the Participating McNeil
Partnerships in the ordinary course of business prior to the Effective Time. In
the event that any Related Party Transaction is not settled prior to the
Effective Time, such Related Party Transaction shall be cancelled as of the
Effective Time, and all fees and costs related to such cancellation shall be
taken into consideration in calculating the Excess Cash Balance of the
applicable Participating McNeil Partnerships in accordance with the Excess Cash
Balance Schedule.
(b) Notwithstanding anything to the contrary in this Agreement, if
Summerhill is a Participating McNeil Partnership, the Company shall contribute
adequate cash to Summerhill to, and shall cause Summerhill to, repay at the
Effective Time (including all accrued but unpaid interest thereon through to
the Effective Time) the demand note, dated November 17, 1997, payable by
Summerhill to Robert A. McNeil and Carole J. McNeil (the "Summerhill Note").
The parties hereto acknowledge and agree that in determining the Excess Cash
Balance of Summerhill, the Summerhill Note shall be deemed to be a current
liability and no adjustment shall be made to the cash line item to reflect any
payment of the Summerhill Note or any contribution of cash to effect such
payment.
Section 7.12 Stanger Reports. Sellers shall use their reasonable best
efforts to obtain from Stanger the Stanger Opinions, the Allocation Analysis
and, if requested, the Appraisals, and to obtain from Eastdil the Eastdil
Opinions, in each case on or prior to the date on which the Proxy Statements
are mailed to the limited partners of the McNeil Partnerships in accordance
with Section 7.1 hereof.
Section 7.13 Estoppels.
(a) Without the payment of any consideration therefor (other than as
expressly contemplated by this Agreement), without compromising any rights and
without incurring additional liabilities or obligations, Sellers shall use
their reasonable best efforts to obtain (i) the consent and estoppel
certificates and the consents (in each case, in the forms attached as exhibits
to this Agreement) specified in Section 8.2(d) hereof, (ii) the Estoppels (in
each case, in the forms attached as exhibits to this Agreement) from all
Commercial Tenants and from all lessors under each Ground Lease and (iii)
subject to Section 7.13(b) hereof, subordination, non-disturbance and
attornment agreements (the "SNDA Agreements") in the event that the Company
requests in writing that Sellers assist in obtaining SNDA Agreements.
(b) In the event that the Company requests in writing that Sellers assist in
obtaining (i) any consents or estoppels specified in Section 8.2(d) hereof in a
form other than the forms attached as Exhibits to this Agreement ("Other
Consents"), (ii) any Estoppels in a form other than the forms attached as
Exhibits to this Agreement ("Other Estoppels") or (iii) any SNDA Agreements,
the parties hereto acknowledge and agree that Sellers shall have no obligation
to comply with such requests of the Company until Sellers and the Company reach
a mutually acceptable agreement as to the timing of the solicitation of the
Other Consents, Other Estoppels and SNDA Agreements in relation to the
requisite dating of the consents, the consent and estoppel certificates and the
Estoppels attached to this Agreement and as to the content of the Other
Consents, Other Estoppels and SNDA Agreements. Nothing in this Section 7.13(b)
shall limit, amend or modify any other provision of this Agreement (including
Sections 5.8, 8.1, 8.2 and 8.3 hereof), or shall require the payment of any
consideration therefor by any Seller, or shall require compromising any rights
of any Seller or shall require any Seller to incur additional liabilities or
obligations.
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Section 7.14 Harbour Club.
(a) If (i) either MREF XXII or MREF XXIII or both are Participating McNeil
Partnerships and (ii) MREF XXV is an Excluded McNeil Partnership, then MREF XXV
hereby grants to the Company the right (which right shall vest as of the
Effective Time) to purchase the property known as Harbour Club I Apartments,
located at 49000 Denton Road, Belleville, Michigan, together with the property
known as the Harbour Club Golf Course (together, "Harbour Club I"), at a price
equal to eleven million nine hundred sixty thousand dollars ($11,960,000) (the
"Option Price"). In the event that the Company desires to exercise such right,
the Company shall deliver a written notice to MREF XXV of its election to do so
promptly following the Effective Time, but in no event later than the fifteenth
business day following the Closing Date. In the event that such notice has not
been provided to MREF XXV by the Company by such fifteenth business day, then,
to the extent such right has vested in accordance with this Section 7.14(a),
such right shall irrevocably lapse and MREF XXV's obligations in respect
thereof shall be irrevocably discharged. The parties hereto acknowledge and
agree that the closing of the Company's purchase of Harbour Club I must be
completed within twenty (20) business days following the Closing Date.
(b) Notwithstanding anything to the contrary in this Agreement, in the event
that the Company exercises its right to purchase Harbour Club I in accordance
with Section 7.14(a) hereof, the Company shall pay at the closing of such
transaction any indebtedness outstanding which is secured by Harbour Club I
(including all accrued but unpaid interest thereon through to the date of such
closing) and all prepayment fees relating to such indebtedness on Harbour Club
I and the Option Price shall be reduced by the amount of such indebtedness (and
not the prepayment fees).
(c) The obligations of the Company to effect the closing of the Company's
purchase of Harbour Club I pursuant to Section 7.14(a) hereof is subject to the
fulfillment (or waiver by the Company) on the date of such closing of the
following conditions: (i) title to Harbour Club I shall be free and clear of
all Property Restrictions and Encumbrances other than the Permitted
Restrictions and Encumbrances and any matters arising after the Expiration Time
(or, in the case of the Survey Materials, after the Survey Materials Expiration
Time) which (A) would not preclude the continued use of Harbour Club I as it is
being used as of the date of this Agreement or (B) would not materially and
adversely affect the value of Harbour Club I as it is being used as of the date
of this Agreement and (ii) Lawyer's Title Insurance Company (or such other
nationally recognized title insurance company reasonably acceptable to Sellers
and the Company) shall be unconditionally obligated and prepared, subject to
the payment of the applicable title insurance premium and related charges at
the Company's sole cost and expense, to issue to or for the benefit of the
Company and one or more of its subsidiaries, a Title Policy (or the equivalent
in the applicable jurisdiction) for Harbour Club I in an amount requested by
the Company, which shall be a commercially reasonable amount, or, at the option
of the Company, a "date-down" to an existing policy of owner's title insurance.
Such Title Policy shall be issued in accordance with the Title Commitment for
Harbour Club I. In the event that one or both of the conditions set forth in
the immediately preceding clauses (i) and (ii) are not satisfied at the time of
the closing of the Company's purchase of Harbour Club I and the Company has not
waived any such unsatisfied condition prior to such time, MPLP and the Company
agree to negotiate in good faith a fair reduction in the Option Price to take
into account the matters with respect to which such conditions are not
satisfied.
(d) At and after the Effective Time, the owner of Harbour Club I agrees, for
so long as such owner shall continue to own Harbour Club I, to manage, or cause
to be managed, either or both of the Other Harbour Club Properties, if so
requested by the respective owners thereof, at market terms and at market
rates, pursuant to a property management agreement in a form substantially
comparable to that used for comparable properties, subject to such owner
obtaining the consent or approval of each person whose consent or approval
shall be required to a change in the management of such property. For purposes
of this Agreement, "Other Harbour Club Properties" means the property known as
the Harbour Club II Apartments and the property known as the Harbour Club III
Apartments, each located at 49000 Denton Road, Belleville, Michigan.
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Section 7.15 Material Encumbrances.
(a) In the event that Other Items, or surveys that were received by the
Company after June 1, 1999, with respect to McNeil Partnership Properties, in
each case received prior to the Expiration Time (the Other Items and such
surveys, collectively, the "Survey Materials"), disclose any Property
Restrictions, Encumbrances or other matters affecting title to such McNeil
Partnership Property (other than Permitted Restrictions and Encumbrances) which
reasonably could preclude the continued use of such McNeil Partnership Property
as it is being used as of the date of this Agreement or reasonably could
materially and adversely affect the value of such McNeil Partnership Property
as it is being used as of the date of this Agreement (each, a "Material
Encumbrance") (it being understood and agreed that the absence of legal access
to a public right of way or utilities shall be a Material Encumbrance), the
Company shall promptly, and in no event later than 5:00 p.m., New York City
time, on July 16, 1999 (the "Expiration Time"), deliver a written notice (the
"Encumbrance Notice") to Sellers of such Material Encumbrance, which notice
shall describe in reasonable detail such Material Encumbrance and the manner in
which such Material Encumbrance reasonably could preclude the continued use of
such McNeil Partnership Property as it was being used as of the date of this
Agreement or reasonably could materially and adversely affect the value of such
McNeil Partnership Property as it was being used as of the date of this
Agreement, and the Company shall include a copy of the Survey Materials
disclosing such Material Encumbrance; provided, however, that the failure to
provide such information and description shall not vitiate the legal effect of
having sent such Encumbrance Notice if such Encumbrance Notice was otherwise
sent in good faith.
(b) If the Company shall fail to deliver an Encumbrance Notice prior to the
Expiration Time with respect to one or more Material Encumbrances on one or
more McNeil Partnership Properties, then from and after the Expiration Time
(regardless of whether or not the Company was aware of any such Material
Encumbrance as of the Expiration Time, and regardless of whether or not the
Company has obtained all of the Other Items), (i) each such Material
Encumbrance shall automatically be deemed to be a Permitted Restriction and
Encumbrance for all purposes under this Agreement, (ii) each such Material
Encumbrance shall not be considered in determining whether or not a Seller
Material Adverse Effect has occurred for any and all purposes under this
Agreement (including Article VIII hereof) and (iii) the Company shall be deemed
to have waived all conditions to the Closing set forth in Article VIII hereof
relating to such Survey Materials (including, without limitation, whether or
not the representations and warranties contained in Section 4.8 hereof were
true and correct and whether or not the condition set forth in Section 8.2(e)
hereof has been fulfilled).
Section 7.16 Additional Seller Tax Covenant. From the date of this Agreement
until the Closing Date, the McNeil Partnerships shall at all times qualify, and
Sellers shall cause any of the Seller Subsidiaries that have been partnerships,
joint ventures or disregarded entities or limited liability companies since
formation to continue to qualify, as partnerships or disregarded entities for
federal income tax purposes. From the date of this Agreement until the Closing
Date, the McNeil Partnerships shall not at any time become, and Sellers shall
not permit any Seller Subsidiaries that have been partnerships, joint ventures
or disregarded entities or limited liability companies since formation to
become, publicly traded partnerships within the meaning of Section 7704 of the
Code or otherwise taxable as an association for federal income tax purposes.
Section 7.17 Title Deliveries. The Sellers shall arrange for the delivery of
the documents, certificates, affidavits and undertakings reasonably required by
the title insurer for the issuance of the title insurance coverage contemplated
by Section 8.2(e) hereof (provided that the Company, the Participating McNeil
Partnerships and their respective subsidiaries shall not be liable directly or
indirectly for such certificates, affidavits or undertakings).
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ARTICLE VIII
Conditions
Section 8.1 Conditions to Each Party's Obligation to Effect the
Mergers. Subject to Section 8.4 hereof, the obligations of each party to effect
the Mergers of the Participating McNeil Partnerships and the other transactions
relating to the Participating McNeil Partnerships which are contemplated by
this Agreement to be performed at or after the Effective Time shall be subject
to the fulfillment (or waiver by each party hereto) at or prior to the
Effective Time of the following conditions:
(a) Limited Partner Approvals. This Agreement and the transactions
contemplated hereby shall have been approved and adopted by the requisite
approval of the limited partners of each Participating McNeil Partnership
(other than Summerhill, whose approval has been obtained prior to the date
hereof).
(b) No Injunctions or Restraints. No court or other Governmental Entity
of competent jurisdiction shall have enacted, issued, promulgated, enforced
or entered any statute, rule, regulation, judgment, decree, injunction or
other order (whether temporary, preliminary or permanent) (i) that is in
effect and prohibits consummation of the Mergers of the Participating
McNeil Partnerships, the MPLP Contributions relating to the Participating
McNeil Partnerships, the appointment of each of the applicable New GP LLCs
as the general partner of its corresponding Participating McNeil
Partnership or any other transactions with respect to the Participating
McNeil Partnerships expressly contemplated by this Agreement or (ii) that
is enacted, issued, promulgated, enforced or entered after the date of this
Agreement and, in any such case, is in effect and imposes restrictions on
the Company or the Participating McNeil Partnerships with respect to the
business operations of the Participating McNeil Partnerships which would
result in a Seller Material Adverse Effect (clauses (i) and (ii),
collectively, an "Order"), and no Governmental Entity shall have instituted
any proceeding or threatened to institute any proceeding seeking any such
Order, and no other person shall have instituted any proceeding seeking any
such Order which is reasonably likely to succeed.
(c) Certain Actions and Consents. All material actions by, and all
consents, approvals, orders or authorizations from, or filings with,
Governmental Entities of competent authority necessary for the consummation
of the Mergers of the Participating McNeil Partnerships, the MPLP
Contributions relating to the Participating McNeil Partnerships, the
appointment of each of the applicable New GP LLCs as the general partner of
its corresponding Participating McNeil Partnership or any other
transactions with respect to the Participating McNeil Partnerships
expressly contemplated by this Agreement shall have been obtained or made,
as the case may be.
(d) Settlement of Class Action Litigation. All claims with respect to
the Participating McNeil Partnerships, the general partners of the
Participating McNeil Partnerships and the McREMI Assets asserted in
connection with the action of James F. Schofield, Gerald C. Gillett, Donna
S. Gillett, Jeffrey Homburger, Louise C. Homburger, Elizabeth Jung, Robert
Lewis, Morton Farber and Warren Heller v. McNeil Partners, L.P., McNeil
Investors, Inc., McNeil Real Estate Management, Inc., Robert A. McNeil,
Carole J. McNeil, Donald K. Reed and McNeil Pacific Investors Fund 1972,
Ltd., McNeil Real Estate Fund IX, Ltd., McNeil Real Estate Fund X, Ltd.,
McNeil Real Estate Fund XI, Ltd., McNeil Real Estate Fund XII, Ltd., McNeil
Real Estate Fund XIV, Ltd., McNeil Real Estate Fund XV, Ltd., McNeil Real
Estate Fund XX, L.P., McNeil Real Estate Fund XXI, L.P., McNeil Real Estate
Fund XII, L.P., McNeil Real Estate Fund XXIV, L.P., McNeil Real Estate Fund
XXV, L.P. McNeil Real Estate Fund XXVI, L.P., and McNeil Real Estate Fund
XXVII, L.P. (Case No. BC133799), Superior Court of the State of California,
County of Los Angeles, shall have been settled on terms satisfactory to
MPLP and such settlement shall be substantially in the form of the
settlement agreement delivered by Sellers to the Company prior to the date
hereof.
(e) Determination of Excess Cash Balances. The Excess Cash Balance shall
have been determined for each Participating McNeil Partnership in
accordance with Section 2.4 hereof.
Section 8.2 Conditions to Obligations of the Company. Subject to Section 8.4
hereof, the obligations of the Company to effect the Mergers of the
Participating McNeil Partnerships and the other transactions relating
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to the Participating McNeil Partnerships which are contemplated by this
Agreement to be performed at or after the Effective Time are further subject to
the fulfillment (or waiver by the Company) at or prior to the Effective Time of
the following conditions:
(a) Representations and Warranties.
(i) The representations and warranties of Sellers set forth in Article
IV of this Agreement (other than the representations and warranties that
are the subject of Section 8.2(a)(ii) below) shall be true and correct at
and as of the Closing Date (each such representation and warranty shall be
deemed to be amended as of the Closing Date (i) in accordance with Section
8.4 hereof and (ii) so as not to give effect to any materiality or Seller
Material Adverse Effect qualifiers contained therein), as though made on
and as of the Closing Date but immediately prior to the transfers of
assets, rights and interests and the other transactions contemplated by
Articles II and III of this Agreement, except to the extent any
representation or warranty is expressly limited by its terms to a specific
date, in which case such representation or warranty shall be true and
correct at and as of such date; provided, however, that the condition set
forth in this Section 8.2(a) shall be deemed satisfied if the respects in
which such representations and warranties (as each has been deemed amended
as of the Closing Date) are not true and correct at and as of the Closing
Date but immediately prior to the transfers of assets, rights and interests
and the other transactions contemplated by Articles II and III of this
Agreement, or at and as of such other date, would not constitute,
individually or in the aggregate, a Seller Material Adverse Effect.
(ii) The representations and warranties of Sellers set forth in Sections
4.1(a), 4.1(d), 4.2(b), 4.3(a) and 4.3(c) hereof (each such representation
and warranty shall be deemed to be amended as of the Closing Date in
accordance with Section 8.4 hereof) shall be true and correct in all
material respects (other than the representations and warranties having a
materiality or Seller Material Adverse Effect qualifier, which
representations and warranties shall be true and correct in all respects)
at and as of the Closing Date, as though made on and as of the Closing Date
but immediately prior to the transfers of assets, rights and interests and
the other transactions contemplated by Articles II and III of this
Agreement, except to the extent any representation or warranty is expressly
limited by its terms to a specific date, in which case such representation
or warranty shall be true and correct at and as of such date.
(b) Performance of Obligations of Sellers. Sellers shall have performed in
all material respects all obligations required to be performed by them under
this Agreement at or prior to the Effective Time (other than obligations with
respect to Excluded McNeil Partnerships), including the execution and delivery
of the Ancillary Agreements to which any Seller is a party.
(c) Officer's Certificate. The Company shall have received a certificate
signed on behalf of Sellers by an executive officer thereof certifying the
accuracy of the statements set forth in Sections 8.2(a) and 8.2(b) hereof.
(d) Consents.
(i) Sellers shall have obtained the consent and estoppel certificate of
each lender of the Non-Terminated Loans listed on Schedule 8.2(d)(i) of the
Seller Disclosure Letter, in the form of the consent and estoppel
certificate attached as Exhibit A hereto or in the form(s) of a consent or
estoppel certificate or both returned by the person from whom such consent
and estoppel certificate is being sought pursuant to this Section 8.2(d)(i)
provided such form(s) of consent or estoppel certificate is substantially
comparable to the form of the consent and estoppel certificate attached as
Exhibit A hereto.
(ii) Sellers shall have obtained any consents or approvals which if not
obtained would have, individually or in the aggregate, a Seller Material
Adverse Effect, in the form of the consent attached as Exhibit B hereto or
in the form of the consent returned by the person whose consent is being
sought pursuant to this Section 8.2(d)(ii) provided such form of consent is
substantially comparable to the form of the consent attached as Exhibit B
hereto.
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(e) Title. On the Closing Date, (i) title to each McNeil Partnership
Property owned by a Participating McNeil Partnership shall be free and clear of
all Encumbrances and Property Restrictions other than Permitted Restrictions
and Encumbrances and other than any matters disclosed after the Expiration Time
(other than the Survey Materials) which (A) would not reasonably preclude the
continued use of such McNeil Partnership Property as it is being used as of the
date of this Agreement or (B) would not reasonably materially and adversely
affect the value of such McNeil Partnership Property as it is being used as of
the date of this Agreement and (ii) Lawyer's Title Insurance Corporation (or
such other nationally recognized title insurance company reasonably acceptable
to Sellers and the Company) shall be unconditionally obligated and prepared,
subject to the payment of the applicable title insurance premium and related
charges at the Company's sole cost and expense, to issue to or for the benefit
of the Company and one or more of its subsidiaries, an extended coverage ATLA
owner's policy of title insurance effective as of the Closing Date (the "Title
Policies") (or the equivalent in the applicable jurisdiction) for each McNeil
Partnership Property owned by a Participating McNeil Partnership in an amount
requested by the Company, which amount shall be commercially reasonable, or, at
the option of the Company, a "date-down" to an existing policy of owner's title
insurance. Such Title Policies shall be issued in accordance with the Title
Commitments; provided, however, that, notwithstanding anything to the contrary
set forth in this Agreement or in the Title Commitments, the title exceptions
listed on Schedule A to the Task List need not be omitted from the Title
Policies and the title company requirements listed on Schedule A to the Task
List need not be satisfied in determining whether or not this Section 8.2(e)
has been satisfied.
(f) Estoppels.
(i) Sellers shall have received from tenants (which tenants shall
include the tenants leasing space pursuant to the Commercial Leases listed
on Schedule 8.2(f)(i) of the Seller Disclosure Letter) leasing at least
seventy-five percent (75%) of the aggregate square footage leased pursuant
to all Commercial Leases, a certificate (an "Estoppel"), addressed to the
Company and its lender (as defined in the Estoppel attached as Exhibit D
hereto), dated not more than sixty (60) days prior to the Closing Date, in
either (A) the form of Estoppel attached as Exhibit D hereto or (B) the
form of Estoppel returned by the tenant whose Estoppel is being sought
pursuant to this Section 8.2(f)(i) provided such form of Estoppel is
substantially comparable to the form of Estoppel attached as Exhibit D
hereto. The Company hereby acknowledges and agrees that, in lieu of any one
or more of such Estoppels, MPLP may deliver a landlord Estoppel provided
that (A) such form of landlord Estoppel is in the form of Estoppel attached
as Exhibit D hereto, (B) the landlord Estoppels delivered by MPLP pursuant
to this Section 8.2 (f)(i) shall not be given in respect of more than ten
percent (10%) of the aggregate square footage leased pursuant to all
Commercial Leases and (C) such landlord Estoppels delivered by MPLP shall
not be delivered in respect of the Commercial Leases listed on Schedule
8.2(f)(i) of the Seller Disclosure Letter.
(ii) Sellers shall have received an Estoppel from each lessor under a
Ground Lease, addressed to the Company and its lender (as defined in the
Estoppel attached as Exhibit E hereto), dated not more than sixty (60) days
prior to the Closing Date in either (A) the form of Estoppel attached as
Exhibit E hereto or (B) the form of Estoppel returned by the lessor whose
Estoppel is being sought pursuant to this Section 8.2(f)(ii) provided such
form of Estoppel is substantially comparable to the form of Estoppel
attached as Exhibit E hereto.
(g) Opinion Relating to the Pledge. The Company shall have received an
opinion from Skadden, Arps, Slate, Meagher & Flom LLP or other counsel to
Sellers reasonably acceptable to the Company, dated as of the Closing Date,
substantially in the form attached as Exhibit C hereto.
(h) Percentage Reduction in NOI. The sum of the Net Operating Incomes for
each Participating McNeil Partnership for the twelve months ended on the NOI
Determination Date shall be greater than or equal to the product determined by
multiplying (i) 0.8723 by (ii) an amount equal to the sum of the NOI Amounts
for each Participating McNeil Partnership. For purposes of this Agreement, the
term "NOI Determination Date" means the last day of the most recently completed
fiscal month prior to the Closing Date.
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(i) Consummation of the Contributions. The transactions contemplated by
Sections 2.2 and 2.3(a) hereof shall have been consummated.
Section 8.3 Conditions to Obligations of Sellers. Subject to Section 8.4
hereof, the obligations of Sellers to effect the Mergers of the Participating
McNeil Partnerships and the other transactions contemplated by this Agreement
relating to the Participating McNeil Partnerships which are to be performed at
or after the Effective Time are further subject to the fulfillment (or waiver
by each Seller) at or prior to the Effective Time of the following conditions:
(a) Representations and Warranties. The representations and warranties
of the Company set forth in Article V of this Agreement shall be true and
correct at and as of the Closing Date (each such representation and
warranty shall be deemed to be amended as of the Closing Date so as not to
give effect to any materiality qualifiers contained therein), as though
made on and as of the Closing Date but immediately prior to the transfers
of assets, rights and interests and the other transactions contemplated by
Articles II and III of this Agreement, except to the extent any
representation or warranty is expressly limited by its terms to a specific
date, in which case such representation or warranty shall be true and
correct at and as of such date; provided, however, that the condition set
forth in this Section 8.3(a) shall be deemed satisfied if the respects in
which such representations and warranties (as each has been deemed amended
as of the Closing Date) are not true and correct at and as of the Closing
Date but immediately prior to the transfers of assets, rights and interests
and the other transactions contemplated by Articles II and III of this
Agreement, or at and as of such other date, would not prevent the Company,
any Company LLC or any Transitory Partnership from consummating the
transactions contemplated by this Agreement and the other Transaction
Documents.
(b) Performance of Obligations of the Company. The Company shall have
performed in all material respects all obligations required to be performed
by it under this Agreement at or prior to the Effective Time (other than
obligations with respect to Excluded McNeil Partnerships), including the
execution and delivery of the Ancillary Agreements to which either the
Company or any of its affiliates is a party.
(c) Officers' Certificate. Each Seller shall have received a certificate
signed on behalf of the Company by a senior officer of the Company
certifying the accuracy of the statements set forth in Sections 8.3(a) and
8.3(b) hereof.
(d) Fairness Opinions.
(i) Stanger shall have delivered to Sellers (A) the Allocation
Analysis, (B) the Appraisals (if they had been requested by Sellers
prior to the date of the mailing of the Proxy Statements) and (C) the
Stanger Opinions, in each case, prior to the date of the mailing of the
Proxy Statements for the Participating McNeil Partnerships. The Sellers
shall have received the Stanger Opinions to the effect that each of the
matters opined upon therein and each of the Allocations is fair from a
financial point of view to the holders of each class of LP Interests in
each McNeil Partnership.
(ii) Eastdil shall have delivered to the Special Committee the
Eastdil Opinions prior to the date of the mailing of the Proxy
Statements for the Participating McNeil Partnerships. The Special
Committee shall have received the Eastdil Opinions to the effect that
each of the matters opined upon therein is fair from a financial point
of view to the holders of each class of LP Interests in each McNeil
Partnership.
Section 8.4 Certain Exclusions from Conditions to Closing.
(a) Notwithstanding anything to the contrary in this Agreement (including
Sections 8.1, 8.2 and 8.3 hereof), the parties hereto acknowledge and agree
that, in accordance with Section 9.4 hereof, none of the conditions to Closing
set forth in Sections 8.1, 8.2 and 8.3 hereof shall be deemed to be unsatisfied
because such condition was not satisfied with respect to an Excluded McNeil
Partnership (or such Excluded McNeil Partnerships' subsidiaries, properties,
etc.) (i.e., since no Excluded McNeil Partnership is subject to the Closing,
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the conditions to the Closing need not be satisfied with respect to any
Excluded McNeil Partnership, such Excluded McNeil Partnerships' subsidiaries,
properties, etc.).
(b) Notwithstanding anything to the contrary in this Agreement (including
Sections 8.1 and 8.2 hereof), the following shall not be considered in
determining whether or not any or all of the conditions set forth in Sections
8.1 and 8.2 hereof have been fulfilled: (i) any effect on any of the
Participating McNeil Partnerships' business, properties, financial condition or
results of operations resulting, directly or indirectly, from the Company's
failure to consent to a Commercial Lease or any amendment to any Commercial
Lease as requested by Sellers in good faith pursuant to Section 6.1(l) hereof;
and (ii) any effect on any of the Participating McNeil Partnerships' business,
properties, financial condition or results of operations resulting, directly or
indirectly, from the Company's failure to consent to a Reimbursable Proposal
proposed by Sellers in good faith.
(c) Notwithstanding anything to the contrary in this Agreement (including
Sections 8.1, 8.2 and 8.3 hereof), the parties hereto acknowledge and agree
that none of the Discretionary Closing Conditions shall be deemed to be
unsatisfied because such condition was not satisfied with respect to any one or
more Included McNeil Partnerships (or such Included McNeil Partnerships'
subsidiaries, properties, etc.).
(d) Notwithstanding anything to the contrary in this Agreement (including
Sections 8.1, 8.2 and 8.3 hereof), the parties hereto acknowledge and agree
that none of the Discretionary Closing Conditions shall be deemed to be
unsatisfied because such condition was not satisfied with respect to any one or
more Included Partnership Matters.
(e) Notwithstanding anything to the contrary in this Agreement (including
Sections 8.1, 8.2 and 8.3 hereof), the parties hereto acknowledge and agree
that Section 7.15(b) hereof shall be given effect prior to determining whether
or not any or all of the conditions set forth in Sections 8.1 and 8.2 hereof
have been fulfilled.
Section 8.5 Removal Notices.
(a) In the case of any Participating McNeil Partnership, at any time after
the date of this Agreement through to the date of the McNeil Limited Partner
Meeting for such Participating McNeil Partnership, the Sellers may provide a
written notice (the "Matter Removal Notice") to the Company identifying such
Participating McNeil Partnership as a "Removable Partnership" and which shall
describe in reasonable detail certain matters relating to such Participating
McNeil Partnership as "Designated Partnership Matters" that Sellers believe in
good faith may cause the Participating McNeil Partnership to become an Excluded
McNeil Partnership.
(b) Upon the Company's receipt of the Matter Removal Notice (the earlier of
(1) the tenth full business day following the date of the Company's receipt of
the Matter Removal Notice and (2) the third full business day following the
date of the Company's receipt of the Pre-Closing Removal Notice, the "Matter
Removal Notice Date"), the Company shall have until 5:00 p.m., New York City
time, on the Matter Removal Notice Date to provide written notice to Sellers,
which notice shall identify which (if any) of the Designated Partnership
Matters the Company designates as an "Included Partnership Matter."
(c) In the case of any Participating McNeil Partnership, at any time
following the date of the McNeil Limited Partner Meeting for a Participating
McNeil Partnership, the Sellers may provide a written notice (the "Pre-Closing
Removal Notice") to the Company identifying such Participating McNeil
Partnership as a "Pre-Closing Removable Partnership" which may or may not (in
the sole and absolute discretion of the Sellers) designate certain of the
McNeil Partnership Properties of such Pre-Closing Removable Partnership as
"Designated Partnership Properties."
(d) Upon the Company's receipt of the Pre-Closing Removal Notice (the third
full business day following the date of the Company's receipt of the Pre-
Closing Removal Notice, the "Pre-Closing Removal Notice
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Date"), the Company shall have until 5:00 p.m., New York City time, on the Pre-
Closing Removal Notice Date to provide written notice to Sellers, which notice
shall identify which (if any) of the Pre-Closing Removable Partnerships the
Company designates as an "Included McNeil Partnership."
(e) The parties hereto acknowledge and agree that the exercise (or lack of
exercise) by any Seller of its rights under Sections 8.5(a) and 8.5(c) hereof
and the exercise (or lack of exercise) by the Company of its rights under
Sections 8.5(b) and 8.5(d) hereof shall not be the basis of any suit, action or
proceeding by any person against any party to this Agreement or their
respective affiliates, and shall not constitute a presumption that any McNeil
Partnership has, in fact, violated any representation, warranty, covenant or
agreement in this Agreement or that the conditions to Closing with respect to
any McNeil Partnership were not, in fact, satisfied.
(f) If the Closing occurs and if one or more McNeil Partnerships became an
Excluded McNeil Partnership by operation of Section 9.3(f), 9.3(g) or 9.3(h)
hereof, each party to this Agreement hereby waives any rights it may have to
file or commence any suit, action or proceeding against each other party to
this Agreement or their respective affiliates with respect to any such Excluded
McNeil Partnership and hereby irrevocably and unconditionally releases each
such other party and its affiliates from any and all claims, known or unknown,
it may have relating to the transactions contemplated by this Agreement and the
other Transaction Documents with respect to any such Excluded McNeil
Partnership.
ARTICLE IX
Termination
Section 9.1 Termination of this Agreement Prior to the Effective Time. This
Agreement may be terminated at any time prior to the Effective Time (regardless
of whether or not the requisite approvals of the respective limited partners of
each of the McNeil Partnerships have been obtained) as follows:
(a) by the mutual written consent of each Seller and the Company;
(b) by the Company, on the one hand, or any Seller, on the other hand,
upon written notice given to the other if any judgment, injunction, order,
decree or action by any Governmental Entity of competent authority
preventing the consummation of the transactions contemplated by this
Agreement (other than transactions relating to the Excluded McNeil
Partnerships) shall have become final and nonappealable;
(c) by the Company, on the one hand, or any Seller, on the other hand,
upon written notice given to the other if the Closing shall not have
occurred on or before the twelve (12)-month anniversary of the date of this
Agreement (the "Termination Date");
(d) by any Seller upon written notice given to the Company, upon a
material breach on the part of the Company of any representation, warranty,
covenant, obligation or agreement of the Company set forth herein that is
not curable or, if curable, is not cured within thirty (30) days after
written notice of such breach is given by any Seller to the party
committing such breach, if the conditions set forth in Section 8.3(a) or
8.3(b) hereof would be incapable of being satisfied by the Termination
Date; or
(e) by the Company upon written notice given to Sellers, upon a material
breach on the part of Sellers of any representation, warranty, covenant,
obligation or agreement of Sellers set forth herein that is not curable or,
if curable, is not cured within thirty (30) days after written notice of
such breach is given by the Company to the party committing such breach, if
the conditions set forth in Section 8.2(a) or 8.2(b) hereof would be
incapable of being satisfied by the Termination Date.
Section 9.2 Effect of Termination Pursuant to Section 9.1. In the event of
the termination of this Agreement by any Seller or the Company as provided in
Section 9.1 hereof, this Agreement shall become null and void and of no further
force or effect, and there shall be no liability or obligation hereunder on the
part of Sellers or the Company, or any of their respective subsidiaries, or any
of their respective general partners, limited partners, partners, stockholders,
members, equity holders, directors, officers, employees, affiliates,
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agents, representatives, successors or assigns, except (i) any obligations of
the parties to this Agreement under Sections 7.3(c), 7.9(a), 9.2, 9.4, 9.5 and
9.6 hereof and Article XI hereof shall survive such termination and (ii) one or
more of Sellers or the Company, as the case may be, may have liability to one
or more of Sellers or the Company, as the case may be, if the basis of the
termination is a willful, material breach by one or more of Sellers or the
Company, as the case may be, of one or more of the provisions of this
Agreement. Furthermore, if this Agreement is terminated pursuant to Section 9.1
hereof, the Company shall not, and shall cause its affiliates not to, oppose or
seek to prevent or frustrate any transaction or agreement that Sellers or any
of their subsidiaries may propose or enter into relating to any business
combination between Sellers and any third party; provided, however, that if (1)
Goldman, Sachs & Co. and its affiliates (including, without limitation,
Whitehall and the Managing Member) are not using all or any portion of the
Evaluation Material (as defined in the Confidentiality Agreement) in violation
of the Confidentiality Agreement, and (2) Goldman, Sachs & Co. and its
affiliates (including, without limitation, Whitehall and the Managing Member)
are not using all or any portion of the Evaluation Material (as defined in the
Confidentiality Agreement) in any of the activities specified below and (3)
Goldman, Sachs & Co. and its affiliates (including, without limitation,
Whitehall and the Managing Member) are not in violation of Section 7.3(c)
hereof, then nothing in this Agreement shall in any manner apply to or restrict
the activities of Goldman, Sachs & Co. and its affiliates from engaging in
asset management, brokerage, investment advisory, investment banking, financial
advisory, anti-raid advisory, financing, trading, market making, arbitrage and
other similar activities conducted in the ordinary course of its and its
affiliates' business.
Section 9.3 Termination of Certain Rights and Obligations Prior to the
Effective Time. Certain rights and obligations under this Agreement of one or
more McNeil Partnerships (each, an "Excluded McNeil Partnership") and of all of
the parties hereto in respect of each such Excluded McNeil Partnership may be
terminated at any time prior to the Effective Time (regardless of whether or
not the requisite approvals of the respective limited partners of the McNeil
Partnerships have been obtained (except as indicated to the contrary below)) as
follows:
(a) by the Company, on the one hand, or any Seller, on the other hand,
upon written notice given to the other if, upon a vote at a duly held
McNeil Limited Partner Meeting (or any adjournment thereof) for such McNeil
Partnership, the requisite approval of the limited partners of such McNeil
Partnership of the Merger in respect of such McNeil Partnership, the MPLP
Contributions with respect to such McNeil Partnership, the appointment of
the applicable New GP LLC as the general partner of such McNeil Partnership
and the other transactions contemplated by this Agreement with respect to
such McNeil Partnership, shall not have been obtained as contemplated by
Section 7.1 hereof;
(b) by any Seller upon written notice given to the Company, if, prior to
the approval by the holders of LP Interests of such McNeil Partnership of
this Agreement, the Merger in respect of such McNeil Partnership, the MPLP
Contributions with respect to such McNeil Partnership, the appointment of
the applicable New GP LLC as the successor general partner of such McNeil
Partnerships and the other transactions contemplated by this Agreement at
the McNeil Limited Partner Meeting (or any adjournment thereof) of such
McNeil Partnership, in the exercise of good faith judgment of the general
partner of such McNeil Partnership as to its fiduciary duties to the
limited partners of such McNeil Partnership as imposed by law, such general
partner, as advised by counsel, determines that such termination is
required by reason of a Superior Acquisition Proposal being made with
respect to such McNeil Partnership. Each McNeil Partnership agrees that it
shall not enter into a binding written agreement with respect to an
Acquisition Proposal without providing the Company with at least four
business days prior notice of its intent to do so (which notice shall
disclose the material terms of such Acquisition Proposal).
(c) by the Company upon written notice given to the applicable McNeil
Partnership, if the general partner of such McNeil Partnership (A) has
failed to recommend to the limited partners of such McNeil Partnership the
approval of the Merger in respect of such McNeil Partnership, the MPLP
Contributions with respect to such McNeil Partnership, the appointment of
the applicable New GP LLC as the successor general partner of such McNeil
Partnership and the other transactions contemplated by this Agreement
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with respect to such McNeil Partnership, in connection with an Acquisition
Proposal by a third party in respect of such McNeil Partnership, (B) has
withdrawn or modified in a manner adverse to the Company its approval or
recommendation that the limited partners of such McNeil Partnership approve
the Merger in respect of such McNeil Partnership, the MPLP Contributions
with respect to such McNeil Partnership, the appointment of the applicable
New GP LLC as the successor general partner of such McNeil Partnership and
the other transactions contemplated by this Agreement with respect to such
McNeil Partnership, in connection with an Acquisition Proposal for such
McNeil Partnership, or (C) has approved or recommended an Acquisition
Proposal for such McNeil Partnership;
(d) by the Company, on the one hand, or any Seller, on the other hand,
with respect to a McNeil Partnership, upon written notice given to the
other if any judgment, injunction, order, decree or action by any
Governmental Entity of competent authority preventing the consummation of
the transactions contemplated by this Agreement with respect to such McNeil
Partnership shall have become final and nonappealable;
(e) by the mutual written consent of each Seller and the Company;
(f) by any Seller upon written notice to the Company, in respect of any
McNeil Partnership which owns any McNeil Partnership Property in respect of
which an Encumbrance Notice has been delivered to Sellers pursuant to
Section 7.15 hereof;
(g) after 5:00 p.m., New York City time, on the Pre-Closing Removal
Notice Date but at least two (2) business days prior to the estimated
Closing Date (such time, the "Pre-Closing Removal Notice Time"), by any
Seller upon written notice to the Company, in respect of any one or more of
the Pre-Closing Removable Partnerships which the Company has not designated
in writing as an Included McNeil Partnership by the Pre-Closing Removal
Notice Time;
(h) after 5:00 p.m., New York City time, on the Matter Removal Notice
Date but no later than the earlier of (1) the tenth business day following
the Matter Removal Notice Date and (2) the day which is at least two (2)
business days prior to the estimated Closing Date (such time, the "Matter
Removal Notice Time"), by any Seller upon written notice to the Company, in
respect of any one or more of the Removable Partnerships with respect to
which the Company has not designated in writing as Included Partnership
Matters all of the Designated Partnership Matters by the Matter Removal
Notice Time; or
(i) in respect of Fairfax only, following the date which is the tenth
business day after the date of the mailing of the Proxy Statements for the
Participating McNeil Partnerships, by the Company, on the one hand, or any
Seller, on the other hand, upon written notice given to the other if the
requisite approval of the limited partners of Fairfax of the MPLP
Contributions with respect to Fairfax, the appointment of the applicable
New GP LLC as the general partner of Fairfax and the other transactions
contemplated by this Agreement with respect to Fairfax shall not have been
obtained.
Section 9.4 Effect of Termination Pursuant to Section 9.3. In the event of
the termination of certain rights and obligations under this Agreement of one
or more Excluded McNeil Partnerships and of all of the parties hereto in
respect of such Excluded McNeil Partnerships as provided in Section 9.3 hereof,
all of the rights and obligations under this Agreement of each such Excluded
McNeil Partnership and of all of the other parties hereto in respect of each
such Excluded McNeil Partnership shall become null and void and of no further
force or effect, and there shall be no liability or obligation hereunder of
such Excluded McNeil Partnership or of the other parties hereto in respect of
any such Excluded McNeil Partnership on the part of any other party hereto, or
their respective subsidiaries, or any of their respective general partners,
partners, stockholders, members, equity holders, directors, officers,
employees, affiliates, agents, representatives, successors or assigns, except
(i) any obligations of the parties to this Agreement under Sections 7.3(c),
7.4(b), 7.5, 7.9(a), 7.10, 7.14, 9.4, 9.5 and 9.6 hereof and Article XI hereof
(other than Section 11.3 hereof) shall survive such termination and (ii) one or
more of Sellers or the Company, as the case may be, may have liability to one
or more of Sellers or the Company, as the case may be, if the basis of the
termination is a willful, material breach by one or more of Sellers or the
Company, as the case may be, of one or more of the
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provisions of this Agreement; provided, however, that except as provided in
this Section 9.4, nothing in this Section 9.4 shall otherwise affect any of the
rights or obligations under this Agreement of any party to this Agreement.
Furthermore, if the obligations and liabilities under this Agreement in respect
of an Excluded McNeil Partnership are terminated pursuant to Section 9.3
hereof, the Company shall not, and shall cause its affiliates not to, oppose or
seek to prevent or frustrate any transaction or agreement that Sellers or any
of their subsidiaries may propose or enter into relating to any business
combination between Sellers and any third party in respect of such Excluded
McNeil Partnership; provided, however, that if (1) Goldman, Sachs & Co. and its
affiliates (including, without limitation, Whitehall and the Managing Member)
are not using all or any portion of the Evaluation Material (as defined in the
Confidentiality Agreement) in violation of the Confidentiality Agreement, and
(2) Goldman, Sachs & Co. and its affiliates (including, without limitation,
Whitehall and the Managing Member) are not using all or any portion of the
Evaluation Material (as defined in the Confidentiality Agreement) in any of the
activities specified below and (3) Goldman, Sachs & Co. and its affiliates
(including, without limitation, Whitehall and the Managing Member) are not in
violation of Section 7.3(c) hereof, then nothing in this Agreement shall in any
manner apply to or restrict the activities of Goldman, Sachs & Co. and its
affiliates from engaging in asset management, brokerage, investment advisory,
investment banking, financial advisory, anti-raid advisory, financing, trading,
market making, arbitrage and other similar activities conducted in the ordinary
course of its and its affiliates' business.
Section 9.5 Payment of Break-Up Fee.
(a) If the rights and obligations under this Agreement in respect of one or
more Excluded McNeil Partnerships have been terminated pursuant to Section
9.3(b) or 9.3(c) hereof, each such Excluded McNeil Partnership shall be
severally (and not jointly) liable for payment to the Company of a fee equal to
the Partnership Break-Up Fee determined in respect of such Excluded McNeil
Partnership. Each Excluded McNeil Partnership shall be severally liable for
payment of the Partnership Break-Up Fee in respect of itself, and no other
party to this Agreement shall have any liability to the Company or an Excluded
McNeil Partnership for the Partnership Break-Up Fee of such Excluded McNeil
Partnership. Any payment required to be made pursuant to this Section 9.5(a) as
a result of termination of this Agreement pursuant to Section 9.3(b) or 9.3(c)
hereof shall be made not later than the earlier of (A) ninety (90) days after
the date of the termination of this Agreement pursuant to Section 9.3(b) or
9.3(c) hereof and (B) three (3) business days after the date on which a
definitive agreement relating to an Acquisition Proposal is entered into. Any
payment required to be made pursuant to this Section 9.5(a) with respect to an
Excluded McNeil Partnership shall accrue interest at ten percent (10%) per
annum, compounded annually, from the date of the termination under Section
9.3(b) or 9.3(c) hereof and no distribution or other payment shall be made to
the general partner or any limited partner of such Excluded McNeil Partnership
until such payment pursuant to this Section 9.5(a) and such accrued interest is
paid in full.
(b) If (i) (A) either (1) a person who is not an affiliate of the Company,
Whitehall or the Managing Member consummates an acquisition of more than 10% of
the outstanding LP Interests of a McNeil Partnership following the date of this
Agreement or (2) a person who is not an affiliate of the Company, Whitehall or
the Managing Member makes an Acquisition Proposal for a McNeil Partnership, and
(B) such McNeil Partnership becomes an Excluded McNeil Partnership through the
operation of Section 9.3(a) hereof and (C) such McNeil Partnership enters into
a definitive agreement relating to a Higher Acquisition Proposal within six
months of such McNeil Partnership becoming an Excluded McNeil Partnership, or
(ii) (A) the general partner of a McNeil Partnership as of the date of this
Agreement is replaced and (B) such McNeil Partnership becomes an Excluded
McNeil Partnership through the operation of Section 9.3(a) or 9.3(i) hereof,
then, in the case of either clause (i) or (ii), each such Excluded McNeil
Partnership shall be severally (and not jointly) liable for payment to the
Company of a fee equal to the Partnership Break-Up Fee determined in respect of
such Excluded McNeil Partnership. Any payment required to be made pursuant to
clause (i) of the first sentence of this Section 9.5(b) shall be made not later
than the earlier of (A) ninety (90) days after the date of the termination of
this Agreement pursuant to Section 9.3(a) hereof and (B) three (3) business
days after the date on which a definitive agreement relating to a Higher
Acquisition Proposal is entered into. Any payment required to be made pursuant
to clause (ii) of the first sentence of this Section 9.5(b) shall be made not
later than three (3) business days after
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the date of the termination of this Agreement in respect of such Excluded
McNeil Partnership pursuant to Section 9.3 hereof. Any payment required to be
made pursuant to this Section 9.5(b) with respect to an Excluded McNeil
Partnership shall accrue interest at ten percent (10%) per annum, compounded
annually, from the date such payment is due and no distribution or other
payment shall be made to the general partner or any limited partner of such
Excluded McNeil Partnership until such payment pursuant to this Section 9.5(b)
and such accrued interest is paid in full.
(c) The payment of the Partnership Break-Up Fee with respect to an Excluded
McNeil Partnership shall be compensation and liquidated damages for any loss
suffered by the Company or any one or more of its affiliates or subsidiaries as
a result of the failure of the Merger of such Excluded McNeil Partnership and
the other transactions contemplated by this Agreement with respect to such
Excluded McNeil Partnership to be consummated and to avoid the difficulty of
determining damages under the circumstances, and shall be the sole and
exclusive remedy of the Company, its affiliates and subsidiaries against
Sellers and the Seller Subsidiaries and their respective subsidiaries, general
partners, limited partners, partners, stockholders, members, equity holders,
directors, officers, employees, affiliates, agents, representatives, successors
and assigns with respect to the occurrence giving rise to such payment.
(d) If at the time any party hereto terminates the rights and obligations
under this Agreement in respect of one or more Excluded McNeil Partnerships
pursuant to Section 9.3 hereof, there had been a breach of any representation,
warranty, covenant, obligation or agreement on the part of the Company, such
that the conditions set forth in Section 8.3(a) or 8.3(b) hereof would be
incapable of being satisfied by the Termination Date, the Company shall not be
entitled to any of the benefits of this Section 9.5 or Section 9.6 hereof.
Initials:
/s/ J L
-------------------
(Jonathan Langer on behalf of the Company)
/s/ R A M
------------------
(Robert A. McNeil on behalf of himself and Sellers)
Section 9.6 Reimbursement of Expenses.
(a) If (i) (A) notwithstanding the satisfaction or waiver of all of the
conditions set forth in Sections 8.1 and 8.3 hereof, Sellers (exclusive of any
Excluded McNeil Partnership) fail to consummate prior to the Termination Date
the Mergers of the Participating McNeil Partnerships and the other transactions
contemplated by this Agreement to occur at the Effective Time or (B) Sellers
have failed to use their reasonable best efforts in accordance with Section
7.4(a) hereof to satisfy the conditions set forth in Sections 8.1 and 8.3
hereof, and (ii) the Company terminates this Agreement pursuant to Section
9.1(c) or 9.1(e) hereof, then Sellers shall pay to the Company an amount equal
to the Company Reimbursable Expenses for which Sellers shall be jointly and
severally liable; provided, however, that no amount shall be payable by Sellers
to the Company pursuant to this Section 9.6(a) if, at the time of such
termination, Sellers would have been entitled to terminate this Agreement
pursuant to Section 9.1(d) hereof. Any payment required to be made by Sellers
pursuant to this Section 9.6(a) shall be made not later than ninety (90) days
after Sellers have received reasonably detailed documents from the Company
evidencing such costs and expenses.
(b) If (i) (A) notwithstanding the satisfaction or waiver of all of the
conditions set forth in Sections 8.1 and 8.2 hereof, the Company fails to
consummate prior to the Termination Date the Mergers and the other transactions
contemplated by this Agreement to occur at the Effective Time or (B) the
Company has failed to use its reasonable best efforts in accordance with
Section 7.4(a) hereof to satisfy the conditions set forth in Sections 8.1 and
8.2 hereof, and (ii) Sellers terminate this Agreement pursuant to Section
9.1(c) or 9.1(d) hereof, then the Company shall pay to Sellers an amount equal
to the Seller Reimbursable Expenses; provided, however, that no amount shall be
payable by the Company to Sellers pursuant to this Section 9.6(b) if, at the
time of such termination, the Company would have been entitled to terminate
this Agreement pursuant to
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Section 9.1(e) hereof. Any payment required to be made by the Company pursuant
to this Section 9.6(b) shall be made not later than ninety (90) days after the
Company has received reasonably detailed documents from Sellers evidencing
such costs and expenses.
(c) The parties hereto agree that any receipt by the Company of any one or
more Partnership Break-Up Fees shall offset any obligation of Sellers to pay
the Company Reimbursable Expenses.
ARTICLE X
Certain Definitions; Other Matters
Section 10.1 Definitions. For purposes of this Agreement and the Seller
Disclosure Letter, the following terms shall have the following meanings:
"Acquisition Proposal" means any proposal or offer with respect to a
merger, acquisition, purchase, tender offer, exchange offer, consolidation or
similar transaction involving all or any significant portion of the assets
(whether owned directly or indirectly) or equity securities of, one or more of
Sellers, other than the transactions with the Company contemplated by this
Agreement and the other Transaction Documents.
"affiliate" of any person means another person that directly or indirectly
controls, is controlled by, or is under common control with, such first
person, where "control" means the possession, directly or indirectly, of the
power to direct or cause the direction of the management policies of a person,
whether through the ownership of voting securities, by contract, as trustee or
executor, or otherwise.
"Aggregate Consideration" means six hundred forty-four million four hundred
thirty-nine thousand eight hundred three dollars ($644,439,803).
"Allocated McNeil Value" means the sum of (i) the Net McREMI Allocated
Value, (ii) the sum of the GP Allocation Amounts for each Participating McNeil
Partnership, (iii) the Participating Partnership Consideration Amount for
Fairfax if Fairfax is a Participating McNeil Partnership, and (iv) the
Participating Partnership Consideration Amount for Summerhill if Summerhill is
a Participating McNeil Partnership.
"Allocation Analysis" shall have the meaning ascribed to such term in the
Stanger Engagement Letter.
"Allocations" means any and all of the allocations described in Sections
1.3(a), 1.3(b), 1.3(c) and 1.3(d) hereof.
"Ancillary Agreements" means the LLC Agreement, the Portfolio Advisory
Agreement, the Indemnification Agreement, the Replacement Support Agreements,
the Shortfall Agreement and the Waiver Letter.
"Appraisals" shall have the meaning ascribed to such term in the Stanger
Engagement Letter.
"Assignment Agreement" means the Instrument of Assignment attached hereto
as Exhibit H.
"business day" means any day excluding: Saturday, Sunday and any day which
is in the City of New York a legal holiday or a day upon which banking
institutions in the City of New York are required or authorized by law or
other governmental action to close.
"California Partnerships" means the following McNeil Partnerships, each of
which is a California limited partnership: MREF IX, MREF X, MREF XI, MREF XII,
MREF XIV, MREF XV, MREF XX, MREF XXI, MREF XXII, MREF XXIII, MREF XXIV, MREF
XXV and MREF XXVI.
"Company Person" means (i) Whitehall, (ii) the Managing Member, (iii) any
and all affiliates and subsidiaries of the Company, Whitehall and the Managing
Member and any and all indirect and direct holders of beneficial interests in
the Company, Whitehall or the Managing Member and (iv) in respect of each
person
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specified in clauses (i), (ii) and (iii), each such person's respective
directors, officers, partners, members, employees, controlling persons, agents
and representatives; provided, however, that in no event shall the Company be a
Company Person.
"Company Reimbursable Expenses" means an amount equal to the lesser of (i)
one million five hundred thousand dollars ($1,500,000) and (ii) the Company's
and its affiliates' actual, reasonable out-of-pocket expenses incurred in
connection with this Agreement and the transactions contemplated by this
Agreement (including, without limitation, all attorneys', accountants' and
investment bankers' fees and expenses).
"Contributing Partners" means Robert A. McNeil, Carole J. McNeil, MPLP and
MII.
"Corporate Employees" means any and all employees of McREMI who are not
Property Employees; provided that this definition shall not include any persons
hired by Sellers to conduct the proxy solicitation process.
"CRLPA" means the California Revised Limited Partnership Act.
"Discretionary Closing Conditions" means those closing conditions set forth
in Sections 8.2(a), 8.2(b), 8.2(d), 8.2(e), 8.2(f) and 8.2(h) hereof, after
having taken into account the effects of Section 8.4 hereof.
"DLLCA" means the Delaware Limited Liability Company Act.
"DRULPA" means the Delaware Revised Uniform Limited Partnership Act.
"Eastdil" means Eastdil Realty Company.
"Eastdil Engagement Letter" means the letter agreement between the McNeil
Partnerships and Eastdil, dated as of May 7, 1999, as the same may be amended
from time to time.
"Eastdil Opinions" shall mean the opinions of Eastdil described in the
Eastdil Engagement Letter.
"Excluded McREMI Assets" means assets relating to persons which are not
Participating McNeil Partnerships or to the properties of any such person
(e.g., Management Agreements for any McNeil Partnership Properties owned by any
Excluded McNeil Partnership), leased assets, all leases for space, any McREMI
Assets that were not transferrable, and any and all rights under the
Transaction Documents.
"Excluded MPLP Assets" means all of the GP Interests in McNeil Pacific
Investors Fund 1972, all of the GP Interests in McNeil Pension Investment Fund,
Ltd., all of the GP Interests in each Excluded McNeil Partnership and all
rights related thereto, all of the GP Interests and shares of capital stock
owned by MPLP in any Seller Subsidiary of an Excluded McNeil Partnership, all
assets relating to persons which are not Participating McNeil Partnerships,
leased assets, and any and all rights under the Transaction Documents.
"Existing Support Agreements" means all Support Agreements listed on
Schedule 10.1(c) of the Seller Disclosure Letter.
"Financial Advisor" shall mean, (i) in the case of a Higher Acquisition
Proposal in which the consideration offered to the limited partners is solely
cash consideration, Stanger (provided that Stanger shall make such
determination within ten (10) business days) and (ii) in the case of a Higher
Acquisition Proposal in which the consideration offered to the limited partners
involves non-cash consideration, an investment bank which has been selected by
the mutual agreement of the parties, or failing that, an investment bank which
has been selected jointly by an investment bank selected by MPLP and an
investment bank selected by the Company.
"First McNeil Threshold" means an amount equal to the product determined by
multiplying (i) sixty million dollars ($60,000,000) by (ii) the sum of the
Partnership Percentages for each Participating McNeil Partnership.
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"FRULPA" means the Florida Revised Uniform Limited Partnership Act.
"Governing Laws" means the CRLPA, DRULPA, MULPL, KRULPA, TRLPA and FRULPA,
as applicable.
"GP Interest" means: (i) with respect to any limited partnership, a unit of
general partnership interest in such partnership; and (ii) with respect to a
McNeil Partnership, the units of general partnership interest held by the
general partner of such McNeil Partnership and all of the rights in respect
thereof, including not only the general partner's proportionate interest of the
profits and losses of that McNeil Partnership based on the general partner's
capital contribution but also the rights and other assets (if any)
corresponding to such McNeil Partnership which are being contributed to the
applicable New GP LLC at the direction of the Company in accordance with
Article II hereof.
"Growth/Shelter Per Unit Special Amount" means, for each Growth/Shelter Unit
in each of MREF XXI, MREF XXII and MREF XIII, the dollar amount for each such
Growth/Shelter Unit set forth below opposite the name of such McNeil
Partnership:
<TABLE>
<S> <C>
MREF XXI........................................................... $15.00
MREF XXII.......................................................... $0.008
MREF XXIII......................................................... $0.008
</TABLE>
"Growth/Shelter Special Amount" means, with respect to Growth/Shelter Units
in each of MREF XXI, MREF XXII and MREF XXIII, the product determined by
multiplying (i) the Growth/Shelter Per Unit Special Amount for each
Growth/Shelter Unit in such McNeil Partnership by (ii) the number of
Growth/Shelter Units in such McNeil Partnership outstanding immediately prior
to the Effective Time.
"Growth/Shelter Unit" means, with respect to MREF XXI, MREF XXII and MREF
XXIII, each LP Interest designated as a "Growth/Shelter Unit" (or words of
similar import) in the limited partnership agreement for such McNeil
Partnership.
"Higher Acquisition Proposal" means an Acquisition Proposal made by one or
more persons which are not affiliates of the Company, Whitehall or the Managing
Member with respect to a McNeil Partnership, which the Company and the general
partner of such McNeil Partnership jointly determine to be more favorable to
the limited partners of such McNeil Partnership from a financial point of view
than the Merger and the other transactions contemplated by this Agreement with
respect to such McNeil Partnership; provided, however, that the payment of the
Partnership Break-Up Fee by such person(s) shall not be taken into
consideration in determining whether or not such Acquisition Proposal is more
favorable to the limited partners of such McNeil Partnership from a financial
point of view than the Merger and the other transactions contemplated by this
Agreement with respect to such McNeil Partnership; provided further, however,
that if the Company and the general partner of the applicable McNeil
Partnership are unable to reach agreement as to whether or not such Acquisition
Proposal is more favorable to the limited partners of such McNeil Partnership
from a financial point of view than the Merger and the other transactions
contemplated by this Agreement with respect to such McNeil Partnership within
three (3) business days of such McNeil Partnership's execution of definitive
documents relating to such Acquisition Proposal, then the Company and such
McNeil Partnership agree to submit such dispute to the Financial Advisor whose
determination shall be final and binding upon all of the parties hereto.
"Indemnification Agreement" means the Indemnification and Pledge Agreement,
in the form attached as Exhibit F hereto, by and between MPLP (or another
designee of the Contributing Partners) and the Managing Member.
"Knowledge of Sellers" (or words of similar import) means the actual
knowledge, after due inquiry, of those individuals identified on Schedule
10.1(a) of the Seller Disclosure Letter.
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"Knowledge of the Company" (or words of similar import) means the actual
knowledge, after due inquiry, of the officers of Whitehall, the Managing
Member, the Company and the Company's subsidiaries.
"Known Defects" means any and all reports, and any and all facts and
conclusions set forth therein, which were commissioned or requested and
received by the Company or any of its affiliates in connection with the
transactions contemplated by this Agreement or the other Transaction Documents
and which relate to, or were prepared in connection with, environmental or
structural matters with respect to any one or more properties currently or
formerly owned, operated or leased by any Seller or any of its subsidiaries.
"KRULPA" means the Kansas Revised Uniform Limited Partnership Act.
"Liens" means any and all options, claims, security interests, pledges,
liens, charges, encumbrances or restrictions (whether on voting, sale,
transfer, disposition or otherwise), whether imposed by agreement,
understanding, law or otherwise, other than, in the case of any of the McNeil
Partnerships, Liens created pursuant to the terms of the limited partnership
agreement for such McNeil Partnership, and other than Liens relating to Non-
Terminated Loans.
"LLC Agreement" means the First Amended and Restated Limited Liability
Company Agreement of the Company, in the form attached as Exhibit G to this
Agreement.
"LP Interest" means a unit of limited partnership interest in a limited
partnership.
"McNeil Person" means (i) Robert A. McNeil and Carole J. McNeil, (ii) any
and all affiliates and subsidiaries of each Seller, (iii) any and all indirect
and direct holders of beneficial interests in each Seller and (iv) in respect
of each Seller and each person specified in clauses (i), (ii) and (iii), each
of their respective directors, officers, partners, members, employees,
controlling persons, agents and representatives; provided, however, that in no
event shall the definition of McNeil Person include any party to this Agreement
(other than Robert A. McNeil); provided further, however, that the definition
of McNeil Person shall include Robert A. McNeil.
"McREMI Assets" means all of McREMI's right, title and interest in and to
all of the assets of McREMI and all rights of McREMI relating thereto, other
than the Excluded McREMI Assets.
"McREMI Reduction Amount" means an amount equal to the sum of (i) the
product determined by multiplying (A) the Partial McREMI Allocated Value by (B)
the sum of the Partnership Percentages for each Excluded McNeil Partnership (if
any) and (ii) the sum of the Second McREMI Allocated Values for each Excluded
McNeil Partnership.
"McREMI Transaction Expenses" means the Transaction Expenses incurred by
McREMI on behalf of itself and not on behalf of the McNeil Partnerships or
their Seller Subsidiaries.
"Merging Partnership" means each McNeil Partnership other than Fairfax and
Summerhill.
"Merging Private Partnerships" means Hearth Hollow, Midwest Properties and
Regency North.
"MPLP GP Subsidiaries" means the Subsidiary Partnerships designated as "MPLP
GP Subsidiaries" on Annex G hereto.
"MPLP Subsidiary Corporation" means the Subsidiary Corporation designated as
a "MPLP Subsidiary Corporation" on Annex F hereto.
"MULPL" means the Missouri Uniform Limited Partnership Law.
"Net McREMI Allocated Value" means an amount equal to the difference
determined by subtracting (i) the McREMI Reduction Amount (if any) from (ii)
the Total McREMI Allocated Value.
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"Net Operating Income" means, for any McNeil Partnership, the adjusted net
operating income of such McNeil Partnership calculated in accordance with GAAP
applied consistently with past practice and in accordance with the methodology
set forth in Schedule 10.1(b) of the Seller Disclosure Letter.
"NOI Amount" means, with respect to a McNeil Partnership, the amount set
forth on Schedule 8.2(h) of the Seller Disclosure Letter in the column entitled
"Adjusted NOI" opposite the name of such McNeil Partnership.
"Original LLC Agreement" means the limited liability company agreement of
the Company dated June 17, 1999, by the Managing Member as the sole member
thereof, a true and correct copy of which has been delivered by the Company to
Sellers prior to the date hereof.
"Participating McNeil Partnership" means, from time to time, a McNeil
Partnership which is not an Excluded McNeil Partnership at such time.
"Participating Merging Partnership" means each Participating McNeil
Partnership other than Fairfax and Summerhill.
"Participating Partnership Consideration Amount" means, with respect to each
Participating McNeil Partnership, an amount equal to the sum of (i) the
difference determined by subtracting (A) an amount equal to the absolute value
of the Negative Excess Cash Balance (if any) for such Participating McNeil
Partnership from (B) the sum of the LP Allocation Amounts for each class of LP
Interests in such Participating McNeil Partnership, and (ii) the Growth/Shelter
Special Amount with respect to Growth/Shelter Units in such Participating
McNeil Partnership.
"Partnership Break-Up Fee" means, with respect to an Excluded McNeil
Partnership, an amount equal to the product determined by multiplying (i)
eighteen million dollars ($18,000,000) by (ii) the Partnership Percentage for
such McNeil Partnership.
"Partnership Percentage" means, with respect to a McNeil Partnership, the
percentage set forth below opposite the name of such McNeil Partnership.
<TABLE>
<S> <C>
Hearth Hollow.................................................... 0.6056%
Midwest Properties............................................... 1.9645%
Regency North.................................................... 0.8364%
Fairfax.......................................................... 0.6451%
Summerhill....................................................... 1.0657%
MREF IX.......................................................... 15.4200%
MREF X........................................................... 11.4113%
MREF XI.......................................................... 11.8272%
MREF XII......................................................... 9.3507%
MREF XIV......................................................... 6.8073%
MREF XV.......................................................... 6.6786%
MREF XX.......................................................... 0.9957%
MREF XXI......................................................... 3.1957%
MREF XXII........................................................ 2.1607%
MREF XXIII....................................................... 1.0690%
MREF XXIV........................................................ 2.5304%
MREF XXV......................................................... 7.7808%
MREF XXVI........................................................ 6.9517%
MREF XXVII....................................................... 8.7036%
</TABLE>
"Per Partnership Transaction Expenses" means, with respect to a McNeil
Partnership, the sum of (i) the amount of Transaction Expenses actually
incurred by such McNeil Partnership on behalf of itself and its Seller
Subsidiaries and (ii) in the case of Transaction Expenses incurred by Sellers
that are not specifically identifiable
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to individual McNeil Partnerships, an amount equal to such McNeil Partnership's
ratable share of such Transaction Expenses based on its relative Partnership
Percentage.
"Per Unit Consideration Amount" means:
(i) with respect to an LP Interest in a Participating McNeil Partnership
(other than a Growth/Shelter Unit in any of MREF XXI, MREF XXII or MREF
XXIII), an amount equal to the difference determined by subtracting (A) an
amount equal to the absolute value of the applicable portion of the
Negative Excess Cash Balance (if any) for such Participating McNeil
Partnership attributable to such LP Interest from (B) the Per Unit
Allocation Amount for such LP Interest; and
(ii) with respect to a Growth/Shelter Unit in any of MREF XXI, MREF XXII
or MREF XXIII, if such McNeil Partnership is a Participating McNeil
Partnership, an amount equal to the Growth/Shelter Per Unit Special Amount
for each Growth/Shelter Unit in such McNeil Partnership.
"person" means an individual, corporation, partnership, limited partnership,
limited liability company, syndicate, trust, association, unincorporated
organization, governmental entity, political subdivision, or an agency or
instrumentality of a governmental entity.
"Portfolio Advisory Agreement" shall have the meaning ascribed to such term
in the LLC Agreement.
"Post-Allocation Upstream Amounts" means any and all Upstream Payables
accruing in respect of the period commencing on the Stanger Determination Date
through to and ending on the Closing Date.
"Post-Allocation Upstream Payables" means the excess (if any) of any and all
Post-Allocation Upstream Amounts over an amount equal to the product determined
by multiplying the number of fiscal months between the Stanger Determination
Date (including any fraction thereof) and the Closing Date by one hundred
ninety thousand dollars ($190,000).
"Pre-Allocation Upstream Payable" means any Upstream Payable accruing in
respect of any period prior to the Stanger Determination Date.
"Preferred Equity Financing" shall have the meaning ascribed to such term in
the LLC Agreement.
"Preliminary Excess Cash Balance" shall have the meaning, for a particular
McNeil Partnership, ascribed to the term "Excess Cash Balance" on the Excess
Cash Balance Schedule for such McNeil Partnership.
"Private McNeil Partnership" means each Merging Private Partnership and
Summerhill and Fairfax.
"Property Employees" means any and all employees of McREMI whose salaries
are reimbursed to McREMI in whole or in part by the McNeil Partnership
Properties or the owners of the McNeil Partnership Properties.
"Related Party Transaction" means any agreement or intercompany account
between any Participating McNeil Partnership or its subsidiaries, on the one
hand, and any Seller or any of its affiliates or any of their respective
officers or directors, or any relative of any of the foregoing, on the other
hand; provided, however, that the definition of Related Party Transactions
shall not include (i) any Pre-Allocation Upstream Payables, (ii) the Summerhill
Note or (iii) any agreement or intercompany account among any Participating
McNeil Partnership and any of its subsidiaries, on the one hand, and any one or
more Participating McNeil Partnerships and their subsidiaries, on the other
hand.
"Seller Material Adverse Effect" means a material adverse effect on the
business, properties, financial condition or results of operations of the
Participating McNeil Partnerships, taken as a whole; provided, however, that
the following shall be excluded from the definition of "Seller Material Adverse
Effect" and from any determination as to whether such Seller Material Adverse
Effect has occurred or may occur: (i) the effects of changes that are generally
applicable to (A) the residential real estate industry or the commercial real
estate
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industry or both or (B) any material change in the financial, banking, currency
or capital markets in general (either in the United States or any international
market); and (ii) any facts or circumstances relating to the Company or its
affiliates; provided further, however, that any such adverse effect from and
after the date hereof shall also be excluded from such determination if such
effect is clearly related to or caused by, the execution of this Agreement, the
transactions contemplated hereby or by the other Transaction Documents or the
announcement of this Agreement (including the identity of the Company or any of
its affiliates or subsidiaries) or the transactions contemplated hereby or
thereby.
"Seller Reimbursable Expenses" means an amount equal to the lesser of (i)
one million five hundred thousand dollars ($1,500,000) and (ii) Sellers'
actual, reasonable out-of-pocket expenses incurred in connection with this
Agreement and the transactions contemplated by this Agreement (including,
without limitation, all attorneys', accountants' and investment bankers' fees
and expenses and all Transaction Expenses).
"Seller Subsidiaries" means the subsidiary partnerships of the McNeil
Partnerships listed on Annex G to this Agreement (the "Subsidiary
Partnerships") and the subsidiary corporations listed on Annex F to this
Agreement (the "Subsidiary Corporations") which hold GP Interests in certain of
the Subsidiary Partnerships.
"Shortfall Agreement" shall have the meaning ascribed to such term in the
LLC Agreement.
"Stanger Determination Date" means the final date prior to which Stanger has
taken Upstream Payables into account in determining the Total McREMI Allocated
Value or any Allocation. The parties hereto acknowledge and agree that any
dispute as to the Stanger Determination Date or whether or not any Upstream
Payable has been included in determining the Total McREMI Allocated Value or
any Allocation shall be submitted to and decided by Stanger.
"Stanger Engagement Letter" means the Amended and Restated Agreement, dated
as of May 7, 1999, by and among Stanger and the McNeil Partnerships, as the
same may be amended from time to time.
"Stanger Opinions" shall have the meaning ascribed to the term "Opinions" in
the Stanger Engagement Letter.
"subsidiary" of any person means another person, an amount of the voting
securities, other voting ownership or voting partnership interests of which is
sufficient to elect at least a majority of its Board of Directors or other
governing body (or, if there are no such voting interests, 50% or more of the
equity interests of which) is owned directly or indirectly by such first
person.
"Superior Acquisition Proposal" means a bona fide Acquisition Proposal made
by a third party for one or more of the McNeil Partnerships which the general
partner of each such McNeil Partnership determines in good faith to be more
favorable to the limited partners of such McNeil Partnership from a financial
point of view than the Mergers and the other transactions contemplated by this
Agreement with respect to such McNeil Partnership, and which such general
partner determines in good faith is reasonably likely to be consummated.
"Support Agreements" means any indemnification obligation or agreement
relating to one or more Non-Terminated Loans and any other agreement with a
lender of a Non-Terminated Loan (or an affiliate of such lender) whereby
liability has been assumed on behalf of a Participating McNeil Partnership or
its subsidiaries for exceptions to nonrecourse provisions contained in the Non-
Terminated Loans.
"Transaction Documents" means this Agreement, Ancillary Agreements, the
Commitment Letter, the Guarantee and the other documents, instruments and
agreements entered into in connection with the transactions contemplated by
this Agreement or the Ancillary Agreements, including certain letter agreements
dated as of the date hereof between one or more of the parties hereto and all
assignment agreements executed in connection with the transactions contemplated
by Sections 2.2 and 2.3(a)(i), 2.3(a)(ii) and 2.3(a)(iii) hereof.
"Transaction Expenses" means, with respect to any person, the aggregate
amount of all costs, fees and expenses incurred by such person with respect to
the transactions contemplated by the Transaction Documents.
"TRLPA" means the Texas Revised Limited Partnership Act.
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"Upstream Payables" means any accrued and unpaid asset management amounts,
management incentive distributions, deferred distributions, advances, overhead
reimbursements or other amounts owed or payable by McREMI, MII, MPLP or any of
the McNeil Partnerships to any one or more of McREMI, MII, MPLP or to any of
their respective stockholders or general partners (as the case may be), or to
any general partner of any McNeil Partnership.
"Waiver Letter" means the letter agreement, to be dated the Closing Date, by
and among MPLP, Summerhill and Robert A. McNeil, and acknowledged by the
Company.
Section 10.2 Seller Disclosure Letter. The parties hereto agree that any
information provided in any Schedule of the Seller Disclosure Letter is
considered disclosed in each and every other Schedule of the Seller Disclosure
Letter, and shall qualify the corresponding section of this Agreement, to the
extent it is clear from a reading of such information that such information is
applicable to such other section. Any disclosure in any Schedule of the Seller
Disclosure Letter of any contract, document, liability, default, breach,
violation, limitation, impediment or other matter, although the provision for
such disclosure may require such disclosure only if such contract, document,
liability, default, breach, violation, limitation, impediment or other matter
be "material," shall not be construed against any party to this Agreement, as
an assertion by such party, that any such contract, document, liability,
default, breach, violation, limitation, impediment or other matter is, in fact,
material.
Section 10.3 Interpretation. When a reference is made in this Agreement to a
section, article, paragraph, clause, annex or exhibit, such reference shall be
to a reference to this Agreement unless otherwise clearly indicated to the
contrary. The descriptive article and section headings herein are intended for
convenience of reference only and are not intended to be a part of or to affect
the meaning or interpretation of this Agreement. Whenever the words
"transactions contemplated by this Agreement or the other Transaction
Documents" (or words of similar import) are used in this Agreement, they shall
be deemed not to include the Preferred Equity Financing or any other financing
contemplated by the Company or its affiliates either before, concurrently with
or following the Closing (it being understood that nothing in this sentence
shall affect or be deemed to amend or modify Section 8.2(d)(i) hereof).
Whenever the words "include", "includes" or "including" are used in this
Agreement they shall be deemed to be followed by the words "without
limitation." The words "hereof," "herein" and "herewith" and words of similar
import shall, unless otherwise stated, be construed to refer to this Agreement
as a whole and not to any particular provision of this Agreement. The meaning
assigned to each term used in this Agreement shall be equally applicable to
both the singular and the plural forms of such term, and words denoting any
gender shall include all genders. Where a word or phrase is defined herein,
each of its other grammatical forms shall have a corresponding meaning. The
parties have participated jointly in the negotiation and drafting of this
Agreement and the other Transaction Documents; consequently, in the event an
ambiguity or question of intent or interpretation arises, this Agreement and
each of the other Transaction Documents shall be construed as if drafted
jointly by the parties thereto, and no presumption or burden of proof shall
arise favoring or disfavoring any party by virtue of the authorship of any
provision of this Agreement or of any of the other Transaction Documents.
ARTICLE XI
General Provisions
Section 11.1 Nonsurvival of Representations, Warranties and Covenants. Other
than the covenants and agreements set forth in Sections 3.3, 3.5, 7.3(c)
(except for rights and obligations thereunder with respect to Participating
McNeil Partnerships which shall not survive the Effective Time), 7.4(b), 7.6,
7.8(a), 7.9, 7.10, 7.11, 7.14, 9.4, 9.5 and 9.6 hereof and in this Article XI,
all of the representations, warranties, covenants, agreements and undertakings
set forth in this Agreement or in any instrument delivered pursuant to this
Agreement confirming the representations, warranties, covenants, agreements and
undertakings set forth in this Agreement shall terminate as of the Effective
Time and shall have no further force or effect. The parties hereto hereby agree
that, other than the representations and warranties contained in Articles IV
and V hereof, no representations or warranties are being made in this Agreement
by any party hereto.
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Section 11.2 Non-Recourse. The Company (on behalf of itself and each Company
Person) acknowledges and agrees that notwithstanding anything to the contrary
in this Agreement or under applicable law: (i) this Agreement shall not create
or be deemed to create or permit any liability or obligation on part of any
McNeil Person and no McNeil Person shall be bound or have any liability
hereunder (other than Robert A. McNeil solely in respect of Sections 2.2(a),
2.2(b) and 2.2(c)(ii) hereof); and (ii) the Company and each Company Person
shall look solely to the assets of Sellers for satisfaction of any liability of
Sellers under this Agreement, and neither the Company nor any Company Person
shall seek recourse or commence any action against any McNeil Person or any
McNeil Person's assets, for the performance or payment of any obligation of
Sellers (other than against Robert A. McNeil solely in respect of his
obligations under Sections 2.2(a), 2.2(b) and 2.2(c)(ii) hereof) under this
Agreement. This Agreement (except with respect to Sections 2.2(a), 2.2(b) and
2.2(c)(ii) hereof), is executed on behalf of certain Sellers by Robert A.
McNeil in his capacity, as the case may be, as a general partner, stockholder,
officer or director of such Seller, or as a general partner, stockholder,
officer or director of a Seller which is a stockholder or general partner of
another Seller, and not individually or personally. The Company (on behalf of
itself and each Company Person) has conducted its own independent review and
analysis of the business, operations, technology, assets, liabilities, results
of operations, financial condition and prospects of the business of Sellers and
acknowledges that Sellers have provided the Company and the Company Persons
with access to certain personnel, properties, premises and books and records of
such business for this purpose. In entering into this Agreement, the Company
has relied solely upon the investigation and analysis of itself and the Company
Persons and the specific representations and warranties of Sellers set forth in
Article IV of this Agreement, and the Company (on behalf of itself and each
Company Person) acknowledges and agrees (i) that, except for the specific
representations and warranties of Sellers contained in Article IV hereof, no
Seller or McNeil Person makes or has made any representation or warranty,
either express or implied, as to the accuracy or completeness of any of the
information (including any projections, estimates or other forward-looking
information) provided (including in any management presentations, information
memorandum, supplemental information or other materials or information with
respect to any of the above) or otherwise made available to the Company or any
Company Person, and (ii) that, to the fullest extent permitted by law, none of
the McNeil Persons shall have any liability or responsibility whatsoever to the
Company or any Company Person on any basis (including in contract or tort,
under federal or state securities laws or otherwise) based upon any information
provided or made available, or statements made (or any omissions therefrom), to
the Company or any Company Person, including in respect of the specific
representations and warranties set forth in Article IV of this Agreement.
Notwithstanding anything to the contrary in this Section 11.2, nothing in this
Section 11.2 shall be deemed to affect or modify in any way the rights and
obligations under the LLC Agreement or the Indemnification Agreement of the
parties thereto.
Section 11.3 Amendment. This Agreement may be amended only by an instrument
or instruments in writing signed (i) by a majority of the number of
Participating McNeil Partnerships as of the date of such amendment and (ii) by
each of the other parties hereto (other than the McNeil Partnerships);
provided, however, that no amendment to this Agreement which materially and
adversely affects the rights and obligations of a Participating McNeil
Partnership under this Agreement shall be effective against such Participating
McNeil Partnership unless such amendment is signed by such Participating McNeil
Partnership. This Agreement may be amended as described in the immediately
preceding sentence at any time (i) before or after any requisite approvals of
the respective partners, limited partners or stockholders, as the case may be,
of each of the parties are obtained and (ii) prior to the filing of any of the
Merger Certificates with the Secretary of State of any of the states of
formation of the McNeil Partnerships set forth on Schedule 4.1(c) of the Seller
Disclosure Letter; provided, however, that, after the requisite approvals of
the limited partners of any McNeil Partnership are obtained, no such amendment,
modification or supplement shall be made which by law requires the further
approval of such limited partners without obtaining such further approval.
Section 11.4 Extension; Waiver. At any time prior to the Effective Time, the
parties may in writing (i) extend the time for the performance of any of the
obligations or other acts of any other party, (ii) waive any inaccuracies in
the representations and warranties of any other party, or (iii) waive
compliance with any of the agreements or conditions of any other party, in each
case, contained in this Agreement, the other Transaction
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Documents or in any document delivered pursuant to this Agreement or the other
Transaction Documents. Any agreement on the part of a party to any such
extension or waiver shall be valid only if set forth in an instrument in
writing signed on behalf of such party. The failure of any party to this
Agreement to assert any of its rights under this Agreement or otherwise shall
not constitute a waiver of those rights.
Section 11.5 Notices. All notices, requests, claims, demands and other
communications under this Agreement shall be in writing and shall be delivered
personally, sent by overnight courier (providing proof of delivery or refusal
of delivery) to the parties or sent by telecopy (providing confirmation of
transmission) at the following addresses or telecopy numbers (or at such other
address or telecopy number for a party as shall be specified by like notice):
(a) if to any McNeil Entity, to:
Skadden, Arps, Slate, Meagher & Flom LLP
919 Third Avenue
New York, New York 10022
Attention: Martha E. McGarry, Esq.
Telecopier No.: (212) 735-2000
(b) if to the Company, to:
WXI/McN Realty L.L.C.
85 Broad Street
New York, New York 10004
Attention: Ralph Rosenberg
Telecopier No.: (212) 357-5505
with copies to:
Sullivan & Cromwell
125 Broad Street
New York, New York 10004
Attention: Gary Israel, Esq.
Telecopier No.: (212) 558-3588
All notices shall be deemed given only when actually received. In no event
shall the provision of notice pursuant to this Section 11.5 constitute notice
for service of any writ, process or summons in any suit, action or other
proceeding.
Section 11.6 Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each
of the parties and delivered to the other parties.
Section 11.7 Entire Agreement; No Third Party Beneficiaries. This Agreement
(including the Seller Disclosure Letter), the other Transaction Documents, the
Confidentiality Agreement and the other agreements entered into in connection
with the Mergers and the other transactions contemplated by this Agreement (i)
constitute the entire agreement and supersede all prior agreements and
understandings, both written and verbal, between the parties with respect to
the subject matter thereof and (ii) are not intended to confer upon any person
(other than the parties to this Agreement and the Contributing Partners) any
rights or remedies whatsoever. Immediately following the Closing, the rights
and obligations under the Confidentiality Agreement of the parties thereto
shall terminate with respect to any Participating McNeil Partnership and the
Seller Subsidiaries of such Participating McNeil Partnership.
Section 11.8 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, REGARDLESS OF
THE LAWS THAT MIGHT OTHERWISE GOVERN UNDER APPLICABLE PRINCIPLES OF CONFLICTS
OF LAWS THEREOF.
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Section 11.9 Assignment. Neither this Agreement nor any of the rights,
interests or obligations under this Agreement shall be assigned or delegated,
in whole or in part, by operation of law or otherwise by any of the parties
without the prior written consent of the other parties. Subject to the
preceding sentence, this Agreement shall be binding upon, inure to the benefit
of, and be enforceable by, the parties and their respective successors and
assigns.
Section 11.10 Consent to Jurisdiction. Each of the parties hereto
irrevocably and unconditionally submits to the non-exclusive jurisdiction of
the United States District Court for the Southern District of New York or, if
such court will not accept jurisdiction, the Supreme Court of the State of New
York or any court of competent civil jurisdiction sitting in New York County,
New York. In any action, suit or other proceeding, each of the parties hereto
irrevocably and unconditionally waives and agrees not to assert by way of
motion, as a defense or otherwise any claims that it is not subject to the
jurisdiction of the above courts, that such action or suit is brought in an
inconvenient forum or that the venue of such action, suit or other proceeding
is improper. Each of the parties hereto also agrees that any final and
unappealable judgment against a party hereto in connection with any action,
suit or other proceeding shall be conclusive and binding on such party and that
such award or judgment may be enforced in any court of competent jurisdiction,
either within or outside of the United States. A certified or exemplified copy
of such award or judgment shall be conclusive evidence of the fact and amount
of such award or judgment.
Section 11.11 Severability. Any term or provision of this Agreement which is
invalid or unenforceable in any jurisdiction shall, as to that jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction. If any provision of
this Agreement is so broad as to be unenforceable, the provision shall be
interpreted to be only so broad as is enforceable.
Section 11.12 Arbitration. With respect to a determination of the CPA Firm
pursuant to Section 2.4(b) hereof and the determination of the Financial
Advisor with respect to a Higher Acquisition Proposal, each party hereto agrees
that such determination shall be final and binding upon such party. Judgment on
the determination may be entered in any court of competent jurisdiction (within
and outside the United States). In the event that any party to this Agreement
fails to comply, in the case of the determination of the CPA Firm, with the
procedures set forth in Section 2.4(b) hereof or the orders of the CPA Firm or
the determination of the CPA Firm, or, in the case of the determination of the
Financial Advisor, with the orders of the Financial Advisor or the
determination of the Financial Advisor and in either case, with this Section
11.2, then such noncomplying party shall be liable for all costs and expenses,
including attorneys' fees, incurred by a party in its effort to obtain either
an order to compel compliance with such procedures or such orders, or an
enforcement of the determination, from a court of competent jurisdiction.
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IN WITNESS WHEREOF, each of the parties has executed this Master Agreement,
or has caused this Master Agreement to be executed on its behalf by its officer
thereunto duly authorized, as of the date first above written.
WXI/McN Realty L.L.C.
By: WXI/MCN Real Estate, L.L.C., its
Managing Member
By: Whitehall Street Real Estate
Limited Partnership XI, its
Managing Member
By: WH Advisors, L.L.C. XI, its
General Partner
/s/ Jonathan Langer
By: _________________________________
Name: Jonathan Langer
Title: Vice President
McNEIL INVESTORS, INC.
/s/ Robert A. McNeil
By:__________________________________
Name: Robert A. McNeil
Title: Chairman of the Board
McNEIL REAL ESTATE MANAGEMENT, INC.
/s/ Robert A. McNeil
By:__________________________________
Name: Robert A. McNeil
Title: Co-Chairman of the Board
McNEIL PARTNERS, L.P.
By: McNeil Investors, Inc., its
General Partner
/s/ Robert A. McNeil
By:__________________________________
Name: Robert A. McNeil
Title: Chairman of the Board
on behalf of itself and each of the
McNeil Partnerships (other than
Regency North, Fairfax and
Summerhill)
REGENCY NORTH ASSOCIATES, L.P.
/s/ Robert A. McNeil
By:__________________________________
Name: Robert A. McNeil
Title: General Partner
A-72
<PAGE>
FAIRFAX ASSOCIATES II, LTD.
/s/ Robert A. McNeil
By:__________________________________
Name: Robert A. McNeil
Title: General Partner
McNEIL SUMMERHILL I, L.P.
By: McNeil Summerhill, Inc. its
General Partner
/s/ Robert A. McNeil
By:__________________________________
Name: Robert A. McNeil
Title: Co-Chairman of the Board
McNEIL SUMMERHILL, INC.
/s/ Robert A. McNeil
By:__________________________________
Name: Robert A. McNeil
Title: Co-Chairman of the Board
/s/ Robert A. McNeil
_____________________________________
Robert A. McNeil
A-73
<PAGE>
APPENDIX B
FIRST AMENDED AND RESTATED
LIMITED LIABILITY COMPANY OPERATING AGREEMENT
OF
WXI/McN REALTY L.L.C.
THE INTERESTS OF THE MEMBERS ISSUED UNDER THIS AGREEMENT HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 OR THE SECURITIES LAWS OF ANY STATE
OR THE DISTRICT OF COLUMBIA. NO RESALE OR TRANSFER OF AN INTEREST BY A MEMBER
IS PERMITTED EXCEPT IN ACCORDANCE WITH THE PROVISIONS OF THIS AGREEMENT AND ANY
APPLICABLE FEDERAL OR STATE SECURITIES LAWS, AND ANY VIOLATION OF SUCH
PROVISIONS COULD EXPOSE THE SELLING OR TRANSFERRING MEMBER AND THE COMPANY TO
LIABILITY.
Dated as of , 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
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R E C I T A L S......................................................... B-1
ARTICLE 1. DEFINITIONS.................................................. B-1
1.1 Definitions.................................................... B-1
1.2 Terms Generally................................................ B-13
1.3 Definitions from Master Agreement.............................. B-13
ARTICLE 2. THE COMPANY AND ITS BUSINESS................................. B-13
2.1 Effectiveness of the Agreement; Continuation................... B-13
2.2 Company Name................................................... B-14
2.3 Term........................................................... B-14
2.4 Amendments to Certificate of Formation......................... B-14
2.5 Business; Scope of Members' Authority.......................... B-14
2.6 Principal Office; Mailing Address; Registered Agent............ B-15
2.7 Fiscal Year.................................................... B-15
2.8 Company Property............................................... B-15
2.9 No State Law Partnership....................................... B-15
2.10 Names and Addresses of Members................................. B-15
2.11 Representations by Members..................................... B-15
2.12 Additional Representations by Whitehall........................ B-16
2.13 Additional Representations by McNeil........................... B-17
2.14 Indemnification................................................ B-17
ARTICLE 3. MANAGEMENT OF COMPANY BUSINESS; MAJOR DECISIONS.............. B-17
3.1 Management Generally........................................... B-18
3.2 Managers and Officers: Number, Appointment, Removal,
Qualifications, Etc............................................ B-18
3.3 Committees..................................................... B-19
3.4 Managers' Expenses............................................. B-19
3.5 Meetings of Managers........................................... B-19
3.6 Quorum......................................................... B-19
3.7 Voting Requirements............................................ B-20
3.8 Actions Requiring Super-majority Approval...................... B-20
3.9 Role of the Portfolio Advisor and Limitations on Its
Authority...................................................... B-21
ARTICLE 4. RIGHTS AND DUTIES OF MEMBERS AND BOARD OF MANAGERS........... B-22
4.1 Approved Budget and Business Plan.............................. B-22
4.2 Other Activities of the Members................................ B-22
4.3 Indemnification................................................ B-22
4.4 Compensation of Members and their Affiliates; Goldman, Sachs &
Co. as Exclusive Financial Advisor............................. B-22
4.5 Dealing with Members........................................... B-23
4.6 Use of Company Property........................................ B-23
4.7 Designation of Tax Matters Member.............................. B-23
4.8 Proposed Transactions After Five Years......................... B-23
4.9 McNeil's Right Prior to Bankruptcy Filing...................... B-24
4.10 Refinancing after Five Years................................... B-24
4.11 Senior Indebtedness and Preferred Equity Financing............. B-25
4.12 Property Manager............................................... B-25
4.13 Binding Effect of Asset Allocations............................ B-25
</TABLE>
i
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4.14 Reservation of Rights......................................... B-25
4.15 Taxation as a Partnership..................................... B-25
4.16 Harbour Club Properties....................................... B-25
4.17 Preferred Equity Financing.................................... B-26
ARTICLE 5. BOOKS AND RECORDS; REPORTS................................... B-26
5.1 Books and Records............................................. B-26
5.2 Availability of Books and Records; Return of Books and
Records....................................................... B-26
5.3 Reports and Statements; Annual Budgets and Business Plans..... B-26
5.4 Accounting Expenses........................................... B-27
5.5 Bank Account.................................................. B-27
ARTICLE 6. CAPITAL CONTRIBUTIONS AND LIABILITIES........................ B-27
6.1 Initial Capital Contributions and Initial Capital Accounts of
the Members................................................... B-27
6.2 Working Capital Contributions and Other Additional Capital
Contributions................................................. B-28
6.3 Capital of the Company........................................ B-28
6.4 Distributions as Working Capital Reserves..................... B-28
6.5 Failure to Fund the McNeil Cash Contribution.................. B-29
6.6 Limited Liability of Members.................................. B-30
ARTICLE 7. CAPITAL ACCOUNTS, PROFITS AND LOSSES AND ALLOCATIONS......... B-30
7.1 Capital Accounts.............................................. B-30
7.2 Profits and Losses............................................ B-30
ARTICLE 8. APPLICATIONS AND DISTRIBUTIONS OF NET CASH FLOW AND NET
PROCEEDS FROM CAPITAL TRANSACTIONS............................ B-32
8.1 Applications and Distributions................................ B-32
ARTICLE 9. TRANSFER OF COMPANY INTERESTS................................ B-35
9.1 Transfers of Interests by Members............................. B-35
9.2 Transfer Binding on Company................................... B-36
9.3 Certain Limitations........................................... B-36
9.4 Acceptance of Prior Acts...................................... B-36
ARTICLE 10. DISSOLUTION; WINDING UP AND DISTRIBUTION OF ASSETS.......... B-37
10.1 Dissolution................................................... B-37
10.2 Winding Up.................................................... B-37
10.3 Distribution of Assets........................................ B-37
10.4 Certificate of Cancellation................................... B-38
10.5 Claims of the Members......................................... B-38
ARTICLE 11. AMENDMENTS.................................................. B-38
11.1 Amendments.................................................... B-38
ARTICLE 12. MISCELLANEOUS............................................... B-38
12.1 Further Assurances............................................ B-38
12.2 Notices....................................................... B-38
12.3 Headings and Captions......................................... B-38
12.4 Variance of Pronouns.......................................... B-38
12.5 Counterparts.................................................. B-38
12.6 Governing Law................................................. B-38
12.7 Waiver of Jury Trial.......................................... B-38
</TABLE>
ii
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12.8 Consent to Jurisdiction......................................... B-39
12.9 Specific Performance............................................ B-39
12.10 Partition....................................................... B-39
12.11 Severability.................................................... B-39
12.12 Successors and Assigns.......................................... B-39
12.13 Entire Agreement................................................ B-39
12.14 Waivers......................................................... B-39
12.15 Maintenance as a Separate Entity................................ B-39
12.16 Confidentiality................................................. B-40
12.17 No Third Party Beneficiaries.................................... B-40
12.18 Power of Attorney............................................... B-40
12.19 Construction of this Agreement.................................. B-40
12.20 Non-Recourse.................................................... B-41
12.21 Setoff.......................................................... B-41
12.22 Arbitration..................................................... B-41
</TABLE>
iii
<PAGE>
FIRST AMENDED AND RESTATED
LIMITED LIABILITY COMPANY OPERATING AGREEMENT
OF
WXI/McN REALTY L.L.C.
FIRST AMENDED AND RESTATED LIMITED LIABILITY COMPANY OPERATING AGREEMENT of
WXI/McN Realty L.L.C., a Delaware limited liability company, dated as of
, , by and between (i) WXI/MNL Real Estate L.L.C., a Delaware
limited liability company ("Whitehall"), and (ii) McNeil Partners, L.P., a
Delaware limited partnership ("McNeil").
R E C I T A L S
WHEREAS, the Company was formed as a Delaware limited liability company
pursuant to the Certificate of Formation on June 17, 1999; and
WHEREAS, the Parties hereto desire to continue the Company and to enter into
this Agreement, all as contemplated by the Master Agreement.
NOW, THEREFORE, in order to carry out their intent as expressed above and in
consideration of the mutual agreements hereinafter contained and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties, intending to be legally bound, hereby covenant and
agree as follows:
ARTICLE 1.
Definitions
1.1 Definitions. As used in this Agreement, the following terms shall have
the meanings set forth below:
"Additional Capital Contributions" shall mean, with respect to any Member,
the amount of any cash contributions (including the Initial Working Capital
Contribution) and the value of any non-cash contributions made to the Company
by such Member in excess of such Member's Initial Capital Contribution.
Notwithstanding anything to the contrary contained herein, if Whitehall would
otherwise be entitled to receive a cash distribution of Net Cash Flow or Net
Proceeds from Capital Transactions pursuant to Section 8.1(b) or 8.1(c) from
the Company, Whitehall may elect to forego receipt of all or a portion of such
distribution and have the amount so foregone treated as an Additional Capital
Contribution in accordance with Section 6.4.
"Affiliate" of any Person shall mean another Person that directly or
indirectly controls, is controlled by, or is under common control with, such
first Person.
"Agreement" shall mean this Limited Liability Company Operating Agreement,
as it may hereafter be amended or modified from time to time.
"Annual Budget" shall mean the annual operating budget and annual capital
budget for the Company as amended from time to time, prepared by the Portfolio
Advisor for the approval of the Board of Managers pursuant to the terms of the
Portfolio Advisory Agreement and Section 4.1 hereof.
"Appraised Value" shall mean the value determined by written agreement
between Whitehall and McNeil or, failing such an agreement within 10 days after
the appraisal procedure is commenced, (i) in the event that Whitehall and
McNeil have agreed upon an investment bank to serve as Appraiser, the value of
the non-cash consideration shall be determined by the Appraiser and (ii) in the
event that Whitehall and McNeil have requested that their respective investment
banks appoint a third investment bank to act as Appraiser, the value
B-1
<PAGE>
of the non-cash consideration shall be determined by the Appraiser's
determination of the Independent Value. In the case of clause (ii), the
investment bank appointed by Whitehall shall make a determination of the value
of the non-cash consideration (the "Whitehall Value") and the investment bank
appointed by McNeil shall make a determination of the value of the non-cash
consideration (the "McNeil Value"). The Appraiser shall then make its own
determination of the value of the non-cash consideration (the "Independent
Value"). If the Independent Value is closer to the Whitehall Value, the
Appraised Value shall be equal to the Whitehall Value. If the Independent Value
is closer to the McNeil Value, the Appraised Value shall be equal to the McNeil
Value. If the Independent Value is equally distant to the McNeil Value and the
Whitehall Value, the Appraised Value shall be equal to the Independent Value.
At the time the Appraiser is appointed, the Members shall direct the Appraiser
to determine the Appraised Value within 30 days.
"Appraiser" shall mean the nationally recognized investment bank (defined
according to Securities Data Co. as one of the top 10 underwriters of equity
initial public offerings in the United States during calendar year 1998) or the
nationally recognized investment banks selected by the Members to determine the
Appraised Value pursuant to Section 4.8(b)(iii). In the event the Members
cannot agree on an investment bank to act as Appraiser within 10 days, each
Member shall appoint a nationally recognized investment bank and those two
investment banks shall appoint a third investment bank to act as Appraiser. In
no event shall the Appraiser be Goldman, Sachs & Co., PaineWebber Incorporated
or any of their respective Affiliates.
"Approved Budget" shall mean the Annual Budget for the Budget Year in
question, in each case as approved by the Board of Managers in accordance with
the provisions hereof and as any of the same may be amended from time to time
in accordance with the provisions of this Agreement.
"Archon" shall mean Archon Group, L.P., a Delaware limited partnership.
"Asset Allocation" shall mean (A) with respect to the McREMI Assets, the Net
McREMI Allocated Value, (B) the Allocations ascribed to (i) each of the
Participating McNeil Partnerships, (ii) the general partnership interests (and
the rights and assets associated therewith) in each of the Participating McNeil
Partnerships, (iii) the limited partnership interests in Fairfax held by MPLP
and (iv) the limited partnership interests in Summerhill held by MPLP, all as
set forth on Schedule 1 hereto and (C) such property level value allocations as
the Board of Managers shall determine in its discretion, consistent with the
value set forth in clause (A) above. [Schedule 1 will reflect the Allocations
calculated by Stanger pursuant to Section 1.3 of the Master Agreement.]
"Average Monthly Balance" for any month shall be an amount equal to the mean
of (x) the sum of (i) the aggregate Initial Values of the Company Assets
(excluding the McREMI Assets) owned by the Company or its Subsidiaries as of
the first day of such month and (ii) the Additional Amount as of the first day
of such month and (y) the sum of (i) the aggregate Initial Values of the
Company Assets (excluding the McREMI Assets) owned by the Company or its
Subsidiaries as of the last day of such month and (ii) the Additional Amount as
of the last day of such month. The "Initial Value" of a Company Asset as of any
specified date shall be equal to the sum of (1) the initial Book Value of such
Company Asset at the time acquired by or contributed to the Company or its
Subsidiaries plus (2) the entire amount of capital expenditures (as reflected
in the financial statements of the Company or its Subsidiaries) spent by the
Company or its Subsidiaries on capital improvements for such Company Asset
through such specified date (calculated on a cumulative basis). The "Additional
Amount" as of any particular time of determination shall mean an amount equal
to the product of (x) $ [insert the Net McREMI Allocated Value] and (y)
a fraction, the numerator of which is the aggregate initial Book Values of all
of the Properties owned by the Company and its Subsidiaries as of the date of
determination (excluding any Property that is acquired by the Company or any of
its Subsidiaries after the Effective Time), and the denominator of which is the
aggregate initial Book Values of all of the Properties owned by the Company and
its Subsidiaries as of the Effective Time.
B-2
<PAGE>
"Assumption Fees" shall mean any fees payable to any lender of borrowed
money secured by one or more Properties owned, directly or indirectly, by one
of the Participating McNeil Partnerships in connection with the transactions
contemplated in the Master Agreement.
"Bankruptcy" shall mean, with respect to the affected party: (i) the entry
of an Order for Relief under the Bankruptcy Code; (ii) the admission by such
party of its inability to pay its debts as they mature; (iii) the making by it
of an assignment for the benefit of creditors; (iv) the filing by it of a
petition in bankruptcy or a petition for relief under the Bankruptcy Code or
any other applicable federal or state bankruptcy or insolvency statute or any
similar law; (v) the expiration of sixty (60) days after the filing of an
involuntary petition under the Bankruptcy Code or an involuntary petition
seeking liquidation, reorganization, arrangement or readjustment of its debts
under any other federal or state insolvency law, provided that the same shall
not have been vacated, set aside or stayed within such sixty (60)-day period;
(vi) an application by such party for the appointment of a receiver for the
assets of such party; or (vii) the imposition of a judicial or statutory lien
on all or a substantial part of its assets unless such lien is discharged or
vacated or the enforcement thereof stayed within thirty (30) days after its
effective date.
"Bankruptcy Code" shall mean Title 11 of the United States Code, as amended.
"Board of Managers" shall have the meaning set forth in Section 3.1(a).
"Book Value" shall mean, with respect to any Company Asset, its adjusted
basis for federal income tax purposes, except that (i) the initial Book Value
of any Company Asset contributed by a Member to the Company or otherwise
acquired by the Company in either case pursuant to the Master Agreement shall
be an amount equal to the value given such Company Asset in accordance with the
Allocations (as defined in the Master Agreement) and otherwise in accordance
with the definition of Asset Allocation and (ii) the initial Book Value of any
other Company Asset contributed by a Member to the Company shall be the agreed
upon gross fair market value of such asset, and in all cases such Book Value
shall thereafter be adjusted in a manner consistent with Treasury Regulations
Section 1.704-l(b)(2)(iv)(g) for revaluations pursuant to Section 7.1(b) and
for the Depreciation taken into account with respect to such asset. The initial
Book Value of each of the Company Assets is set forth on Schedule 2 attached
hereto.
"Budget Year" shall mean (i) the period beginning on the Closing Date and
ending on December 31, 1999 and (ii) thereafter, any successive yearly period
(beginning January 1 and ending December 31).
"Business Plan" shall mean, with respect to each Budget Year, the Approved
Budget for such Budget Year in effect together with the annual strategic plan
prepared by the Portfolio Advisor and approved by the Board of Managers for
such Budget Year in accordance with the terms of the Portfolio Advisory
Agreement (as such strategic plan and/or Approved Budget may be modified from
time to time by the Board of Managers).
"Capital Account" shall mean, when used in respect of any Member, the
Capital Account maintained for such Member in accordance with Section 7.1, as
said Capital Account may be increased, decreased or adjusted from time to time
pursuant to the terms of this Agreement.
"Capital Contribution" shall mean, with respect to any Member, the sum of
such Member's Initial Capital Contribution and any Additional Capital
Contributions made by such Member.
"Capital Transaction" shall mean (i) the sale or other disposition of all or
any part of the assets of the Company or any of its Subsidiaries, (ii) a
casualty (where the proceeds from any casualty insurance will not be used in
their entirety to either restore such Property or to repay indebtedness secured
by such Property) or condemnation (where the proceeds from such condemnation
will not be used in their entirety to either restore such Property or to repay
indebtedness secured by such Property) of any Property or any part thereof, or
(iii) any refinancing of any indebtedness of the Company or any of its
Subsidiaries.
B-3
<PAGE>
"Certificate of Formation" shall mean the Certificate of Formation of the
Company as filed with the Secretary of State of the State of Delaware, as the
same may hereafter be amended and/or restated from time to time in accordance
with the terms and provisions of this Agreement.
"Closing Date" shall have the meaning ascribed to such term in the Master
Agreement.
"Code" shall mean the Internal Revenue Code of 1986, as amended, or any
corresponding provision(s) of succeeding law.
"Commercial Properties" shall mean those Properties listed on Schedule 3
hereto. [List all properties of all Participating McNeil Partnerships
designated as "Commercial Properties" on Annex A to the Master Agreement].
"Company" shall mean WXI/McN Realty L.L.C., a Delaware limited liability
company, as said Company may from time to time be hereafter constituted.
"Company Assets" shall mean, from time to time, all of the assets of the
Company and its Subsidiaries and any property (real, personal, tangible or
intangible, including the Properties, the McREMI Assets and the interests in
the Participating McNeil Partnerships and their Subsidiaries) or estate
acquired in exchange therefor or in connection therewith as of such time.
"Company Person" shall mean (i) Whitehall, (ii) the Company, (iii) Whitehall
XI, (iv) any and all Affiliates and Subsidiaries of the Company, or of
Whitehall or of Whitehall XI and any and all indirect and direct holders of
beneficial interests in the Company, or in Whitehall or of Whitehall XI and (v)
in respect of each Person specified in clauses (i), (ii), (iii) and (iv), each
of their respective directors, officers, partners, members, employees,
controlling persons, agents and representatives.
"Confidential Information" shall have the meaning set forth in Section
12.15.
"control" shall mean, when used with respect to any Person, the power to
direct the management and policies of such Person, directly or indirectly,
whether through the ownership of voting securities or other voting interests,
by contract, as trustee or executor or otherwise, and the terms "controlling"
and "controlled" shall have the meanings correlative to the foregoing.
"Depreciation" shall mean, with respect to any Fiscal Year, all deductions
attributable to depreciation or cost recovery with respect to Company Assets,
including any improvements made thereto and any tangible personal property
located therein, or amortization of the cost of any intangible property or
other assets acquired by the Company, which have a useful life exceeding one
year; provided, however, that with respect to any Company Asset whose tax basis
differs from its Book Value at the beginning of such Fiscal Year or other
period, Depreciation shall be an amount which bears the same ratio to such
beginning Book Value as the depreciation, amortization or other cost recovery
deduction for such period with respect to such asset for federal income tax
purposes bears to its adjusted tax basis as of the beginning of such Fiscal
Year; provided further, however, that if the federal income tax depreciation,
amortization or other cost recovery deduction for such Fiscal Year is zero,
Depreciation shall be determined using any reasonable method selected by the
Board of Managers.
"Effective Time" shall have the meaning ascribed to such term in the Master
Agreement.
"Equity Commitment Letter" shall mean that equity commitment letter
agreement, dated as of June , 1999 between Whitehall XI and the Company.
"Fiscal Year" shall mean the fiscal year of the Company, which shall be the
calendar year; but upon dissolution of the Company, "Fiscal Year" shall mean
the period from the end of the last preceding Fiscal Year to the date of such
dissolution.
B-4
<PAGE>
"Full Pre Lock-out Payment" shall mean an amount in cash equal to the net
present value of the sum of all distributions which would be made to the
holders of the McNeil Interest pursuant to Section 8.1(b) (using a discount
rate equal to the 30-day Treasury bill rate at the time of the payment of the
Full Pre Lock-out Payment) based upon the following assumptions: (1) adequate
funds are available to make all such distributions; (2) the distributions to be
made pursuant to Sections 8.1(b)(ii) and 8.1(b)(iii) will be timely paid in
full such that there is no accrued, unpaid McNeil Class C Return or Preferred
14% Return for each month through and including the fifth anniversary of the
Closing Date; and (3) a single distribution will be made pursuant to Sections
8.1(b)(vii), 8.1(b)(viii) and 8.1(b)(ix) on the fifth anniversary of the
Closing Date to pay to the holders of the McNeil Interest the Preferred 15%
Return (if such holders are entitled to such payment pursuant to Section
8.1(b)(viii)) and to return to the holders of the McNeil Interest the full
amount of the McNeil Investment.
"Full Post Lock-out Payment" shall mean an amount in cash equal to the full
amount required to be distributed in the aggregate to all of the holders of the
McNeil Interest pursuant to Section 8.1(c) as of the date of such calculation,
which calculation assumes there were sufficient funds to distribute at least
one dollar to the holders of the Whitehall Class A Interest under Section
8.1(c)(xi).
"Gross Operating Expenses" shall mean with respect to any period, the sum of
(i) all costs and expenses incurred by the Company and its Subsidiaries in the
operation of the Properties as contemplated by this Agreement (excluding
Working Capital Expenses paid from Company reserves or from the Initial Working
Capital Contribution), (ii) all costs and expenses incurred by the Company and
its Subsidiaries in the operation of the Company's business as contemplated by
this Agreement, including, without limitation, the Property Management Fee, and
(iii) debt service on, and escrows and other payments under, any indebtedness
of the Company or any of its Subsidiaries (including any Senior Indebtedness
and any Preferred Equity Financing).
"Gross Operating Income" shall mean with respect to any period, all cash
receipts of the Company and its Subsidiaries from the operation of its
business, including gross rental income received by the Company and its
Subsidiaries from tenants at the Properties and including payments by tenants
in respect of tenant reimbursable expenses, but excluding proceeds from Capital
Transactions, Capital Contributions and Working Capital Reserves.
"Harbour Club Phase Four" shall mean the property known as Harbour Club IV,
located at 48611 South 1-94 Service Drive, Belleville, Michigan.
"Harbour Club Phase One" shall mean the property known as Harbour Club I
Apartments, located at 4900 Denton Road, Belleville, Michigan.
"immediate family member" shall have the meaning ascribed to such term in
Instruction 2 of Item 404(a) of Regulation S-K under the Securities Act.
"Indemnification Agreement" shall mean the Indemnification and Pledge
Agreement, dated as of the date hereof, among McNeil, Whitehall, the persons
listed on Schedule I thereto and Whitehall, as agent for the benefit of the
Whitehall Parties (as defined therein).
"Initial Capital Contribution" shall mean, with respect to any Member, the
aggregate initial capital contribution made by such Member pursuant to Section
6.1.
"Initial QNL Amount" shall mean the greater of (i) ten million dollars
($10,000,000) and (ii) the difference determined by subtracting (A) the sum of
the Designated Debt Amounts (as defined and set forth on Schedule 4) for the
Excluded McNeil Partnerships (if any) from (B) fifty million dollars
($50,000,000). The Initial QNL Amount shall be reduced by McNeil's share of
"nonrecourse liabilities" (within the meaning of Treasury Regulation Section
1.752) attributable to indebtedness that is repaid or otherwise extinguished as
a result of a foreclosure (including a Preferred Equity Financing Foreclosure),
the granting of a deed in lieu of
B-5
<PAGE>
foreclosure, condemnation, casualty or Bankruptcy (in each case, subject to
Section 4.9) where such triggering event causes a default with respect to
indebtedness secured directly or indirectly by 25% or more by value of the
Company Assets at the time of such triggering event.
"Initial Working Capital Contribution" shall have the meaning set forth in
Section 6.2(a).
"Interest" shall mean all of the membership interests of a Member in the
Company at any particular time, including the right of such Member to any and
all benefits to which a Member may be entitled as provided in this Agreement
and under applicable law, together with the obligations of such Member to
comply with all the terms and provisions of this Agreement and under applicable
law.
"Investment" shall mean (i) with respect to McNeil, the McNeil Investment,
(ii) with respect to Whitehall, the Whitehall Investment, and (iii) with
respect to any other Member, an amount equal to the difference determined by
subtracting (A) the sum of all distributions of capital, if any, to such Member
pursuant to Sections 8.1(b) and 8.1(c) from (B) the aggregate Capital
Contribution of such Member.
"IRS" shall mean the Internal Revenue Service and any successor agency or
entity thereto.
"LLCA" shall mean the Delaware Limited Liability Company Act, as amended
from time to time.
"Loan Agreements" shall mean those loan agreements, mortgages, pledges,
guaranties and the like secured by any Property or by which the Company or any
of its Subsidiaries is bound, whether now existing or hereafter entered into.
"Losses" shall have the meaning set forth in Section 7.2.
"Major Decisions" shall have the meaning set forth in Section 3.1(b).
"Manager" shall mean any of the Whitehall Managers or McNeil Managers.
"Master Agreement" shall mean the Master Agreement, dated as of ,
1999, by and among the Company, the McNeil Partnerships (as defined therein),
McNeil, McNeil Investors, Inc., McREMI, McNeil Summerhill, Inc. and Robert A.
McNeil.
"McNeil Class A Interest" shall mean the membership Interests in the Company
that entitle the holder thereof to distributions pursuant to Sections
8.1(b)(iii), 8.1(b)(viii), 8.1(b)(ix), 8.1(c)(iv), 8.1(c)(ix) and 8.1(c)(x) in
respect of the McNeil Class A Investment.
"McNeil Class B Interest" shall mean the membership Interests in the Company
that entitle the holder thereof to distributions pursuant to Sections
8.1(b)(iii), 8.1(b)(viii), 8.1(b)(ix), 8.1(c)(iv), 8.1(c)(ix) and 8.1(c)(x) in
respect of the McNeil Class B Investment.
"McNeil Class C Interest" shall mean the membership Interests in the Company
that entitle the holder thereof to distributions pursuant to Sections
8.1(b)(ii), 8.1(b)(vii), 8.1(c)(iii) and 8.1(c)(viii) in respect of the McNeil
Class C Investment.
"McNeil Class A Investment" shall mean an amount equal to the excess, if
any, of (A) the greater of (1) the First McNeil Threshold and (2) the Allocated
McNeil Value, over (B) the sum of all distributions made to holders of the
McNeil Class A Interest pursuant to Sections 8.1(b)(ix) and 8.1(c)(x), subject
to adjustment pursuant to Section 6.5.
"McNeil Class B Investment" shall mean an amount equal to the excess, if
any, of (A) an amount equal to the difference determined by subtracting (x) the
sum of the initial McNeil Class C Investment and the initial McNeil Class A
Investment from (y) McNeil's Initial Capital Contribution and any and all
Additional Capital
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Contributions made by McNeil pursuant to Sections 4.9 and 4.16, over (B) the
sum of all distributions made to holders of the McNeil Class B Interest
pursuant to Sections 8.1(b)(ix) and 8.1(c)(x).
"McNeil Class C Investment" shall mean an amount equal to the excess, if
any, of (A) the portion of McNeil's Initial Capital Contribution that is in
excess of the McNeil Threshold Amount and that is paid in cash, over (B) the
sum of all distributions to holders of the McNeil Class C Interest pursuant to
Sections 8.1(b)(vii) and 8.1(c)(viii); provided, however, that the McNeil Class
C Investment shall equal zero if McNeil's Initial Capital Contribution does not
equal or exceed $75,000,000 multiplied by the Value Fraction.
"McNeil Class C Return" shall mean, with respect to the holders of the
McNeil Class C Interest, a 13% per annum, annually compounded return on the
McNeil Class C Investment. To the extent the McNeil Class C Investment varies
during a month, the McNeil Class C Return shall be calculated assuming that all
decreases or increases in the McNeil Class C Investment occurred on the first
day of such month.
"McNeil Interest" shall mean collectively, the McNeil Class A Interest, the
McNeil Class B Interest and the McNeil Class C Interest.
"McNeil Investment" shall mean an amount equal to the excess, if any, of (A)
the aggregate Capital Contribution of McNeil, subject, in the case of the
McNeil Class A Investment only, to adjustment pursuant to Section 6.5, over (B)
the sum of all distributions of capital to holders of the McNeil Interest
pursuant to Sections 8.1(b)(vii), 8.1(b)(ix), 8.1(c)(viii) and 8.1(c)(x).
"McNeil Managers" shall have the meaning set forth in Section 3.2(a).
"McNeil Person" shall mean (i) any and all Affiliates and Subsidiaries of
McNeil and any and all indirect and direct holders of beneficial interests in
McNeil and (ii) in respect of McNeil and each Person specified in clause (i),
each of their respective directors, officers, partners, members, employees,
controlling persons, agents and representatives.
"McNeil Portion" shall mean an amount equal to the sum of all distributions
which would be required to be made to the holders of the McNeil Interest
pursuant to Section 8.1(c), calculated as if the amount of funds being
distributed pursuant to Section 8.1(c) is equal to the aggregate cash and non-
cash consideration (using the Appraised Value) being paid to all of the Members
in the Proposed Company Transaction.
"McNeil Threshold Amount" shall mean an amount equal to $70,000,000,
multiplied by the Value Fraction.
"McREMI" shall mean McNeil Real Estate Management, Inc., a Delaware
corporation.
"McREMI Assets" shall have the meaning ascribed to such term in the Master
Agreement.
"Member-Funded Debt" shall mean any non-recourse debt of the Company that is
loaned or guaranteed by any Member and/or is treated as Member non-recourse
debt with respect to a Member under Treasury Regulations Section 1.704-2(b)(4).
"Members" shall mean, Whitehall, McNeil and any Person who is admitted as a
Member pursuant to Section 9.2 hereof.
"Minimum Gain" shall mean an amount equal to the excess of the principal
amount of debt, for which no Member is liable ("non-recourse debt"), over the
adjusted basis of the Company Assets encumbered by such nonrecourse debt which
represents the minimum taxable gain that would be recognized by the Company if
the nonrecourse debt were foreclosed upon and the Company Assets were
transferred to the creditor in satisfaction thereof, and which is referred to
as "minimum gain" in Treasury Regulations Section 1.704-2(b)(2). A Member's
share of Minimum Gain shall be determined pursuant to Treasury Regulations
Section 1.704-2.
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"Multifamily Properties" shall mean those Properties listed on Schedule 5
hereto. [List all properties of all Participating McNeil Partnerships not
designated as "Commercial Properties" on Annex E to the Master Agreement.]
"Net Cash Flow" shall mean, for any period, the excess of Gross Operating
Income over Gross Operating Expenses for such period, less Working Capital
Reserves and Recurring Replacement Reserves.
"Net Proceeds from Capital Transactions" shall mean in the case of any
Capital Transaction, the gross proceeds from such Capital Transaction, after
deducting therefrom: (i) all costs and fees incurred by the Company in
connection with such Capital Transaction, including, without limitation, the
Portfolio Advisory Incentive Fee, (ii) reserves for contingent liabilities in
connection with such Capital Transaction, the amount of which reserves shall be
determined in good faith by the Board of Managers and (iii) Working Capital
Reserves and Recurring Replacement Reserves.
"Net Working Capital Amount" shall mean, with respect to a Participating
McNeil Partnership, the excess of the Positive Excess Cash Balance of such
Participating McNeil Partnership over the cash on hand of such Participating
McNeil Partnership immediately prior to the Effective Time.
"Officers" shall mean the Persons appointed as officers of the Company from
time to time by the Board of Managers, but no such Person shall be deemed an
Officer after such Person is removed as an Officer, which removal of any
Officer is subject to the sole discretion of the Board of Managers with or
without cause.
"Organizational Document" shall mean, with respect to any Person: (i) in the
case of a corporation, such Person's certificate of incorporation and by-laws,
and any shareholder agreement, voting trust or similar arrangement applicable
to any of such Person's authorized shares of capital stock; (ii) in the case of
a partnership, such Person's certificate of limited partnership, partnership
agreement, voting trusts or similar arrangements applicable to any of its
partnership interests; (iii) in the case of a limited liability company, such
Person's certificate of formation or articles of organization, limited
liability company operating agreement or other document affecting the rights of
holders of limited liability company interest; or (iv) in the case of any other
legal entity, such Person's organizational documents and all other documents
affecting the rights of holders of equity interests in such Person.
"Original LLC Agreement" shall mean the Limited Liability Company Operating
Agreement of the Company, dated as of June 17, 1999, by Whitehall as the sole
member thereof.
"Percentage Interest" shall mean as of any date with respect to any Member,
the percentage obtained when such Member's Investment is divided by the
aggregate Investment of all Members, as such percentage may be adjusted from
time to time pursuant to the terms hereof.
"Person" shall mean any individual, partnership, corporation, limited
liability company, trust or other legal entity.
"Pledged Interests" shall have the meaning ascribed to such term in the
Indemnification Agreement.
"Portfolio Advisor" shall mean Archon or such other portfolio advisor as the
Board of Managers shall select.
"Portfolio Advisory Agreement" shall mean the agreement between the Company
and the Portfolio Advisor in respect of the management of the assets of the
Company as contemplated herein, which agreement shall initially be that certain
Portfolio Advisory Agreement, dated as of the date hereof between the Company
and Archon, in the form attached hereto as Exhibit A, and any supplement,
amendment, renewal or replacement thereof.
"Portfolio Advisory Fee" shall mean the fee payable monthly to the Portfolio
Advisor pursuant to the Portfolio Advisory Agreement, the amount of which shall
be equal to 1.0% per annum of the Average Monthly
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Balance of the Company Assets. To the extent Net Cash Flow is not sufficient to
pay the Portfolio Advisory Fee with respect to a given month in accordance with
Section 8.1(b)(iv), the amount not paid shall accrue at a rate equal to six
percent (6%) per annum (compounded annually) and shall be paid as provided
under Sections 8.1(b)(iv) and 8.1(c)(v).
"Portfolio Advisory Incentive Fee" shall mean the fee payable by the Company
to the Portfolio Advisor for overseeing the disposition of each Property, which
fee shall be in an amount equal to 25 basis points multiplied by the
Consideration received by the Company or its Subsidiaries in connection with
such disposition. "Consideration" shall mean (x) with respect to the sale of a
Property, the gross sales price (i.e., before deduction, for example, but
without limitation, of brokerage charges, property or transfer taxes or other
similar charges) payable to the Company for such Property, less the amount of
any purchase money mortgage loan granted by the Company or its Subsidiaries,
and (y) with respect to any purchase money mortgage loan granted by the Company
or its Subsidiaries, all payments of principal and interest if and when
collected by the Company or its Subsidiaries.
"Preferred Equity Financing" shall mean, from time to time, (i) the
aggregate amount of debt owed by the Company and/or one or more of its
Subsidiaries and secured by equity interests in one or more of the Company's
Subsidiaries and (ii) the aggregate amount of preferred equity issued by one or
more of the Company's Subsidiaries, which by its terms has a final redemption
or maturity date.
"Preferred Equity Financing Documents" shall mean those agreements, pledges,
guaranties and other documents evidencing the rights of a holder of Preferred
Equity Financing.
"Preferred Equity Financing Foreclosure" shall mean the exercise of rights
or remedies by the holder of any Preferred Equity Financing which may include
such holder causing a Proposed Multifamily Transaction, a Tax Event Transaction
or a Proposed Company Transaction to occur after such holder has obtained
management control over one or more of the Company's Subsidiaries that is the
subject of such transaction.
"Preferred 14% Return" shall mean, with respect to the holders of the McNeil
Class A Interest, the McNeil Class B Interest and the Whitehall Class A
Interest, a 14% per annum, annually compounded return on the McNeil Class A
Investment, the McNeil Class B Investment and the Whitehall Class A Investment,
respectively. To the extent the McNeil Class A Investment, the McNeil Class B
Investment and the Whitehall Class A Investment vary during a month, the
Preferred 14% Return with respect to such Investment shall be calculated based
on the assumption that all decreases or increases in such Investment occurred
on the first day of such month.
"Preferred 15% Return" shall mean, with respect to the holders of the McNeil
Class A Interest, the McNeil Class B Interest and the Whitehall Class A
Interest, a 15% per annum, annually compounded return on the McNeil Class A
Investment, the McNeil Class B Investment and the Whitehall Class A Investment,
respectively. To the extent the McNeil Class A Investment, the McNeil Class B
Investment and the Whitehall Class A Investment vary during a month, the
Preferred 15% Return with respect to such Investment shall be calculated based
on the assumption that all decreases or increases in such Investment occurred
on the first day of such month.
"Profits" shall have the meaning set forth in Section 7.2.
"Property" shall mean each real property now or hereafter owned by the
Company or any of its Subsidiaries, together with all buildings and
improvements situated thereon and personal property owned by the Company or its
Subsidiaries related thereto.
"Property Management Fee" shall mean the management fee payable to each
Property Manager pursuant to the applicable management agreement.
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"Property Manager" shall mean with respect to a Property, subject to Section
4.12, Management LLC or such other property manager as the Board of Managers
shall select to manage such Property.
"Proposed Change of Control Transaction" shall mean any one or a series of
the following transactions following the consummation of which shall result in
(x) Whitehall owning a Percentage Interest in the Company that is less than 50%
of the Percentage Interest in the Company owned by Whitehall on the date hereof
or (y) Whitehall not having the right to designate at least three of the five
Managers:
(i) any Transfer (other than Transfers permitted pursuant to Section
9.1(a)); or
(ii) any capital reorganization of the Company (including an
extraordinary dividend (other than a cash dividend)), consolidations of
Interests, combination or substitution of Interests, Interest exchange,
conversion or cancellation of Interests, or securitization and subsequent
public offering of Interests.
"Proposed Company Transaction" shall mean any one or a series of the
following transactions: (i) any merger, consolidation, amalgamation, business
combination, recapitalization or reorganization involving the Company or all or
substantially all of the Company's Subsidiaries (excluding any such transaction
which does not involve third Persons); (ii) any split-up, spin-off or other
corporate division involving the Company or all or substantially all of the
Company's Subsidiaries; (iii) any transaction similar to those described in
clause (i) or (ii) above involving the Company or all or substantially all of
the Company's Subsidiaries; or (iv) any sale, assignment, conveyance (other
than the granting of a mortgage), lease (other than in the ordinary course of
the Company's business), transfer or other disposition of all or substantially
all of the Company Assets; provided, however, that a Preferred Equity Financing
shall not be considered a Proposed Company Transaction.
"Proposed Multifamily Transaction" shall mean any of the following: (i) any
merger, consolidation, amalgamation, business combination, recapitalization or
reorganization involving one or more Multifamily Properties; (ii) any split-up,
spin-off or other corporate division involving one or more Multifamily
Properties; (iii) any sale, assignment, conveyance (excluding the granting of a
mortgage), lease (excluding leases entered into in the ordinary course of the
Company's business), transfer or other disposition, in one or a series of
transactions, of one or more of the Multifamily Properties; and (iv) any
proposal, plan or intention by or on behalf of the Company to do any of the
foregoing or any agreement to engage in any of the foregoing entered into by or
on behalf of the Company or otherwise binding upon the Company; provided,
however, that a Preferred Equity Financing shall not be considered a Proposed
Multifamily Transaction.
"Recurring Replacement Reserves" shall mean an amount reserved each month by
the Company from its Gross Operating Income and its proceeds from Capital
Transactions for the payment of Working Capital Expenses, the amount of which
reserve shall be determined in good faith by the Board of Managers but which in
no event shall exceed an aggregate amount equal to the sum of (i) $250 per
annum per unit contained in the Multifamily Properties and (ii) $0.20 per annum
per gross square foot contained in the Commercial Properties.
"Senior Indebtedness" shall mean, from time to time, the aggregate amount of
debt for borrowed money owed by the Company and/or its Subsidiaries that is
secured by one or more of the Properties, secured by any of the other Company
Assets or unsecured.
"Shortfall Agreement" shall mean the letter agreement between Whitehall XI
and MPLP, in the form attached hereto as Exhibit B.
"Subsidiary" of (i) the Company shall mean each of the Participating McNeil
Partnerships and (ii) any Person (including the Company) shall mean any other
Person more than 50% of the equity of which is owned, directly or indirectly,
by such first Person or a Subsidiary of such first Person or over which such
first Person or a Subsidiary of such first Person directly or indirectly has
the right to appoint a majority of the board of directors, the board of
managers or other relevant governing body.
"Tax Event Transaction" shall mean any of the following: (i) any merger,
consolidation, amalgamation, business combination, recapitalization or
reorganization involving the Company or one or more of its
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Subsidiaries (other than (1) any such transaction which does not involve third
Persons and (2) any such transaction which is effected solely for the purpose
of selling one or more Commercial Properties); (ii) any split-up, spin-off or
other corporate division involving the Company or its Subsidiaries (other than
any such transactions which is effected solely for the purpose of selling one
or more Commercial Properties); (iii) any Transfer (other than Transfers
permitted pursuant to Section 9.1(a) or 9.1(b)) or any capital reorganization
involving the Company (including without limitation an extraordinary dividend,
consolidation of Interests, combination or substitution of Interests, Interest
exchange, conversion or cancellation of Interests, or securitization and
subsequent public offering of Interests, but excluding any Preferred Equity
Financing involving one or more of the Company's Subsidiaries); (iv) any
Proposed Change of Control Transaction prior to the fifth anniversary of the
Closing Date; and (v) any proposal, plan or intention by or on behalf of the
Company or Whitehall to do any of the foregoing or any agreement to engage in
any of the foregoing entered into by or on behalf of the Company or Whitehall
or otherwise binding upon the Company or Whitehall.
"Tax Gross-Up Amount" shall equal the excess of the Tax Amount over the
Present Value Amount determined as follows: (a) the "Tax Amount" shall equal
the "Gain Amount" multiplied by the highest combined marginal federal, state
and local income tax rate applicable to an individual residing in any place of
residence of Robert A. McNeil or Carole J. McNeil (taking into account amount
and character of the gain) for the taxable year of the Tax Event Transaction or
any distributions relating thereto; (b) the "Gain Amount" shall equal income
and gain recognized by McNeil (or any Transferee of all or any portion of the
McNeil Interest pursuant to Section 9.1) as a result of the Tax Event
Transaction or any distributions relating thereto; and (c) the "Present Value
Amount" shall equal the present value of a hypothetical Tax Amount, calculated
using the following assumptions: (1) the discount rate used to determine the
net present value is equal to the 30 day Treasury bill rate at the time of the
payment of the Full Pre Lock-out Payment; (2) the Gain Amount consists of the
sum of (A) monthly allocations of ordinary income necessary to support the
Preferred 14% Return with respect to the McNeil Class A Interest and the McNeil
Class B Interest, allocated at the end of each calendar month from the date of
the Tax Event Transaction to and including the fifth anniversary of the Closing
Date, and (B) the remaining income and gain that would have been recognized by
McNeil (or any Transferee of all or any portion of the McNeil Interest pursuant
to Section 9.1) as if the Tax Event Transaction had occurred on the fifth
anniversary of the Closing Date.
"Tax Matters Member" shall mean Whitehall.
"Total CapEx Debt to Total CapEx Cost Ratio of the Company" shall mean as of
any date of determination, a fraction expressed as a percentage that results
from dividing (A) the total amount of all Senior Indebtedness and all Preferred
Equity Financing incurred from and after the Effective Time to fund Working
Capital Expenses by (B) the sum of (1) all Additional Capital Contributions
used to fund Working Capital Expenses and (2) the total amount of all Senior
Indebtedness and all Preferred Equity Financing incurred from and after the
Effective Time to fund Working Capital Expenses.
"Total Debt to Total Cost Ratio of the Company" shall mean as of any date of
determination, a fraction expressed as a percentage that results from dividing
(A) the total amount of all Senior Indebtedness and all Preferred Equity
Financing outstanding as of the Effective Time by (B) the sum of (1)
Whitehall's Initial Capital Contribution, (2) McNeil's Initial Capital
Contribution and (3) the total amount of all Senior Indebtedness and all
Preferred Equity Financing outstanding as of the Effective Time.
"Transfer" shall mean with respect to any Member, (i) any transfer, sale,
pledge, hypothecation, encumbrance, assignment or other disposition of all or
any portion of the Interest of such Member or the proceeds thereof (whether
voluntarily, involuntarily, by operation of law or otherwise) and (ii) any
transfer, sale, pledge, hypothecation, encumbrance, assignment or other
disposition of any stock, partnership interest, beneficial interest or other
ownership interest in such Member (whether directly or indirectly or whether
voluntarily, involuntarily, by operation of law or otherwise); provided,
however, that (1) with respect to the foregoing clause (i), any pledge or
hypothecation by a Member of its Interest in connection with a bona fide
financing transaction shall not be considered to be a Transfer (it being
understood that any foreclosure upon
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any pledge or hypothecation or comparable collateralization of a Member's
Interest shall be deemed to be a Transfer for purposes of this Agreement); and
(2) with respect to the foregoing clause (ii), that a Transfer shall not
include any transfer, sale, pledge, hypothecation, encumbrance, assignment or
other disposition of all or any portion of the direct or indirect ownership
interests in (x) Whitehall XI (so long as (A) The Goldman Sachs Group, Inc.
and/or its successors and assigns, including any Person that succeeds to all or
substantially all of the business currently conducted by The Goldman Sachs
Group, Inc. or its Affiliates continues directly or indirectly to control
Whitehall XI, and (B) Whitehall XI continues to control Whitehall), (y) Archon
and (z) McNeil (provided that the other party in any such transaction is any
Person specified in Sections 9.1(b)(i), 9.1(b)(ii), 9.1(b)(iii), 9.1(b)(iv) or
9.1(b)(v)).
"Transferee" shall mean any Person to whom a Member (or Transferee) is
permitted to Transfer all or a portion of such Member's Interest pursuant to
Section 9.1(a) or 9.1(b) hereof.
"Treasury Regulations" shall mean the regulations promulgated under the
Code, as such regulations are in effect on the Closing Date.
"Value Fraction" shall mean a fraction (x) the numerator of which is the
amount equal to the sum of the Per Partnership Allocated Values for each
Participating McNeil Partnership and (y) the denominator of which is the Total
Allocated Partnership Value.
"Whitehall" shall have the meaning set forth in the first paragraph of this
Agreement.
"Whitehall XI" shall mean Whitehall Street Real Estate Limited Partnership
XI, a Delaware limited partnership.
"Whitehall Class A Interest" shall mean the membership Interests in the
Company that entitle the holder thereof to distributions pursuant to Sections
8.1(b)(v), 8.1(b)(viii), 8.1(b)(ix), 8.1(b)(x), 8.1(c)(vi), 8.1(c)(ix),
8.1(c)(x) and 8.1(c)(xi) in respect of the Whitehall Class A Investment.
"Whitehall Class B Interest" shall mean the membership Interests in the
Company that entitle the holder thereof to distributions pursuant to Sections
8.1(b)(i), 8.1(b)(vi), 8.1(c)(ii) and 8.1(c)(vii) in respect of the Whitehall
Class B Investment.
"Whitehall Class A Investment" shall mean an amount equal to the excess, if
any, of (A) the difference determined by subtracting (x) the sum of (1) the
Whitehall Class B Investment as of the Closing Date and (2) that portion of any
Additional Capital Contribution made by Whitehall that is included in the
Whitehall Class B Investment from (y) Whitehall's Capital Contribution, over
(B) the sum of all distributions made to holders of the Whitehall Class A
Interest pursuant to Sections 8.1(b)(ix) and 8.1(c)(x).
"Whitehall Class B Investment" shall mean that portion of Whitehall's
Capital Contribution equal to the excess, if any, of (A) the lesser of (x) the
sum of (1) that portion of Whitehall's Initial Capital Contribution that, if
treated as Preferred Equity Financing, would cause the Total Debt to Total Cost
Ratio of the Company to equal 80% and (2) that portion of any Additional
Capital Contribution made by Whitehall used to fund Working Capital Expenses
that, if treated as Preferred Equity Financing, would cause the Total CapEx
Debt to Total CapEx Cost Ratio of the Company to equal 80% and (y) 105% of the
sum of the amounts relating to the Participating McNeil Partnerships set forth
on Schedule 6, over (B) the sum of all distributions to holders of the
Whitehall Class B Interest pursuant to Sections 8.1(b)(vi) and 8.1(c)(vii).
Except for any portion of an Additional Capital Contribution made by Whitehall
which is treated as a part of the Whitehall Class B Investment pursuant to
clause (A)(x)(2) above, all portions of any Additional Capital Contributions
made by Whitehall shall be treated as part of the Whitehall Class A Investment.
Notwithstanding anything to the contrary in this definition of "Whitehall Class
B Investment", in no event shall the aggregate amount of Capital Contributions
included as part of the Whitehall Class B Investment exceed [105% of the sum of
the amounts relating to the Participating McNeil Partnerships set forth on
Schedule 6].
"Whitehall Class B Return" shall mean, with respect to the holder of the
Whitehall Class B Interest, a 14% per annum, annually compounded return on the
Whitehall Class B Investment. To the extent the Whitehall
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Class B Investment varies during a month, the Whitehall Class B Return shall
be calculated assuming that all decreases or increases in the Whitehall Class
B Investment occurred on the first day of such month.
"Whitehall Interest" shall mean collectively, the Whitehall Class A
Interest and the Whitehall Class B Interest.
"Whitehall Investment" shall mean an amount equal to the excess, if any, of
(A) the aggregate Capital Contribution of Whitehall, subject to adjustment, in
the case of Whitehall Class A Investment only, pursuant to Section 6.5, over
(B) the sum of all distributions of capital to holders of the Whitehall
Interest pursuant to Sections 8.1(b)(vi), 8.1(b)(ix), 8.1(c)(vii) and
8.1(c)(x). The Initial Working Capital Contribution with respect to Whitehall
and any other Additional Capital Contributions with respect to Whitehall shall
not be treated as a Capital Contribution by Whitehall and shall not be
included in the calculation of its Whitehall Class B Return, Preferred 14%
Return, Preferred 15% Return or Percentage Interest until such amount is
funded by Whitehall.
"Whitehall Managers" shall have the meaning set forth in Section 3.2(a).
"Working Capital Expenses" shall mean costs and expenses incurred by the
Company and its Subsidiaries in connection with capital improvements, tenant
improvements, leasing commissions, and environmental remediation at the
Properties and in connection with debt service shortfalls on any indebtedness
of the Company or any of its Subsidiaries or any debt service shortfalls on
Preferred Equity Financing.
"Working Capital Reserves" shall mean the amount reserved by the Company
out of its Gross Operating Income and its proceeds from Capital Transactions
each month for the payment of Working Capital Expenses and any other expenses
of the Company and its Subsidiaries, the amount of which reserve shall be
determined by the Board of Managers in good faith, but which shall be equal to
$0 until such time as Whitehall shall have contributed the entire Initial
Working Capital Contribution to the capital of the Company.
1.2 Terms Generally For all purposes of this Agreement, except as otherwise
expressly provided or unless the context otherwise requires:
(a) the terms defined in this Article (or elsewhere herein) include both
the plural and the singular;
(b) the words "herein," "hereof" and "hereunder" and other words of
similar import refer to this Agreement as a whole and not to any particular
Article, Section or other subdivision;
(c) the words "including"and "include" and other words of similar import
shall be deemed to be followed by the phrase "without limitation;" and
(d) when a reference is made in this Agreement to a Section or Article,
such reference shall be to a section or article of this Agreement, unless
otherwise clearly indicated to the contrary.
1.3 Definitions from Master Agreement. Capitalized terms used but not
defined herein shall have the meanings ascribed to such terms in the Master
Agreement.
ARTICLE 2.
The Company and Its Business
2.1 Effectiveness of the Agreement; Continuation. On June 17, 1999, the
Company was formed as a Delaware limited liability company pursuant to the
Certificate of Formation executed and filed by Whitehall in the Office of the
Secretary of State of the State of Delaware pursuant to the provisions of the
LLCA. Notwithstanding anything to the contrary contained herein or in the
Original LLC Agreement, this Agreement shall become effective upon the
Effective Time. The Original LLC Agreement shall continue in full force and
effect and shall govern the operation of the Company at all times prior to the
Effective Time. The Members hereby agree to continue the Company as a limited
liability company pursuant to the provisions of the LLCA, and all other
pertinent laws of the State of Delaware, for the purposes and upon the terms
and conditions
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hereinafter set forth. The Members agree that the rights and liabilities of the
Members shall be as provided in the LLCA except as otherwise herein expressly
provided. Whitehall (as an authorized person pursuant to the LLCA) shall file
and record any amendments and/or restatements to the Certificate of Formation
and such other ministerial documents as may be required or appropriate under
the laws of the State of Delaware and of any other jurisdiction in which the
Company may conduct business as a result of the execution of this Agreement.
Whitehall (as an authorized person pursuant to the LLCA) has caused the
Certificate of Formation to be filed with the Secretary of State of the State
of Delaware. A photocopy of each such document has been delivered to and
ratified and approved by each Member. Each Member is hereby admitted as a
Member of the Company as of the Effective Time and, by its execution and
delivery of this Agreement, agrees to be bound by the Certificate of Formation
and the terms and provisions of this Agreement.
2.2 Company Name. The business of the Company shall continue to be conducted
under the name of "WXI/McN Realty L.L.C." in the State of Delaware and under
such name or such assumed names as the Board of Managers deem necessary or
appropriate to comply with the requirements of any other jurisdiction in which
the Company may be required to qualify. Legal and beneficial title to any
properties, real and personal, which may at any time during the term of the
Company be owned or leased by the Company shall be held in the name of the
Company or any of its Subsidiaries.
2.3 Term. The term of the Company commenced on June 17, 1999 and shall
continue in full force and effect until terminated following dissolution on
December 31, 2015 or such earlier date of dissolution as hereinafter provided.
2.4 Amendments to Certificate of Formation. Whitehall shall have the power
and authority to execute and file any required amendments to the Certificate of
Formation and shall do all other acts requisite for the constitution of the
Company as a limited liability company pursuant to the LLCA and other laws of
the State of Delaware or any other applicable law; provided, however, that
nothing in this Section 2.4 shall, or shall be construed to, grant Whitehall
the authority or power to unilaterally amend this Agreement or any term or
provision hereof. The Company shall, upon request, provide any Member with
copies of each amendment, restatement or other document as executed, filed or
recorded, as the case may be.
2.5 Business; Scope of Members' Authority.
(a) The Company has been organized solely for the purpose of (i) acquiring,
holding, financing, refinancing, maintaining and managing the McREMI Assets,
(ii) acquiring, holding, financing, refinancing and managing the interests in
the Participating McNeil Partnerships and (iii) directly or indirectly, owning,
financing, refinancing, managing, maintaining, operating, improving, leasing,
selling and otherwise disposing of the Properties. The Company is empowered
under law to do any and all acts and things necessary, appropriate, proper,
advisable, incidental to or convenient for the furtherance and accomplishment
of the purposes and business described herein and for the protection and
benefit of the Company, including, without limitation, full power and
authority, directly or indirectly (including through its Subsidiaries), to
enter into, perform and carry out contracts of any kind, borrow money and issue
evidences of indebtedness whether or not secured by any mortgage, deed of
trust, pledge or other lien, acquire, own, manage, improve and develop any real
property (or any interest therein), and sell, transfer and dispose of any such
real property.
(b) Except as otherwise expressly and specifically provided in this
Agreement, no Member shall have any authority to bind, to act for, to sign for
or to assume any obligation or responsibility on behalf of, any other Member.
Neither the Company nor any Member shall, by virtue of executing this
Agreement, be responsible or liable for any indebtedness or obligation of any
other Member incurred or arising either before or after the Effective Time,
except that (i) the Company (but not any Member) shall be responsible and
liable for those responsibilities, liabilities, indebtedness, and obligations
assumed or incurred by the Company at and after the Effective Time pursuant to
the terms of the Master Agreement and (ii) Whitehall (and not McNeil) shall be
solely responsible and liable for those responsibilities, liabilities,
indebtedness and obligations assumed or incurred by the Company prior to the
Effective Time other than (1) those responsibilities, liabilities, indebtedness
and obligations assumed or incurred by the Company pursuant to Sections 7.6,
7.10 and 7.15 of
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the Master Agreement and (2) the indebtedness incurred by the Company solely to
fund the payment of the Funding Amount (as defined in the Equity Commitment
Letter).
2.6 Principal Office; Mailing Address; Registered Agent. The principal
office and mailing address of the Company shall be c/o Whitehall Street Real
Estate Limited Partnership XI, 100 Crescent Court, Dallas, Texas 75201. The
Company may change its place of business or mailing address or both to such
location or locations as may at any time or from time to time be determined by
Whitehall. The name and address of the registered agent upon whom process
against the Company may be served is The Corporation Trust Company, 1209 Orange
Street, Wilmington, Delaware 19801.
2.7 Fiscal Year. The Fiscal Year shall end on December 31 in each year;
provided, however, that upon dissolution of the Company, the Fiscal Year shall
end on the date of such dissolution.
2.8 Company Property. No Company Assets shall be deemed to be owned by any
Member individually, but shall be owned by and title shall be vested solely in
the Company. The Interests of the Members in the Company shall constitute
personal property.
2.9 No State Law Partnership. The Members intend that the Company not be a
partnership, limited partnership or joint venture and that no Member be a
partner or joint venturer of any other Member for any purposes other than
applicable tax laws. This Agreement shall not be construed to suggest
otherwise.
2.10 Names and Addresses of Members. The names and addresses of the Members
are as follows:
WXI/MNL Real Estate, L.L.C.
c/o Whitehall Street Real Estate
Limited Partnership XI
c/o WH Advisors, LLC XI
85 Broad Street
New York, New York 10004
Attn: Chief Financial Officer
McNeil Partners, L.P.
c/o Skadden, Arps, Slate, Meagher & Flom LLP
919 Third Avenue
New York, New York 10022
Attention: Martha E. McGarry, Esq.
Telecopier No.: (212) 735-2000
2.11 Representations by Members. Each Member represents, warrants, agrees
and acknowledges as of the date hereof that:
(a) it is a corporation, limited partnership or limited liability
company, as applicable, duly organized or formed and validly existing and
in good standing under the laws of the state of its organization or
formation; it has all requisite corporate, limited partnership or limited
liability company power and authority to enter into this Agreement, to
acquire and hold its Interest and to perform its obligations hereunder; and
the execution, delivery and performance of this Agreement by such Member
has been duly authorized by all necessary corporate, limited partnership or
limited liability company action on the part of such Member;
(b) the execution and delivery of this Agreement by such Member and the
performance of its obligations hereunder will not (i) conflict with, result
in a breach of or constitute a default (or any event that, with notice or
lapse of time, or both, would constitute a default) or result in the
acceleration of any obligation under any of the terms, conditions or
provisions of any other agreement or instrument to which it is a party or
by which it is bound or to which any of its property or assets is subject,
(ii) conflict with or violate any of the provisions of its Organizational
Documents, or (iii) violate any statute or any order, rule
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<PAGE>
or regulation of any court or governmental or regulatory agency, body or
official applicable to such Member or its property or assets; such Member
has obtained each consent, approval, authorization or order of any court or
governmental agency or body required for the execution and delivery of this
Agreement by such Member and performance by such Member of its obligations
hereunder;
(c) there is no action, suit or proceeding pending against such Member
or, to its knowledge, threatened in any court or by or before any other
governmental agency or instrumentality that would prohibit its entering
into, or that could have a material adverse effect on its ability to
perform its obligations under, this Agreement;
(d) assuming the due execution and delivery of this Agreement by the
other Member, this Agreement is a binding agreement on the part of such
Member enforceable in accordance with its terms against such Member;
(e) neither it nor any of its Affiliates has employed any broker or
finder, or incurred any liability for any brokerage commission or finder's
fee, in connection with the sale or contribution of the McREMI Assets or
interests in the Participating McNeil Partnerships to the Company or any of
the other transactions contemplated by this Agreement or the Master
Agreement except for PaineWebber Incorporated, Eastdil Realty Company and
Robert A. Stanger & Co., Inc., whose fees shall be paid by one or more of
McNeil and the Participating McNeil Partnerships, and Houlihan, Lokey,
Howard & Zukin and Susan Barlow, all of whose fees shall be paid by McNeil;
and
(f) (i) such Member and each of its beneficial owners is an "accredited
investor" (as defined in Rule 501 of Regulation D promulgated under the
Securities Act of 1933, as amended) and (ii) such Member is acquiring its
Interest as a member in the Company for its own account, for investment
purposes only, and not with a view to the distribution or resale thereof,
in whole or in part.
Each Member agrees that it will not make any Transfer, or solicit offers to buy
from or otherwise approach or negotiate in respect thereof with any Person or
Persons whomsoever, all or any portion of its Interest in any manner that would
violate or cause the Company or any Member to violate applicable federal or
state securities laws.
2.12 Additional Representations by Whitehall. Whitehall further represents,
warrants, agrees and acknowledges to McNeil as of the date hereof that:
(a) The Company is a limited liability company duly formed and validly
existing under the laws of the State of Delaware and has the requisite
power and authority to carry on its business as conducted prior to the
Effective Time and is duly qualified or licensed to do business and is in
good standing (with respect to jurisdictions which recognize such concept)
in each jurisdiction in which the nature of its business prior to the
Effective Time or the ownership, leasing or use of its properties makes
such qualification or licensing necessary. The Company has delivered to
McNeil complete and correct copies of the Original LLC Agreement and the
Certificate of Formation, as each has been amended or supplemented to the
date of this Agreement.
(b) The Company was formed solely for the purpose of engaging in the
transactions contemplated by this Agreement and the Master Agreement and
has not engaged in any business activities or conducted any operations
other than as expressly provided for in the Master Agreement. Other than
the Transitory Partnerships and the Company LLCs upon their formation, the
Company has never owned any capital stock or other equity interests in any
other Person. Prior to the contributions described in Section 2.3(a) of the
Master Agreement and in Section 6.1 of this Agreement, the Company will
have no assets or liabilities or obligations whatsoever (other than the
rights and obligations pursuant to the Master Agreement, this Agreement and
the Commitment Letter).
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2.13 Additional Representations by McNeil. McNeil further represents,
warrants, agrees and acknowledges to Whitehall as of the date hereof that:
(a) Immediately prior to the contributions described in Section 2.3(a)
of the Master Agreement, MPLP had good and valid title to all of the GP
Interests in each Participating McNeil Partnership, the McREMI Assets and
the LP Interests in each of Fairfax and Summerhill (to the extent such
McNeil Partnerships are Participating McNeil Partnerships) in each case
free and clear of all Liens.
(b) Upon the occurrence of the contributions described in Section 2.3(a)
of the Master Agreement, the GP Interests in each Participating McNeil
Partnership, the McREMI Assets and the LP Interests in each of Fairfax and
Summerhill (to the extent such McNeil Partnerships are Participating McNeil
Partnerships) shall have been contributed, transferred or otherwise
assigned, at the direction of the Company, to one or more of the Company or
its wholly owned Subsidiaries, in any such case, free and clear of all
Liens (other than Liens relating to Non-Terminated Loans).
2.14 Indemnification. The representations, warranties and covenants of the
Members set forth in Sections 2.11, 2.12 and 2.13 are made as of the Effective
Time and shall survive the Effective Time indefinitely. Each Member agrees to
indemnify, defend, and hold the Company and the other Members harmless against
all claims, demands, actions, obligations, causes of action, losses and
expenses, including reasonable fees and expenses of counsel, suffered or
incurred by, or asserted against, any of them relating to or arising from any
inaccuracy in or breach of the representations, warranties or covenants made by
such Member in Sections 2.11, 2.12 and 2.13.
ARTICLE 3.
Management of Company Business; Major Decisions
3.1 Management Generally.
(a) The management of the Company shall be vested exclusively in a board of
five (5) managers (each manager, a "Manager" and, collectively, the "Board of
Managers"). Except as expressly set forth herein to the contrary, the Members,
in their capacity as members of the Company, shall have no part in the
management or control of the Company and shall have no authority or right to
act on behalf of or bind the Company in connection with any matter. Each of the
Members agrees that all determinations, decisions, and actions made or taken by
or on behalf of the Board of Managers in accordance with the terms of this
Agreement and applicable law shall be conclusive and binding upon the Company,
the Members, and their respective successors, assigns, and personal
representatives.
(b) Without in any way limiting the foregoing, but subject to Section 3.8,
the Board of Managers shall have the exclusive right to decide (affirmatively
or negatively) all material matters relating to the Company, its Subsidiaries
and the Properties, including, without limitation, matters (collectively, the
"Major Decisions") regarding:
(i) the sale, financing or refinancing of any one or more of the
Properties;
(ii) capital or other expenditures;
(iii) terminating or modifying commercial leases and entering into new
commercial leases;
(iv) concessions granted to tenants (including free rent and tenant
improvements) in connection with any commercial lease;
(v) subject to Section 4.9, the filing of a petition in Bankruptcy or
similar proceedings;
(vi) tenant leases and other expenses;
(vii) settling any litigation or arbitration;
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<PAGE>
(viii) investments of cash of the Company or any of its Subsidiaries;
(ix) entering into service contracts not contemplated by the applicable
approved Business Plan;
(x) engagement of Property Managers;
(xi) approval of the standard lease form used for each Commercial
Property and the standard lease form for each Multifamily Property, and
approval of any lease that deviates substantially from the applicable
standard form;
(xii) any call for the making of Additional Capital Contributions by
Whitehall;
(xiii) subject to the terms and provisions of this Agreement, any
decision relating to the distribution of cash and allocation of taxable
income and loss;
(xiv) modifications to the insurance program required by the applicable
approved Business Plan; and
(xv) subject to the terms and provisions of this Agreement, setting
reserves.
3.2 Managers and Officers: Number, Appointment, Removal, Qualifications,
Etc.
(a) The total number of Managers shall at all times equal five. Whitehall
shall at all times be entitled to designate three of the five Managers (the
"Whitehall Managers") to serve until the first annual meeting of Members and
until each such Manager's successor has been elected and qualified and
Whitehall shall have the right to elect three Managers upon each annual
election of Managers. McNeil shall at all times be entitled to designate two of
the five Managers (the "McNeil Managers") to serve until the first annual
meeting of Members and until each such Manager's successor has been elected and
qualified and McNeil shall have the right to elect two Managers upon each
annual election of Managers.
(b) No Manager may be removed from office (with or without cause) without
the consent of the Member who elected such Manager. Each Member shall have the
sole right to remove, at any time and for any reason with or without cause, any
Manager appointed by such Member and to appoint a successor Manager to fill any
vacancy caused by the removal, resignation, death or incapacity of any Manager
appointed by such Member. Each Member agrees to fill any such vacancy as soon
as practicable and agrees that it will use its best efforts to fill any such
vacancy within 30 days of such vacancy. Each Member agrees to give the Company
and the other Member prompt written notice of any appointment or removal of any
of its Managers.
(c) Whitehall shall have the right to designate one of the five Managers as
Chairman of the Board of Managers. The Chairman shall preside over meetings of
the Board of Managers. The Chairman shall at all times be a Manager of the
Company. Except to preside over meetings of the Board of Managers, the Chairman
by virtue of such title shall have no other authority or power not possessed by
the other Managers. If no Chairman is designated by Whitehall, or if at any
meeting of the Board of Managers the Chairman is not present within fifteen
minutes after the time appointed for holding such meeting, any Whitehall
Manager present may choose one of their number to preside over such meeting as
chairman.
(d) The Board of Managers may appoint the Officers of the Company, which may
consist of, among other officers, a President, a Secretary and a Treasurer. The
Board of Managers may also appoint such other Officers and agents as it shall
deem necessary or advisable. All Officers and agents shall hold their offices
for such terms and shall exercise such powers and perform such duties as shall
be determined from time to time by the Board of Managers. Any two or more
offices may be held by the same person. An Officer of the Company shall hold
office until his or her successor is duly appointed and qualified or until his
or her death, resignation or removal from office. Any Officer appointed by the
Board of Managers may be removed at any time, with or without cause, by the
affirmative vote of the majority of the Board of Managers. Any vacancy
occurring in any office of the Company shall be filled by the Board of
Managers.
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<PAGE>
(e) Any Manager designated pursuant to this Section 3.2 shall assume the
powers, duties and obligations of a Manager as provided under this Agreement
and of a manager under the LLCA and shall be subject to the terms hereof and
thereof.
(f) The Board of Managers shall have the right to delegate authority to the
Officers, provided that the Board of Managers does not delegate the authority
to make any decision regarding the matters described in Section 3.1(b)(i),
3.1(b)(v), 3.1(b)(xii), 3.1(b)(xiii), 3.1(b)(xv) or 3.8 or any matter which by
the terms of this Agreement requires a Super-majority Vote or the consent of
McNeil.
3.3 Committees. The Board of Managers shall not have the power to create
committees.
3.4 Managers' Expenses. Except as agreed to between the Members, each Member
shall bear all costs incurred by the Managers designated by such Member and no
Manager shall be entitled to any compensation from the Company or its
Subsidiaries for serving in the capacity as a Manager or as the Chairman of the
Board of Managers.
3.5 Meetings of Managers.
(a) The Board of Managers shall meet not less frequently than quarterly,
upon written notice duly given by any Whitehall Manager to all Managers,
provided that any failure to so meet shall not give rise to any presumption or
inference that the Members shall have any liability for the obligations of the
Company; and provided further that if a meeting has not been called by a
Whitehall Manager within 60 days after the last day of the immediately
preceding fiscal second quarter or fiscal year end, as the case may be, any
McNeil Manager may give notice to all Managers of such meeting.
(b) Notwithstanding anything to the contrary contained herein or in the
LLCA, subject to the proviso in Section 3.5(a), the Board of Managers shall
meet upon the request of any Whitehall Manager conveyed in writing to each
other Manager, at a time no fewer than three (3) and no more than ten (10) days
after such notice is given and at a place in New York, New York, Dallas, Texas
or such other reasonable place as is specified in such notice; provided,
however, that attendance at such meeting may be telephonic.
(c) To the extent permitted by any applicable law, the Managers, may
participate in any meeting of the Board of Managers by means of conference
telephone or similar communications equipment by means of which all individuals
participating in the meeting can hear and be heard by all other participants,
and such participation shall constitute presence in person at such meeting.
(d) A waiver of notice signed by a Manager shall be deemed equivalent to
notice, whether signed before, at or after the meeting. Attendance at a meeting
shall constitute a waiver of notice.
(e) Unless otherwise prohibited by law, any action required or permitted to
be taken by the Board of Managers may be taken without a meeting, without prior
notice and without a vote if a consent or consents in writing, setting forth
the action so taken, shall be signed by all five of the Managers. The
resolution and the written consents thereto by the Managers shall be filed with
the minutes of the proceedings of the Board of Managers.
3.6 Quorum. At all meetings of the Board of Managers three out of the five
Managers shall constitute a quorum for the transaction of business; provided,
however, that any Whitehall Manager shall have the right to represent and vote
the interests of one or both of the other Whitehall Managers and either McNeil
Manager shall have the right to represent and vote the interests of the other
McNeil Manager, in which event the absent Managers shall be deemed present for
purposes of constituting a quorum. In the event that at any meeting of the
Managers a quorum shall not be present, the Managers present may adjourn the
meeting from time to time until a quorum shall be present.
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<PAGE>
3.7 Voting Requirements. When action is to be taken by vote of the Board of
Managers, each Manager shall be accorded one vote; provided, however, that any
Whitehall Manager shall have the right to represent and vote the interests of
one or both of the other Whitehall Managers and either McNeil Manager shall
have the right to represent and vote the interests of the other McNeil Manager.
Except as provided in Section 3.8, all actions of the Board of Managers must be
approved by the affirmative vote of at least three of the five Managers (a
"Majority Vote").
3.8 Actions Requiring Super-majority Approval. Notwithstanding any other
provision of this Agreement or applicable law to the contrary, each of the
Members hereby agrees that neither the Board of Managers nor the Company shall
take, and shall not permit any of the Company's Subsidiaries to take, any of
the following actions without the approval of at least four (4) of the five (5)
Managers (a "Super-majority Vote") (which approval shall not be delegable to
any Manager, any committee of the Board of Managers or any Officers of the
Company, notwithstanding any other provision of this Agreement or applicable
law to the contrary):
(a) Any amendment or repeal of this Agreement or any term or provision
hereof.
(b) Any Proposed Multifamily Transaction on or prior to the fifth
anniversary of the Closing Date, other than (i) a Proposed Multifamily
Transaction in which no gain or loss is recognized by McNeil under Section
704(c) of the Code, (ii) as the result of a foreclosure (including a
Preferred Equity Financing Foreclosure), the granting of a deed in lieu of
foreclosure, condemnation, casualty or Bankruptcy (in each case under this
clause (ii), subject to Section 4.9) or (iii) a Proposed Multifamily
Transaction that may be deemed to be included in the definition of Tax
Event Transaction (which does not involve the disposition of any Commercial
Properties).
(c) Any Tax Event Transaction on or prior to the fifth (5th) anniversary
of the Closing Date, other than (A) any Tax Event Transaction resulting
from a Preferred Equity Financing Foreclosure and (B) any Tax Event
Transaction that results in the holders of the McNeil Interest receiving in
the aggregate an amount of cash (on the date of closing of the Tax Event
Transaction) equal to the sum of the Full Pre Lock-out Payment and the Tax
Gross-Up Amount. The Company shall notify the holders of the McNeil
Interest in writing of a Tax Event Transaction within two (2) business days
of signing an agreement with respect to a Tax Event Transaction (the
"Notice Date").
(d) Any change in the nature of the Company's business as conducted
immediately following the Effective Time.
(e) Any repayment, refinancing of or amendment to any Loan Agreement,
prior to the fifth (5th) anniversary of the Closing Date, to the extent the
same would result in McNeil's share of "nonrecourse liabilities" (within
the meaning of Treasury Regulation Section 1.752) and "qualified
nonrecourse financing" (within the meaning of Section 465 of the Code)
being less than the Initial QNL Amount.
(f) A liquidation or dissolution of the Company except following the
disposition of all of the Company Assets.
(g) Any commencement of Bankruptcy or similar proceedings by the Company
or the Board of Managers which involves the Company or a significant number
of its Subsidiaries or Properties.
(h) (i) The admission of a new Member to the Company (other than in
accordance with Article 9), (ii) any Transfer (other than Transfers
permitted by Section 9.1(a) or 9.1(b)) or (iii) the admission (through one
or a series of transactions) of new members, partners or equity holders to
a significant number of the Company's Subsidiaries (except with respect to
this clause (iii), in connection with a Preferred Equity Financing approved
by a Majority Vote of the Board of Managers).
(i) Entering into or amending any transaction or transactions outside of
the ordinary course of business with Goldman, Sachs & Co., Whitehall or
Whitehall XI, or any Affiliate (excluding any Subsidiary of the Company) of
any of the foregoing, other than (i) retaining Goldman, Sachs & Co. (and/or
one or more of its Affiliates) as the Company's exclusive financial and
sales advisor for the sale,
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financing, refinancing, merger, combination, disposition or similar
transaction with respect to the Company, some or all of its Subsidiaries or
some or all of the Properties (excluding the sale of an individual Property
or a portfolio of fewer than five Properties) and (ii) services provided by
Archon as Portfolio Advisor or, subject to Section 4.12, as a Property
Manager.
(j) Notwithstanding any exception in clause (i) above, entering into or
amending any transaction or transactions with Goldman, Sachs & Co.,
Whitehall or Whitehall XI, or any Affiliate (excluding any Subsidiary of
the Company) of any of the foregoing, which provides for rates or terms
(including arrangements relating to compensation, commissions, fees or
indemnification) that are not substantially comparable to market rates and
terms for comparable services rendered by comparable firms.
(k) Any transaction following the consummation of which would result in
Whitehall or Whitehall XI or any of their respective Affiliates owning any
direct or indirect interest in any Subsidiary of the Company (including the
Participating McNeil Partnerships and their respective Subsidiaries), other
than as a result of the ownership of Company Interests by Whitehall and as
a result of Whitehall or one or more Affiliates being the provider of
Preferred Equity Financing.
(l) Each of the Members hereby agrees that the Company's execution and
delivery of the Portfolio Advisory Agreement does not require a Super-
majority Vote.
3.9 Role of the Portfolio Advisor and Limitations on Its Authority.
(a) The Board of Managers shall have the right to delegate to the Portfolio
Advisor the right and duty to manage the day-to-day operational affairs of the
Company and to implement the decisions made on behalf of the Company by the
Board of Managers or any Officers in accordance with the terms of this
Agreement and applicable laws and regulations and such other rights and powers
as are granted to the Portfolio Advisor hereunder or under the Portfolio
Advisory Agreement and as the Board of Managers may from time to time expressly
delegate to the Portfolio Advisor; provided, however, that the Board of
Managers shall not delegate to the Portfolio Advisor the authority to make any
decision regarding the matters described in Section 3.1(b)(i), 3.1(b)(v),
3.1(b)(xii), 3.1(b)(xiii), 3.1(b)(xv) or 3.8 or any matter which by the terms
of this Agreement requires a Super-majority Vote or the consent of McNeil.
(b) Neither McNeil nor any McNeil Manager shall (nor shall McNeil nor any
McNeil Manager have any right, power or authority to), without the prior
approval of Whitehall, bind or take any action on behalf of or in the name of
the Company, or enter into any commitment or obligation binding upon the
Company, except for (i) actions authorized under this Agreement, (ii) actions
authorized by Whitehall in the manner set forth herein and (iii) actions
(excluding the execution of any document on behalf of the Company) which, at
the time of the taking of such action, McNeil or any McNeil Manager did not
reasonably believe would be binding upon the Company. McNeil shall indemnify
and hold harmless the Company and the Members and their Affiliates from and
against any and all claims, demands, losses, damages, liabilities, lawsuits and
other proceedings, judgments and awards, and costs and expenses (including, but
not limited to, reasonable attorneys' fees) arising, directly or indirectly, in
whole or in part, out of any breach of the provisions of this Section 3.9(b) by
McNeil or any McNeil Manager.
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ARTICLE 4.
Rights and Duties of Members and Board of Managers
4.1 Approved Budget and Business Plan. Prior to the end of each Fiscal Year,
the Board of Managers shall review, revise and approve an Annual Budget and a
Business Plan for the next succeeding Fiscal Year prepared by the Portfolio
Advisor for each Budget Year and any amendments and modifications thereto.
4.2 Other Activities of the Members.
(a) Each Member may engage or invest in any other activity or venture or
possess any interest therein independently or with others. None of the Members,
the Managers, the Officers, the Company or any other Person employed by,
related to or in any way affiliated with any Member, any Manager, any Officer
or the Company shall have any duty or obligation to disclose or offer to the
Company or the Members, or obtain for the benefit of the Company or the
Members, any other activity or venture or interest therein. None of the
Company, the Members, the creditors of the Company or any other Person having
any interest in the Company shall have (A) any claim, right or cause of action
against any Member or any other Person employed by, related to or in any way
affiliated with, any Member by reason of any direct or indirect investment or
other participation, whether active or passive, in any such activity or venture
or interest therein or (B) any right to any such activity or venture or
interest therein or the income or profits derived therefrom.
4.3 Indemnification. No Member, Manager or Officer shall be liable,
responsible or accountable in damages or otherwise to the Company, any third
Person or to any other Member for (i) any act performed within the scope of the
authority conferred on such Member, Manager or Officer by this Agreement or any
act that is in breach of its fiduciary duties except for the gross negligence,
fraud or willful misconduct of such Member, Manager or Officer in carrying out
its obligations hereunder and except for acts in contravention of an express
term of this Agreement, (ii) such Member's, Manager's or Officer's failure or
refusal to perform any act, except those required by the terms of this
Agreement, (iii) such Member's, Manager's or Officer's performance of, or
failure to perform, any act on the reasonable reliance on advice of legal
counsel to the Company or (iv) the negligence, dishonesty or bad faith of any
agent, consultant or broker of the Company selected, engaged or retained in
good faith and with reasonable prudence. In any threatened, pending or
completed action, suit or proceeding, each Member, Manager and Officer shall be
fully protected and indemnified and held harmless by the Company against all
liabilities, obligations, losses, damages, penalties, actions, judgments,
suits, proceedings, costs, expenses and disbursements of any kind or nature
whatsoever (including, without limitation, reasonable attorneys' fees, costs of
investigation, fines, judgments and amounts paid in settlement, actually
incurred by such Member, Manager or Officer in connection with such action,
suit or proceeding) by virtue of its status as Member, Manager or Officer or
with respect to any action or omission taken or suffered in good faith, other
than liabilities and losses resulting from the gross negligence, fraud or
willful misconduct of such Member, Manager or Officer; provided, however, such
Member, Manager or Officer shall not be so indemnified for any acts in
contravention of an express term of this Agreement. The indemnification
provided by this Section 4.3 shall be recoverable only out of the assets of the
Company and its Subsidiaries, and no Member, Manager or Officer shall have any
personal liability (or obligation to contribute capital to the Company) on
account thereof.
4.4 Compensation of Members and their Affiliates; Goldman, Sachs & Co. as
Exclusive Financial Advisor. No Member or any Affiliate of any Member, shall be
entitled to compensation from the Company in connection with any matter that
may be undertaken in connection with the fulfillment of its duties and
responsibilities hereunder, except: (i) as provided in this Section 4.4; (ii)
as set forth in any agreement or agreements with the Portfolio Advisor or,
subject to Section 4.12, with Archon as a Property Manager; or (iii) in
connection with a guaranty or other recourse obligation provided or incurred by
a Member (or an Affiliate of a Member) to a lender providing financing to the
Company, its Subsidiaries, or any Property, the Member (or such Affiliate)
providing or incurring such guaranty or other recourse obligation may recover
from the
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<PAGE>
Company a reasonable fee, in accordance with market rates (including in respect
of commissions and fees) and terms, in exchange for such services.
The Members covenant and agree that:
(i) the Company will exclusively retain Goldman, Sachs & Co. (as well as
such Affiliate(s) as Goldman, Sachs & Co. may designate from time to time)
to provide sales advisory services to the Company in connection with any
sale, merger, combination, disposition or similar transaction involving the
Company or any of its Subsidiaries or Properties or any related series of
sales, mergers, combinations, dispositions or other similar transactions
(other than sales of individual Properties or portfolios of fewer than five
Properties), and
(ii) the Company will exclusively retain Goldman, Sachs & Co. (and/or
its Affiliates) and will use its best efforts to cause its Subsidiaries to
exclusively retain Goldman, Sachs & Co. (and/or its Affiliates) to provide
all financial advisory and investment banking services to the Company in
connection with any financing, refinancing or similar transaction involving
the Company or any of its Subsidiaries or Properties (other than sales of
individual Properties or portfolios of fewer than five Properties).
If Goldman, Sachs & Co. (and/or its Affiliate(s)) agrees to accept such
engagement (as described above), such engagement shall be negotiated on an
arms-length basis and Goldman, Sachs & Co. (and/or their respective
Affiliate(s)) shall be entitled to receive from the Company fees and
commissions for such services in accordance with market rates and terms and
indemnification in accordance with market terms for comparable services
rendered by comparable firms.
4.5 Dealing with Members. Subject to all other provisions of this Agreement,
the fact that a Member, an Affiliate of a Member, or any officer, director,
employee, partner, consultant or agent of a Member, is directly or indirectly
interested in or connected with any Person employed by the Company to render or
perform a service shall not prohibit the Company from employing such Person on
an arm's length basis and at market rates (including in respect of commissions
and fees) and terms, and neither the Company nor any of the other Members shall
have any right in or to any income or profits derived therefrom by reason of
this Agreement.
4.6 Use of Company Property. No Member shall make use of the funds or
property of the Company or its Subsidiaries, or assign its rights to specific
property, other than for the business or benefit of the Company or its
Subsidiaries.
4.7 Designation of Tax Matters Member. The Tax Matters Member shall act as
the "tax matters partner" of the Company, as provided in the regulations
pursuant to Section 6231 of the Code. Each Member hereby approves of such
designation and agrees to execute, certify, acknowledge, deliver, swear to,
file and record at the appropriate public offices such documents as may be
deemed necessary or appropriate to evidence such approval. To the extent and in
the manner provided by applicable Code sections and regulations thereunder, the
Tax Matters Member (a) shall furnish the name, address, profits interest and
taxpayer identification number of each Member to the IRS and (b) shall inform
each Member of administrative or judicial proceedings for the adjustment of
Company items required to be taken into account by a Member for income tax
purposes. Each Member hereby reserves all rights under applicable law with
respect to the activities undertaken by the Tax Matters Member, including the
right to retain independent counsel of its choice at its expense. The Company
shall indemnify the Tax Matters Member for any liabilities incurred in such
capacity.
4.8 Proposed Transactions After Five Years.
(a) In the event of any Proposed Change of Control Transaction that is
proposed to be consummated after the fifth (5th) anniversary of the Closing
Date, then Whitehall shall give McNeil written notice of the Proposed Change of
Control Transaction and McNeil shall be "cashed-out" upon the consummation of
such Proposed Change of Control Transaction. In exchange for all of the McNeil
Interest, the holders of the McNeil Interest
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<PAGE>
shall be paid in the aggregate an amount in cash equal to the Full Post Lock-
out Payment upon the closing of such Proposed Change of Control Transaction.
(b) In the event of a Proposed Company Transaction that is proposed to be
consummated after the fifth (5th) anniversary of the Closing Date the following
shall apply:
(i) If any portion of the consideration to be received by the Members in
connection with any Proposed Company Transaction shall be other than cash,
the consideration to be received by the holders of the McNeil Interest
shall be of the same type and shall have the same terms as the
consideration received by Whitehall.
(ii) Except as provided in Section 4.8(b)(iii), Whitehall shall
determine the value of any non-cash consideration to be received by the
Members in any Proposed Company Transaction and if Whitehall determines
that the value of such non-cash consideration plus any cash consideration
to be received by the holders of the McNeil Interest is sufficient to
provide to the holders of the McNeil Interest a Full Post Lock-out Payment,
the holders of the McNeil Interest shall have the right to either (i)
exchange all of the McNeil Interest upon the closing of such Proposed
Company Transaction for such cash and non-cash consideration having a value
(using Whitehall's valuation) equal to the Full Post Lock-out Payment, or
(ii) exchange all of the McNeil Interest upon the closing of such Proposed
Company Transaction for cash in an amount equal to the Full Post Lock-out
Payment. McNeil shall have the right to engage, at the sole expense of the
holders of the McNeil Interest, an investment bank or other appraiser to
assist the holders of the McNeil Interest in determining whether to take
the non-cash consideration or the cash.
(iii) If such Proposed Company Transaction involves non-cash
consideration (other than publicly traded securities) and Whitehall
determines that the value of the non-cash consideration plus any cash
consideration to be received by the holders of the McNeil Interest is not
sufficient to make the Full Post Lock-out Payment, McNeil shall have the
right, at the Company's expense, to commence the process to determine the
Appraised Value of such non-cash consideration as set forth in the
definitions of "Appraiser" and "Appraisal Value" in Section 1.1. The
holders of the McNeil Interest shall have the option, in McNeil's sole
discretion, to exchange all of the McNeil Interest upon the closing of such
Proposed Company Transaction for such cash and non-cash consideration
having a value (using the Appraised Value) equal to the McNeil Portion or
to receive cash in the amount equal to the McNeil Portion.
4.9 McNeil's Right Prior to Bankruptcy Filing. Notwithstanding anything to
the contrary contained in this Agreement, none of the Company, the Members or
the Board of Managers shall commence, take any action to commence, or cause to
be commenced by the Company or by any one or more of the Company's
Subsidiaries, any Bankruptcy unless (i) at least thirty (30) days prior
thereto, the Board of Managers shall have given McNeil written notice of such
contemplated commencement of a Bankruptcy, (ii) the Board of Managers shall
have given McNeil the opportunity during such thirty (30) day period to make
any Additional Capital Contribution as the Board of Managers shall reasonably
and in good faith determine is necessary to prevent such commencement or action
and (iii) prior to the expiration of such thirty (30) day period, McNeil shall
not have made such Additional Capital Contribution.
4.10 Refinancing after Five Years. If at any time following the fifth (5th)
anniversary of the Closing Date the Company elects to repay, refinance or
otherwise alter, modify or amend the terms of any indebtedness, including
without limitation any Loan Agreement, to which the Properties are subject, and
such repayment, refinancing or other alteration, modification or amendment
would result in McNeil's share of "nonrecourse liabilities" (within the meaning
of Treasury Regulation Section 1.752) and "qualified nonrecourse financing"
(within the meaning of Section 465 of the Code) being less than an amount equal
to (x) the Initial QNL Amount multiplied by (y) a fraction the numerator of
which shall equal the aggregate initial Book Value of all of the Properties
owned by the Company after such refinancing, repayment or alteration (excluding
Commercial Properties) and the denominator of which shall equal the aggregate
initial Book Values of all of the Properties owned by the Company as of the
Closing Date (excluding the Commercial Properties), then (i) such repayment,
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<PAGE>
refinancing or other alteration, modification or amendment shall be discussed
at a meeting of the Board of Managers prior to any action being taken to repay,
refinance or otherwise alter, modify or amend the terms of any indebtedness,
including without limitation any Loan Agreement, to which the Properties are
subject, and (ii) the Company shall allocate, to the extent allocable all (or
the maximum portion allocable under applicable laws) of the Company's
"nonrecourse liabilities" and "qualified nonrecourse financing" to McNeil
provided that such allocation does not and may not result in any adverse
economic effect on Whitehall at the time of such allocation or at any future
time, as the same may be determined by Whitehall in Whitehall's sole
discretion. Notwithstanding anything to the contrary contained in this
Agreement, at no time shall McNeil be allocated less than its Percentage
Interest of "nonrecourse liabilities" and "qualified nonrecourse financing". If
at any time, McNeil's share of "nonrecourse liabilities" or "qualified
nonrecourse financing" is less than the amount determined pursuant to the first
sentence of this Section 4.10, then, at the request of a McNeil Manager, the
Board of Managers shall discuss the matter, McNeil agreeing that the Company
and the Board of Managers shall have no obligation to take any action in
connection therewith.
4.11 Senior Indebtedness and Preferred Equity Financing. The Board of
Managers shall have the authority to obtain, on behalf of the Company and its
Subsidiaries, any or all of the Company's and its Subsidiaries' financing
(including Senior Indebtedness and Preferred Equity Financing) from Goldman,
Sachs & Co. and/or its Affiliates (as lender) at market rates and terms and/or
from any other non-affiliated lender as the Board of Managers in good faith
deems appropriate.
4.12 Property Manager. The Property Manager will be responsible for property
management. For the Multifamily Properties, the Property Manager will be
Management LLC for the period ending on December 31st of the calendar year
following the calendar year in which the Closing occurs and thereafter may be
Management LLC or an appropriate third-party property management agent which
may include Archon. For the Commercial Properties, the Board of Managers will
select Management LLC as Property Manager or an appropriate third-party
property management agent which may include Archon. All property management
services will be performed on an arm's-length basis and at market fees.
4.13 Binding Effect of Asset Allocations. The Asset Allocations shall be
binding on the Company and the Members and shall be adhered to by the Company
and the Members for the purposes of reporting the book and tax basis of the
Company Assets.
4.14 Reservation of Rights. Notwithstanding anything to the contrary
contained in this Agreement, nothing in this Agreement shall (or shall be
construed to) constitute a waiver by any Member of its rights under applicable
law and its right to retain independent counsel of its choice at such Member's
expense.
4.15 Taxation as a Partnership. The Members intend and shall take, or shall
cause the Company to take, any and all reasonable actions to ensure that the
Company shall be treated as a partnership for income tax purposes and that any
of the Subsidiaries of the Company that have been partnerships, joint ventures,
disregarded entities or limited liability companies since formation shall
continue to qualify, as partnerships or disregarded entities for income tax
purposes.
4.16 Harbour Club Properties.
(a) Each of the Members covenants and agrees to make an Additional Capital
Contribution to the Company in accordance with such Member's Percentage
Interest, determined immediately prior to the making by any Member of any
Additional Capital Contribution pursuant to this Section 4.16(a), to fund the
purchase price of Harbour Club Phase Four if the Company elects to purchase
Harbour Club Phase Four. The Additional Capital Contribution made by McNeil
pursuant to this Section 4.16(a) shall be included as part of the McNeil Class
B Investment. The Additional Capital Contribution made by Whitehall pursuant to
this Section 4.16(a) shall be included as part of the Whitehall Class A
Investment. The Company or one of its Subsidiaries will hold Harbour Club Phase
Four as a Company Asset until the Board of Managers decides to dispose of such
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<PAGE>
asset. If either Member shall fail to make its required Capital Contribution
pursuant to this Section 4.16(a), the other Member may purchase Harbour Club
Phase Four directly and not through the Company.
(b) In the event that the Company exercises its option to purchase Harbour
Club Phase One, pursuant to Section 7.14 of the Master Agreement, each of the
Members covenants and agrees to make an Additional Capital Contribution to the
Company in accordance with such Member's Percentage Interest, determined
immediately prior to the making by any Member of any Additional Capital
Contribution pursuant to this Section 4.16(b), to fund the purchase price of
Harbour Club Phase One. The Additional Capital Contribution made by McNeil
pursuant to this Section 4.16(b) shall be included as part of the McNeil Class
B Investment. The Additional Capital Contribution made by Whitehall pursuant to
this Section 4.16(b) shall be included as part of the Whitehall Class A
Investment. The Company or one of it Subsidiaries will hold Harbour Club Phase
One as a Company Asset until the Board of Managers decides to dispose of such
asset. If either Member shall fail to make its required Capital Contribution
pursuant to this Section 4.16(b), the other Member may purchase Harbour Club
Phase One directly and not through the Company.
4.17 Preferred Equity Financing. The Company shall, and shall cause its
Subsidiaries to, use reasonable efforts to achieve financing with respect to
those Properties that are security for Non-Terminated Loans by replacing each
such Non-Terminated Loan with mortgage or Preferred Equity Financing on
commercially reasonable terms when each such Non-Terminated Loan becomes
prepayable without any penalty.
ARTICLE 5.
Books And Records; Reports
5.1 Books and Records. At all times during the existence of the Company, the
Board of Managers shall keep or cause to be kept true and complete books and
records of the Company and its Subsidiaries (including all records that the
Company may be required to maintain by the LLCA or other provisions of
applicable law) in which shall be entered fully and accurately each transaction
of the Company and it Subsidiaries. Such books and records shall be kept on the
basis of the Fiscal Year in accordance with the accrual method of accounting,
and shall reflect all transactions of the Company and its Subsidiaries in
accordance with generally accepted accounting principles.
5.2 Availability of Books and Records; Return of Books and Records. All of
the books and records referred to in Section 5.1 (which shall include an
executed copy of this Agreement and the Certificate of Formation, and any
amendments thereto) shall at all times be maintained at the principal office of
the Company or such other location as the Board of Managers may determine
(which other location shall be communicated to all of the Members), and shall
be open to the inspection and examination of the Members or their
representatives during reasonable business hours.
5.3 Reports and Statements; Annual Budgets and Business Plans. Prior to the
end of each Fiscal Year, the Board of Managers shall review, revise and approve
an Annual Budget for the succeeding Fiscal Year. For each Fiscal Year, the
Board of Managers shall cause to be sent to each Person who was a Member at any
time during such Fiscal Year, by no later than February 15 of the succeeding
Fiscal Year, an annual report of the Company including an annual balance sheet,
profit and loss statement and a statement of changes in financial position, and
a statement showing distributions to the Members all as prepared in accordance
with generally accepted accounting principles consistently applied and audited
by the Company's independent public accountants, which shall be a nationally
recognized accounting firm (as the Board of Managers shall decide), and a
statement showing allocations to the Members of taxable income, gains, losses,
deductions and credits, as prepared by such accountants (it being acknowledged
that the Board of Managers' obligations hereunder are not to guaranty timely
delivery of audits, tax returns or similar third-party work product). For each
quarter of each Fiscal Year, the Board of Managers shall cause to be sent to
each Person that was a Member at any time
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<PAGE>
during such quarter, within forty-five (45) days after the end of such quarter,
(i) quarterly financial statements of the Company, including a quarterly
balance sheet, profit and loss statement and a statement of changes in
financial position, and a statement showing distributions to the Members, all
as prepared in accordance with generally accepted accounting principles
consistently applied and (ii) such tax estimates as any such Member shall
reasonably request. In addition, the Board of Managers shall cause to be sent
to each Member (i) by no later than February 15 (or as soon thereafter as
practicable) of each Fiscal Year, completed IRS Schedules K-1 prepared by the
Company's accountants and (ii) such other information concerning the Company
and reasonably requested by any Member as is necessary for the preparation of
each Member's federal, state and local income or other tax returns.
5.4 Accounting Expenses. All out-of-pocket expenses payable in connection
with the keeping of the books and records of the Company and the preparation of
audited or unaudited financial statements and federal and local tax and
information returns required to implement the provisions of this Agreement or
required by any governmental authority with jurisdiction over the Company shall
be borne by the Company as an ordinary expense of its business.
5.5 Bank Account. The Company shall, as soon as reasonably practicable,
establish and maintain segregated bank accounts in the Company's name and for
the Company's business, which accounts shall, to the extent reasonably
practicable, be interest-bearing.
ARTICLE 6.
Capital Contributions and Liabilities
6.1 Initial Capital Contributions and Initial Capital Accounts of the
Members.
(a) Immediately prior to the Effective Time, MPLP was required to contribute
to the Company (or to one or more of its Subsidiaries, at the direction of the
Company) (i) the McREMI Assets, (ii) the general partnership interests (and the
rights and assets associated therewith) in each of the Participating McNeil
Partnerships, (iii) the limited partnership interests in Fairfax held by MPLP
at such time if Fairfax was a Participating McNeil Partnership, (iv) the
limited partnership interests in Summerhill held by MPLP at such time if
Summerhill was a Participating McNeil Partnership and (v) the McNeil Cash
Contribution. McNeil has also contributed the Capitalized McNeil Expenses [and
additional cash equal to the Additional McNeil Contribution]; provided,
however, that any McNeil Class C Investment may only be funded by McNeil or an
Affiliate of McNeil and may not be funded, in whole or in part, by a third-
party investor; provided, further, that any Whitehall Class B Investment may
only be funded by Whitehall or an Affiliate of Whitehall and may not be funded
in whole or in part, by a third party investor.
(b) Immediately prior to the Effective Time, Whitehall was required to
contribute to the Company (i) cash in the amount of $ [insert an
amount equal to the Funding Amount (as defined in the Equity Commitment
Letter)] as required by the Equity Commitment Letter, and has also contributed
(ii) $ representing all of the costs incurred and paid by Whitehall
on behalf of the Company in connection with the negotiation, documentation, due
diligence and consummation of the transactions described in this Agreement and
the Master Agreement.
(c)(i) As of the Effective Time, each Member's Initial Capital Contribution
is in the amount set forth below:
<TABLE>
<CAPTION>
Initial
Capital
Member Contribution
------ ------------
<S> <C>
Whitehall.................................................... $
McNeil....................................................... $
Total...................................................... $
</TABLE>
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<PAGE>
(ii) As of the Effective Time, the Members shall have the initial Capital
Account balances and the initial Percentage Interests as set forth below:
<TABLE>
<CAPTION>
Initial
Capital Percentage
Member Account Interest
------ ------- ----------
<S> <C> <C>
Whitehall.............................................. $
McNeil................................................. $
Total................................................ $
</TABLE>
(iii) As of the Effective Time the McNeil Class A Investment, the McNeil
Class B Investment, the McNeil Class C Investment, the Whitehall Class A
Investment and the Whitehall Class B Investment are in the amounts set forth
below:
<TABLE>
<S> <C>
McNeil Class A Investment.......................................... $
McNeil Class B Investment.......................................... $
McNeil Class C Investment.......................................... $
Whitehall Class A Investment....................................... $
Whitehall Class B Investment....................................... $
</TABLE>
6.2 Working Capital Contributions and Other Additional Capital
Contributions.
(a) Whitehall shall make additional cash capital contributions to the
Company in an aggregate amount (the "Initial Working Capital Contribution")
equal to the difference determined by subtracting (x) the sum of the Net
Working Capital Amounts for each Participating McNeil Partnership from (y) the
product of $40,000,000 multiplied by the Value Fraction. The Initial Working
Capital Contribution shall be contributed to the capital of the Company by
Whitehall from time to time as the Board of Managers deems necessary in its
reasonable discretion to pay for Working Capital Expenses. All contributions
made by Whitehall on account of the Initial Working Capital Contribution shall
be included within the definition of Additional Capital Contributions.
(b) After Whitehall has fully funded the Initial Working Capital
Contribution, Whitehall may, at any time or times, make in cash Additional
Capital Contributions to the Company that the Board of Managers determines are
necessary or desirable to conduct the business of the Company in the event
Working Capital Reserves and Recurring Replacement Reserves are not sufficient
to pay for such cost or expense.
(c) Except as provided in Sections 4.9 and 4.16, McNeil shall have no right
or obligation to make any Additional Capital Contributions to the Company.
(d) Notwithstanding anything to the contrary in this Agreement, if a Member
shall guarantee any indebtedness of the Company, such Member shall not receive
any credit to its Capital Account as a result of such guarantee and such
guarantee shall not be considered to be a Capital Contribution unless, and only
to the extent that, such Member makes a payment in respect of that guarantee
and such payment is not immediately reimbursed by the Company.
6.3 Capital of the Company. Except as otherwise expressly provided herein,
no Member shall be entitled to withdraw or receive any interest or other return
on, or return of, all or any part of its Capital Contribution, or to receive
any property of the Company (other than cash) in return for its Capital
Contributions.
6.4 Distributions as Working Capital Reserves. Notwithstanding anything to
the contrary contained herein, if Whitehall would otherwise be entitled to
receive a cash distribution of Net Cash Flow or Net Proceeds from Capital
Transactions pursuant to Section 8.1(b) or 8.1(c) from the Company, Whitehall
may elect to forego receipt of all or a portion of such distribution and have
the amount so foregone treated as part of the Initial Working Capital
Contribution (or, after the Initial Working Capital Contribution has been
funded in full, as an Additional Capital Contribution; provided the Board of
Managers shall have determined in good
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<PAGE>
faith (by Majority Vote) that such Capital Contribution is required for use by
the Company within a reasonable period of time following the date upon which
such distribution of cash would otherwise have been made to Whitehall. In such
event Whitehall will be treated as if it had (i) received distributions equal
to the amount it would have received pursuant to Section 8.1(b) or 8.1(c) had
Whitehall not foregone such distribution and (ii) made an Additional Capital
Contribution in such amount (any such Additional Capital Contribution shall
first be treated as part of the Initial Working Capital Contribution until the
Initial Working Capital Contribution has been fully funded).
6.5 Failure to Fund the McNeil Cash Contribution. (a) If McNeil shall fail
to make the McNeil Cash Contribution in the full amount required pursuant to
the Master Agreement (the "Failed Contribution") at the Effective Time, then
Whitehall may, but shall not be obligated to, fund all or part of such Failed
Contribution. At any time after funding all or part of a Failed Contribution,
Whitehall may elect either of the following:
(i) Whitehall may at any time (even after first electing to proceed
under paragraph (ii) below, but after termination of the Partner Loan)
elect to treat the portion (the "Funded Portion") of the Failed
Contribution funded by Whitehall as a Capital Contribution (which shall be
deemed part of Whitehall's Initial Capital Contribution and the Whitehall
Class A Investment) by Whitehall with the dilution of McNeil provided for
in Section 6.5(b) below.
(ii) Whitehall may elect to treat the Funded Portion as a loan (a
"Partner Loan") by Whitehall to McNeil, which Partner Loan shall be treated
as (i) a demand loan made by Whitehall to McNeil (bearing interest at 20%
per annum, compounded annually) followed by (ii) a Capital Contribution by
McNeil to the Company. Any such Partner Loan (to the extent of unpaid
principal and interest) shall be recourse only to the McNeil Class A
Interest and shall be repaid directly by the Company on behalf of McNeil
from amounts otherwise distributable to McNeil pursuant to Section 8.1 or
10.3 hereof. Any such distributions used to repay such Partner Loan shall
be applied first to accrued but unpaid interest and then to principal of
the Partner Loan. Whitehall may, at any time prior to the full repayment of
such Partner Loan, elect to terminate such Partner Loan and have the McNeil
Class A Investment, McNeil's Percentage Interest and, at the election of
Whitehall, McNeil's Capital Account diluted as set forth in Section 6.5(b)
below, with the amount of the entire outstanding principal and accrued but
unpaid interest (as of the date of such termination) of the Partner Loan
treated as the amount of the Funded Portion and not as a Capital
Contribution of McNeil, and the McNeil Class A Investment, the Whitehall
Class A Investment, the McNeil and Whitehall Percentage Interests and, at
the election of Whitehall, the McNeil and Whitehall Capital Accounts,
adjusted accordingly.
(b) If Whitehall elects to make a Capital Contribution for McNeil (instead
of a Partner Loan) or elects to terminate a Partner Loan and have the
provisions of this Section 6.5(b) apply then the adjustments set forth in
clauses (i) and (ii) and, only upon the election of Whitehall, clause (iii)
shall be made:
(i) The Percentage Interest of Whitehall shall be increased so that it
is equal to the percentage (rounded up to the nearest one hundredth of one
percent) obtained by dividing (A) the sum of (1) all Capital Contributions
made by Whitehall other than the Funded Portion and (2) the product of (x)
2.0 and (y) the Funded Portion by (B) the sum of all Members' Capital
Contributions as of such date (including the Funded Portion), and the
Percentage Interest of McNeil shall be decreased by the amount of the
increase in Whitehall's Percentage Interest.
(ii) The Whitehall Class A Investment shall be increased by an amount
equal to the product of (A) 2.0 and (B) the Funded Portion and the McNeil
Investment shall be reduced by an amount equal to the Funded Portion;
provided, however, that this clause (ii) shall not cause an adjustment to
the Percentage Interests of Whitehall and McNeil which has already been
effected pursuant to Section 6.5(b)(i).
(iii) Whitehall's Capital Account shall be increased as required under
Section 7.1(b), and shall be further increased by an amount equal to the
Funded Portion; and McNeil's Capital Account shall be reduced by an amount
equal to the Funded Portion.
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<PAGE>
6.6 Limited Liability of Members. No Member shall be bound by, nor be
personally liable for, the expenses, liabilities, indebtedness or obligations
of the Company. The liability of each Member shall be limited solely to the
amount of its Capital Contribution; provided, however, that after a Member has
received a distribution from the Company, such Member may be liable to the
Company for the amount of the distribution but only to the extent required by
Section 18-607 of the LLCA.
ARTICLE 7.
Capital Accounts, Profits and Losses and Allocations
7.1 Capital Accounts
(a) The Company shall establish and maintain a Capital Account for each
Member in accordance with federal income tax accounting principles. Each
Member's Capital Account as of the Effective Time initially will be equal to
the value of its Initial Capital Contribution.
(b) The Capital Account of each Member shall be increased by (i) the amount
of any cash and the agreed Book Value of property (net of liabilities
encumbering the property) as of the date of contribution of any property
subsequently contributed as a capital contribution to the capital of the
Company by such Member, (ii) the amount of any Profits allocated to such Member
and (iii) such Member's pro rata share (determined in the same manner as such
Member's share of Profits pursuant to Section 7.2) of income of the Company
that is exempt from tax. The Capital Account of each Member shall be decreased
by (i) the amount of any Losses allocated to such Member, (ii) the amount of
distributions to such Member and (iii) such Member's pro rata share (determined
in the same manner as such Member's share of Losses pursuant to Section 7.2) of
any other expenditures of the Company that are not deductible in computing
Company Profits or Losses and which are not chargeable to capital account. In
all respects, the Member's Capital Accounts shall be determined in accordance
with the detailed capital accounting rules set forth in Treasury Regulations
Section 1.704-1(b)(2)(iv) and shall be adjusted upon the occurrence of certain
events as provided in Treasury Regulations Section 1.704-1(b)(2)(iv)(f).
(c) A Transferee of all (or a portion) of an Interest shall succeed to the
Capital Account (or portion of the Capital Account) attributable to the
transferred Interest.
7.2 Profits and Losses.
(a) The profits and losses of the Company ("Profits" and "Losses") shall be
the net income or net loss (including capital gains and losses), respectively,
of the Company determined for each Fiscal Year in accordance with the
accounting method followed for federal income tax purposes except that in
computing Profits and Losses, all depreciation and cost recovery deductions
shall be deemed equal to Depreciation and gains or losses shall be determined
by reference to Book Value rather than tax basis.
(b) Whenever a proportionate part of the Profits or Losses is allocated to a
Member, every item of income, gain, loss, deduction or credit entering into the
computation of such Profits or Losses or arising from the transactions with
respect to which such Profits or Losses were realized shall be credited or
charged, as the case may be, to such Member in the same proportion; provided,
however, that "recapture income", if any, shall be allocated to the Members who
were allocated the corresponding depreciation deductions.
(c) If any Member transfers all or any part of its Interest during any
Fiscal Year or its Interest is increased or decreased, Profits and Losses
attributable to such Interest for such Fiscal Year shall be apportioned between
the transferor and transferee or computed as to such Member, as the case may
be, ratably on a daily basis, provided in all events that any apportionment
described above shall be permissible under the Code and applicable regulations
thereunder.
(d) For all purposes, including federal, state and local income tax
purposes, Profits shall be allocated in each Fiscal Year among all the Members
pursuant to this Section 7.2(d) for the current period (i) first, to the
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holders of the Whitehall Class B Interest in an amount equal to the
distributions made pursuant to Sections 8.1(b)(i) and 8.1(c)(ii) and (ii)
thereafter, in proportion to the aggregate distributions of cash paid to such
Member in respect of such period. In no instance, however, shall McNeil or any
Affiliate of McNeil be allocated Profits in a given year greater than the cash
distributed to them during that year.
(e) For all purposes, including federal, state and local income tax
purposes, Losses shall be allocated each Fiscal Year among all the Members in
accordance with their Percentage Interests.
(f) Notwithstanding Sections 7.2(d) and (e) hereof:
(i) For federal income tax purposes but not for purposes of crediting or
charging Capital Accounts, depreciation or gain or loss realized by the
Company with respect to any property that was contributed to the Company or
that was held by the Company at a time when the Book Value of the Company
Assets was adjusted pursuant to the third sentence of Section 7.1(b) shall,
in accordance with the "traditional method" under Section 704(c) of the
Code and Treasury Regulations Sections 1.704-1(b)(2)(iv)(d) and (f), be
allocated among the Members in a manner which takes into account the
differences between the adjusted basis for federal income tax purposes to
the Company of its interest in such property and the fair market value of
such interest at the time of its contribution or revaluation.
(ii) If there is a net decrease in the Minimum Gain of the Company
during a taxable year (including any Minimum Gain attributable to Member-
Funded Debt), each Member at the end of such year shall be allocated, prior
to any other allocations required under this Article 7, items of gross
income (including net gain) for such year (and, if necessary, for
subsequent years) in the amount and proportions described in Treasury
Regulations Sections 1.704-2(g) and 1.704-2(i)(4).
(iii) In the event any Member unexpectedly receives any adjustments,
allocations or distributions described in Treasury Regulations Sections
1.704-(b)(2)(ii)(d)(4), (5) or (6), items of Company income and gain shall
be specially allocated to each such Member in an amount and manner
sufficient to eliminate, to the extent required by the Treasury
Regulations, the deficit of such Member's Capital Account (as determined
under Treasury Regulations Section 1.704-1) as quickly as possible,
provided that an allocation pursuant to this subsection 7.2(f)(iii) shall
be made only if and to the extent that such Member would have such Capital
Account deficit after all other allocations provided for in Section 7.2
have been tentatively made as if this subsection 7.2(f)(iii) were not in
this Agreement.
(iv) In the event any Member has a deficit balance in such Member's
Capital Account (as determined after crediting such Capital Account for any
amounts that such Member is obligated to restore or is deemed obligated to
restore pursuant to (a) any provision of this Agreement and (b) the
penultimate sentences of Treasury Regulations Section 1.704-(g)(1) and
1.704-2(i)(5), items of Company income and gain shall be specially
allocated to such Member in an amount and manner sufficient to eliminate
such deficit (as so determined) of such Member's Capital Account as quickly
as possible; provided, however, that an allocation pursuant to this Section
7.2(f)(iv) shall be made only if and to the extent that such Member would
have such Capital Account deficit (as so determined) after all other
allocations provided for in Section 7.2 (other than Section 7.2(f)(iii))
have been tentatively made as if this Section 7.2(f)(iv) were not in this
Agreement.
(v) Notwithstanding the allocations provided for in sub-section (i) of
this Section 7.2(f) and Sections 7.2(d) and (e), if there is a net increase
in Minimum Gain of the Company during a taxable year of the Company that is
attributable to Member-Funded Debt then first Depreciation, to the extent
the increase in such Minimum Gain is allocable to depreciable property, and
then a proportionate part of other deductions and expenditures described in
Section 705(a)(2)(B) of the Code, shall be allocated to the lending or
guaranteeing Member (and to joint lenders or guarantors in proportion to
their relative obligations), provided that the total amount of deductions
so allocated for any year shall not exceed the increase in Minimum Gain
attributable to such Member-Funded Debt in such year.
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(vi) Any special allocation under Sections 7.2(f)(ii) through (v) shall
be taken into account in computing subsequent allocations of Profits and
Losses of any item thereof pursuant to this Article 7 so that the net
amount of any items so allocated and the Profits, Losses and all items
thereof allocated to each Member pursuant to this Article 7 shall, to the
extent permissible under Section 704(b) of the Code and the Treasury
Regulations promulgated thereunder, be equal to the net amount that would
have been allocated to each Member pursuant to this Article 7 if such
special allocation had not occurred.
(vii) The Members intend that the provisions of this Article 7 be
interpreted, to the extent permissible under Section 704(b) of the Code and
the Treasury Regulations promulgated thereunder, to produce liquidating
distributions pursuant to Section 10.3(b) hereof that do not differ from
the distributions that would have been made had liquidating distributions
been controlled by Article 8 hereof, and the Board of Managers shall be
entitled to the extent permissible under Section 704(b) of the Code and the
Treasury Regulations promulgated thereunder, to specially allocate items of
income, gain and loss to the Members to achieve this result.
(g) No Member shall be responsible to restore or repay to the Company or any
other Member any deficit in such Member's Capital Account existing at any time.
ARTICLE 8.
Applications and Distributions of Net Cash Flow
and Net Proceeds from Capital Transactions
8.1 Applications and Distributionss.
(a) Distributions of Net Cash Flow shall be made to the Members by the
Company in accordance with Section 8.1(b) within twenty-five (25) days after
the end of each month, subject to the terms of any Loan Agreements to the
contrary. Net Proceeds from Capital Transactions shall be made to the Members
by the Company as soon as practicable after the closing of the Capital
Transaction that generated such Net Proceeds from Capital Transactions, subject
to the terms of any Loan Agreement or Preferred Equity Financing Document to
the contrary.
(b) Net Cash Flow with respect to each calendar month shall be distributed
to the Members and paid to the Portfolio Advisor in the following order of
priority (and the calculations described in the following clauses shall be made
as of the last date of each month), subject to the other terms of this Article
8:
(i) First, to the holders of the Whitehall Class B Interest until such
holders have received payment of an amount equal to the excess, if any, of
(A) the Whitehall Class B Return payable by the Company to such holders
from the Effective Time to the date of such distribution over (B) the sum
of all prior distributions to the holders of the Whitehall Class B Interest
pursuant to this Section 8.1(b)(i) and Section 8.1(c)(ii).
(ii) Second, to holders of the McNeil Class C Interest until such
holders have received payment of an amount equal to the excess, if any, of
(A) the McNeil Class C Return payable by the Company to such holders from
the Effective Time to the date of such distribution over (B) the sum of all
prior distributions to holders of the McNeil Class C Interest pursuant to
this Section 8.1(b)(ii) and Section 8.1(c)(iii).
(iii) Third, to holders of the McNeil Class B Interest and the McNeil
Class A Interest pro rata (based on the McNeil Class B Investment and the
McNeil Class A Investment, respectively) until such holders have received
payment of an amount equal to the excess, if any, of (A) the Preferred 14%
Return with respect to the McNeil Class A Investment and the McNeil Class B
Investment, respectively, payable by the Company to such holders from the
Effective Time to the date of such distribution over (B) the sum of all
prior distributions to such holders pursuant to this Section 8.1(b)(iii)
and Section 8.1(c)(iv).
(iv) Fourth, to the Portfolio Advisor until the Portfolio Advisor has
received the portion of the Portfolio Advisory Fee payable for such month
and any accrued and unpaid portion of the Portfolio Advisory Fee plus all
accrued interest thereon.
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(v) Fifth, to holders of the Whitehall Class A Interest until such
holders have received payment of an amount equal to the excess, if any, of
(A) the Preferred 14% Return with respect to the Whitehall Class A
Investment payable by the Company to such holders from the Effective Time
to the date of such distribution over (B) the sum of all prior
distributions to such holders pursuant to this Section 8.1(b)(v) and
Section 8.1(c)(vi).
(vi) Sixth, to holders of the Whitehall Class B Interest to return the
Whitehall Class B Investment.
(vii) Seventh, to holders of the McNeil Class C Interest to return the
McNeil Class C Investment; provided, however, that for a period of five
years commencing on the Closing Date, such holders may elect not to receive
amounts payable pursuant to this Section 8.1(b)(vii).
(viii) Eighth, in the event that the amount of McNeil's Initial Capital
Contribution is equal to or greater than the McNeil Threshold Amount, to
holders of the McNeil Class B Interest, the McNeil Class A Interest and the
Whitehall Class A Interest pro rata (based on the McNeil Class B
Investment, the McNeil Class A Investment and the Whitehall Class A
Investment, respectively) until such time as such holders have each
received aggregate distributions to achieve a Preferred 15% Return with
respect to the McNeil Class B Investment, the McNeil Class A Investment and
the Whitehall Class A Investment, respectively, payable by the Company to
each of such holders from the Effective Time to the date of such
distribution over (A) with respect to holders of the McNeil Class B
Interest and the McNeil Class A Interest, respectively, the sum of all
prior distributions to such holders pursuant to Section 8.1(b)(iii),
Section 8.1(c)(iv), this Section 8.1(b)(viii) and Section 8.1 (c)(ix) and
(B) with respect to holders of the Whitehall Class A Interest, the sum of
all prior distributions to such holders pursuant to Section 8.1(b)(v),
Section 8.1(c)(vi), this Section 8.1(b)(viii) and Section 8.1(c)(ix). Such
pro rata distributions to holders of the McNeil Class B Interest, the
McNeil Class A Interest and the Whitehall Class A Interest shall be in
proportion to the balances of the unpaid amount necessary to achieve such
Preferred 15% Return with respect to the McNeil Class B Investment, the
McNeil Class A Investment and the Whitehall Class A Investment,
respectively, for each Member holding such Interests (i.e., each such
Member would receive a portion of the distribution equal to the product
determined by multiplying (A) the aggregate amount of funds subject to
distribution pursuant to this clause (viii) by (B) a fraction the numerator
of which shall be equal to the amount necessary for such Member to achieve
the Preferred 15% Return with respect to the McNeil Class B Investment, the
McNeil Class A Investment and the Whitehall Class A Investment,
respectively, held by such Member and the denominator of which shall be
equal to the aggregate amount necessary for each Member holding such
Interests to achieve the Preferred 15% Return with respect to the McNeil
Class B Investment, the McNeil Class A Investment and the Whitehall Class A
Investment held by such Member).
(ix) Ninth, to holders of the McNeil Class B Interest, the McNeil Class
A Interest and the Whitehall Class A Interest pro rata to return the McNeil
Class B Investment, the McNeil Class A Investment and the Whitehall Class A
Investment, respectively, in proportion to the balances of the McNeil Class
B Investment, the McNeil Class A Investment and the Whitehall Class A
Investment (i.e., each Member holding such Interests would receive a
portion of the distribution equal to the product determined by multiplying
(A) the aggregate amount of funds subject to distribution pursuant to this
clause (ix) by (B) a fraction the numerator of which shall be equal to the
McNeil Class B Investment, the McNeil Class A Investment and the Whitehall
Class A Investment of such Member, as applicable, and the denominator of
which shall be equal to the sum of the McNeil Class B Investment, the
McNeil Class A Investment and the Whitehall Class A Investment.
(x) Thereafter, 100% to holders of the Whitehall Class A Interest.
(c) Net Proceeds from Capital Transactions shall be distributed to the
Members and paid to the Portfolio Advisor in the following order of priority
(and the calculations described in the following clauses shall be made as of
the date of each distribution), subject to the other terms of this Article 8:
(i) First, to repay all outstanding Senior Indebtedness secured by the
Property or Properties which are the subject of such Capital Transaction
and any other amount required to be paid as a result of such
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Capital Transaction pursuant to the terms of any Loan Agreement or
Preferred Equity Financing Document to which the Company or any Subsidiary
is a party.
(ii) Second, to the holders of the Whitehall Class B Interest until such
holders have received all accrued but unpaid amounts payable to such
holders pursuant to Section 8.1(b)(i).
(iii) Third, to holders of the McNeil Class C Interest until such
holders have received all accrued but unpaid amounts payable to such
holders pursuant to Section 8.1(b)(ii).
(iv) Fourth, to holders of the McNeil Class B Interest and the McNeil
Class A Interest pro rata (based on the McNeil Class B Investment and the
McNeil Class A Investment, respectively) until such holders have received
all accrued but unpaid amounts payable to such holders pursuant to Section
8.1(b)(iii).
(v) Fifth, to the Portfolio Advisor until the Portfolio Advisor has
received all accrued but unpaid amounts payable to the Portfolio Advisor
pursuant to Section 8.1(b)(iv).
(vi) Sixth, to holders of the Whitehall Class A Interest until such
holders have received all accrued but unpaid amounts payable to such
holders pursuant to Section 8.1(b)(v).
(vii) Seventh, to holders of the Whitehall Class B Interest to return
the Whitehall Class B Investment.
(viii) Eighth, to holders of the McNeil Class C Interest to return the
McNeil Class C Investment; provided, however, that for a period of five
years commencing on the Closing Date, such holders may elect not to receive
amounts payable pursuant to this Section 8.1(c)(viii).
(ix) Ninth, in the event that the amount of McNeil's Initial Capital
Contribution is equal to or greater than the McNeil Threshold Amount, to
holders of the McNeil Class B Interest, the McNeil Class A Interest and the
Whitehall Class A Interest pro rata (based on the McNeil Class B
Investment, the McNeil Class A Investment and the Whitehall Class A
Investment, respectively) until such time as such holders have each
received aggregate distributions to achieve a Preferred 15% Return with
respect to the McNeil Class B Investment, the McNeil Class A Investment and
the Whitehall Class A Investment, respectively, payable by the Company to
each of such holders from the Effective Time to the date of such
distribution over (A) with respect to holders of the McNeil Class B
Interest and the McNeil Class A Interest, the sum of all prior
distributions to such holders pursuant to Sections 8.1(b)(iii), 8.1(c)(iv),
8.1(b)(viii) and this Section 8.1(c)(ix) and (B) with respect to holders of
the Whitehall Class A Interest, the sum of all prior distributions to such
holders pursuant to Sections 8.1(b)(v), 8.1(c)(vi), 8.1(b)(viii) and this
Section 8.1(c)(ix). Such pro rata distributions to holders of the McNeil
Class B Interest, the McNeil Class A Interest and the Whitehall Class A
Interest shall be in proportion to the balances of the unpaid amount
necessary to achieve such Preferred 15% Return with respect to the McNeil
Class B Investment, the McNeil Class A Investment and the Whitehall Class A
Investment, respectively, for each Member holding such Interests (i.e.,
each such Member would receive a portion of the distribution equal to the
product determined by multiplying (A) the aggregate amount of funds subject
to distribution pursuant to this clause (ix) by (B) a fraction the
numerator of which shall be equal to the amount necessary for such Member
to achieve the Preferred 15% Return with respect to the McNeil Class B
Investment, the McNeil Class A Investment and the Whitehall Class A
Investment held by such Member and the denominator of which shall be equal
to the aggregate amount necessary for each Member holding such Interests to
achieve the Preferred 15% Return with respect to the McNeil Class B
Investment, the McNeil Class A Investment and the Whitehall Class A
Investment held by such Member).
(x) Tenth, to holders of the McNeil Class B Interest, the McNeil Class A
Interest and the Whitehall Class A Interest pro rata to return the McNeil
Class B Investment, the McNeil Class A Investment and the Whitehall Class A
Investment, respectively, in proportion to the balances of the McNeil
Class B
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Investment, the McNeil Class A Investment and the Whitehall Class A
Investment (i.e., each Member holding such Interests would receive a
portion of the distribution equal to the product determined by multiplying
(A) the aggregate amount of funds subject to distribution pursuant to this
clause (x) by (B) a fraction the numerator of which shall be equal to the
McNeil Class B Investment, the McNeil Class A Investment and the Whitehall
Class A Investment of such Member, as applicable, and the denominator of
which shall be equal to the sum of the McNeil Class B Investment, the
McNeil Class A Investment and the Whitehall Class A Investment).
(xi) Thereafter, 100% to holders of the Whitehall Class A Interest.
(d) Upon the making of any distribution pursuant to Article 8 to any Member
of the Company, all Members shall be given reasonably detailed information in
writing by the Company identifying the amount of such distribution and the
Sections and clauses of this Article pursuant to which such distribution was
made.
ARTICLE 9.
Transfer of Company Interests
9.1 Transfers of Interests by Members.
(a) Whitehall and any Transferee of any of the Whitehall Interest pursuant
to this Section 9.1(a) shall have the right to Transfer all or any portion of
its Interest to (i) any Affiliate of Whitehall (provided such Person at all
times remains an Affiliate of Whitehall), or (ii) to any other Person upon
obtaining a Super-majority Vote of the Board of Managers, in the case of each
of clause (i) and (ii), subject to Sections 9.1(c), 9.1(d), 9.2, 9.3, and 9.4.
In addition, on or after the fifth (5th) anniversary of the Closing Date,
Whitehall and any Transferee of any of the Whitehall Interest pursuant to this
Section 9.1(a) shall have the right to Transfer all or any portion of its
Interest to any Person, provided Whitehall complies with Section 4.8(a), and
otherwise subject to Sections 9.1(c), 9.1(d), 9.2, 9.3 and 9.4. Whitehall shall
have no other right to make any Transfer of all or any portion of its Interest.
(b) McNeil and any Transferee of any of the McNeil Interest pursuant to this
Section 9.1(b) shall have the right to Transfer all or any portion of its
Interest to (i) Robert A. McNeil, Carole J. McNeil, or immediate family members
of Robert A. McNeil or Carole J. McNeil or both, (ii) one or more trusts or
other estate planning vehicles established for the benefit of immediate family
members of Robert A. McNeil or Carole J. McNeil or both, (iii) any Affiliate of
Robert A. McNeil or Carole J. McNeil or both (provided such Person at all times
remains an Affiliate of Robert A. McNeil or Carole J. McNeil), (iv) any Person
approved by the Board of Managers and (v) any Person, as the result of
testamentary laws or instruments of inheritance, in the case of each of clauses
(i) through (v), subject to Sections 9.1(c), 9.1(d), 9.2, 9.3 and 9.4. McNeil
shall have no other right to make any Transfer of all or any portion of its
Interest. Any Transfer (including any pledge or hypothecation) of the Pledged
Interests shall be made explicitly subject to the Indemnification Agreement.
(c) Except as provided in Sections 9.1(a) and (b), all Transfers are
prohibited. Any purported Transfer in violation of this Article 9 shall be void
ab initio, and shall not bind the Company or the other Members, and the Member
whose Interest was directly or indirectly Transferred shall indemnify and hold
the Company and the other Members harmless from and against any federal, state
or local income taxes, or transfer taxes, including transfer gains taxes,
arising as a result of, or caused directly or indirectly by, such purported
Transfer.
(d) Any Transferee desiring to make a further Transfer shall become subject
to all of the provisions of this Article 9 and of this Agreement to the same
extent and in the same manner as any Member desiring to make any Transfer.
(e) The giving of any consent to a Transfer by the Super-majority Vote of
the Board of Managers or by any Member in any one or more instances shall not
limit or waive the need for such consent in any other or subsequent instance.
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9.2 Transfer Binding on Company.
(a) No Transfer permitted to be made under this Agreement shall be binding
upon the Company, and no Transferee of all or any part of a Member's Interest
shall be admitted to the Company as a Member, unless and until:
(i) any consent to the Transfer required by this Agreement (including
without limitation any Super-majority Vote) shall have been obtained;
(ii) in the case of a Transfer of a Member's Interest, a duplicate
original of such instrument of Transfer, duly executed and acknowledged by
the transferor, has been delivered to the Company, and such instrument
evidences (1) the written acceptance by the Transferee of all of the terms
and provisions of this Agreement, and (2) the Transferee's representation
that such Transfer was made in accordance with all applicable laws and
regulations;
(iii) in the case of a Transfer of a Member's Interest, the Board of
Managers has entered such Transferee as a Member on the books and records
of the Company, which the Board of Managers is hereby directed to do upon
satisfaction of such requirements; and
(iv) in the case of a Transfer of a Member's Interest, such Transferee
shall have paid all reasonable legal fees and filing costs in connection
with the substitution as a Member.
(b) Notwithstanding anything to the contrary contained in this Agreement, no
Transfer of all or a portion of an Interest shall be made, and the Board of
Managers shall have the right to prohibit and may refuse to accept any
Transfer, unless: (i) registration is not required under the Securities Act of
1933, as amended, in respect of such Transfer; (ii) such Transfer does not
violate any applicable federal or state securities, real estate syndication, or
comparable laws; (iii) such Transfer will not be subject to, or such Transfer,
when aggregated with prior Transfers will not result in the imposition of, any
state, city or local transfer taxes, including, without limitation, any
transfer gains taxes, unless such transferor pays such taxes; and (iv) such
Transfer will not cause the Company to be treated as a "publicly-traded
partnership" within the meaning of Section 7704 of the Code. The Board of
Managers may elect prior to any Transfer to require an opinion of counsel with
respect to any of the foregoing matters.
(c) Subject to Section 9.3, a Transferee who has become a Member in
accordance with this Section 9.2 has, to the extent of the transferred
Interest, all of the rights, powers and benefits of and is subject to the
restrictions and liabilities of a Member under this Agreement and the LLCA with
respect to such transferred Interest. Upon admission of a Transferee as a
Member, the transferor of the Interest so held by such new Member shall cease
to be a Member of the Company to the extent of such transferred Interest.
9.3 Certain Limitations. Unless and until a Transferee is admitted as a
Member pursuant to Section 9.2, a Transferee of a Member's Interest in whole or
in part shall not be entitled to designate one or more Managers to serve on the
Board of Managers (to the extent such right has been Transferred to such
Transferee) or to become or to exercise the rights of a Member, including the
right to require any information or accounting of the Company's business or the
right to inspect the Company's books and records. Such Transferee shall only be
entitled to receive, to the extent of the Interest transferred to such
Transferee, the share of distributions and Profits and Losses, including
distributions with respect to the return of Capital Contributions, to which the
Transferee would otherwise be entitled in respect of the transferred Interest.
The transferor of such Interest shall have the right to designate one or more
Managers to serve on the Board of Managers (to the extent such transferor had
such right prior to such Transfer) until such Transferee is admitted to the
Company as a Member pursuant to Section 9.2 with respect to the Transferred
Interest (but only if such right to designate one or more Managers to the Board
of Managers was Transferred to such Transferee).
9.4 Acceptance of Prior Acts. Any Transferee who becomes a Member in
accordance with Section 9.2, by so becoming a Member, accepts, ratifies and
agrees to be bound by all actions duly taken pursuant to the terms and
provisions of this Agreement by the Company prior to the date it became a
Member and, without limiting the generality of the foregoing, specifically
ratifies and approves all agreements and other instruments as may have been
executed and delivered on behalf of the Company prior to such date and which
are in force and effect on such date.
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ARTICLE 10.
Dissolution; Winding Up and Distribution of Assets
10.1 Dissolution. The Company shall be dissolved and its affairs shall be
wound up upon the first to occur of the following:
(i) December 31, 2015;
(ii) subject to Section 3.8, the written direction of the Board of
Managers;
(iii) the Bankruptcy, death, dissolution, expulsion, incapacity or
withdrawal of any Member or the occurrence of any other event that
terminates the continued membership of any Member, unless within one
hundred eighty (180) days after such event the remaining Members agree in
writing to continue the business of the Company, provided, however, that,
notwithstanding the foregoing, no Member shall have the right to (i)
withdraw or resign as a Member of the Company, (ii) redeem, or request
redemption of, its Interest or any part thereof or (iii) dissolve itself
voluntarily;
(iv) any event that makes it unlawful for the Company's business to be
continued; or
(v) the entry of a decree of judicial dissolution under Section 18-802
of the LLCA.
10.2 Winding Up.
(a) In the event of the dissolution of the Company pursuant to Section 10.1,
the Board of Managers shall wind up the Company's affairs; provided, however,
that a reasonable time shall be allowed for the orderly liquidation of the
Company and the satisfaction of all liabilities to creditors so as to enable
the Members to minimize the normal losses attendant upon a liquidation. The
Members shall continue to share Profits and Losses during liquidation in the
same proportion, as specified in Section 7.2 hereof, as before liquidation.
Each Member shall be furnished with a statement audited by the Company's
accountants that shall set forth the assets and liabilities of the Company as
of the date of dissolution. Each Member (and its Affiliates) shall pay to the
Company all amounts then owing by it (and them) to the Company).
(b) Upon dissolution of the Company, Whitehall may, in the name of, and for
and on behalf of, the Company, prosecute and defend suits, whether civil,
criminal or administrative, settle and close the Company's business, dispose of
and convey the Company's property, discharge or make reasonable provision for
the Company's liabilities, and distribute to the Members in accordance with
Section 10.3 any remaining assets of the Company, all without affecting or
increasing any liability or obligation of the Members, including the Member
participating in the winding up of the Company's affairs and shall comply with
the provisions of Section 18-804(b) of the LLCA.
10.3 Distribution of Assets. Upon the winding up of the Company, the assets
shall be distributed as follows:
(a) to creditors of the Company, including Members who are creditors, to
the extent permitted by law, in satisfaction of liabilities of the Company,
whether by payment or by establishment of adequate reserves, other than
liabilities for distributions to Members and former members under Section
18-601 or Section 18-604 of the LLCA; and
(b) to the Members in accordance with their respective Capital Account
balances after allocation of Profits and Losses for the period ending
immediately prior to such distribution and after giving effect to all
contributions, distributions and allocations for all periods.
For the purpose of making liquidating distributions required by this Section
10.3, the Board of Managers may determine whether to distribute all or any
portion of the Company Assets in-kind or to sell all or any portion of the
Company Assets and distribute the proceeds therefrom. To the extent that the
Board of Managers determines that all or any portion of the Company Assets
shall be sold, such Company Assets shall be sold as promptly as practicable, in
a commercially reasonable manner.
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10.4 Certificate of Cancellation. Within ninety (90) days following the
dissolution and the commencement of winding up of the Company, or at any time
there are no Members, certificates of cancellation shall be filed with the
Secretary of State of the State of Delaware under Section 18-203 of the LLCA.
10.5 Claims of the Members. The Members shall look solely to the Company
Assets for the return of their Capital Contributions, and if the Company Assets
remaining after payment of or due provision for all debts, liabilities and
obligations of the Company are insufficient to return such Capital
Contributions, the Members shall have no recourse against the Company or any
other Member or any other Person. No Member with a negative balance in such
Member's Capital Account shall have any obligation to the Company or to the
other Members or to any creditor or other Person to restore such negative
balance upon dissolution or termination of the Company or otherwise.
ARTICLE 11.
Amendments
11.1 Amendments. This Agreement may not be amended or supplemented, and no
provisions hereof may be modified or waived, except by an instrument in writing
signed by all of the Members.
ARTICLE 12.
Miscellaneous
12.1 Further Assurances. Each party to this Agreement agrees to execute,
acknowledge, deliver, file and record such further certificates, amendments,
instruments and documents, and to do all such other acts and things, as may be
required by law or as, in the reasonable judgment of the Board of Managers, may
be necessary or advisable to carry out the intent and purpose of this
Agreement.
12.2 Notices. Unless otherwise specified in this Agreement, all notices,
demands, elections, requests or other communications that any party to this
Agreement may desire or be required to give hereunder shall be in writing and
shall be given by hand by depositing the same in the United States mail, first
class postage prepaid, certified mail, return receipt requested, or by a
recognized overnight courier service providing confirmation of delivery, to the
addresses set forth in Sections 2.6 and 2.10, or at such other address as may
be designated by the addressee thereof (which in the case of the Company, shall
be designated by the Board of Managers) upon written notice to all of the
Members. All notices given pursuant to this Section 12.2 shall be deemed to
have been given (i) if delivered by hand on the date of delivery or on the date
delivery was refused by the addressee or (ii) if delivered by United States
mail or by overnight courier, on the date of delivery as established by the
return receipt or courier service confirmation (or the date on which the return
receipt or courier service confirms that acceptance of delivery was refused by
the addressee). Except as specified in Section 2.6, in no event shall the
provision of notice in accordance with this Section 12.2 constitute notice for
service of any writ, process or summons in any suit, action or other
proceeding.
12.3 Headings and Captions. All headings and captions contained in this
Agreement and the table of contents hereto are inserted for convenience only
and shall not be deemed a part of this Agreement.
12.4 Variance of Pronouns. All pronouns and all variations thereof shall be
deemed to refer to the masculine, feminine or neuter, singular or plural, as
the identity of the Person or entity may require.
12.5 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall constitute an original and all of which, when
taken together, shall constitute one Agreement.
12.6 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE, WITHOUT REGARD TO CONFLICT
OF LAW PROVISIONS THEREOF.
12.7 WAIVER OF JURY TRIAL. EACH OF THE MEMBERS (ON BEHALF OF ITSELF, ITS
AFFILIATES, AND THE HOLDERS OF INDIRECT AND DIRECT BENEFICIAL INTERESTS IN
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ITSELF) AND THE COMPANY, HAVING CAREFULLY CONSIDERED THE ISSUE, AND HAVING
SOUGHT AND OBTAINED THE ADVICE OF COUNSEL, KNOWINGLY, INTENTIONALLY AND
IRREVOCABLY WAIVE ANY RIGHT TO TRIAL BY JURY WITH RESPECT TO ANY CLAIM OR
PROCEEDING RELATED TO OR ARISING OUT OF THIS AGREEMENT OR ANY OF THE
TRANSACTIONS CONTEMPLATED HEREBY.
12.8 Consent to Jurisdiction. Each Member and the Company hereby irrevocably
consents and agrees, for the benefit of each Member, that any legal action,
suit or proceeding against it with respect to its obligations, liabilities or
any other matter under or arising out of or in connection with this Agreement
and with respect to the enforcement, modification, vacation or correction of an
award rendered in an arbitration proceeding may be brought in any federal or
state court located in New York City (each a "New York Court"), and hereby
irrevocably accepts and submits to the exclusive jurisdiction of each such New
York Court, as the case may be, with respect to any such action, suit or
proceeding. Each Member and the Company hereto waives any objection which it
may now or hereafter have to the laying of venue of any of the aforesaid
actions, suits or proceedings brought in any such New York Court and hereby
further waives and agrees not to plead or claim in any such New York Court that
any such action, suit or proceeding brought therein has been brought in an
inconvenient forum.
12.9 Specific Performance. Each Member and the Company recognizes and agrees
that if for any reason any of the provisions of this Agreement are not
performed in accordance with their specific terms or are otherwise breached,
immediate and irreparable harm or injury would be caused for which money
damages would not be an adequate remedy. Accordingly, each Member and the
Company agrees that, in addition to any other available remedies, each Member
shall be entitled to an injunction restraining any violation or threatened
violation of the provisions of this Agreement without the necessity of posting
a bond or other form of security. In the event that any action should be
brought in equity to enforce the provisions of this Agreement, no party will
allege, and each party hereby waives the defense, that there is an adequate
remedy at law.
12.10 Partition. The Members hereby agree that no Member nor any successor-
in-interest to any Member shall have the right to have the Company Assets
partitioned, or to file a complaint or institute any proceeding at law or in
equity to have the Company Assets partitioned, and each Member, on behalf of
himself, his successors, representatives, heirs and assigns, hereby waives any
such right.
12.11 Severability. Any term or provision of this Agreement which is invalid
or unenforceable in any jurisdiction shall, as to that jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction. If any provision of
this Agreement is so broad as to be unenforceable, the provision shall be
interpreted to be only so broad as is enforceable.
12.12 Successors and Assigns. This Agreement shall be binding upon the
Members and their respective successors, executors, administrators, legal
representatives, heirs, legal assigns and assigns permitted hereunder and shall
inure to the benefit of the Members, and, except as otherwise provided herein,
their respective successors, executors, administrators, legal representatives,
heirs, legal assigns and assigns permitted hereunder. No Person other than the
Members and their respective successors, executors, administrators, legal
representatives, heirs, legal assigns and permitted assigns shall have any
rights or claims under this Agreement.
12.13 Entire Agreement. This Agreement supersedes all prior agreements among
the parties with respect to the subject matter hereof and contains the entire
Agreement among the parties with respect to such subject matter.
12.14 Waivers. No waiver of any provision hereof by any party hereto shall
be deemed a waiver by any other party nor shall any such waiver by any party be
deemed a continuing waiver of any matter by such party.
12.15 Maintenance as a Separate Entity. The Company shall maintain books and
records and bank accounts separate from those of its Affiliates (other than the
Company's Subsidiaries); shall at all times hold
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itself out to the public as a legal entity separate and distinct from any of
its Affiliates (other than the Company's Subsidiaries) (including in its
operating activities, in entering into any contract, in preparing its financial
statements, and on its stationery and any signs it posts), and shall cause its
Affiliates (other than the Company's Subsidiaries) to do the same and to
conduct business with it on an arm's-length basis; shall not commingle its
assets with assets of any of its Affiliates (other than the Company's
Subsidiaries); shall not guarantee any obligation of any of its Affiliates
(other than the Company's Subsidiaries); shall cause its business to be carried
on by the Board of Managers; and shall keep minutes of all meetings of the
Members.
12.16 Confidentiality.
(a) The Members agree not to disclose or permit the disclosure of any of the
terms of this Agreement or of any other confidential, non-public or proprietary
information relating to the Company, the Company's Subsidiaries, any Property
or the business of the Company (collectively, "Confidential Information"),
provided that such disclosure may be made (i) to any Person who is a partner,
officer, director or employee of such Member or counsel to or accountants of
such Member solely for their use and on a need-to-know basis, provided that
such Persons are notified of the Members' confidentiality obligations
hereunder, (ii) with the prior written consent of Whitehall, (iii) subject to
Section 12.16(b), pursuant to a subpoena or order issued by a court, arbitrator
or governmental body, agency or official, (iv) to any lender providing
financing to the Company, or (v) if in the opinion of counsel to the Member
seeking to disclose such Confidential Information, such disclosure is required
under the federal securities laws or the rules of regulation of any relevant
exchange.
(b) In the event that a Member shall receive a request to disclose any
Confidential Information under a subpoena or order, such Member shall (i)
promptly notify the other Members thereof, (ii) consult with the Board of
Managers on the advisability of taking steps to resist or narrow such request
and (iii) if disclosure is required or deemed advisable by the Board of
Managers, cooperate with the Board of Managers in any attempt it may make to
obtain an order or other assurance that confidential treatment will be accorded
the Confidential Information that is disclosed. In the event such Member is
compelled to disclose such Confidential Information, such Member shall use all
reasonable efforts to cause disclosure only of such minimal amount of
Confidential Information as is required to deemed advisable to be so disclosed.
(c) Except to satisfy requirements of law and only to the extent of such
requirements, no Member shall issue or publish any press release, tombstone or
other public communication about the formation or existence of the Company
without the express written consent of the other Members.
12.17 No Third Party Beneficiaries. This Agreement is not intended and shall
not be construed as granting any rights, benefits or privileges to any Person
not a party to this Agreement. Without limiting the generality of the
foregoing, no creditor of the Company, or of any Member shall have any right
whatsoever to require any Member to contribute capital to the Company.
12.18 Power of Attorney. Each Member does hereby irrevocably constitute and
appoint the Board of Managers with full power of substitution, as its true and
lawful attorney, in its name, place and stead, to execute, acknowledge, swear
to, deliver, record and file, as appropriate and in accordance with this
Agreement (i) all amendments to the original Certificate of Formation required
or permitted by law or the provisions of this Agreement and (ii) all
certificates and other ministerial instruments requiring execution by the
Members or any of them and deemed necessary or advisable by the Board of
Managers to qualify or continue the Company as a company wherein the members
have limited liability in the jurisdictions where the Company may be conducting
its operations.
12.19 Construction of this Agreement. The parties have participated jointly
in the negotiation and drafting of this Agreement. Consequently, in the event
an ambiguity or question of intent or interpretation arises, this Agreement
shall be construed as if drafted jointly by the parties thereto, and no
presumption or burden of proof shall arise favoring or disfavoring any party by
virtue of the authorship of any provision of this Agreement.
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12.20 Non-Recourse.
(a) Whitehall (on behalf of itself and the other Company Persons)
acknowledges and agrees that notwithstanding anything to the contrary in this
Agreement or under applicable law: (i) this Agreement shall not create or be
deemed to create or permit any liability or obligation on the part of any
McNeil Person, and no McNeil Person shall be bound or have any liability
hereunder; and (ii) any and all Company Persons shall look solely to the assets
of McNeil for satisfaction of any liability of McNeil under this Agreement, and
no Company Person shall seek recourse or commence any action against any McNeil
Person's assets, for the performance or payment of any obligation of McNeil
under this Agreement. Whitehall (on behalf of itself and the other Company
Persons) acknowledges and agrees that the Company Persons have conducted their
own independent review and analysis of the business, operations, technology,
assets, liabilities, results of operations, financial condition and prospects
of the business of the McNeil Partnerships and acknowledge that they have
received access to certain personnel, properties, premises and books and
records of such business for this purpose. In entering into this Agreement,
Whitehall has relied solely upon its own investigation and analysis and the
specific representations and warranties of McNeil made in this Agreement, and
(i) acknowledges that, except for the specific representations and warranties
of McNeil contained in this Agreement, neither McNeil nor any other McNeil
Person makes or has made any representation or warranty, either express or
implied, as to the accuracy or completeness of any of the information
(including any projections, estimates or other forward-looking information)
provided (including in any management presentations, information memorandum,
supplemental information or other materials or information with respect to any
of the above) or otherwise made available to Company Persons in connection with
the transactions contemplated by this Agreement and (ii) agrees, to the fullest
extent permitted by law, that: (i) none of the McNeil Persons shall have any
liability or responsibility whatsoever to any Company Person under this
Agreement on any basis (including in contract or tort, under federal or state
securities laws or otherwise) based upon any information provided or made
available, or statements made (or any omissions therefrom), to any Company
Person in connection with the transactions contemplated by this Agreement; and
(2) that McNeil shall not have any liability or responsibility whatsoever to
any Company Person under this Agreement on any basis (including in contract or
tort, under federal or state securities laws or otherwise (other than fraud or
willful misrepresentation)) based upon any information provided or made
available, or statements made (or any omissions therefrom), to any Company
Person in connection with the transactions contemplated by this Agreement,
except as and only to the extent expressly set forth in this Agreement and
subject to any limitations and restrictions contained in this Agreement.
(b) Notwithstanding anything to the contrary in Section 12.20(a), nothing in
Section 12.20(a) shall be deemed to affect or modify in any way the rights and
obligations under the Master Agreement and the Indemnification Agreement of the
parties thereto.
12.21 Setoff. Whitehall acknowledges and agrees (on behalf of itself and
each other Company Person) that no Company Person shall have any right
hereunder or pursuant to Law to offset or retain any amounts due or owing by
any McNeil Person against any amounts due or owing (or to become due or owing)
to any Company Person under any other agreement, contract or understanding
(including, without limitation, the Master Agreement); provided, however, that
nothing in this Section 12.21 shall be deemed to affect or modify in any way
the rights and obligations under the Indemnification Agreement of the parties
thereto.
12.22 Arbitration. With respect to a determination of the Appraised Value by
the Appraiser in accordance with the terms of this Agreement, each Member
agrees that the determination of the Appraised Value by the Appraiser shall be
final and binding upon such party. Judgment on the determination may be entered
in any court of competent jurisdiction (within and outside the United States).
In the event that any Member fails to comply with the procedures set forth in
this Agreement relating to the determination of the Appraised Value, or this
Section 12.22, then such noncomplying Member shall be liable for all costs and
expenses, including attorneys' fees, incurred by a party in its effort to
obtain either an order to compel compliance with the such procedures or such
orders, or an enforcement of the determination, from a court of competent
jurisdiction.
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IN WITNESS WHEREOF, the parties hereto have executed this First Amended and
Restated Limited Liability Company Operating Agreement as of the day and year
first above written.
MEMBERS:
WXI/MNL Real Estate, L.L.C.
By: Whitehall Street Real Estate
Limited Partnership XI, its
Managing Member
By: WH Advisors, L.L.C. XI,
its General Partner
By:__________________________
Name: Jonathan Langer
Title: Vice President
McNeil Partners, L.P.
By: McNeil Investors, Inc.
its General Partner
By:______________________________
Name: Robert A. McNeil
Title: Chairman of the Board
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APPENDIX C-1
ROBERT A. STANGER & CO., INC.
Investment Banking
1129 Broad Street
Shrewsbury, NJ 07702-4314
June 24, 1999
McNeil Real Estate Fund IX, Ltd. McNeil Real Estate Fund XXIV, L.P.
McNeil Real Estate Fund X, Ltd. McNeil Real Estate Fund XXV, L.P.
McNeil Real Estate Fund XI, Ltd. McNeil Real Estate Fund XXVI, L.P.
McNeil Real Estate Fund XII, Ltd. McNeil Real Estate Fund XXVII, L.P.
McNeil Real Estate Fund XIV, Ltd. Hearth Hollow Associates, L.P.
McNeil Real Estate Fund XV, Ltd. McNeil Midwest Properties I, L.P.
McNeil Real Estate Fund XX, L.P. Regency North Associates, L.P.
McNeil Real Estate Fund XXI, L.P. Fairfax Associates II, Ltd.
McNeil Real Estate Fund XXII, L.P. McNeil Summerhill I, L.P.
McNeil Real Estate Fund XXIII, L.P.
Gentlemen:
The general partners (the "General Partners") of the above identified
partnerships (the "Partnerships") have advised us that the Partnerships are
contemplating a transaction (the "Transaction") pursuant to an agreement (the
"Master Agreement") in which WXI/McN Realty, L.L.C., a newly formed Delaware
limited liability company (the "Company"), will acquire (i) the general
partnership interests in each of the Partnerships and certain rights and assets
relating thereto (collectively, the "General Partner Interests"), (ii) the
limited partnership interests in each of the Partnerships (the "Limited Partner
Interests") and (iii) the assets of McNeil Real Estate Management, Inc. and
certain rights relating thereto (collectively, the "McREMI Assets"), in
exchange for cash and membership interests in the Company ("Membership
Interests") and the prepayment and assumption of indebtedness of the
Partnerships and their subsidiaries (collectively, the total cash, Membership
Interests and the aggregate amount of indebtedness being prepaid or assumed are
referred to herein as the "Aggregate Consideration"). The Aggregate
Consideration will approximate $644,440,000. Capitalized terms used but not
defined herein have the meanings ascribed to such terms in the Master
Agreement.
We understand that, pursuant to the terms of the Master Agreement, the
parties to the Master Agreement have agreed to allocate the Aggregate
Consideration between certain assets of McREMI (the "Partial McREMI Allocated
Value"), on the one hand, and all of the Partnerships taken as a whole
(collectively, the "Total Allocated Partnership Value"), on the other hand,
pursuant to an Allocation Analysis (the "Allocation Analysis") prepared by
Robert A. Stanger & Co., Inc. ("Stanger"). We understand that the Total
Allocated Partnership Value will be allocated among the individual Partnerships
pursuant to the terms of the Master Agreement (the portion of the Total
Allocated Partnership Value allocated to each Partnership, the "Per Partnership
Allocated Value" for such Partnership). In rendering the Allocation Analysis,
the Per Partnership Allocated Value will be reduced by the aggregate amount of
indebtedness of such Partnership (the "Net Per Partnership Allocated Value").
We understand that, pursuant to the terms of the Master Agreement, the parties
to the Master Agreement have agreed to allocate the Net Per Partnership
Allocated Value of each Partnership among the General Partner Interests in each
Partnership (which shall include a further allocation between the proportional
interest in such Partnership based upon capital contributions and each of the
rights and other assets corresponding to such Partnership which are being
contributed in connection with such interests in accordance with Article II of
the Master Agreement), the amounts due to McREMI (the "Second McREMI Allocated
Value"), and each class of Limited Partner Interests in such Partnership (the
"Limited Partner Consideration Amount"). We understand that the Master
Agreement contemplates a special payment to Limited Partners of each
Partnership at or around the closing date of the Transaction in an amount equal
to the estimated working capital balance as of such date (the "Excess Cash
Balance"). The Excess Cash Balance and the Limited Partner Consideration Amount
of each Partnership will be paid to holders of Limited Partner Interests of
each Partnership based upon the provisions of the partnership agreement of each
Partnership relating to a liquidation.
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We understand that limited partners in each of the Partnerships will have
the opportunity to approve or reject the participation by their Partnership in
the Transaction pursuant to a proxy statement and a limited partners meeting
which will be prepared and held, respectively, in connection with the
Transaction, and further that limited partners in each Partnership (except
Fairfax Associates II, Ltd. ("Fairfax") and McNeil Summerhill I, L.P.
("Summerhill")), will receive only cash in exchange for Limited Partner
Interests. We understand that affiliates of the General Partners are expected
to contribute assets to the Company in connection with the Transaction
(including the General Partner Interests in each of the Partnerships, the
Limited Partner Interests in Fairfax and Summerhill, the McREMI Assets and
additional cash) with an aggregate value range of $60 million to $100 million,
representing approximately 28.0% to 46.7% of the initial mezzanine debt and
equity capitalization of the Company.
You have requested that Stanger provide an opinion as to the fairness, from
a financial point of view, to the holders of each class of Limited Partner
Interests in each Partnership of: (i) the Aggregate Consideration to be paid
for the McREMI Assets and the Limited Partner Interests and General Partner
Interests in the Partnerships in connection with the Transaction; (ii) the
allocation of the Aggregate Consideration between the Partial McREMI Allocated
Value, on the one hand, and the Total Allocated Partnership Value, on the other
hand; (iii) the Per Partnership Allocated Value for each Partnership; (iv) the
methodology of allocation of the Per Partnership Allocated Value, less
indebtedness prepaid or assumed, among the General Partner Interests, the
Second McREMI Allocated Value and each class of Limited Partner Interests; and
(v) the estimated per unit Excess Cash Balance and Limited Partner
Consideration Amount with respect to each class of Limited Partner Interest for
each Partnership determined as of March 31, 1999, based upon the balance sheet
of each Partnership as of such date adjusted for transaction expenses and the
allocation thereof, as estimated by the General Partner.
Stanger, founded in 1978, has provided research, investment banking and
consulting services to clients located throughout the United States, including
major New York Stock Exchange member firms and insurance companies and over
seventy companies engaged in the management and operation of partnerships and
real estate investment trusts. The investment banking activities of Stanger
include financial advisory services, asset and securities valuations, industry
and company research and analysis, litigation support and expert witness
services, and due diligence investigations in connection with both publicly
registered and privately placed securities transactions.
Stanger, as part of its investment banking business, is regularly engaged in
the valuation of businesses and their securities in connection with mergers,
acquisitions, and reorganizations and for estate, tax, corporate and other
purposes. In particular, Stanger's valuation practice principally involves
partnerships, partnership securities and the assets typically owned through
partnerships including, but not limited to, real estate, mortgages secured by
real estate, oil and gas reserves, cable television systems, and equipment
leasing assets.
In arriving at the opinion set forth below, we have:
. Reviewed the most recently available draft of the Master Agreement and
the First Amended and Restated Limited Liability Company Operating
Agreement of WXI/McN Realty L.L.C.;
. Reviewed the financial statements of the Partnerships for the years ended
December 31, 1997 and 1998 and the three months ended March 31, 1999;
. Reviewed information provided by McREMI, as property manager, the General
Partners and the Partnerships for each property (the "Property" or
"Properties") owned by the Partnerships including: property description,
rentable square footage, unit mix, year built, historical and projected
operating statements, rent rolls, tenant improvement allowances, expense
reimbursements, tax information, capital expenditure estimates, deferred
maintenance estimates, and estimates of costs to remediate environmental
conditions;
. Conducted site inspections of each Property and discussed with management
of McREMI, the General Partners and the Partnerships the conditions in
local rental markets and market conditions for sales and acquisitions of
properties of the type owned by the Partnerships and the historical
financial statements and budgeted and projected operations of the
Properties;
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. Reviewed surveys of competing properties prepared by or on behalf of
McREMI, the General Partners and the Partnerships, including rental
rates, vacancies, and tenant improvement allowances;
. Reviewed information on acquisition criteria used by real estate
investors for properties similar to the Properties during 1999;
. Reviewed the financial statements of McREMI and its affiliates for the
years ended December 31, 1997 and 1998 and the three months ended March
31, 1999;
. Interviewed PaineWebber Incorporated regarding the conduct of the bid
solicitation process relating to the Transaction; and
. Conducted such other studies, analyses, inquiries and investigations as
we deemed appropriate.
In rendering this opinion, we have relied, without independent verification,
on the accuracy and completeness in all material respects of all financial and
other information that was furnished or otherwise communicated to us by McREMI,
the General Partners and the Partnerships. We have not performed an independent
appraisal of the assets and liabilities of the Partnerships or the McREMI
Assets. We have not conducted any engineering studies and have relied on the
estimates of the management of McREMI with respect to deferred maintenance and
the estimated cost to remediate environmental conditions for each Property. We
have not reviewed any proxy statement prepared in connection with the
Transaction as one was not available on the date hereof.
We have relied on the assurance of McREMI, the General Partners and the
Partnerships, that: (i) the Property budgets and discounted cash flow analyses
provided to us were in the judgment of McREMI, the General Partners and the
Partnerships reasonably prepared on bases consistent with actual historical
experience and reflect the best currently available estimates and good faith
judgments; (ii) any estimates of costs to remediate environmental conditions
are adequately considered in the capital expenditure estimates provided to us
and that no additional environmental conditions are present at the Properties;
(iii) any historical financial data, balance sheet data, transaction cost
estimates and estimates of the deficit restoration obligation of the general
partner which would be due upon a liquidation are accurate in all material
respects; (iv) no material changes have occurred in the information reviewed or
in the value of the Properties or the McREMI Assets between the date the
information was provided to us and the date of this letter; and (v) McREMI, the
General Partners and the Partnerships are not aware of any information or facts
regarding the Partnerships, the Properties, the McREMI Assets or the Company
that would cause the information supplied to us to be incomplete or misleading
in any material respect.
We did not determine or negotiate the amount or form of the Aggregate
Consideration. We have not been requested to, and therefore do not: (i) make
any recommendation to McREMI, the General Partners or the Limited Partners with
respect to whether to approve or reject the Transaction; or (ii) express any
opinion as to (a) the impact of the Transaction with respect to McREMI, the
General Partners or the Limited Partners of any Partnership that does not
participate in the Transaction; (b) the tax consequences of the Transaction for
McREMI, the General Partners or the Limited Partners of any Partnership; (c)
the Company's ability to qualify as a McNeil Partnership or real estate
investment trust, or the consequences of the Company's failure to so qualify;
(d) the potential capital structure of the Company or its impact on the
financial performance of the Membership Interests; (e) the Company's ability to
finance its obligations pursuant to the Master Agreement or the impact of a
failure to obtain financing on the financial performance of the Company or the
Partnerships; (f) whether or not alternative methods of determining or
allocating the Aggregate Consideration to be received by the General Partners,
Limited Partners of the Partnerships or McREMI would have also provided fair
results or results substantially similar to those of the methodology to be
used; (g) alternatives to the Transaction; or (h) any other terms of the
Transaction other than the Aggregate Consideration and the allocation thereof.
Furthermore, we are not expressing any opinion herein to Robert A. McNeil or
Carole McNeil in their capacities as direct or indirect holders of General or
Limited Partner Interests in the Partnerships or McNeil Partners, L.P. or of
capital stock in McREMI. Further, we are not expressing any opinion herein as
to the
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fairness of any terms of the Transaction other than as described herein,
including without limitation: (i) the fairness of the amounts or allocations of
Transaction costs, or (ii) the prices at which the Membership Interests in the
Company may trade, if at all, following the Transaction, or the trading value
of the Membership Interests compared with the current fair market value of any
assets contributed to the Company in connection with the Transaction if the
Company were to be liquidated in the current real estate market.
This letter does not purport to be a complete description of the analyses
performed or the matters considered in rendering our opinion. The analyses and
the summary set forth herein must be considered as a whole, and selecting
portions of such summary or analyses, without considering all factors and
analyses, would create an incomplete view of the processes underlying this
opinion. In rendering this opinion, judgment was applied to a variety of
complex analyses and assumptions. The assumptions made and the judgments
applied in rendering the opinion are not readily susceptible to partial
analysis or summary description. The fact that any specific analysis is
referred to herein is not meant to indicate that such analysis was given
greater weight than any other analysis.
Based upon and subject to the foregoing, it is our opinion that, as of the
date of this letter, each of the matters set forth in the following clauses (i)
through (v) is fair from a financial point of view to the holders of each class
of Limited Partner Interests in each Partnership: (i) the Aggregate
Consideration to be paid for the McREMI Assets and the Limited Partner
Interests and General Partner Interests; (ii) the allocation of the Aggregate
Consideration between the Partial McREMI Allocated Value, on the one hand, and
the Total Allocated Partnership Value, on the other hand; (iii) the Per
Partnership Allocated Value; (iv) the methodology of allocation of the Per
Partnership Allocated Value, less indebtedness prepaid or assumed, among the
General Partner Interests, the Second McREMI Allocated Value and each class of
Limited Partner Interest; and (v) the estimated per unit Excess Cash Balance
and Limited Partner Consideration Amount with respect to each class of Limited
Partner Interest for each Partnership determined as of March 31, 1999, based
upon the balance sheet of each Partnership as of such date adjusted for
transaction expenses and the allocation thereof, as estimated by the General
Partners.
This letter and the opinions set forth herein were delivered pursuant to the
Amended and Restated Agreement, dated as of May 7, 1999, between Stanger and
the Partnerships and, in accordance with such agreement, Stanger acknowledges
that further letters, allocations and opinions shall be delivered to the
Partnerships subsequent to the date hereof in accordance with the terms of such
agreement, including with respect to the matters described in the following
paragraph.
It is our understanding that, at or around the date the preliminary proxy
statements are submitted to the Securities and Exchange Commission ("SEC") for
review, the Excess Cash Balance and the allocation of the Per Partnership
Allocated Value, less indebtedness prepaid or assumed, among the General
Partner Interests, the Second McREMI Allocated Value and each class of Limited
Partner Interests for each of the Partnerships will be redetermined to reflect
the operation of the Partnerships and related changes in working capital during
such period and that Stanger will be requested to render an opinion as to the
fairness from a financial point of view to the Limited Partners of each
Partnership of the allocation of the Per Partnership Allocated Value, less
indebtedness prepaid or assumed, among the General Partner Interests, the
Second McREMI Allocated Value and each class of Limited Partner Interests of
such Partnership in connection with the Transaction.
Yours truly,
/s/ Robert A. Stanger & Co., Inc.
_________________________________
Robert A. Stanger & Co., Inc.
Shrewsbury, New Jersey
June 24, 1999
C-1-4
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APPENDIX C-2
ROBERT A. STANGER & CO., INC.
Investment Banking
1129 Broad Street
Shrewsbury, NJ 07702-4314
December 10, 1999
McNeil Real Estate Fund IX, Ltd. McNeil Real Estate Fund XXIV, L.P.
McNeil Real Estate Fund X, Ltd. McNeil Real Estate Fund XXV, L.P.
McNeil Real Estate Fund XI, Ltd. McNeil Real Estate Fund XXVI, L.P.
McNeil Real Estate Fund XII, Ltd. McNeil Real Estate Fund XXVII, L.P.
McNeil Real Estate Fund XIV, Ltd. Hearth Hollow Associates, L.P.
McNeil Real Estate Fund XV, Ltd. McNeil Midwest Properties I, L.P.
McNeil Real Estate Fund XX, L.P. Regency North Associates, L.P.
McNeil Real Estate Fund XXI, L.P. Fairfax Associates II, Ltd.
McNeil Real Estate Fund XXII, McNeil Summerhill I, L.P.
L.P.
McNeil Real Estate Fund XXIII,
L.P.
Gentlemen:
The general partners (the "General Partners") of the above identified
partnerships (the "Partnerships") have advised us that the Partnerships are
contemplating a transaction (the "Transaction") pursuant to an agreement (the
"Master Agreement") in which WXI/McN Realty L.L.C., a newly formed Delaware
limited liability company (the "Company"), will acquire (i) the general
partnership interests in each of the Partnerships and certain rights and assets
relating thereto (collectively, the "General Partner Interests"), (ii) the
limited partnership interests in each of the Partnerships (the "Limited Partner
Interests") and (iii) the assets of McNeil Real Estate Management, Inc. and
certain rights relating thereto (collectively, the "McREMI Assets"), in
exchange for cash and membership interests in the Company ("Membership
Interests") and the prepayment and assumption of indebtedness of the
Partnerships and their subsidiaries (collectively, the total cash, Membership
Interests and the aggregate amount of indebtedness being prepaid or assumed are
referred to herein as the "Aggregate Consideration"). The Aggregate
Consideration will approximate $644,440,000. Capitalized terms used but not
defined herein have the meanings ascribed to such terms in the Master
Agreement.
We understand that, pursuant to the terms of the Master Agreement, the
parties to the Master Agreement have agreed to allocate the Aggregate
Consideration between certain assets of McREMI (the "Partial McREMI Allocated
Value"), on the one hand, and all of the Partnerships taken as a whole
(collectively, the "Total Allocated Partnership Value"), on the other hand,
pursuant to an Allocation Analysis (the "Allocation Analysis") prepared by
Robert A. Stanger & Co., Inc. ("Stanger"). We understand that the Total
Allocated Partnership Value will be allocated among the individual Partnerships
pursuant to the terms of the Master Agreement (the portion of the Total
Allocated Partnership Value allocated to each Partnership, the "Per Partnership
Allocated Value" for such Partnership). In rendering the Allocation Analysis,
the Per Partnership Allocated Value will be reduced by the aggregate amount of
indebtedness of such Partnership (the "Net Per Partnership Allocated Value").
We understand that, pursuant to the terms of the Master Agreement, the parties
to the Master Agreement have agreed to allocate the Net Per Partnership
Allocated Value of each Partnership among the General Partner Interests in each
Partnership (which shall include a further allocation between the proportional
interest in such Partnership based upon capital contributions and each of the
rights and other assets corresponding to such Partnership which are being
contributed in connection with such interests in accordance with Article II of
the Master Agreement), the amounts due to McREMI (the "Second McREMI Allocated
Value"), and each class of Limited Partner Interests in such Partnership (the
"Limited Partner Consideration Amount"). We understand that the Master
Agreement contemplates a special payment to Limited Partners of each
Partnership at or around the closing date of the Transaction in an amount equal
to the estimated working
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capital balance as of such date (the "Excess Cash Balance"). The Excess Cash
Balance and the Limited Partner Consideration Amount of each Partnership will
be paid to holders of Limited Partner Interests of each Partnership based upon
the provisions of the partnership agreement of each Partnership relating to a
liquidation.
We understand that limited partners in each of the Partnerships will have
the opportunity to approve or reject the participation by their Partnership in
the Transaction pursuant to a proxy statement and a limited partners meeting
which will be prepared and held, respectively, in connection with the
Transaction, and further that limited partners in each Partnership (except
Fairfax Associates II, Ltd. ("Fairfax") and McNeil Summerhill I, L.P.
("Summerhill")), will receive only cash in exchange for Limited Partner
Interests. We understand that affiliates of the General Partners are expected
to contribute assets to the Company in connection with the Transaction
(including the General Partner Interests in each of the Partnerships, the
Limited Partner Interests in Fairfax and Summerhill, the McREMI Assets and
additional cash) with an aggregate value range of $65.1 million to $100
million, representing approximately 30.4% to 46.7% of the initial mezzanine
debt and equity capitalization of the Company.
On June 24, 1999, Stanger provided an opinion as to the fairness, from a
financial point of view, to the holders of each class of Limited Partner
Interests in each Partnership of: (i) the Aggregate Consideration to be paid
for the McREMI Assets and the Limited Partner Interests and General Partner
Interests in the Partnerships in connection with the Transaction; (ii) the
allocation of the Aggregate Consideration between the Partial McREMI Allocated
Value, on the one hand, and the Total Allocated Partnership Value, on the other
hand; (iii) the Per Partnership Allocated Value for each Partnership; (iv) the
methodology of allocation of the Per Partnership Allocated Value, less
indebtedness prepaid or assumed, among the General Partner Interests, the
Second McREMI Allocated Value and each class of Limited Partner Interests; and
(v) the estimated per unit Excess Cash Balance and Limited Partner
Consideration Amount with respect to each class of Limited Partner Interests
for each Partnership determined as of March 31, 1999, based upon the balance
sheet of each Partnership as of such date adjusted for transaction expenses and
the allocation thereof, as estimated by the General Partner. You have requested
that Stanger provide a second opinion (the "Second Stanger Opinion") as to the
fairness from a financial point of view, to the holders of each class of
Limited Partner Interest in each Partnership of: (i) the portion of the
Aggregate Consideration allocated to the General Partner Interests in each
Partnership; (ii) the Second McREMI Allocated Value for each Partnership; (iii)
the Limited Partner Consideration Amount for each class of Limited Partner
Interests in each Partnership; and (iv) the sum of the estimated per unit
Limited Partner Consideration Amount and Excess Cash Balance with respect to
each class of Limited Partner Interests for each Partnership, based on the
General Partner's estimates as of January 31, 2000 of the modified net working
capital balance of each Partnership, calculated in accordance with the terms of
the Master Agreement.
Stanger, founded in 1978, has provided research, investment banking and
consulting services to clients located throughout the United States, including
major New York Stock Exchange member firms and insurance companies and over
seventy companies engaged in the management and operation of partnerships and
real estate investment trusts. The investment banking activities of Stanger
include financial advisory services, asset and securities valuations, industry
and company research and analysis, litigation support and expert witness
services, and due diligence investigations in connection with both publicly
registered and privately placed securities transactions.
Stanger, as part of its investment banking business, is regularly engaged in
the valuation of businesses and their securities in connection with mergers,
acquisitions, and reorganizations and for estate, tax, corporate and other
purposes. In particular, Stanger's valuation practice principally involves
partnerships, partnership securities and the assets typically owned through
partnerships including, but not limited to, real estate, mortgages secured by
real estate, oil and gas reserves, cable television systems, and equipment
leasing assets.
In arriving at the opinion set forth below, we have:
. Reviewed the Master Agreement and the form of the First Amended and
Restated Limited Liability Company Operating Agreement of WXI/McN Realty
L.L.C. attached as an exhibit to the Master Agreement;
C-2-2
<PAGE>
. Reviewed a draft of the Proxy Statement relating to the Transaction for
each Partnership;
. Reviewed the financial statements of the Partnerships for the years ended
December 31, 1997 and 1998 and the nine months ended September 30, 1999;
. Reviewed the financial statements of McREMI and its affiliates for the
years ended December 31, 1997 and 1998 and the nine months ended
September 30, 1999;
. Reviewed the General Partner's estimates as of January 31, 2000 of the
modified net working capital balance of each Partnership, calculated in
accordance with the terms of the Master Agreement:
. Conducted such other studies, analyses, inquiries and investigations as
we deemed appropriate.
In rendering this opinion, we have relied, without independent verification,
on the accuracy and completeness in all material respects of all financial and
other information that was furnished or otherwise communicated to us by McREMI,
the General Partners and the Partnerships. We have not performed an independent
appraisal of the assets and liabilities of the Partnerships or the McREMI
Assets. We have not conducted any engineering studies and have relied on the
estimates of the management of McREMI with respect to deferred maintenance and
the estimated cost to remediate environmental conditions for each Property.
We have relied on the assurance of McREMI, the General Partners and the
Partnerships, that: (i) the Property budgets and discounted cash flow analyses
provided to us were in the judgment of McREMI, the General Partners and the
Partnerships reasonably prepared on bases consistent with actual historical
experience and reflect the best currently available estimates and good faith
judgments; (ii) any estimates of costs to remediate environmental conditions
are adequately considered in the capital expenditure estimates provided to us
and that no additional environmental conditions are present at the Properties;
(iii) any historical financial data, balance sheet data, transaction cost
estimates and estimates of the deficit restoration obligation of the general
partner which would be due upon a liquidation are accurate in all material
respects; (iv) no material changes have occurred in the information reviewed or
in the value of the Properties or the McREMI Assets between the date the
information was provided to us and the date of this letter; and (v) McREMI, the
General Partners and the Partnerships are not aware of any information or facts
regarding the Partnerships, the Properties, the McREMI Assets or the Company
that would cause the information supplied to us to be incomplete or misleading
in any material respect.
We did not determine or negotiate the amount or form of the Aggregate
Consideration. We have not been requested to, and therefore do not: (i) make
any recommendation to McREMI, the General Partners or the Limited Partners with
respect to whether to approve or reject the Transaction; or (ii) express any
opinion as to (a) the impact of the Transaction with respect to McREMI, the
General Partners or the Limited Partners of any Partnership that does not
participate in the Transaction; (b) the tax consequences of the Transaction for
McREMI, the General Partners or the Limited Partners of any Partnership; (c)
the Company's ability to qualify as a partnership or real estate investment
trust, or the consequences of the Company's failure to so qualify; (d) the
potential capital structure of the Company or its impact on the financial
performance of the Membership Interests; (e) the Company's ability to finance
its obligations pursuant to the Master Agreement or the impact of a failure to
obtain financing on the financial performance of the Company or the
Partnerships; (f) whether or not alternative methods of determining or
allocating the Aggregate Consideration to be received by the General Partners,
Limited Partners of the Partnerships or McREMI would have also provided fair
results or results substantially similar to those of the methodology used; (g)
alternatives to the Transaction; or (h) any other terms of the Transaction
other than each of the matters set forth in clauses (i) through (iv) of the
final paragraph of this letter. Furthermore, we are not expressing any opinion
herein to Robert A. McNeil or Carole McNeil in their capacities as direct or
indirect holders of General or Limited Partner Interests in the Partnerships or
McNeil Partners, L.P. or of capital stock in McREMI. Further, we are not
expressing any opinion herein as to the fairness of any terms of the
Transaction other than as described herein, including without limitation: (i)
the fairness of the amounts or allocations of Transaction costs, or (ii) the
prices at which the Membership Interests in the Company may trade, if at all,
following the Transaction, or the trading value of
C-2-3
<PAGE>
the Membership Interests compared with the current fair market value of any
assets contributed to the Company in connection with the Transaction if the
Company were to be liquidated in the current real estate market.
This letter does not purport to be a complete description of the analyses
performed or the matters considered in rendering our opinion. The analyses and
the summary set forth herein must be considered as a whole, and selecting
portions of such summary or analyses, without considering all factors and
analyses, would create an incomplete view of the processes underlying this
opinion. In rendering this opinion, judgment was applied to a variety of
complex analyses and assumptions. The assumptions made and the judgments
applied in rendering the opinion are not readily susceptible to partial
analysis or summary description. The fact that any specific analysis is
referred to herein is not meant to indicate that such analysis was given
greater weight than any other analysis.
Based upon and subject to the foregoing, it is our opinion that, as of the
date of this letter, each of the matters set forth in the following clauses (i)
through (iv) is fair from a financial point of view to the holders of each
class of Limited Partner Interests in each Partnership: (i) the portion of the
Aggregate Consideration allocated to the General Partner Interests in each
Partnership; (ii) the Second McREMI Allocated Value for each Partnership; (iii)
the Limited Partner Consideration Amount for each class of Limited Partner
Interests in each Partnership; and (iv) the sum of the estimated per unit
Limited Partner Consideration Amount and Excess Cash Balance with respect to
each class of Limited Partner Interests for each Partnership, based on the
General Partner's estimates as of January 31, 2000 of the modified net working
capital balance of each Partnership, calculated in accordance with the terms of
the Master Agreement.
Yours truly,
/s/ Robert A. Stanger & Co., Inc.
- -------------------------------------
Robert A. Stanger & Co., Inc.
Shrewsbury, New Jersey
December 10, 1999
C-2-4
<PAGE>
APPENDIX D-1
EASTDIL REALTY COMPANY, LLC
10100 Santa Monica Boulevard
Suite 2430
Los Angeles, California 90067
June 24, 1999
Special Committee of the Board of Directors
of McNeil Investors, Inc.
c/o Paul B. Fay, Jr.
3766 Clay Street
San Francisco, CA 94118
Dear Mr. Fay:
We have been engaged pursuant to an Agreement dated as of May 7, 1999 (the
"Agreement") by the Special Committee of the Board of Directors of McNeil
Investors, Inc. (the "Committee") to render certain opinions in connection with
the proposed transaction (the "Transaction") whereby a newly formed Delaware
limited liability company (the "Company") to be owned by Robert A. McNeil and
Carole J. McNeil (and/or affiliates thereof) and Whitehall Street Real Estate
Limited Partnership XI (and/or affiliates thereof) shall, in exchange for
ownership interests in such entity (the "Membership Interests"), cash and the
assumption of certain indebtedness (collectively, the "Aggregate
Consideration"), acquire (i) all of the general partnership interests of the
Partnerships listed on Appendix I hereto (the "Partnerships"), and certain
rights and assets related thereto (the "General Partner Interests"), (ii) all
of the limited partnership interests of the Partnerships (the "Limited Partner
Interests") and (iii) certain of the assets of McNeil Real Estate Management,
Inc. and certain rights related thereto (the "McREMI Assets"), in each case,
pursuant to a Master Agreement (the "Master Agreement"). The Aggregate
Consideration specified in the Master Agreement is approximately $644,440,000.
The Partnerships and Robert A. Stanger & Co., Inc. ("Stanger") have entered
into an Amended and Restated Agreement dated as of May 7, 1999 (the "Stanger
Agreement"), whereunder Stanger has agreed to render to the Partnerships
certain allocations and opinions, all as more fully contemplated in Sections 1
and 2 of the Stanger Agreement.
Pursuant to the terms of the Master Agreement, the allocation of the
Aggregate Consideration between certain assets of McREMI (the "Partial McREMI
Allocated Value"), on the one hand, and all of the Partnerships, taken as a
whole (the "Total Allocated Partnership Value"), on the other hand, has been
made pursuant to an Allocation Analysis dated June 24, 1999 (the "Allocation
Analysis") prepared by Stanger. The Allocation Analysis also reflects the
allocation of the Total Allocated Partnership Value among the individual
Partnerships (the portion of the Total allocated Partnership Value allocated to
each Partnership, the "Per Partnership Allocated Value" for such Partnership,
and the Per Partnership Allocated Value for each Partnership reduced by the
aggregate amount of indebtedness of such Partnership, the "Net Per Partnership
Allocated Value"). Pursuant to the terms of the Master Agreement, the
allocation of the Net Per Partnership Allocated value of each Partnership among
the General Partner Interests in such Partnership (which shall include a
further allocation between the proportional interest in such Partnership based
upon capital contributions and each of the rights and other assets
corresponding to such Partnership which are being contributed in connection
with such interests in accordance with Article II of the Master Agreement,
including the amounts due to McREMI (the "Second McREMI Allocated Value")) and
each class of Limited Partner Interests in such Partnership (the "Limited
Partner Consideration Amount") will be made by Stanger. The Allocation Analysis
contains the methodology to be used by Stanger to determine the allocation
described in the preceding sentence and reflects a preliminary allocation of
such amounts as of March 31, 1999. As set forth in the Stanger Opinion this
D-1-1
<PAGE>
allocation will be updated prior to the closing of the Transaction. We
understand that the Master Agreement contemplates a special payment to Limited
Partners of each Partnership (the "Limited Partners") at or around the closing
date of the Transaction in an amount equal to the estimated working capital
balance as of such date (the "Excess Cash Balance"). The Excess Cash Balance
of, and the Limited Partner Consideration Amount allocable to, each class of
Limited Partners of each Partnership will be paid to such Limited Partners
based upon the provisions of the partnership agreement of such Partnership
relating to a liquidation.
We understand that the Limited Partners in each of the Partnerships will
have the opportunity to approve or reject the participation by their
Partnership in the Transaction pursuant to a proxy statement and a Limited
Partners meeting which will be prepared and held, respectively, in connection
with the Transaction, and further that limited partners in each Partnership
(except Fairfax Associates II, Ltd. ("Fairfax") and McNeil Summerhill I, L.P.
("Summerhill")), will receive exclusively cash in exchange for Limited Partner
Interests. We understand that affiliates of the General Partners are expected
to contribute assets to the Company in connection with the Transaction
(including the General Partner Interests in each of the Partnerships, the
Limited Partner Interests in Fairfax and Summerhill, the McREMI Assets and
additional cash) with an aggregate value range of $60 million to $100 million,
representing approximately 28.0% to 46.7% of the initial mezzanine debt and
equity capitalization of the Company.
Pursuant to the Stanger Agreement, Stanger has delivered the Allocation
Analysis and its opinion dated June 24, 1999 (the "Stanger Opinion") as to the
fairness, from a financial point of view, to the holders of each class of
Limited Partnership Interests in each Partnership of: (i) the Aggregate
Consideration to be paid for the McREMI Assets and the Limited Partner
Interests and General Partner Interests in connection with the Transaction;
(ii) the allocation of the Aggregate Consideration between the Partial McREMI
Allocated Value, on the one hand, and the Total Allocated Partnership Value, on
the other hand; (iii) the Per Partnership Allocated Value for each Partnership;
(iv) the methodology of allocation of the Net Per Partnership Allocated Value
of each Partnership among the General Partner Interests, the Second McREMI
Allocated Value and each class of Limited Partner Interests of such
Partnership; and (v) the estimated per unit Excess Cash Balance and Limited
Partner Consideration Amount with respect to each class of Limited Partner
Interests for each Partnership determined as of March 31, 1999, based upon the
balance sheet of each Partnership as of such date adjusted for transaction
expenses and the allocation thereof, as estimated by the General Partners of
each Partnership (the "General Partners").
The qualifications of and experience of Stanger and the bases for the
conclusions reached in the Allocation Analysis and the Stanger Opinion are
included in the Allocation Analysis and the Stanger Opinion.
Stanger was retained by the Partnership on January 12, 1998 for the purpose
of conducting a valuation analysis of the Partnerships. The Allocation Analysis
and the Stanger Opinion provide a summary description of the activities of
Stanger during the period of its engagement by the Partnerships. We were
retained by the Special Committee on May 7, 1999 and by agreement with the
Special Committee the scope of our involvement with respect to the matters
covered by the Allocation Analysis and the Stanger Opinion has been
considerably more narrow than that of Stanger.
Founded in 1967, we are a private real estate investment banking firm that
specializes in the structuring and placement of debt and equity capital for
institutional grade real estate assets. Headquartered in New York City, we have
offices in Chicago, Dallas, and Los Angeles. Our aggregate transaction
experience exceeds $125 billion and encompasses all of the major United States
markets. Since January 1998, we have completed transactions with a value of
$14.4 billion which include 61 million square feet of office properties, 18.5
million square feet of retail properties, 17,000 apartment units, and 11,700
hotel rooms.
You have requested that we deliver our opinions that:
(i) the Allocation Analysis and Stanger Opinion are based upon the
application of appropriate methodologies and that the factual bases
utilized by Stanger in the application of such methodologies have a
reasonable basis,
D-1-2
<PAGE>
(ii) the conclusions reached in the Allocation Analysis and Stanger
Opinion have a reasonable basis, and
(iii) the Special Committee is entitled to rely upon such conclusions.
You have also requested that we deliver our opinion, based on our limited
review, as more fully set forth in this letter, as to the fairness, from a
financial point of view to the holders of each class of Limited Partnership
Interests in each of the Partnerships, of each of the matters specified in
clauses (i) through (v) of the final paragraph on page 5 of the Stanger
Opinion.
In arriving at the opinions expressed herein, we have:
--Reviewed the most current drafts made available to us of the Master
Agreement and the First Amended and Restated Limited Liability Company
Operating Agreement with respect to the Company;
--Reviewed the summary information provided by McREMI, as property manager,
the General Partners and the Partnerships for each of the properties
owned by the Partnerships (the "Properties") including: property
description, rentable square footage, until mix, year built, historical
and projected operating statements, rent rolls, tenant improvement
allowances, expense reimbursements, tax information, capital expenditure
estimates, deferred maintenance estimates, and estimates of costs to
remediate environmental conditions;
--Conducted limited site inspections of certain of the Properties;
--Discussed with management of McREMI and with Stanger the conditions in
local rental markets and market conditions for sales and acquisitions of
properties of the type owned by the Partnerships and the historical
financial statements and budgeted and projected operations of the
Properties;
--Reviewed surveys of competing properties prepared by or on behalf of
McREMI, the General Partners and the Partnerships, including rental
rates, vacancies, and tenant improvement allowances;
--Reviewed information on acquisition criteria used by real estate
investors for properties similar to the Properties during 1999;
--Reviewed the financial statements of McREMI and its affiliates for the
years ended December 31, 1997 and 1998 and the three months ended March
31, 1999;
--Interviewed PaineWebber Incorporated regarding the conduct of the bid
solicitation process relating to the Transaction;
--Discussed with Stanger the activities of Stanger since January 1998 with
respect to the Allocation Analysis and the Stanger Opinion;
--Discussed with Houlihan Lokey Howard & Zukin Capital its valuation
analysis of McREMI; and
--Conducted such other studies, analyses, inquiries and investigations as
we deemed appropriate.
In rendering this opinion, we have relied, without independent verification,
on the accuracy and completeness in all material respects of all financial and
other information that was furnished or otherwise communicated to us by McREMI,
the General Partners and the Partnerships. We have not performed an independent
appraisal of the assets and liabilities of the Partnerships or the McREMI
Assets. We have not conducted any engineering studies and have relied on the
estimates of the management of McREMI with respect to deferred maintenance and
the estimated cost to remediate environmental conditions for each Property. We
have not reviewed any proxy statement prepared in connection with the
Transaction as one was not available on the date hereof.
We have relied on the assurance of McREMI, the General Partners and the
Partnerships, that: (i) the Property budgets and discounted cash flow analyses
provided to us were in the judgment of McREMI, the
D-1-3
<PAGE>
General Partners and the Partnerships reasonably prepared on bases consistent
with actual historical experience and reflect the best currently available
estimates and good faith judgments; (ii) any estimates of costs to remediate
environmental conditions are adequately considered in the capital expenditure
estimates provided to us and that no additional environmental conditions are
present at the Properties; (iii) any historical financial data, balance sheet
data, transaction cost estimates and estimates of the deficit restoration
obligation of the General Partners which would be due upon a liquidation are
accurate in all material respects; (iv) no material changes have occurred in
the information reviewed or in the value of the Properties or the McREMI
Assets between the date the information was provided to us and the date of
this letter; and (v) McREMI, the General Partners and the Partnerships are not
aware of any information or facts regarding the Partnerships, the Properties,
the McREMI Assets or the Company that would cause the information supplied to
us to be incomplete or misleading in any material respect.
We did not determine or negotiate the amount or form of the Aggregate
Consideration. We have not been requested to, and therefore do not: (i) make
any recommendation to McREMI, the General Partners or the Limited Partners
with respect to whether to approve or reject the Transaction; or (ii) express
any opinion as to (a) the impact of the Transaction with respect to McREMI,
the General Partners, or the Limited Partners of any Partnership that does not
participate in the Transaction; (b) the tax consequences of the Transaction
for McREMI, the General Partners or the Limited Partners of any Partnership;
(c) the Company's ability to qualify as a McNeil Partnership or real estate
investment trust, or the consequences of the Company's failure to so qualify;
(d) the potential capital structure of the Company or its impact on the
financial performance of the Membership Interests; (e) the Company's ability
to finance its obligations pursuant to the Master Agreement or the impact of a
failure to obtain financing on the financial performance of the Company or the
Partnerships; (f) whether or not alternative methods of determining or
allocating the Aggregate Consideration to be received by the General Partners,
Limited Partners of the Partnerships or McREMI would have also provided fair
results or results substantially similar to those of the methodology used; (g)
alternatives to the Transaction; or (h) any other terms of the Transaction
other than the Aggregate Consideration and the allocation thereof.
Furthermore, we are not expressing any opinion herein to Robert A. McNeil or
Carole J. McNeil in their capacities as direct or indirect holders of General
or Limited Partner Interests in the Partnerships or McNeil Partners, L.P. or
of capital stock in McREMI. Further, we are not expressing any opinion herein
as to the fairness of any terms of the Transaction other than as described
herein, including without limitation: (i) the fairness of the amounts or
allocations of Transaction costs, or (ii) the prices at which the Membership
Interests in the Company may trade, if at all, following the Transaction, or
the trading value of the Membership Interests compared with the current fair
market value of any assets contributed to the Company in connection with the
Transaction if the Company were to be liquidated in the current real estate
market.
This letter does not purport to be a complete description of the analyses
performed or the matters considered in rendering our opinion. The analyses and
the summary set forth herein must be considered as a whole, and selecting
portions of such summary or analyses, without considering all factors and
analyses, would create an incomplete view of the processes underlying this
opinion. In rendering this opinion, judgment was applied to a variety of
complex analyses and assumptions. The assumptions made and the judgments
applied in rendering the opinion are not readily susceptible to partial
analysis or summary description. The fact that any specific analysis is
referred to herein is not meant to indicate that such analysis was given
greater weight than any other analysis.
Based upon and subject to the foregoing, it is our opinion that, as of the
date of this letter:
(i) the Allocation Analysis and Stanger Opinion are based upon the
application of appropriate methodologies and that the factual bases
utilized by Stanger in the application of such methodologies have a
reasonable basis,
(ii) the conclusions reached in the Allocation Analysis and Stanger
Opinion have a reasonable basis,
(iii) the Special Committee is entitled to rely upon such conclusions,
and
D-1-4
<PAGE>
(iv) each of the matters set forth in the following clauses (a) through
(e) is fair from a financial point of view to the holders of each class of
Limited Partnership Interests in each of the Partnerships: (a) the
Aggregate Consideration to be paid for the McREMI Assets and the Limited
Partner Interests and General Partner Interests; (b) the allocation of the
Aggregate Consideration between Partial McREMI Allocated Value, on the one
hand, and the Total Allocated Partnership Value, on the other hand; (c) the
Per Partnership Allocated Value for each Partnership; (d) the methodology
of allocation of the Net Per Partnership Allocated Value of each
Partnership among the General Partner Interests, the Second McREMI
Allocated Value, and each class of Limited Partner Interest of such
Partnership; and (v) the estimated per unit Excess Cash Balance and Limited
Partner Consideration Amount with respect to each class of Limited Partner
Interests for each Partnership determined as of March 31, 1999, based upon
the balance sheet of each Partnership as of such date adjusted for
transaction expenses and the allocation thereof, as estimated by the
General Partners.
This letter and the opinions set forth herein are being delivered pursuant
to the Agreement and, in accordance with the Agreement, we acknowledge that
further opinions shall be delivered to the Special Committee subsequent to the
date hereof in accordance with the terms of the Agreement.
Very truly yours,
/s/ Eastdil Realty Company L.L.C.
D-1-5
<PAGE>
APPENDIX I
<TABLE>
<S> <C>
McNeil Real Estate Fund IX, Ltd. McNeil Real Estate Fund XXIV, L.P.
McNeil Real Estate Fund X, Ltd. McNeil Real Estate Fund XXV, L.P.
McNeil Real Estate Fund XI, Ltd. McNeil Real Estate Fund XXVI, L.P.
McNeil Real Estate Fund XII, Ltd. McNeil Real Estate Fund XXVII, L.P.
McNeil Real Estate Fund XIV, Ltd. Hearth Hollow Associates, L.P.
McNeil Real Estate Fund XV, Ltd. McNeil Midwest Properties I, L.P.
McNeil Real Estate Fund XX, L.P. Regency North Associates, L.P.
McNeil Real Estate Fund XXI, L.P. Fairfax Associates II, Ltd.
McNeil Real Estate Fund XXII, L.P. McNeil Summerhill I, L.P.
McNeil Real Estate Fund XXIII, L.P.
</TABLE>
D-1-6
<PAGE>
APPENDIX D-2
EASTDIL REALTY COMPANY, LLC
10100 Santa Monica Boulevard
Suite 2430
Los Angeles, California 90067
December 10, 1999
Special Committee of the Board of Directors
of McNeil Investors, Inc.
c/o Paul B. Fay, Jr.
3766 Clay Street
San Francisco, CA 94118
Dear Mr. Fay:
We have been engaged pursuant to an Agreement dated as of May 7, 1999 (the
"Agreement") by the Special Committee of the Board of Directors of McNeil
Investors, Inc. (the "Committee") to render certain opinions in connection with
the proposed transaction (the "Transaction") whereby WXI/McN Realty L.L.C., a
newly formed Delaware limited liability company (the "Company") to be owned by
Robert A. McNeil and Carole J. McNeil (and/or affiliates thereof) and Whitehall
Street Real Estate Limited Partnership XI (and/or affiliates thereof), shall,
in exchange for ownership interests in such entity (the "Membership
Interests"), cash and the assumption of certain indebtedness (collectively, the
"Aggregate Consideration"), acquire (i) all of the general partnership
interests of the Partnerships listed on Appendix I hereto (the "Partnerships"),
and certain rights and assets related thereto (the "General Partner
Interests"), (ii) all of the limited partnership interests of the Partnerships
(the "Limited Partner Interests") and (iii) certain of the assets of McNeil
Real Estate Management, Inc. and certain rights related thereto (the "McREMI
Assets"), in each case, pursuant to a Master Agreement (the "Master
Agreement"). The Aggregate Consideration specified in the Master Agreement is
approximately $644,440,000. The Partnerships and Robert A. Stanger & Co., Inc.
("Stanger") have entered into an Amended and Restated Agreement dated as of May
7, 1999 (the "Stanger Agreement"), whereunder Stanger has agreed to render to
the Partnerships certain allocations and opinions, all as more fully
contemplated in Sections 1 and 2 of the Stanger Agreement.
Pursuant to the terms of the Master Agreement, the allocation of the
Aggregate Consideration between certain assets of McREMI (the "Partial McREMI
Allocated Value"), on the one hand, and all of the Partnerships, taken as a
whole (the "Total Allocated Partnership Value"), on the other hand, has been
made pursuant to an allocation analysis dated June 24, 1999 (the "First
Allocation Analysis") prepared by Stanger. The First Allocation Analysis also
reflects the allocation of the Total Allocated Partnership Value among the
individual Partnerships (the portion of the Total Allocated Partnership Value
allocated to each Partnership, the "Per Partnership Allocated Value" for such
Partnership, and the Per Partnership Allocated Value for each Partnership
reduced by the aggregate amount of indebtedness of such Partnership, the "Net
Per Partnership Allocated Value").
Pursuant to the terms of the Master Agreement, the allocation of the Net Per
Partnership Allocated Value of each Partnership among the General Partner
Interests in such Partnership (which includes a further allocation between the
proportional interest in such Partnership based upon capital contributions and
each of the rights and other assets corresponding to such Partnership which are
being contributed in connection with such interests in accordance with Article
II of the Master Agreement, including the amounts due to McREMI (the "Second
McREMI Allocated Value")) and each class of Limited Partner Interests in such
Partnership (the "Limited Partner Consideration Amount") has been made pursuant
to an allocation analysis dated December 10, 1999 (the "Second Allocation
Analysis" and, together with the First Allocation Analysis, the "Allocation
Analysis") prepared by Stanger. The Master Agreement also provides for a
special payment to the limited partners of each Partnership (the "Limited
Partners") in an amount equal to the estimated working capital balance as of
the closing date (the "Excess Cash Balance").
D-2-1
<PAGE>
We understand that the Limited Partners in each of the Partnerships will
have the opportunity to approve or reject the participation by their
Partnership in the Transaction pursuant to a proxy statement (the "Proxy
Statement") and a Limited Partners meeting which will be prepared and held,
respectively, in connection with the Transaction, and further that limited
partners in each Partnership (except Fairfax Associates II, Ltd. ("Fairfax")
and McNeil Summerhill I, L.P. ("Summerhill")), will receive exclusively cash in
exchange for Limited Partner Interests. We understand that affiliates of the
General Partners are expected to contribute assets to the Company in connection
with the Transaction (including the General Partner Interests in each of the
Partnerships, the Limited Partner Interests in Fairfax and Summerhill, the
McREMI Assets and additional cash) with an aggregate value range of $65.1
million to $100 million, representing approximately 30.4% to 46.7% of the
initial mezzanine debt and equity capitalization of the Company.
Pursuant to the Stanger Agreement, Stanger has delivered the First
Allocation Analysis and its opinion dated June 24, 1999 (the "First Stanger
Opinion") as to the fairness, from a financial point of view, to the holders of
each class of Limited Partnership Interests in each Partnership of: (i) the
Aggregate Consideration to be paid for the McREMI Assets and the Limited
Partner Interests and General Partner Interests in connection with the
Transaction; (ii) the allocation of the Aggregate Consideration between the
Partial McREMI Allocated Value, on the one hand, and the Total Allocated
Partnership Value, on the other hand; (iii) the Per Partnership Allocated Value
for each Partnership; (iv) the methodology of allocation of the Net Per
Partnership Allocated Value of each Partnership among the General Partner
Interests, the Second McREMI Allocated Value and each class of Limited Partner
Interests of such Partnership; and (v) the estimated per unit Excess Cash
Balance and Limited Partner Consideration Amount with respect to each class of
Limited Partner Interests for each Partnership determined as of March 31, 1999,
based upon the balance sheet of each Partnership as of such date adjusted for
transaction expenses and the allocation thereof, as estimated by the General
Partner of each Partnership (the "General Partners").
Pursuant to the Stanger Agreement, Stanger also has delivered the Second
Allocation Analysis and a second opinion dated December 10, 1999 (the "Second
Stanger Opinion") as to the fairness from a financial point of view, to the
holders of each class of Limited Partner Interests in each Partnership of: (i)
the portion of the Aggregate Consideration allocated to the General Partner
Interests in each Partnership; (ii) the Second McREMI Allocated Value for each
Partnership; (iii) the Limited Partner Consideration Amount for each class of
Limited Partner Interests in each Partnership; and (iv) the sum of the
estimated per unit Limited Partner Consideration Amount and Excess Cash Balance
with respect to each class of Limited Partner Interests for each Partnership
based on the General Partner's estimates as of January 31, 2000 of the modified
net working capital balance of each Partnership calculated in accordance with
the terms of the Master Agreement.
Stanger was retained by the Partnerships on January 12, 1998 for the purpose
of conducting a valuation analysis of the Partnerships. The Allocation
Analysis, First Stanger Opinion, and Second Stanger Opinion provide a summary
description of the activities of Stanger during the period of its engagement by
the Partnerships. We were retained by the Special Committee on May 7, 1999 and
by agreement with the Special Committee the scope of our involvement with
respect to the matters covered by the Allocation Analysis, First Stanger
Opinion, and Second Stanger Opinion is considerably more narrow than that of
Stanger.
Founded in 1967, we are a private real estate investment banking firm that
specializes in the structuring and placement of debt and equity capital for
institutional grade real estate assets. Headquartered in New York City, we have
offices in Chicago, Dallas, and Los Angeles. Our aggregate transaction
experience exceeds $125 billion and encompasses all of the major United States
markets. Since January 1998, we have completed transactions with a value of $17
billion which include 72 million square feet of office properties, 21 million
square feet of retail properties, 23,000 apartment units, and 12,000 hotel
rooms.
On June 24, 1999 we delivered an opinion (the "First Eastdil Opinion") as to
the fairness from a financial point of view to the holders of each class of
Limited Partner Interests in each of the Partnerships of: (i) the Aggregate
Consideration to be paid for the McREMI Assets and the Limited Partner
Interests and General Partner Interests; (ii) the allocation of the Aggregate
Consideration between Partial McREMI Allocated Value,
D-2-2
<PAGE>
on the one hand, and the Total Allocated Partnership Value, on the other hand;
(iii) the Per Partnership Allocated Value for each Partnership; (iv) the
methodology of allocation of the Net Per Partnership Allocated Value of each
Partnership among the General Partner Interests, the Second McREMI Allocated
Value and each class of Limited Partner Interests for such Partnership; and (v)
the estimated per unit Excess Cash Balance and Limited Partner Consideration
Amount with respect to each class of Limited Partner Interests for each
Partnership determined as of March 31, 1999, based upon the balance sheet of
each Partnership as of such date adjusted for transaction expenses and the
allocation thereof, as estimated by the General Partners. The First Eastdil
Opinion also confirmed that, as of such date: (i) the First Allocation Analysis
and First Stanger Opinion were based upon the application of appropriate
methodologies and that the factual bases utilized by Stanger in the application
of such methodologies had a reasonable basis; (ii) the conclusions reached in
the First Allocation Analysis and the First Stanger Opinion had a reasonable
basis; and (iii) the Special Committee was entitled to rely upon such
conclusions.
Under the terms of our Agreement, we have agreed to review the Second
Allocation Analysis and the Second Stanger Opinion. Specifically, you have
requested that the opinion contained in this letter regarding the Second
Allocation Analysis and the Second Stanger Opinion confirm that:
(i) the Second Allocation Analysis and the Second Stanger Opinion are
based upon the application of appropriate methodologies and that the
factual bases utilized by Stanger in the application of such methodologies
have a reasonable basis,
(ii) the conclusions reached in the Second Allocation Analysis and the
Second Stanger Opinion have a reasonable basis, and
(iii) the Special Committee is entitled to rely upon such conclusions.
You have also requested that we deliver our opinion, based on our limited
review, as more fully set forth in this letter, as to the fairness, from a
financial point of view to the holders of each class of Limited Partner
Interests in each of the Partnerships, of each of the matters specified in
clauses (i) through (iv) of the final paragraph on page 5 of the Second Stanger
Opinion.
In arriving at the opinions expressed herein, we have:
-- Reviewed the Master Agreement and the First Amended and Restated Limited
Liability Company Operating Agreement of WXI/McN Realty L.L.C.;
--Reviewed a draft Proxy Statement relating to the Transaction;
--Reviewed the financial statements of McREMI for the nine months ended
September 30, 1999;
--Reviewed Form 10-Q statements for the Partnerships for the period ending
September 30, 1999;
--Reviewed the estimates as of January 31, 2000, prepared by Arthur
Andersen LLP, of the deficit restoration obligations of the General
Partners, assuming the McNeil Partnerships had been liquidated on that
date;
--Reviewed the General Partners' estimates as of January 31, 2000 of the
modified net working capital balance of each Partnership, calculated in
accordance with the terms of the Master Agreement;
--Discussed with Stanger the methodology used to formulate the Second
Allocation Analysis and the Second Stanger Opinion; and
--Conducted such other studies, analyses, inquiries and investigations as
we deemed appropriate.
In rendering this opinion, we have relied, without independent verification,
on the accuracy and completeness in all material respects of all financial and
other information that was furnished or otherwise communicated to us by McREMI,
the General Partners and the Partnerships. We have not performed an
D-2-3
<PAGE>
independent appraisal of the assets and liabilities of the Partnerships or the
McREMI Assets. We have not conducted any engineering studies and have relied on
the estimates of the management of McREMI with respect to deferred maintenance
and the estimated cost to remediate environmental conditions for each Property
We have relied on the assurances of McREMI, the General Partners and the
Partnerships, that: (i) the Property budgets and discounted cash flow analyses
provided to us were in the judgment of McREMI, the General Partners and the
Partnerships reasonably prepared on bases consistent with actual historical
experience and reflect the best currently available estimates and good faith
judgments; (ii) any estimates of costs to remediate environmental conditions
are adequately considered in the capital expenditure estimates provided to us
and that no additional environmental conditions are present at the Properties;
(iii) any historical financial data, balance sheet data, transaction cost
estimates and estimates of the deficit restoration obligation of the General
Partners which would be due upon a liquidation are accurate in all material
respects; (iv) no material changes have occurred in the information reviewed or
in the value of the Properties or the McREMI Assets between the date the
information was provided to us and the date of this letter; and (v) McREMI, the
General Partners and the Partnerships are not aware of any information or facts
regarding the Partnerships, the Properties, the McREMI Assets or the Company
that would cause the information supplied to us to be incomplete or misleading
in any material respect.
We did not determine or negotiate the amount or form of the Aggregate
Consideration. We have not been requested to, and therefore do not: (i) make
any recommendation to McREMI, the General Partners or the Limited Partners with
respect to whether to approve or reject the Transaction; or (ii) express any
opinion as to (a) the impact of the Transaction with respect to McREMI, the
General Partners, or the Limited Partners of any Partnership that does not
participate in the Transaction; (b) the tax consequences of the Transaction for
McREMI, the General Partners or the Limited Partners of any Partnership; (c)
the Company's ability to qualify as a partnership or real estate investment
trust, or the consequences of the Company's failure to so qualify; (d) the
potential capital structure of the Company or its impact on the financial
performance of the Membership Interests; (e) the Company's ability to finance
its obligations pursuant to the Master Agreement or the impact of a failure to
obtain financing on the financial performance of the Company or the
Partnerships; (f) whether or not alternative methods of determining or
allocating the Aggregate Consideration to be received by the General Partners,
Limited Partners of the Partnerships or McREMI would have also provided fair
results or results substantially similar to those of the methodology used; (g)
alternatives to the Transaction; or (h) any other terms of the Transaction
other than each of the matters set forth in clauses (i) through (iv) below.
Furthermore, we are not expressing any opinion herein to Robert A. McNeil or
Carole J. McNeil in their capacities as direct or indirect holders of General
or Limited Partner Interests in the Partnerships or McNeil Partners, L.P. or of
capital stock in McREMI. Further, we are not expressing any opinion herein as
to the fairness of any terms of the Transaction other than as described herein,
including without limitation: (A) the fairness of the amounts or allocations of
Transaction costs, or (B) the prices at which the Membership Interests in the
Company may trade, if at all, following the Transaction, or the trading value
of the Membership Interests
compared with the current fair market value of any assets contributed to the
Company in connection with the Transaction if the Company were to be liquidated
in the current real estate market.
This letter does not purport to be a complete description of the analyses
performed or the matters considered in rendering our opinion. The analyses and
the summary set forth herein must be considered as a whole, and selecting
portions of such summary or analyses, without considering all factors and
analyses, would create an incomplete view of the processes underlying this
opinion. In rendering this opinion, judgment was applied to a variety of
complex analyses and assumptions. The assumptions made and the judgments
applied in rendering the opinion are not readily susceptible to partial
analysis or summary description. The fact that any specific analysis is
referred to herein is not meant to indicate that such analysis was given
greater weight than any other analysis.
D-2-4
<PAGE>
Based upon and subject to the foregoing, it is our opinion that as of the
date of this letter:
(i) the Second Allocation Analysis and the Second Stanger Opinion are
based upon the application of appropriate methodologies and that the
factual bases utilized by Stanger in the application of such methodologies
have a reasonable basis;
(ii) the conclusions reached in the Second Allocation Analysis and the
Second Stanger Opinion have a reasonable basis;
(iii) the Special Committee is entitled to rely upon such conclusions;
and
(iv) each of the matters set forth in the following clauses (a) through
(d) below is fair from a financial point of view to the holders of each
class of Limited Partnership Interests in each of the Partnerships: (a) the
portion of Aggregate Consideration allocated to the General Partner
Interests in each Partnership; (b) the Second McREMI Allocated Value for
each Partnership; (c) the Limited Partner Consideration Amount for each
class of Limited Partner Interests in each Partnership; (d) the sum of the
estimated per unit Limited Partnership Consideration Amount and Excess Cash
Balance with respect to each class of Limited Partner Interests for each
Partnership based on the General Partner's estimates as of January 31, 2000
of the modified net working capital balance of each Partnership calculated
in accordance with the terms of the Master Agreement.
Very truly yours,
/s/ Eastdil Realty Company L.L.C.
D-2-5
<PAGE>
APPENDIX I
<TABLE>
<S> <C>
McNeil Real Estate Fund IX, Ltd. McNeil Real Estate Fund XXIV, L.P.
McNeil Real Estate Fund X, Ltd. McNeil Real Estate Fund XXV, L.P.
McNeil Real Estate Fund XI, Ltd. McNeil Real Estate Fund XXVI, L.P.
McNeil Real Estate Fund XII, Ltd. McNeil Real Estate Fund XXVII, L.P.
McNeil Real Estate Fund XIV, Ltd. Hearth Hollow Associates, L.P.
McNeil Real Estate Fund XV, Ltd. McNeil Midwest Properties I, L.P.
McNeil Real Estate Fund XX, L.P. Regency North Associates, L.P.
McNeil Real Estate Fund XXI, L.P. Fairfax Associates II, Ltd.
McNeil Real Estate Fund XXII, L.P. McNeil Summerhill I, L.P.
McNeil Real Estate Fund XXIII, L.P.
</TABLE>
D-2-6
<PAGE>
APPENDIX E
ARTICLE 7.6. OF THE CALIFORNIA CORPORATIONS CODE
(S) 15679.1. Reorganization; control
(a) For purposes of this article, "reorganization" refers to any of the
following:
(1) a conversion pursuant to Article 7.4 (commencing with Section
15677.1).
(2) A merger pursuant to Article 7.5 (commencing with Section 15678.1).
(3) The acquisition by one limited partnership in exchange, in whole or
part, for its partnership interests (or the partnership interests or equity
securities of a partnership or other business entity that is in control of
the acquiring limited partnership) of partnership interests or equity
securities of another limited partnership or other business entity if,
immediately after the acquisition, the acquiring limited partnership has
control of the other limited partnership or other business entity.
(4) The acquisition by one limited partnership in exchange in whole or
in part for its partnership interests (or the partnership interests or
equity securities of a partnership or other business entity which is in
control of the acquiring limited partnership) or for its debts securities
(or debt securities of a limited partnership or other business entity which
is in control of the acquiring limited partnership) which are not
adequately secured and which have a maturity date in excess of five years
after the consummation of the acquisition, or both, of all or substantially
all of the assets of another limited partnership or other business entity.
(b) For purposes of this article, "control" means the possession, direct or
indirect, of the power to direct or cause the direction of the management and
policies of a limited partnership or other business entity.
(S) 15679.2. Purchase of dissenting partnership interests; fair market value;
dissenting interest; dissenting limited partner
(a) If the approval of outstanding limited partnership interests is required
for a limited partnership to participate in a reorganization, pursuant to the
limited partnership agreement of the partnership, or otherwise, then each
limited partner of the limited partnership holding those interests may, by
complying with this article, require the limited partnership to purchase for
cash, at its fair market value, the interest owned by the limited partner in
the limited partnership, if the interest is a dissenting interest as defined in
subdivision (b). The fair market value shall be determined as of the day before
the first announcement of the terms of the proposed reorganization, excluding
any appreciation or depreciation in consequence of the proposed reorganization.
(b) As used in this article, "dissenting interest" means the interest of a
limited partner that satisfies all of the following conditions:
(1) Either:
(A) The interest was not, immediately prior to the reorganization,
either (i) listed on any national securities exchange certified by the
Commissioner of Corporations under subdivision (o) of Section 25100, or
(ii) listed on the list of OTC margin stocks issued by the Board of
Governors of the Federal Reserve System, provided that in either such
instance the limited partnership whose outstanding interests are so
listed provides, in its notice to limited partners requesting their
approval of the proposed reorganization, a summary of the provisions of
this section and Sections 15679.3, 15679.4, 15679.5, and 15679.6.
(B) Demands for payment are filed with respect to 5 percent or more
of the outstanding interests of any class of interests described in
clause (i) or (ii) of subparagraph (A).
(2) Which was outstanding on the date for the determination of limited
partners entitled to vote on the reorganization.
(3) (i) Which was not voted in favor of the reorganization, or (ii) if
the interest is described in clause (i) or (ii) of subparagraph (A) of
paragraph (1), was voted against the reorganization; provided, however,
E-1
<PAGE>
that clause (i) rather than clause (ii) of this paragraph applies in any
event where the approval for the proposed reorganization is sought by
written consent rather than at a meeting.
(4) Which the limited partner has demanded that the limited partnership
purchase at its fair market value in accordance with Section 15679.3.
(5) Which the limited partner submits for endorsement, if applicable, in
accordance with Section 15679.4.
(c) As used in this article, "dissenting limited partner" means the
recordholder of a dissenting interest, and includes an assignee of record
of such an interest.
(S) 15679.3. Notice of approval of reorganization by outstanding interests;
statement of price; written demand for purchase; contents of demand
(a) If limited partners have a right under Section 15679.2, subject to
compliance with paragraphs (4) and (5) of subdivision (b) thereof, to require
the limited partnership to purchase their limited partnership interests for
cash, such limited partnership shall mail to each such limited partner a notice
of the approval of the reorganization by the requisite vote or consent of the
limited partners, within 10 days after the date of such approval, accompanied
by a copy of this section and Sections 15679.2, 15679.4, 15679.5, and 15679.6,
a statement of the price determined by the limited partnership to represent the
fair market value of its outstanding interests, and a brief description of the
procedure to be followed if the limited partner desires to exercise the limited
partner's rights under such sections. The statement of price constitutes an
offer by the limited partnership to purchase at the price stated any dissenting
interests as defined in subdivision (b) of Section 15679.2, unless they lose
their status as dissenting interests under Section 15679.11.
(b) Any limited partner who has a right to require the limited partnership
to purchase the limited partner's interest for cash under Section 15679.2,
subject to compliance with paragraphs (4) and (5) of subdivision (b) thereof,
and who desires the limited partnership to purchase such interest, shall make
written demand upon the limited partnership for the purchase of such interest
and the payment to the limited partner in cash of its fair market value. The
demand is not effective for any purpose unless it is received by the limited
partnership or any transfer agent thereof (1) in the case of interests
described in clause (i) or (ii) of subparagraph (A) of paragraph (1) of
subdivision (b) of Section 15679.2, not later than the date of the limited
partners' meeting to vote on the reorganization, or (2) in any other case,
within 30 days after the date on which notice of the approval of the
reorganization by the requisite vote or consent of the limited partners is
mailed by the limited partnership to the limited partners.
(c) The demand shall state the number or amount of the limited partner's
interest in the limited partnership and shall contain a statement of what such
limited partner claims to be the fair market value of that interest on the day
before the announcement of the proposed reorganization. The statement of fair
market value constitutes an offer by the limited partner to sell the interest
at such price.
(S) 15679.4. Notice of the number or amount of interest demanded to be
purchased; conditions; transfers of interests; new certificates or statements
Within 30 days after the date on which notice of the approval of the
outstanding interests of the limited partnership is mailed to the limited
partner pursuant to subdivision (a) of Section 15679.3, the limited partner
shall submit to the limited partnership at its principal office or at the
office of any transfer agent thereof, (a) if the interest is evidenced by a
certificate, the limited partner's certificate representing the interest which
the limited partner demands that the limited partnership purchase, to be
stamped or endorsed with a statement that the interest is a dissenting interest
or to be exchanged for certificates of appropriate denominations so stamped or
endorsed, or (b) if the interest is not evidenced by a certificate, written
notice of the number or amount of interest which the limited partner demands
that the limited partnership purchase. Upon subsequent transfers of the
dissenting interest on the books of the limited partnership, the new
certificates or other written statement
E-2
<PAGE>
issued therefor shall bear a like statement, together with the name of the
original holder of the dissenting interest.
(S) 15679.5. Agreements fixing fair market value of dissenting interest;
payment
(a) If the limited partnership and the dissenting limited partner agree that
such limited partner's interest is a dissenting interest and agree upon the
price to be paid for the dissenting interest, the dissenting limited partner is
entitled to the agreed price with interest thereon at the legal rate on
judgments from the date of consummation of the reorganization. All agreements
fixing the fair market value of any dissenting limited partner's interest as
between the limited partnership and such limited partner shall be in writing
and filed in the records of the limited partnership.
(b) Subject to the provisions of Section 15679.8, payment of the fair market
value for a dissenting interest shall be made within 30 days after the amount
thereof has been agreed or within 30 days after any statutory or contractual
conditions to the reorganization are satisfied, whichever is later, and in the
case of dissenting interests evidenced by certificates of interest, subject to
surrender of such certificates of interest, unless provided otherwise by
agreement.
(S) 15679.6. Denial of status as dissenting interest; failure to agree upon
fair market value; complaint; filing; joinder of parties; trial of action
(a) If the limited partnership denies that a limited partnership interest is
a dissenting interest, or the limited partnership and a dissenting limited
partner fail to agree upon the fair market value of a dissenting interest, then
such limited partner or any interested limited partnership, within six months
after the date on which notice of the approval of the reorganization by the
requisite vote or consent of the limited partners was mailed to the limited
partner, but not thereafter, may file a complaint in the superior court of the
proper county praying the court to determine whether the interest is a
dissenting interest, or the fair market value of the dissenting interest, or
both, or may intervene in any action pending on such a complaint.
(b) Two or more dissenting limited partners may join as plaintiffs or be
joined as defendants in any such action and two or more such actions may be
consolidated.
(c) On the trial of the action, the court shall determine the issues. If the
status of the limited partnership interest as a dissenting interest is in
issue, the court shall first determine that issue. If the fair market value of
the dissenting interest is in issue, the court shall determine, or shall
appoint one or more impartial appraisers to determine, the fair market value of
the dissenting interest.
(S) 15679.7. Appraisals; appointment of appraiser; report; submission to court;
confirmation; failure to file report; determination by court; judgment; appeal;
costs
(a) If the court appoints an appraiser or appraisers, they shall proceed
forthwith to determine the fair market value per interest of the outstanding
limited partnership interests of the limited partnership, by class if
necessary. Within the time fixed by the court, the appraisers, or a majority of
them, shall make and file a report in the office of the clerk of the court.
Thereupon, on the motion of any party, the report shall be submitted to the
court and considered on such additional evidence as the court considers
relevant. If the court finds the report reasonable, the court may confirm it.
(b) If a majority of the appraisers appointed fails to make and file a
report within 30 days from the date of their appointment, or within such
further time as may be allowed by the court, or the report is not confirmed by
the court, the court shall determine the fair market value per interest of the
outstanding limited partnership interests of the limited partnership, by class
if necessary.
(c) Subject to Section 15679.8, judgment shall be rendered against the
limited partnership for payment of an amount equal to the fair market value, as
determined by the court, of each dissenting interest which any
E-3
<PAGE>
dissenting limited partner who is a party, or has intervened, is entitled to
require the limited partnership to purchase, with interest thereon at the legal
rate on judgments from the date of consummation of the reorganization.
(d) Any such judgment shall be payable forthwith, provided, however, that
with respect to limited partnership interests evidenced by transferable
certificates of interest, only upon the endorsement and delivery to the limited
partnership of those certificates representing the interests described in the
judgment. Any party may appeal from the judgment.
(e) The costs of the action, including reasonable compensation for the
appraisers, to be fixed by the court, shall be assessed or apportioned as the
court considers equitable, but, if the appraisal exceeds the price offered by
the limited partnership, the limited partnership shall pay the costs
(including, in the discretion of the court, if the value awarded by the court
for the dissenting interest is more than 125 percent of the price offered by
the limited partnership under subdivision (a) of Section 15679.3, attorneys'
fees and fees of expert witnesses).
(S) 15679.8. Extent payment to dissenting partners would require return of
portion thereof by reason of Uniform Fraudulent Transfer Act; dissenting
partners as creditors
To the extent that the payment to dissenting limited partners of the fair
market value of their dissenting interests would require the dissenting limited
partners to return such payment or a portion thereof by reason of Section 15666
or the Uniform Fraudulent Transfer Act (Chapter 1 (commencing with Section
3439) of Title 2 of Part 2 of Division 4 of the Civil Code), then that payment
or portion thereof shall not be made and the dissenting limited partners shall
become creditors of the limited partnership for the amount not paid, together
with interest thereon at the legal rate on judgments until the date of payment,
but subordinate to all other creditors in any proceeding relating to the
winding up and dissolution of the limited partnership, such debt to be payable
when permissible.
(S) 15679.9. Cash distributions to dissenting partner after reorganization, but
prior to payments by limited partner; credit
Any cash distributions made by a limited partnership to a dissenting limited
partner after the date of consummation of the reorganization, but prior to any
payment by the limited partnership for such dissenting limited partner's
interest, shall be credited against the total amount to be paid by the limited
partnership for such dissenting interest.
(S) 15679.10 Dissenting limited partners; rights and privileges; withdrawal of
demand for payment
Except as expressly limited by this article, dissenting limited partners
shall continue to have all the rights and privileges incident to their
interests immediately prior to the reorganization, including limited liability,
until payment by the limited partnership for their dissenting interests. A
dissenting limited partner may not withdraw a demand for payment unless the
limited partnership consents thereto.
(S) 15679.11 Dissenting interests; loss of status
A dissenting interest loses its status as a dissenting interest and the
holder thereof ceases to be a dissenting limited partner and ceases to be
entitled to require the limited partnership to purchase the interest upon the
happening of any of the following:
(a) The limited partnership abandons the reorganization. Upon
abandonment of the reorganization, the limited partnership shall pay, on
demand, to any dissenting limited partner who has initiated proceeding in
good faith under this article, all reasonable expenses incurred in such
proceedings and reasonable attorneys' fees.
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(b) The interest is transferred prior to its submission for endorsement
in accordance with Section 15679.4.
(c) The dissenting limited partner and the limited partnership do not
agree upon the status of the interest as a dissenting interest or upon the
purchase price of the dissenting interest, and neither files a complaint
nor intervenes in a pending action, as provided in Section 15679.6, within
six months after the date upon which notice of the approval of the
reorganization by the requisite vote or consent of limited partners was
mailed to the limited partner.
(d) The dissenting limited partner, with the consent of the limited
partnership, withdraws such limited partner's demand for purchase of the
dissenting interest.
(S) 15679.12 Litigation; suspension of proceedings pursuant to (S)(S) 15679.6
and 15679.7
If litigation is instituted to test the sufficient or regularity of the vote
or consent of the limited partners in authorizing a reorganization, any
proceedings under Sections 15679.6 and 15679.7 shall be suspended until final
determination of that litigation.
(S) 15679.13 Application of article
(a) This article applies to the following:
(1) A domestic limited partnership formed on or after January 1, 1991.
(2) A foreign limited partnership if (A) the foreign limited partnership
was formed on or after January 1, 1991, or filed an application to qualify
to do business on or after January 1, 1991, and (B) limited partners
holding more than 50 percent of the voting power held by all limited
partners of the foreign limited partnership reside in this state.
(3) A limited partnership if the partnership agreement so provides or if
all general partners and a majority in interest of the limited partners
determine that this article shall apply.
(b) This article does not apply to limited partnership interests governed by
limited partnership agreements whose terms and provisions specifically set
forth the amount to be paid in respect of such interests in the event of a
reorganization of the limited partnership, or to limited partnerships with 35
or fewer limited partners, unless the partnership agreement provides that this
article shall apply or unless all general partners and a majority in interest
of the limited partners agree that this article shall apply.
(S) 15679.14 Right to attack validity of reorganization; action to set aside
or rescind
(a) No limited partner of a limited partnership who has a right under this
article to demand payment of cash for the interest owned by such limited
partner in a limited partnership shall have any right at law or in equity to
attack the validity of the reorganization, or to have the reorganization set
aside or rescinded, except in an action to test whether the vote or consent of
limited partners required to authorize or approve the reorganization has been
obtained in accordance with the procedures established therefor by the
partnership agreement of the limited partnership.
(b) If one of the parties to a reorganization is directly or indirectly
controlled by, or under common control with, another party to the
reorganization, subdivision (a) shall not apply to any limited partner of such
controlled party who has not demanded payment of cash for such limited
partner's interest pursuant to this article; but if such limited partner
institutes any action to attack the validity of the reorganization or to have
the reorganization set aside or rescinded, the limited partner shall not
thereafter have any right to demand payment of cash for such limited partner's
interest pursuant to this article.
(c) If one of the parties to a reorganization is directly or indirectly
controlled by, or under common control with, another party to the
reorganization, then, in any action to attack the validity of the
reorganization or to
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have the reorganization set aside or rescinded, (1) a party to a reorganization
which controls another party to a reorganization shall have the burden of
proving that the transaction is just and reasonable as to the limited partners
of the controlled party, and (2) a person who controls two or more parties to a
reorganization shall have the burden of proving that the transaction is just
and reasonable as to the limited partners of any party so controlled.
(d) Subdivisions (b) and (c) shall not apply if a majority in interest of
the limited partners other than limited partners who are directly or indirectly
controlled by, or under common control with, another party to the
reorganization approve or consent to the reorganization.
(e) This section shall not prevent a partner of a limited partnership that
is a party to a reorganization from bringing an action against a general
partner of the limited partnership, the limited partnership, or any person
controlling a general partner at law or in equity as to any matters (including,
without limitation, an action for breach of fiduciary obligation or fraud)
other than to attack the validity of the reorganization or to have the
reorganization set aside or rescinded.
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REVOCABLE PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE GENERAL PARTNER
The undersigned hereby appoints Ron K. Taylor, Barbara Smith and Robert A.
McNeil, or any of them, with full power of substitution, as attorneys, agents
and proxies (the "Proxies") to vote on behalf of the undersigned at the meeting
of McNeil Real Estate Fund XXVI, L.P. (the "Partnership") to be held at 11:30
a.m., local time, on Friday, January 21, 2000, at R.R. Donnelley Financial,
Reverchon Plaza, 3500 Maple Avenue, 8th Floor, Dallas, Texas 75219-3901, or any
adjournment or postponement of the meeting:
1. Proposal to approve the Master Agreement, dated as of June 24, 1999, as
amended as of December 2, 1999 and December , 1999 (as amended, the "Master
Agreement"), by and among WXI/McN Realty L.L.C., McNeil Real Estate Fund IX,
Ltd., McNeil Real Estate Fund X, Ltd., McNeil Real Estate Fund XI, Ltd., McNeil
Real Estate Fund XII, Ltd., McNeil Real Estate Fund XIV, Ltd., McNeil Real
Estate Fund XV, Ltd., McNeil Real Estate Fund XX, L.P., McNeil Real Estate Fund
XXI, L.P., McNeil Real Estate Fund XXII, L.P., McNeil Real Estate Fund XXIII,
L.P., McNeil Real Estate Fund XXIV, L.P., McNeil Real Estate Fund XXV, L.P.,
McNeil Real Estate Fund XXVI, L.P., McNeil Real Estate Fund XXVII, L.P., Hearth
Hollow Associates, L.P., McNeil Midwest Properties I, L.P., Regency North
Associates, L.P., Fairfax Associates II, Ltd., McNeil Summerhill I, L.P.,
McNeil Partners, L.P., McNeil Investors, Inc., McNeil Real Estate Management,
Inc., McNeil Summerhill, Inc. and Robert A. McNeil. This proposal, together
with the Master Agreement and all of the transactions contemplated by the
Master Agreement, is referred to in the accompanying Proxy Statement as the
"merger proposal." Approval of the merger proposal will also constitute
approval of all of the transactions contemplated by the Master Agreement,
including:
. McNeil Partners' contribution of all of its general partner interests in the
Partnership to a newly formed limited liability company directly or
indirectly wholly owned by WXI/McN Realty and the appointment of this
subsidiary as the new general partner of the Partnership, and
. the merger of a newly formed limited partnership directly or indirectly
wholly owned by WXI/McN Realty with and into the Partnership.
[_] FOR [_] AGAINST [_] ABSTAIN
2. Proposal to permit McNeil Partners to adjourn the meeting to permit further
solicitation of proxies in the event that there are not sufficient votes at the
time of the meeting to approve the merger proposal. This proposal is referred
to in the accompanying Proxy Statement as the "adjournment proposal."
[_] FOR [_] AGAINST [_] ABSTAIN
3. In their discretion, the Proxies are authorized to vote on such other
business as may properly come before the meeting, or any adjournment or
postponement of the meeting.
THE GENERAL PARTNER RECOMMENDS A VOTE FOR THE MERGER PROPOSAL AND FOR THE
ADJOURNMENT PROPOSAL
This proxy when properly executed will be voted in the manner directed herein
by the undersigned limited partner. If no direction is made on this card, this
proxy will be voted FOR the merger proposal and FOR the adjournment proposal.
Instructions For Returning Proxy
Please mark, sign, date and return this proxy promptly using the enclosed
postage paid envelope to:
McNeil Partners, L.P. Investor Services
P. O. Box 800359
Dallas, TX 75380
OR
BY FAX: 1-877-638-5640 (Toll Free)
OR
BY HAND OR OVERNIGHT DELIVERY
TO:
McNeil Partners, L.P.
Investor Services
13760 Noel Road, Suite 600
Dallas, TX 75240
Dated: ________________________________________________________________________
X
- --------------------------------------------------------------------------------
(Signature)
X
- --------------------------------------------------------------------------------
(Signature of Joint Owner)
Title: _________________________________________________________________________
Please sign exactly as name appears hereon. When limited partner units are held
by joint tenants, both should sign. When signing as an attorney, executor,
administrator, trustee or guardian, please give full title of such. If a
corporation, please sign name by President or other authorized officer. If a
partnership, please sign partnership name by authorized person.
Questions and Information
If you have questions regarding the merger proposal or need assistance in
completing your proxy, you may call:
McNeil Partners, L.P.
Investor Services
1-800-576-7907
Please mark address changes or corrections above. For all other corrections or
changes, please contact McNeil Investor Services at the number listed above.
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY PROMPTLY AS INSTRUCTED ABOVE.
