SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
Filed by the Registrant _
Filed by a Party other than the Registrant X
Check the appropriate box:
X Preliminary Proxy Statement _ Confidential, for Use of the Commission Only
(as permitted by Rule 14a-(e)(2))
_ Definitive Proxy Statement
_ Definitive Additional Materials
_ Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
PROMETHEUS INCOME PARTNERS, a California limited partnership
(Name of Registrant as Specified in Its Charter)
PROMETHEUS DEVELOPMENT CO., INC., a California corporation
(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:
15,544
(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):
$1,200. The per unit price is equal to the merger consideration
to be received per Limited Partner unit in the registrant.
(4) Proposed maximum aggregate value of transaction: $18,652,800
(5) Total Fee Paid: $3,731
_ Fee paid previously with preliminary materials:
_ Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the form or schedule and the date of its filing.
(1) Amount previously paid:
(2) Form, Schedule or Registration Statement no.:
(3) Filing Party:
(4) Date Filed:
PROMETHEUS INCOME PARTNERS
To the Limited Partners of Prometheus Income Partners-YOUR VOTE IS VERY
IMPORTANT
You are cordially invited to attend a meeting of the limited partners
of Prometheus Income Partners (the "Partnership"). At the meeting, holders
of limited partner interests in the Partnership (the "Units") will consider
and vote on the proposals described in the accompanying notice of meeting and
proxy statement. These proposals are being proposed by Prometheus
Development Co., Inc., the Partnership's general partner (the "General
Partner").
The date, time and place of the meeting are as follows:
[Date], 2000
1:30 p.m., local time
[Location]
The Partnership has entered into the Agreement and Plan of Merger (the
"Merger Agreement") dated as of June 22, 2000 by and among the Partnership,
PIP Partners - General, LLC ("PIP General"), a California limited liability
company, and PIP Acquisition, LLC ("Acquisition"), a California limited
liability company whereby Acquisition will merge into the Partnership (the
"Merger"). Acquisition is a wholly owned subsidiary of PIP General, which
itself is an affiliate of the General Partner. Currently, PIP General owns
18.2% of the Units. In the proposed transaction, if approved and
consummated, each limited partner of the Partnership (each, a "Limited
Partner") other than PIP General will be entitled to receive $1,200 in cash
for each Unit (the "Merger Consideration") they hold. This is the same price
PIP General recently paid to acquire a significant block of Units from a
sophisticated, unaffiliated third party in a negotiated transaction.
Following the Merger, you will no longer be a Limited Partner. Instead, PIP
General, which is an affiliate of the General Partner, will hold all of the
Units.
Please note that:
- Acquisition and PIP General are affiliates of the General Partner.
They are each under the control of a common ownership group. The
interests of the General Partner are thus different from and in
substantial conflict with those of the Limited Partners. Because of
the relationship among the General Partner, PIP General and
Acquisition, the Merger Agreement and all of the proposed
transactions related to the Merger as discussed herein are not the
product of arm's-length negotiation between unaffiliated parties.
Acquisition and PIP General are making this offer with a view to
ultimately making a profit and, therefore, there is a conflict
between their desire to acquire your Units at a relatively lower
price and your desire to sell your Units at a relatively higher
price.
- The Merger Consideration of $1,200 per Unit is equal to the price
recently paid by PIP General to acquire a substantial number of
units from a sophisticated, unaffiliated third party (which
according to the Denver Rocky Mountain News, through affiliates
manages over $6 billion in assets, including assets in the United
States, Japan, the United Kingdom and the Czech Republic and some
of whose managers, according to public documents filed by the third-
party, have been in the business of purchasing and selling real
estate and real estate partnership units since 1963). The price in
that sale was determined by arm's-length negotiations between PIP
General and that party; however, no independent determination has
been made with respect to the fair market value of your Units.
Notwithstanding the following factors, Acquisition has agreed to pay
the same price as was paid by PIP General in that purchase: the
costs of financing the Merger, an increase in property tax on the
underlying real property of the Partnership, transfer fees for the
transfer of the real property, other costs to Acquisition and PIP
General of the transaction and the potential for incurring in
connection with the Merger a consent fee with respect to the
continuance of certain indebtedness of the Partnership.
- If the Merger occurs, you will not receive any future distributions
from operating cash flow of the Partnership or upon a sale or
refinancing of properties owned by the Partnership. This includes
any distribution with respect to various cash accounts currently
maintained by the Partnership intended to cover contingent
liabilities with respect to pending litigation and other contingent
liabilities.
- Due to the pending construction defect litigation, there have been
no cash distributions since 1996, although the Partnership has
generated income to the Limited Partners on which the Limited
Partners may have been subject to income tax. As a result of the
Merger, the Limited Partners will retain no interest in the
Partnership. Thus, after the current fiscal year of the
Partnership, there will be no additional tax liability for the
Limited Partners with respect to the Partnership.
- There is only a sporadic secondary market in the Units. To the best
of the Partnership's knowledge, the highest sale price in the last
two years in the secondary market was $601 per Unit, other than the
recent purchase by PIP General from the unaffiliated third-party.
For further information on the factors considered by the General
Partner in approving the Merger, please see page 11 of the accompanying proxy
statement. The Merger will provide you with the opportunity to liquidate your
investment in the Partnership for cash at a price and on terms that the
General Partner believes are fair to the Limited Partners. If the
transaction occurs, the reporting obligations of the Partnership under the
federal securities laws will cease. Unlike in a liquidation of the
Partnership, the Merger will not require Limited Partners to continue to hold
interests in the Partnership until all contingent liabilities, including
pending litigation, have been settled.
The Partnership cannot participate in the transaction unless Limited
Partners holding greater than 50% of the Units approve the Merger proposal.
PIP General has agreed to vote neutrally with respect to the Merger proposal,
meaning that PIP General will vote its Units for or against the proposal in
the same proportion as the total number of Units voted by unaffiliated
Limited Partners. For example, if unaffiliated Limited Partners holding
67% of the Units voted in person or by proxy vote for the Merger proposal,
then PIP General will vote 67% of its Units for the Merger proposal. PIP
General intends to vote all of its Units for the adjournment proposal
described in the accompanying notice of meeting and proxy statement.
The enclosed Proxy Statement is dated _______________, 2000 and is
first being mailed to Limited Partners on or about _______________, 2000.
Only Limited Partners who held their Units at the close of business on
[record date], 2000 will be entitled to vote at the meeting.
The General Partner, considering, among other factors, that the Limited
Partners will be able to liquidate their interests in the Partnership, has
determined that the transaction is fair to the Partnership and its Limited
Partners. The General Partner has approved the Merger Agreement and the
transactions contemplated by the Merger Agreement and recommends that you
vote for the Merger proposal and for the adjournment proposal. A vote for
the Merger proposal is a vote to have Acquisition merge with and into the
Partnership, and to pay to each Limited Partner (other than PIP General) in
respect of the Units held by it $1,200 per Unit. A vote for the adjournment
proposal is a vote to allow the General Partner the discretion, in the event
that insufficient proxies or votes for the Merger proposal have been received
or cast to approve the Merger, to adjourn the meeting to allow the General
Partner to continue to solicit proxies.
The enclosed Proxy Statement explains in detail the terms of the
proposed transaction and related matters. Please carefully review and
consider all of this information.
The approval of the Merger is an important decision for the Partnership
and the Limited Partners. 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 Units
against the Merger proposal. If you return your proxy, you do not have to
attend the meeting in order to vote your Units.
On behalf of the General Partner, I thank you for your support and
appreciate your consideration of these matters.
Prometheus Development Co., Inc., a
California corporation
/s/ John J. Murphy
By: John J. Murphy
Title: Vice President
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of the transaction, passed upon the
merits or fairness of this transaction or passed upon the accuracy or
adequacy of the disclosure contained in this document. Any representation to
the contrary is a criminal offense.
PROMETHEUS INCOME PARTNERS
NOTICE OF MEETING OF LIMITED PARTNERS
Notice is hereby given that a meeting of the Limited Partners of
Prometheus Income Partners, a California limited partnership (the
"Partnership"), will be held at 1:30 p.m., local time, on [Date], 2000, at
[Location].
The purposes of the meeting are:
1. To consider and vote on a proposal to approve the Agreement and
Plan of Merger (the "Merger Agreement") dated as of June 22, 2000 by and
among the Partnership, PIP Partners - General, LLC ("PIP General"), a
California limited liability company, and PIP Acquisition, LLC
("Acquisition), a California limited liability company, each an affiliate of
Prometheus Development Co., Inc., the General Partner of the Partnership,
pursuant to which (i) Acquisition will be merged with and into the
Partnership (the "Merger") and (ii) each outstanding Unit of the Partnership
(other than Units held by PIP General) will be converted into the right to
receive $1,200 in cash. This proposal, together with the Merger Agreement
and all of the transactions contemplated by the Merger 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 Merger Agreement, including the merger of Acquisition
with and into the Partnership.
2. To consider and vote on a proposal to permit the General Partner
of the Partnership 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 the Partnership of record at the close of business on
[record date], 2000, 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. If you return your proxy, you do not have to attend the
meeting in order to vote your Units.
If the Merger proposal is approved and the Merger is consummated,
Limited Partners will have no dissenter's or appraisal rights with respect to
the merger.
By: Prometheus Development Co.,
Inc., a California corporation
/s/John J. Murphy
By: John J. Murphy
Title: Vice President
Redwood City, California
________________, 2000
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 Units in person.
PROXY STATEMENT
of
PROMETHEUS DEVELOPMENT CO., INC.
Dated ______, 2000
HIGHLIGHTS
- The Partnership has entered into a Merger Agreement between the
Partnership and an affiliate of the General Partner. For the Merger
to take place, a majority of the limited partnership Units must be
voted in favor of the Merger.
- If the Merger takes place, as a Limited Partner you will be entitled
to receive $1,200 for each Unit you hold, and you will no longer be
a Limited Partner and will have no right to any property of the
Partnership.
- If the Merger takes place, you will have to pay taxes on any gain
you realize as if you sold your Units.
- If the Merger takes place, you will no longer have to pay taxes on
the Partnership's future income, including Partnership income which
is placed in a reserve account (to pay for contingent liabilities
related to the construction defect litigation entered into by the
Partnership) and not distributed to you.
- The affiliate of the General Partner which is proposing to merge
with the Partnership is owned and controlled by the same entities who
own and control the General Partner.
- The $1,200 Merger Consideration is the same price the affiliate of
the General Partner paid to acquire a large number of Units from a
sophisticated, experienced third party unaffiliated with the General
Partner which according to the Denver Rocky Mountain News, through
affiliates manages over $6 billion in assets, including assets in
the United States, Japan, the United Kingdom and the Czech Republic
and some of whose managers, according to public documents filed by
the third-party, have been in the business of purchasing and selling
real estate and real estate partnership units since 1963.
- The General Partner has determined that the Merger is fair to the
Limited Partners. In making this determination, the General Partner
considered, among other things, the fact that a number of Limited
Partners have asked how they can sell their Units, the fact that the
current market for these Units is thin and illiquid, the fact that
the Merger Consideration is approximately twice the highest price
that has been paid in the market for Units in the past two years,
and the fact that there has been little progress in the construction
defect litigation or the settlement talks with respect to the
litigation.
Please see the rest of this document for more information about the Merger,
including the background of the Partnership, the reasons for and effects of
the Merger, the tax consequences of the Merger, the alternatives to the
Merger, the funding for the Merger, the relationship between the General
Partner and the affiliate of the General Partner, and other factors you
should consider in deciding how to vote your Units. The proxy statement and
the accompanying form of proxy are first being sent to holders of Units on or
about ____, 2000.
TABLE OF CONTENTS Page
QUESTIONS AND ANSWERS ABOUT THE TRANSACTION..................................1
WHO CAN HELP ANSWER YOUR QUESTIONS?..........................................5
SUMMARY......................................................................6
Parties to the Transaction..............................................6
The Partnership..............................................6
PIP General..................................................7
Acquisition..................................................7
Effects of the Transaction..............................................8
The Meeting.............................................................8
Record Date; Voting Power....................................8
Quorum; Vote Required........................................9
Changing Your Vote..........................................10
Structure of the Transaction...........................................10
Fairness...............................................................11
Positive Factors Considered.................................11
Negative Factors Considered.................................13
Conflicts of Interest..................................................15
Conditions to the Transaction..........................................15
Consideration and Financing............................................16
Accounting Treatment...................................................17
Federal Income Tax Consequences........................................17
SUMMARY SELECTED FINANCIAL DATA OF THE PARTNERSHIP..........................18
BACKGROUND..................................................................19
The Partnership........................................................19
Background..................................................19
Properties..................................................20
Construction Defects........................................21
The Partnership Agreement...................................22
Repurchase Rights...........................................25
Tender Offers...............................................26
Financing...................................................26
Distributions...............................................27
Executive Officers..........................................28
Principal Unitholders.......................................28
Recent Transactions.........................................29
PIP General............................................................29
Acquisition............................................................30
Reasons for the Merger.................................................30
Alternatives to the Transaction........................................30
Liquidation.................................................31
Tender Offer................................................33
Continued Ownership of the Partnership......................33
Effects of the Transaction on the Partnership..........................34
The Prom Transaction; Determination of Purchase Price..................35
Fairness of the Transaction............................................35
No Dissenters' Rights..................................................35
Federal Income Tax Consequences........................................36
Taxable Gain or Loss........................................36
Character of Gain or Loss...................................37
Passive Activity Losses.....................................37
Information Reporting, Backup Withholding and FIRPTA........38
Consequences to a Tax-Exempt Limited Partner................38
Anticipated Accounting Treatment.......................................39
Regulatory Requirements................................................39
THE MEETING.................................................................39
Time, Date and Place...................................................39
Matters to be Considered...............................................40
Recommendations of the General Partner.................................40
Record Date; Voting Power..............................................40
Quorum.................................................................44
Vote Required..........................................................41
Changing Your Vote.....................................................42
Solicitation of Proxies................................................42
List of Limited Partners...............................................43
THE MERGER AGREEMENT........................................................43
Parties to the Merger Agreement........................................44
Structure; Consideration...............................................44
Closing of the Transaction.............................................44
Consent of Lender......................................................44
Payment of Merger Consideration........................................44
Expenses...............................................................44
Representations and Warranties.........................................45
Certain Covenants......................................................45
Conditions.............................................................45
Termination............................................................46
ADDITIONAL INFORMATION CONCERNING UNITS.....................................47
Principal Holders of Units.............................................48
Contracts, Arrangements and Understandings.............................48
Plans or Proposals.....................................................48
CERTAIN FINANCIAL PROJECTIONS OF THE PARTNERSHIP............................49
RELATED SECURITY HOLDER MATTERS.............................................50
FORWARD-LOOKING STATEMENTS..................................................50
LIMITED PARTNER PROPOSALS...................................................51
WHERE YOU CAN FIND MORE INFORMATION.........................................52
ANNUAL REPORT AND QUARTERLY REPORT..........................................52
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE.............................53
OTHER MATTERS...............................................................53
APPENDIX A - Agreement and Plan of Merger
APPENDIX B - Second Amended and Restated Limited Partnership Agreement of the
Partnership
APPENDIX C - Financing Letter from Bank of America to Sanford N. Diller
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.
Q: What is the transaction?
A: The transaction is a statutory merger whereby PIP Acquisition, LLC
("Acquisition"), a wholly owned subsidiary of PIP Partners - General,
LLC ("PIP General") and an affiliate of Prometheus Development Co.,
Inc. (the "General Partner"), the General Partner of Prometheus Income
Partners (the "Partnership"), will merge into the Partnership (the
"Merger"). If a majority of the limited partner interests (the
"Units") of the Partnership are voted for transaction, Acquisition will
merge into the Partnership, you will be entitled to receive $1,200 in
cash for each of your Units (the "Merger Consideration") and you will
no longer be a limited partner of the Partnership (a "Limited
Partner"). Instead, PIP General will hold all of the outstanding
Units. PIP General, which currently holds 3,451 Units (18.2% of the
outstanding Units), will not receive the Merger Consideration in
respect of the Units it owns at the time of the Merger.
Q: What are the benefits to the Limited Partners of the transactions?
A: The benefits include:
- Upon the completion of the transaction, the Limited Partners, other
than PIP General, will receive $1,200 in cash in exchange for each
of their Units and, accordingly, those Limited Partners would no
longer bear the risks inherent in the ownership and operation of
real property through the Partnership. This price is more than
double the price paid for Units in recent transactions of which the
General Partner is aware, other than a recent purchase of a large
block of Units by PIP General.
- The Limited Partners would no longer have their Units subject to the
costs of the significant litigation to which the Partnership is a
party, or to the risk that the litigation to which the Partnership
is a party could, if decided adversely, further reduce the value of
their Units.
- Because of the need to accumulate cash reserves to satisfy
obligations to the mortgageholder on the Partnership's properties,
and the need determined by the General Partner for additional cash
reserves, no distributions to Limited Partners have been made since
1996, although the Limited Partners have continued to recognize
income with respect to the Units and incur tax liabilities in
respect thereof. The Merger will discontinue the recognition by
the Limited Partners of such income for tax purposes and will allow
Limited Partners to receive cash to at least partially pay the tax
liabilities previously incurred with respect to undistributed income
of the Partnership.
Q: Why doesn't the Partnership just sell all of its properties and
liquidate?
A: The General Partner believes that the transaction provides the Limited
Partners with an opportunity to dispose of their investment in the
Partnership more quickly than would likely occur in a liquidation of
the Partnership's properties. Additionally, unlike in a liquidation,
the Merger proposal will not require Limited Partners to continue to
hold interests in the Partnership until all contingent and other
liabilities of the Partnership have been settled.
In addition, in a liquidation (1) it is uncertain what price the
Limited Partners would receive, (2) the price would be reduced by any
commissions and other costs of such a sale, and (3) the General Partner
does not believe that the underlying properties would be fairly valued
in the market due to the current construction defects affecting the
properties and material litigation with respect to such construction
defects. The General Partner and PIP General also believe that a third-
party would apply a greater discount to the value of the Units as a
result of pending litigation than that applied by PIP General, in part
because PIP General and the General Partner believe they are in a
better position to prevail in such litigation than a third party likely
would be.
Q: How was the amount that I will receive for my Units determined?
A: The General Partner and PIP General fixed the Merger Consideration at
the same price PIP General paid to a sophisticated, unaffiliated third-
party in purchasing a substantial block of Units. Although PIP General
and the General Partner considered various factors that could justify a
difference between the Merger Consideration and this price, including
their estimates as to the fair market value of the underlying real
estate properties, the potential for an increase or decrease in that
value, the effects of the pending litigation on the value of the
Partnership, the transaction costs incurred as part of the Merger, the
tax consequences of the Merger to PIP General, the illiquidity of the
Units and the potential minority fractional interest discount, the
General Partner ultimately determined that this price was fair to the
Limited Partners and decided to use this price as the Merger
Consideration. The Merger Consideration may be higher than, equal to
or lower than the fair market value of your Units, some of which are
set forth below.
Q: What do I get if the Merger takes place?
A: Following the Merger of the Partnership and Acquisition, you will be
entitled to receive $1,200 in cash per Unit you hold. You will have no
right to receive additional distributions from the Partnership,
including distributions of current cash reserves if such reserves were
to become available for distribution at some point in the future. If
the Partnership does not participate in the Merger, you will continue
to have the current right to receive distributions, if any, in
accordance with the Partnership's limited partnership agreement (the
"Partnership Agreement").
Please note that cash distributions to Limited Partners were suspended
in 1996. The terms of the mortgages on the Partnership's properties
require that a security account be maintained for each property to
cover contingent liabilities with respect to litigation arising out of
defects in the properties' hardboard siding. These security accounts
are additional collateral for the lender, and total, as of March 31,
2000, approximately $5,024,000. Because the General Partner believes
there is no current prospect for settling the hardboard siding
litigation or of refinancing the properties to remove these covenants,
there are no current prospects for the liquidation and distribution of
these accounts to Limited Partners. In addition, pursuant to its
discretion under the Partnership Agreement, the General Partner
currently maintains a reserve account totaling as of March 31, 2000
approximately $2,020,000 to cover additional contingent liabilities
related to the hardboard siding litigation and other matters. After the
Merger, the Limited Partners will have no rights to any eventual
liquidation of these accounts.
Q: Does the transaction require the vote of the Limited Partners?
A: Yes. Approval of the Merger proposal by the Limited Partners is a
condition to the Partnership's participation in the Merger. The
affirmative vote of the Limited Partners holding more than 50% of the
Units outstanding as of [record date], 2000, (the "record date") is
required to approve the Merger proposal. The record date is the date
fixed by the General Partner to determine the Limited Partners entitled
to vote at the meeting.
Q: If the Limited Partners approve the Merger, is it certain that the
Partnership will participate in the Merger?
A: No. The Partnership's participation in the Merger is subject to
several other closing conditions, including: obtaining a consent to the
Merger of the Partnership's lender on terms satisfactory to Acquisition
and PIP General, if necessary; the Partnership and its properties
having generally unencumbered title to the Properties except for known
existing encumbrances; and no material adverse effect of any recent
occurrences on the properties or the Partnership.
Limited Partners 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 the Partnership to satisfy a condition could cause the
transaction to fail to close. The parties to the Agreement and Plan of
Merger (the "Merger Agreement") dated as of June 22, 2000 by and among
the Partnership, PIP General and Acquisition also have the right to
terminate the transaction in its entirety.
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 Units in the Partnership outstanding as of the record date vote
for the Merger proposal and the Partnership participates in the
transaction, you will be entitled to receive $1,200 in cash for each of
your Units. 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.
Q: Do Limited Partners have dissenters' or appraisal rights in connection
with the Merger?
A: No. Limited Partners are not entitled to exercise dissenters' rights
or other rights of appraisal in connection with the Merger.
Q: When do you expect the Merger to be completed?
A: We are working to complete the Merger as quickly as possible. We
expect to complete the Merger as soon as practicable following the
meeting.
Q: What are the tax consequences of the Merger to the Limited Partners?
A: Limited Partners will recognize gain or loss on the conversion of their
Units into cash in the Merger, in an amount depending on their 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. You should consult with your own tax advisors regarding these
and other matters regarding taxation.
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 the General Partner 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 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 is not a condition to the Partnership's participation
in the Merger. Approval of the adjournment proposal by the Limited
Partners 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 General Partner recommends that you vote for the adjournment
proposal.
Other than the Merger proposal and the adjournment proposal, the
General Partner does 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.
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 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
[Fax Number].
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 the General Partner
prior to the meeting. Additional proxy cards are available from
MacKenzie Partners, Inc., the General Partner's proxy solicitor for the
meeting.
Q: When can I expect to receive payment for my 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 from you, a check for your Merger Consideration will be
mailed to you.
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:
MacKenzie Partners, Inc.
156 Fifth Avenue
New York, NY 10010
(800) 322-2885
[email protected]
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 Merger
fully and for a more complete description of the legal terms of the Merger
and other considerations that may be important to you, you should read
carefully this entire document and the other documents to which we have
referred you. The terms of the Merger are contained in the Merger Agreement,
a copy of which is attached to this Proxy Statement as Appendix A, and which
is incorporated in this Proxy Statement by reference.
Parties to the Transaction
The Partnership
Background. Prometheus Income Partners, a California limited
partnership (the "Partnership"), was formed on April 15, 1985. Prometheus
Development Co., Inc., a California corporation, is the General Partner of
the Partnership. The principal business of the Partnership is to invest in,
construct, hold, operate, and ultimately sell two residential rental
properties in Santa Clara, California: Alderwood Apartments ("Alderwood") and
Timberleaf Apartments ("Timberleaf" and, together with, Alderwood, the
"Properties"). The Partnership is governed by the California Revised Limited
Partnership Act (the "Act") and The Second Amended and Restated Limited
Partnership Agreement of the Partnership, dated October 1, 1992 (the
"Partnership Agreement"), a copy of which is attached hereto as Appendix B.
The principal investment objectives of the Partnership are to preserve
and protect the Partnership's capital, to obtain capital appreciation from
the sale of the Properties, and, beginning in 1987, to provide "tax
sheltered" distributions of cash from operations due to the cost recovery and
other non-cash tax deductions available to the Partnership.
No public trading market exists or is expected to be established for
the Units, although an informal secondary market for trading in Units has
developed. The General Partner is aware of three brokers who quote prices in
Units, and through which a small number of Units, usually less than 1% of
issued and outstanding Units, are traded each year. Historically, limited
liquidity has been provided in this market due to the efforts of PIP General
in purchasing Units directly from Limited Partners and via these brokers.
The principal executive offices of the Partnership are located at
350 Bridge Parkway, Redwood City, California 94065-1517, telephone number
650-596-5393.
Construction Defects; Reserve Accounts. The hardboard siding used at
both Alderwood and Timberleaf is failing to perform as expected. This has
resulted in certain construction defects in the Partnership's Properties.
The General Partner has learned that this has occurred in a number of similar
projects throughout the United States. Two lawsuits have been filed by the
Partnership, one for each Property.
Under the Partnership's financing arrangements, the Partnership is
required to maintain a hardboard siding security account with respect to each
Property to fund correction of defects in the Properties. Prior to the
refinancings, quarterly cash distributions to the Limited Partners were
suspended in 1996, and this cash was reserved for contingent liabilities with
respect to construction defects. This cash was then deposited into security
accounts as additional collateral for the lender who provided the funds for
the refinancing. Cash held in these security accounts was $2,905,000 and
$2,119,000 for Alderwood and Timberleaf, respectively, as of March 31, 2000.
Although settlement discussions have been ongoing for the past two
years, the General Partner does not believe there is any present prospect for
the imminent settlement of this litigation.
Principal Unitholders. Other than PIP General, which owns 18.2% of the
outstanding Units, no person of record owns or is known by the Partnership to
own beneficially more than 5% of the outstanding Units.
Prometheus Development Co., Inc. a California corporation, is the
General Partner of the Partnership. The principal business of the General
Partner is acting as general partner of limited partnerships and managing
their real estate. All of the outstanding shares of capital stock of the
General Partner are held by Sanford N. Diller and Helen P. Diller as Trustees
of The DNS Trust. The principal executive offices of the General Partner are
located at 350 Bridge Parkway, Redwood City, California 94065-1517, telephone
number 650-596-5393.
PIP General
PIP Partners-General, LLC ("PIP General") was formed in 1996 to acquire
and hold Units. PIP General conducts no other business. A certain member of
PIP General is also the sole shareholder of the General Partner. 99% of the
member interests of PIP General are held by Sanford N. Diller and Helen P.
Diller as Trustees of The DNS Trust, and 1% of these interests are held by
Jaclyn Safier, the Dillers' daughter.
PIP General initially acquired Units in a tender offer described below.
Since that time, PIP General has acquired additional Units. In June, 2000,
PIP General purchased 1,487.5 Units from an unaffiliated third party and
entities affiliated thereto (collectively, "Prom"), a party unaffiliated with
the General Partner or PIP General, for $1,200 per Unit. This purchase price
was arrived at pursuant to arm's-length negotiations between Prom and PIP
General. The principal executive offices of PIP General are located at
350 Bridge Parkway, Redwood City, California 94065-1517, telephone number
650-596-5393.
Acquisition
PIP Acquisition, LLC ( "Acquisition") is a newly formed California
limited liability company which was organized by PIP General in connection
with the transactions contemplated by the Merger Agreement. PIP General owns
all of the member interests in Acquisition. The principal executive offices
of Acquisition are located at 350 Bridge Parkway, Redwood City, California
94065-1517, telephone number 650-596-5393.
Effects of the Transaction
The Merger Agreement provides that Acquisition will merge into the
Partnership. Each Unit in the Partnership will be converted at the effective
time of the Merger into the right to receive the $1,200 in cash per Unit (the
"Merger Consideration"). Following completion of the transaction, the
current Limited Partners (other than PIP General) will no longer have any
equity 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. PIP General will become the owner of all outstanding
Units. Following the completion of the transaction, the Partnership will
cease to be a reporting company and the Units will cease to be registered
under the Securities Exchange Act of 1934, as amended (the "Exchange Act").
The Meeting
The meeting of Limited Partners will be held at 1:30 p.m., local time,
on [meeting date], 2000, at [location]. At the meeting, Limited Partners
will be asked to consider and vote on the Merger proposal. In addition, the
General Partner is asking the Limited Partners to consider and vote on a
proposal to permit the General Partner 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 Merger
Agreement provides that the General Partner 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 Units have indicated their intention to vote
against, and have submitted duly executed proxies voting against, the Merger
proposal, the Merger Agreement does not require the General Partner to
recommend adjournment of the meeting.
Other than the Merger proposal and the adjournment proposal, the
General Partner does not expect to ask the Limited Partners 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
The General Partner has fixed the close of business on [record date],
2000, 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 18,995 Units (including
those Units held by PIP General) issued and outstanding and held of record by
1,040 holders. Holders of record of Units 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
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 Units outstanding on the record date. For purposes of determining the
presence of a quorum, proxies marked "ABSTAIN" will be counted by the General
Partner as present at the meeting.
The affirmative vote of Limited Partners holding greater than 50% of
the Units outstanding on the record date is required to approve the Merger
proposal. The affirmative vote of Limited Partners holding more than 50% of
the 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, other than with respect to the number of Units voted by
Acquisition for the Merger 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 Units will be voted for the Merger
proposal and for the adjournment proposal.
Approval of the Merger proposal by the Limited Partners is a condition
to the Partnership's participation in the Merger. Therefore, if we do not
receive votes for the Merger proposal from Limited Partners holding greater
than 50% of the Units, the Merger proposal will not be approved and the
Partnership will not participate in the Merger. Approval of the adjournment
proposal by the Limited Partners is not a condition to the Partnership's
participation in the Merger. Approval of the adjournment proposal by the
Limited Partners 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.
As of the record date, Acquisition beneficially owned an aggregate of
3,451 Units, representing in the aggregate approximately 18.2% of the Units
outstanding on the record date. PIP General has agreed to vote neutrally with
respect to the Merger proposal, meaning that PIP General will vote its Units
for or against the proposal in the same proportion as the total number of
Units voted by unaffiliated Limited Partners. For example, if unaffiliated
Limited Partners holding 67% of the Units voted in person or by proxy vote
for the Merger proposal, then PIP General will vote 67% of its Units for the
Merger proposal. PIP General intends to vote all of its Units for the
adjournment proposal described in the accompanying notice of meeting and
proxy statement.
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 of
revocation to the General Partner, or (3) by attending the meeting and voting
in person.
Structure of the Transaction
Assuming the Partnership approves the Merger proposal and participates
in the Merger, the following figures depict the structure of the transaction
and the ownership interest of the parties to the transaction.
Pre-Transaction
_ _ _ _ _ _ _ _ _ _ _ _ _
| |
| DNS Trust |
| And Family |
| _ _ _ _ _ _ _ _ _ _ _ _ |
|
100% |
| 100%
_________________________|
| |
_ _ _ _ _ |_ _ _ _ _ _ |_ _ _ _ _
| | | |
| General | | PIP General |
| Partner | | |
| _ _ _ _ _ _ _ _ | |_ _ _ _ _ _ _ _ _|
| |
| |
| |
| | 100%
| _ _ _ _|_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
| | | | | | |
| | Acquisition | | Limited | | Limited |
| | | | Partner1 |...| Partnerx |
| |_ _ _ _ _ _ _ | |_ _ _ _ _ _ _| | _ _ _ _ _|
| | | |
| | 18% | 81% |
| | | |
________________________ ____________________________________
| |
| 1% | 99%
| |
|-------------------|
| Partnership |
| _ _ _ _ _ _ _ _ _ |
Post-Transaction
_ _ _ _ _ _ _ _ _ _ _ _ _
| |
| DNS Trust |
| And Family |
| _ _ _ _ _ _ _ _ _ _ _ _ |
|
|
________________|______________________
| |
| 100% | 100%
_ _ _ _ | _ _ _ _ _ _ _ _ _ _ _ _|_ _ _
| | | |
| General | | PIP General |
| Partner | | |
| _ _ _ _ _ _ _ _ _ | | _ _ _ _ _ _ _ _ _|
| |
| 1% | 99%
|_________________ ______________|
| |
| |
_ _ _ _| _ | _ _
| |
| Partnership |
|_ _ _ _ _ _ _ _ |
Fairness
The General Partner has:
- determined that the transaction is fair to the Limited Partners of
the Partnership; and
- has approved the Merger Agreement and the transactions contemplated
by the Merger Agreement.
Positive Factors Considered.
In determining that the Merger is fair to the Limited Partners and in
recommending approval of the Merger, the General Partner considered the
following factors, each of which the General Partner believed supported its
determinations regarding the fairness of the transaction and its
recommendations:
- The Limited Partners will be able to liquidate their investments.
Upon the completion of the transaction, the Limited Partners, other
than PIP General, would be entitled to receive cash in exchange for
their Units and, accordingly, those Limited Partners would no longer
bear the risks inherent in the ownership of the Properties through
the Partnership.
- The cash price to be received by the Limited Partners per Unit is
the same price paid per Unit in an arm's-length negotiation between
PIP General and Prom, an unaffiliated, experienced third-party
(which according to the Denver Rocky Mountain News manages over $6
billion in assets, including assets in the United States, Japan, the
United Kingdom and the Czech Republic and some of whose managers,
according to public documents filed by the third-party, have been in
the business of purchasing and selling real estate and real estate
partnership units since 1963) notwithstanding various factors
regarding the Merger which could justify a decrease from this price.
- There were no conditions to PIP General's offer with respect to
financing the transaction.
- The Merger is more likely to result in a quick and efficient
liquidation of Units held by the Limited Partners than other
alternatives for providing liquidity to the Limited Partners.
- The Merger will not take place unless greater than 50% of the Units
vote for the transaction, in effect granting the Limited Partners
the opportunity to choose whether to liquidate their interests or in
effect veto the transaction.
- PIP General has agreed to vote its Units for or against the Merger
in the same proportion as the unaffiliated Limited Partners.
- The financial ability of PIP General to consummate the Merger on the
terms specified in the Merger Agreement.
- There was no need for PIP General or the General Partner to suffer
the expense of a due diligence review with respect to the
Partnership because they are affiliated, commonly controlled
entities.
- Because of the need to accumulate cash reserves to satisfy
obligations to the mortgageholder on the Partnership's Properties,
and the need determined by the General Partner for additional cash
reserves, no distributions to Limited Partners have been made since
mid-1996, although the Limited Partners have continued to recognize
income with respect to the Units and incur tax liabilities in
respect thereof. The Merger will discontinue the recognition by the
Limited Partners of such income for tax purposes and will allow
Limited Partners to receive cash to at least partially pay the tax
liabilities previously incurred with respect to undistributed income
of the Partnership.
- It is unclear whether and when the Partnership will be able to make
distributions of income to the Limited Partners, given the status of
construction defects in the Properties and the hardboard siding
litigation.
- Commencing with the tax year following the tax year in which the
closing of the transaction occurs, the Limited Partners 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 Partnership
and will not incur income for tax purposes with respect to which
they have received no cash distribution.
- The Limited Partners would no longer have their Units subject to the
risk of the real property ownership and operation, including the
hardboard siding litigation.
- The General Partner believes that a Limited Partner who held Units
from the date of initial of offering of the Units, where there are
no unusual circumstances, will have funds sufficient to pay any tax
liability assessed as a result of the Merger and other tax
liabilities previously incurred with respect to which no
distributions have been made.
Negative Factors Considered
The General Partner also considered the following negative factors:
- PIP General and Acquisition are affiliates of the General Partner
and, therefore, the General Partner has substantial conflicts of
interest with respect to the Merger.
- Acquisition is making this offer with a view to making a profit and,
therefore, there is a conflict between Acquisition's desire to
purchase your Units at a low price and your desire to sell your
Units at a high price.
- There has been no independent evaluation of the terms of the Merger,
no independent committee has reviewed the Merger Agreement, no
independent appraisal of the Properties has been commissioned and no
independent opinion as to the fairness of the Merger Consideration
to the Limited Partners has been obtained.
- The Limited Partners will not have the benefit for tax purposes of
future losses (if any) of the Partnership, including any losses
related to construction defects.
- Following the transaction, the Limited Partners, other than PIP
General, will cease to participate in future earnings or growth, if
any, of the Partnership or benefit from increases, if any, in the
value of the Partnership.
- If Limited Partners owning more than 50% of the Units vote for the
Merger proposal, their approval will bind all Limited Partners.
Therefore, a Limited Partner may vote against the Merger proposal
and nevertheless have its Units converted into the right to receive
cash in the Merger if the requisite vote of the Limited Partners is
obtained.
- Limited Partners do not have any dissenters' rights or other rights
of appraisal under the state law which governs the Partnership, the
Partnership Agreement or otherwise in connection with the Merger
proposal. Therefore, dissenting Limited Partners do not have the
right to have their Units appraised if they disapprove of the
Merger.
- The Limited Partners will forego alternatives to the Merger. These
alternatives include a separate sale of all of the assets of the
Partnership and subsequent liquidation of the Partnership, other
possible acquisitions of Units or the continuation of the
Partnership under its current ownership structure.
- There are certain conditions to Acquisition's obligations to
consummate the transaction. No assurance can be given that the
transaction will be consummated.
- PIP General determined the consideration of $1,200 per Unit without
any arms-length negotiations between PIP General and the General
Partner, although this price per Unit was agreed to between PIP
General and an unaffiliated, experienced third party (which
according to the Denver Rocky Mountain News, through affiliates
manages over $6 billion in assets, including assets in the United
States, Japan, the United Kingdom and the Czech Republic and some
of whose managers, according to public documents filed by the third-
party, have been in the business of purchasing and selling real
estate and real estate partnership units since 1963) in a recent
sale of a large block of Units. No independent appraisal of the
Properties or Partnership has been made. Accordingly, PIP
General's offer price may not reflect the fair market value of your
Units which may be greater than, equal to, or less than the Merger
Consideration.
- In the event the Merger does not occur, it is possible that PIP
General or another affiliate of the General Partner may consider
other strategies for acquiring additional Units. This may include
paying a different price for all or less than all of the Units.
- If the Merger occurs, you will not receive any future distributions
from operating cash flow of the Partnership (if and when
reinstituted), the liquidation of the security accounts, upon a sale
or refinancing of the Properties owned by the Partnership, or upon
the dissolution of the Partnership.
- Affiliates of the General Partner will hold 100% of the Units if the
transaction is completed. Consequently, affiliates of the General
Partner will continue to have the opportunity to benefit from any
future earnings growth and increases in the value of the Partnership
and its Properties.
- Affiliates of the General Partner have a separate economic interest
in structuring the transaction to achieve favorable tax treatment.
Limited Partners will recognize gain or loss on the conversion of
their Units into cash in the merger.
- While greater than 50% of the Units must vote in favor of the Merger
for the Merger to be approved, because PIP General will vote its
Units according to the percentage of Units voting in person or by
proxy in favor of the Merger, the Merger may be approved even though
a majority of the Units held by Limited Partners unaffiliated with
the General Partner do not approve the Merger.
- The Partnership did not have separate representation in negotiating
the Merger Agreement. In structuring the transaction, the General
Partner, an affiliate of Acquisition, represented the interests of
the Limited Partners of the Partnership.
In the view of the General Partner, these negative factors were not
sufficient, either individually or in the aggregate, to outweigh the benefits
of the proposed transaction to the Limited Partners.
In evaluating the fairness of the transaction, the General Partner also
considered the information on weighted average private sales prices for Units
of which it was aware. Over the past two years, other than the recent
purchase from Prom, Units have been exchanged for between $495 and $601, far
less than the Merger Consideration of $1,200. However, the General Partner
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 its
determinations and recommendations because, at present, there is no
established public trading market for the Units, nor is one expected to
develop, and because the General Partner believes that the fair market value
of the Units is substantially higher than recent trading prices. Moreover,
liquidity is limited to sporadic private sales which generally involve a
relatively small percentage of the Units outstanding.
Conflicts of Interest
In considering the recommendation of the General Partner, Limited
Partners should be aware that affiliates of the General Partner have
interests in the transaction or relationships that present actual or
potential conflicts of interest in connection with the transaction.
PIP General, an affiliate of the General Partner, would not be
proposing the Merger unless it believed that it would profit from it. Thus,
the persons who control PIP General (who also control the General Partner)
believe that ultimately they will profit from the Merger.
The transaction has been initiated and structured by the General
Partner and individuals who are managers of the General Partner. The
transaction provides some benefits to the affiliates of the General Partner
that are in conflict with the benefits provided to the Limited Partners. The
General Partner has an economic interest, separate from that of the Limited
Partners, in structuring the transaction to maximize the benefits to it.
Conditions to the Transaction
The obligations of Acquisition, PIP General and the Partnership to
effect the Merger are subject to the fulfillment or waiver of the following
conditions:
- No court or other governmental entity shall have issued an order
that prohibits consummation of the Merger, restricts the operations
of the Partnership or Acquisition which would result in a material
adverse effect, or instituted any proceeding seeking any such order.
- All material approvals from governmental entities necessary for the
consummation of the Merger shall have been obtained.
The obligations of the Partnership are further subject to the condition
(or waiver by the Partnership) at or prior to the effective date of the
Merger (the "Effective Date") that the representations and warranties of
Acquisition shall be true and correct.
The obligations of Acquisition and PIP General are further subject to
the conditions (or waiver) at or prior to the Effective Date that:
- the representations and warranties of the Partnership set forth are
true and correct at and as of the closing date;
- if necessary, the holder of indebtedness of the Partnership consent
to the Merger on terms acceptable to PIP General; and
- there is no material adverse change in the assets, business,
financial condition or prospects of the Partnership.
The Merger Agreement may be terminated at any time prior to the
Effective Date:
- by the mutual written consent of the Partnership and PIP General;
- in the event of a material breach of the Agreement if not cured
within thirty (30) days; or
- by PIP General or the Partnership if the Merger has not yet been
consummated on or before September 30, 2000.
Consideration and Financing
All costs and expenses incurred in connection with the transaction will
be paid by PIP General. These include an estimated $4,000 in SEC filing
fees, $200,000 in legal fees, $15,000 in accounting fees, $20,000 in
solicitation costs and fees, and $4,000 of printing costs. In addition:
- Acquisition will pay cash consideration to the Limited Partners
(other than PIP General) in the amount of $1,200 per Unit;
- PIP General may be required to pay consent fees relating to mortgage
debt of the Partnership;
Proxies are being solicited by and on behalf of the General Partner, as
general partner of the Partnership. In addition to solicitation by mail, the
General Partner and the officers, directors and employees of the General
Partner may solicit proxies by telephone, telegram or otherwise. No
additional compensation will be paid to such persons for such solicitation
services. Pursuant to a letter agremeent dated June __, 2000 between
MacKenzie Partners, Inc. ("MacKenzie") and the General Partner, MacKenzie
agreed to distribute this Proxy Statement to Limited Partners, provide
information with respect to the Merger to Limited Partners, and provide
advisory services to the General Partner with respect to the Merger. The
General Partner agreed to pay MacKenzie a set fee plus costs for the services
described above.
The source of the Merger Consideration to be paid by PIP General will
be a contribution of funds therefor from Sanford N. Diller (an affiliate of
PIP General) or an entity controlled by Mr. Diller, and the source of that
capital contribution will be a line of credit from Bank of America, unless
Mr. Diller utilizes other sources. A letter dated June 15, 2000 from Bank of
America to Mr. Diller states that Bank of America believes it could issue a
line of credit to Mr. Diller in an amount in excess of the amount required to
consummate the Merger at the prime rate plus 1.0%, an origination fee of 1.0%
of the commitment amount, plus other applicable fees customary for such a
line of credit. No plans or arrangements have yet been made to repay the
above referenced line of credit.
Accounting Treatment
PIP General will account for the transaction under the "purchase"
method of accounting in accordance with generally accepted accounting
principles.
Federal Income Tax Consequences
Limited Partners will recognize gain or loss on the conversion of their
Units into cash in the Merger. 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 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 Merger will be treated as a taxable sale by the Limited
Partners of their Units. To the extent that the Merger Consideration
received by a Limited Partner exceeds that Limited Partner's adjusted tax
basis in all of its Units, that excess generally 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 permit PIP General, and its
members, to defer substantial tax liability that would be incurred if the
Properties were disposed of in a taxable sale followed by a liquidation of
the Partnership. 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 affiliates of the General Partner. The
transaction, as structured, will permit the affiliates of the General Partner
to defer this tax liability until such time as the Properties currently owned
by the Partnership are sold or until such time as affiliates of the General
Partner dispose of their equity interests in the Partnership.
SUMMARY SELECTED FINANCIAL DATA OF THE PARTNERSHIP
The following table sets forth a summary of certain financial data for
the Partnership.
The selected financial and operating data of the Partnership for the
three months ended March 31, 2000 and March 31, 1999 are derived from
unaudited financial statements of the Partnership which, in the opinion of
the General Partner, include all adjustments (consisting only of normal
recurring items) necessary for a fair presentation of the Partnership's
financial position and results of operations. The results set forth for the
three months ended March 31, 2000 and March 31, 1999 are not necessarily
indicative of results to be expected for a full year.
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/A for the quarter ended March 31, 2000, and in
the Partnership's Annual Report on Form 10-K for the year ended December 31,
1999 each of which is included with this Proxy Statement and incorporated by
reference.
As of and For the
Three Months Ended
As of and For the Year Ended December 31, March 31
1999 1998 1997 1996 1995 2000 1999
(Unaudited, In thousands, except per Unit amounts)
Income Statement Data:
Total revenues(1) $6,106 $5,991 $5,558 $4,997 $4,311 $1,660 $1,501
------ ------ ------ ------ ------ ------ ------
Operating expenses 1,400 1,807 1,104 1,310 892 360 248
Gross profit 4,706 4,184 4,454 3,687 3,419 1,300 1,253
Other expenses(2)(3) 3,275 3,288 3,977 3,860 3,611 841 794
------ ------ ------ ------ ------ ------ ------
Net income $1,431 $ 896 $ 477 ($173) ($192) $459 $459
====== ====== ====== ====== ====== ====== ======
Net income allocated to
limited partners $1,417 $ 887 $ 472 $ (171) $ (190) $ 454 $ 454
====== ====== ====== ====== ====== ====== ======
Net income per limited
partnership unit (4) $ 75 $ 47 $ 25 $ (9) $ (10) $ 24 $ 24
====== ====== ====== ====== ====== ====== ======
Balance Sheet Data:
Real estate(5) 22,105 22,328 22,573 22,929 23,350 22,016 22,239
Total Assets(6) 28,873 27,830 27,016 25,259 24,172 29,296 28,058
Total Liabilities(7) 26,512 26,900 26,982 25,702 24,067 26,476 26,670
Partners' equity 2,361 930 34 (443) 105 2,820 1,389
Limited Partners'
equity 2,739 1,322 435 (38) 509 3,193 1,776
Limited Partners'
equity per Limited
Partner unit(4) $144 $70 $23 ($2) $27 $168 $94
(1) Consists principally of rental and interest income
(2) Includes payments to general partner and affiliates of $781,000,
$778,000, $669,000, $641,000 and $642,000 for 1999, 1998, 1997, 1996 and
1995, respectively
(3) Includes interest and amortization expense, depreciation and general and
administrative expense
(4) Based on weighted average number of Units outstanding during the
applicable period
(5) Consists of land, buildings and improvements and accumulated depreciation
(6) Includes cash and cash equivalents, restricted cash, and deferred
financing costs, net of accumulated amortization
(7) Includes notes payable
BACKGROUND
The Partnership
Background
Prometheus Income Partners, a California limited partnership (the
"Partnership"), was formed on April 15, 1985, under the California Revised
Limited Partnership Act, for the purpose of acquiring the Properties.
Prometheus Development Co., Inc., a California corporation, is the General
Partner of the Partnership. The principal business of the Partnership is to
invest in, construct, hold, operate, and ultimately sell Alderwood and
Timberleaf. The principal investment objectives of the Partnership are to
preserve and protect the Partnership's capital, to obtain capital
appreciation from the sale of the Properties, and, beginning in 1987, to
provide "tax sheltered" distributions of cash from operations due to the cost
recovery and other non-cash tax deductions available to the Partnership.
With the proceeds of two bank loans, an affiliate of the General
Partner purchased the Timberleaf site from an unaffiliated third party in
January 1985. With the proceeds of another bank loan, the General Partner
leased the Alderwood site from a local school district (with a purchase
option) in April 1985.
Beginning in February 1987 through December 1987, the Partnership
offered and sold 19,000 Units for $19,000,000. The sale of these Units was
registered under the Securities Act of 1933 pursuant to a Registration
Statement that was declared effective on February 12, 1987; the offering and
sale of the Units was completed in December 1987. The net proceeds of that
offering, together with the proceeds of additional bank loans, were used to
satisfy the construction loans with respect to Alderwood and Timberleaf and
to exercise the purchase option for the Alderwood land site.
The Partnership is engaged solely in the business of real estate
investment. The business of the Partnership is not seasonal. The
Partnership does not engage in foreign operations or derive revenues from
foreign sources. The Partnership has no employees, officers or directors.
Prometheus Real Estate Group, Inc., a California corporation ("Prometheus"),
previously known as Prom Management Group, Inc., a California corporation
doing business as Maxim Property Management, the majority of which is
beneficially owned by Mr. Diller, employs all of the personnel for the
operation of the Partnership's developments and Properties pursuant to a
Management and Operating Agreement, dated as of October 1, 1992, by and
between the Partnership and Prometheus (the "Management Agreement"). The
senior management personnel of Prometheus also act in such capacities for
certain other real estate partnerships in which Mr. Diller and other officers
of the General Partner hold interests. Prometheus receives various fees and
reimbursement of various expenses from the Partnership under the Management
Agreement.
The Partnership's investments in real property are affected by, and
subject to, the general competitive conditions of the residential real estate
rental market in the Santa Clara area. The Partnership's properties are
located in an area that contains numerous other competitive residential
rental properties. The income of the Properties may be affected by various
factors outside the Partnership's control. For example, changes in the
supply of rental properties, population shifts, the availability of mortgage
funds or changes in zoning laws could affect apartment rental rates. It is
also possible that some form of rent control may be legislated at the state
or local level. Expenses of operating the Properties, such as administrative
and maintenance costs and real estate taxes, are subject to change due to
inflation, supply factors or legislation. These increases in expenses may be
offset by increases in rental rates, although such increases may be limited
due to market conditions or other factors as discussed above. Certain
expenses, such as debt service, are at fixed rates and are not affected by
inflation. The General Partner is unable to predict the effect, if any, of
such events on the future operations of the Partnership. There is no
assurance there will be a ready market for the sale of the Properties or, if
sold, such a sale would be made on favorable terms.
Properties
The Partnership has constructed two residential, income-producing
properties, Alderwood and Timberleaf, both in Santa Clara, California. The
City of Santa Clara, with a population of approximately 104,000, is the third
largest city in Santa Clara County, commonly referred to as Silicon Valley,
is approximately 47 miles south of San Francisco, encompasses 1,300 square
miles and has a population of approximately 1.7 million people, making it the
most populous of the nine counties in the greater San Francisco Bay Area.
The Alderwood luxury garden apartment complex is located at 900 Pepper
Tree Lane in Santa Clara, California. Construction began in November 1985
and was fully completed by December 31, 1986. Lease-up activities began in
November 1986 and continued through the third quarter of 1987. The complex
contains 234 apartment units housed in 19 two-story buildings on a 9.4 acre
site. Covered and uncovered parking for 468 cars is provided. The
Timberleaf luxury garden apartment complex is located at 2147 Newhall Street
in Santa Clara, California. Construction began in November 1985 and was
fully completed by December 31, 1986. The complex contains 124 apartment
units housed in nine buildings of two or three stories on a five acre site.
Covered and uncovered parking for 248 cars is provided.
Alderwood and Timberleaf are encumbered by first mortgage liens, which
secure promissory notes payable as of March 31, 2000 in the amount of
$16,855,101 and $9,257,778, respectively. The Notes (the "Notes") bear
interest at the rate of 6.99% per annum for Alderwood, and 7.09% per annum
for Timberleaf, and mature in 2007. The Notes, if prepaid more than thirty
(30) days from maturity, are subject to a prepayment penalty.
Construction Defects
The General Partner has learned that the type of hardboard siding that
was used at both Alderwood and Timberleaf is failing to perform as expected
in a number of projects in various parts of the United States. Two lawsuits
have been filed against the siding manufacture, the general contractor, the
subcontractors and the architects by the Partnership, one for each property.
Moisture has accumulated in the walls of the apartment projects through a
combination of construction defects and endemic problems with the hardboard
siding. Sufficient moisture over time causes rot and decay in the wood,
framing and siding which necessitates repairs which, in some cases, are
structural in nature.
At this time, experts on behalf of the Partnership have concluded the
initial visual inspection, the scientific testing of the siding material and
destructive investigation. The defendants have also completed their
destructive investigation. Additionally, certain structural issues caused by
the defects in the hardboard siding were uncovered at Timberleaf and were
rebuilt as part of the immediate repair process. The General Partner has
subsequently determined that additional immediate repairs were necessary.
The repairs necessitated immediately (with the exception of roof repairs
noted below) have been completed and the General Partner continues to monitor
the condition of the property to look for any other signs of rot and decay
which would necessitate immediate attention and repair. Rot and decay, which
form inside the wall, are not visible, and until rot and decay have caused
changes in the physical appearance of the exterior of the buildings, it is
difficult to ascertain all the locations where rot and decay exist.
In addition to the hardboard siding problems, routine roofing
inspection has uncovered failing roof substrate at dormer roof assemblies for
both Alderwood and Timberleaf. The cause has been traced to inadequate
venting of the roof space. Inadequate venting leads to condensation in roof
areas. This has been sufficient to cause deflection and decay of the roof
and its structural support, requiring replacement. In addition to the
hardboard siding problems, the roof repair design and repair bids have been
received and are currently being evaluated and a repair scope refined so this
work may proceed as necessary. The passage of time and ongoing
investigations have resulted in a number of deficiencies, in addition to the
siding material, being uncovered. Issues related to the hardboard siding and
other construction defects are currently referred to as Construction Defects
as this more accurately reflects the scope of work being undertaken at this
time. For Alderwood, the estimated cost of repair, including siding and roof
repairs and a component for projected lost rents, but not including
attorney's fees or litigation costs, range from $9 to 10 million. The total
claimed damages at this point are $11,239,280. For Timberleaf, the estimated
cost of repair, including siding and roof repairs and a component for
projected lost rents, but not including attorney's fees or litigation costs,
range from $6 to 7 million. The total claimed damages at this point are
$8,352,330.
Both cases continue to be under the supervision of a Special Master who
is appointed and empowered by the court to assist in resolving the cases.
The investigation and other subsequent discoveries that will occur are
ordered by the Special Master on behalf of both plaintiffs and defendants in
an effort to come to a settlement. Destructive investigation, completed
under the order of the Special Master, has produced a preliminary issues list
which the Special Master will use in attempting to prompt a settlement from
the defendants. This information is protected by the Special Master and is
not for general distribution.
It is possible that a settlement of pending litigation can occur
anytime, but the General Partner believes this unlikely. In the absence of a
settlement, the Special Master eventually will order a trial date to be set.
A trial date has not yet been ordered by the Special Master. The
General Partner has and is demanding a trial date be set so this matter can
be resolved. However, even if a trial date is set it will still likely take
two to three years or more to complete the matter. In addition, the
discovery of additional construction defect problems, as discussed above,
will likely result in additional delays.
The extent and magnitude of the construction defects continues to
worsen with time. The General Partner believes that the Partnership can no
longer wait for the cases to be settled and has authorized the start of
repairs using the cash reserve funds currently held. It is anticipated that
funds held in reserve are not adequate to repair the entire project, so
completion of the most critical projects will be prioritized.
The terms of the mortgages on the Properties require that a security
account be maintained for each property to cover contingent liabilities with
respect to litigation arising out of defects in the Properties' hardboard
siding. These security accounts are additional collateral for the lender,
and total, as of March 31, 2000, approximately $5,024,000. Because there is
no current prospect for settling the hardboard siding litigation or of
refinancing the Properties to remove these covenants, there are no current
prospects for the liquidation and distribution of these accounts to Limited
Partners.
In addition to the security accounts mandated under the Partnership's
financing arrangements, the General Partner has determined that it is in the
best interest of the Partnership to continue building reserves for the
potential cost of dealing with known and unknown construction defects. The
terms of the mortgages on the Properties require that a security account be
maintained for each property to cover contingent liabilities with respect to
litigation arising out of defects in the Properties' hardboard siding. The
General Partner currently maintains an additional account totaling as of
March 31, 2000 approximately $2,020,000, which is primarily intended to cover
additional contingent liabilities related to the hardboard siding litigation
and other matters. After the Merger, the Limited Partners will have no rights
to any eventual liquidation of these accounts.
The actual costs to make necessary or desired repairs of construction
defects cannot be predicted, but the General Partner believes such costs will
be substantial. The cost of pursuing litigation also is significant. The
General Partner cannot predict or estimate what amounts, if any, will be
recovered through litigation.
The Partnership Agreement
Pursuant to the Partnership Agreement, the General Partner is the sole
general partner of the Partnership. All of the outstanding shares of the
General Partner are beneficially owned by Mr. Sanford N. Diller. Mr. Diller
is also President, Secretary and a director of the General Partner. Mr.
Diller is also the principal beneficial owner of PIP General; thus, PIP
General and the Partnership are affiliates. The General Partner has
responsibility for all aspects of the Partnership's operations.
The Partnership Agreement contains numerous provisions relating to the
rights and obligations of the General Partner, the Limited Partners and the
Partnership, including without limitation, the financial arrangement between
the General Partner and the Partnership. Under Section 5.3 of the
Partnership Agreement, for each fiscal quarter, subject to certain
limitations contained in the Partnership Agreement, the Partnership is to
distribute all Distributable Cash from Operations (as defined in the
Partnership Agreement) as follows: (a) Distributable Cash from Operations
is to be distributed quarterly and initially is to be distributed 100% to the
Limited Partners until the Limited Partners have received a sum each year
equal to a 10% Priority Return (as defined in the Partnership Agreement); (b)
after the receipt by the Limited Partners of a 10% Priority Return,
Distributable Cash from Operations is to be distributed 100% to the General
Partner until the General Partner has received 5% of the aggregate cash
distributed to the Limited Partners in that year; and (c) thereafter, the
Partnership is to distribute 95% to the Limited Partners and 5% to the
General Partner.
Under Section 5.4 of the Partnership Agreement, net proceeds from the
sale or refinancing of the Properties would be utilized or distributed in the
following priority (to the extent funds are available): (a) to the payment of
current Partnership obligations, liabilities and expenses; (b) to the
setting up of reserves which the General Partner may, in its sole discretion,
deem necessary for Partnership debts or liabilities, whether payable or not
yet payable, including any contingent or unforeseen liabilities or
obligations; and (c) the balance would be distributed in the following order:
(1) 100% to the Limited Partners until each Limited Partner has received an
amount equal to (i) the excess of (A) a 10% Priority Return, less (B) the sum
of all previous cash distributions during the term of the Partnership other
than distributions of invested capital pursuant to Section 5.4 (c)(1) of the
Partnership Agreement; (ii) if applicable to a Limited Partner, an Incentive
Priority Return (as defined in the Partnership Agreement); and (iii) the
Limited Partners' remaining Invested Capital. Notwithstanding the foregoing,
the General Partner would be entitled to its Subordinated Property Disposition
Interest (as defined in the Partnership Agreement) upon the sale of either or
both of the Properties. Any balance from such sale or refinancing of the
Properties would be distributed 85% to the Limited Partners and 15% to the
General Partner.
Notwithstanding the foregoing, distributions of net proceeds from the
sale or refinancing arising from the termination of the Partnership would be
distributed first in proportion to, and to the extent of, the positive
capital account balances of the Limited Partners and the General Partner, and
thereafter as set forth above.
The General Partner also is entitled to receive a Subordinated Property
Disposition Interest pursuant to Sections 7.7 and 7.8 of the Partnership
Agreement equal to the lesser of (a) 3% of gross sale price of a Partnership
Property or (b) one-half of the competitive real estate brokerage commission
which would be charged by unaffiliated parties rendering similar services,
but subordinated to the return to the Limited Partners of their Invested
Capital plus a 10% Priority Return and, as appropriate, the Incentive
Priority Return. All real estate brokerage commissions or similar fees
payable to all persons involved in the sale of a Property may not exceed 6%
of the sales price.
Because the timing and amount of Distributable Cash from Operations and
profits or losses of the Partnership received by, or allocated to, the
General Partner and the Limited Partners may be affected by various
determinations by the General Partner under the Partnership Agreement,
including whether or not to sell or refinance the Properties and the timing
of any such sale or refinancing, the establishment and maintenance of
reasonable reserves, the level of amortization of indebtedness, and other
matters, the General Partner may have a conflict of interest with respect to
such determinations.
Article 4 of the Partnership Agreement provides for the allocation of
the Net Profits and Net Losses among the General Partner and the Limited
Partners.
Under Section 5.7 of the Partnership Agreement, if immediately prior to
the dissolution and termination of the Partnership the General Partner's
capital account has a deficit balance and the Partnership's assets available
for distribution upon dissolution and termination are insufficient to provide
distributions to Limited Partners equal to their aggregate invested capital,
the General Partner shall be obligated to contribute to the Partnership that
amount of capital (if any) equal to the lesser of (a) an amount sufficient to
restore its capital account to zero, or (b) 1.01% of the aggregate Capital
Contributions of the Limited Partners, less any capital previously
contributed by the General Partner.
If the General Partner ceases to be the general partner of the
Partnership upon the occurrence of certain events set forth in the
Partnership Agreement (a "Terminating Event"), including withdrawal, removal
as a result of the Majority Vote of the Limited Partners, bankruptcy,
reorganization or dissolution and termination of the General Partner, then,
pursuant to Section 12.2 of the Partnership Agreement, the Partnership will,
at the election of the Partnership, either (a) purchase the General Partner's
interest or (b) convert to that of a special limited partnership interest.
Upon conversion of its interest to that of a special Limited Partner, the
terminated General Partner retains the same rights to profits, losses, and
distributions as before the Terminating Event and would be entitled to the
voting rights accorded other Limited Partners. If the terminated General
Partner's interest is repurchased, it would receive from the Partnership the
then present value of its interest in the Partnership, determined by
agreement of the terminated General Partner and the Partnership. If such
parties cannot agree, the purchase price would be determined in accordance
with the then current rules of the American Arbitration Association, with the
expense of arbitration borne equally by the parties. If the termination of
the terminated General Partner was voluntary, the method of payment for its
interest would be under a non-interest bearing unsecured, promissory note
with principal payable from distributions which the terminated General
Partner otherwise would have received under this Agreement if it had remained
as General Partner. If the termination is involuntary, the method of payment
would be a promissory note bearing interest at the reference rate of the bank
specified by the terminated General Partner, with equal payments of principal
and interest over a term of five years.
Under Section 6.6 of the Partnership Agreement, the Partnership is
permitted to engage in various transactions involving the General Partner and
its affiliates, as more fully described in the Partnership Agreement.
Under Section 7.1 of the Partnership Agreement, the Partnership
reimburses the General Partner or its affiliates for (a) the actual cost to
the General Partner or its affiliates of goods and materials used for or by
the Partnership and obtained from entities which are not affiliated with the
General Partner; (b) expenses for specified administrative services; (c)
other administrative services, provided that such services are necessary to
the prudent operation of the Partnership; and (d) funds advanced to the
Partnership by the General Partner or its affiliates pursuant to the
Management Agreement (as defined below); provided, however, that no
reimbursement under clause (c) above is permitted for services for which the
General Partner or its affiliates receive a separate fee and the amount of
such expenses may not exceed the lesser of (i) the actual cost of such
services or (ii) 90% of the amount which the Partnership would be required to
pay to independent third parties for comparable services. For 1999 and 2000
to date, the General Partner or its affiliates, other than Prometheus (which
was entitled to additional reimbursements under the Management Agreement),
did not receive any reimbursement for direct or other administrative and out-
of-pocket expenses.
Section 6.7 of the Partnership Agreement exculpates the General
Partner, its officers, directors and affiliates from liabilities to the
Partnership and indemnifies the General Partner, its officers, directors and
affiliates against liability to third parties resulting from its or their
acts or omissions, so long as such conduct was in the best interests of the
Partnership, except in the event such liabilities or losses resulted from
misconduct or negligence (gross or ordinary). As a result of the exculpation
and indemnification provisions, a Limited Partner may be entitled to a more
limited right of action than he or she would otherwise have if such
provisions were not included in the Partnership Agreement.
For further information regarding the Partnership Agreement, reference
is hereby made to the Partnership Agreement, filed as Appendix B hereto,
which is hereby incorporated by such reference. All statements related to
the Partnership Agreement are qualified in their entirety by the terms and
provisions of the Partnership Agreement.
Repurchase Rights
Pursuant to the Partnership Agreement and subject to certain
limitations, the Partnership is obligated (at the option of each Limited
Partner) to purchase up to 5% of the outstanding Units at a price equal to
approximately 80% of value (provided, however, the General Partner, at its
discretion, may increase the percentage of Units eligible for repurchase)
(the "Limited Liquidity Plan"). Repurchases are required to be made on a
first come, first served basis and are generally limited to 10% of
distributable cash from operations (as such term is defined in the
Partnership Agreement). The repurchase price is equal to 80% of the value of
the Units repurchased, as determined by the General Partner, utilizing a
sales/liquidation analysis that is based on independent appraisals. Effective
January 1, 1994, the Partnership acquired five Units from a Limited Partner
at a price of $309 per Unit. The valuation method used for this repurchase
did not follow the provisions of the Limited Liquidity Plan as set forth in
the Partnership Agreement. Instead, the Partnership and the Limited Partner
agreed to a valuation method, which is used by local real estate brokers,
based upon an estimated market value of the Properties, less debt prepayment
penalties and a discount as provided in the Partnership Agreement. The
Partnership made no repurchases under the Limited Liquidity Plan during the
years ended December 31, 1999, 1998 and 1997 and has made no repurchases
thereunder to date in 2000.
Tender Offers
Beginning in 1996, competing tender offers were made for Units. One
tender offer from Prom commenced in December 1996. In response to that
offer, PIP General made a similar offer, which commenced in January 1997. An
aggregate 2,750.5 Units were tendered to and purchased by these bidders per
Unit - 1,430 to PIP General and 1,320.5 to Prom, or 7.5283% and 6.9518% of
the total outstanding Units, respectively. Under the terms of the
Partnership Agreement, the transfers were effective as of April 1, 1997. All
Units were purchased pursuant to these offers for $495 per unit.
During 1998, Bond Purchase, LLC, an unrelated third party, made an
unsuccessful offer to purchase Units. The offer was for less than 5% of
outstanding Units and nominal legal costs were incurred by the Partnership.
On October 16, 1998 Bond Purchase, LLC canceled its transfer request and no
Units were acquired by it.
Financing
Each of the Properties is subject to a Loan Agreement and a Deed of
Trust, Security Agreement and Fixture Filing with Assignment of Rents
(collectively, the "Loan Documents") in connection with certain debt incurred
by the Partnership as part of the refinancing of the Properties in 1997.
Under the Loan Documents, the Partnership has issued a non-recourse note (the
"Notes") with respect to each property, secured by a first deed of trust.
These Notes bear fixed interest of 6.99% for Alderwood, and 7.09% for
Timberleaf. The terms of the Notes require, among other things, that the
Partnership maintain a hardboard siding security account with respect to each
Property. These security accounts are additional collateral for the lender.
Cash held in these security accounts was $2,905,000 and $2,119,000 for
Alderwood and Timberleaf, respectively, as of March 31, 2000. On an annual
basis, for each Property, the Partnership is obligated to contribute an
amount 10% of the current value of the security account to the security
account (a " Required Contribution"). If the total cash flow for a Property
is less than the Required Contribution, the Partnership may contribute an
amount equal to the total cash flow, but will be obligated to continue to
deposit all cash flow into the security accounts until the total deposits
equals the Required Contribution.
Should the hardboard siding repairs not be completed by December 2002,
or every two years thereafter, and insufficient cash has been accumulated to
cure the defects based upon the lender's determination of the cost, then all
cash flow shall be deposited into each applicable security account, as
necessary, to fully fund the cost of construction. If the projected cash
flow is insufficient to satisfy this deficiency contribution, then the
Partnership has 60 days to fund the shortage over the projected cash flow.
No withdrawals are permitted from the security accounts except to cure the
siding defects. The lender shall have the right to hire its own consultants
to review, approve and inspect the construction. All such reasonable fees
and expenses incurred by the lender shall be paid by the Partnership.
Should the litigation not be settled by December 2002, and the
Partnership has then met all its obligations under the Notes, then the
Completion Date shall be extended 18 months from the earlier of the pending
settlement date or the last day for filing an appeal. Should construction
not be completed by the Completion Date due to an act of force majeure, the
Completion Date can be further extended to complete the construction work.
Cash and cash equivalents not being held by the lender are comprised of
cash invested in market rate, checking and investment accounts. Cash
balances were approximately $1,942,000, $1,183,000 and $638,000 as of
December 31, 1999, 1998 and 1997, respectively. As of March 31, 2000, the
cash balance was $2,020,000. The reinstatement and level of future
distributions, if and when reinstituted, will be dependent on several
factors, including the degree of damage caused by the Construction Defects,
determination of liability for potential costs and expenses of dealing with
the Construction Defects problems, and continued stabilized operations at the
Properties.
Restriction Under Loan Documents. The Loan Documents contain certain
limits on transfers (defined to include a merger involving the Partnership)
unless the consent of the lender is obtained. A violation of these
provisions would allow the lender thereunder to, among other things,
accelerate the payment of all principal and interest and charge the
Partnership a prepayment penalty. If the consummation of the Merger confers
upon the lender the right to accelerate the loans, PIP General will seek to
obtain the consent of the lender. PIP General intends to enter into
discussions with the lender to determine if the lender will grant consent, if
required, and, if so, on what terms. If an acceptable agreement can be
concluded, any fee incurred with respect to obtaining such consent will be
paid by PIP General.
Distributions
Distributions to Limited Partners began with the quarter ending
September 30, 1987. The Limited Partners collectively received aggregate
distributions of Distributable Cash from Operations in 1995 of approximately
$1,550,000 (or $81.60 per Unit) and approximately $375,000 in 1996 ($19.74
per Unit). Cash distributions were suspended in 1996. No distributions were
made for 1996, 1997, 1998 or 1999 or to date in 2000.
Quarterly distributions have been suspended in order to continue
building reserves for the potential cost of dealing with the construction
defect problems. At this time, the General Partner cannot predict when
distributions will resume; however, it is the General Partner's current
intention to resume distributions as soon as reasonably possible and prudent.
The reinstatement and level of future distributions, if and when
reinstituted, will be dependent on several factors, including the degree of
damage caused by construction defects, determination of liability for
potential costs and expenses of dealing with the construction defects, and
continued stabilized operations at the Properties
Executive Officers
The Partnership has no directors or executive officers. For
informational purposes only, the following are the names and additional
information relating to controlling persons, directors, executives and senior
management of the General Partner.
Sanford N. Diller. Age 72. President, Secretary and sole Director.
Mr. Diller supervises the acquisition, disposition and financial structuring
of properties. Mr. Diller founded the General Partner, and effectively
controls all of its outstanding stock. Mr. Diller received his undergraduate
education at the University of California at Berkeley and his Doctor of
Jurisprudence from the University of San Francisco. He has been an attorney
since 1953. Since the mid 1960's, he has been involved in the development
and/or acquisition of more than 70 properties, totaling more than 13,000
residential units and over 2,000,000 square feet of office space.
Vicki R. Mullins. Age 41. Vice President. Ms. Mullins'
responsibilities include supervising all property operations, information
systems and finance, as well as managing the disposition and financial
structuring of properties. Ms. Mullins came to Prometheus Development Co. in
March 1994 from The Irvine Company where she spent seven years as Vice
President of Finance and Accounting, and Director of Internal Controls.
Prior to the Irvine Company, she spent six years with Ernst & Young as an
audit manager. Ms. Mullins is a Certified Public Accountant and holds a B.S.
degree in Accounting with honors from the University of Illinois.
John J. Murphy. Age 38. Vice President. Mr. Murphy's
responsibilities include managing all financial, accounting and reporting
activities, and insurance. Mr. Murphy came to Prometheus Development Co. in
January 1995 from KPMG Peat Marwick where he spent seven years and was a
Senior Manager. He is a Certified Public Accountant and holds a B.S. degree
in Accounting with honors from the University of San Francisco.
Helen Diller. Age 71. Trustee of The DNS Trust. Ms. Diller has not
been employed for the past five years.
The Partnership does not pay or employ directly any officers or
directors. Compensation to executives and employees of the General Partner
is not based on the operations of the Partnership. The General Partner and
its affiliates receive a management fee as compensation for services rendered
and reimbursement of certain Partnership expenses.
During the last five years, none of the above has been convicted in a
criminal proceeding (excluding traffic violations or similar misdemeanors),
nor have any of the above been a party to a civil proceeding of a judicial or
administrative body of competent jurisdiction and as a result of such
proceeding was or is subject to a judgment, decree or final order enjoining
future violations of, or prohibiting or mandating activities subject to,
federal or state securities laws or finding any violation with respect to
such laws.
Principal Unitholders
Other than PIP General, which as of June 20, 2000 owns 18.2% of the
outstanding Units, no person of record owns or is known by the Registrant to
own beneficially more than 5% of the outstanding Units. 99% of the
membership interests of PIP General are held by Sanford N. Diller and Helen
P. Diller as Trustees of The DNS Trust, and 1% of these interests are held by
Jaclyn B. Safier.
The General Partner owns no Units. However, the General Partner,
pursuant to the Partnership Agreement, has discretionary control over most of
the decisions made for the Partnership. Except as set forth herein, the
executive officers of the General Partner, as a group, beneficially own no
Units.
Following the Merger, PIP General will own all of the Units.
Recent Transactions
Pursuant to the Partnership Agreement, in 1994 the Partnership
instituted a liquidation program under the Partnership Agreement, pursuant to
which five Units were resold to the Partnership by a Limited Partner
unaffiliated with the General Partner. Since that time, no purchases have
been made pursuant to the liquidation program.
The current market for Units is thin and illiquid. The General Partner
is aware of three brokers who quote prices for Units, and through which a
small number of Units, usually less than 1% of issued and outstanding Units,
are traded each year.
PIP General acquired 7.5283% of outstanding Units in the Partnership
during 1997. During 1998, 1999 and 2000, PIP General acquired 0.716%,
1.2371%, and 0.855% of outstanding Units, respectively. Since 1997, from
time to time, PIP General and Prom held informal, unsuccessful discussions
concerning the sale of Prom's Units. In June 2000, pursuant to negotiations
begun in March 2000, PIP General purchased 1,487.5 Units from Prom, a
sophisticated, experienced, unaffiliated third-party for $1,200 per Unit.
This purchase price was arrived at pursuant to arm's-length negotiations
between PIP General and Prom.
On February 17, 2000, a Limited Partner unaffiliated with the General
Partner contacted the Partnership requesting information on how to dispose of
its Units. The Partnership responded with an information letter describing
the secondary market for Units. On April 11, 2000, the Limited Partner
initiated a transaction whereby it would sell 2.5 Units to PIP General. The
transaction was confirmed and the funds were disbursed to the Limited Partner
on May 1, 2000, and it is intended that the Units will be transferred on July
1, 2000. Throughout this document, the number of Units held by PIP General
are pro forma with respect to this transaction.
PIP General
PIP Partners-General, LLC ("PIP General") was formed in 1996 to make a
tender offer for Units as described below. A member of PIP General is also
the sole shareholder of the General Partner. Since that time, PIP General
has acquired additional Units. PIP General conducts no other business. It
is controlled by the same entities who control the General Partner. The
manager of PIP General (the "Manager") is PromHill, Inc., a California
corporation which is beneficially owned by Sanford N. Diller. Mr. Diller
also beneficially owns substantially all of the interests in PIP General.
The sole officer and director of the Manager is Sanford N. Diller, who is
also the beneficial owner, President, Secretary and a director of the General
Partner. The principal executive offices of PIP General are located at
350 Bridge Parkway, Redwood City, California 94065-1517, telephone number
650-596-5393.
Acquisition
PIP Acquisition, LLC ( "Acquisition") is a newly formed California
limited liability company which was organized by PIP General in connection
with the transactions contemplated by the Merger Agreement. Acquisition is a
nonsubstantive transitory merger vehicle that will be merged out of existence
at the effective time of the Merger. Accordingly, it is not expected to have
significant assets or liabilities (other than those arising under the Merger
Agreement) or to engage in any activities other than those incident to its
formation and the Merger. Acquisition is a wholly owned subsidiary of PIP
General. It is controlled by the same entities who control the General
Partner. The principal executive offices of the Acquisition are located at
350 Bridge Parkway, Redwood City, California 94065-1517, telephone number
650-596-5393.
Reasons for the Merger
Limited Partners increasingly have been contacting the General Partner
to express dissatisfaction with the current economic situation of the
Partnership, including the lack of current distributions, the current
recognition of taxable income and the lack of appreciation of the saleable
value of the Units. The General Partner has been informed that many of the
Limited Partners are individuals who invested in the Partnership as part of
their retirement planning, and that these Limited Partners believe that the
current economics of the Units are unsatisfactory for this purpose. Several
Limited Partners are also expressing concern over the potential impact of the
hardboard siding litigation. As with all persons, the General Partner is
limited as a practical matter in the information it can provide to Limited
Partners due to the pendency of litigation. Increasingly, Limited Partners
are asking for information on how to sell their Units; trading activity in
the Units in secondary markets is increasing, but remains low in volume. PIP
General, for example, periodically purchases Units in the secondary trading
market.
While the General Partner believes in the long-term profitability of
the business of the Partnership, it recognizes the risks involved. In light
of such belief, and in an attempt to accommodate the expressed interests of
many Limited Partners in divesting their Units, the General Partner, while
negotiating the purchase of Prom's Units, began investigating alternatives
for providing liquidity for the Limited Partners. The General Partner also
would like to reduce the substantial costs associated with managing an entity
that is a reporting company under the Exchange Act. The General Partner
evaluated various methods for acquiring the Units. The General Partner
believes that in general, private purchases from Limited Partners will
involve prices for Units reflecting a significant discount from what the
General Partner believes to be the true value thereof.
The General Partner believes that the merger and the operational
efficiencies to be realized therefrom may be the only way to pay a
substantially higher price than the range of prices currently offered in the
secondary market. Given that Prom is a sophisticated, experienced purchaser
and seller of real estate and partnership units, the General Partner believes
the $1,200 per Unit price paid to Prom reflects the fair market value for
large blocks of Units.
Alternatives to the Transaction
The General Partner's assessment of the fairness of the Merger was
based on a review of different alternatives that it identified as available.
The General Partner considered three alternatives to the Merger: (1)
liquidation of the Partnership and distribution of the net cash proceeds of
the liquidation, (2) a negotiated tender offer by PIP General for a
percentage of the Units, and (3) continuation of the business of the
Partnership, with the Partnership continuing to be owned by the current
Limited Partners, including PIP General. The General Partner has not
considered any other form of transaction in which the Limited Partners would
receive anything other than cash.
Liquidation
An alternative to the transaction considered by the General Partner 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, the General Partner would market the sale of the
Properties and, if a potential purchaser were interested in purchasing
Alderwood or Timberleaf or both, the General Partner would negotiate and
enter into an agreement for the sale of the Property or Properties. The
General Partner would be required to obtain the approval of Limited Partners
holding at least 50% of the Units before the sale could close. If the
Limited Partners approved the sale of both Properties and these sales were
closed, the General Partner would proceed to liquidate the Partnership in
accordance with the provisions of the Partnership Agreement and California
law, which governs the Partnership.
Pursuant to the Partnership Agreement, in a liquidation net proceeds
from a liquidation would be distributed in the following priority (to the
extent the funds are available):
(1) To the payment of current Partnership obligations, liabilities
and expenses.
(2) To the setting up of reserves which the General Partner may, in
its sole discretion, deem necessary for Partnership debts or liabilities,
whether payable or not yet payable, including any contingent or unforeseen
liabilities or obligations.
(3) In proportion to, and to the extent of, the positive capital
account balances of the partners.
(4) 100% to the Limited Partners until each Limited Partner has
received an amount equal to (i) the excess of (A) a 10% per annum simple
interest return on its invested capital less distributions, less (B) the sum
of all previous cash distributions during the term of the Partnership other
than distributions of invested capital (ii) the Limited Partners' remaining
invested capital.
(5) A disposition fee of up to 3% of the sales price to the General
Partner.
(6) The balance:
(a) 85% to the Limited Partners; and
(b) 15% to the General Partner.
Benefits of liquidation. The General Partner considered the primary
benefits of a sale and 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.
- There is no assurance that the Limited Partners would have a
liquidity event with respect to their Units until December 31, 2016,
the expiration of the term of the Partnership under the Partnership
Agreement.
- It is unclear whether the Partnership will be able to distribute any
income for the foreseeable future, given the status of the hardboard
siding litigation.
- Because of the need to accumulate cash reserves to satisfy
obligations under the Loan Documents and the need determined by the
General Partner for additional cash reserves, no distributions to
Limited Partners have been made since mid-1996, although the Limited
Partners have continued to recognize income with respect to the
Units and incur tax liabilities in respect thereof. A liquidation
would discontinue the recognition by the Limited Partners of such
income for tax purposes and allow Limited Partners to receive cash
to pay the tax liabilities previously incurred with respect to
undistributed income of the Partnership.
Disadvantages of Liquidation. The General Partner also considered the
following disadvantages of liquidating the Partnership:
There can be no assurance that the General Partner would be able to
sell the Partnership's Properties for prices that would result in a
distribution to the Limited Partners that is equal or greater than
the consideration they will receive in the Merger.
- 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,
particularly the hardboard siding litigation. This could result in
a multi-year delay in the actual receipt of the Merger
Consideration, and if the outcome of such litigation was
unfavorable, result in no cash being distributed to the Limited
Partners.
- 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.
Tender Offer
In a tender offer, those Limited Partners who tendered their Units, and
whose Units were accepted for purchase, would realize many of the benefits
the Limited Partners would currently receive in the Merger. However, due to
the legal structure of the Partnership, as a practical matter PIP General
would be restricted in the number of shares it could acquire. Importantly,
if more than 50% of the Units are transferred in any given year, the
Partnership would suffer adverse tax consequences, including a reassessment
of its Properties. In addition, if PIP General held more than 50% of the
Units, it would essentially be unable to purchase the balance of the Units at
a later date, and thus unable to provide the other Limited Partners with
liquidity (unless it held more than 90% of the Units). Thus, PIP General
would be restricted in the number of Units it could purchase, and might not
be able to offer liquidity to all Limited Partners who desired liquidity. In
addition, the Partnership likely would continue to be required to satisfy its
current reporting obligations pursuant to SEC rules. However, the primary
advantage to pursuing a tender offer is that those Limited Partners who do
not wish to tender their shares are not required to do so. In the Merger, if
a majority of the Units are voted in favor of the Merger and the Merger takes
place, each Limited Partner (other than PIP General) will be entitled to
receive the Merger Consideration in respect of each Unit held by it.
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. This will be the result if the Partnership does not
participate in the transaction. The General Partner considered the primary
benefits of continuing the business of the Partnership to be as follows:
- Limited Partners of the Partnership would continue to have the right
to receive distributions of net cash flow arising from operations
and the sale or refinancing of the Partnership's Properties if and
when the General Partner determines that there were adequate
reserves for the hardboard siding litigation and other contingent
and other liabilities.
- Continued ownership of the Partnership by the Limited Partners
affords the Limited Partners 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
Disadvantages of Continued Ownership. The General Partner also
considered the relative disadvantages to the Limited Partners of continuing
the Partnership under its current business plan, as follows:
- The Limited Partners will not have any assurance of when or if
another liquidation transaction will occur until 2016 when the
Partnership Agreement calls for liquidation of the Partnership. 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. At present, there is no established
public trading market for the Units in the Partnership and liquidity
opportunities generally are limited to sporadic private sales. Such
sales generally are at what the General Partner believes to be a
substantial discount from the fair value of the Units and typically
involve only a limited number of Units.
- The Limited Partners would continue to own Units 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.
- The Limited Partners would be forced to continue to pay taxes on
Partnership income which is not being distributed due to contractual
and anticipated cash reserve requirements and needs.
Effects of the Transaction on the Partnership
If the Merger proposal is approved by the Limited Partners and the
Partnership participates in the transaction, then the effects of the
transaction with respect to the Partnership will be as follows:
- Limited Partners other than PIP General will receive $1,200 in cash
for each Unit. The current Limited Partners of the Partnership
(other than PIP General) will no longer have any interest in and
will not be Limited Partners and, therefore, will not participate in
the Partnership's future earnings and potential growth.
- The General Partner will own the general partner interest in the
Partnership and affiliates of the General Partner will own all of
the outstanding Units.
- The Units will cease to be registered under the Exchange Act and all
SEC reporting obligations of the Partnership will cease.
Limited Partners will receive final Schedule K-1s from the Partnership after
the closing of the transaction and thereafter will no longer receive Schedule
K-1s from the Partnership.
The Prom Transaction; Determination of Purchase Price
From time to time since Prom acquired Units in its tender offer in
1997, the General Partner has had various discussion with Prom or its
representatives regarding the possible acquisition of Prom's Units by an
affiliate of the General Partner. In June 1999, Prom requested from the
General Partner certain information regarding the hardboard siding
litigation. The General Partner sent to Prom certain limited information and
shortly thereafter inquired whether Prom would be interested in selling its
Units. In or about October 1999, Prom contacted an affiliate of the General
Partner regarding its interest in buying Prom's Units. No agreement as to
the possible terms of such a sale was reached at that time. In or about March
2000, the General Partner again contacted Prom regarding a possible sale of
Prom's Units. Prom proposed a sale at a price per Unit higher than the price
per Unit to which Prom and PIP General eventually agreed. The General Partner
evaluated this proposal in light of internal valuations and forecasts. In
April 2000, Prom agreed with PIP General that Prom would sell all of its Units
to PIP General at a price of $1,200 per Unit (but if PIP General acquires any
Units from any other person within two years following the date of this
purchase, at a purchase price in excess of $1,200 per Unit, PIP General agreed
to pay Prom the excess of $1,200 per Unit for each Unit purchased from Prom).
PIP General completed its purchase of Prom's 1,487.5 Units on June 20, 2000.
The General Partner and PIP General based the Merger Consideration upon
a variety of factors, primarily the recent purchase of Units by PIP General
from Prom. Although PIP General and the General Partner considered various
factors that could justify a difference between the Merger Consideration and
this price, including the estimated fair market value of the underlying real
estate properties, the potential for an increase or decrease in that value,
the effects of the pending litigation on the value of the Partnership, the
transaction costs incurred as part of the Merger, the tax consequences of the
Merger to PIP General and the illiquidity of the Units, the General Partner
ultimately determined that this price was fair to the Limited Partners and
decided to use this price as the Merger Consideration.
Fairness of the Transaction
The General Partner has concluded that the transaction is fair to the
Limited Partners. In concluding that the transaction is fair to the Limited
Partners, the General Partner considered the positive and negative factors
discussed above and in the foregoing summary, each of which, in the view of
the General Partner, supported its conclusions regarding the fairness of the
transaction. The General Partner also considered the positive and negative
factors discussed above with respect to the alternatives to the transaction.
In the view of the General Partner, the negative factors were not sufficient,
either individually or in the aggregate, to outweigh the benefits of the
proposed transaction to the Limited Partners so as to make the Merger unfair
to the Limited Partners.
No Dissenters' Rights
If Limited Partners owning more than 50% of the Units vote for the
Merger proposal, this approval will bind all Limited Partners. Limited
Partners do not have any dissenters' rights or other rights of appraisal,
under the Act which governs the Partnership, the Partnership Agreement or
otherwise, in connection with the Merger. Therefore, dissenting Limited
Partners do not have the right to have an appraisal of the Partnership to
confirm the fair market value of their Units if they disapprove of the action
of the Limited Partners that voted for the Merger proposal.
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. 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 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 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.
Taxable Gain or Loss
In general, a Limited Partner will recognize gain or loss on the
conversion of Units into cash in the Merger. 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 Units converted.
The "amount realized" will be a sum equal to the amount of cash received by
the Limited Partner for the Units in the merger, plus the amount of the
Partnership's liabilities allocable to the Units (as determined under Section
752 of the Internal Revenue Code). In general, a Limited Partner's initial
tax basis in its Units equals its cash investment in the Partnership
increased by that Limited Partner's share of the Partnership's non-recourse
liabilities at the time the Units were acquired. The General Partner is not
in a position to determine the tax impact on each of the Limited Partners.
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 non-recourse
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,
- any decreases in that Limited Partner's share of non-recourse
liabilities of the Partnership,
- that Limited Partner's share of losses of the Partnership (including
an allocable share of tax 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 non-recourse liabilities (for example, as a result of the
effect of net loss allocations and/or distributions exceeding the cost of its
Units), that Limited Partner's gain will exceed the cash proceeds it receives
pursuant to the Merger.
Character of Gain or Loss
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 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 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 or loss in an amount equal to its
allocable share of the Partnership's ordinary income or loss. As described
above, this allocation 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
Units and, therefore, the taxation of the amount of that Limited Partner's
taxable gain or loss upon the conversion of its 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 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 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 from the Partnership 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 Units into cash in the Merger.
Information Reporting, Backup Withholding and FIRPTA
A Limited Partner whose 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 Section 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 Units
into cash in the Merger will be subject to federal income tax under the
Foreign Investment in Real Property Tax Act of 1980 ("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.
Consequences to a Tax-Exempt Limited Partner
Although certain entities are generally exempt from federal income
taxation, such tax-exempt entities (including individual retirement accounts
(an "IRA")) are subject to federal income tax on any "unrelated business
taxable income" ("UBTI"). UBTI generally includes, among other things,
income (other than, in the case of property which is not "debt-financed
property," interest, dividends, real property rents not dependent upon income
or profits, and gain from disposition of non-inventory property) derived by
certain trusts (including IRAs) from a trade or business or by certain other
tax-exempt organizations from a trade or business, the conduct of which is
not substantially related to the exercise of such organization's charitable,
educational or other exempt purpose and income to the extent derived from
debt-financed property. Subject to certain exceptions, "debt-financed
property" is generally any property which is held to produce income and with
respect to which there is an "acquisition indebtedness" at any time during
the taxable year. Acquisition indebtedness is generally indebtedness
incurred by a tax-exempt entity directly or through a partnership (i) on
acquiring or improving a property; (ii) before acquiring or improving a
property if the indebtedness would not have been incurred but for such
acquisition or improvement; or (iii) after acquiring or improving a property
if the indebtedness would not have been incurred but for such acquisition or
improvement and the incurrence of such indebtedness was reasonably
foreseeable at the time of the acquisition or improvement.
To the extent the Partnership holds debt-financed property or inventory
or other assets as a dealer, a tax-exempt Limited Partner (including an IRA)
could realize UBTI on the conversion of a Unit to cash. In addition, a tax-
exempt Limited Partner will realize UBTI upon the conversion of a Unit to
cash, if such Limited Partner held its Units as inventory or otherwise as
dealer property, or acquired its Units with acquisition indebtedness.
However, any UBTI recognized by a tax-exempt Limited Partner as a result of a
conversion of a Unit to cash, in general, may be offset by such Limited
Partner's net operating loss carryover (determined without taking into
account any amount of income or deduction which is excluded in computing
UBTI), subject to applicable limitations.
Anticipated Accounting Treatment
The Partnership 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 Act, after the approval
of the Merger proposal and compliance with federal and state securities laws,
neither Acquisition nor the General Partner 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.
THE MEETING
Time, Date and Place
This Proxy Statement is being furnished to Limited Partners of the
Partnership in connection with the solicitation of proxies by and on behalf
of the General Partner, as general partner of the Partnership, for use at the
meeting of Limited Partners to be held at 1:30 p.m., local time, on [Meeting
Date], 2000, at [location], and at any adjournments or postponements of the
meeting.
Matters to be Considered
At the meeting, the Limited Partners 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 is a condition
to the Partnership's participation in the Merger.
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 Merger Agreement provides that the General Partner 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 Units have indicated their intention to
vote against, and have submitted duly executed proxies voting against, the
Merger proposal, the Merger Agreement does not require the General Partner to
recommend adjournment of the meeting. Approval of the adjournment proposal
by the Limited Partners is not a condition to the Partnership's participation
in the transaction.
Other than the Merger proposal and the adjournment proposal, the
General Partner does not expect to ask the Limited Partners 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 General Partner
The General Partner, considering, among other factors, the opportunity
for the Limited Partners to achieve liquidity, has unanimously determined
that the transaction is fair to the Partnership and its Limited Partners.
Accordingly, the General Partner has approved the Merger Agreement and the
transactions contemplated by the Merger Agreement.
The General Partner recommends that Limited Partners of the Partnership
vote for the Merger proposal and for the adjournment proposal.
Record Date; Voting Power
The General Partner has fixed the close of business on [record date],
2000, 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 Units at the close of business on
[record date], 2000, are entitled to notice of and to vote at the meeting.
As of the record date, there were 18,995 Units in the Partnership outstanding
and held of record by 1,040 holders of record. Holders of record of Units
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 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 the General Partner 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 for the Merger proposal
represent fewer than 50% of the Units, the Units for which proxies have been
received marked in favor of the adjournment proposal 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, 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 Units outstanding on the
record date is required to approve the Merger proposal. The affirmative vote
of Limited Partners holding more than 50% of the Units present in person or
by proxy at the meeting is required to approve the adjournment proposal.
Limited Partners are urged to complete, date, sign and promptly return
the enclosed proxy. All properly executed proxies received by the General
Partner 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 Units will be
voted for the Merger proposal and for the adjournment proposal.
Approval of the Merger proposal by the Limited Partners is a condition
to the Partnership's participation in the Merger. Therefore, if we do not
receive votes for the Merger proposal from Limited Partners holding greater
than 50% of the Units, the Merger proposal will not be approved and the
Partnership will not participate in the Merger.
Approval of the adjournment proposal by the Limited Partners is not a
condition to the Partnership's participation in the transaction. Approval of
the adjournment proposal by the Limited Partners 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 of
revocation to the General Partner or (3) by attending the meeting and voting
in person.
Solicitation of Proxies
Proxies are being solicited by and on behalf of the General Partner, as
general partner of the Partnership. In addition to solicitation by mail, the
General Partner and the officers, directors and employees of the General
Partner may solicit proxies by telephone, telegram or otherwise. No
additional compensation will be paid to such persons for such solicitation
services. 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 Units 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. Pursuant to a letter agreement dated June __, 2000 between
MacKenzie Partners, Inc. ("MacKenzie") and the General Partner, MacKenzie
agreed to distribute this Proxy Statement to Limited Partners, provide
information with respect to the Merger to Limited Partners, and provide
advisory services to the General Partner with respect to the Merger. The
General Partner agreed to pay MacKenzie a set fee plus costs for the services
described above.
The matters to be considered at the meeting are of great importance to
the Partnership and to the Limited Partners. 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:
MacKenzie Partners, Inc.
156 Fifth Avenue
New York, NY 10010
(800) 322-2885
[email protected]
or by fax to:
[Phone]
List of Limited Partners
Under the federal securities laws, a Limited Partner who is entitled to
vote at the meeting may request in writing a list of the other Limited
Partners entitled to vote at the meeting to enable the requesting Limited
Partner to mail soliciting materials to the other Limited Partners.
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. 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:
Prometheus Development Co., Inc., 350 Bridge Parkway, Redwood City,
California 94065-1517.
At the time of making the request, the requesting Limited Partner must,
if its 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 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 the Partnership.
The Partnership Agreement provides that a current list of Limited
Partners 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.
THE MERGER AGREEMENT
This section of the Proxy Statement describes various aspects of the
proposed transaction, including material provisions of the Merger Agreement.
The description of the Merger Agreement contained in this Proxy Statement
does not purport to be complete and is qualified in its entirety by reference
to the Merger 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 are urged to read carefully the Merger Agreement
in its entirety.
Parties to the Merger Agreement
For a description of the parties to the transaction, see Summary,
Parties to the Transaction, page 6 hereto.
Structure; Consideration
The transaction is a statutory merger whereby Acquisition, an affiliate
of the General Partner and wholly owned subsidiary of PIP General (which
currently holds 3,451 Units), will merge into the Partnership.
If the Partnership participates in the transaction, you will become
entitled to receive $1,200 in cash for each of your Units, and you will no
longer be a Limited Partner of the Partnership. The current holder of the
equity of Acquisition, PIP General, who is an affiliate of the General
Partner, will hold all of the Units. Member interests in Acquisition will be
converted on a one-for-one basis into Units.
Closing of the Transaction
The closing of the transaction (the "Effective Date") will take place
at a time and on a date which will be no later than twenty business days
after the later of satisfaction or waiver of all conditions precedent to the
closing of the transaction set forth in the Merger Agreement, including the
approval of the Merger proposal. Acquisition shall be merged with and into
the Partnership. The Partnership shall succeed to all of the assets and
liabilities of Acquisition.
Consent of Lender
All outstanding mortgage debt of the Partnership will remain
outstanding following the effective time of the Merger until its expiration
or prepayment. PIP General will pay any and all fees with respect to
obtaining consent to the transaction by the Partnership's lender, if
necessary, but does not anticipate any such fees will be required.
Payment of Merger Consideration
Following the effective time of the Merger, upon receipt by the General
Partner of a letter of transmittal from a Limited Partner, the Limited
Partner will be entitled to receive a check in an amount equal to the product
obtained by multiplying the number of Units held by that Limited Partner by
the per Unit Merger Consideration of $1,200. Each holder of a Unit shall
cease to have any rights with respect thereto, except the right to receive
the Merger Consideration.
Expenses
PIP General will pay all charges and expenses relating to the Merger.
None of the payment agent, the General Partner, nor any of their respective
affiliates will be liable to any Limited Partner for any Merger Consideration
delivered to a public official pursuant to any applicable abandoned property,
escheat or similar law.
Representations and Warranties
The Partnership represented and warranted that:
- The Partnership is duly organized and existing as a limited
partnership in good standing with full power and authority to
conduct its business, and has the power and authority to execute and
deliver this Merger Agreement and consummate the transactions
contemplated thereby, subject to the approval of the Limited
Partners.
- Other than potentially with respect to the Loan Documents, the
execution, delivery and performance of the Merger Agreement does not
conflict with any mortgage, result in the creation of any lien, or
otherwise adversely affect the rights or privileges of the
Partnership.
- Other than certain mortgages, taxes and liens not yet due and
payable, covenants, conditions and restrictions of record, or the
Notes, the Partnership has good and marketable title to all of the
Partnership's assets free and clear of all liens.
- Other than the hardboard siding litigation discussed herein, the
Partnership is involved in no material litigation.
Acquisition and PIP General represented and warranted that:
- Each of them is duly organized and existing as a limited liability
company in good standing with full power and authority to conduct
its business, and has the power and authority to execute and deliver
the Merger Agreement and consummate the transactions contemplated
thereby.
- PIP General has adequate funds available out of current resources
to pay the Merger Consideration to all holders of Units (other than
PIP General).
Certain Covenants
The Partnership agreed to hold a meeting of the Limited Partners at
which the Limited Partners will have the opportunity to vote their Units for
or against the transactions contemplated by this Agreement. PIP General
agreed to vote its Units for or against the transactions contemplated by this
Agreement in the same proportion as the total number of Units voted by
Limited Partners unaffiliated with PIP General.
Conditions
The obligations of Acquisition, PIP General and the Partnership to
effect the Merger are subject to the fulfillment or waiver of the following
conditions:
- No court or other governmental entity shall have issued an order
that prohibits consummation of the Merger, restricts the operations
of the Partnership or Acquisition which would result in a material
adverse effect, or instituted any proceeding seeking any such order.
- All material actions approvals from governmental entities necessary
for the consummation of the Merger shall have been obtained.
The obligations of the Partnership are further subject to the condition
(or waiver by the Partnership) at or prior to the Effective Date that the
representations and warranties of Acquisition and PIP General shall be true
and correct, and the Merger Agreement shall have been approved by the Limited
Partners.
The obligations of Acquisition and PIP General are further subject to
the conditions (or waiver by Acquisition) at or prior to the Effective Date
that the representations and warranties of the Partnership set forth herein
shall be true and correct at and as of the closing date, and the holder of
the deeds of trust referred to in the Merger Agreement consent to the Merger
on terms acceptable to PIP General, and there is no material adverse change
in the assets, business, financial condition or prospects of the Partnership.
Termination
This Agreement may be terminated at any time prior to the Effective
Date by the mutual written consent of the Partnership and Acquisition upon
written notice given to the other party of a material breach of the Agreement
if not cured within thirty (30) days, or by Acquisition or the Partnership if
the Merger has not yet been consummated on or before ____, 2000.
ADDITIONAL INFORMATION CONCERNING UNITS
As of [record date], 2000, there were 18,995 Units outstanding and
1,040 holders of record of those Units.
Except as described below, privately negotiated sales and sales through
intermediaries currently are the only means available to a Limited Partner to
liquidate an investment in Units because the Units are not listed or traded on
any exchange or quoted on any NASDAQ list or system. High and low sales prices
of Units may be obtained through certain entities such as Partnership Profiles,
Inc., an independent, third-party source which reports such information;
however, the gross sales prices reported by Partnership Profiles, Inc. do not
necessarily reflect the net sales proceeds received by sellers of Units, which
typically are reduced by commissions and other secondary market transaction
costs to amounts less than the reported prices. The most recent data reported
by Partnership Profiles, Inc. (an independent third party source which reports
sale information) indicates that 80 Units traded in the period from October
1999 through March, 2000 at per Unit prices between $532 and $558 with a
weighted average price of $538.50 per Unit.
The table below sets forth the high and low sales prices from April
1998 through June 2000 for all sales of Units as reported by the General
Partner on a quarterly basis:
Trading Prices
Period Amount High Low
1998 2nd Quarter 50 Units $495 $495
3rd Quarter 116 Units $505 $450
4th Quarter No Trades
1999 1st Quarter 85 Units $601 $500
2nd Quarter 79 Units $503 $500
3rd Quarter 20 Units $530 $503
4th Quarter 131 Units $530 $530
2000 1st Quarter 100 Units $550 $550
2nd Quarter 60 Units $525 $525
The table below sets forth the number of Units purchased and the prices
paid by PIP General from April 1998 through June 2000.
Period Amount Trading Price
1998 2nd Quarter 50 Units $495
3rd Quarter 96 Units $495
4th Quarter No Trades
1999 1st Quarter 55 Units $503
2nd Quarter 29 Units $503
3rd Quarter 10 Units $503
4th Quarter 131 Units $530
2000 1st Quarter 100 Units $550
2nd Quarter 60 Units $525
The Units currently are registered under Section 12(g) of the Exchange
Act, which means, among other things, that the Partnership is required to
file periodic reports with the Securities and Exchange Commission (the
"Commission") and to comply with the Commission's proxy rules. The
consummation of the Merger will cause the Units to cease to be registered
under Section 12(g) of the Exchange Act because the Units will be held by
fewer than 300 persons.
Principal Holders of Units
As of June 20, 2000, PIP General held 18.2% of the outstanding Units,
or 3,451 Units. 99% of the member interests of PIP General are held by
Sanford N. Diller and Helen P. Diller as Trustees of The DNS Trust, and 1% of
these interests are held by Jaclyn P. Safier, the Diller's daughter. No
other Units were beneficially held by the General Partner, the Partnership,
PIP General, Acquisition, or any officers, directors, employees and
affiliates of the General Partner, the Partnership, PIP General or
Acquisition. No other person was known to the General Partner to own
beneficially 5% or more of the outstanding Units.
Other than the past contacts, transactions and negotiations described
in this Proxy Statement, no contacts, transactions or negotiations concerning
a merger, consolidation, acquisition, tender offer or other acquisition of
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 March 31, 2000, 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.
Contracts, Arrangements and Understandings
Except as described in this Proxy Statement, none of the Partnership,
the General Partner, Acquisition or PIP General or any of the named persons,
has any arrangement, contract, relationship or understanding with any person
with respect to any Units, including any arrangement, contract, relationship
or understanding concerning the transfer or the voting of any Units, 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.
Plans or Proposals
Except as generally described in this Proxy Statement, none of the
Partnership, the General Partner, PIP General, Acquisition, or any of the
natural persons named herein, 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.
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 the General Partner. 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 the General Partner
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, the
General Partner 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, 1999
and the Partnership's Quarterly Report on Form 10-Q/A for the quarter ended
March 31, 2000, which are being mailed with this Proxy Statement to all
Limited Partners, and the other information included or incorporated by
reference in this Proxy Statement.
The financial information for 1999 and 1998 is provided for comparison
purposes only. All numbers are in thousands of dollars, and are unaudited.
2000 Estimate 1999 1998
Total Revenues $ 6,305 $ 6,106 $ 5,991
Total Operating Expenses 5,148 4,675 5,095
------- ------- ------
Net Operating Income $ 1,157 $ 1,431 $ 896
======= ======= ======
Net Cash Flow $ 1,856 $ 1,327 $ 1,032
Beginning Cash 6,500 5,173 4,141
(Including Restricted Cash) ------- ------- ------
Ending Cash (Including $ 8,356 $ 6,500 $ 5,173
Restricted Cash) ======= ======= ======
RELATED SECURITY HOLDER MATTERS
Because the Merger may be considered a "going private" transaction, the
Partnership, PIP General, PromHill, Inc., the General Partner, Sanford N.
Diller And Helen P. Diller as Trustees of The DNS Trust, Helen P. Diller and
Sanford N. Diller have filed a Schedule 13E-3 with the SEC with respect to
the transaction. Therefore, each of them has been included as a filing
person on such Schedule 13E-3. 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 Units.
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;
- the outcome of current litigation;
- 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, the General Partner, 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. 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 the General Partner may from time to time make forward-looking
statements about the matters described herein or other matters concerning the
Partnership.
The Partnership does not as a matter of course make available any
projections, forecasts, internal budgets, plans or estimates as to future
performance, revenues, earnings or other financial information , and the
forecasts set forth above are included in this proxy statement only because
such forecasts contained in projections prepared by the General Partner prior
to the inception of this transaction. Such forecasts were not prepared with
a view to disclosure to any person or in compliance with Generally Accepted
Accounting Principles or standards regarding projections and forecasts. Such
forecasts were prepared solely for internal use and are subjective in many
respects and thus susceptible to various interpretations and periodic
revision based on actual experience and business developments. The estimates
and assumptions underlying the projections involved judgments with respect
to, among other things, future economic, competitive, and financial market
conditions, contingencies and future business decisions which may not be
realized and are inherently subject to significant financial, market,
business, economic and competitive uncertainties, all of which are difficult
to predict and many of which are beyond the control of the Partnership.
While the General Partner 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. These projections
were based upon a variety of estimates and assumptions, the material ones of
which are set forth above. The forecasts were prepared in November 1999, and
due to the passage of time and changes in circumstances, many of the
assumptions on which they were based may no longer be valid. It is expected
that there will be differences between the actual and forecast results and
that the actual results may be materially higher or lower than those
projected. None of the Partnership, Acquisition, the General Partner or PIP
General assumes any responsibility for the accuracy or validity of any of
such forecasts, and inclusion of the foregoing forecasts should not be
regarded as an indication that the Partnership, Acquisition, the General
Partner or PIP General considers it an accurate prediction of future events.
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, the General Partner, Acquisition or PIP
General or any other person that the anticipated results will be achieved and
Limited Partners are cautioned not to place undue reliance on such
information.
LIMITED PARTNER PROPOSALS
If the Merger of the Partnership is consummated, there will be no
Limited Partners of the Partnership other than PIP General. If the
transaction is not consummated with respect to the Partnership, Limited
Partners would continue to be entitled to participate in future meetings in
accordance with the terms of the Partnership Agreement. Other than the
meeting scheduled to consider and vote on the Merger proposal, there are no
meetings scheduled, and the General Partner cannot predict when, if ever,
future meetings may be called. Meetings may be called upon notice by the
General Partner to the Limited Partners or by notice to the General Partner
by Limited Partners holding at least 10% of the outstanding Units. Any
proposals by Limited Partners intended to be presented at a meeting must be
received by the Partnership 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 the Partnership no later than the close of
business on the tenth 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 the Partnership 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 the Partnership at the Partnership's principal address. Any Limited
Partner desiring a copy of the Partnership Agreement will be furnished a copy
without charge upon written request to the Partnership.
WHERE YOU CAN FIND MORE INFORMATION
As required by law, the Partnership files reports, proxy statements and
other information with the Commission. You can read and copy these materials
at the public reference facilities maintained by the Commission at:
Room 1024
450 Fifth Street, N.W.
Washington, D.C. 20549
and at the following regional offices of the Commission:
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 Commission's public reference
rooms, you may call the Commission 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."
Copies of the Schedule 13E-3 may be read and copied at the public
reference facilities maintained by the Commission, which facilities are
listed above, or may be accessed on the World Wide Web through the
Commission's Internet address at "http://www.sec.gov." Copies of the
Schedule 13E-3 and copies of the documents listed in 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 the General Partner 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 ________ __, 2000. 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, 1999, and the Partnership's Quarterly Report on Form 10-Q/A for
the quarter ended March 31, 2000 (in each case, not including exhibits to
those reports), are being mailed with this Proxy Statement to all Limited
Partners.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Commission 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, 1999,
including the financial statements set forth therein;
- Quarterly Report on Form 10-Q/A for the quarter ended March 31,
2000, including the financial statements set forth therein;
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 350 Bridge Parkway, Redwood City,
California 94065-1517.
OTHER MATTERS
The Partnership 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 Units represented by those proxies in accordance with the
judgment of the General Partner.
The General Partner has made no provision to grant Limited Partners
unaffiliated with the General Partner access to the corporate files of the
General Partner, nor to provide counsel to such unaffiliated Limited Partners
at the General Partner's expense.
APPENDIX A
Agreement and Plan of Merger
AGREEMENT AND PLAN OF MERGER
This Agreement and Plan of Merger (this "Agreement") is entered into as of
June 22, 2000, by and among Prometheus Income Partners, a California limited
partnership (the "Partnership") PIP Partners - General, LLC, a California
limited liability company ("PIP General") and PIP Acquisition, LLC, a
California limited liability company and a wholly-owned subsidiary of PIP
General ("Acquisition").
WHEREAS, the parties now desire to merge Acquisition with and into the
Partnership (the "Merger") on the terms and conditions hereinafter set forth
and in accordance with the provisions of Sections 15678.1-.9 of the California
Revised Uniform Limited Partnership Act, as amended (the "Act") and Sections
17550-17556 of the Beverly-Killea Limited Liability Company Act (the "LLC Act")
and
WHEREAS, Acquisition has been formed for such purpose;
NOW THEREFORE, BE IT RESOLVED, that in consideration of the
mutual covenants and agreements contained herein and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
the parties agree as follows:
ARTICLE I
TERMS OF MERGER
Acquisition shall be merged with and into the Partnership in a statutory
merger in accordance with the Act and the LLC Act on the terms and subject to
the conditions set forth in this Agreement.
ARTICLE II
EFFECT OF MERGER
On the "Effective Date" (as defined below):
(1) Acquisition shall be merged with and into the Partnership;
(2) the Partnership shall possess all the rights, privileges, immunities
and franchises of Acquisition, and all property, real, personal and mixed, and
debts due on whatever account, and every other interest belonging to or due to
Acquisition (including, but not limited to, liability for any fees or franchise
taxes due and owing to the Secretary of State of California as of the Effective
Date) shall be deemed to be transferred to and vested in the Partnership,
without further act, deed or transfer;
(3) the Partnership shall thenceforth be responsible for and subject to
allof the debts, liabilities and obligations of Acquisition in the same manner
as if the Partnership had itself incurred them;
(4) any claim, existing action, or proceeding pending by or against
Acquisition may be prosecuted to judgment by the Partnership; and
(5) neither the rights of creditors nor any liens upon the property of
Acquisition shall be impaired by the Merger.
The "Effective Date" shall be the date following the satisfaction of the
conditions set forth in Article VIII hereof on which a Certificate of Merger is
filed with the Secretary of State of the State of California in accordance with
the Act and the LLC Act, which date shall be not greater than twenty days
following the approval of the Merger by the limited partners of the Partnership
(the "Limited Partners").
ARTICLE III
MANNER AND BASIS OF CONVERTING INTERESTS
As of the Effective Date, by virtue of the Merger and without any action
on the part of any party hereto:
(1) Each limited partner interest in the Partnership (each, a "Unit")
outstanding immediately prior to the Effective Date (other than any such Unit
held by PIP General) shall be converted into and shall become the right to
receive cash (without interest thereon) in an amount equal to $1,200 (the
"Merger Consideration") upon surrender of a duly executed letter of transmittal
by the holder of such Unit in form and substance reasonably satisfactory to PIP
General. As of the Effective Date, each such Unit shall no longer be
outstanding and shall automatically be cancelled and retired and shall cease
to exist, and the holder of such Unit shall cease to have any rights with
respect thereto, except the right to receive the Merger Consideration.
(2) As of the Effective Date, each member interest in Acquisition issued
and outstanding as of the Effective Date shall be converted into one newly-
issued Unit.
ARTICLE IV
CHARTER DOCUMENTS; GENERAL PARTNER
(1) The Certificate of Limited Partnership and Second Amended and
Restated Limited Partnership Agreement of the Partnership dated October 1,
1992 (the "Partnership Agreement"), each as in effect on the Effective Date,
shall be the charter documents of the Partnership until duly amended or
changed in accordance with the Partnership Agreement and the Act.
(2) Subject to and in accordance with the Partnership Agreement,
Prometheus Development Co., Inc. will continue as the general partner of the
Partnership.
ARTICLE V
PARTNERSHIP REPRESENTATIONS AND WARRANTIES
The Partnership hereby represents and warrants that:
(1) The Partnership has been duly organized and is existing as a limited
partnership in good standing under the laws of the State of California with
full power and authority to own and lease its properties and to conduct its
business as currently conducted.
(2) The Partnership has the power and authority to execute and deliver
this Agreement, to consummate the transactions contemplated hereby and to
perform its obligations under this Agreement. The execution and delivery by it
of this Agreement, and the consummation of the transactions contemplated
hereby, have been duly authorized by all necessary action by the Partnership
other than the approval of Limited Partners holding at least 50% of the issued
and outstanding Units. This Agreement (assuming the due authorization,
execution and delivery hereof by the other parties hereto) constitutes the
legal, valid and binding obligation of the Partnership, enforceable against it
in accordance with the terms hereof.
(3) Other than as follows, the execution, delivery and performance of
this Agreement and the consummation of the transactions will not (i) conflict
with or result in a breach or violation of any terms or provision of, or
constitute a default under (with or without notice or passage of time, or
both), or otherwise give any person a basis for accelerated or increased
rights or termination or nonperformance under, any indenture, mortgage, deed
of trust, loan or credit agreement, lease, license or other agreement or
instrument to which the Partnership is a party or by which the Partnership or
its assets is bound or affected, (ii) result in the violation of the provisions
of the formation documents of the Partnership or any legal requirement
applicable to or binding upon the Partnership, (iii) result in the creation or
imposition of any lien upon any property or asset of the Partnership, (iv)
require the consent of any person to the transactions contemplated hereby that
has not heretofore been obtained other than the consent of the Limited
Partners and of The Prudential Insurance Company of America or (v) otherwise
adversely affect the contractual or other legal rights or privileges of the
Partnership:
(a) Deed of Trust, Security Agreement and Fixture Filing with
Assignment of Rents and Proceeds dated as of December 23, 1997, with respect to
Alderwood; and
(b) Deed of Trust, Security Agreement and Fixture Filing with
Assignment of Rents and Proceeds dated as of December 23, 1997, with respect
to Timberleaf.
(4) Other than as follows, or as otherwise disclosed in this Agreement as
of the date of this Agreement, the Partnership has good and marketable title to
all of the Partnership's assets free and clear of all liens:
Mortgages and liens not yet due and payable, convenants,
conditions and restrictions of record
(5) Other than the hardboard siding litigation discussed in the
Partnership's Form 10-Q/A dated as of March 31, 2000, as of the date of this
Agreement, neither the Partnership nor its assets is involved in material
litigation.
ARTICLE VI
VOTING OF UNITS
(1) The Partnership hereby covenants and represents that as promptly as
practicable following the date hereof it shall hold a meeting (the "Meeting")
of the Limited Partners at which the Limited Partners will have the opportunity
to vote their Units for or against the transactions contemplated by this
Agreement.
(2) At the Meeting, PIP General hereby covenants and represents that it
shall vote its Units for or against the transactions contemplated by this
Agreement in the same proportion as the total number of Units voted by Limited
Partners unaffiliated with PIP General or the General Partner.
(3) The Partnership shall use reasonable commercial efforts to obtain the
approval of the Merger by the Limited Partners at the Meeting.
ARTICLE VII
PIP GENERAL AND ACQUISITION REPRESENTATIONS AND WARRANTIES
Each of PIP General and Acquisition hereby represents and warrants that:
(1) Such party has been duly organized and is existing as a limited
liability company in good standing under the State of California with full
power and authority to own and lease its properties and to conduct its business
as currently conducted.
(2) Such party has the power and authority to execute and deliver this
Agreement, to consummate the transactions contemplated hereby and to perform
its obligations under this Agreement. The execution and delivery by such party
of this Agreement, and the consummation by it of the transactions contemplated
hereby, have been duly authorized by all necessary limited liability company
action. This Agreement (assuming the due authorization, execution and delivery
hereof by the other parties hereto) constitutes the legal, valid and binding
obligation of such party, enforceable against it in accordance with the terms
hereof.
(3) Such party's execution, delivery and performance of this Agreement
and the consummation by it of the transactions contemplated hereby will not (i)
conflict with or result in a breach or violation of any terms or provision of,
or constitute a default under (with or without notice or passage of time, or
both), or otherwise give any person a basis for accelerated or increased rights
or termination or nonperformance under, any indenture, mortgage, deed of trust,
loan or credit agreement, lease, license or other agreement or instrument to
which such party is a party or by which it or its assets is bound or affected,
(ii) result in the violation of the provisions of the formation documents of
such party or any legal requirement applicable to or binding upon such
party, (iii) result in the creation or imposition of any lien upon any property
or asset of such party, (iv) require the consent of any person to the
transactions contemplated hereby that has not heretofore been obtained or (v)
otherwise adversely affect the contractual or other legal rights or
privileges of such party.
(4) Acquisition, PIP General and their affiliates have adequate funds
available out of current resources to pay the Merger Consideration to all
holders of Units (other than PIP General).
ARTICLE VIII
CONDITIONS
(1) The obligations of each party hereto to effect the Merger shall be
subject to the fulfillment (or waiver by each party hereto) at or prior to the
Effective Date of the following conditions:
(a) 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 Merger or any other transactions with respect to any party hereto 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 any party hereto with respect to the
business operations thereof that would result in a material adverse effect
on the assets, business, financial condition or prospects thereof (clauses (i)
and (ii), collectively, and "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.
(b) 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 Merger or any other
transactions expressly contemplated by this Agreement shall have been obtained
or made, as the case may be.
(2) The obligations of the Partnership to effect the Merger and the other
transactions relating to the Partnership which are contemplated by this
Agreement to be performed by it are further subject to the condition (or waiver
by the Partnership) that:
(a) the representations and warranties of PIP General and Acquisition
set forth herein shall be true and correct at and as of the closing date; and
(b) this agreement and the transactions contemplated hereby shall have
been approved and adopted by the requisite approval of the Limited Partners.
(3) The obligations of PIP General and Acquisition to effect the Merger
and the other transactions contemplated by this Agreement which are to be
performed by it are further subject to the conditions (or waiver by PIP General
and Acquisition) that:
(a) the representations and warranties of the Partnership set forth
herein shall be true and correct at and as of the closing date;
(b) the holders of the deeds of trust referred to in Article V, Section
3 above consent (if necessary) to the Merger on terms acceptable to PIP General
and Acquisition; and
(c) there is no material adverse change, from and after the date
hereof, in the assets, business, financial condition or prospects of the
Partnership.
ARTICLE IX
TERMINATION
This Agreement may be terminated at any time prior to the Effective Date
(regardless of whether or not the requisite approvals of the Limited Partners
have been obtained) as follows:
(1) by the mutual written consent of the Partnership, PIP General and
Acquisition;
(2) by the Partnership, on the one hand, or PIP General and Acquisition,
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 shall have become final and nonappealable;
(3) by PIP General or Acquisition upon written notice given to the
Partnership, upon a material breach on the part of the Partnership of any
representation, warranty, covenant, obligation or agreement of the Partnership
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 PIP General or
Acquisition to the Partnership;
(4) by the Partnership upon written notice given to PIP General or
Acquisition, upon a material breach on the part of PIP General or Acquisition
of any representation, warranty, covenant, obligation or agreement of PIP
General or Acquisition 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 Partnership to PIP General or Acquisition; or
(5) by PIP General, Acquisition or the Partnership if the Merger has not
yet been consummated on or before September 30, 2000.
ARTICLE X
MISCELLANEOUS
(1) The parties hereto each agree to do, execute, acknowledge and
deliver all such further acts, instruments and assurances, and to take all
such further action, including, without limitation, the execution and filing
of such instruments in the State of California and any other State as should
be necessary or desirable to carry out this Agreement and to consummate and
effect the Merger.
(2) This Agreement shall be governed by and construed in accordance with
the laws of California.
(3) 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 Date, and shall have no further force or effect.
(4) Whether or not the transactions contemplated by this Agreement are
consummated, all costs and expenses incurred in connection with this Agreement,
including, without limitations, the fees, expenses and disbursements of
counsel, financial advisors and accountants, shall be paid by PIP General
and/or Acquisition.
(5) None of the General Partner, PIP General, Acquisition or any payment
agent retained in connection herewith, nor any of their respective affiliates,
will be liable to any Limited Partner for any Merger Consideration delivered to
a public official pursuant to any applicable abandoned property, escheat or
similar law.
IN WITNESS WHEREOF, the Partnership, PIP General and Acquisition have each
caused this Agreement to be effective as of the date and the year first
written above.
PROMETHEUS INCOME PARTNERS,
a California Limited Partnership
By: PROMETHEUS DEVELOPMENT CO.,
INC., a California Corporation, its General
Partner
By: /s/ John J. Murphy
Name: John J. Murphy
Title: Vice President
PIP ACQUISITION, LLC, a California Limited
Liability Company
By: PROMHILL, INC., a California Corporation,
its Manager
By: /s/ Vicki R. Mullins
Name: Vicki R. Mullins
Title: Vice President
PIP PARTNERS - GENERAL, LLC, a California Limited
Liability Company
By: PROMHILL, INC., a California Corporation,
its Manager
By: /s/ Vicki R. Mullins
Name: Vicki R. Mullins
Title: Vice President
APPENDIX B
Second Amended and Restated Limited Partnership Agreement of the Partnership
SECOND AMENDED AND RESTATED
LIMITED PARTNERSHIP AGREEMENT OF
PROMETHEUS INCOME PARTNERS
A CALIFORNIA LIMITED PARTNERSHIP
THIS SECOND AMENDED AND RESTATED LIMITED PARTNERSHIP
AGREEMENT is made by and among Prometheus Development Co., Inc.,
a California corporation, as the General Partner, and Prom XX,
Inc., a California corporation, as the Initial Limited Partner,
and the parties admitted as Limited Partners.
RECITALS
Alderwood Apartments, Ltd., a California Limited Partnership
(the "Partnership"), was organized under the California Revised
Limited Partnership Act and under a Limited Partnership
Agreement, dated as of April 15, 1985 (the "Original Agreement"),
with Prometheus Partners-Alderwood Apartments, Ltd., a California
Limited Partnership, as its general partner. Prometheus
Development Co., Inc. was added as a general partner of the
Partnership on September 2, 1986. Upon the withdrawal of the
Partnership's original general partner, Prometheus Development
Co., Inc. became the sole general partner of the Partnership on
September 4, 1986. The Partnership's name was changed to
Prometheus Development/Income Partners, a California Limited
Partnership, in September 1986. In December 1986, the
Partnership's name was changed to Prometheus Income Partners, a
California Limited Partnership.
The General Partner and the Initial Limited Partner entered
into the First Amended and Restated Limited Partnership
Agreement, dated as of September 19, 1986 (the "Amended
Agreement"), under which the Original Agreement was amended to
provide for the public sale of Units.
The General Partner has contributed $1,000 to the capital of
the Partnership. The Initial Limited Partner has contributed $10
to the capital of the Partnership and shall withdraw as a Limited
Partner and have its interest redeemed at cost upon the admission
of additional Limited Partners.
The Partnership plans to develop, to hold, and ultimately to
sell two multi-family apartment complexes located in Santa Clara,
California. The principal investment objectives of the
Partnership are to preserve and protect the Partnership's
capital, to obtain capital appreciation from the effective
management and sale of the Properties, and to provide "tax
sheltered" distributions of cash from operations beginning in
1987.
The Partners now desire to amend and restate the Amended
Agreement.
NOW, THEREFORE, the Partnership's amended and restated
partnership agreement is set forth in its entirety as follows:
ARTICLE 1
DEFINITIONS
As used in this Agreement, the following terms have the
definitions hereinafter indicated. These terms shall supersede
and replace any other definitions contained in the California
Revised Limited Partnership Act.
"Acquisition Expenses" shall mean expenses including but not
limited to legal fees and expenses, travel and communication
expenses, costs of appraisals, accounting fees and expenses,
title insurance, and miscellaneous expenses related to selection
and acquisition of the Properties.
"Acquisition Fees" shall mean the total of all fees and
commissions paid by any party in connection with the purchase of
the Properties by the Partnership, including real estate
commissions, selection fees, development fees, non-recurring
management fee or any fee of a similar nature, however
designated.
"Act" shall mean the California Revised Limited Partnership
Act, as amended from time to time.
"Affiliate" shall mean (i) any Person or entity directly or
indirectly controlling, controlled by or under common control
with another Person or entity, (ii) any Person or entity owning
or controlling 10% or more of the outstanding voting securities
of such other entity, (iii) any officer, director or partner of
such entity, and (iv) any company for which such Person or entity
acts as an officer, director, trustee or partner.
"Agreement" shall mean this Second Amended and Restated
Limited Partnership Agreement as it may be amended or restated
from time to time.
"Assignee" shall mean a person who has acquired a beneficial
interest in one or more Units from a Limited Partner or an
assignee thereof but who is not a Substituted Limited Partner.
"Broker/Dealers" shall refer to the NASD registered broker-
dealer firms which have entered into a Selling Agreement with the
Principal Distributor for the sale of Units.
"Capital Contributions" shall mean $1,000 per Unit for all
Units sold including those sold net of underwriting commissions
and the Distributor Fee pursuant to Section 3.5 of the Agreement.
"Certificate(s) of Limited Partnership" shall mean the
document, and any amendments thereto, required to be executed by
the General Partner and/or Limited Partners and filed in the
Office of the California Secretary of State, and in the
appropriate governmental offices or county recorders of other
states in which the Partnership may do business, in order to
create the Partnership and to obtain and preserve the limitations
on personal liability of the Limited Partners under applicable
law.
"Completion Date" shall mean the date on which the offering
of Units terminates, which shall be the earlier of (a) the date
all of the Units are sold, (b) February 12, 1988, unless the
offering is extended by the General Partner for up to an
additional 12 months, or (c) the date the General Partner, in its
sole discretion, terminates the offering.
"Completion Guaranty" shall mean the guaranty of the General
Partner to the Partnership, pursuant to Section 6.11 of the
Agreement, that the Properties will be completed free and clear
of all financing and construction liens (except any liens secured
by deeds of trust described in the Prospectus) at a total cost
not to exceed approximately $28,807,000, exclusive of negative
cash flow associated with lease-up expenses and the first year of
operations.
"Completion Guaranty Fee" shall mean a fee equal to $600,000
payable to the General Partner in consideration for the
Completion Guaranty.
"Control Person" shall mean those persons who perform a
function similar to the chairman of the board or a member of the
board of directors, executive management (such as the president,
vice president, corporate secretary or treasurer), senior
management (such as the vice president of an operating division
who reports directly to executive management), or a person
holding 5% or more equity interest in the General Partner or its
Affiliates or having the power to direct or control the direction
of the General Partner or its Affiliates, whether through
ownership of voting securities, by contract or otherwise.
"Cost of Partnership Property" shall mean the total
consideration paid to acquire a Property, whether paid to the
seller, the General Partner or any other person, including cash
and all liens and mortgages on the Property but excluding points
and prepaid interest and the "Cost Of All Partnership Properties"
shall be the sum total of the "Cost of Partnership Property" for
each Property.
"Credit Enhancement" shall mean a credit instrument
including but not limited to a bond from a AAA insurance company,
a forward commitment from a lender or a letter of credit
satisfactory to and for the benefit of the lender of the
permanent financing insuring that the loans secured by the
Properties will be paid within a specified period after the
permanent financing is funded.
"Distributable Cash from Operations" shall mean the funds
provided from Partnership operations, excess Working Capital
Reserves and interest on the Partnership's cash and investments,
without deduction for non-cash expenses (such as depreciation and
amortization and any accrued debt service not yet payable), but
after deducting cash funds used to pay all other expenses, debt
payments, capital improvements and repairs, replacements, and
after provision for Working Capital Reserves.
"Distributions" (whether or not this term is capitalized)
shall mean any cash distributed to the Partners arising from
their interests in the Partnership but shall not include any
compensation to the General Partner or its Affiliates or any
Partnership expense reimbursements.
"Distributor Fee" shall mean the fee equal to 1% of gross
offering proceeds which is payable to the Principal Distributor.
"Drexel" shall mean Drexel Burnham Lambert Incorporated, the
investment banker which may provide permanent financing for the
Properties.
"Effective Gross Collections" shall mean all funds collected
from the Properties, including rents, security deposits and
furniture rentals, and revenues from carport, storage and
laundry.
"Escrow Agent" shall mean Security Pacific National Bank,
333 S. Beaudry, Los Angeles, California.
"Financial Forecast" shall mean the forecast included in the
Prospectus as Exhibit A.
"Front-End Fees" shall mean any fee, commission or expense
paid by any party for any services to the Partnership during the
Partnership's organization and acquisition phase, including
Organization and Offering Expenses, investment advisory fees,
Acquisition Fees, Acquisition Expenses, Initial Partnership
Management Fee, Completion Guaranty Fee, Initial Property
Management Fee and similar fees however designated.
"General Partner" shall mean Prometheus Development Co.,
Inc., a California corporation, in its capacity as the general
partner of the Partnership, or the successor general partner of
the Partnership.
"Gross Offering Proceeds" (whether or not this term is
capitalized) shall mean the aggregate amount of cash contributed
to the Partnership by purchasers of Units before deduction of
underwriting commissions and the Distributor Fee or any other
fees, received on or before the Completion Date. For purposes of
calculating underwriting commissions and the Distribution Fee,
Gross Offering Proceeds shall not include the proceeds from any
Units sold net of underwriting commissions and the Distributor
Fee.
"IRA" shall mean an Individual Retirement Account.
"Incentive Priority Return" shall mean the amount in
addition to the 10% Priority Return necessary to provide an 11%
simple return for the period from January 1, 1988 through
December 31, 1988, on the Invested Capital of each Limited
Partner who subscribes for Units on or before June 1, 1987, or
any later date determined at the discretion of the General
Partner. This return shall be paid out of Net Proceeds from Sale
or Refinancing.
"Initial Lease-Up Fee" shall mean that one-time fee equal to
$106,000 payable to the General Partner pursuant to Section
7.5(d) of the Agreement for obtaining initial tenants for the
Properties.
"Initial Limited Partner" shall mean Prom XX, Inc., a
California corporation, in its capacity as the initial limited
partner of the Partnership.
"Initial Partnership Management Fee" shall mean that fee
equal to $291,000 payable to the General Partner, pursuant to
Section 7.3 of the Agreement, for organizing the Partnership,
arranging for and negotiating construction financing, arranging
for and negotiating permanent financing, obtaining (in connection
with the permanent financing) a Credit Enhancement satisfactory
to the lender of the permanent financing, insuring that the
Partnership will meet certain obligations, selecting and
supervising professionals to perform services for the
Partnership, establishing Partnership accounts, including an
escrow account for use in connection with the offering of the
Units, and establishing a reporting system for submitting tax
information and periodic reports to the Limited Partners and
regulatory authorities.
"Initial Property Management Fee" shall mean the excess of
the Property Management Fee earned during the Lease-Up Period
over 5% of the Effective Gross Collections for such period.
"Internal Revenue Code" shall mean the Internal Revenue Code
of 1986, as amended from time to time.
"Invested Capital" for a Limited Partner shall mean that
Limited Partner's Capital Contributions less the sum of all
distributions (but not distributions of Distributable Cash from
Operations) made to the Limited Partner and any prior owners of
the Units.
"Investment in Properties" shall mean the amount of Gross
Offering Proceeds paid or allocated to the purchase, development,
construction or improvement of Properties, Working Capital
Reserves not in excess of 5% of the Gross Offering Proceeds and
any other cash payments such as interest and taxes but excluding
Front-End Fees.
"Lease-Up Period" shall mean the period commencing on the
date certificates of occupancy are issued with respect to the
Properties' units and terminating on the date the aggregate
occupancy rate of the Properties is equal to 50% or more.
"Lender" shall mean the commercial or institutional lender
which will provide permanent financing or construction financing
for the Properties.
"Limited Partners" shall mean the Initial Limited Partner
and any other persons who are admitted to the Partnership as
additional or Substituted Limited Partners. Reference to a
"Limited Partner" shall be to any one of the Limited Partners.
"Loan Commitment Guaranty" shall mean the obligation of the
General Partner through December 31, 1991, to loan sufficient
funds or to arrange for a loan of funds to the Partnership to
cover any Operating Deficit for any calendar quarter.
"Majority Vote" shall mean the vote of Limited Partners who
are entitled to vote, consent or act and are holders of record of
a majority of the outstanding Units.
"Net Proceeds from Sale or Refinancing" shall mean, unless
otherwise specified (i) the net cash funds or proceeds (including
lump sum prepayments by buyers) resulting from the financing,
refinancing or sale of Partnership assets, after deduction of all
expenses incurred in connection therewith, including any real
estate commissions (and the Subordinated Property Disposition
Interest) and brokerage fees paid to third parties, plus (ii) all
net cash proceeds subsequently received on any installment
payments on promissory notes and/or installment contracts held by
the Partnership in connection with the sale of Partnership assets
after payment of or provision for any underlying indebtedness
related to assets sold plus cash reserves and working capital on
hand, less (iii) such amounts for Working Capital Reserves and
other reserves as the General Partner deems necessary for future
Partnership operations.
"Net Profits" and "Net Losses" shall mean the profits and
losses of the Partnership determined in accordance with
accounting methods followed for federal income tax purposes.
"Operating Deficit" shall mean for any period the excess of
(i) all expenses from ongoing operations excluding the effect of
non-operating, extraordinary or capital items of the Partnership
paid in cash (which excludes non-cash expenses such as
depreciation, amortization and any accrued debt service not yet
payable) less (ii) the sum of funds provided from Partnership
operations, Working Capital Reserves and interest on the
Partnership's cash and short term investments.
"Organization and Offering Expenses" shall mean those
expenses incurred in connection with the registration of the
Units and the subsequent offer and sale of the Units under
applicable federal and state securities laws (or exemptions
therefrom), including underwriting commissions and the Distribu-
tor Fee, and any other expenses actually incurred and directly
related to the qualification, offer and sale of Units including
without limitation such expenses as: (i) registration and
qualification fees, filing fees and taxes, (ii) the costs of
printing, amending, supplementing and distributing the
Registration Statement and Prospectus, (iii) the costs of
obtaining regulatory clearance, (iv) the costs of printing and
distributing sales materials used in connection with the offer
and sale of Units, (v) the costs related to investor and
Broker/Dealer sales meetings, (vi) accounting and legal fees
incurred by the Partnership in connection with any of the
foregoing, and (vii) escrow fees.
"Partners" shall mean the General Partner and the Limited
Partners, collectively, and reference to a "Partner" shall be to
any one of the Partners.
"Partnership" shall mean Prometheus Income Partners, a
California Limited Partnership.
"Person" (whether or not this term is capitalized) shall
mean any natural person, partnership, corporation, association or
other legal entity.
"Principal Distributor" shall mean Prometheus Capital, Inc.,
a California corporation.
"Principal Distributor Agreement" shall mean that certain
agreement between the Principal Distributor and the Partnership
concerning the sale of the Units.
"Properties" shall mean both the Alderwood Apartments and
the Timberleaf Apartments, as more specifically described in the
Prospectus. "Property" shall mean one of the Properties.
"Property Management Fee" shall mean the fee payable to the
General Partner, pursuant to Section 7.5 of the Agreement, for
the ordinary property management services related to the
Properties.
"Prospectus" shall mean the final prospectus as filed by the
Partnership with the Securities and Exchange Commission pursuant
to Rule 424(b) and as supplemented from time to time.
"Proxy" shall mean a written authorization signed by a
Partner or the Partner's attorney-in-fact giving another person
the power to vote with respect to the interest of that Partner.
"Signed" for the purposes of this definition means the placing of
Partner's name on the proxy (whether by manual signature,
typewriting, telegraphic transmission, or otherwise) by the
Partner or Partner's attorney-in-fact.
"Qualified Plan" shall mean any trust established pursuant
to the terms of a Keogh plan or corporate pension, profit sharing
or stock bonus plan which meets the requirements of Section 401
et seq. of the Internal Revenue Code.
"Reference Rate" shall mean the rate of interest announced
from time to time by a specified bank as its "reference rate,"
"prime rate" or comparable rate. For purposes of the interest
rate reimbursements described herein, interest will be compounded
daily on a 360-day year.
"Registration Statement" shall mean the Registration
Statement on Form S-11 (Reg. No. 33-9164), as amended, filed by
the Partnership with the Securities and Exchange Commission for
the registration of the Units.
"Selling Agreement" shall mean that certain Selling
Agreement between the Principal Distributor and a Broker/Dealer
relating to the offer and sale of Units.
"Subordinated Property Disposition Interest" shall mean an
amount to be paid to the General Partner upon sale or exchange of
a Property in the amount up to 3% of the gross sales price of a
Property, subordinated as indicated in Section 7.8(a) of the
Agreement.
"Subscriber" shall mean a person who has completed a
subscription agreement and submitted it together with payment for
the number of Units being purchased to the General Partner.
"Subscription Agreement" shall mean the prescribed
subscription agreement, a form of which is included as Exhibit D
to the Prospectus, which must be executed as a condition
precedent to becoming a Limited Partner.
"Substituted Limited Partner" shall mean an assignee of a
Limited Partner or a substituted Limited Partner who is admitted
at the discretion of the General Partner, as a Limited Partner
pursuant to Section 11.5 of the Agreement.
"10% Priority Return" shall mean a 10% per annum cumulative
simple preferred return on the Invested Capital of each Limited
Partner, computed from the last day of the calendar quarter in
which the Limited Partner was admitted to the Partnership.
"Unit" shall mean a unit of limited partnership interest in
the Partnership.
"Working Capital Reserves" shall mean the reserve cash
necessary for the Partnership to meet its ongoing operating
expenses as well as any other anticipated cash obligations
whether of a capital nature or otherwise. All additions to and
reductions from Working Capital Reserves shall be determined at
the sole discretion of the General Partner.
ARTICLE 2
GENERAL PROVISIONS
2.1 Formation of the Partnership
The parties hereto confirm that the Partnership was
formed under the Act with such variations and terms as provided
in this Agreement.
2.2 Name of the Partnership
The name of the Partnership shall be "Prometheus
Income Partners, a California Limited Partnership," or such other
name as shall be selected from time to time by the General
Partner upon written notice to the Limited Partners.
2.3 Purposes
Subject to the limitations set forth in this
Agreement, the purposes of the Partnership are to develop and
hold the Properties as an investment; to raise capital for the
foregoing; to develop, manage, operate, lease, alter, improve and
maintain the Properties; to acquire additional personal property
and construct or renovate such additional real estate
improvements on the Properties as are appropriate to the
operation of the Properties; to act in all other respects as the
owner of the Properties; to finance and refinance by mortgage or
unsecured loan or any combination thereof; ultimately to sell,
transfer, exchange or otherwise dispose of part or all of the
Properties; and to conduct such other activities as may be
necessary or incidental to or desirable in connection with the
foregoing.
2.4 Principal Place of Business and Office of the
Partnership
The principal place of business and office of the
Partnership shall be located at 20300 Stevens Creek Boulevard,
Suite 100, Cupertino, California 95014, or such other place or
places as the General Partner may from time to time designate by
notice to the Limited Partners. In addition, the Partnership may
maintain such other offices as the General Partner deems
advisable.
2.5 Term
The Partnership shall commence upon the filing with
the California Secretary of State of the Certificate of Limited
Partnership and shall continue until December 31, 2016, unless
sooner dissolved and terminated pursuant to the provisions of
Article 13 hereof.
2.6 General Partner
The name and place of business of the General Partner
is as follows:
Prometheus Development Co., Inc.
20300 Stevens Creek Boulevard, Suite 100
Cupertino, California 95014
2.7 Certificate of Limited Partnership
The General Partner has caused to be filed a
Certificate of Limited Partnership with the California Secretary
of State in accordance with the terms of the Act.
2.8 Other Acts/Filings
The Partners and Assignees shall from time to time
execute or cause to be executed all such certificates, fictitious
business name statements, and other documents, and do or cause to
be done all such filings, recordings, publishings, and other acts
as the General Partner may deem necessary or appropriate to
comply with the requirements of law for the formation and
operation of the Partnership in all jurisdictions in which the
Partnership shall desire to conduct business.
2.9 Agent for Service of Process
The agent for service of process for the Partnership
in California shall be Stephen R. Koch or such other eligible
individual California resident or corporation qualified to act as
an agent for service of process as the General Partner shall
designate.
ARTICLE 3
CAPITAL CONTRIBUTIONS AND RELATED MATTERS
3.1 Capital Contributions by the General Partner
The General Partner has contributed $1,000 to the
capital of the Partnership in consideration of its interest in
the Partnership. Except as provided in Section 5.7, the General
Partner shall not be required to make any additional
contributions to the Partnership or to reimburse any other
Partner.
3.2 Capital Contributions by the Initial Limited Partner
and the Limited Partners
(a) Initial Limited Partner. The Initial Limited
Partner has contributed the sum of $10 to the capital of the
Partnership. Upon the admission of additional Limited Partners
pursuant to Section 3.2(b), the Initial Limited Partner's
interest shall be redeemed at cost and the Initial Limited
Partner shall have no further interest in the Partnership.
(b) Initial Offering. The Partnership intends to
offer for subscription up to 19,000 Units for the price of $1,000
per Unit, subject to Section 3.5, and admit each person who
subscribes for at least five Units (two Units if the person
subscribing is an IRA or Qualified Plan) as an additional Limited
Partner in the Partnership, subject to the provisions of Section
3.4 of this Agreement; provided, however, that the General
Partner, in its sole discretion, may waive the minimum Unit
purchase requirement with respect to any investor, provided that
any initial investor (other than an IRA or a Qualified Plan)
shall purchase no less than 2.5 Units ($2,500). Each purchaser
shall contribute $1,000 per Unit, subject to Section 3.5, to the
capital of the Partnership, payable in full in cash upon
subscription.
3.3 No Action or Consent Necessary by Limited Partners
for Admission of Other Limited Partners
No action or consent by Limited Partners shall be
required in connection with the admission of new or Substituted
Limited Partners to the Partnership. Only the consent of the
General, Partner is necessary for the admission or substitution
of any Limited Partners to the Partnership.
3.4 Subscriptions and Admission
(a) The General Partner shall admit as Limited
Partners Subscribers who have been accepted and who submitted
subscriptions on or before the Completion Date, and amend any
documents necessary for admission, not later than (i) 15 days
after the release from escrow of the Subscriber's funds to the
Partnership or (ii) the last day of each calendar month.
Subscriptions will be accepted or rejected by the Partnership
within 30 days of their receipt; if rejected, all funds shall be
returned to the Subscriber within 10 business days of the
decision to reject.
(b) Initially, subscriber funds shall be deposited in
an escrow account at Security Pacific National Bank, and Security
Pacific National Bank, shall be the Escrow Agent. While held in
such account, subscription funds shall be invested in
permissible, short-term, highly liquid investments in which there
is appropriate safety of principal. Subscription funds shall not
be released from the escrow account until subscriptions for at
least 4,000 Units have been received, accepted and deposited in
such account. After this minimum amount has been received, at
the sole discretion of the General Partner, the subscription
funds may be released to the Partnership from the escrow account.
In any event, no subscription funds will be released from the
escrow account until such funds equal at least $4,000,000. The
General Partner, at its discretion, may terminate the offering of
Units at any time prior to the release of subscription funds from
the escrow account to the Partnership. If the $4,000,000 minimum
is not received prior to the Completion Date or the offering is
terminated prior to the release of subscription funds from the
escrow account, subscription funds together with any interest
earned thereon shall be returned promptly to the investors.
After 4,000 or more Units have been sold and the General Partner
has requested the release of the Subscribers' funds from the
escrow account, investors shall be admitted to the Partnership.
After release of the Subscribers' funds from the escrow account,
subsequent subscriptions shall be deposited in a Partnership
account and any interest earned thereon shall remain in the
Partnership.
(c) The General Partner may decline to accept any
Subscriber for Units for any reason. If rejected, all
subscription monies shall be returned to the Subscriber promptly.
3.5 Purchase of Units by General Partner and Related
Parties
The purchase of Units by the General Partner, its
Affiliates, certain of its agents, Broker/Dealers, and their
employees shall be net of any underwriting commissions and the
Distributor Fee. Any such Units purchased by the General
Partner, its Affiliates, certain of its agents, Broker/Dealers,
or their employees shall be held as Limited Partner Units and be
entitled to all rights as such. If the subscription funds are
released to the Partnership in accordance with Section 3.4(b),
the General Partner or its Affiliates shall be obligated to
purchase any Units remaining unsold on the Completion Date. The
General Partner and its Affiliates shall hold all Units they
purchase for investment purposes and not for resale.
3.6 Assessments or Additional Contributions
Units are nonassessable, and no Limited Partner shall
be required to make additional contributions to the capital of
the Partnership in excess of the Limited Partner's subscription.
3.7 No Withdrawal of Contributions
No Limited Partner shall have the right to withdraw a
contribution to the Partnership.
3.8 Return of Capital
There is no agreement for or time set for the return
of any contribution of any Limited Partner. To the extent funds
are available therefor, the General Partner may return
contributions out of operating revenue or out of proceeds of sale
or refinancing or any other assets of the Properties, after
reserving sufficient funds for payment of debts, working capital,
contingencies, replacements, and withdrawals of capital, if any,
and to the extent of available funds, the General Partner shall
return said capital at dissolution and termination, as set forth
in this Agreement.
3.9 No Interest on Capital Contributions
No Partner shall be entitled to interest of any kind
on account of a Capital Contribution.
3.10 No Priority
Except as otherwise provided in this Agreement, no
limited Partner shall have priority over any other Limited
Partner as to return of contributions, allocations of income,
gain, loss, deduction, credit, or as to distributions.
3.11 Securities Laws
To accomplish the purposes of this Article, the
General Partner is hereby authorized to do all things necessary
to admit Limited Partners, including, but not limited to,
registering the Units for sale with the Securities and Exchange
Commission, qualifying the Units for sale with state securities
regulatory authorities or perfecting exemptions from
qualification, and entering into such underwriting or agency
arrangements for the offer and sale of Units upon such terms and
conditions as the General Partner may deem advisable.
3.12 Temporary Investment of Partnership Capital
Proceeds from the sale of Units and other Partnership
funds shall be held in one or more Partnership accounts for the
exclusive use of the Partnership and may be temporarily invested
in (a) obligations with a maturity of one year or less that are
issued or insured by the United States government or its
agencies, (b) repurchase agreements covering such governmental
obligations, (c) certificates of deposit and banker's acceptances
issued by banks having a net worth of at least $50,000,000, (d)
investment grade commercial paper, (e) bank accounts, or (f)
money market funds. Any interest thereon shall inure to the
benefit of the Partnership, and the Limited Partners shall not
receive interest on funds contributed by them.
3.13 Investment in Properties
The Partnership shall apply to Investment in Properties a
minimum percentage of Gross Offering Proceeds which is equal to
the greater of:
(a) 80% of the Gross Offering Proceeds reduced by
.1625% for each 1% of indebtedness encumbering the Properties; or
(b) 67% of the Gross Offering Proceeds.
The "percentage of indebtedness encumbering Partnership
Properties" is the percentage resulting when the indebtedness on
the Properties (whether the debt is on a Property when purchased
or placed on Property at the time of purchase) is divided by the
Cost of All Partnership Properties excluding Front-End Fees.
ARTICLE 4
TAX ALLOCATIONS
4.1 Definitions
For purposes of this Article 4, the following phrases shall
have the meanings indicated below:
"Minimum Gain" shall have the meaning ascribed in the
Treasury Regulations under Section 704(b) of the Internal Revenue
Code, i.e., generally, the excess, if any, of the outstanding
balance of nonrecourse liabilities to which the Properties are
subject over the Partnership's adjusted basis in the Properties
for tax purposes. Should such definition of "minimum gain" be
changed, the General Partner may, in its discretion and without
the consent of the Limited Partners, modify the definition of
"Minimum Gain" contained herein to effectuate the intent of the
Partners as expressed in Section 4.2.
"Operating Net Profits" and "Operating Net Losses" shall
mean Net Profits and Net Losses other than Net Profits and Net
Losses realized on sales or other, dispositions of the
Properties.
4.2 General Rule
It is the intention of the Partners that each Partner's
distributive share of tax items shall be determined and allocated
in accordance with the allocation provisions of this Agreement to
the fullest extent permitted by Sections 704(b) and (c) of the
Internal Revenue Code. Therefore, if the Partnership is advised
by counsel or its accountants that the allocation provisions of
this Agreement are unlikely to be respected for federal income
tax purposes, the General Partner is granted the authority in
Section 15.2 to amend the allocation provisions of this Agreement
to the extent deemed necessary by counsel or its accountants to
effect the plan of allocations and distributions of Distributable
Cash from Operations and Net Proceeds from Sale or Refinancing
provided in this Agreement. The General Partner shall have the
discretion to adopt and revise such rules, conventions and
procedures as it believes appropriate with respect to the
admission of Limited Partners to reflect Partners' interests in
the Partnership at the close of the year.
4.3 Allocation to Initial Limited Partner
During the period that the Initial Limited Partner is the
only Limited Partner in the Partnership, Net Profits and Net
Losses shall be allocated 1% to the General Partner and 99% to
the Initial Limited Partner. Thereafter, Net Profits and Net
Losses shall generally be allocated as set forth in Sections 4.4
to 4.8.
4.4 Net Profits and Net Losses from Operations
(a) If Distributable Cash from Operations is
distributed during the year in question, Operating Net Profits
shall be allocated among the General Partner and the Limited
Partners in proportion to the Distributable Cash from Operations
distributed to them, provided that in no event will the Limited
Partners receive an allocation in excess of 99% of the Operating
Net Profits. If no cash is distributed during the year in
question, Operating Net Profits shall be allocated 99% to the
Limited Partners and 1% to the General Partner.
(b) Operating Net Losses shall be allocated 1% to the
General Partner and 99% to the Limited Partners.
4.5 Net Profits and Net Losses on Sale or Other
Disposition of a Property
(a) Net Profits realized on sale or other disposition
of either or both of the Properties shall be allocated and
capital account balances determined prior to any distribution of
Net Proceeds from Sale or Refinancing. Such Net Profits shall be
allocated first 99% to the Limited Partners and 1% to the General
Partner until the capital account balances of the Limited
Partners in the aggregate equal the amount of Net Proceeds from
Sale or Refinancing which would be distributable to the Limited
Partners pursuant to Section 5.4(c)(1) before any distribution
could be made pursuant to Section 5.4(c)(2); second if the
Partnership does not treat the Subordinated Property Disposition
Interest as deductible or includible in the basis of the Property
to which it relates, an amount of Net Profits equal to such
Subordinated Property Disposition Interest shall be allocated to
the General Partner; and thereafter 85% to the Limited Partners
and 15% to the General Partner. With respect to Net Profits
allocated to the Limited Partners, if a Limited Partner's capital
account balance (on a per Unit basis) equals the amount of Net
Proceeds from Sale or Refinancing which must be distributed to
such Limited Partner before a distribution can be made under
Section 5.4(c)(2) while other Limited Partners' capital account
balances are less than such amount on a per Unit basis, the
portion of Net Profits, if any, that would otherwise be allocated
to the Limited Partner whose capital account balance equals such
amount shall be instead allocated to Limited Partners whose
capital accounts are less than such amounts.
(b) Notwithstanding the provisions of Section 4.5(a),
upon the sale or disposition of a Property, before allocating Net
Profits under Section 4.5(a), (i) Net Profits up to an amount
equal to the sum of the negative capital account balances of the
Partners having negative capital account balances shall be
allocated to the Partners having negative capital account
balances in the ratio that the negative capital account balance
of each bears to the aggregate negative capital account balances,
and (ii) Net Profits thereafter shall be allocated pursuant to
Section 4.5(a).
(c) Net Losses realized on sale of either or both of
the Properties shall be allocated first to Partners with positive
capital accounts, in the proportion that the capital account
balance of each bears to the aggregate capital account balances
of all Partners with positive capital accounts, and thereafter
99% to the Limited Partners and 1% to the General Partner.
4.6 Allocation of Nonrecourse Deductions and Minimum Gain
Chargeback
Allocations under this Agreement of nonrecourse deductions,
as defined in Treasury Regulation Section 1.704-1(b)(4)(iv), are
intended to be made in accordance with the Regulations under
Section 704(b) of the Internal Revenue Code. In the event the
General Partner shall determine that it is advisable to modify
the allocations contained in this Agreement to comply with such
Regulations, the General Partner is authorized hereby to make
such modifications. If there is a net decrease in Minimum Gain
during a taxable year, all Partners with a deficit capital
account balance at the end of such year (excluding from each
Partner's deficit capital account balance any amount that such
Partner is obligated to restore under this Agreement as well as
any addition thereto pursuant to the next to last sentence of
Treasury Regulation Section 1.704-1(b)(4)(iv)(f) computed with
respect to the amount of Minimum Gain after such net decrease)
will be allocated, before any other allocation is made of
Partnership items for such taxable year, items of income and gain
for such year (and, if necessary, subsequent years) in the amount
and in the proportions needed to eliminate such deficits as
quickly as possible. For purposes of the preceding sentence,
Partners' capital accounts shall be reduced for the items
described in Treasury Regulation Sections 1.704-
1(b)(2)(ii)(d)(4), (5), and (6). The Minimum Gain chargeback
allocated in any taxable year shall consist first of gains
recognized from the disposition of items of Partnership Property
subject to one or more nonrecourse liabilities of the Partnership
to the extent of the decrease in Minimum Gain attributable to the
disposition of such items of Property, with the remainder of such
Minimum Gain chargeback, if any, made up of a pro rata portion of
the Partnership's other items of income and gain for that year.
If, however, such gains exceed the amount of the Minimum Gain
chargeback, a proportional share of each such gain shall
constitute a part of the Minimum Gain chargeback.
4.7 Provisional Allocation
In the event that an amount claimed by the Partnership,
which constitutes a deductible expense in any tax year of the
Partnership, is treated as a payment made to a Partner in his
capacity as a member of the Partnership for income tax purposes,
income and gain of the Partnership for such year shall first be
allocated to the recipient of such payment and no deductions and
losses of the Partnership shall be allocated thereto.
4.8 Special Allocations
Notwithstanding any other provision of this Agreement to the
contrary:
(a) Operating Net Losses allocable to the Limited
Partners shall be first allocated to any Limited Partner whose
capital account balance is greater in amount than the capital
account balance of any other Limited Partner, until such time as
the balance in each Limited Partner's capital account on a per
Unit basis equals the balance in the capital account of every
other Limited Partner, and thereafter among all Limited Partners
on a per Unit basis.
(b) In no event shall any losses be allocated to any
Limited Partner whose capital account has been reduced to zero
(unless such Limited Partner agrees to make up any negative
balance in his capital account) until the capital accounts of all
Limited Partners have been reduced to zero. If any Limited
Partner's capital account has been reduced to zero at any time
when any other Limited Partners' capital accounts have positive
balances, any such losses shall be allocated among such Limited
Partners with positive capital account balances in the proportion
which such positive balances bear to each other (for purposes of
determining proportionality such positive capital account
balances shall be determined as of the date of such allocation).
After the capital accounts of all Partners have been reduced to
zero, losses shall again be allocated as otherwise provided in
this Agreement, except that in no event shall losses be allocated
to any Limited Partner if such allocation would not be recognized
under Section 704 of the Internal Revenue Code and such losses
shall be reallocated first to Limited Partners with respect to
whom such allocation would be recognized and thereafter to the
General Partner.
(c) Any recapture under Section 1245 or Section 1250
of the Internal Revenue Code shall be allocated to those Partners
who were allocated the deductions to which such recapture
relates.
(d) In the event any of the Partners receive an
adjustment, allocation or distribution described in Treasury
Regulations Sections 1.704-1(b)(2)(ii)(d)(4), (5) or (6) which
results in a deficit in the capital account balance of such
Partners, such Partners shall be allocated 100% of all items of
income or gain to the extent of the lesser of (i) the amount of
such adjustment, allocation or distribution, or (ii) the deficit
in such Partner's capital account balance, pro rata in accordance
with such amount.
(e) Nondeductible, nonamortizable syndication
expenses (other than underwriting commissions and the
Distributor Fee) shall be allocated 100% to the Limited
Partners and divided among such Limited Partners from time to
time so that to the extent possible an equal amount of such
expenses is allocated to each Unit. Underwriting commissions
and the Distributor Fee shall be allocated directly to the
Limited Partner with respect to whose Units such commissions and
fees were actually charged.
ARTICLE 5
DISTRIBUTIONS OF CASH
5.1 Prior to Admission of Additional Limited Partners
During the period that the initial Limited Partner is
the only limited partner in the Partnership, all distributions of
cash shall be made at the sole discretion of the General Partner
and shall be made 1% to the General Partner and 99% to the
Initial Limited Partner.
5.2 Subsequent to Admission of Additional Limited Partners
After the period specified in Section 5.1, Partnership
distributions shall be made in the manner set forth in Sections
5.3 and 5.4.
5.3 Distributions of Cash from Operations
Distributable Cash from Operations shall be distributed
quarterly and initially shall be distributed 100% to the Limited
Partners until the Limited Partners have received a sum each year
equal to a 10% Priority Return, as determined from time to time;
provided, however, that Distributable Cash from Operations
realized by the Partnership during 1987 shall be apportioned
among the Limited Partners in a manner which reflects the number
of days in 1987 after the date on which the Escrow Agent or the
General Partner received a Limited Partner's Capital
Contribution. The Incentive Priority Return will be distributed
from Net Proceeds from Sale or Refinancing. After the receipt by
the Limited Partners of a 10% Priority Return, Distributable Cash
from Operations shall be distributed 100% to the General Partner
until the General Partner has received 5% of the aggregate cash
distributed to the Limited Partners in that year pursuant to the
first sentence of this Section 5.3. Thereafter, Distributable
Cash from Operations shall be distributed 95% to the Limited
Partners and 5% to the General Partner in that year.
5.4 Distributions of Net Proceeds from Sale or Refinancing
Net Proceeds from Sale or Refinancing shall be utilized or
distributed in the following priority (to the extent funds are
available):
(a) To the payment of current Partnership
obligations, liabilities and expenses.
(b) To the setting up of reserves which the General
Partner may, in its sole discretion, deem necessary for
Partnership debts or liabilities, whether payable or not yet
payable, including any contingent or unforeseen liabilities or
obligations. Such reserves may be held for disbursement by the
General Partner in the Partnership bank account or delivered to
an independent escrow holder selected by the General Partner to
be held for the purpose of disbursing such reserves in payment of
any of the Partnership's contingent liabilities or liabilities
not yet due. At such time as the General Partner shall
determine, any balance remaining in such reserves shall be
distributed in accordance with this Section 5.4.
(c) The balance shall be distributed to Partners in
the following order:
(1) 100% to the Limited Partners until each
Limited Partner has received an amount equal to (i) the excess of
(A) a 10% Priority Return, less (B) the sum of all previous cash
distributions during the term of the Partnership other than
distributions of Invested Capital pursuant to this Section
5.4(c)(1), (ii) if applicable to a Limited Partner, an Incentive
Priority Return and (iii) the Limited Partners' remaining
Invested Capital. Notwithstanding the foregoing, the General
Partner shall be entitled to its Subordinated Property
Disposition Interest upon the sale of either or both of the
Properties, as subordinated in the manner set forth in Section
7.8 (a).
(2) The balance:
(A) 85% to the Limited Partners; and
(B) 15% to the General Partner.
(3) Notwithstanding the foregoing provisions of
this Section 5.4, distributions of Net Proceeds from Sale or
Refinancing arising from the termination of the Partnership
(which term shall, for this purpose, mean the sale or other
disposition of both of the Properties) shall (after all Net
Profits from such sale or other disposition have been allocated
pursuant to Article 4) be distributed first in proportion to, and
to the extent of, the positive capital account balances of the
Partners, and thereafter as set forth above.
5.5 Consent to Distributions
Any distribution made to a Partner pursuant to this
Agreement shall be deemed to be consented to by the Partners.
5.6 Capital Accounts
Individual capital accounts shall be maintained for each
Partner. Each Partner's capital account shall consist of such
Partner's original contribution of capital increased by such
Partner's (a) additional contributions of capital, and (b)
allocable share of Partnership income and gains (including income
exempt from tax) and decreased by such Partner's share of (c)
distributions, (d) allocable share of Partnership losses, and (e)
expenditures of the Partnership not deductible in computing its
taxable income and not properly added to the tax basis of any
Partnership asset. The foregoing provisions and the other
provisions of this Agreement relating to capital accounts are
intended to comply with applicable Treasury Regulations
promulgated under Section 704 of the Internal Revenue Code and
shall be interpreted and applied in a manner consistent with such
Regulations. In the event the General Partner shall determine it
is advisable to modify the manner in which the capital accounts,
or any credits or debits thereto, are computed in order to comply
with such Regulations, the General Partner may make such
modifications, provided such modification is not likely to have a
material effect on the amounts distributed to any Partner
pursuant to Article 5 hereof upon dissolution of the Partnership.
5.7 General Partner's Obligation to Make Up Negative
Capital Account
If, immediately prior to the dissolution and termination of
the Partnership, the General Partner's capital account has a
deficit balance and the Partnership assets available for
distribution upon dissolution and termination are insufficient to
provide distributions to Limited Partners equal to their Invested
Capital, the General Partner shall be obligated to contribute to
the Partnership that amount of capital (if any) equal to the
lesser of (a) an amount sufficient to restore its capital account
to zero, or (b) 1.01% of the aggregate Capital Contributions of
the Limited Partners, less any capital previously contributed by
the General Partner.
5.8 Limited Partners' Share of Allocations and
Distributions
Except as otherwise provided in this Agreement, allocations
of income, gain, loss, deduction, credit, and distributions to
the Limited Partners as a group shall be further allocated and
distributed among the Limited Partners in proportion to the ratio
of the number of Units owned by the Limited Partner to the total
outstanding Units as of the relevant dates of determining such
allocations and distributions. Units held by the General Partner
or its Affiliates will be treated similarly.
Allocations of tax items shall be determined using an
interim closing of the books as of the date Limited Partners are
deemed admitted pursuant to such convention or other method as
the General Partner shall select for the Partnership.
5.9 Allocation Between Assignor and Assignee
The portion of the income, gain, loss, deductions and
credits of the Partnership for any fiscal year of the Partnership
during which a Unit is assigned by a Limited Partner (or by an
Assignee or successor in interest to a Limited Partner) that is
allocable in respect of such Unit shall be apportioned between
the assignor and the assignee of the Unit on the basis of the
number of days during such fiscal year that each is the owner
thereof, without regard to (a) the results of Partnership
operations before or after the effective date of the assignment,
or (b) any distributions made to the Partners before or after the
effective date of the assignment; provided, however, that (i)
gain or loss on the sale or other disposition of either or both
of the Properties shall be allocated to the owner of the Unit on
the date of such sale or other disposition, (ii) distributions of
Net Proceeds from Sale or Refinancing shall be made to the owner
of record of the Unit on the date of the sale or refinancing,
(iii) the General Partner may in its sole discretion modify the
foregoing allocation in any reasonable manner required or
permitted by the Internal Revenue Code or applicable regulations
or rulings thereunder. The effective date of an assignment of a
Unit shall be as designated by the General Partner pursuant to
Section 11.3(b).
5.10 Timing of Distributions
Quarterly distributions, if any, will be made to holders of
record as of the last day of the respective quarter.
Distributions will be made without regard to the number of days
during the quarter that a person is a Limited Partner.
5.11 Limitations on Distributions
The Partnership may be restricted from making distributions
under the terms of notes, mortgages or other types of debt
obligations which it may issue or assume in conjunction with
borrowed funds, and notwithstanding the provisions of this
Article 5, distributions may also be restricted or suspended,
whenever the General Partner determines, in its absolute
discretion, that such action is in the best interests of the
Partnership. All distributions are subject to the payment of
Partnership expenses and the maintenance of reasonable reserves.
ARTICLE 6
MANAGEMENT OF THE PARTNERSHIP
6.1 Management Powers of the General Partner
The Partnership shall be managed by the General Partner.
Subject only to the limitations specifically contained in this
Agreement, the General Partner shall have the full, exclusive and
absolute right, power and authority to manage and control the
Partnership and the property, assets and business thereof. The
General Partner shall have all of the rights, powers and
authority conferred upon it by law or under other provisions of
this Agreement. Without limiting the generality of the
foregoing, such powers include the right, in the General
Partner's sole discretion, on terms and conditions determined by
the General Partner, subject only to the provisions of Section
6.2. to:
(a) Acquire, purchase, renovate, improve, and own the
Properties and any other property or assets that the General
Partner determines are necessary or appropriate or in the best
interests of the business of the Partnership, and to acquire and
exercise options for the purchase of any such property;
(b) Construct buildings and make other improvements
on the real estate owned by the Partnership;
(c) Borrow money (including but not limited to sums
under the mortgage loans for the Properties and any Credit
Enhancement required in connection with the permanent financing),
issue evidences of indebtedness in connection therewith,
refinance, increase the amount of, modify, amend or change the
terms of, or extend the time for the payment of, any indebtedness
or obligation of the Partnership, secure such indebtedness by
mortgage, deed of trust, pledge or other lien on Partnership
assets, and prepay in whole or in part, refund, refinance,
increase, modify, consolidate, or extend the maturity of, any
indebtedness or obligation of the Partnership;
(d) Cause the Partnership and itself as General
Partner to offer and sell Units through the Principal Distributor
which shall engage the Broker/Dealers to assist in the sale of
Units;
(e) Pay all expenses, underwriting commissions and
the Distributor Fee incurred in connection with the sale of
Units;
(f) Sell, exchange, lease or otherwise dispose of the
real estate and other property and assets owned by the
Partnership, or any part thereof, or any interest therein;
(g) Enter into any partnership agreement or joint
venture with any person acceptable to the General Partner and
which is engaged in any business or transaction in which the
Partnership is authorized to engage in; provided, however, that
the Partnership shall have a controlling interest in such other
venture and duplicate property management or other fees shall not
be paid with respect to such venture. The Partnership shall not
be permitted to invest in a joint venture arrangement with
another partnership formed by the General Partner or its
Affiliates unless (i) such other partnership has investment
objectives which are substantially identical with those of the
Partnership, (ii) the compensation of the sponsor of the other
partnership should be substantially identical with the
Partnership's compensation of the General Partner and its
Affiliates, (iii) the Partnership has a right of first refusal to
buy the property owned by the venture if the other partnership
desires to sell, and (iv) the investment of each partnership in
the venture is on substantially the same terms and conditions;
(h) Sue on, defend or compromise any and all claims
or liabilities in favor of or against the Partnership and to
submit any or all such claims or liabilities to arbitration
(including without limitation claims of the Partnership in
respect of unpaid Capital Contributions, or amounts which may be
required to be returned to the Partnership);
(i) File applications, communicate and otherwise deal
with any and all governmental agencies having jurisdiction over,
or in any way affecting, the Partnership's assets or any part
thereof or any other aspect of the Partnership business;
(j) Make or revoke any election permitted the
Partnership by any taxing authority;
(k) Maintain such insurance coverage for public
liability, fire and casualty, and any and all other insurance
necessary or appropriate to the business of the Partnership
(including without limitation errors and omission insurance,
subject to the limitations of Section 6.7(e), the policy for
which shall be considered the sole property of the General
Partner), in such amount and of such type, as it shall determine
from time to time;
(l) Determine whether or not to apply any insurance
proceeds for either Property to the restoration of such Property
or to distribute the same;
(m) Retain legal counsel, auditors and other
professionals in connection with the Partnership business and to
pay therefor such remuneration as the General Partner may deem
reasonable and proper;
(n) Retain other services of any kind or nature in
connection with the Partnership business and to pay therefor such
remuneration as the General Partner may deem reasonable and
proper;
(o) Employ persons in connection with the Partnership
business on such terms and for such compensation as the General
Partner may deem reasonable and proper, subject however to the
limitations set forth in Article 7 and provided that any
agreements for services with the General Partner or its
Affiliates shall be terminated immediately on the dissolution of
the Partnership;
(p) Negotiate and conclude agreements on behalf of
the Partnership with respect to any of the rights, powers and
authority conferred upon the General Partner;
(q) Purchase, lease, rent, or otherwise acquire or
obtain the use of machinery, equipment, tools, materials, and all
other kinds and types of real or personal property that may in
any way be deemed necessary, convenient, or advisable in
connection with carrying on the business of the Partnership;
(r) Guaranty the payment of money or the performance
of any contract or obligation by any person, firm, or corporation
on behalf of the Partnership;
(s) Alter, improve, repair, raze, refurbish, replace
and rebuild either or both Properties;
(t) Repurchase Units on behalf of the Partnership in
accordance with Section 11.7 if such purchase does not impair the
capital or operation of the Partnership;
(u) Act directly or through Affiliates, under non-
exclusive listings, as a real estate broker for the purchase and
sale of the Properties, and enter into listing agreements or
other agreements with third party brokers with regard to the
acquisition and disposition of Partnership assets;
(v) File tax returns on behalf of the Partnership and
elect such methods of cost recovery or make any other tax
elections or determinations as the General Partner shall deem
desirable;
(w) Enter into the transactions described in or
contemplated by the Prospectus;
(x) Amend this Agreement pursuant to the terms of any
Power of Attorney from Limited Partners or pursuant to the terms
of this Agreement;
(y) Require in any or all Partnership contracts that
the General Partner and its Affiliates shall not have any
personal liability thereon and that the person or entity
contracting with the Partnership is to look solely to the
Partnership assets for satisfaction, and to require the
satisfaction of contracts on which the General Partner and its
Affiliates have personal liability prior to contracts on which
they have no such personal liability;
(z) Execute, acknowledge, and deliver any and all
instruments, on behalf of the Partnership or otherwise, which it
shall deem necessary or appropriate to effectuate the rights,
authority and power of the General Partner, and to take all such
action in connection therewith as it shall in its discretion deem
necessary or appropriate;
(aa) Hold each of the Properties in its own name or in
the name of an Affiliate thereof (and assume loans in connection
therewith) and temporarily hold title thereto for the purpose of
facilitating the development of the Properties, the borrowing of
money or the obtaining of financing by the Partnership, or for
any other purpose related to the business of the Partnership;
provided that each of the Properties is purchased by the
Partnership for a purchase price no greater than the cost of such
Property to the General Partner; and provided further that there
is no difference in the interest rates of the loans secured by
the Properties at the time acquired by the General Partner and
the time acquired by the Partnership nor any other benefit
arising out of the transaction to the General Partner.
(bb) Make or arrange long-term and short-term loans,
including loans from its Affiliates, to the Partnership, receive
interest or other financing charges or fees, provided that the
interest charges or fees are not in excess of amounts charged by
third party financing institutions on comparable loans for the
same purpose or, if the funds for a loan are obtained by the
General Partner or one of its Affiliates from a lending
institution, the rate and other fees which the General Partner or
its Affiliates is required to pay the lending institution;
(cc) Execute, deliver and perform under the mortgage
loans, the Credit Enhancement, and related documents; and
(dd) Perform any and all other acts the General
Partner deems necessary or appropriate to the Partnership
business.
6.2 Restrictions on General Partner
The General Partner, without the approval of a Majority Vote
of Limited Partners or such other vote as may be specified, shall
have no authority to:
(a) Do any act in contravention of this Agreement;
(b) Confess a judgment against the Partnership;
(c) Possess Partnership property or assign rights to
Partnership property, for other than a Partnership purpose;
(d) Perform any act (other than an act required by
this Agreement or any act performed in good faith reliance upon
counsel's opinion) which would, at the time such act occurs,
subject any Limited Partner to liability as a general partner in
any jurisdiction; provided, however, that no such act shall be
performed without first obtaining the approval of any Limited
Partner who may be subjected to general partner liability as a
result of the act;
(e) Use Distributable Cash from Operations or Net
Proceeds from Sale or Refinancing to acquire real property;
(f) Commingle, or cause the Partnership to commingle,
Partnership funds with those of any other person or entity except
the funds of other limited partnerships sponsored by the General
Partner or its Affiliates held in an account or accounts
established and maintained for the purpose of making
disbursements to (i) Partners and creditors of the Partnership
and to the holders of Units and (ii) partners and creditors of
such other limited partnership; provided, however, that any such
accounts shall be structured and maintained in such a manner that
Partnership funds are protected from claims of such other
partnerships and their creditors;
(g) Cause the Partnership to purchase, sell, assign
or lease either or both of the Properties, including a purchase
from or a sale or lease to the General Partner or its Affiliates,
except for the assignment of the Properties by Affiliates of the
General Partner to the Partnership and the leasing of the rental
units of the Properties as set forth in the Prospectus;
(h) Directly or indirectly pay or award any finder's
fees, commissions, or other compensation to any person engaged by
a potential investor for investment advice as an inducement to
such advisor to advise the purchaser regarding the purchase of
Units; provided, however, that the General Partner shall not be
prohibited from paying underwriting commissions, the Distributor
Fee, other normal commissions, sales incentives, or from
reimbursing accountable expenses incurred in connection with the
offering in accordance with Section 7.1, in an aggregate amount
of up to 10% of the Gross Offering Proceeds (plus up to .5% of
the Gross Offering Proceeds for due diligence expenses) payable
to the Principal Distributor, which may reallow some or all of
the underwriting commissions, Distributor Fee and due diligence
expenses to the Broker/Dealers;
(i) Cause the Partnership to enter into any agreement
with the General Partner or its Affiliates unless that agreement
is subject to termination without penalty by the Partnership upon
notice of sixty (60) days or less;
(j) Receive a rebate or participate in any reciprocal
business arrangements which would enable it to do so;
(k) Cause the Partnership to exchange Units for
property;
(l) Cause the Partnership to loan money to the
General Partner or its Affiliates;
(m) Cause the Partnership to invest in a limited
partnership interest of another partnership;
(n) Cause the Partnership to enter into any loans
secured by either or both of the Properties if the outstanding
principal and accrued and unpaid interest under the Partnership's
secured loans, including the principal under the contemplated
loan, would exceed 80% of the then current value of its
Properties; or
(o) Provide or cause its Affiliates to provide
insurance brokerage services to the Partnership.
6.3 Limited Partners Have No Management Powers
The Limited Partners shall have no voice or participation in
the management of the Partnership business, and no power to bind
the Partnership or to act on behalf of the Partnership in any
manner whatsoever, except by specifically authorized voting
rights contained in this Agreement.
6.4 General Partner's Duty to Devote Time
The General Partner shall devote such time and attention to
the business of the Partnership as it shall determine, in the
exercise of its reasonable judgment, to be necessary for the
conduct of the Partnership business; provided, however, that the
General Partner shall not be required to devote full time and
attention to the Partnership or to its business.
6.5 General Partner May Engage in Other Activities
The General Partner and its officers, directors,
shareholders, agents, employees and Affiliates shall have the
right to engage in any other business (including, but not limited
to, acting as a partner in other partnerships formed for the
purpose of investing in real estate) and to compete, directly or
indirectly, with the business of the Partnership, and neither the
Partnership nor any Partners shall have any rights or claims as a
result of such activities. Furthermore, the General Partner
shall not be obligated to share any business opportunities with
the Partnership or with the Limited Partners. The Partners
hereby waive any and all rights and claims which they may
otherwise have against the General Partner and its officers,
directors, shareholders, agents, employees and Affiliates as a
result of any such activities.
6.6 Dealing with the Partnership
Except as limited by Section 6.2, the General Partner and
any Affiliates shall have the right to contract or otherwise deal
with the Partnership for the sale or lease of property, the
rendition of services and other purposes, and to receive payments
and fees from the Partnership in connection therewith as the
General Partner shall determine, provided that such payments or
fees for services, other than those specifically covered in
Article 7, shall be equal to the lesser of (i) the cost to the
General Partner and its Affiliates for providing such services,
or (ii) 90% of the competitive price which would be charged by
independent parties providing similar services in the same or a
comparable geographic location, and provided that such agreements
are terminable upon no more than 60 days' notice.
6.7 Liability and Indemnity
(a) General. The Partnership, its receiver or its
trustee, shall indemnify the General Partner and its Affiliates
against and save them harmless from any loss, (including, but not
limited to, attorneys' fees and court costs), suffered by the
Partnership which arises out of any action or inaction of the
General Partner or its Affiliates, if the General Partner or its
Affiliates have determined, in good faith, that such course of
conduct was in the best interest of the Partnership and that such
course of conduct did not constitute negligence or misconduct of
the General Partner or its Affiliates. The General Partner and
its Affiliates shall be indemnified by the Partnership against
any losses, judgments, liabilities, expenses and amounts paid in
settlement of any claims sustained by them in connection with the
Partnership, provided that the same were not the result of
negligence or misconduct on the part of the General Partner or
its Affiliates.
(b) Partnership Assets Must First Be Used. All
judgments against the Partnership and the General Partner or
Affiliates wherein the General Partner or such other persons are
entitled to indemnification, must first be satisfied from
Partnership assets before the General Partner or such other
persons are responsible for these obligations.
(c) No Presumption. The termination of any action,
suit or proceeding by judgment or settlement shall not, of
itself, create a presumption that the General Partner or its
Affiliates are not entitled to indemnification or are not
entitled to the protection afforded by this Section 6.7.
(d) Securities Laws. Notwithstanding Section 6.7(a),
the General Partner and its Affiliates and any person acting as a
Broker/Dealer shall not be indemnified for any losses,
liabilities or expenses arising from or out of an alleged
violation of federal or state securities laws unless (i) there
has been a successful adjudication on the merits of each count
involving alleged securities law violations as to the particular
indemnitee, or (ii) such claims have been dismissed with
prejudice on the merits by a court of competent jurisdiction as
to the particular indemnitee, or (iii) a court of competent
jurisdiction approved a settlement of the claims against a
particular indemnitee. In any claim for indemnification of
federal or state securities law violations, the party seeking
indemnification shall place before the court the position of the
Securities and Exchange Commission and the Massachusetts state
securities commission with respect to the issue of
indemnification for securities law violations.
(e) Insurance. The Partnership shall not incur the
cost of that portion of any insurance other than public liability
insurance, which insures any party against any liability for
which indemnification is prohibited under this Section 6.7.
(f) Advances from Partnership. The advance of
Partnership funds to the General Partner or its Affiliates for
legal expenses and other costs incurred as a result of a legal
action is permissible only if (i) the legal action relates to the
performance of duties or services by the General Partner or its
Affiliates, (ii) the legal action is initiated by a third party
who is not a Limited Partner, and (iii) the General Partner and
its Affiliates undertake to repay the advanced funds to the
Partnership in cases in which they would not be entitled to
indemnification.
6.8 Reserves
The Partnership shall maintain reasonable reserves for
normal repairs, replacements, working capital, and contingencies
in an initial amount to be determined by the General Partner,
which may be increased or decreased from time to time as
determined by the General Partner.
6.9 Fiduciary Duty of the General Partner
The General Partner shall have fiduciary responsibility for
the safekeeping and use of all funds and assets of the
Partnership, whether or not in its possession or control, and it
shall not employ, or permit another to employ, such funds or
assets in any manner except for the benefit of the Partnership.
6.10 Loan Commitment Guaranty
The General Partner shall lend or arrange to lend to the
Partnership as provided in the Loan Commitment Guaranty Agreement
the amount of any Operating Deficit for any calendar quarter for
the period beginning January 1, 1987 through December 31, 1991.
Such a loan shall be made within 15 days after the Operating
Deficit for the quarter is determined, and shall bear interest at
the rate then charged to the Partnership by its principal lender
and shall be repaid when funds are available to the Partnership.
6.11 Completion Guaranty
The General Partner guaranties pursuant to the Completion
Guaranty Agreement that the Properties will be completed free and
clear of all financing and construction liens (except any liens
secured by deeds of trust described in the Prospectus) at a total
cost to the Partnership not to exceed approximately $28,807,000,
including the purchase price of the Properties, but excluding
negative cash flow associated with lease-up expenses and the
first year of operations. This guaranty shall survive the
admission of Limited Partners to the Partnership. The General
Partner does not warrant compliance with the conditions or
standards of the construction agreements with respect to the
Properties.
ARTICLE 7
COMPENSATION AND REIMBURSEMENT OF
EXPENSES TO THE GENERAL PARTNER
AND ITS AFFILIATES
The General Partner and its Affiliates shall be entitled to
receive as a cost of the Partnership each and all of the
following amounts as fees, compensation, and reimbursement in
addition to their rights to reimbursement of ongoing expenses as
set forth in Article 14.
7.1 Reimbursement of Expenses
(a) Organization and Offering Expenses. To the
extent that Organization and Offering Expenses and services were
paid or furnished by the General Partner or its Affiliates rather
than from Partnership funds, the General Partner or its
Affiliates shall receive a reimbursement for all such expenses
and services. The Partnership shall not be required to pay or
reimburse the General Partner or any Affiliate of the General
Partner for Organization and Offering Expenses which exceed
fifteen percent (15%) of the Gross Offering Proceeds as of the
Completion Date.
(b) Other Expenses. The Partnership shall reimburse
the General Partner or its Affiliates for the actual cost to the
General Partner or its Affiliates (or pay directly the actual
cost) of goods and materials used for or by the Partnership and
obtained from entities unaffiliated with the General Partner.
The Partnership shall also pay or reimburse the General Partner
or its Affiliates for expenses incurred in connection with the
provision of administrative services necessary to the prudent
operation of the Partnership, provided that such reimbursement
shall be at the lower of (i) actual cost to the General Partner
or its Affiliates, or (ii) 90% of the competitive price which
would be charged by independent parties for comparable
administrative services in the same geographical location.
(c) Nonreimbursable Expenses. The General Partner
will pay and will not be reimbursed by the Partnership for the
following expenses: (i) salaries, fringe benefits, travel
expenses and other administrative items of individuals who are
Control Persons of the General Partner or its Affiliates, (ii)
those overhead expenses of the General Partner or its Affiliates
which include their rent, depreciation, utilities and capital
equipment, (iii) Organization and Offering Expenses in excess of
15% of Gross Offering Proceeds, (iv) expenses related to the
performance of those services for which the General Partner or
its Affiliates are entitled to compensation by way of the
Property Management Fee, Initial Partnership Management Fee,
Completion Guaranty Fee or Subordinated Property Disposition
Interest and (v) all other expenses which are unrelated to the
business of the Partnership.
7.2 Reimbursement for Sums Advanced to the Partnership
To the extent that the General Partner or its Affiliates
have advanced or will advance funds to the Partnership, the
General Partner or its Affiliates shall be reimbursed for such
funds.
7.3 Initial Partnership Management Fee
In consideration for organizing the Partnership, arranging
for and negotiating construction financing, arranging for and
negotiating permanent financing, obtaining (in connection with
the permanent financing) a Credit Enhancement satisfactory to the
lender of the permanent financing, selecting and supervising
professionals to perform services for the Partnership,
establishing Partnership accounts, including an escrow account
for use in connection with the offering of Units, and
establishing a reporting system for submitting tax information
and periodic reports to the Limited Partners and regulatory
authorities, the General Partner shall receive an Initial
Partnership Management Fee of $291,000, which shall be payable
proportionately from Capital Contributions and any remaining
balance due on the Completion Date.
7.4 Completion Guaranty Fee
The General Partner shall receive a Completion Guaranty Fee,
in consideration for the Completion Guaranty, in the amount of
$600,000 payable proportionately from Capital Contributions and
any remaining balance due on the Completion Date; provided,
however, that in no event shall such fee exceed 90% of the
competitive price which would be charged by a non-Affiliate for
rendering similar services in the same or a comparable geographic
location.
7.5 Property Management Fee; Initial Lease-Up Fee
(a) The General Partner shall act as the property
manager and shall receive a Property Management Fee equal to five
percent (5%) of the Effective Gross Collections in managing the
Properties including acting as a liaison with tenants and
monitoring and supervising the following services: (i) collection
of rentals, (ii) payment of all mortgages, (iii) obtaining and
maintaining appropriate insurance for the Properties, (iv)
leasing activities, (v) property inspection and maintenance, (vi)
accounting, services, (vii) legal services, (viii) tax
calculations and payments, (ix) bookkeeping services and (x)
similar ordinary management services necessary for the orderly
management of the Properties. However, during the Lease-Up
Period of the Properties, the Property Management Fee shall equal
the greater of (A) five percent (5%) of the Effective Gross
Collections or (B) one-half (1/2) of five percent (5%) of the
Effective Gross Collections assuming the Properties were leased
at their market rates. Additional sums shall also be payable to
the General Partner for performing certain extraordinary
services, including without limitation data processing services,
payroll services and collections with respect to the Properties.
(b) In addition, the General Partner shall receive,
to the extent that the manager performs services outside the
normal and customary services provided by independent third party
property managers, reimbursement for direct salary expenses of
employees performing such services. The provision of such
services does not constitute part of the duties or obligations of
the General Partner in its capacity as General Partner of the
Partnership.
(c) The Property Management Fee shall be paid monthly
to the General Partner, or any unaffiliated property management
firm which the General Partner in its sole discretion may select.
To the extent that the Partnership has insufficient cash to pay
the Property Management Fee in any amount, the fee shall be
accrued and paid as soon as the Partnership has sufficient cash
available.
(d) The Property Manager shall also receive a one-
time Initial Lease-Up Fee of $106,000 for extraordinary services
provided during the lease-up of the Properties, including but not
limited to establishing a marketing plan, maintaining on-site
personnel, showing units and interviewing and evaluating
prospective tenants. The Initial Lease-Up Fee shall be paid
monthly from rental revenues, prorated over the period commencing
with the completion of the Properties and continuing until the
Properties are 95% occupied. In no event shall the Initial
Lease-Up Fee exceed 90% of the competitive price which would be
charged by a non-Affiliate for rendering similar services in the
same or a comparable geographic location.
7.6 Share of Distributable Cash from Operations
The General Partner shall receive its share of Distributable
Cash from Operations as set forth in Sections 5.1 and 5.3.
7.7 Subordinated Property Disposition Interest
For brokerage services in connection with the sale of a
Property, the Partnership shall pay the General Partner a
Subordinated Property Disposition Interest. The Subordinated
Property Disposition Interest shall equal the lesser of: (i) a
percentage of the gross sales price of a Property equal to
onehalf of the percentage rate customarily charged for similar
services by unaffiliated parties that render the same services as
an ongoing public activity in the same geographic location for
comparable property, or (ii) three percent (3%) of the gross
sales price of a Property. The Subordinated Property Disposition
Interest shall be payable upon the close of escrow of the sale of
each Property; provided, however, that payment shall be
subordinated as provided in Section 7.8(a). Notwithstanding the
foregoing to the contrary, the aggregate commissions paid to all
persons for the sale of the Properties, whether or not they are
Affiliates of the General Partner, shall not exceed six percent
(6%) of the selling price of each Property, but otherwise there
is no limitation on or subordination of real estate commissions
paid to non-Affiliates. Any Subordinated Property Disposition
Interest not paid to the General Partner due to a lack of
available cash shall be a liability of the Partnership and shall
be paid when cash becomes available.
7.8 Fees and Share Upon Sale or Refinancing
The General Partner shall receive the following items of
distribution and compensation:
(a) Upon the sale of a Property, the Subordinated
Property Disposition Interest will be subordinated to the return
to the Limited Partners of the portion of their Invested Capital
attributable to the Property sold plus a 10% Priority Return and,
as appropriate, the Incentive Priority Return on the average
daily balance of Invested Capital attributable to the Property
sold. A Limited Partner's portion of Invested Capital
attributable to the Property sold will be calculated by
multiplying his Invested Capital by a fraction, the numerator of
which shall equal the cost of the Property sold and the
denominator of which shall equal the cost of both of the
Properties; provided, however, that the Subordinated Property
Disposition Interest shall not be paid to the General Partner
until the Limited Partners have received at least a 6% cumulative
simple return on their total Invested Capital.
(b) Upon a sale or a refinancing of a Property, its
share of Net Proceeds from Sale or Refinancing as set forth in
Section 5.4.
7.9 Loans by the General Partner to the Partnership
The General Partner or its Affiliates may, but are not
obligated to (except as set forth in Section 6.10), loan or
advance funds to the Partnership, and receive interest or other
financing charges or fees, provided that the interest charges or
fees are not in excess of amounts charged by third party
financing institutions on comparable loans for the same purpose
or, if the funds for a loan are obtained by the General Partner
from a lending institution, the rate and other fees which the
General Partner is required to pay to the lending institution.
In no event shall the General Partner or its Affiliates charge
the Partnership a prepayment charge or penalty in connection with
any loans or advances to the Partnership from the General Partner
or its Affiliates.
7.10 Fees Payable on Cessation as the General Partner
If the General Partner ceases to be the General Partner
pursuant to Section 12.1, any fee, commission, or reimbursement
of expenses payable according to the provisions of this Agreement
which is then accrued, but not yet paid, shall be paid by the
Partnership to the General Partner or, if appropriate, an
Affiliate thereof, in cash, within 30 days of the date the
General Partner ceases to be the General Partner.
ARTICLE 8
BOOKS, RECORDS, ACCOUNTS AND REPORTS
8.1 Books and Records
(a) The Partnership shall continuously maintain an
office in the State of California, at which the following books
and records shall be kept:
(1) A current list of the full name and last
known business or residence address of each Partner set forth in
alphabetical order together with the contribution and the share
in profits and losses of each Partner;
(2) A copy of the Certificate of Limited
Partnership and all certificates of amendments thereto, together
with executed copies of any powers of attorney pursuant to which
any such certificate has been executed;
(3) Copies of the Partnership's federal, state,
and local income tax or information returns and reports, if any,
for the six most recent taxable years;
(4) Copies of this Agreement and all amendments
thereto;
(5) Financial statements of the Partnership for
the six most recent fiscal years;
(6) The Partnership's books and records for at
least the current and past three fiscal years; and
(7) Copies of each appraisal of the Properties.
(b) The Partnership shall also maintain at its
principal office such additional books and records as are
necessary for the operation of the Partnership.
8.2 Limited Partners' Rights Regarding Books, Records and
Tax Information
(a) Upon the request of a Limited Partner, the
General Partner shall promptly deliver to the Limited Partner, at
the expense of the Partnership, a copy of the items set forth in
Sections 8.1(a)(1), (2), and (4).
(b) Each Limited Partner or any person designated by
a Limited Partner to act on his behalf has the right upon
reasonable request:
(1) To inspect and copy during normal business
hours, at the Limited Partner's expense, any of the Partnership's
records required to be kept of the Partnership; and
(2) To obtain from the General Partner promptly
after becoming available, at the Limited Partner's expense, a
copy of the Partnership's federal, state and local income tax or
information returns for each year.
(b) The General Partner shall promptly furnish to a
Limited Partner a copy of any amendment to this Agreement
executed by the General Partner pursuant to a power of attorney
from the Limited Partner.
(c) The General Partner shall send to each Partner
within 75 days after the end of each taxable year such
information as is necessary to complete federal and state income
tax or information returns.
8.3 Accounting Basis and Fiscal Year
The Partnership's books and records (a) shall be kept on a
basis chosen by the General Partner in accordance with the
accounting methods followed by the Partnership for federal income
tax purposes, (b) shall reflect all Partnership transactions, (c)
shall be appropriate and adequate for the Partnership's business
and for the carrying out of all provisions of this Agreement, and
(d) shall be closed and balanced the end of each Partnership
fiscal year. The fiscal year of the Partnership shall be the
calendar year, unless otherwise determined by the General
Partner.
8.4 Reports
(a) Annual Statements. The General Partner shall
have prepared at least annually, at Partnership expense: (i)
annual financial statements including a balance sheet, statement
of income or loss, statement of partners' equity, statement of
changes in financial position and a cash flow statement, all of
which, except the cash flow statement, shall be prepared in
accordance with generally accepted accounting principles and
accompanied by an auditor's report containing an opinion of an
independent certified public accountant; (ii) Partnership
information necessary in the preparation of the Limited Partners'
federal and state income tax returns; (iii) a report of the
activities of the Partnership during the period covered by the
report; (iv) a statement as to the reimbursements received during
the year by the General Partner and its Affiliates from the
Partnership, including a verification of the allocation of the
costs to the Partnership by independent certified public
accountants; (v) a tabular comparison of the results from
operations with the Financial Forecast; and (vi) a report
identifying distributions from (A) Distributable Cash from
Operations of that year, (B) Distributable Cash from Operations
of prior years, and (C) Net Proceeds from Sale or Refinancing and
other sources. Copies of the financial statements and reports
shall be distributed to each Limited Partner within 120 days
after the close of each taxable year of the Partnership;
provided, however, that all Partnership information necessary in
the preparation of the Limited Partners' federal income tax
returns shall be distributed to each Limited Partner not later
than 75 days after the close of each fiscal year of the
Partnership.
(b) Quarterly Reports. The General Partner shall
cause to be prepared quarterly, at Partnership expense, a report
containing: (i) a statement of the compensation received by the
General Partner and its Affiliates during the quarter from the
Partnership, which statement shall set forth the services
rendered by the General Partner and its Affiliates and the amount
of fees received; (ii) a balance sheet which may be unaudited;
(iii) a statement of income for the quarter then ended, which may
be unaudited; (iv) a cash flow statement for the quarter then
ended, which may be unaudited; and (v) other relevant
information. Copies of the statements shall be distributed to
each Limited Partner within 60 days after the end of each
quarterly period. The information required by Form 10-Q (if
required to be filed with the Securities and Exchange Commission)
will be supplied to each Limited Partner within 45 days after the
end of each quarterly period.
(c) Unaudited Financial Statements. Until the
Partnership is registered under Section 12(g) of the Securities
Exchange Act of 1934, as amended, the General Partner shall cause
to be prepared, at Partnership expense, a semi-annual report
covering the first six months of Partnership operations in each
calendar year, and semi-annually thereafter, unaudited financial
statements (consisting of a balance sheet, a statement of income
or loss for the first six-month period and a statement of cash
flow for the first six-month period) and a statement of other
pertinent information regarding the Partnership and its
activities during the six-month period covered by the report.
Copies of the statements and other pertinent information shall be
distributed to each Limited Partner within 60 days after the
close of the six-month period covered by the report of the
Partnership. If the Partnership has more than 35 Limited
Partners, Limited Partners representing at least five percent
(5%) of the Units may make a written request to the General
Partner for an income statement of the Partnership for the
initial three-month, six-month, or nine-month period of the
current fiscal year ended more than 30 days prior to the date of
the request and a balance sheet of the Partnership as of the end
of that period. The statement shall be delivered or mailed to
the Limited Partners making the request within 30 days
thereafter. Copies of the financial statements, if any, filed
with the Securities and Exchange Commission shall be distributed
to each Limited Partner within 60 days after the close of the
quarterly period covered by the report of the Partnership.
(d) General Partner's Certificate. The financial
statements referred to in this Section 8.4 which are unaudited
shall be accompanied by a certificate of the General Partner that
such financial statements were prepared without audit from the
books and records of the Partnership.
8.5 Tax Returns
The General Partner, at Partnership expense, shall cause to
be prepared income tax returns for the Partnership and shall
further cause such returns to be timely filed with the
appropriate authorities.
8.6 Filings with Regulatory Agencies
The General Partner, at Partnership expense, shall cause to
be prepared and timely filed with appropriate federal and state
regulatory and administrative bodies, all reports required to be
filed with such entities under then current applicable laws,
rules and regulations. Any Limited Partner shall be provided
with a copy of any such report upon request at such Limited
Partner's expense.
8.7 Tax Matters Partner
The General Partner is hereby designated as the "tax matters
partner" of the Partnership in accordance with Section 6231(a)(7)
of the Internal Revenue Code and is authorized, at the
Partnership's sole cost and expense, to represent the Partnership
and each Limited Partner in connection with all examinations of
the Partnership affairs by tax authorities, including resulting
administrative and judicial proceedings, and to expend
Partnership funds for professional services and costs connected
therewith. Each Limited Partner agrees to cooperate with the
General Partner and to do or refrain from doing any and all
things reasonably required by the General Partner to conduct such
proceeding. The General Partner shall have the right to settle
any audits without the consent of the other Partners and to take
any and all other actions on behalf of the Partners or the
Partnership in connection with any tax audit or judicial review
proceeding to the extent permitted by applicable law and
regulations.
ARTICLE 9
CERTAIN MATTERS AND VOTING RIGHTS AFFECTING LIMITED PARTNERS
9.1 Limitations
No Limited Partner shall (a) have the authority or power in
his capacity as a Limited Partner to act as agent for or on
behalf of the Partnership or any other Partner, to do any act
which would be binding on the Partnership or any other Partner,
or to incur any expenditures on behalf of or with respect to the
Partnership, (b) have any of his obligations to make
contributions or to return distributions compromised except upon
approval of the General Partner, or as otherwise required by
Section 15666 of the Act, (c) have any right to demand or receive
property other than money upon distribution from the Partnership,
or (d) be compelled to accept a distribution of any asset in kind
from the Partnership in lieu of a proportionate distribution of
money being made to other Partners.
9.2 Liability of Limited Partners
The liability of each Limited Partner (in the capacity as a
Limited Partner) for the losses, debts and obligations of the
Partnership shall be limited to the Limited Partner's Capital
Contribution, and the Limited Partner's share of any
undistributed assets of the Partnership; provided, however, that
under applicable partnership law, a Limited Partner may, under
certain circumstances, be required to return to the Partnership
amounts previously distributed to such Limited Partner for the
benefit of Partnership creditors, with interest. Any such
obligation to return distributions and pay interest shall be the
sole obligation of the Limited Partners and not of the General
Partner.
9.3 Voting Rights
(a) Limited Partners shall have the right, by
Majority Vote to take the following actions:
(1) Amend this Agreement, subject to the
conditions contained in Article 15 hereof;
(2) Dissolve and wind up the Partnership;
(3) Remove the General Partner;
(4) Approve or disapprove the sale of either or
both of the Properties, except in the orderly liquidation and
winding up of the Partnership upon its dissolution;
(5) Admit a general partner or elect to
continue the business of the Partnership after the removal of the
General Partner where there is no remaining general partner; and
(6) Elect to continue the business of the
Partnership as set forth in Section 13.2(b).
(b) The unanimous approval of all the Limited
Partners shall be required for the admission of a general partner
or the election to continue the business of the Partnership after
the general partner ceases to be a general partner (other than by
removal) where there is no remaining general partner.
(c) Notwithstanding any provision contained in the
Act to the contrary, the Limited Partners shall have no voting
rights other than as expressly set forth in this Agreement.
ARTICLE 10
MEETINGS
10.1 Place of Meetings
Meetings of the Partners may be held at any place within or
outside of California, at a time and place convenient to the
Limited Partners, as determined by the General Partner.
10.2 Calling of Meetings
A meeting of the Partners may be called by the General
Partner or by Limited Partners holding more than ten percent
(10%) of the outstanding Units for any matters on which the
Limited Partners may vote.
10.3 Notices
(a) Whenever Partners are required or permitted to
take any action at a meeting, a written notice of the meeting
shall be given not less than 15, nor more than 60 days before the
date of the meeting to each Partner entitled to vote at the
meeting. The notice shall state the place, date, and hour of the
meeting and the general nature of the business to be transacted,
and no other business may be transacted.
(b) Notice of a Partners' meeting or any report shall
be given either personally or by mail or other means of written
communication, addressed to the Partner at the address of the
Partner appearing on the books of the Partnership or given by the
Partner to the Partnership for the purpose of notice, or, if no
address appears or is given, at the place where the principal
executive office of the Partnership is located or by publication
at least once in a newspaper of general circulation in the county
in which the principal executive office is located. The notice
or report shall be deemed to have been given at the time when
delivered personally or deposited in the mail or sent by other
means of written communication. An affidavit of mailing of any
notice or report in accordance with the provisions of this
Article, executed by the General Partner, shall be prima facie
evidence of the giving of the notice or report.
If any notice or report addressed to the Partner at the
address of the Partner appearing on the books of the Partnership
is returned to the Partnership by the United States Postal
Service marked to indicate that the United States Postal Service
is unable to deliver the notice or report to the Partner at the
address, all future notices or reports shall be deemed to have
been duly given without further mailing if they are available for
the Partner at the principal executive office of the Partnership
for a period of one year from the date of the giving of the
notice or report to all other Partners.
(c) Upon written request to the General Partner by
any person entitled to call a meeting of Partners, the General
Partner shall provide, within 10 days from the date the request
is received, the Partners entitled to vote with a notice of the
meeting specifying that the meeting will be held at the time
requested by the person calling the meeting, not less than 15 nor
more than 60 days after the receipt of the request.
10.4 Adjournment
When a Partners' meeting is adjourned to another time or
place, notice need not be given of the adjourned meeting if the
time and place thereof are, announced at the meeting at which the
adjournment is taken. At the adjourned meeting the Partnership
may transact any business which might have been transacted at the
original meeting. If the adjournment is for more than 45 days or
if after the adjournment a new record date is fixed for the
adjourned meeting, a notice of the adjourned meeting shall be
given to each Partner of record entitled to vote at the meeting
in accordance with this Article 10.
10.5 Waiver of Notice and Consent to Meeting
The transactions of any meeting of Partners, however called
and noticed, and wherever held, are as valid as though had at a
meeting duly held after regular call and notice, if a quorum is
present either in person or by proxy, and if, either before or
after the meeting, each of the Persons entitled to vote, not
present in person or by proxy, signs a written waiver of notice
or a consent to the holding of the meeting or an approval of the
minutes thereof. All waivers, consents, and approvals shall be
filed with the Partnership records or made a part of the minutes
of the meeting. Attendance of a person at a meeting shall
constitute a waiver of notice of the meeting, except when the
person objects, at the beginning of the meeting to the
transaction of any business because the meeting is not lawfully
called or convened and except that attendance at a meeting is not
a waiver of any right to object to the consideration of matters
required to be included in the notice of the meeting but not so
included, if the objection is expressly made at the meeting.
Neither the business to be transacted at nor the purpose of any
meeting of Partners need be specified in any written waiver of
notice, except as provided in Section 10.6.
10.6 Validity of Vote for Certain Matters
Any Partner approval at a meeting, other than unanimous
approval by those entitled to vote, pursuant to Section 9.3
hereof, shall be valid only if the general nature of the proposal
so approved was stated in the notice of meeting or in any written
waiver of notice.
10.7 Quorum
(a) A majority of the Units held by Limited Partners
represented in person or by proxy shall constitute a quorum at a
meeting of Partners.
(b) The Partners present at a duly called or held
meeting at which a quorum is present may continue to transact
business until adjournment notwithstanding the withdrawal of
enough Partners to leave less than a quorum, if any action taken
(other than adjournment) is approved by the requisite vote
necessary under Section 9.3.
(c) In the absence of a quorum, any meeting of
Partners may be adjourned from time to time by the vote of a
majority of the outstanding Units held by Limited Partners
represented either in person or by proxy, but no other business
may be transacted, except as provided in Section 10.7(b).
10.8 Action Without a Meeting
Any action which may be taken at any meeting of the Partners
may be taken without a meeting if a consent in writing, setting
forth the action so taken, shall be signed by Partners having not
less than the minimum number of votes that would be necessary to
authorize or take that action at a meeting at which all entitled
to vote thereon were present and voted. In the event the Limited
Partners are requested to consent on a matter without a meeting,
each Partner shall be given notice of the matter to be voted upon
in the same manner as described in Section 10.3. In the event the
General Partner, or Limited Partners representing more than ten
percent (10%) of the Units, request a meeting for the purpose of
discussing or voting on the matter, the notice of a meeting shall
be given in accordance with Section 10.3 and no action shall be
taken until the meeting is held. Unless delayed in accordance
with the provisions of the preceding sentence, any action taken
without a meeting shall be effective 15 days after the required
minimum number of voters have signed the consent, however, the
action will be effective immediately if the General Partner and
Limited Partners holding at least ninety percent (90%) of the
outstanding Units have signed the consent.
10.9 Use of Proxies
The use of proxies in connection with this Article 10 will
be governed in the same manner as in the case of corporations
formed under the California General Corporation Law.
10.10 Record Date
In order that the Partnership may determine the Partners of
record entitled to notices of meeting or to vote, or entitled to
receive any distribution or to exercise any rights in respect of
any other lawful action, the General Partner, or Limited Partners
holding more than ten percent (10%) of the outstanding Units, may
fix, in advance, a record date, which is not more than 60 nor
less than 15 days prior to the date of the meeting and not more
than 60 days prior to any other action. If no record date is
fixed:
(a) The record date for determining Partners entitled
to notice of or to vote at a meeting of Partners shall be at the
close of business on the business day next preceding the day on
which notice is given or, if notice is waived, at the close of
business on the business day next preceding the day on which the
meeting is held.
(b) The record date for determining Partners entitled
to give consent to Partnership action in writing without a
meeting shall be the day on which the first written consent is
given.
(c) The record date for determining Partners for any
other purpose shall be at the close of business on the day on
which the General Partner adopts it, or the 60th day prior to the
date of the other action, whichever is later.
(d) The determination of Partners of record entitled
to notice of or to vote at a meeting of Partners shall apply to
any adjournment of the meeting unless the General Partner, or the
Limited Partners who called the meeting, fix a new record date
for the adjourned meeting, but the General Partner, or the
Limited Partners who called the meeting, shall fix a new record
date if the meeting is adjourned for more than 45 days from the
date set for the original meeting.
ARTICLE 11
ASSIGNMENT OF INTERESTS;
SUBSTITUTED LIMITED PARTNERS; LIMITED LIQUIDITY PLAN
11.1 Sale, Transfer, or Assignment of Interest of the
General Partner
The General Partner may not sell or transfer all or any Part
of its general partnership interest (not including any Units it
holds) in the Partnership except in connection with the merger,
consolidation, or reorganization of the General Partner into
another entity or the transfer of ownership of the ownership
interest in the General Partner or the assumption of the rights
and duties of the General Partner or by another entity in
connection with any such transaction or as set forth in Article
7. The General Partner may also hold Units, the sale or transfer
of which is subject to Section 11.2. Notwithstanding the
foregoing, the General Partner may assign any part of its
interest in subordinated distributions under Section 5.4(c) to
any person or entity.
11.2 Assignment of Units
A Limited Partner may not sell, transfer, assign, pledge, or
otherwise dispose of any or a part of his Units (whether
voluntarily or by operation of law) (hereinafter collectively
referred to as an "assignment"), except as follows and as set
forth in Section 11.7:
(a) A Limited Partner may assign one or more of his
Units if in compliance with this Section 11.2 and Sections 11.5
or 11.6. No consent or approval of any of the Limited Partners
shall be required for such assignment.
(b) Any assignment must be by a written instrument,
in a form satisfactory to the General Partner and accepted by it,
which instrument has been duly executed by the assignor of such
Units. A Limited Partner shall notify the General Partner of an
assignment or transfer by operation of law of a beneficial
interest in any Units which occurs without a transfer of record
ownership.
(c) An Assignee shall be required to pay a reasonable
sum to reimburse the Partnership and the General Partner in
connection with such assignment, with such sum to be determined
by the General Partner in its sole discretion. The sum shall be
intended to cover any legal fees, accounting fees, overhead
charges, and other fees or expenses incurred by the Partnership
and its counsel as a result of any such assignment.
(d) The General Partner may require an opinion of
counsel, in form and substance satisfactory to it in its sole
discretion, by counsel experienced in securities laws matters,
covering (i) that the proposed assignment will be in compliance
with applicable securities laws, rules and regulations, and (ii)
such other matters as may be determined by the General Partner in
its sole discretion. The fee for such counsel shall be paid by
the assignor.
Any purported assignment of Units which is not in compliance
with this Agreement is hereby declared to be null and void and of
no force or effect whatsoever.
11.3 Assignee's Rights
(a) An assignment of a Unit does not entitle the
Assignee to become or to exercise any rights of a Partner. An
assignment entitles the Assignee to receive, to the extent
assigned, only the distributions and allocation of profits and
losses to which the assignor would be entitled after the
effective date of assignment as set forth below. A Limited
Partner remains a Partner upon assignment of all or part of the
Limited Partner's Units, subject to the possibility of the
Assignee becoming a Substituted Limited Partner pursuant to
Section 11.5.
(b) The "effective date" of an assignment shall be
that date specified in the written instrument whereby the General
Partner consents to the assignment, which date shall not be later
than the first day of the quarter following receipt by the
General Partner of a written notice of assignment and the
fulfillment of all conditions precedent to such assignment
provided for in this Agreement. Notwithstanding anything to the
contrary contained in this Agreement, the Partnership and the
General Partner shall be entitled to treat an assignor or
transferor of Units as the absolute owner thereof in all
respects, and shall incur no liability for allocations of income,
gain, loss, deductions, credits, or distributions made to such
assignor or transferor until the effective date of an assignment
shall have passed.
11.4 No Assignment Allowed Under Certain Circumstances
Anything herein contained to the contrary notwithstanding,
no Limited Partner shall have the right, without express written
approval from the General Partner, to assign his Units, or any
portion thereof, if such assignment would result (directly or
indirectly) in the (a) termination of the Partnership for tax
purposes; (b) violation of the Securities Act of 1933 or any
rules or regulations thereunder, or any applicable state
securities laws or any rules or regulations thereunder; (c)
violation of any investment representation given by such Limited
Partner in connection with his acquisition of Units; (d)
treatment of the Partnership as an association taxable as a
corporation; or (e) acquisition by an Assignee who is a resident
alien, non-resident alien, sellers or related parties of the
sellers of the Properties, or holder of a mortgage loan on the
Properties.
11.5 Substituted Limited Partners
(a) An Assignee shall not become a Substituted
Limited Partner unless the General Partner gives its express
written consent to such substitution (which consent may not be
unreasonably withheld) and receives such instruments and
documents, and a reasonable transfer fee, as the General Partner
shall require.
(b) The assignor Limited Partner shall cease to be,
and the Assignee shall become, a Limited Partner, as to the Units
so assigned, as of the date on which the Assignee has satisfied
the requirements set forth above and as of the date of
effectiveness.
(c) The General Partner is hereby authorized to do
all things necessary to effect the admission of any such
Substituted Limited Partner, including, but not limited to, the
filing of an amended Certificate of Limited Partnership (if
necessary), and each Limited Partner hereby agrees (and each
Substituted Limited Partner, upon the execution of the
instruments referred to in Section 11.5(a), shall be deemed to
have agreed) that he shall, at the request of the General
Partner, execute and deliver any such amended Certificate of
Limited Partnership.
(d) Unless and until any Assignee, transferee, heir
or legatee becomes a Substituted Limited Partner, his status and
rights shall be limited to the rights of an Assignee. An
Assignee who does not become a Substituted Limited Partner shall
have no right to inspect the Partnership's books or to vote on
any of the matters on which a Limited Partner would be entitled
to vote. An Assignee who has become a Substituted Limited
Partner has, to the extent the assignor's Units are assigned, the
rights and powers, and is subject to the restrictions and
liabilities, of a Limited Partner under this Agreement. In no
event, however, is an assignor released from the assignor's
liabilities, if any, to the Partnership pursuant to Sections
15622(d), 15652 and 15666 of the Act.
(e) The General Partner shall cause this Agreement
and any separate Certificate of Limited Partnership (if required
by law) to be amended to reflect the substitution of Limited
Partners at least once in each fiscal quarterly period of the
Partnership.
(f) Any person admitted to the Partnership as a
Substituted Limited Partner shall be subject to and bound by all
the provisions of this Agreement as if originally a party to this
Agreement.
11.6 Death, Incompetency or Bankruptcy of a Limited Partner
The death, adjudication of incompetency or bankruptcy of a
Limited Partner shall not dissolve the Partnership. If a Limited
Partner who is an individual dies or a court of competent
jurisdiction adjudges the Limited Partner to be incompetent to
manage the Limited Partner's personal property, the Limited
Partner's executor, administrator, guardian, conservator, or
other legal representative may exercise all the Limited Partner's
rights for the purposes of settling the Limited Partner's estate
or administering the Limited Partner's property. The executor,
administrator, guardian, conservator, or other legal
representative, as applicable, of the deceased, incompetent or
bankrupt Limited Partner shall nevertheless continue to be liable
for all of his obligations as a Limited Partner.
11.7 Limited Liquidity Plan
Commencing on January 1, 1989, and each year thereafter, the
Limited Partners shall have the option to have their Units
repurchased by the Partnership or a person designated by the
Partnership subject to the terms and conditions set forth in this
Section 11.7.
(a) Purchase Price. The purchase price of any Units
repurchased by the Partnership or person designated by the
Partnership pursuant to this Section 11.7 shall equal 80% of the
value of such Units as established by the General Partner. The
General Partner shall use a sales/liquidation analysis of the
Partnership to establish the value of the Units. Such analysis
shall determine the net proceeds from a sale of the Properties,
based on independent appraisals, adjusted for Working Capital
Reserves, increased by the book value of other Partnership assets
and decreased by Partnership debts, obligations and disposition
costs. The General Partner shall then determine, in accordance
with the provisions of Sections 5.3 and 5.4, the amount of such
proceeds which would be distributed to any Limited Partner
requesting repurchase. This amount shall be the established
value of a Limited Partner's Units, of which a Limited Partner
would receive 80% if his Units are repurchased.
(b) Appraisal. Upon receipt of a repurchase request
from a Limited Partner, the Partnership shall have the Properties
appraised by an independent M.A.I. appraiser; provided, however,
that if the Properties have been appraised at any time during the
12 months preceding the repurchase request, the General Partner,
in its sole discretion, may elect to use either or both of the
prior appraisals and forego the reappraisal of either or both of
the Properties. The purchase of Units under this plan shall be
suspended during any period when one or both of the Properties
are being reappraised. The expense of the appraisals shall be
borne by the Partnership.
(c) Exercise. Repurchases shall be made on a
quarterly basis. A Limited Partner shall provide the Partnership
with written notice of the election to have his Units
repurchased. The repurchase shall be made in the calendar
quarter following the quarter in which the notice is received by
the Partnership. The Partnership shall, if necessary, have one
or both of the Properties appraised, calculate the value of the
Units and provide the Limited Partner notice of the purchase
price for his Units no later than 45 days prior to the date the
repurchase is scheduled to occur. The Limited Partner shall have
30 days to confirm or revoke his repurchase election. If no
notice is received within this period, the Limited Partner shall
be deemed to have revoked the repurchase election. If in any
quarter the requests for repurchase exceed the funds available
for repurchase, priority shall be given to the requests in the
order in which they were received by the Partnership. If a
Limited Partner's request for repurchase is not satisfied in a
given quarter, such Partner's priority based on the date his
request was received shall carry over to subsequent quarters.
Any Limited Partners electing not to proceed will be given
priority in the order in which their elections are received in
any subsequent quarter.
(d) Funding. Each quarter the General Partner shall
review the requests for repurchase and based on the number of
requests, allocate up to 10% of the Distributable Cash from
Operations for the purpose of making repurchases. Any funds set
aside for repurchases which are not used in the quarter so
allocated shall be promptly distributed with the next
distribution to the Partners in accordance with Section 5.3.
(e) Limitations. The Partnership shall not
repurchase in the aggregate more than 5% of the outstanding Units
(exclusive of Units owned by the General Partner, its Affiliates
or their employees) as of the Completion Date; provided, however,
the General Partner, at its discretion, may increase the
percentage of Units eligible for repurchase on a temporary or
permanent basis. In addition, repurchases shall not be made if
they would result in a "termination" of the Partnership within
the meaning of Section 708(b) of the Internal Revenue Code.
ARTICLE 12
TERMINATION OF THE GENERAL PARTNER
12.1 Cessation of the General Partner
(a) The General Partner shall cease to be the General
Partner of the Partnership only upon the happening of any of the
following events (hereinafter referred to as a "Terminating
Event" and the General Partner affected as the "Terminated
General Partner"):
(1) The General Partner withdraws from the
Partnership:
(2) The General Partner is removed as the
General Partner of the Partnership pursuant to Section 9.3(a)(3);
(3) Ninety (90) days after the Limited Partners
have received written notification (which notification shall be
given by the General Partner as prompted, as practicable) that an
order for relief against the General Partner has been entered
under Chapter 7 of the federal bankruptcy law, or that the
General Partner (i) has made a general assignment for the benefit
of creditors, (ii) has filed a voluntary petition under the
federal bankruptcy law, (iii) has filed a petition or answer
seeking for the General Partner any bankruptcy, reorganization,
arrangement, composition, readjustment, liquidation, dissolution
or similar relief under any statute, law, or regulation, (iv) has
filed an answer or other pleading admitting or failing to contest
the material allegations of a petition filed against the General
Partner in any proceeding of this nature, or (v) has sought,
consented to, or acquiesced in the appointment of a trustee,
receiver, or liquidator of the General Partner or of any or all
substantial part of the General Partner's properties;
(4) Ninety (90) days after the Limited Partners
have received written notification (which notification shall be
given by the General Partner as promptly as practicable) of one
of the following events: (i) commencement of any proceeding
against the General Partner seeking reorganization, arrangement,
composition, readjustment, liquidation, dissolution or similar
relief under any statute, law, or regulation, and the proceeding
has not been dismissed, or (ii) if within 60 days after the
appointment without the General Partner's consent or acquiescence
of a trustee, receiver, or liquidator of the General Partner or
of any or all substantial part of the General Partner's
properties, the appointment is not vacated or stayed, or within
60 days after the expiration of any such stay, the appointment is
not vacated; and
(5) The dissolution and termination of the
General Partner.
(b) Upon a Terminating Event where the business of
the Partnership is continued, the interest of the Terminated
General Partner in the Partnership shall be converted or
purchased as set forth in Section 12.2 below.
(c) Upon a Terminating Event, the agency relationship
between the Partnership and the Terminated General Partner shall
be terminated, and the Terminated General Partner shall have no
liability for any debts or liabilities of the Partnership
incurred after the Terminating Event.
12.2 Conversion or Purchase of Interest of Former General
Partner
(a) If the business of the Partnership continues
after a Terminating Event, the Terminated General Partner's
interest shall, at the election of the Partnership, either (i)
convert to that of a special limited partner interest or (ii) be
purchased by the Partnership. Whether the General Partner's
interest is converted or repurchased, the Partnership shall pay
all amounts then accrued and owing to the General Partner and its
Affiliates. The Partnership shall provide notice of its election
under this Section 12.2 to the Terminated General Partner within
30 days from the date of the election to continue its business.
If notice is not so provided, the Terminated General Partner's
interest shall be converted. Upon conversion of its interest to
that of a special Limited Partner, the Terminated General Partner
shall retain the same rights to profits, losses, and
distributions as before the Terminating Event and shall be
entitled to the voting rights accorded other Limited Partners.
If the Terminated General Partner's interest is repurchased, it
shall receive from the Partnership the then present value of its
interest in the Partnership, determined by agreement of the
Terminated General Partner and the Partnership. If such parties
cannot agree, the purchase price shall be determined in
accordance with the then current rules of the American
Arbitration Association, with the expense of arbitration borne
equally by the parties. If the termination of the Terminated
General Partner was voluntary, the method of payment for its
interest shall be under a non-interest bearing unsecured,
promissory note with principal payable from distributions which
the Terminated General Partner otherwise would have received
under this Agreement if it had remained as General Partner. If
the termination is involuntary, the method of payment shall be
under a promissory note bearing interest at the Reference Rate of
the bank specified by the Terminated General Partner, with equal
payments of principal and interest over a term of five years.
(b) If a Terminating Event Occurs and the business of
the Partnership is not continued, then the Partnership shall be
terminated and its assets distributed in accordance with Article
13.
12.3 Withdrawal by the General Partner
(a) The General Partner may withdraw from the
Partnership only upon providing the Limited Partners with 60
days' notice of its intent to withdraw, obtaining Majority Vote
of the Limited Partners consenting to such withdrawal and upon
the appointment of a successor general Partner by Majority Vote
of the Limited Partners.
(b) A withdrawal by the General Partner under the
conditions stated above shall not act as a breach of this
Agreement. In the event of a withdrawal by the General Partner
meeting the requirements of this Section 12.3, the withdrawing
General Partner shall be entitled to have his interest purchased
or converted to that of a special Limited Partner in accordance
with Section 12.2.
12.4 Termination of Executory Contracts With the General
Partner or Affiliates
Upon a Terminating Event as set forth in Section 12.1, all
executory contracts between the Partnership and the Terminated
General Partner or any Affiliate thereof may be terminated by the
Partnership effective upon 60 days prior written notice of such
termination to the party so terminated. The Terminated General
Partner or any Affiliate thereof may also terminate and cancel
any such executory contract effective upon 60 days prior written
notice to the Partnership.
12.5 Reports After Removal
Within 90 days after the Limited Partners have voted to
remove the General Partner, the General Partner shall have
Prepared, at Partnership expense, unaudited financial statements
(balance sheet, statement of income or loss, statement of
Partners' equity, and statement of changes in financial position)
Prepared in accordance with generally accepted accounting
principles and shall cause such statements to be mailed to the
Limited Partners as soon as possible after receipt thereof.
ARTICLE 13
DISSOLUTION AND TERMINATION OF THE PARTNERSHIP
13.1 Dissolution
The Partnership shall be dissolved and its affairs shall be
wound up upon the happening of the first to occur of the
following:
(a) Upon the General Partner ceasing to be the
general partner of the Partnership as set forth in Section 12.1
(a) hereof (other than by removal) unless (i) there is at least
one other General Partner and all other remaining General
Partner(s) elect to continue the business of the Partnership or
(ii) all Limited Partners agree to continue the business of the
Partnership and to admit one or more General Partners pursuant to
the voting right set forth in Section 9.3(b);
(b) On a date designated by vote of the limited
Partners pursuant to the exercise of the voting right set forth
in Section 9.3(a)(2);
(c) The sale or other disposition of all of the
Partnership's assets and the receipt in cash of the proceeds
thereof;
(d) Upon entry of a decree judicial dissolution; or
(e) On December 31, 2016.
13.2 Continuation of the Business of the Partnership
The business of the Partnership may be continued as follows:
(a) If the General Partner ceases to be a general
partner of the Partnership, any then remaining General Partner,
without the necessity for the consent of the Limited Partners,
shall have the right to continue the business of the Partnership.
(b) In all other events where a dissolution his
occurred, upon a Majority Vote of the Limited Partners consenting
to the continuation of the business of the Partnership, except
that if the General Partner ceases to be the general partner of
the Partnership (other than by removal) and there is no remaining
General Partner, the admission of a new General Partner or the
election to continue the business of the Partnership shall
require the unanimous consent of all Limited Partners.
13.3 Liquidation
(a) In the event of dissolution as provided in
Section 13.1, if there has been no election to continue the
Partnership as provided for in this Agreement and following any
sale of the Partnership's real or personal property, the liquid
assets of the Partnership shall be distributed as follows:
(1) All of the Partnership's debts and
liabilities to persons (including Partners to the extent
permitted by law) shall be paid and discharged, but excluding
secured creditors whose obligations will be assumed or otherwise
transferred on the liquidation of Partnership assets and any
reserve deemed necessary by the General Partner for the payment
of such debts shall be set aside; and
(2) The balance of such assets of the
Partnership shall be distributed to the Partners in amounts equal
to the Partners' positive balances in their capital accounts and
otherwise in accordance with Article 5.
(b) Upon dissolution, each Limited Partner shall look
solely to the assets of the Partnership for the return of his
Invested Capital, and shall be entitled only to a cash
distribution of Partnership property and assets in return
thereof. If the Partnership property remaining after the payment
or discharge of the debts and liabilities of the Partnership is
insufficient to return the Invested Capital of each Limited
Partner, such Limited Partner shall have no recourse against any
other Limited Partner or against the General Partner, except to
the extent provided in Section 5.7. The winding up of the
affairs of the Partnership and the distribution of its assets
shall be conducted exclusively by the General Partner, who is
hereby authorized to do any and all acts and things authorized by
law for these purposes. In the event of dissolution or
bankruptcy of the General Partner or removal of the General
Partner by the Limited Partners and there is a failure to appoint
a new General Partner, the winding up of the affairs of the
Partnership and the distribution of its assets shall be conducted
by the remaining General Partner, if any, or by such person as
may be selected by a Majority Vote of the Limited Partners, which
person is hereby authorized to do any and all acts and things
authorized by law for these purposes.
(c) In the event the Partnership is "liquidated"
within the meaning of Treasury Regulation Section 1.704-
1(b)(2)(ii)(g), (i) distributions shall be made pursuant to
Section 13.3 to the Partners who have positive capital accounts
in compliance with Treasury Regulation Section
1.7041(b)(2)(ii)(b)(2), and (ii) if the General Partner's capital
account has a deficit balance (after giving effect to all
contributions, distributions, and allocations for all taxable
years, including the year during which such liquidation occurs),
the General Partner shall contribute to the capital of the
Partnership the amount necessary to restore such deficit balance
in compliance with Section 5.7. Distributions pursuant to the
preceding sentence may be distributed to a trust established for
the benefit of the Partners for the purposes of liquidating
Partnership assets, collecting amounts owed to the Partnership,
and paying any contingent or unforeseen liabilities or
obligations of the Partnership or of the General Partner arising
out of or in connection with the Partnership. The assets of any
such trust shall be distributed to the Partners from time to
time, in the reasonable discretion of the General Partner, in the
same proportions as the amount distributed to such trust by the
Partnership would otherwise have been distributed to the Partners
pursuant to this Agreement.
13.4 Cancellation of Certificate of Limited Partnership
Upon the completion of the distribution of Partnership
assets as provided in this Article 13 and the termination of the
Partnership, the General Partner or other person acting as
liquidator (or the Limited Partners, if necessary) shall cause
the Certificate of Limited Partnership of the Partnership to be
cancelled and shall take such other actions as may be necessary
to legally terminate the Partnership.
ARTICLE 14
PARTNERSHIP EXPENSES
14.1 Reimbursement to General Partner
The Partnership shall reimburse the General Partner for
those items specifically set forth in Article 7.
14.2 Payment of Expenses of the Partnership
All of the ongoing Partnership expenses shall be billed
directly to and paid by the Partnership. The Partnership's
expenses will include the following:
(a) Organization and Offering Expenses (subject to
the limitation in Section 7.1).
(b) Expenses connected with the Properties, which may
include, but are not limited to: (i) expenses in connection with
the acquisition, development, financing, refinancing and
disposition of the Properties; (ii) expenses in connection with
the replacement, alteration, repair, remodeling, refurbishment,
and leasing of the Properties; (iii) direct salary expenses for
employees, other than Control Persons, of the General Partner or
its Affiliates performing services outside the normal scope of
activities required by the General Partner; (iv) all operational
costs of the Properties, including taxes, utilities, insurance,
cost of maintenance and repair, mortgage payments, and all costs
of borrowed money, taxes, and assessments on Partnership property
and other taxes applicable to the Partnership; (v) all costs
associated with the sale of the Properties, including the costs
of servicing any seller financing; (vi) legal, accounting, audit,
appraisal, engineering and other fees; and (vi) fees and expenses
paid to independent contractors, mortgage bankers, brokers and
servicers, leasing agents, consultants, on-site managers, real
estate brokers, insurance brokers, and other agents.
(c) Expenses of Partnership administration, including
all accounting, documentation, professional, asset management,
and reporting expenses of the Partnership, which may include, but
are not limited to: (i) preparation and documentation of
Partnership bookkeeping, accounting, and audits; (ii) preparation
and documentation of budgets, economic surveys, cash flow
projections, and working capital requirements; (iii) preparation
and documentation of Partnership state and federal tax returns;
(iv) printing, engraving, and other expenses and taxes incurred
in connection with the issuance, distribution, transfer,
registration, and recording of documents evidencing ownership of
Units or in connection with the business of the Partnership; (v)
expenses of insurance as required in connection with the business
of the Partnership; (vi) expenses in connection with
distributions made by the Partnership to, and communications,
bookkeeping and clerical work necessary in maintaining relations
with limited Partners, including the cost of printing and mailing
to such persons reports of the Partnership and of preparation of
proxy statements and solicitations of proxies in connection
therewith; (vii) expenses in connection with preparing and
mailing reports required to be furnished to Limited Partners for
investor, tax reporting, or other purposes, or expenses
associated with furnishing reports to Limited Partners which the
General Partner deems to be in the best interests of the
Partnership; (viii) expenses of revising, amending, converting,
modifying, or terminating the Partnership; (ix) costs incurred in
connection with any litigation in which the Partnership is
involved as well as any examination, investigation, or other
proceedings conducted by any regulatory agency of the
Partnership, including legal and accounting fees incurred in
connection therewith; (x) costs of any computer equipment or
services used for or by the Partnership; (xi) costs of any
accounting, statistical, or bookkeeping equipment necessary for
the maintenance of the books and records of the Partnership;
(xii) costs of preparation and dissemination of informational
material and documentation relating to potential sale,
refinancing, or other disposition of Partnership property; (xiii)
supervision and expenses of professionals employed by the
Partnership in connection with any of the foregoing, including
attorneys, accountants, and appraisers; and (xiv) other
Partnership administration expenses.
(d) Other costs or expenses necessary or advisable
for the operation of the business of the Partnership.
ARTICLE 15
AMENDMENTS OF PARTNERSHIP DOCUMENTS
15.1 Amendments in General
Except as otherwise provided in this Agreement, this
Agreement may be amended only with the consent of the General
Partner and by a Majority Vote of the Limited Partners.
15.2 Amendments Without Consent of Limited Partners
In addition to any amendments otherwise authorized herein,
amendments may be made to this Agreement from time to time by the
General Partner, without the consent of any of the Limited
Partners, which (a) add to the representations, duties or
obligations of the General Partner or surrender any right or
power granted to the General Partner herein, for the benefit of
the Limited Partners; (b) correct any error, resolve any
ambiguity, or supplement any provision which may be inconsistent
with another provision hereof, or make any other provision with
respect to matters or questions arising under this Agreement that
is not inconsistent with the provisions of this Agreement; (c)
delete or add any provision of this Agreement required to be so
deleted or added by the Securities Exchange Commission or any
state securities commission or similar governmental authority for
the benefit or protection of the Limited Partners; (d) amend this
Agreement and any Certificate of Limited Partnership (if
required) to admit Limited Partners pursuant to Article 3 and
Section 11.5; (e) reflect reductions in the Capital Contributions
of the Limited Partners resulting from a return of capital; (f)
amend this Agreement upon advice of counsel or accountants that
the provisions contained herein are unlikely to be given effect
for federal income tax purposes, to the minimum extent necessary;
any such new allocation shall not give rise to any claim or cause
of action by any Limited Partner or Assignee; (g) elect for the
Partnership to be governed by any successor California statute
governing limited partnerships; (h) would make an amendment
desirable to effectuate the intent of the Partners, as long as
any Partner who is adversely affected in any material respect by
such an amendment consents to the amendment if there occurs any
change in the law governing limited partnerships; (i) makes any
change necessary or advisable in the discretion of the General
Partner to cause the Partnership to be treated as a partnership
for federal income tax purposes, and (j) makes any other change
which does not adversely affect the rights of the Limited
Partners or Assignees in any material respect; provided, however,
that the General Partner shall not have the right under this
subsection 15.2(j) to amend Articles 4, 5, 6 or 9, or Article 7,
if the amendment would increase the General Partner or its
Affiliates compensation or reimbursements.
15.3 Amendments Needing Consent of Affected Partners
Notwithstanding any other provision of this Agreement,
without the consent of the Partner or Partners to be adversely
affected by any amendment to this Agreement, this Agreement may
not be amended to (a) convert a Limited Partner's interest into a
General Partner's interest, (b) modify the limited liability of a
Limited Partner, (c) increase, add or alter any obligation of the
General Partner, (d) adversely affect the status of the
Partnership as a partnership for federal income tax purposes, or
(e) otherwise modify the compensation, distributions, or rights
of reimbursement to which the General Partner is entitled or
affect the duties of the General Partner or the indemnification
to which the General Partner and its Affiliates are entitled
under Section 6.7.
15.4 Amendments to Certificates of Limited Partnership
(a) The General Partner shall cause to be filed with
the California Secretary of State, within 30 days after the
happening of any of the following events, an amendment to the
Certificate of Limited Partnership reflecting the occurrence of
any of the following events:
(1) A change in the name of the Partnership;
(2) A change in either of the following:
(i) The street address of the
Partnership's principal executive office.
(ii) If the principal executive office is
not in California, the street address of an office in California;
(3) A change in the address of or withdrawal of
the General Partner, or a change in the address of the agent for
service of process, unless a corporate agent is designated, or
appointment of a new agent for service of process;
(4) The admission of a General Partner and that
Partner's address; and
(5) The discovery by the General Partner of any
false or erroneous material statement contained in the
Certificate of Limited Partnership.
(b) Any Certificate of Limited Partnership filed or
recorded in jurisdictions other than California shall be amended
as required by applicable law.
(c) The Certificate of Limited Partnership may also
be amended at any time in any other manner deemed appropriate by
the General Partner.
15.5 Amendments After Change of Law
This Agreement and any other Partnership documents may be
amended and refiled, if necessary, by the General Partner without
the consent of the Limited Partners if there occurs any change
that permits or requires an amendment of this Agreement under the
Act or of any other Partnership document under applicable law, so
long as no Partner is adversely affected in any material respect
(or consent is given by such Partner).
ARTICLE 16
MISCELLANEOUS PROVISIONS
16.1 Notices
(a) Any written notice, offer, demand or
communication required or permitted to be given by any provision
of this Agreement shall be deemed to have been sufficiently given
for all purposes if delivered personally to the party to whom the
same is directed or if sent by certified mail addressed (i) if to
the General Partner, to the principal place of business and
office of the Partnership specified in this Agreement and (ii) if
to a Limited Partner, to such Limited Partner's address as set
forth on his Subscription Agreement or any other address provided
to the General Partner by such Limited Partner.
(b) Any such notice that is sent by certified mail
shall be deemed to be given two (2) days after the date on which
the same is mailed.
(c) The General Partner may change its address for
purposes of this Agreement by giving written notice of such
change to the Limited Partners, and any Limited Partner may
change his address for purposes of this Agreement by giving
written notice of such change to the General Partner, in the
manner hereinbefore provided for the giving of notices.
16.2 Article and Section Headings
The Article and Section headings in this Agreement are
inserted for convenience and identification only and are in no
way intended to define or limit the scope, extent or intent of
this Agreement or any of the provisions hereof.
16.3 Construction
Whenever the singular number is used herein, the same shall
include the plural; and the neuter, masculine and feminine
genders shall include each other. If any language is stricken or
deleted from this Agreement, such language shall be deemed never
to have appeared herein and no other implication shall be drawn
therefrom. The language in all parts of this Agreement shall be
in all cases construed according to its fair meaning and not
strictly for or against the General Partner or the Limited
Partners.
16.4 Severability
If any covenant, condition, term or provision of this
Agreement is illegal, or if the application thereof to any Person
or in any circumstance shall to any extent be judicially
determined to be invalid or unenforceable, the remainder of this
Agreement, or the application of such covenant, condition, term
or provision to Persons or in circumstances other than those to
which it is held invalid or unenforceable, shall not be affected
thereby, and each covenant, condition, term and provision of this
Agreement shall be valid and enforceable to the fullest extent
permitted by law.
16.5 Governing Law
This Agreement shall be construed and enforced in
accordance with, and governed by, the internal laws of the State
of California.
16.6 Counterparts
This Agreement may be executed in one or more counterparts
each of which shall, for all purposes, be deemed an original and
all of such counterparts, taken together, shall constitute one
and the same Agreement binding on all of the Partners.
16.7 Entire Agreement
This Agreement constitutes the entire agreement of the
parties. All prior agreements among the parties, whether written
or oral, are merged herein and shall be of no force or effect.
This Agreement cannot be changed, modified or discharged orally
but only by an agreement in writing. There are no
representations, warranties, or agreements other than those set
forth in this Agreement, the Subscription Agreement, or the
Prospectus, if any.
16.8 Cross-References
All cross-references in this Agreement, unless specifically
directed to another Agreement or document, refer to provisions in
this Agreement.
16.9 Power of Attorney to the General Partner
(a) Each Limited Partner hereby irrevocably makes,
constitutes, and appoints the General Partner and any person
designated by it, with full substitution, its agent and attorney-
in-fact in his name, place and stead, to make, execute, swear to
and acknowledge, amend, file, record and deliver the following
documents and any other documents deemed by the General Partner
necessary for the business of the Partnership: (i) any
Certificate of Limited Partnership, required or permitted to be
filed on behalf of the Partnership, and any and all certificates
as necessary to qualify or continue the Partnership as a limited
partnership or partnership wherein the Limited Partners thereof
have limited liability in the states where the Partnership may be
doing business, and all instruments which effect a change or
modification of the Partnership in accordance with this
Agreement; (ii) this Agreement and any amendments thereto in
accordance with this Agreement; (iii) any other instrument which
is now or which may hereafter be required or advisable to be
filed for or on behalf of the Partnership; (iv) any agreement to
secure payment of additional contributions due from that Limited
Partner; (v) any document which may be required to effect the
continuation of the Partnership, the admission of an additional
or Substituted Limited Partner, or the dissolution and
termination of the Partnership (provided such continuation,
admission or dissolution and termination is in accordance with
the terms of this Agreement), or to reflect any reductions in
amount of contributions of Partners; (vi) any document,
instrument, application, certificate, or order required to be
made, executed, acknowledged, or sworn to in connection with the
withdrawal or receipt from escrow of any cash of a Limited
Partner in connection with his purchase of Units, consistent with
the Prospectus; in each case having the power to execute such
instruments on his behalf, whether the undersigned approved of
such action or not; and (vii) any additions, deletions and
corrections to the Subscription Agreement which does not
adversely affect the position of the Limited Partners.
(b) This Power of Attorney is a special Power of
Attorney coupled with an interest, and shall not be revoked and
shall survive the assignment, delivery, or transfer by the
undersigned of all or part of his interest in the Partnership
and, being coupled with an interest, shall survive the death or
disability or cessation of the existence as a legal entity of the
undersigned, except that where the assignee has been approved by
said attorney, as General Partner of the Partnership, for
admission to the Partnership as a Substituted Limited Partner,
this Power of Attorney shall survive the delivery of such
assignment for the sole purpose of enabling said attorney to
execute, acknowledge and file any instrument necessary to
effectuate said substitution.
(c) Each Limited Partner hereby gives and grants to
his said attorney full power and authority to do and perform each
and every act and thing whatsoever requisite, necessary or
appropriate to be done in or in connection with this Power of
Attorney as fully to all intents and purposes as he might or
could do if personally present, hereby ratifying all that his
said attorney shall lawfully do or cause to be done by virtue of
this Power of Attorney.
(d) The existence of this Power of Attorney shall not
preclude execution of any such instrument by the undersigned
individually on any such matter. A person dealing with the
Partnership may conclusively presume and rely on the fact that
any such instrument executed by such agent and attorney-in-fact
is authorized, regular and binding without further inquiry.
(e) This Power of Attorney may be exercised by an
officer of the General Partner by a facsimile signature of such
officer, or by listing all of the Limited Partners executing any
instrument with a single signature of one of the officers of the
General Partner acting as attorney-in-fact for all of them.
16.10 Further Assurances
The Limited Partners shall execute and deliver such further
instruments and do such further acts and things as may be
required to carry out the intent and purposes of this Agreement.
16.11 Successors and Assigns
Subject in all respects to the limitations on
transferability contained herein, this Agreement shall be binding
upon, and shall inure to the benefit of, the heirs,
administrators, personal representatives, successors and assigns
of the respective parties hereto.
16.12 Waiver of Action for Partition
Each of the parties hereto irrevocably waives during the
term of the Partnership and during the period of its liquidation
following any dissolution, any right that he may have to maintain
any action for partition with respect to any of the assets of the
Partnership.
16.13 Creditors
None of the provisions of this Agreement shall be for the
benefit of or enforceable by any of the creditors of the
Partnership or the Partners.
16.14 Remedies
The rights and remedies of the Partners hereunder shall not
be mutually exclusive, and the exercise by any Partner of any
right to which he is entitled shall not preclude the exercise of
any other right he may have.
16.15 Authority
Each individual executing this Agreement on behalf of a
partnership, corporation, or other entity warrants that he is
authorized to do so and that this Agreement will constitute the
legally binding obligation of the entity which he represents.
16.16 Tax Elections
The General Partner shall cause the Partnership to make all
elections required or permitted to be made for income tax
purposes in such manner as the General Partner in its sole
discretion deems appropriate or necessary. However, it is not
anticipated that the General Partner will elect, in accordance
with Section 754 of the Internal Revenue Code, to adjust the
basis of the Partnership property as described in Sections 734
and 743 of the Internal Revenue Code.
16.17 Signatures
The signature of the General Partner shall be sufficient to
bind the Partnership to any agreement or on any document,
including, but not limited to, documents drawn or agreements made
in connection with the acquisition or disposition of any assets.
16.18 Withholding Taxes
In the event that the Partnership is obligated to withhold
taxes with respect to any Partner:
(a) Any tax required to be withheld shall be charged
to that Partner's capital account as if the amount of such tax
had been distributed to such Partner;
(b) The General Partner shall have the right to make
a loan to such Partner in an amount equal to the amount of tax
required to be withheld to the extent that cash is needed to make
the withholding payments attributable to that Partner; and
(c) The General Partner may retain appropriate
portions of a Partner's distributions until any withholding
obligations relating to that Partner are satisfied and may apply
such distributions to any loan made pursuant hereto.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of ________________, 1987.
GENERAL PARTNER:
Prometheus Development Co., Inc., a California corporation
By /S/ SANFORD N. DILLER
Sanford N. Diller
President
INITIAL LIMITED PARTNER:
Prom XX, Inc., a California corporation
By /S/ SANFORD N. DILLER
Sanford N. Diller
President
ADDITIONAL LIMITED PARTNERS
Pursuant to Signatures on Subscription Agreement
Upon admission of the additional
Limited Partners set forth in
Schedule A, the Initial Limited
Partner hereby withdraws as a Partner
of the Partnership upon redemption
for the cost of its interest.
Prom XX, Inc.,
a California corporation
By /S/ SANFORD N. DILLER
Sanford N. Diller
President
APPENDIX C
Financing Letter from Bank of America to Sanford N. Diller
June 15, 2000
Mr. Sanford N. Diller
ATTN: John E. Ghio
350 Bridge Parkway
Redwood City, CA 94065-1517
Dear Mr. Diller:
Thank you for the opportunity to consider your recent application for a
secured line of credit. We have reviewed your request and based on our long
relationship and your financial capacity believe we could issue a line of
credit in the amount of $20,000,000.00. The terms and conditions would be
typical for this type of facility - Prime +1%, renewable annually, 1% fee and
other applicable fees customary for this type of credit facility.
Bank of America values your business and we look forward to working with you on
this credit. We will be contacting you shortly to discuss the structure of
this loan in more detail. However, please feel free to contact me should you
have any questions.
Sincerely,
Bank of America NT & SA
/s/ Anna Chambers
Anna Chambers
Senior Vice President
Real Estate Banking Manager
REVOCABLE PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE GENERAL PARTNER
The undersigned hereby appoints ________________, 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 Limited Partners of
Prometheus Income Partners (the "Partnership") to be held at 1:30 p.m., local
time, on, ___________, 2000, at [location], or any adjournment or
postponement of the meeting:
(1) Proposal to approve the Agreement and Plan of Merger dated as of
June 22, 2000 by and among Prometheus Income Partners, a California limited
partnership, PIP Partners - General, LLC, a California limited liability
company, and PIP Acquisition, LLC, a California limited liability company
(the "Merger Agreement"). This proposal, together with the Merger Agreement
and all of the transactions contemplated by the Merger 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 Merger Agreement.
_ FOR _ AGAINST _ ABSTAIN
(2) Proposal to permit the General Partner 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.
_ FOR _ AGAINST _ ABSTAIN
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 or via
facsimile, to:
MacKenzie Partners, Inc.
156 Fifth Avenue
New York, NY 10010
[Fax]
By: _____________________________
Name: ________________________
By: _____________________________
Name: ________________________
Please sign exactly as name appears hereon. When 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:
MacKenzie Partners, Inc.
(800) 322-2885
Please mark address changes or corrections above. For all other
corrections or changes, please contact MacKenzie Partners, Inc. at the number
listed above.
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY PROMPTLY AS INSTRUCTED
ABOVE.
