<PAGE>
SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[X] Preliminary Proxy Statement [_] Confidential, for Use of the
[_] Definitive Proxy Statement Commission Only
[_] Definitive Additional Materials (as permitted by Rule 14a-6(e)(2)
[_] Soliciting Material Pursuant to
Rule 14a-11(c) or Rule 14a-12
McNeil Real Estate Fund XXVII, L.P.
(Name of Registrant as Specified in Its Charter)
Not Applicable
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[_] No fee required.
[X] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
Units of Limited Partner Interest
(2) Aggregate number of securities to which transaction applies:
5,162,909
(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):
$9.97. The per unit price is equal to the estimated merger
consideration to be received per limited partner unit in the
registrant. This estimated amount is based on a preliminary allocation
of the aggregate consideration in the transaction rendered by Robert
A. Stanger & Co., Inc.
(4) Proposed maximum aggregate value of transaction:
$51,474,203.
(5) Total Fee Paid:
$10,294.84
[_] 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:
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[NAME OF PARTNERSHIP]
To the Limited Partners of [Name of Partnership]--YOUR VOTE IS VERY IMPORTANT
You are cordially invited to attend a meeting of the Partnership's limited
partners. At the meeting, holders of limited partner units in the Partnership
will consider and vote on the proposals described in the accompanying notice
of meeting. These proposals are being proposed by McNeil Partners, L.P., the
Partnership's general partner.
The date, time and place of the meeting are as follows:
[Weekday], [Month, Day], 1999
, local time
[Location]
The Partnership has entered into an acquisition agreement whereby WXI/McN
Realty L.L.C., a newly formed company affiliated with Whitehall Street Real
Estate Limited Partnership XI, will acquire the general partner interests and
limited partner interests in the Partnership, the general partner interests
and limited partner interests in eighteen other partnerships controlled by
McNeil Partners and its affiliates, certain assets of McNeil Partners and
certain assets of McNeil Real Estate Management, Inc., the management company
for the Partnership's properties.
In the proposed transaction, the Partnership will merge with a subsidiary
of WXI/McN Realty, and each limited partner of the Partnership [additional
disclosure for Funds XX-XXVI: (other than limited partners who validly
exercise dissenters' rights in connection with the merger)] will receive an
aggregate of approximately [for all except Funds XXI-XXVIII: $ in cash for
each limited partner unit] [for Funds XXI-XXIII: $ in cash for each current
income unit and $ in cash for each growth/shelter unit] in the Partnership.
Following the merger, you will no longer be a limited partner of the
Partnership. The aggregate amount to be received for each limited partner unit
consists of cash merger consideration of $ per unit and a special
distribution in cash estimated as of , 1999 to be $ per unit.
[Additional disclosure for Funds XX-XXVI: In lieu of receiving $ in cash
for each of their limited partner units, limited partners of the Partnership
who do not vote for the merger proposal and who otherwise comply with the
provisions of Article 7.6 of the California Revised Limited Partnership Act
will be entitled to dissenters' rights with respect to their limited partner
units if the Partnership participates in the transaction and the transaction
is completed.]
The transaction will provide you with the opportunity to liquidate your
investment in the Partnership for cash at a price and on terms that McNeil
Partners believes is fair to and in the best interests of the limited partners
of the Partnership. If the Partnership participates in the transaction, all
SEC reporting obligations of the Partnership will cease. Unlike in a
liquidation, the merger transaction will not require limited partners to
continue to hold interests in the Partnership until all contingent liabilities
have been settled. You should be aware that McNeil Partners will receive an
equity interest in WXI/McN Realty if the transaction is completed.
The Partnership cannot participate in the transaction unless limited
partners holding greater than [for all except Funds XXI-XXIII: 50% of the
limited partner units] [for Funds XXI-XXIII: 50% of each class of limited
partner units] in the Partnership approve the merger proposal described in the
accompanying notice of meeting. Only limited partners who held their limited
partner units in the Partnership at the close of business on , 1999 will
be entitled to vote at the meeting.
The board of directors of McNeil Investors, Inc., the corporate general
partner of McNeil Partners, based upon the recommendation of a special
committee and fairness opinions rendered by Robert A. Stanger & Co., Inc., has
unanimously determined that the transaction is fair to and in the best
interests of the Partnership and its limited partners. The McNeil Investors
board of directors has unanimously approved the merger proposal and
unanimously recommends that you vote to approve the merger proposal.
This Proxy Statement explains in detail the terms of the proposed
transaction and related
This Proxy Statement is dated , 1999 and was first mailed to limited
partners of the Partnership on , 1999.
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matters. Please carefully review and consider all of this information.
The transaction is an important decision for the Partnership and the
limited partners of the Partnership. Whether or not you plan to attend the
meeting, please complete, date, sign and promptly return the accompanying
proxy in the enclosed self-addressed stamped envelope. Returning your proxy
does NOT deprive you of your right to attend the meeting and to vote in
person.
Your vote is important. If you fail to return your proxy or attend and vote
at the meeting, it will have the effect of voting your limited partner units
against the merger proposal.
On behalf of McNeil Partners, I thank you for your support and appreciate
your consideration of these matters.
McNeil Partners, L.P.
By: McNeil Investors, Inc., its
General Partner
/s/ Ron K. Taylor
Ron K. Taylor
President
This transaction has not been approved or disapproved by the
Securities and Exchange Commission nor has the Securities and Exchange
Commission passed upon the fairness or merits of this transaction nor
upon the accuracy or adequacy of the information contained in this
document. Any representation to the contrary is unlawful.
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[NAME OF PARTNERSHIP]
NOTICE OF MEETING OF LIMITED PARTNERS
Notice is hereby given that a meeting of the limited partners of [Name of
Partnership] will be held at , local time, on , 1999, at . The
purposes of the meeting are:
1. To consider and vote on a proposal to approve the Master Agreement, dated
as of June 24, 1999, by and among WXI/McN Realty L.L.C., McNeil Real Estate
Fund IX, Ltd., McNeil Real Estate Fund X, Ltd., McNeil Real Estate Fund XI,
Ltd., McNeil Real Estate Fund XII, Ltd., McNeil Real Estate Fund XIV, Ltd.,
McNeil Real Estate Fund XV, Ltd., McNeil Real Estate Fund XX, L.P., McNeil Real
Estate Fund XXI, L.P., McNeil Real Estate Fund XXII, L.P., McNeil Real Estate
Fund XXIII, L.P., McNeil Real Estate Fund XXIV, L.P., McNeil Real Estate Fund
XXV, L.P., McNeil Real Estate Fund XXVI, L.P., McNeil Real Estate Fund XXVII,
L.P., Hearth Hollow Associates, L.P., McNeil Midwest Properties I, L.P.,
Regency North Associates, L.P., Fairfax Associates II, Ltd., McNeil Summerhill
I, L.P., McNeil Partners, L.P., McNeil Investors, Inc., McNeil Real Estate
Management, Inc., McNeil Summerhill, Inc. and Robert A. McNeil. This proposal,
together with the Master Agreement and all of the transactions contemplated by
the Master Agreement, constitute the "merger proposal." Approval of the merger
proposal will also constitute approval of all of the transactions contemplated
by the Master Agreement, including:
. McNeil Partners' contribution of all of its general partner interests
in the Partnership to a newly formed limited liability company
directly or indirectly wholly owned by WXI/McN Realty and the
appointment of this subsidiary as the new general partner of the
Partnership, and
. the merger of a newly formed limited partnership directly or
indirectly wholly owned by WXI/McN Realty with and into the
Partnership.
2. To transact such other business as may properly come before the meeting
or any adjournment or postponement of the meeting.
These items of business are described in this Proxy Statement. Only limited
partners of record at the close of business on , 1999, the record date,
are entitled to notice of and to vote at the meeting. You may vote in person at
the meeting, even if you have returned a proxy.
By Order of McNeil Partners, L.P.
By: McNeil Investors, Inc., its General
Partner
/s/ Ron K. Taylor
Ron K. Taylor
President
Dallas, Texas
, 1999
Whether or not you plan to attend the meeting, we urge you to complete,
date, sign and promptly return the accompanying proxy in the enclosed self-
addressed stamped envelope. Returning your proxy does NOT deprive you of your
right to attend the meeting and to vote your limited partner units in person.
<PAGE>
TABLE OF CONTENTS
<TABLE>
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QUESTIONS AND ANSWERS ABOUT THE TRANSACTION................................ 1
WHO CAN HELP ANSWER YOUR QUESTIONS?........................................ 6
SUMMARY.................................................................... 7
Parties to the transaction............................................... 7
The Partnership........................................................ 7
McNeil Partners........................................................ 10
McNeil Investors....................................................... 10
The other McNeil Partnerships.......................................... 11
The McNeil Affiliates.................................................. 11
WXI/McN Realty and its subsidiaries.................................... 11
The meeting.............................................................. 12
Record date; voting power................................................ 13
Quorum; Vote required.................................................... 13
Changing your vote....................................................... 13
Purposes and reasons for the transaction................................. 13
Structure of the transaction............................................. 14
Structure and ownership prior to the transaction....................... 14
Contributions to McNeil Partners by the other McNeil Affiliates ....... 17
Replacement of general partner......................................... 19
The mergers............................................................ 22
Effects of the transaction............................................... 25
Recommendations of the special committee and the McNeil Investors board
of directors............................................................ 26
Recommendations of the special committee............................... 26
Recommendations of the McNeil Investors board of directors............. 26
Factors considered by the McNeil Investors board of directors and the
special committee....................................................... 27
Opinions and reports of financial advisors............................... 31
Stanger & Co. ......................................................... 31
Eastdil Realty Company................................................. 31
Position of McNeil Partners and Robert A. McNeil regarding the
transaction ............................................................ 32
Allocation of the aggregate consideration in the transaction............. 32
Interests of certain persons in matters to be acted on; conflicts of
interest................................................................ 34
Relationships among the McNeil Affiliates and the McNeil Partnerships.. 34
Ownership of limited partner units in the Partnership.................. 34
Equity interest of McNeil Partners in WXI/McN Realty; WXI/McN Realty
operating agreement................................................... 34
Retention Agreements................................................... 35
Conditions to the transaction............................................ 35
Termination of the Master Agreement...................................... 36
Right to terminate the Master Agreement in its entirety................ 36
Right to terminate the Master Agreement with respect to one or more
McNeil Partnerships................................................... 37
Effect of termination.................................................. 37
Termination fees and expenses............................................ 38
Financing; source of funds............................................... 39
Accounting treatment of transaction...................................... 39
Federal income tax consequences.......................................... 40
[For Funds XX-XXVI: Dissenters' rights].................................. 40
[For Funds IX-XII, XIV, XV: No dissenters' rights]....................... 40
[For Fund XXVII: No appraisal rights].................................... 40
SPECIAL FACTORS............................................................ 41
Background of the transaction............................................ 41
Organization of the public McNeil Partnerships......................... 41
Restructuring of the public McNeil Partnerships........................ 41
Icahn tender offers.................................................... 41
Background of the Schofield litigation................................. 42
Background of the auction process...................................... 43
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Engagement of PaineWebber.............................................. 43
Structuring of the transaction......................................... 43
Engagement of Stanger & Co. to provide fairness opinions .............. 45
Solicitation of initial bids........................................... 45
Solicitation of final bids............................................. 46
Negotiating with the final bidders..................................... 48
Solicitation of additional bids; continued discussions with Final
Bidder 3 ............................................................. 49
Appointment of the special committee................................... 53
Engagement of Stanger & Co. to render the allocations.................. 54
Negotiation of definitive transaction documents with Whitehall......... 54
Events subsequent to the execution of the Master Agreement............... 59
Purposes and reasons for the transaction................................. 60
Recommendations of the special committee and the McNeil Investors board
of directors; fairness of the transaction............................... 61
Recommendations of the special committee............................... 61
Recommendations of The McNeil Investors board of directors............. 66
Alternatives to the transaction........................................ 67
Liquidation........................................................... 67
Benefits of liquidation to the limited partners........................ 69
Disadvantages of liquidation to the limited partners................... 69
Continued ownership of the Partnership................................. 71
Benefits of continued ownership....................................... 71
Disadvantages of continued ownership.................................. 71
Effects of the transaction............................................... 75
Effects of the transaction on the Partnership.......................... 75
Effects of the transaction on all of the other participating McNeil
Partnerships and the McNeil Affiliates................................ 76
Benefits and detriments of the transaction to the McNeil Affiliates.... 76
Opinions and reports of financial advisors............................. 80
Allocation analysis and opinions of Stanger & Co...................... 80
First Stanger & Co. opinion ........................................... 80
Second Stanger & Co. opinion........................................... 81
Financial analysis of Stanger & Co. ................................... 84
Stanger & Co. observations regarding aggregate consideration........... 86
Stanger & Co. allocation analysis...................................... 86
Fee arrangements....................................................... 92
Eastdil Realty Company opinions........................................ 92
First Eastdil Realty Company opinion................................... 92
Second Eastdil Realty Company opinion.................................. 93
Financial analysis of Eastdil Realty Company........................... 96
Fee arrangements....................................................... 97
Position of McNeil Partners and Robert A. McNeil regarding the
transaction............................................................. 97
Interests of certain persons in the matters to be acted upon; conflicts
of interest............................................................. 98
Relationships among the McNeil Affiliates and the McNeil Partnerships.. 98
Ownership of limited partner units in the McNeil Partnerships by the
McNeil Affiliates..................................................... 100
Structuring of the transaction by the McNeil General Partners.......... 100
Receipt of aggregate consideration by the McNeil Affiliates............ 101
Equity interest of McNeil Partners in WXI/McN Realty................... 102
Retention and employment agreements.................................... 103
Special committee...................................................... 103
Financing; sources of funds.............................................. 104
Fees and expenses relating to the transaction............................ 104
Plans for the McNeil Partnerships that participate in the transaction.... 105
</TABLE>
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Plans for the McNeil Partnerships that do not participate in the
transaction........................................................... 106
[For Funds XX-XXV1: Dissenters' rights]................................ 107
Requirements for exercise of dissenters' rights ..................... 107
Determination of fair market value................................... 108
Right to seek judicial determination................................. 108
Loss of status of dissenting interests............................... 109
[For Funds IX-XII, XIV, XV: No dissenters' rights]..................... 109
[For Fund XXVII: No appraisal rights].................................. 110
Federal income tax consequences........................................ 110
Taxation of special distribution of cash............................. 110
Taxable gain or loss pursuant to the merger.......................... 110
Character of gain or loss recognized pursuant to the merger.......... 111
Passive activity losses.............................................. 111
Information reporting backup withholding and FIRPTA ................. 112
Tax consequences to McNeil Partners.................................. 112
Anticipated accounting treatment....................................... 112
Regulatory requirements................................................ 112
THE MEETING.............................................................. 113
Time, date and place of the meeting.................................... 113
Matters to be considered at the meeting................................ 113
Recommendations of the McNeil Investors board of directors............. 113
Record date; voting power.............................................. 113
Quorum................................................................. 113
Vote required.......................................................... 114
Ownership of limited partner units in the Partnership.................. 114
Solicitation of proxies................................................ 114
List of limited partners of the Partnership............................ 115
THE MASTER AGREEMENT..................................................... 117
Parties to the Master Agreement........................................ 117
Structure of the transaction........................................... 117
Closing of the transaction............................................. 117
Aggregate consideration................................................ 117
Allocation of aggregate consideration................................ 117
Prepayment and assumption of mortgage debt........................... 117
The mergers............................................................ 118
Merger consideration................................................. 118
Exchange of certificates............................................. 118
Special distribution of positive net working capital balance......... 120
The contributions...................................................... 120
Contributions to McNeil Partners by the other McNeil Affiliates...... 120
Replacement of general partner....................................... 121
Other contributions by McNeil Partners to WXI/McN Realty and WXI/McN
Realty's subsidiaries............................................... 121
Material covenants..................................................... 122
Interim operations of Sellers........................................ 122
Limited partner meetings; proxy material............................. 125
No solicitation by Sellers........................................... 126
Reasonable best efforts.............................................. 127
Replacement indemnification agreements............................... 127
Reimbursable proposals............................................... 128
Operation of McREMI assets........................................... 129
</TABLE>
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<TABLE>
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[For Fund XXV: Harbour Club I purchase option]....................... 129
Material representations and warranties................................ 130
Conditions to closing.................................................. 132
Conditions to each party's obligations to close...................... 133
Conditions to WXI/McN Realty's obligations to close.................. 134
Conditions to the Sellers' obligations to close...................... 135
Certain exclusions from conditions to closing........................ 136
Removal notices...................................................... 136
Termination of the Master Agreement.................................... 137
Right to terminate the Master Agreement.............................. 137
Right to terminate the Master Agreement with respect to one or more
McNeil Partnerships................................................. 138
Effect of termination of the Master Agreement........................ 138
Fees and expenses...................................................... 140
General.............................................................. 140
Partnership break-up fee............................................. 140
Reimbursement of expenses............................................ 143
WXI/McN Realty's reimbursable expenses.............................. 143
Sellers' reimbursable expenses...................................... 144
Amendments, modification, waiver; reservation of right to revise the
transaction........................................................... 145
WXI/McN REALTY OPERATING AGREEMENT....................................... 146
Membership interests................................................... 146
McNeil Class A Interests............................................. 146
McNeil Class B Interests............................................. 147
McNeil Class C Interests............................................. 147
Whitehall Class A Interests.......................................... 147
Whitehall Class B Interests.......................................... 147
Distributions to members of WXI/McN Realty............................. 148
Supermajority voting rights............................................ 149
Management of WXI/McN Realty and its managing member................... 149
OTHER AGREEMENTS BETWEEN THE McNEIL AFFILIATES AND
AFFILIATES OF WXI/McN REALTY ........................................... 151
Indemnification and pledge agreement................................... 151
Whitehall standstill agreement......................................... 152
CONTROLLING PERSONS...................................................... 154
Background of named persons ........................................... 154
McNeil Partners and McNeil Investors.................................. 154
WXI/MNL Real Estate, L.L.C............................................ 155
WH Advisors, L.L.C. XI................................................ 156
The Goldman Sachs Group, Inc.......................................... 157
RELATED SECURITY HOLDER MATTERS.......................................... 158
Additional information concerning limited partner units................ 158
Principal holders of limited partner units ............................ 160
Past contacts, transactions and negotiations........................... 169
SELECTED FINANCIAL DATA.................................................. 173
CERTAIN FINANCIAL PROJECTIONS OF THE PARTNERSHIP......................... 187
FORWARD-LOOKING STATEMENTS............................................... 192
INDEPENDENT AUDITORS..................................................... 192
LIMITED PARTNER PROPOSALS................................................ 192
</TABLE>
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<TABLE>
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WHERE YOU CAN FIND MORE INFORMATION......................................... 193
ANNUAL REPORT AND QUARTERLY REPORT.......................................... 193
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE............................. 193
OTHER MATTERS............................................................... 195
</TABLE>
TABLES
Table 1 -- Unit Value Comparisons of Alternatives to the Transaction
Table 2 -- Summary of Stanger & Co. Allocation Analysis and Related Master
Agreement Calculations
APPENDICES
Appendix A -- Master Agreement, dated as of June 24, 1999, by and among
WXI/McN Realty L.L.C., the McNeil Partnerships, McNeil
Investors, Inc., McNeil Partners, L.P., McNeil Real Estate
Management, Inc., McNeil Summerhill, Inc. and Robert A.
McNeil
Appendix B -- Form of First Amended and Restated Limited Liability
Company Operating Agreement of WXI/McN Realty L.L.C.
Appendix C-1 -- Fairness Opinion of Robert A. Stanger & Co., Inc. dated
June 24, 1999
Appendix C-2 -- Fairness Opinion of Robert A. Stanger & Co., Inc. dated
, 1999
Appendix D-1 -- Fairness Opinion of Eastdil Realty Company L.L.C. dated
June 24, 1999
Appendix D-2 -- Fairness Opinion of Eastdil Realty Company L.L.C. dated
, 1999
[For Funds XX-XXVI: Appendix E -- Article 7.6 of the California
Corporations Code]
v
<PAGE>
QUESTIONS AND ANSWERS ABOUT THE TRANSACTION
The following questions and answers are intended to provide brief answers to
some commonly asked questions. These questions and answers do not, and are not
intended to, address all questions that may be important to you. The following
questions and answers are qualified in their entirety by reference to the more
detailed information contained elsewhere in this Proxy Statement, the
Appendices to this Proxy Statement and the other documents to which we have
referred you. For a summary description of the parties to the transaction
referred to in the questions and answers below, see "Summary--Parties to the
transaction."
Q: What is the transaction?
A: The transaction is the acquisition by a newly formed affiliate of Whitehall
Street Real Estate Limited Partnership XI of the Partnership, up to eighteen
other McNeil Partnerships controlled by McNeil Partners and its affiliates,
assets of McNeil Partners related to the participating McNeil Partnerships
and certain assets of McNeil Real Estate Management, Inc., the management
company for the McNeil Partnerships' properties. Whitehall Street Real
Estate Limited Partnership XI is a real estate investment fund whose
investment manager is Goldman, Sachs & Co. If the Partnership participates
in the transaction, you will receive an aggregate of approximately [for all
except Funds XXI-XXIII: $ in cash for each of your limited partner units]
[for Funds XXI-XXIII: $ in cash for each of your current income units and
$ in cash for each of your growth/shelter units] in the Partnership, and
you will no longer be a limited partner of the Partnership. The aggregate
amount to be received for each limited partner unit consists of cash merger
consideration of $ per unit and a special distribution in cash estimated
as of , 1999 to be $ per unit.
Q: Why is McNeil Partners proposing the transaction?
A: The transaction represents the culmination of nearly two years of efforts by
McNeil Partners to achieve a sale of the McNeil Partnerships. The terms of
the transaction have been approved by the McNeil Investors board of
directors, based upon the recommendation of an independent special committee
of the McNeil Investors board of directors, and is the subject of fairness
opinions from two real estate investment banks. Consummation of the
transaction will satisfy the obligations of McNeil Partners to liquidate the
public McNeil Partnerships prior to the end of 1999. Moreover, counsel to
the plaintiffs in the Schofield litigation against McNeil Partners and its
affiliates described below has reviewed the terms of the transaction and
oversaw the auction process.
Q: Why should I vote for the merger proposal?
A: The transaction will allow you to liquidate your investment in the
Partnership for cash. Moreover, the McNeil Investors board of directors has
unanimously determined that the transaction is fair to and in the best
interests of the Partnership and its limited partners. In making its
determination, the board of directors relied on the recommendation of a
special committee of the McNeil Investors board of directors and on fairness
opinions delivered by Robert A. Stanger & Co., Inc. ("Stanger & Co.") on
behalf of the McNeil Partnerships to the effect that the aggregate
consideration, the allocations of the aggregate consideration and the per
unit estimated aggregate amount to be received by each class of limited
partners of the McNeil Partnerships are each fair from a financial point of
view to the holders of [for all except Funds XXI-XXIII: limited partner
units] [for Funds XXI-XXIII: each class of limited partner units] in the
Partnership. Additionally, SEC reporting obligations of the Partnership will
cease as a result of the transaction, and the limited partners will not be
required to continue holding interests in the Partnership until all
contingent liabilities have been settled.
Q: What is the structure of the transaction?
A: WXI/McN Realty, a newly formed company affiliated with Whitehall Street Real
Estate Limited Partnership XI, will acquire the general partner interests
and limited partner interests in the Partnership, the general partner
interests and limited partner interests in the other McNeil Partnerships
included in the transaction, assets of McNeil Partners related to the
participating McNeil Partnerships and certain
1
<PAGE>
assets of McREMI, the management company for the McNeil Partnerships'
properties. Following the closing of the transaction, McNeil Partners will
receive an equity interest in WXI/McN Realty.
Q: Why doesn't the Partnership just sell all of its properties?
A: McNeil Partners believes that the transaction will provide more immediate
liquidity to the limited partners of the Partnership than would have been
obtainable had the Partnership been liquidated on a property by property
basis. Additionally, all SEC reporting obligations of the Partnership will
cease as a result of the transaction, and the limited partners will not be
required to continue holding interests in the Partnership until all
contingent liabilities have been settled.
Q: Why are the McNeil Partnerships being acquired by merger?
A: In addition to the benefits described in the preceding answer, McNeil
Partners believes that a merger achieves several additional benefits to the
limited partners of the McNeil Partnerships that would not be achieved in a
property by property liquidation of the McNeil Partnerships. Among other
things, structuring the transaction as a merger eliminated the difficulties
that would have been encountered if prospective purchasers were allowed to
purchase the more attractive properties, leaving behind the less attractive
properties that could prove time consuming and expensive for an individual
McNeil Partnership to liquidate. Moreover, a merger may permit the McNeil
Partnerships to avoid the payment of certain transfer taxes associated with
a sale of the properties. In addition, a merger of the McNeil Partnerships
would not trigger certain due-on-sale covenants in the mortgage debt of some
of the McNeil Partnerships that otherwise might be triggered by a sale of
the individual properties of those McNeil Partnerships. The transaction, as
structured, also will allow McNeil Partners to make the contributions of its
interests in the McNeil Partnerships and the assets of McNeil Partners and
McREMI to WXI/McN Realty on a tax-free basis and to defer substantial income
tax liability that would be incurred if there had been a taxable sale of the
properties.
Q: Why are the McNeil Partnerships and the assets of McREMI being sold as a
single portfolio instead of in separate transactions?
A: At the commencement of its engagement, PaineWebber Incorporated, the McNeil
Partnerships' exclusive financial advisor, advised McNeil Partners that the
highest price for the McNeil Partnerships and, therefore, the greatest
distribution to the limited partners of each of the McNeil Partnerships,
would likely be achieved by offering the McNeil Partnerships and McREMI
together on an all-or-none basis. PaineWebber perceived the advantages of an
all-or-none transaction as compared to separate asset sales of individual
McNeil Partnerships to include, among others, relatively quick liquidity, a
less time-consuming marketing period and the likelihood of a higher
aggregate purchase price. Among other factors, McNeil Partners itself
preferred an all-or-none transaction because it believed that the uneven
performance of the various properties owned by the McNeil Partnerships might
allow prospective purchasers to "cherry-pick" the most desirable assets to
the detriment of the others.
Q: What will I receive in the transaction?
A: If the Partnership participates in the transaction, limited partners of the
Partnership will receive an aggregate of approximately [for all except Funds
XXI-XXIII: $ in cash for each limited partner unit] [for Funds XXI-XXIII:
$ in cash for each current income unit and $ in cash for each
growth/shelter unit] held by them. [for all except Funds XXI-XXIII: The
aggregate amount to be received for each limited partner unit consists of
cash merger consideration of $ per unit and a special distribution in
cash estimated as of , 1999 to be $ per unit.] [for Funds XXI-XXIII:
The aggregate amount to be received for each current income unit consists of
cash merger consideration of $ per unit and a special distribution in
cash estimated as of , 1999 to be $ per unit. The aggregate amount
to be received for each growth/shelter unit consists of cash merger
consideration of $ per unit and a special distribution in cash estimated
as of , 1999 to be $ per unit.]
2
<PAGE>
Q: How was the amount that I will receive for my limited partner units in the
Partnership determined?
A: The merger consideration into which each limited partner unit in the
Partnership will be converted has been determined based upon an allocation
analysis prepared by Stanger & Co., the independent advisor to the McNeil
Partnerships. Stanger & Co. allocated the aggregate consideration in the
transaction among the various interests, rights and assets being acquired
by WXI/McN Realty in the transaction. This allocation was based on, among
other things:
. the relative aggregate values of the real estate assets of each McNeil
Partnership as determined by Stanger & Co.,
. the value of the management assets and other assets of McREMI as
determined by Stanger & Co.,
. percentages jointly negotiated by Stanger & Co., in consultation with
Eastdil Realty Company, and WXI/McN Realty governing the allocation of
the portion of the aggregate consideration allocated to the McNeil
Partnerships among the McNeil Partnerships, and
. the amounts due to the McNeil Affiliates as reflected on the financial
statements of the McNeil Partnerships as of , 1999.
The aggregate amount of the special distribution which will be distributed
to limited partners of the Partnership will be calculated in accordance
with the Master Agreement and will be based upon an estimated modified net
working capital balance of the Partnership as of the closing date. The per
unit amount of the special distribution will be determined in accordance
with the provisions of the Partnership's limited partnership agreement
governing distributions of surplus cash, except that the general partner of
the Partnership will not receive any part of the special distribution.
Q: Will I continue to receive distributions from the Partnership?
A: Following the merger of the Partnership, you will have no right to receive
distributions other than unpaid distributions that were declared prior to
the merger of the Partnership, if any, and other than the special
distribution, if any, of the Partnership as described above in the answer
to the eighth question. If the Partnership does not participate in the
transaction, you will continue to receive distributions, if any, in
accordance with the Partnership's limited partnership agreement and in the
discretion of McNeil Partners.
Q: Does the transaction require the vote of the limited partners?
A: Yes. Approval of the merger proposal by the limited partners is a condition
to the Partnership's participation in the transaction. The affirmative vote
of limited partners holding more than [for all except Funds XXI-XXIII: 50%
of the limited partner units] [for Funds XXI-XXIII: 50% of each class of
limited partner units] in the Partnership outstanding as of , 1999 (the
"record date") is required to approve the merger proposal. The record date
is the date fixed by McNeil Partners to determine the limited partners
entitled to vote at the meeting.
Q: If the limited partners of the Partnership approve the merger proposal, is
it certain that the Partnership will participate in the transaction?
A: No. The Partnership's participation in the transaction is subject to
several other closing conditions, including: the accuracy of the
representations and warranties of the McNeil Partnerships and WXI/McN
Realty contained in the Master Agreement; performance of obligations by the
McNeil Partnerships and WXI/McN Realty under the Master Agreement;
obtaining various consents and other approvals; the McNeil Partnerships
having generally unencumbered, insurable title to each of their properties;
and the McNeil Partnerships as a group having a specified minimum net
operating income for the twelve months prior to the closing.
Limited partners of the Partnership should be aware that the satisfaction
or waiver of each of the closing conditions is a condition to the
Partnership's participation in the transaction. Therefore, it is possible
that the failure of one
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McNeil Partnership to satisfy a condition could cause the transaction to
fail to close for all of the McNeil Partnerships.
The parties to the Master Agreement also have the right to terminate the
transaction in its entirety in specified circumstances, and the right to
cause one or more McNeil Partnerships to be excluded from the transaction
in specified circumstances and to proceed to close with the other McNeil
Partnerships.
Q: What happens if I vote against the merger proposal?
A: If you vote against the merger proposal, but holders of more than [for all
except Funds XXI-XXIII: 50% of the limited partner units] [for Funds XXI-
XXIII: 50% of each class of limited partner units] in the Partnership
outstanding as of the record date vote for the merger proposal and the
Partnership participates in the transaction, you will receive an aggregate
of approximately [for all except Funds XXI-XXIII: $ in cash for each of
your limited partner units] [for Funds XXI-XXIII: $ in cash for each of
your current income units and $ in cash for each of your growth/shelter
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.
[Additional disclosure for Funds XX--XXVI: If you do not vote for the
merger proposal, you will be entitled to exercise dissenters' rights if the
Partnership participates in the transaction and you follow specific
procedures set forth in the California Revised Limited Partnership Act.]
Q: What happens if the Partnership participates in the transaction?
A: If the Partnership participates in the transaction, you will cease to own
limited partner units in the Partnership and McNeil Partners will cease to
be the general partner of the Partnership. Following the completion of the
transaction, the Partnership will be wholly owned by WXI/McN Realty and its
subsidiaries.
Q: What happens if the Partnership does not participate in the transaction?
A: If the Partnership does not participate in the transaction, the limited
partners of the Partnership will continue to own limited partnerunits in
the Partnership and McNeil Partners will continue to be the general partner
of the Partnership. Because McNeil Partners is obligated under the
Partnership's limited partnership agreement to use commercially reasonable
efforts to complete the liquidation and termination of the Partnership by
December 31, 1999, McNeil Partners will continue to explore alternative
transactions to liquidate the Partnership if the Partnership does not
participate in the transaction. There is no assurance, however, that if the
Partnership does not participate in the transaction McNeil Partners will be
able to arrange an alternative transaction involving the Partnership, or
that any alternative transaction would result in limited partners receiving
consideration of equal or greater value than the consideration which is
estimated to be paid in the transaction. If the Partnership does not
participate in the transaction, McREMI, or another property manager
selected by McNeil Partners, will manage the Partnership's properties
pending a liquidation.
Q: Do limited partners have dissenters' or appraisal rights?
A: [For Funds XX-XXVI: Yes. If you do not vote for the merger proposal, you
will be entitled to exercise dissenters' rights if the Partnership
participates in the transaction and you follow specific procedures set
forth in the California Revised Limited Partnership Act.]
[For Funds IX-XII, XIV, XV, XXVII: No. Limited partners in the Partnership
are not entitled to exercise dissenters' rights or other rights of
appraisal in connection with the merger proposal, although limited partners
in certain other McNeil Partnerships do have such rights.]
Q: When do you expect the transaction to be completed?
A: We are working to complete the transaction as quickly as possible. We
expect to complete the transaction within several days following the
meeting.
Q: What are the tax consequences of the transaction to the limited partners of
the Partnership?
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A: Limited partners will recognize gain or loss on the conversion of their
limited partner units into cash in the merger [additional disclosure for
Funds XX-XXVI: or on receipt of cash pursuant to the exercise of
dissenters' rights], depending on the tax basis in their units. The gain or
loss will be treated as capital gain or capital loss. However, a portion of
that gain or loss that is attributable to so-called "unrealized
receivables" (which includes recapture of some depreciation deductions
previously taken) and "inventory items" (as defined in Section 751 of the
Internal Revenue Code of 1986, as amended) may be treated as ordinary
income or ordinary loss.
In general, the special distribution of cash will not be taxable and will
be treated as a return of capital to each limited partner. This return of
capital will reduce the limited partner's adjusted tax basis in its limited
partner units in the Partnership to the extent of the return of capital
and, therefore, may increase the amount of any gain or decrease the amount
of any loss recognized by that limited partner on the conversion of its
limited partner interests into cash in the merger. To the extent that the
special distribution received by a limited partner exceeds that limited
partner's adjusted tax basis in all of its limited partner units, that
excess will be taxable and will be treated as capital gain.
Limited partners should consult their respective tax advisors as to the
particular tax consequences of the transaction.
Q: When will I receive my final Schedule K-1?
A: The Partnership plans to deliver Schedule K-1s (Form 1065) to the limited
partners within 15 days of the fourth month following the closing date of
the transaction, unless the Partnership finds that it will require
additional time to complete the final return. If this situation occurs, the
Partnership will apply for an extension from the IRS and will notify the
limited partners of the extension request and the projected timing of the
mailing of the Schedule K-1.
Q: How is the Schofield litigation related to this transaction?
A: In August 1995, limited partners of some of the McNeil Partnerships filed
class actions, derivative actions or both on behalf of the limited partners
of those McNeil Partnerships. These actions were consolidated in late 1996
under the action, Schofield et al. v. McNeil Partners, L.P. et al.,
Superior Court of the State of California for the County of Los Angeles. In
September 1998, the parties signed a Stipulation of Settlement providing,
among other things, for a commitment by McNeil Partners and its affiliates
to market the McNeil Partnerships for sale, together with McREMI, through a
fair and impartial bidding process overseen by a national investment
banking firm. This transaction is, in part, a result of that process. On
July 8, 1999, the court granted final approval of the settlement and
dismissed the action.
Q: What other matters will be voted on at the meeting?
A: We do not expect to ask you to vote on any other matters at the meeting.
However, if a motion is made to adjourn or postpone the meeting, you may
also be asked to vote on the adjournment or postponement of the meeting.
Q: What do I need to do now?
A: Please complete, date and sign your proxy and then return it in the
enclosed envelope as soon as possible so that your limited partner units
may be represented at the meeting.
Q: Can I fax my proxy vote?
A: Yes. First complete, date and sign your proxy. Then fax the proxy to 1-800-
XXX-XXXX.
Q: Should I send in my limited partner unit certificates?
A: No. After the merger of the Partnership is completed, we will send you a
letter of transmittal and written instructions for exchanging your
certificates for the merger consideration.
Q: When can I expect to receive payment for my limited partner units?
A: After the consummation of the merger, the Partnership will send you a
letter of transmittal. Upon receipt of a completed letter of
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<PAGE>
transmittal and your certificates from you, the payment agent will mail your
check to you.
Q: May I change my vote after I have mailed my signed proxy?
A: Yes. Just send in a later dated, signed proxy prior to the meeting or attend
the meeting and vote in person. Taking either of these steps will revoke any
previously submitted proxy. You may also revoke any previously submitted
proxy by written notice to McNeil Partners prior to the meeting.
WHO CAN HELP ANSWER YOUR QUESTIONS?
If you have more questions about the transaction or would like additional
copies of this Proxy Statement, you should contact:
McNeil Partners, L.P.
Investor Services
P.O. Box 800359
Dallas, Texas 75380
telephone number: 1-800-576-7907
fax number: 1-800-XXX-XXXX
6
<PAGE>
SUMMARY
This summary highlights selected information included in this Proxy
Statement. This summary may not contain all of the information that is
important to you. To understand the merger proposal and the proposed
transaction fully and for a more complete description of the legal terms of the
transaction, you should read carefully this entire document and the other
documents to which we have referred you. See "Where you can find more
information" on page . We have included page references in parentheses to
direct you to a more complete description of the topics presented in this
summary. The terms of the transaction are contained in the Master Agreement, a
copy of which is attached to this Proxy Statement as Appendix A, and which is
incorporated in this Proxy Statement by reference.
All information contained in this Proxy Statement relating to WXI/McN
Realty, its subsidiaries and affiliates, other than the McNeil Partnerships and
the McNeil Affiliates, or to their respective actions, purposes, beliefs,
intentions or plans has been supplied by WXI/McN Realty for inclusion in this
Proxy Statement and has not been independently verified by any of the McNeil
Partnerships or the McNeil Affiliates.
Parties to the transaction (page )
The Partnership
[For each of the McNeil Partnerships, the information set forth below with
respect to that McNeil Partnership will be included in the Proxy Statement for
that McNeil Partnership:]
[Fund IX]
The Partnership is a California limited partnership engaged in real estate
activities, including the ownership, operation and management of residential
real estate and other real estate related assets. The Partnership was formed on
May 1, 1978. The Partnership is governed by the California Uniform Limited
Partnership Act and an amended and restated limited partnership agreement dated
November 12, 1991, as amended.
The Partnership was formed to acquire, operate and ultimately dispose of a
portfolio of income-producing real properties. The Partnership owns thirteen
apartment properties. All of the Partnership's properties are subject to
mortgage notes.
[Fund X]
The Partnership is a California limited partnership engaged in real estate
activities, including the ownership, operation and management of residential
and commercial real estate and other real estate related assets. The
Partnership was formed on June 1, 1979. The Partnership is governed by the
California Uniform Limited Partnership Act and an amended and restated limited
partnership agreement dated October 9, 1991, as amended.
The Partnership was formed to acquire, operate and ultimately dispose of a
portfolio of income-producing real properties. The Partnership owns seven
apartment buildings, one retail shopping center and one office building. All of
the Partnership's properties are subject to mortgage indebtedness.
[Fund XI]
The Partnership is a California limited partnership engaged in real estate
activities, including the ownership, operation and management of residential
real estate and other real estate related assets. The Partnership was formed on
June 2, 1980. The Partnership is governed by the California Uniform Limited
Partnership Act and an amended and restated limited partnership agreement dated
August 6, 1991, as amended.
7
<PAGE>
The Partnership was formed to acquire, operate and ultimately dispose of a
portfolio of income-producing real properties. The Partnership owns seven
apartment properties. All of the Partnership's properties are subject to
mortgage notes.
[Fund XII]
The Partnership is a California limited partnership engaged in real estate
activities, including the ownership, operation and management of residential
and commercial real estate and other real estate related assets. The
Partnership was formed on February 2, 1981. The Partnership is governed by the
California Uniform Limited Partnership Act and an amended and restated limited
partnership agreement dated September 6, 1991, as amended.
The Partnership was formed to acquire, operate and ultimately dispose of a
portfolio of income-producing real properties. The Partnership owns five
properties. All of the Partnership properties, except Plaza Westlake, are
subject to mortgage notes.
[Fund XIV]
The Partnership is a California limited partnership engaged in real estate
activities, including the ownership, operation and management of residential
and commercial real estate and other real estate related
assets. The Partnership was formed on April 30, 1982. The Partnership is
governed by the California Uniform Limited Partnership Act and an amended and
restated limited partnership agreement dated September 20, 1991, as amended.
The Partnership was formed to acquire, operate and ultimately dispose of a
portfolio of income-producing real properties. The Partnership owns four
apartment properties and one retail shopping center. The retail shopping center
is currently on the market for sale. All of the Partnership's properties are
subject to mortgage notes.
[Fund XV]
The Partnership is a California limited partnership engaged in real estate
activities, including the ownership, operation and management of residential
real estate and other real estate related assets. The Partnership was formed on
June 26, 1984. The Partnership is governed by the California Uniform Limited
Partnership Act and an amended and restated limited partnership agreement dated
October 11, 1991, as amended.
The Partnership was formed to acquire, operate and ultimately dispose of a
portfolio of income-producing real properties. The Partnership owns four
apartment properties. One of these apartment properties is currently on the
market for sale. Three of the four properties of the Partnership are subject to
mortgage notes.
[Fund XX]
The Partnership is a California limited partnership engaged in real estate
activities, including the ownership, operation and management of residential
real estate and other real estate related assets. The Partnership was formed on
July 19, 1984. The Partnership is governed by the California Revised Limited
Partnership Act and an amended and restated limited partnership agreement dated
March 30, 1992, as amended.
The Partnership was formed to engage in the business of making and servicing
mortgage loans and acquiring, operating and ultimately disposing of revenue-
producing real properties. The Partnership currently operates one revenue-
producing property. This property is subject to a mortgage note.
[Fund XXI]
The Partnership is a California limited partnership engaged in real estate
activities, including the ownership, operation and management of residential
real estate and other real estate related assets. The
8
<PAGE>
Partnership was formed on November 23, 1983. The Partnership is governed by the
California Uniform Limited Partnership Act and an amended and restated limited
partnership agreement dated March 26, 1992, as amended.
The Partnership was formed to engage in the business of acquiring and
operating revenue-producing real properties, and holding the properties for
investment. Since completion of its capital formation and property acquisition
phases in 1985, the Partnership has operated its properties for production of
income. The Partnership currently operates five properties. All of the
Partnership's properties are subject to mortgage notes.
[Fund XXII]
The Partnership is a California limited partnership engaged in real estate
activities, including the ownership, operation and management of residential
real estate and other real estate related assets. The Partnership was formed on
November 30, 1984. The Partnership is governed by the California Revised
Limited Partnership Act and an amended and restated limited partnership
agreement dated March 26, 1992, as amended.
The Partnership was formed to engage in the business of acquiring and
operating income-producing real properties and holding the properties for
investment. Since completion of its capital formation and property acquisition
phases in 1986, the Partnership has operated its properties for production of
income. The Partnership currently operates one property, Harbour Club III
Apartments. This property is subject to a mortgage note.
[Fund XXIII]
The Partnership is a California limited partnership engaged in real estate
activities, including the ownership, operation and management of residential
real estate and other real estate related assets. The Partnership was formed on
March 4, 1985. The Partnership is governed by the California Revised Limited
Partnership Act and an amended and restated limited partnership agreement dated
March 30, 1992, as amended.
The Partnership was formed to acquire, operate and ultimately dispose of a
portfolio of income-producing real properties. The Partnership owns one
apartment property, Harbour Club II Apartments, located in Belleville,
Michigan. Harbour Club II Apartments is subject to mortgage indebtedness.
[Fund XXIV]
The Partnership is a California limited partnership engaged in real estate
activities, including the ownership, operation and management of commercial and
residential real estate and other real estate related assets. The Partnership
was formed on October 19, 1984. The Partnership is governed by the California
Revised Limited Partnership Act and an amended and restated limited partnership
agreement dated March 30, 1992, as amended.
The Partnership was formed to engage in the business of acquiring and
operating revenue-producing real properties and holding the properties for
investment. Since completion of its capital formation and property acquisition
phases in 1985, when it completed the purchase of seven properties, the
Partnership has operated its properties for production of income. The
Partnership currently owns five properties. One of these properties is
currently on the market for sale. One of the properties is subject to a
mortgage note.
[Fund XXV]
The Partnership is a California limited partnership engaged in real estate
activities, including the ownership, operation and management of commercial
real estate and other real estate related assets. The
Partnership was formed on October 1, 1985. The Partnership is governed by the
California Revised Limited Partnership Act and an amended and restated limited
partnership agreement dated March 26, 1992, as amended.
9
<PAGE>
The Partnership was formed to engage in the business of acquiring and
operating revenue-producing real properties and holding the properties for
investment. Since completion of its capital formation and property acquisition
phases in 1986, when it completed the purchase of five properties, the
Partnership has operated its properties for production of income. The
Partnership currently owns five properties. One property, a retail center, is
currently on the market for sale and two properties are subject to mortgage
notes.
[Fund XXVI]
The Partnership is a California limited partnership engaged in real estate
activities, including the ownership, operation and management of commercial and
residential real estate and other real estate related assets. The Partnership
was formed on February 22, 1985. The Partnership is governed by the California
Revised Limited Partnership Act and an amended and restated limited partnership
agreement dated March 30, 1992, as amended.
The Partnership was formed to engage in the business of acquiring and
operating income-producing real properties, and holding the properties for
investment. Since completion of its capital formation and property acquisition
phases in 1987, the Partnership has operated its properties for production of
income. The original acquisitions of properties were all cash. The Partnership
currently owns four properties two of these properties are subject to mortgage
notes.
[Fund XXVII]
The Partnership is a Delaware limited partnership engaged in real estate
activities, including the ownership, operation and management of commercial
real estate and self storage facilities and other real estate related assets.
The Partnership was formed on January 16, 1987. The Partnership is governed by
the Delaware Revised Uniform Limited Partnership Act and an amended and
restated limited partnership agreement dated March 30, 1992, as amended.
Under the original limited partnership agreement, the Partnership was formed
to engage in the business of making short-term nonrecourse mortgage or deed of
trust loans to affiliates of the original general partner and to partnerships
or real estate investment trusts sponsored by affiliates of the original
general partner formed for the purpose of acquiring revenue-producing real
properties and reinvesting the proceeds from repayment of such loans in
additional affiliate loans. In 1989, the Partnership initiated foreclosure
proceedings on the collateral securing each of its mortgage loan investments.
The Partnership acquired two office buildings in 1989 and eight mini-storage
warehouses in 1990 as a result of the foreclosures. Also in 1990, one loan was
collected in full when the borrower sold the mini-storage warehouse securing
the loan. The remaining mortgage loan investment, secured by a mini-storage
warehouse owned by an unaffiliated limited partnership, was collected in full
in 1996. The Partnership currently owns eight mini-storage and two office
properties. Two mini-storage properties are currently on the market for sale.
[Include the following paragraph in the Proxy Statement for each McNeil
Partnership:]
The principal executive offices of the Partnership are located at 13760 Noel
Road, Suite 600, LB70, Dallas, Texas 75240, telephone number 1-800-576-7907.
McNeil Partners
McNeil Partners, L.P., a Delaware limited partnership, is the general
partner of the Partnership. The principal business of McNeil Partners is acting
as general partner of limited partnerships and managing real estate. The
principal executive offices of McNeil Partners are located at 13760 Noel Road,
Suite 600, LB70, Dallas, Texas 75240, telephone number 1-800-576-7907.
McNeil Investors
McNeil Investors, Inc., a Delaware corporation, is the general partner of
McNeil Partners. The principal business of McNeil Investors is acting as
general partner of limited partnerships and managing real estate. The principal
executive offices of McNeil Investors are located at 13760 Noel Road, Suite
600, LB70, Dallas, Texas 75240, telephone number 1-800-576-7907.
10
<PAGE>
The other McNeil Partnerships
In addition to the Partnership, the transaction includes eighteen other
limited partnerships controlled by McNeil Partners or its affiliates. These
partnerships, together with the Partnership, are referred to in this Proxy
Statement as the "McNeil Partnerships." The names of the McNeil Partnerships
are set forth below:
Public McNeil Partnerships Private McNeil Partnerships
. McNeil Real Estate Fund IX, Ltd. . Hearth Hollow Associates, L.P.
. McNeil Real Estate Fund X, Ltd. . McNeil Midwest Properties I, L.P.
. McNeil Real Estate Fund XI, Ltd. . Regency North Associates, L.P.
. McNeil Real Estate Fund XII, Ltd.
. McNeil Real Estate Fund XIV, Ltd. Affiliated McNeil Partnerships
. McNeil Real Estate Fund XV, Ltd.
. McNeil Real Estate Fund XX, L.P. . Fairfax Associates II, Ltd.
. McNeil Real Estate Fund XXI, L.P. . McNeil Summerhill I, L.P.
. McNeil Real Estate Fund XXII, L.P.
. McNeil Real Estate Fund XXIII, L.P. The "Affiliated McNeil Partnerships"
. McNeil Real Estate Fund XXIV, L.P. are wholly owned by Robert A. McNeil
. McNeil Real Estate Fund XXV, L.P. and related parties.
. McNeil Real Estate Fund XXVI, L.P.
. McNeil Real Estate Fund XXVII, L.P.
The McNeil Affiliates
In addition to the McNeil Partnerships, McNeil Partners and McNeil
Investors, the following affiliates of McNeil Partners also are parties to the
Master Agreement:
. McNeil Summerhill, Inc., a Texas corporation wholly owned by Robert A.
McNeil and Carole J. McNeil, which is the general partner of McNeil
Summerhill I, L.P.;
. McNeil Real Estate Management, Inc. ("McREMI"), a Delaware corporation
wholly owned by Robert A. McNeil, which is the management company for the
properties of the McNeil Partnerships; and
. Robert A. McNeil.
McNeil Partners, McNeil Investors, McNeil Summerhill, Inc. and Robert A.
McNeil are sometimes referred to in this Proxy Statement as the "McNeil General
Partners." McNeil Partners, together with McREMI, McNeil Investors, McNeil
Summerhill, Inc., Robert A. McNeil and Carole J. McNeil, are sometimes referred
to in this Proxy Statement as the "McNeil Affiliates." McNeil Partners, McNeil
Investors, McNeil Summerhill, Inc., McREMI and the McNeil Partnerships are
sometimes referred to in this Proxy Statement as the "Sellers" and, together
with Robert A. McNeil, are the McNeil parties to the Master Agreement.
WXI/McN Realty and its subsidiaries
WXI/McN Realty is a Delaware limited liability company formed on June 17,
1999 by WXI/MNL Real Estate, L.L.C., the managing member of WXI/McN Realty.
WXI/McN Realty's managing member is owned 99% by Whitehall Street Real Estate
Limited Partnership XI ("Whitehall"), a real estate investment fund whose
investment manager is Goldman, Sachs & Co. and whose general partner is an
affiliate of The Goldman Sachs Group, Inc. and 1% by Archon Group, L.P.
("Archon"), a subsidiary of The Goldman Sachs Group, Inc. The principal
executive offices of WXI/McN Realty are located at c/o Goldman, Sachs & Co.,
100 Crescent Court, Suite 1000, Dallas, Texas 75201, telephone number (214)
855-6316.
11
<PAGE>
WXI/McN Realty was organized for the purposes of, and the primary business
of WXI/McN Realty, after consummation of the transaction, will be:
. acquiring, holding, financing, refinancing, maintaining and managing the
interests in the participating McNeil Partnerships;
. directly or indirectly owning, financing, refinancing, managing,
maintaining, operating, improving, leasing, selling and otherwise
disposing of the properties of the participating McNeil Partnerships; and
. acquiring, holding and utilizing the assets of McREMI.
WXI/McN Realty's managing member is and will be until the effective time of
the mergers the sole member of WXI/McN Realty. At the effective time, McNeil
Partners will receive membership interests in WXI/McN Realty in exchange for
its contributions to WXI/McN Realty and WXI/McN Realty's subsidiaries in the
transaction. See "--Effects of the transaction," "--Structure of the
transaction" and "--Allocation of the aggregate consideration in the
transaction."
WXI/McN Realty will form or cause to be formed, prior to any contributions
by McNeil Partners and prior to the merger of any of the participating McNeil
Partnerships, several subsidiaries which will be directly or indirectly wholly
owned by WXI/McN Realty or one or more of its subsidiaries:
. One of these subsidiaries, a Delaware limited liability company, will
acquire the general partner interests (as defined below) in the
Partnership and assets of McNeil Partners related to the Partnership, and
this subsidiary will be appointed as the new general partner of the
Partnership;
. One of these subsidiaries, a [for Funds IX-XII, XIV, XV, XX-XXVI:
California] [for fund XXVII: Delaware] limited partnership, will be
merged with and into the Partnership, with the Partnership surviving as a
subsidiary limited partnership of WXI/McN Realty; and
. One of these subsidiaries, a Delaware limited liability company, will
acquire the assets of McREMI being contributed to WXI/McN Realty and its
subsidiaries. This subsidiary is referred to as "Management LLC" in this
Proxy Statement.
As used in this Proxy Statement, the term "general partner interest" in a
McNeil Partnership includes the proportional interest in the McNeil Partnership
based upon capital contributions and each of the rights and other assets
corresponding to the McNeil Partnership which are being contributed
in connection with that general partner interest.
The principal executive offices of each of these subsidiaries will be
located at c/o Goldman, Sachs & Co., 100 Crescent Court, Suite 1000, Dallas,
Texas 75201, telephone number (214) 855-6316.
The meeting (page )
The meeting will be held at , local time, on , 1999, at . At the
meeting, limited partners of the Partnership will be asked to consider and vote
on the merger proposal.
McNeil Partners does not expect to ask the limited partners of the
Partnership to vote on any other matters at the meeting. However, if a motion
is made to adjourn or postpone the meeting, the limited partners of the
Partnership may also be asked to vote on the adjournment or postponement of the
meeting. The Master Agreement provides that McNeil Partners will recommend the
adjournment of the meeting for ten days if on the date of the meeting the
Partnership has not received duly executed proxies which, when added to the
number of votes represented in person at the meeting by persons who intend to
vote for the merger proposal, will constitute a sufficient number of votes to
approve the merger proposal. However, if limited partners
12
<PAGE>
holding greater than a majority of the outstanding limited partner units in the
Partnership have indicated their intention to vote against, and have submitted
duly executed proxies voting against, the merger proposal, the Master Agreement
does not require McNeil Partners to recommend adjournment of the meeting.
Record date; voting power (page )
McNeil Partners has fixed the close of business on , 1999, as the
record date for determination of the limited partners entitled to notice of and
to vote at the meeting and any adjournment or postponement of the meeting. As
of the record date, there were limited partner units in the Partnership
issued and outstanding and held of record by approximately holders of
record. Holders of record of limited partner units in the Partnership are
entitled to one vote for each unit that they hold on the merger proposal and
any other matter that may properly come before the meeting. [Additional
disclosure for Funds XXI-XXIII: Holders of current income units and holders of
growth/shelter units will vote separately on the merger proposal.]
Quorum; vote required (page )
The necessary quorum for the transaction of business at the meeting is the
presence in person or by proxy of limited partners holding [for all except
Funds XXI-XXIII: a majority of the limited partner units] [for Funds XXI-XXIII:
a majority of each class of limited partner units] in the Partnership
outstanding on the record date. For purposes of determining the presence of a
quorum, abstentions will be counted by McNeil Partners as not present at the
meeting.
The affirmative vote of limited partners holding greater than [for all
except Funds XXI-XXIII: 50% of the limited partner units] [for Funds XXI-XXIII:
50% of each class of limited partner units] in the Partnership outstanding on
the record date is required to approve the merger proposal. [Additional
disclosure for Funds IX-XI, XIV, XV, XX, XXV-XXVII: As of the record date,
McNeil Partners and some of its affiliates, other than the Partnership,
beneficially owned an aggregate of limited partner units in the
Partnership, representing in the aggregate approximately % of the limited
partner units outstanding on the record date. McNeil Partners and these
affiliates intend to vote all of the limited partner units beneficially owned
by them in the Partnership for the merger proposal.] [Additional disclosure for
Fund XXIII: As of the record date, McNeil Partners beneficially owned an
aggregate of growth/shelter units in the Partnership, representing in the
aggregate approximately % of the growth/shelter units outstanding on the
record date. McNeil Partners intends to vote all of the limited partner units
in the Partnership beneficially owned by it for the merger proposal.]
If you fail to return your proxy or mark "ABSTAIN" on your proxy, the effect
will be the same as a vote against the merger proposal. If you sign and return
your proxy but do not give instructions on your proxy, your limited partner
units will be voted for the merger proposal.
Approval of the merger proposal by the limited partners of the Partnership
is a condition to the Partnership's participation in the transaction. See "--
Conditions to closing." Therefore, if we do not receive votes for the merger
proposal from limited partners holding greater than [for all except Funds XXI-
XXIII: 50% of the limited partner units] [for Funds XXI-XXIII: 50% of each
class of limited partner units] in the Partnership, the merger proposal will
not be approved and the Partnership will not participate in the transaction.
Changing your vote (page )
You may revoke your proxy at any time before it is voted at the meeting (1)
by sending in a later dated, signed proxy, (2) by written notice to McNeil
Partners or (3) by attending the meeting and voting in person.
Purposes and reasons for the transaction (page )
The purpose of the transaction is for WXI/McN Realty to acquire the general
partner interests and limited partner interests in the McNeil Partnerships,
assets of McNeil Partners related to the McNeil Partnerships and
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certain assets of McREMI, while providing the limited partners of the McNeil
Partnerships with the opportunity to liquidate their investment in the McNeil
Partnerships for cash at a price and on terms that the McNeil General Partners
believe are fair to and in the best interests of the limited partners of that
McNeil Partnership. See "--Position of McNeil Partners and Robert A. McNeil
regarding the transaction." The McNeil General Partners also believe that the
transaction will provide more immediate liquidity to the limited partners of
each of the McNeil Partnerships than would have been obtainable had each of the
McNeil Partnerships been liquidated on a property by property basis. The McNeil
Investors board of directors has unanimously determined that the merger
proposal is fair to and in the best interests of each of the McNeil
Partnerships and its limited partners. In addition, McNeil Partners believes
that the structure of the transaction will allow it to meet its obligations to
liquidate the public McNeil Partnerships in a manner that is in the best
interests of the limited partners of each of the public McNeil Partnerships.
Moreover, counsel to the plaintiffs in the Schofield litigation has reviewed
the terms of the transaction and oversaw the auction process.
Structure of the transaction (page )
The following figures depict the structure of the transaction and the
ownership interests of the parties to the transaction at different stages of
the transaction.
The following figures assume that each of the McNeil Partnerships approves
the merger proposal applicable to that McNeil Partnership and participates in
the transaction. In the event that a particular McNeil Partnership does not
approve the merger proposal or does not participate in the transaction, it will
not be included in the transaction and the transactions depicted below with
respect to that McNeil Partnership will not occur. In the event that a
particular McNeil Partnership does not participate in the transaction, none of
the transactions relating to the other McNeil Partnerships will be affected.
Structure and ownership prior to the transaction
Ownership of the McNeil Partnerships immediately prior to the transaction
Figure 1
Public McNeil Partnerships, Hearth Hollow, Midwest Properties
[GRAPHIC]
14
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Figure 1--Continued
[GRAPHIC]
15
<PAGE>
Ownership structure of WXI/McN Realty and its subsidiaries prior to the
transaction
Figure 2
[GRAPHIC]
16
<PAGE>
Contributions to McNeil Partners by the other McNeil Affiliates
Following the meetings of the limited partners of the McNeil Partnerships,
the McNeil Affiliates will contribute the following to McNeil Partners or an
affiliate of McNeil Partners in exchange for limited partner interests in
McNeil Partners: (1) the general partner interests in Regency North and the
Affiliated McNeil Partnerships, (2) the limited partner interests in the
Affiliated McNeil Partnerships and (3) certain assets of McREMI.
As of the date of this Proxy Statement, First Associated Management, Inc., a
Texas corporation and the surviving corporation in the merger between First
Associated Management, Inc. and The Pacific Income Plan Company of California,
owns a 1% general partnership interest in Regency North. It is contemplated
that prior to the contributions described in the immediately preceding
paragraph, McNeil Partners will purchase for cash all of the general partner
interests owned by First Associated Management, Inc. in Regency North or,
alternatively, First Associated Management, Inc. will resign as a general
partner of Regency North in accordance with the limited partnership agreement
of Regency North.
In addition, as of the date of this Proxy Statement, Sallie B. McNeil, a
former wife of Robert A. McNeil, owns a 50% limited partner interest in
Fairfax. It is contemplated that prior to the contributions described above,
McNeil Partners will purchase for cash all of the limited partner interests
owned by Sallie B. McNeil in Fairfax.
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Figure 3 depicts the contributions. Figure 4 depicts the ownership of the
McNeil Partnerships and assets of McREMI following these contributions:
Contributions to McNeil Partners by the other McNeil Affiliates
Figure 3
[GRAPHIC]
18
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Ownership of McNeil Partnerships and assets of McREMI following
contributions to McNeil Partners by the other McNeil Affiliates.
Figure 4
[GRAPHIC]
Replacement of general partner
Following the contributions to McNeil Partners by the McNeil Affiliates and
immediately prior to the mergers described below in "--Structure of the
transaction--The mergers," McNeil Partners will contribute the following to
WXI/McN Realty or at the direction of WXI/McN Realty, to newly formed limited
liability company subsidiaries directly or indirectly wholly owned by WXI/McN
Realty: (1) all of the general partner interests in each of the McNeil
Partnerships, (2) all of the limited partner interests in the Affiliated McNeil
Partnerships, (3) assets of McNeil Partners related to the participating McNeil
Partnerships and (4) certain assets of McREMI. In exchange for these
contributions, McNeil Partners will receive membership interests in WXI/McN
Realty and a credit for a capital contribution to WXI/McN Realty in an amount
equal to the amount of the aggregate consideration allocated by Stanger & Co.
to the interests, rights and assets being contributed by McNeil Partners. See
"--Allocation of aggregate consideration in the transaction." Following these
contributions, McNeil Partners will be replaced as general partner of the
participating McNeil Partnerships by WXI/McN Realty or a wholly-owned
subsidiary of WXI/McN Realty.
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At the effective time of the mergers, McNeil Partners also may make cash
contributions to WXI/McN Realty in exchange for additional membership interests
in WXI/McN Realty. In addition, some fees, expenses and disbursements incurred
and paid by the McNeil Affiliates in connection with the transaction will be
treated as a contribution-in-kind to WXI/McN Realty by McNeil Partners in
exchange for additional membership interests in WXI/McN Realty. See "--
Interests of certain persons in matters to be acted on; conflicts of interest--
Equity interest of McNeil Partners in WXI/McN Realty; WXI/McN Realty operating
agreement."
Figure 5 depicts the contributions to McNeil Partners by the other McNeil
Affiliates and the replacement of the general partner of the McNeil
Partnerships. Figure 6 depicts the ownership of the McNeil Partnerships and the
assets of McREMI following these contributions:
Replacement of general partner of the McNeil Partnerships and contribution of
assets of McREMI
Figure 5
[GRAPHIC]
20
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Ownership of McNeil Partnerships following replacement of general partner
and contribution of assets of McREMI
Figure 6
[GRAPHIC]
21
<PAGE>
The mergers
Immediately following the replacement of the general partner of each of the
McNeil Partnerships, separate newly formed limited partnerships directly or
indirectly wholly owned by WXI/McN Realty will be simultaneously merged with
and into each of the McNeil Partnerships, other than the Affiliated McNeil
Partnerships. The limited partners of each of the McNeil Partnerships, other
than the Affiliated McNeil Partnerships, will receive cash consideration in the
transaction. The aggregate amount to be received in the transaction per limited
partner unit in each of the McNeil Partnerships consists of two components--the
merger consideration and a special distribution.
The aggregate amount to be received in the transaction by limited partners
in the Partnership is estimated at [for all except Funds XXI-XXIII: $ in cash
for each limited partner unit.] [for Funds XXI-XXIII: $ in cash for each
current income unit and $ in cash for each growth/shelter unit.] [For all
except Funds XXI-XXIII: The amount for each limited partner unit consists of
merger consideration of $ per unit and a special cash distribution estimated
as of , 1999 at $ per unit.] [For Funds XXI-XXIII: The amount for each
current income unit consists of merger consideration of $ per unit and a
special cash distribution estimated as of , 1999 at $ per unit. The
amount for each growth/shelter unit consists of merger consideration of $ per
unit and a special cash distribution estimated as of , 1999 at $ per
unit.]
The merger consideration is equal to the amount of the aggregate
consideration in the transaction allocated by Stanger & Co. to the limited
partner units in each McNeil Partnership. For each participating McNeil
Partnership, other than the Affiliated McNeil Partnerships, each limited
partner unit in that McNeil Partnership will be converted at the effective time
of the merger of that McNeil Partnership into the right to receive the per unit
merger consideration for that McNeil Partnership.
In addition, if a participating McNeil Partnership has a positive net
working capital balance on the closing date of the transaction, that
participating McNeil Partnership will declare a special distribution in cash to
its limited partners. The amount of the special distribution will be calculated
in accordance with the terms of the Master Agreement and will be based upon a
modified net working capital balance of that McNeil Partnership as of the
closing date. This special distribution will be made in accordance with the
provisions of that McNeil Partnership's limited partnership agreement governing
distributions of surplus cash, except that the general partner of that McNeil
Partnership will not receive any part of the special distribution.
McNeil Partners will receive membership interests in and credit for a
capital contribution to WXI/McN Realty in exchange for its contributions to
WXI/McN Realty and WXI/McN Realty's subsidiaries of its general partner
interests in each of the participating McNeil Partnerships, its limited partner
interests in the Affiliated McNeil Partnerships, assets of McNeil Partners
related to the McNeil Partnerships and certain assets of McREMI.
Following the mergers, each of the participating McNeil Partnerships will
continue as the surviving limited partnership and a directly and/or indirectly
wholly owned subsidiary of WXI/McN Realty.
22
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Figure 7 depicts the mergers:
The Mergers
Figure 7
[GRAPHIC]
23
<PAGE>
Ownership following the transaction
Figure 8
[GRAPHIC]
24
<PAGE>
Effects of the transaction (page )
The Master Agreement provides that WXI/McN Realty will acquire the general
partner interests and limited partner interests in each of the McNeil
Partnerships, assets of McNeil Partners related to the McNeil Partnerships and
certain assets of McREMI. Each McNeil Partnership's participation in the
transaction is subject to the requisite approval of its limited partners. As a
result of the transaction, each participating McNeil Partnership will become a
direct and/or indirect wholly owned subsidiary of WXI/McN Realty and a separate
direct or indirect wholly owned subsidiary of WXI/McN Realty will own and
operate the assets of McREMI contributed to WXI/McN Realty and its
subsidiaries. Following completion of the transaction, the current limited
partners of a participating McNeil Partnership will no longer have any interest
in, and will not be limited partners of, that McNeil Partnership and,
therefore, will not participate in that McNeil Partnership's future earnings
and potential growth. Following the completion of the transaction, the limited
partner units of each of the public McNeil Partnerships which participates in
the transaction will cease to be a reporting company and will cease to be
registered under the Securities Exchange Act of 1934, as amended.
The limited partners of each of the participating McNeil Partnerships, other
than the Affiliated McNeil Partnerships, will receive only cash consideration
in the transaction. The aggregate amount to be received in the transaction per
limited partner unit in each of the McNeil Partnerships consists of two
components--the merger consideration and a special distribution.
The aggregate amount to be received in the transaction by limited partners
of the Partnership is estimated at [for all except Funds XXI-XXIII: $ in cash
for each limited partner unit.] [for Funds XXI-XXIII: $ in cash for each
current income unit and $ in cash for each growth/shelter unit.] [For all
except Funds XXI-XXIII: The amount for each limited partner unit consists of
merger consideration of $ per unit and a special cash distribution estimated
as of , 1999 at $ per unit.] [For Funds XXI-XXIII: The amount for each
current income unit consists of merger consideration of $ per unit and a
special cash distribution estimated as of , 1999 at $ per unit. The amount
for each growth/shelter unit consists of merger consideration of $ per unit
and a special cash distribution estimated as of , 1999 at $ per unit.]
The merger consideration is equal to the amount of the aggregate
consideration in the transaction allocated by Stanger & Co. to the limited
partner units in each McNeil Partnership. For each participating McNeil
Partnership, other than the Affiliated McNeil Partnerships, each limited
partner unit in that McNeil Partnership will be converted at the effective time
of the merger of that McNeil Partnership into the right to receive the per unit
merger consideration for that McNeil Partnership.
In addition, if a participating McNeil Partnership has a positive net
working capital balance on the closing date of the transaction, that
participating McNeil Partnership will declare a special distribution in cash to
its limited partners. The amount of the special distribution will be calculated
in accordance with the terms of the Master Agreement and will be based upon a
modified net working capital balance of that McNeil Partnership as of the
closing date. This special distribution will be made in accordance with the
provisions of the Partnership's limited partnership agreement governing
distributions of surplus cash, except that the general partner of that McNeil
Partnership will not receive any part of the special distribution.
McNeil Partners will receive membership interests in and credit for a
capital contribution to WXI/McN Realty in exchange for its contributions to
WXI/McN Realty and WXI/McN Realty's subsidiaries of its general partner
interests in each of the participating McNeil Partnerships, the limited partner
interests in the Affiliated McNeil Partnerships, assets of McNeil Partners
related to the McNeil Partnerships and certain assets of McREMI. The amount of
the capital contribution by McNeil Partners to WXI/McN Realty in exchange for
these contributions will be equal to the aggregate consideration allocated by
Stanger & Co. to the interests, rights and assets being contributed by McNeil
Partners in these contributions. McNeil Partners also may make cash
contributions to WXI/McN Realty under some circumstances and some fees,
expenses and disbursements
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<PAGE>
incurred and paid by the McNeil Affiliates in connection with the transaction
will be treated as a contribution in-kind to WXI/McN Realty. McNeil Partners
will receive membership interests in WXI/McN Realty and credit for a capital
contribution to WXI/McN Realty in the amount of any cash contribution or any
such contribution in-kind to WXI/McN Realty. See "Special Factors--Interests of
certain persons in matters to be acted upon; conflicts of interest--Equity
interest of McNeil Partners in WXI/McN Realty."
The relationship between McNeil Partners and WXI/McN Realty's managing
member after the effective time of the mergers will be governed by the first
amended and restated limited liability company operating agreement of WXI/McN
Realty (the "WXI/McN Realty Operating Agreement") to be entered into between
McNeil Partners and WXI/McN Realty's managing member at the effective time of
the merger. See "WXI/McN Realty Operating Agreement." The form of the WXI/McN
Realty Operating Agreement is attached to this Proxy Statement as Appendix B
and is incorporated in this Proxy Statement by reference.
Recommendations of the special committee and the McNeil Investors board of
directors (page )
Recommendations of the special committee
On May 7, 1999, following preliminary discussions with Whitehall, the McNeil
Investors board of directors formed a special committee of the McNeil Investors
board of directors, consisting of one independent director, (1) to participate,
through its legal counsel and financial advisor, in negotiating the forms,
terms and conditions of the definitive agreements with respect to the
transaction, and (2) with the assistance of its legal counsel and financial
advisor, to review and pass upon the terms of the transaction on behalf of the
limited partners of the McNeil Partnerships. See "Special Factors--Background
of the transaction--Background of the auction process--Appointment of the
special committee."
The special committee:
. determined that the merger proposal is fair to, and in the best interests
of, the limited partners of each of the McNeil Partnerships, and
. recommended to the McNeil Investors board of directors the approval of
the merger proposal.
In making its determination, the special committee relied on a fairness
opinion delivered to the McNeil Investors board of directors by Stanger & Co.
on behalf of the McNeil Partnerships and a fairness opinion delivered to the
special committee by Eastdil Realty Company L.L.C., the financial advisor to
the special committee, to the effect that each of the aggregate consideration,
the allocations of the aggregate consideration and the estimated aggregate
amount to be received with respect to each limited partner unit in each of the
McNeil Partnerships is fair from a financial point of view to the holders of
each class of limited partner units in each of the McNeil Partnerships.
Recommendations of the McNeil Investors board of directors
The McNeil Investors board of directors:
. determined that the merger proposal is fair to, and in the best interests
of, the limited partners of each of the McNeil Partnerships,
. approved the merger proposal, and
. determined to recommend to the limited partners of each of the McNeil
Partnerships that they approve the merger proposal.
In making its determinations, the McNeil Investors board of directors relied
on the recommendation of the special committee and on a fairness opinion
delivered to the McNeil Investors board of directors by Stanger & Co. on behalf
of the McNeil Partnerships to the effect that each of the aggregate
consideration, the allocations of the aggregate consideration and the estimated
aggregate amount to be received with respect to each limited partner unit in
each of the McNeil Partnerships is fair from a financial point of view to the
holders of each class of limited partner units in each of the McNeil
Partnerships.
26
<PAGE>
Factors considered by the McNeil Investors board of directors and the special
committee (page )
In reaching their determination that the merger proposal is fair to, and in
the best interests of, limited partners of each of the McNeil Partnerships and
in determining to recommend approval of the merger proposal, the McNeil
Investors board of directors and the special committee considered a number of
factors. The material supporting factors considered were:
. The transaction satisfied McNeil Partners' obligations under the limited
partnership agreements of each of the public McNeil Partnerships to use
commercially reasonable efforts to complete the liquidation and
termination of the public McNeil Partnerships by December 31, 1999. The
transaction also satisfied the commitment of McNeil Partners in a
settlement of the Schofield litigation to market the McNeil Partnerships
for sale, together with McREMI, through a fair and impartial bidding
process overseen by a national investment banking firm.
. The transaction was structured to maximize the value of each of the
McNeil Partnerships. PaineWebber, Incorporated, the McNeil Partnerships'
exclusive financial advisor, advised McNeil Partners that the highest and
best price for the McNeil Partnerships, and therefore the greatest
distribution to the limited partners of each of the McNeil Partnerships,
would likely be achieved by offering for sale the McNeil Partnerships,
McNeil Partners, McNeil Investors and McREMI as an entire portfolio on an
all-or-none basis, a structure that would allow a potential purchaser to
acquire a large portfolio of real estate managed by a competent and
experienced management team with a demonstrated track record of operating
the properties over an extended period of time. This was particularly
important because of the geographic diversity of the properties and the
age of the improvements on most of the properties. In addition, the
structure selected eliminated the difficulties that would have been
encountered if prospective purchasers were allowed to purchase the more
attractive properties, leaving behind the less attractive properties that
could prove time consuming and expensive for an individual McNeil
Partnership to liquidate.
. The manner in which the auction process with respect to the proposed
transaction was structured, the method and criteria for selection of the
potential bidders, the detailed information with respect to the
properties furnished to the prospective bidders, the conduct of the
initial and final bid stages of the auction process and the lengthy
negotiations that were conducted with the final bidders ultimately
leading to WXI/McN Realty as the prospective purchaser.
. WXI/McN Realty has agreed to an aggregate purchase price for all of the
McNeil Partnerships and the assets being acquired in the transaction. The
special committee took into account that Stanger & Co., the independent
advisor to the McNeil Partnerships, made the following allocations: (1)
the allocation of the aggregate consideration between the management
assets of McREMI, on the one hand, and the McNeil Partnerships as a
group, on the other hand; (2) the allocation of the aggregate
consideration to each individual McNeil Partnership; and (3) the
allocation of the aggregate consideration allocated to each individual
McNeil Partnership among the general partner interest in that McNeil
Partnership, other assets of McREMI related to that McNeil Partnership
and each class of limited partner units in that McNeil Partnership.
. If a participating McNeil Partnership's net working capital balance,
calculated on the closing date of the transaction in accordance with the
Master Agreement, is greater than zero, that McNeil Partnership will make
a special cash distribution to its limited partners on the closing date
equal to the amount of the positive net working capital balance.
. The opinions of Stanger & Co. to the effect that each of the aggregate
consideration, the allocations of the aggregate consideration and the
estimated per unit aggregate amount to be received with respect to each
class of limited partners of each of the McNeil Partnerships is fair from
a financial point of view to the holders of each class of limited partner
units in each of the McNeil Partnerships.
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<PAGE>
. The Stanger & Co. analysis concluded that the estimated per unit
aggregate amount, including both the merger consideration and the special
distribution, to be received with respect to each class of limited
partners of each of the McNeil Partnerships upon the closing of the
transaction was equal to or greater than (1) the net asset value of that
unit, (2) the going concern value of that unit and (3) the liquidation
value of that unit.
. The opinions of Eastdil Realty Company to the effect that each of the
aggregate consideration, the allocations of the aggregate consideration
and the estimated per unit aggregate amount to be received with respect
to each class of limited partners of each of the McNeil Partnerships is
fair from a financial point of view to the holders of each class of
limited partner units in each of the McNeil Partnerships.
. The presentation of Houlihan, Lokey, Howard & Zukin Capital, the
financial advisor to the McNeil Affiliates, that concluded that the total
consideration that would be fairly allocable to McREMI as determined by
Stanger & Co. was at or below the low end of the range of value estimated
by Houlihan, Lokey, Howard & Zukin Capital.
. The fact that the lawyers representing the plaintiffs in the Schofield
litigation, in connection with settlement proceedings relating to that
litigation, oversaw the auction process, including the allocation
analysis rendered by Stanger & Co.
. The identity of the proposed purchaser and its affiliates and the ability
of WXI/McN Realty to consummate the transaction on the terms specified in
the Master Agreement.
. The provisions in the Master Agreement allowing each of the McNeil
Partnerships to terminate its participation in the transaction if, in the
exercise of the good faith judgment of the general partner as to its
fiduciary duties to its limited partners, the general partner of that
McNeil Partnership determined that termination was required by reason of
a superior acquisition proposal being made by a third party for that
McNeil Partnership. The special committee recognized that any such
termination would require the payment by that terminating McNeil
Partnership to WXI/McN Realty of a break-up fee and certain reimbursable
expenses.
. The terms and conditions of the Master Agreement, taken as a whole, were
favorable to the limited partners of the McNeil Partnerships and thus
supported the conclusion that the merger proposal is fair to, and in the
best interests of, the limited partners of the McNeil Partnerships.
. In allocating the aggregate consideration, Stanger & Co. took the
position that the deficit restoration obligations of the general partners
of the McNeil Partnerships were required to be paid to the McNeil
Partnerships. As a result, the aggregate consideration allocated by
Stanger & Co. to the general partner interests in each of the McNeil
Partnerships is net of the estimated deficit restoration obligation with
respect to that McNeil Partnership. The aggregate amount of the estimated
deficit restoration obligation payable in respect of all of the McNeil
Partnerships, based upon a hypothetical sale of properties and
liquidation of the McNeil Partnerships at March 31, 1999, is
approximately $6,439,000.
. In allocating the aggregate consideration, Stanger & Co. took the
position that no asset disposition fees were payable by any of the McNeil
Partnerships to the McNeil General Partners as a result of the
transaction. In a liquidation, the limited partnership agreements of some
of the McNeil Partnerships provide that McNeil Partners is entitled to
receive an asset disposition fee equal to 3% of the gross sales price of
each property sold in connection with a liquidation of that McNeil
Partnership. No asset disposition fees will be paid by any of the McNeil
Partnerships as a result of the transaction.
. Each of the McNeil General Partners has agreed to irrevocably,
unconditionally and absolutely waive any and all rights it may have to
indemnification, contribution or reimbursement from any of the
participating McNeil Partnerships with respect to those matters for which
McNeil Partners has agreed to indemnify WXI/McN Realty's managing member
and some of its affiliates.
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. Upon the completion of the transaction, the limited partners of the
participating McNeil Partnerships, other than the Affiliated McNeil
Partnerships, would receive cash in exchange for their limited partner
units and, accordingly, those limited partners would no longer bear the
risks inherent in the ownership of real property.
. Commencing with the tax year following the tax year in which the closing
of the transaction occurs, the limited partners of the participating
McNeil Partnerships will no longer need to include in their federal and
state income tax returns the various items of income, loss, deduction and
credit as previously reported on Schedule K-1s delivered by the
participating McNeil Partnerships.
. As to each McNeil Partnership, approval of the merger proposal requires
the affirmative vote of limited partners holding greater than 50% of each
class of limited partner units in that McNeil Partnership outstanding as
of the record date.
. Under the California Revised Limited Partnership Act, a limited partner
of some of the McNeil Partnerships [additional disclosure for Funds XX-
XXVII, including the Partnership,] who does not wish to accept the merger
consideration may dissent from the merger proposal and require that
McNeil Partnership to purchase for cash, at their fair market value, the
limited partner units owned by that limited partner, if that McNeil
Partnership participates in the transaction, the limited partner does not
vote for the merger proposal and the limited partner follows specific
procedures set forth in the California Revised Limited Partnership Act.
The material negative factors considered were:
. Following the transaction, the limited partners of each participating
McNeil Partnership, other than the Affiliated McNeil Partnerships, will
cease to participate in future earnings or growth, if any, of that McNeil
Partnership or benefit from increases, if any, in the value of that
McNeil Partnership.
. The transaction involves the entire McNeil portfolio, including all of
the McNeil Partnerships, assets of McNeil Partners related to the McNeil
Partnerships and certain assets of McREMI. At the commencement of
PaineWebber's engagement, McNeil Partners determined to structure the
transaction to include certain assets of McREMI, based on PaineWebber's
belief at that time that the highest price for the McNeil Partnerships,
and therefore the greatest distribution to the limited partners of each
of the McNeil Partnerships, would likely be achieved by offering the
McNeil Partnerships and McREMI as an entire portfolio on an all-or-none
basis. However, it is possible that the limited partners of a McNeil
Partnership could have received more consideration than what they will
otherwise receive in the proposed transaction with WXI/McN Realty if that
McNeil Partnership were to be sold or liquidated in a transaction
separate from a transaction involving other McNeil Partnerships and/or
the assets of McREMI.
. The limited partners of each participating McNeil Partnership will forego
alternatives to the transaction. These alternatives include a separate
sale of all of the assets of that McNeil Partnership and subsequent
liquidation of that McNeil Partnership or the continuation of that McNeil
Partnership.
. There are numerous conditions to WXI/McN Realty's and Sellers'
obligations to consummate the transaction. No assurance can be given that
the transaction will be consummated.
. The Master Agreement provides that in some circumstances WXI/McN Realty
will receive a break-up fee, calculated on a partnership by partnership
basis, up to an aggregate maximum of $18.0 million, if the Master
Agreement is terminated. The amount of the break-up fee payable by the
Partnership is $ . The obligation of a McNeil Partnership to pay a
break-up fee may discourage third party offers for that particular McNeil
Partnership and may adversely affect the ability of that McNeil
Partnership to engage in another transaction following termination of the
Master Agreement in respect of that McNeil Partnership. In addition, a
McNeil Partnership may be obligated to pay a break-up fee
29
<PAGE>
even if it has not entered into a definitive agreement for, or
consummated, another transaction. As a result, payment of the break-up fee
may have an adverse impact on the financial condition of that McNeil
Partnership.
. McNeil Partners has actual or potential conflicts of interest in
connection with recommending the approval of the merger proposal to the
limited partners of the McNeil Partnerships.
. Each of the McNeil Partnerships did not have separate representation in
the transaction. In structuring the transaction, the special committee
represented the interests of the limited partners of all of the McNeil
Partnerships as a group and Stanger & Co. served as independent advisor
to all of the McNeil Partnerships. If separate representation had been
arranged for each McNeil Partnership, issues unique to the value of a
given McNeil Partnership might have received greater attention during the
structuring of the transaction and the terms of the transaction might
have been different with respect to that McNeil Partnership.
. If limited partners owning more than 50% of each class of limited partner
units in a McNeil Partnership vote for the merger proposal, their
approval will bind all limited partners of that McNeil Partnership.
Therefore, a limited partner of a McNeil Partnership may vote against the
merger proposal and nevertheless have its limited partner units converted
into the right to receive cash in the transaction if the requisite vote
of the limited partners of that McNeil Partnership is obtained.
. The transaction, as structured, will allow McNeil Partners to make the
contributions of its interests in the McNeil Partnerships and the assets
of McNeil Partners and McREMI being contributed to WXI/McN Realty on a
tax-free basis and to defer substantial tax liability that would be
incurred if there were to be a taxable sale of the properties. In
contrast, limited partners will recognize gain or loss on the conversion
of their limited partner units into cash in the merger [additional
disclosure for Funds XX-XXVI: or on receipt of cash pursuant to the
exercise of dissenters' rights]. In general, the special distribution
will not be taxable and will be treated as a return of capital to the
limited partner; provided, however, that to the extent that the special
distribution received by a limited partner exceeds that limited partner's
adjusted tax basis in all of its limited partner units that excess will
be taxable and will be treated as capital gain.
.In determining whether the requisite vote of the limited partners of a
McNeil Partnership has been obtained, limited partner units held by McNeil
Partners and its affiliates will not be excluded. McNeil Partners and its
affiliates intend to vote all of the limited partner units beneficially
owned by them in each of the McNeil Partnerships for the merger proposal
with respect to that McNeil Partnership. [Additional disclosure for Funds
IX-XI, XIV, XV, XX, XXV-XXVII: As of the record date, McNeil Partners and
some of its affiliates beneficially owned an aggregate of limited
partner units in the Partnership, representing in the aggregate
approximately % of the limited partner units in the Partnership
outstanding as of the record date.] [Additional disclosure for Fund XXIII:
As of the record date, NcNeil Partners beneficially owned an aggregate of
growth/shelter units in the Partnership, representing in the aggregate
approximately % of the growth/shelter units outstanding as of the record
date.]
. Limited partners of some of the McNeil Partnerships [additional
disclosure for Funds IX-XII, XIV, XV, XXVII:, including the Partnership,]
do not have any dissenters' rights or other rights of appraisal, under
the state law which governs those McNeil Partnerships, the limited
partnership agreements of those McNeil Partnerships or otherwise, in
connection with the merger proposal. Therefore, dissenting limited
partners of those McNeil Partnerships do not have the right to have their
limited partner units appraised if they disapprove of the action of the
limited partners that voted for the merger proposal. The limited partners
of other McNeil Partnerships [additional disclosure for Funds XX-XXVI:,
including the Partnership,] are entitled to the benefits of dissenters'
rights as provided under applicable state law.
In the views of the special committee and the McNeil Investors board of
directors, these countervailing factors were not sufficient, either
individually or in the aggregate, to outweigh the benefits of the proposed
transaction to the limited partners of the McNeil Partnerships.
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In view of the wide variety of factors considered in connection with its
evaluation of the transaction and the merger proposal, neither the special
committee nor the McNeil Investors board of directors found it practicable to,
and did not attempt to, quantify, rank or otherwise assign relative weights to
specific factors it considered in reaching its determination and
recommendation.
Opinions and reports of financial advisors (page )
Stanger & Co.
Stanger & Co. delivered to the McNeil Investors board of directors on behalf
of the McNeil Partnerships a written opinion dated June 24, 1999, to the effect
that, as of the date of the opinion, and subject to the
assumptions, qualifications and limitations set forth in the opinion, each of
the five matters set forth below was fair from a financial point of view to the
holders of each class of limited partner units in each McNeil Partnership:
. the aggregate consideration in the transaction;
. the allocation of the aggregate consideration between the management
assets of McREMI, on the one hand, and the McNeil Partnerships as a
group, on the other hand;
. the allocation of the aggregate consideration to each individual McNeil
Partnership;
. the methodology of the allocation of the aggregate consideration
allocated to each individual McNeil Partnership among the general partner
interests in that McNeil Partnership, other assets of McREMI related to
that McNeil Partnership and each class of limited partner units in that
McNeil Partnership; and
. the estimated amount of the positive net working capital balance to be
distributed per limited partner unit in each McNeil Partnership as a
special distribution and the amount of the aggregate consideration
allocated to each limited partner unit in each McNeil Partnership.
On , 1999, Stanger & Co. delivered to the McNeil Investors board of
directors on behalf of the McNeil Partnerships a second written opinion, to the
effect that, as of the date of the second opinion, and subject to the
qualifications and limitations set forth in the second opinion, each of the
following matters was fair from a financial point of view to the holders of
each class of limited partner units in each of the McNeil Partnerships:
. the aggregate consideration allocated to the general partner interests in
each McNeil Partnership;
. the aggregate consideration allocated to the other assets of McREMI
related to each McNeil Partnership; and
. the aggregate consideration allocated to each class of limited partner
units in each McNeil Partnership.
The full text of each of Stanger & Co.'s opinions, including each of the
opinions described in the bullet points above, which sets forth the assumptions
made, matters considered and qualifications and limitations on the review
undertaken by Stanger & Co., is incorporated in this Proxy Statement by
reference. Stanger & Co.'s June 24, 1999 opinion is attached as Appendix C-1 to
this Proxy Statement, and Stanger & Co.'s , 1999 opinion is attached as
Appendix C-2 to this Proxy Statement. The limited partners of the Partnership
are urged to read carefully each opinion in its entirety.
Eastdil Realty Company
Eastdil Realty Company delivered to the special committee a written opinion
dated June 24, 1999 to the effect that, as of the date of the opinion, and
subject to the assumptions, qualifications and limitations set forth in the
opinion:
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<PAGE>
. the allocation analysis and opinions rendered by Stanger & Co. were based
upon the application of appropriate methodologies, and the factual bases
utilized by Stanger & Co. in the application of these methodologies have
a reasonable basis;
. the conclusions reached in the allocation analysis and opinions rendered
by Stanger & Co. have a reasonable basis;
. the special committee is entitled to rely upon those conclusions; and
. each of the matters set forth in the first five bullet points above under
"--Stanger & Co." is fair from a financial point of view to the holders
of each class of limited partner units in each of the McNeil
Partnerships.
On , 1999, Eastdil Realty Company delivered to the special committee a
second written opinion, to the effect that, as of the date of the second
opinion, and subject to the assumptions, qualifications and limitations set
forth in the second opinion, each of the matters set forth in the opinions
included in the second opinion delivered to the McNeil Investors board of
directors by Stanger & Co. on behalf of the McNeil Partnerships was fair from a
financial point of view to the holders of each class of limited partner units
in each of the McNeil Partnerships.
The full text of each of Eastdil Realty Company's opinions, including each
of the opinions described above, which sets forth the assumptions made, matters
considered and qualifications and limitations on the review undertaken by
Eastdil Realty Company, is incorporated in this Proxy Statement by reference.
Eastdil Realty Company's June 24, 1999 opinion is attached as Appendix D-1 to
this Proxy Statement, and Eastdil Realty Company's , 1999 opinion is
attached as Appendix D-2 to this Proxy Statement. The limited partners of the
Partnership are urged to read carefully each opinion in its entirety.
Position of McNeil Partners and Robert A. McNeil regarding the transaction
(page )
Each of McNeil Partners and Robert A. McNeil believes that the merger
proposal is fair to the limited partners of each of the McNeil Partnerships.
These beliefs are based on the determinations of the McNeil Investors board of
directors, the determination and recommendation of the special committee, the
factors that were considered by the special committee and the fairness opinions
delivered to the McNeil Investors board of directors by Stanger & Co. on behalf
of the McNeil Partnerships and the opinions delivered to the special committee
by Eastdil Realty Company.
McNeil Partners and Robert A. McNeil have each adopted the analyses of the
special committee and the McNeil Investors board of directors in support of
their beliefs. Robert A. McNeil is the Co-Chairman of the McNeil Investors
board of directors and the sole stockholder of McNeil Investors and
participated in the deliberations of the McNeil Investors board of directors.
McNeil Investors is the general partner of McNeil Partners and therefore has
the power to take action on behalf of and make decisions on behalf of McNeil
Partners. As disclosed in the section entitled "Special Factors--Interests of
certain persons in matters to be acted upon; conflicts of interest," each of
McNeil Partners and Robert A. McNeil has a financial interest in the
transaction and interests in the transaction that differ from those of the
Partnership's limited partners.
Allocation of the aggregate consideration in the transaction (page )
The aggregate consideration in the transaction, including all outstanding
mortgage debt of the McNeil Partnerships, is $644,439,803. The Master Agreement
provides that at the effective time of the mergers, all outstanding mortgage
debt of the participating McNeil Partnerships will either be repaid by WXI/McN
Realty or will remain outstanding following the effective time of the mergers
until its expiration or prepayment, in each case as provided in the Master
Agreement. See "The Master Agreement--Aggregate consideration--Prepayment and
assumption of mortgage debt."
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Stanger & Co. has allocated the aggregate consideration among (1) the
general partner interests in each of the McNeil Partnerships, (2) each class of
limited partner units in each of the McNeil Partnerships and (3) the management
assets and other assets of McREMI. The allocations and the methodology of the
allocations are described in more detail in "Special Factors--Opinions and
reports of financial advisors-- Allocation analysis and opinions of Stanger &
Co.--Stanger & Co. allocation analysis," and the dollar values of the
individual allocations are set forth in Table 2. The Master Agreement provides
that the allocations of the aggregate consideration by Stanger & Co. are
binding on Sellers and on WXI/McN Realty, its subsidiaries and affiliates.
After the payment of estimated investment banking fees and expenses, an
aggregate of $35,236,000 has been allocated by Stanger & Co. to the management
assets of McREMI and an aggregate of $605,534,000 has been allocated by Stanger
& Co. to the McNeil Partnerships as a group. See "Partial McREMI Allocated
Value" and total "Allocated Partnership Value," respectively, in Table 2.
The $605,534,000 allocated to the McNeil Partnerships as a group has further
been allocated among each of the individual McNeil Partnerships based on the
percentages agreed to between Stanger & Co., in consultation with Eastdil
Realty Company, and WXI/McN Realty and set forth in the Master Agreement. See
"Partnership Percentage" and "Allocated Partnership Value" in Table 2. The
amount of the aggregate consideration allocated to each individual McNeil
Partnership has further been allocated, after subtracting the principal balance
of all outstanding mortgage debt of that McNeil Partnership estimated as of
, 1999, among the general partner interests in that McNeil Partnership (see
"GP Allocation Amount" in Table 2), the other assets of McREMI (see "Second
McREMI Allocated Value" in Table 2) and each class of limited partner units in
that McNeil Partnership (see "LP Allocation Amount" in Table 2). Stanger & Co.
also allocated the aggregate consideration allocated to each class of limited
partner units among the limited partner units in that class. See "Per Unit
Merger Consideration" in Table 2.
Of the $605,534,000 allocated to the McNeil Partnerships as a group, an
aggregate of $ has been allocated by Stanger & Co. to the general partner
interests in the McNeil Partnerships, net of the estimated aggregate deficit
restoration obligations of the general partners of the McNeil Partnerships of
approximately $6,439,000. Of the $ allocated to the general partner interests
in the McNeil Partnerships, $ represents the general partners' proportionate
interests in the profits and losses of the McNeil Partnerships, based on the
general partners' capital contributions, and $ represents the rights and
other assets corresponding to the McNeil Partnerships which are being
contributed to WXI/McN Realty and its subsidiaries. In addition, an aggregate
of $ has been allocated by Stanger & Co. to the limited partner interests in
the Affiliated McNeil Partnerships, and an aggregate of $ has been allocated
by Stanger & Co. to the other assets of McREMI relating to the McNeil
Partnerships.
Therefore, if all of the McNeil Partnerships approve the merger proposal, in
consideration for the interests, rights and assets being contributed by McNeil
Partners to WXI/McN Realty and its subsidiaries in the transaction, McNeil
Partners will receive membership interests in WXI/McN Realty and a credit for a
capital contribution to WXI/McN Realty in an amount equal to approximately
$ , representing the amount of the aggregate consideration allocated by
Stanger & Co. to the interests, rights and other assets being contributed by
McNeil Partners. See "Total Allocated McNeil Value" in Table 2.
If less than all of the McNeil Partnerships participate in the transaction,
the portion of the aggregate consideration received by McNeil Partners will be
reduced by the amount of the aggregate consideration allocated by Stanger & Co.
to the interests, rights and assets related to any McNeil Partnerships that do
not participate in the transaction. See "MPLP Allocation Amount" in Table 2. In
addition, the amount of the aggregate consideration allocated to the management
assets of McREMI will be reduced in proportion to the aggregate "Partnership
Percentages" (see Table 2) of any McNeil Partnerships that do not participate
in the transaction. See "Partial McREMI Allocated Value" in Table 2.
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Interests of certain persons in matters to be acted upon; conflicts of interest
(page )
In considering the recommendation of the McNeil Investors board of
directors, limited partners of the McNeil Partnerships should be aware that the
McNeil Affiliates have interests in the transaction or relationships that may
present actual or potential conflicts of interest in connection with the
transaction.
Relationships among the McNeil Affiliates and the McNeil Partnerships
The McNeil Affiliates and the McNeil Partnerships are affiliates as a result
of common ownership by Robert A. McNeil. McNeil Investors and McREMI also share
directors and executive officers. Robert A. McNeil, his wife Carole J. McNeil,
and Ron K. Taylor, President of McNeil Investors and McREMI, serve as the only
directors of McREMI and hold three of the four seats on the McNeil Investors
board of directors. The fourth director of McNeil Investors is Paul B. Fay,
Jr., an independent director. Mr. Fay also serves as the sole member of the
special committee.
[Additional disclosure for Funds IX-XI, XIV, XV, XX, XXIII, XXV-XXVII:
Ownership of limited partner units in the Partnership
In addition to owning limited partner units in the Affiliated McNeil
Partnerships, McNeil Partners and some of its affiliates, other than the
Partnership, beneficially own limited partner units in the Partnership. McNeil
Partners and these affiliates intend to vote all of the limited partner units
in the Partnership beneficially owned by them for the merger proposal. If the
Partnership participates in the transaction, McNeil Partners and these
affiliates will receive the same aggregate amount per unit as each other
limited partner of the Partnership. Therefore, McNeil Partners and its
affiliates will receive an aggregate of $ in cash for the limited partner
units that they own in the Partnership if the Partnership participates in the
transaction.]
Equity interest of McNeil Partners in WXI/McN Realty; WXI/McN Realty operating
agreement
McNeil Partners will receive an aggregate of $ , if all of the McNeil
Partnerships participate in the transaction, in consideration for the
interests, rights and assets related to the participating McNeil Partnerships
being contributed by McNeil Partners to WXI/McN Realty and its subsidiaries in
the transaction. The consideration to be received by McNeil Partners for its
contributions to WXI/McN Realty will be paid in membership interests in WXI/McN
Realty. See "--Allocation of the aggregate consideration in the transaction."
At the effective time of the mergers, McNeil Partners also may make cash
contributions to WXI/McN Realty in exchange for additional membership interests
in WXI/McN Realty. In addition, some fees, expenses and disbursements incurred
and paid by the McNeil Affiliates in connection with the Master Agreement and
the other transaction documents will be treated as a contribution-in-kind to
WXI/McN Realty by McNeil Partners in exchange for additional membership
interests in WXI/McN Realty.
McNeil Partners' membership interests in WXI/McN Realty will, subject to
certain limitations, entitle McNeil Partners to receive from WXI/McN Realty
distributions of net cash flow and net proceeds from capital transactions.
Consequently, McNeil Partners and the other McNeil Affiliates, through their
ownership of partnership interests in McNeil Partners, will have a significant
interest in WXI/McN Realty and, subject to certain limitations, will continue
to have the opportunity to participate in any future earnings growth and to
benefit from any increases in the value of the participating McNeil
Partnerships and their properties, and any other assets acquired by WXI/McN
Realty and its subsidiaries. However, the opportunity of the McNeil Affiliates
to participate in any future earnings growth of WXI/McN Realty is limited to
the percentage return on investment to which their membership interests entitle
them under the WXI/McN Realty Operating Agreement. This percentage return is
limited to 14% or 15% per annum, depending on the initial capital contribution
of McNeil Partners. See "WXI/MCN Realty Operating Agreement."
Under the terms of the WXI/McN Realty Operating Agreement, following the
effective time of the merger, McNeil Partners also will have the right to
designate two of the five members of WXI/McN Realty's board of managers. The
remaining three members will be designated by WXI/McN Realty's managing member.
Action by WXI/McN Realty's board of managers will require the affirmative vote
of three of the five managers.
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However, some actions of WXI/McN Realty's board of managers will require a
supermajority vote of four of the five managers. Therefore, McNeil Partners
will have a right to veto any transactions that require a supermajority vote of
WXI/McN Realty's board of managers. These transactions include:
. material changes in WXI/McN Realty or its membership;
. certain transactions with potential negative tax effects on McNeil
Partners on or prior to the fifth anniversary of the closing date of the
transaction; and
. certain transactions with affiliates of WXI/McN Realty, WXI/McN Realty's
managing member, Whitehall or Goldman, Sachs & Co.
Retention agreements
After the auction process began in late 1997, McNeil management became
concerned that certain officers and key employees would leave McREMI during the
sale process. To encourage these officers to remain employed with McREMI until
the completion of a sale transaction, in March 1998, McREMI entered into
retention agreements with these officers and employees. These agreements, as
amended, provide that upon the closing of the transaction, McREMI will be
obligated to pay those current officers and employees who remained employed by
McREMI until the closing date an aggregate of $ , of which $ will be
paid by McREMI and $ will be paid by the McNeil Partnerships, regardless of
whether any particular McNeil Partnership participates in the transaction. The
amounts payable under the retention agreements will be paid in lieu of other
amounts that would be payable in connection with the transaction under the
employment agreements that some of these individuals had entered into in their
capacities as officers of McREMI and McNeil Investors.
One of the officers and key employees with whom McREMI entered into a
retention agreement is Ron K. Taylor. Mr. Taylor is a director and President of
McNeil Investors and McREMI, and in these capacities he participated in the
negotiation of the Master Agreement. Pursuant to his retention agreement, upon
the closing of the transaction, Mr. Taylor will be paid $ , of which
$ will be paid by McREMI and $ will be paid by the McNeil Partnerships
regardless of whether any particular McNeil Partnership participates.
Conditions to the transaction (page )
The obligations of each of WXI/McN Realty and Sellers to effect the
transaction are subject to the fulfillment or waiver of various customary
conditions. In addition, the obligations of each of WXI/McN Realty and Sellers
to effect the transaction are subject to the fulfillment or waiver by each
party to the Master Agreement of additional conditions, including, among
others:
. approval of the merger proposal by holders of the requisite number of
limited partner units in each participating McNeil Partnership, other
than McNeil Summerhill I, L.P., whose approval has already been obtained;
. settlement of the Schofield litigation (see "Special Factors--Background
of the transaction--Background of the Schofield litigation"); and
. determination of the amount of the special distribution for each
participating McNeil Partnership.
The condition to closing described in the second bullet point above has been
satisfied. On July 8, 1999, the court granted final approval to the settlement
of the Schofield litigation and dismissed the action.
The obligations of WXI/McN Realty to effect the transaction also are subject
to the fulfillment or waiver by WXI/McN Realty of the following additional
conditions, among others:
. Sellers having obtained the consent and estoppel certificate of each
lender of mortgage debt which is being indirectly assumed by WXI/McN
Realty;
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<PAGE>
. title to each property owned by a participating McNeil Partnership being
free and clear of all material encumbrances and property restrictions,
other than permitted restrictions and encumbrances and other than matters
which would not reasonably preclude the continued use of that property as
it is being used as of the date of the Master Agreement or would not
reasonably materially and adversely affect the value of that property as
it is being used as of the date of the Master Agreement;
. Lawyer's Title Insurance Corporation, or another nationally recognized
title insurance company reasonably acceptable to Sellers and WXI/McN
Realty, being unconditionally obligated and prepared to issue to or for
the benefit of WXI/McN Realty and one or more of its subsidiaries either
(a) an extended coverage ATLA owner's policy of title insurance (or the
equivalent in the applicable jurisdiction) effective as of the closing
date for each property owned by each participating McNeil Partnership or
(b) at the option of WXI/McN Realty, a "date-down" to an existing policy
of owner's title insurance, in each case in accordance with the title
commitments given by Lawyer's Title Insurance Corporation to WXI/McN
Realty, except for some permitted exclusions;
. Sellers having received estoppels from tenants (including tenants leasing
space pursuant to specified commercial leases) leasing at least 75% of
the aggregate square footage leased pursuant to all commercial leases;
. Sellers having received an estoppel from each lessor under a ground
lease;
. the sum of the net operating incomes, calculated as provided in the
Master Agreement, for each participating McNeil Partnership for the
twelve months ended on the last day of the most recently completed fiscal
month prior to the closing date of the transaction being greater than or
equal to the product determined by multiplying (a) 0.8723 by (b) an
amount equal to the sum of the net operating incomes, calculated as
provided in the Master Agreement, for each participating McNeil
Partnership for its 1998 fiscal year; and
. the contributions by McNeil Partners of its interests in the
participating McNeil Partnerships, assets of McNeil Partners related to
the McNeil Partnerships and certain assets of McREMI having been
consummated.
Termination of the Master Agreement (page )
Right to terminate the Master Agreement in its entirety
The Master Agreement provides that it may be terminated in its entirety, at
any time prior to the effective time of the mergers, regardless of whether or
not the requisite approvals of the holders of limited partner units in any of
the McNeil Partnerships have been obtained, as follows:
. by the mutual written consent of each Seller and WXI/McN Realty;
. by WXI/McN Realty or any Seller if any judgment or injunction has been
issued preventing the consummation of the transaction other than with
respect to any McNeil Partnership that is not a participating McNeil
Partnership;
. by WXI/McN Realty or any Seller if the closing has not occurred on or
before June 24, 2000;
. by any Seller if (a) WXI/McN Realty materially breaches any of its
representations, warranties, covenants, obligations or agreements set
forth in the Master Agreement, (b) that breach cannot be or is not
remedied within 30 days and (c) the conditions to Sellers' obligations to
close relating to the accuracy of WXI/McN Realty's representations and
warranties and the performance of its obligations cannot be satisfied by
June 24, 2000; or
. by WXI/McN Realty if (a) any Seller material breaches any of its
representations, warranties, covenants, obligations or agreements set
forth in the Master Agreement, (b) that breach cannot be or is not
remedied within 30 days and (c) the conditions to WXI/McN Realty's
obligations to close relating to the accuracy of Sellers' representations
and warranties and the performance of their obligations cannot be
satisfied by June 24, 2000.
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Right to terminate the Master Agreement with respect to one or more McNeil
Partnerships
In addition to the right of WXI/McN Realty and Sellers to terminate the
Master Agreement in its entirety, under some circumstances, the Master
Agreement may be terminated with respect to a particular McNeil Partnership and
that McNeil Partnership will be excluded from the transaction, whether or not
the requisite approval of that McNeil Partnership has been obtained. These
circumstances include, among others:
. by the mutual written consent of each Seller and WXI/McN Realty;
. by WXI/McN Realty or any Seller if any judgment or injunction has been
issued preventing the consummation of the transaction with respect to
that McNeil Partnership;
. by WXI/McN Realty or any Seller if the holders of the requisite number of
limited partner units in that McNeil Partnership have not approved the
merger proposal with respect to that McNeil Partnership;
. by any Seller if prior to the approval of the merger proposal by the
limited partners of that McNeil Partnership the general partner of that
McNeil Partnership, in the exercise of its good faith judgment as to its
fiduciary duties, determines that it is required to terminate the Master
Agreement with respect to that McNeil Partnership because a superior
acquisition proposal (as defined in "The Master Agreement--Material
covenants--No solicitation by Sellers") has been made with respect to
that McNeil Partnership;
. by WXI/McN Realty if the general partner of that McNeil Partnership: (a)
in connection with an acquisition proposal (as defined in "The Master
Agreement--Material covenants--No solicitation by Sellers") by a third
party for that McNeil Partnership has failed to recommend to the limited
partners of that McNeil Partnership the approval of the merger proposal,
(b) in connection with an acquisition proposal for that McNeil
Partnership, has withdrawn or modified in a manner adverse to WXI/McN
Realty its approval or recommendation that the limited partners of that
McNeil Partnership approve the merger proposal or (c) has approved or
recommended an acquisition proposal for that McNeil Partnership; or
. by any Seller in respect of a McNeil Partnership which Sellers have
decided to exclude from the transaction because that McNeil Partnership
may fail to satisfy the conditions to closing set forth in the Master
Agreement, if WXI/McN Realty has not elected to keep that McNeil
Partnership in the transaction (see "The Master Agreement--Conditions to
closing--Removal notices").
Effect of termination
If the Master Agreement is validly terminated, either in its entirety or
with respect to one or more McNeil Partnerships, the Master Agreement will
become null and void and of no further force or effect, either in its entirety
in the case of termination of the Master Agreement, or with respect to one or
more McNeil Partnerships in the case of termination of the Master Agreement
with respect to those McNeil Partnerships, and none of the parties to the
Master Agreement, or any of their respective subsidiaries, or any of their
respective partners, stockholders, members, equity holders, directors,
officers, employees, affiliates,agents, representatives, successors or assigns
will have any liability or obligation under the Master Agreement except that:
. in the case of termination of the Master Agreement in its entirety, any
obligations of the parties to the Master Agreement relating to the
following will survive termination of the Master Agreement:
confidentiality; fees and expenses; effect of termination; nonsurvival of
representations, warranties and covenants; payment of break-up fee;
reimbursement of expenses; and the provisions set forth in Article XI of
the Master Agreement;
. one or more of Sellers or WXI/McN Realty may have liability to one or
more of Sellers or WXI/McN Realty if the basis of the termination is a
willful, material breach by one or more of Sellers or WXI/McN Realty of
one or more of the provisions of the Master Agreement; and
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. in the case of termination of the Master Agreement in respect of a
McNeil Partnership, the liabilities and obligations of the parties to
the Master Agreement with respect to the other McNeil Partnerships would
remain in effect, and any obligations of the parties to the Master
Agreement relating to the following will survive termination of the
Master Agreement in respect of that McNeil Partnership: confidentiality;
correction and satisfaction of specified items relating to title;
[additional disclosure for Fund XXV: the Harbour Club I purchase
option]; public announcements; fees and expenses; binding effect of
Stanger & Co. allocations; effect of termination; nonsurvival of
representations, warranties and covenants; payment of break-up fee;
reimbursement of expenses; and the provisions set forth in Article XI of
the Master Agreement.
In addition, in some circumstances if the Master Agreement is terminated,
WXI/McN Realty will receive a break-up fee and Sellers and WXI/McN Realty may
be required to reimburse some of the other's expenses incurred in connection
with the transaction.
Termination fees and expenses (page )
Except as described in "The Master Agreement--Fees and expenses," all costs
and expenses incurred in connection with the transaction will be paid by the
party incurring those costs and expenses.
In addition, in some circumstances, WXI/McN Realty will receive a break-up
fee, calculated on a partnership by partnership basis, up to a maximum of $18.0
million, if the Master Agreement is terminated. These circumstances include,
among others:
. the circumstances described in the fourth and fifth bullet points above
in "--Right to terminate the Master Agreement with respect to one or more
McNeil Partnerships;"
. if:
-- either (a) a person who is not an affiliate of WXI/McN Realty,
WXI/McN Realty's managing member or Whitehall consummates an
acquisition of more than 10% of the outstanding limited partner units
in a McNeil Partnership following the date of the Master Agreement or
(b) a person who is not an affiliate of WXI/McN Realty, WXI/McN
Realty's managing member or Whitehall makes an acquisition proposal
for a McNeil Partnership;
-- that McNeil Partnership is excluded from the transaction because the
holders of the requisite number of limited partner units in that
McNeil Partnership have not approved the merger proposal with respect
to that McNeil Partnership; and
-- that McNeil Partnership enters into a definitive agreement relating
to a higher acquisition proposal (as defined in "The Master
Agreement--Fees and expenses--Partnership break-up fee") within six
months of that McNeil Partnership being excluded from the
transaction; or
. the general partner of a McNeil Partnership as of the date of the Master
Agreement is replaced and that McNeil Partnership is excluded from the
transaction because the holders of the requisite number of limited
partner units in that McNeil Partnership have not approved the merger
proposal with respect to that McNeil Partnership.
Each McNeil Partnership that is excluded from the transaction as described
in the immediately preceding bullet points will be severally liable for payment
to WXI/McN Realty of its partnership break-up fee as set forth in the table
under "The Master Agreement--Fees and expenses--Partnership break-up fee." The
break-up fee payable by each McNeil Partnership is calculated based on the
percentage set forth in the column "Partnership Percentage" in Table 2 opposite
the name of that McNeil Partnership. The break-up fee payable by the
Partnership in those circumstances is $ . No other party to the Master
Agreement will have any liability to WXI/McN Realty or to an excluded McNeil
Partnership for the partnership break-up fee of that excluded McNeil
Partnership.
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In some circumstances where the Master Agreement is terminated by WXI/McN
Realty, Sellers may be required to reimburse WXI/McN Realty for the actual,
reasonable out-of-pocket expenses incurred by WXI/McN Realty in connection with
the transaction, up to an aggregate maximum amount of $1.5 million. In
addition, in some circumstances where the Master Agreement is terminated by
Sellers, WXI/McN Realty may be required to reimburse Sellers for the actual,
reasonable out-of-pocket expenses incurred by Sellers in connection with the
transaction, up to an aggregate of $1.5 million. Any receipt by WXI/McN Realty
of any one or more partnership break-up fees will offset any obligation of
Sellers to reimburse WXI/McN Realty for its expenses. See "The Master
Agreement--Fees and expenses--Reimbursement of expenses."
Financing; source of funds (page )
The total amount of funds required by WXI/McN Realty in connection with the
consummation of the transactions (assuming all McNeil Partnerships are
participating McNeil Partnerships) is estimated to be approximately $ ,
including:
. payment of the cash consideration to the limited partners of the McNeil
Partnerships in the amount of approximately $ ;
. repayment of debt of the McNeil Partnerships in the aggregate amount of
approximately $ ;
. payment of prepayment fees relating to mortgage debt of the McNeil
Partnerships that will be repaid at closing and the payment of the
assumption fees that WXI/McN Realty is required to pay pursuant to the
Master Agreement in the aggregate amount of approximately $ ;
. the amount of the shortfall, if any, of the amount of cash on hand held
by each of the participating McNeil Partnerships at the time of the
closing from the estimated amount of the special distribution that each
participating McNeil Partnership is expected to make (as of the date of
this Proxy Statement, the shortfall is estimated to be approximately
$ ); and
. all other expenses expected to be incurred in connection with the
transaction and other amounts that WXI/McN Realty is required to pay
pursuant to the Master Agreement in an aggregate amount estimated to be
approximately $ .
The amounts set forth above will vary if one or more of the McNeil
Partnerships are not participating McNeil Partnerships or if the amount of
working capital distributions, expenses or other amounts vary from the
estimated amounts included in calculating the amounts set forth above.
It is expected that the amount of funds required by WXI/McN Realty in
connection with the transaction will be obtained through a combination of
equity and debt financing. Under the terms of the WXI/McN Realty Operating
Agreement, the managing member of WXI/McN Realty, which is owned by Whitehall
and Archon, has agreed to contribute to WXI/McN Realty an amount in cash equal
to the amounts described above, and pursuant to the terms of an equity
commitment letter from Whitehall to WXI/McN Realty, Whitehall has agreed to
provide, or to cause one or more of its affiliates to provide, a cash capital
contribution to WXI/McN Realty in an amount equal to the amounts described
above. The funds to be used by Whitehall to meet its funding commitments are
expected to come from capital contributions from the partners in Whitehall. It
is also expected that WXI/McN Realty will obtain third party mortgage or other
financing that will provide a portion of the amount of required funds described
above, although WXI/McN Realty has not, as of the date of this Proxy Statement,
entered into any agreements with respect to any third party mortgage or other
financing.
Accounting treatment of transaction (page )
The transaction will be accounted for under the "purchase" method of
accounting in accordance with generally accepted accounting principles.
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Federal income tax consequences (page )
Limited partners will recognize gain or loss on the conversion of their
limited partner units into cash in the merger [additional disclosure for Funds
XX-XXVI: or on receipt of cash pursuant to the exercise of dissenters' rights].
This gain or loss will be equal to the difference between the limited partner's
"amount realized" as a result of the merger and the limited partner's adjusted
tax basis in the limited partner units converted. The gain or loss will be
treated as capital gain or capital loss. However, a portion of that gain or
loss that is attributable to so-called "unrealized receivables" (which includes
recapture of some depreciation deductions previously taken) and "inventory
items" (as defined in Section 751 of the Internal Revenue Code) may be treated
as ordinary income or ordinary loss. In general, the special distribution of
cash will not be taxable and will be treated as a return of capital to the
limited partners. The return of capital to a limited partner will reduce that
limited partner's adjusted tax basis in its limited partner units in the
Partnership to the extent of that return of capital and, therefore, may
increase the amount of any gain or decrease the amount of any loss recognized
by that limited partner on the conversion of its limited partner units into
cash in the merger. To the extent that the special distribution received by a
limited partner exceeds that limited partner's adjusted tax basis in all of its
limited partner units, that excess will be taxable and will be treated as
capital gain. Limited partners should consult their respective tax advisors as
to the particular tax consequences of the transaction.
The transaction, as structured, will allow McNeil Partners to make the
contributions of its interests in the McNeil Partnerships and the assets of
McNeil Partners and McREMI to WXI/McN Realty on a tax-free basis and to defer
substantial tax liability that would be incurred if the properties were
disposed of in a taxable sale. A taxable sale of the properties would produce
taxable gain in excess of the cash proceeds because of the relief of
partnership liabilities allocated to the McNeil Affiliates.
[For Funds XX-XXVI: Dissenters' rights (page )
Under Article 7.6 of the California Corporations Code, a limited partner of
the Partnership who does not wish to accept the merger consideration may
dissent from the merger proposal and require the Partnership to purchase for
cash, at their fair market value, the limited partner units owned by that
limited partner if:
. the Partnership participates in the transaction,
. the limited partner does not vote for the merger proposal, and
. the limited partner follows specific procedures set forth in the
California Revised Limited Partnership Act.
Article 7.6 of the California Corporations Code is attached to this Proxy
Statement as Appendix E.]
[For Funds IX-XII, XIV, XV: No dissenters' rights (page )
Under the Partnership's limited partnership agreement and under the
California Uniform Limited Partnership Act, limited partners of the Partnership
do not have dissenters' rights or other rights of appraisal in connection with
the merger proposal. Limited partners of some of the other McNeil Partnerships
do have such rights.]
[For Fund XXVII: No appraisal rights (page )
Under the Partnership's limited partnership agreement and under the Delaware
Revised Uniform Limited Partnership Act, limited partners of the Partnership do
not have dissenters' rights or other rights of appraisal in connection with the
merger proposal. Limited partners of some of the other McNeil Partnerships do
have such rights.]
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SPECIAL FACTORS
Background of the transaction
At a meeting held on June 24, 1999, the McNeil Investors board of directors
unanimously determined that the merger proposal is fair to and in the best
interests of the Partnership and its limited partners, approved the merger
proposal and determined to recommend that the limited partners of the
Partnership vote for the merger proposal. See "--Purposes and reasons for the
transaction," "--Effects of the transaction," "--Recommendations of the special
committee and the McNeil Investors board of directors; fairness of the
transaction" and "--Interests of certain persons in matters to be acted upon;
conflicts of interest." The determinations of the McNeil Investors board of
directors and its approval of the merger proposal were based on the
recommendation of the special committee and the fairness opinion delivered on
that date to the McNeil Investors board of directors by Stanger & Co. on behalf
of the McNeil Partnerships to the effect that each of the aggregate
consideration, the allocations of the aggregate consideration and the estimated
per unit aggregate amount to be received with respect to each class of limited
partners of each of the McNeil Partnerships is fair from a financial point of
view to the holders of each class of limited partner units in each of the
McNeil Partnerships. The following discussion sets forth information relating
to the background of the transaction.
Organization of the public McNeil Partnerships
The public McNeil Partnerships were formed in the 1970s and 1980s to engage
in the business of investing in, holding, managing and disposing of real estate
and real estate-related investments. The original principal objectives of the
public McNeil Partnerships were to provide capital appreciation and tax-
deferred income to their partners.
Restructuring of the public McNeil Partnerships
In 1991 and 1992, each of the public McNeil Partnerships was restructured.
In the restructuring, McNeil Partners became the sole new general partner of
each of the public McNeil Partnerships. See "--Interests of certain persons in
matters to be acted upon; conflicts of interest--Relationships among the McNeil
Affiliates and the McNeil Partnerships." In addition, the limited partnership
agreement of each of the public McNeil Partnerships was amended as part of the
restructuring. In each of the limited partnership agreements of the public
McNeil Partnerships, as amended, McNeil Partners agreed to commence a
liquidation of the properties of the McNeil Partnership seven years after the
restructuring date and to use commercially reasonable efforts to complete the
liquidation and termination of each of the public McNeil Partnerships by
December 31, 1999. Each of the limited partnership agreements provides that the
term of the McNeil Partnership will continue until a date beyond December 31,
1999 unless it is terminated earlier.
Icahn tender offers
In August 1995 and September 1996, High River Limited Partnership, a
Delaware limited partnership controlled by Carl C. Icahn ("High River"), made
unsolicited tender offers to purchase outstanding limited partner units in each
of Funds IX, X, XI, XIV, XV, XX, XXIV, XXV, XXVI and XXVII. Although McNeil
Partners contemplated making tender offers for some of the limited partner
units at a higher price than the High River tender offers, McNeil Partners did
not make any tender offers for the limited partner units in any of the public
McNeil Partnerships. [Additional disclosure for Funds IX-XI, XIV, XV, XX, XXIV-
XXVII: The beneficial ownership of limited partner units in the Partnership by
Mr. Icahn and his affiliates as of , 1999 is set forth in "Related
Security Holder Matters--Principal holders of limited partner units."] The
statements filed by McNeil Partners with the SEC in response to the Icahn
tender offers stated that each of the McNeil Partnerships that was the subject
of an Icahn tender offer had determined to begin an orderly liquidation of all
of its assets. See "--Purposes and reasons for the transaction."
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Background of the Schofield litigation
In August 1995, limited partners of some of the McNeil Partnerships filed
three separate purported class actions, derivative actions or both on behalf of
the limited partners of some of the McNeil Partnerships. Plaintiffs alleged
that McNeil Partners, McNeil Investors, McREMI and three of their senior
officers and/or directors breached their fiduciary duties and some of their
obligations under the respective limited partnership agreements of the McNeil
Partnerships. Plaintiffs alleged that defendants rendered limited partner units
in the McNeil Partnerships highly illiquid, and artificially depressed the
prices that were available for limited partner units in private sales.
Plaintiffs also alleged that defendants engaged in a course of conduct to
prevent the acquisition of limited partner units by High River by disseminating
purportedly false, misleading and inadequate information. Plaintiffs further
alleged that defendants acted to advance their own personal interests at the
expense of the public McNeil Partnerships' limited partners by failing to sell
the properties of the public McNeil Partnerships and failing to make
distributions to the limited partners.
In late 1996, the parties agreed, and the court so ordered, that these
actions would be consolidated under the action, Schofield et al. v. McNeil
Partners, L.P. et al., Superior Court of the State of California for the County
of Los Angeles, Case No. BC133799 (Class and Derivative Action Complaint). On
December 16, 1996, plaintiffs filed a consolidated and amended complaint, suing
for breach of fiduciary duty, breach of contract and an accounting. Plaintiffs
alleged, among other things, that the management fees paid to McNeil Partners
over the last six years were excessive, that these fees should be reduced
retroactively and that the respective limited partnership agreements governing
the McNeil Partnerships were invalid.
On February 14, 1997, defendants filed a demurrer to the consolidated and
amended complaint and a motion to strike, seeking to dismiss the consolidated
and amended complaint in all respects. The court granted defendants' demurrer
on May 5, 1997, dismissing the consolidated and amended complaint with leave to
amend. On October 31, 1997, plaintiffs filed a second consolidated and amended
complaint. Prior to the time defendants were required to move, answer or
otherwise respond, however, the case was stayed pending settlement discussions.
Because the transaction contemplated in the settlement included all of the
McNeil Partnerships and plaintiffs claimed that an effort should be made to
sell all of the McNeil Partnerships, in or around September 1998, plaintiffs
filed a third consolidated and amended complaint which included allegations
with respect to the McNeil Partnerships which had not been named in previously
filed complaints.
On September 15, 1998, the parties signed a Stipulation of Settlement. For
purposes of settlement, the parties stipulated to a class comprised of all
owners of limited partner units in the McNeil Partnerships during the period
beginning June 21, 1991, the earliest date that proxy materials began to be
issued in connection with the restructuring of the McNeil Partnerships, through
September 15, 1998. As structured, the Stipulation of Settlement provided for
the payment of over $35 million in distributions and the commitment to market
the McNeil Partnerships for sale, together with McREMI, through a fair and
impartial bidding process overseen by a national investment banking firm. To
ensure the integrity of that process, defendants agreed, among other things, to
involve plaintiffs' counsel in oversight of that process, and plaintiffs'
counsel retained an independent advisor to represent the interests of limited
partners of the McNeil Partnerships in the event of a transaction. The
transaction described in this Proxy Statement is a result of that process. The
settlement was not conditioned on the consummation of the transaction described
in this Proxy Statement.
On October 6, 1998, the court gave preliminary approval to the settlement.
It granted final approval to the settlement on July 8, 1999 and entered a Final
Order and Judgment dismissing the consolidated action with prejudice. As a
condition of final approval, the court requested, and the parties agreed to, a
slight modification of the release in the Stipulation of Settlement with
respect to future claims. Plaintiffs' counsel intends to seek an order awarding
attorneys' fees and reimbursing their out-of-pocket expenses in an amount which
is as yet undetermined.
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Background of the auction process
To carry out the requirements of the limited partnership agreements of the
public McNeil Partnerships and the previously announced plans of liquidation
referred to in the context of the Icahn tender offers, in late 1997, executive
officers of McNeil Investors and McREMI (referred to in this Proxy Statement as
"McNeil management") began interviewing investment banks to explore
alternatives for maximizing value to the limited partners of each of the McNeil
Partnerships. In addition, pursuant to settlement of the Schofield litigation,
McNeil Partners and its affiliates committed to market the McNeil Partnerships
for sale, together with McREMI, through a fair and impartial bidding process
overseen by a national investment banking firm. See "--Purposes and reasons for
the transaction." The McNeil Affiliates retained Skadden, Arps, Slate, Meagher
& Flom LLP ("Skadden, Arps") as their legal advisor and on May 21, 1998
retained Houlihan, Lokey, Howard & Zukin Capital ("Houlihan, Lokey") as their
financial advisor.
Engagement of PaineWebber
On November 24, 1997, each of the McNeil Partnerships retained PaineWebber,
Incorporated ("PaineWebber") as its exclusive financial advisor based on
PaineWebber's experience in real estate transactions. PaineWebber was retained
to assist the McNeil Partnerships in connection with the investigation of
alternatives available to the McNeil Partnerships in furtherance of a
transaction which would maximize the value of each of the McNeil Partnerships.
PaineWebber was also retained to assist the McNeil Partnerships and McNeil
management in the marketing and sale of the McNeil Partnerships and the
outstanding interests in and assets of the McNeil Partnerships. PaineWebber was
not retained by the McNeil Partnerships to provide tax, accounting or legal
advice, to provide an appraisal of any of the assets of the McNeil
Partnerships, to provide any advice in respect of the Schofield litigation or
to provide any fairness opinions or to render any advice to any party other
than the McNeil Partnerships and the McNeil General Partners, as general
partners of the McNeil Partnerships.
Pursuant to the terms of its engagement letter with PaineWebber, the McNeil
Partnerships agreed to pay PaineWebber a retention fee and a transaction fee.
The aggregate retention fee for all of the McNeil Partnerships is $50,000 per
month and is payable each month during the term of PaineWebber's engagement.
The transaction fee is payable only upon consummation of the transaction. The
transaction fee is equal to 0.57% of the aggregate consideration paid for the
McNeil Partnerships, McREMI, McNeil Investors and McNeil Partners. The
transaction fee is currently estimated to be approximately $ (assuming
all McNeil Partnerships participate in the transaction). The transaction fee is
payable at the closing of the transaction and will be reduced by previously
paid retention fees. In addition, the McNeil Partnerships have agreed to
reimburse PaineWebber for all reasonable out-of-pocket expenses incurred by it
in connection with its engagement, including reasonable fees and disbursements
of its legal counsel. The McNeil Partnerships have also agreed to indemnify
PaineWebber against certain liabilities in connection with its engagement,
including certain liabilities under the federal securities laws.
Structuring of the transaction
At the commencement of its engagement, PaineWebber advised McNeil Partners
that the highest price for the McNeil Partnerships and, therefore, the greatest
distribution to the limited partners of each of the McNeil Partnerships, would
likely be achieved by offering the McNeil Partnerships and McREMI together on
an all-or-none basis. See "--Purposes and reasons for the transaction."
PaineWebber perceived the advantages of an all-or-none transaction as compared
to separate asset sales of individual McNeil Partnerships to include, among
others, relatively quick liquidity, a less time-consuming marketing period and
the likelihood of a higher aggregate purchase price.
In addition, at the commencement of its engagement, PaineWebber advised
McNeil Partners that potential purchasers of large real estate portfolios were
continuing to raise capital in the debt and equity markets and that some of the
potential purchasers would likely pay a premium to acquire large portfolios of
assets, rather than acquire individual assets on a piecemeal basis. This factor
made a sale of the underlying properties, rather than
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the McNeil Partnerships, equally unsatisfactory to McNeil Partners. Among other
factors, McNeil Partners itself preferred an all-or-none transaction because it
felt that the uneven performance of the various properties owned by the McNeil
Partnerships might allow prospective purchasers to "cherry-pick" the most
desirable assets to the exclusion of the others. In particular, PaineWebber
believed that because of the age, product mix
and geographic diversity of the McNeil Partnerships' property portfolio, the
marketing process would likely benefit from McREMI's on-going relationship with
the assets because of McREMI's track record in managing the properties and its
intimate familiarity with the operations and physical condition of those
properties which could not be easily replicated in the short-term. In addition,
PaineWebber advised McNeil management that commencing during the final months
of 1997, there was a significant industry-wide shortage of asset and property
management personnel.
PaineWebber's advice to market the McNeil Partnerships and McREMI together
in a single portfolio was consistent with the advice received by McNeil
Partners from other investment banks interviewed in late 1997.
On the basis of PaineWebber's advice, McNeil management decided (1) to
market the McNeil Partnerships, McNeil Investors, McNeil Partners and McREMI as
a single portfolio (referred in this Proxy Statement as the "McNeil
portfolio"), and (2) to instruct prospective purchasers to be instructed to
submit bids only for the entire McNeil portfolio. See "--Purposes and reasons
for the transaction."
During December 1997 and January 1998, PaineWebber performed due diligence
on the McNeil Partnerships and worked with the McNeil Affiliates and McNeil
management to prepare offering materials based upon the McNeil Partnerships'
books and records. The offering materials consisted of (1) a confidential
offering memorandum, which outlined the offering process and timing, identified
the McNeil Affiliates and the McNeil Partnerships and summarized property
operations, historical and projected capital expenditures and existing debt,
and (2) a property information book, which provided portfolio and property
level detail, including individual property photographs and maps. Subsequent to
the distribution of the offering materials, a bid form was distributed to each
potential purchaser. This bid form outlined the bid process and set forth the
specifics of the proposed transaction and the requirements for a conforming
bid. The bid form and its attachments provided, among other things, that:
. one offer should be submitted, at one price, on an all-or-none basis, for
the McNeil Partnerships, McREMI, McNeil Investors and McNeil Partners;
. the McNeil Partnerships would be acquired by merger;
. the McNeil Partnerships were seeking only cash offers for the limited
partner interests in the McNeil Partnerships (see "--Purposes and reasons
for the transaction");
. offers to acquire the general partner interests in the McNeil
Partnerships and the ownership interests in McREMI, McNeil Investors and
McNeil Partners could include cash, operating partnership units or a
combination of cash and operating partnership units;
. the McNeil Partnerships were seeking offers for all of the McNeil
Partnerships, McREMI, McNeil Investors and McNeil Partners; and
. offers for ownership interests in less than all of the McNeil
Partnerships, McREMI, McNeil Investors and McNeil Partners would not be
considered.
At the time the bid form was distributed, McNeil Partners acknowledged that
any transaction would be subject to conditions, including approval of the
limited partners of each of the McNeil Partnerships, settlement of the
Schofield litigation described above in "--Background of the transaction--
Background of the Schofield litigation" and receipt of an opinion from Stanger
& Co. as to the fairness of the consideration received by each of the McNeil
Partnerships in any such transaction.
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Engagement of Stanger & Co. to provide fairness opinions
On January 12, 1998, each of the McNeil Partnerships retained Stanger & Co.
as its independent advisor to render certain opinions as to the fairness from a
financial point of view to the limited partners of each of the McNeil
Partnerships of the consideration to be received by each of the McNeil
Partnerships pursuant to a transaction.
Solicitation of initial bids
On January 30, 1998, after reviewing more than 240 potential bidders,
PaineWebber, in consultation with McNeil management, prepared a refined list of
eighteen potential purchasers. The eighteen potential purchasers were
identified based on (1) their financial ability to acquire a large portfolio of
real estate assets with limited financing contingencies and (2) their
experience and track record in closing large real estate portfolio
transactions. One of these eighteen potential purchasers was an affiliate of
Whitehall.
PaineWebber contacted each of the eighteen potential purchasers and verbally
solicited interest in the proposed transaction. PaineWebber received verbal
indications of interest from all of the eighteen potential purchasers.
Beginning on February 3, 1998, a form of confidentiality agreement was
delivered to each of the eighteen potential purchasers which had not previously
signed the form of confidentiality agreement. Because of the confidential
nature of the information disclosed in the offering materials, each of the
eighteen potential purchasers was required to sign the form of confidentiality
agreement prior to receiving the offering materials. Of the eighteen potential
purchasers, two materially amended the form of confidentiality agreement and
therefore were excluded from the bidding process based on advice from legal
counsel to the McNeil Partnerships, one potential purchaser was excluded from
the bidding process due to a potential conflict of interest, two potential
purchasers did not sign the form of confidentiality agreement and two potential
purchasers were excluded from the process pursuant to instructions from McNeil
Partners. As a result, of the eighteen potential purchasers identified by
PaineWebber, the eleven potential purchasers who signed the form of
confidentiality agreement received offering materials. The offering materials
were distributed by PaineWebber beginning on February 4, 1998.
The auction process included two rounds of bids. The initial due diligence
period extended from February 5 to March 19, 1998, during which time the eleven
prospective purchasers who received the offering materials performed due
diligence. A data room was established in Dallas, Texas, where due diligence
files and other contracts and financial information were made available. In
addition, senior members of McNeil management were available during this due
diligence period to answer questions from the potential purchasers. Potential
purchasers also had the opportunity to tour individual properties by performing
"drive-by" inspections.
In addition, to facilitate the bidding and due diligence processes and in an
effort to limit potential contingencies in the bids, the McNeil Partnerships
engaged Professional Services Industries, Inc. ("PSI") to perform Phase I
environmental testing on the properties and Phase II environmental testing on
one property. All reports from PSI were available for review by potential
purchasers throughout the offering process.
During the initial due diligence period, two additional potential purchasers
expressed an interest in the transaction for the McNeil portfolio. Each of
these potential purchasers received and signed the form of confidentiality
agreement without significant amendment and, therefore, received the offering
materials.
Initial bids from the thirteen prospective purchasers were due no later than
3:00 p.m., Pacific time, on March 20, 1998. Eight prospective purchasers,
including the Whitehall affiliate, submitted initial bids by the March 20
deadline. The bids ranged from $600.0 million to $750.7 million, with varying
levels of contingencies and numerous financing sources. Pursuant to the bid
form, each of the bids received was to include a cash amount of $36.2 million,
representing the aggregate cash balance for all of the McNeil Partnerships as
of December 31, 1997.
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Solicitation of final bids
From March 21, 1998 to April 8, 1998, PaineWebber contacted the remaining
eight bidders to discuss the financing sources and contingencies outlined in
the initial bids. Additionally, PaineWebber contacted each of the eight bidders
to confirm whether or not the bids submitted conformed to the procedures
outlined in the offering materials. On March 25, 1998, pursuant to instructions
from McNeil Partners, PaineWebber informed one of the bidders that McNeil
management had concerns regarding the ability of that bidder's joint venture
partner to close a transaction. As a result, on or about March 31, 1998, this
bidder replaced its joint venture partner with a new joint venture partner.
PaineWebber gave this bidder and each of the other bidders the opportunity to
submit revised bids by April 9, 1998.
By April 9, 1998, five of the eight bidders, including the Whitehall
affiliate, had submitted revised bids. The five revised bids ranged from $681.1
million to $741.5 million, including the McNeil Partnerships' aggregate cash
balance of $36.2 million as of December 31, 1997. On May 12, 1998, a sixth
bidder submitted a revised bid of $645.0 million, including the McNeil
Partnerships' aggregate cash balance of $36.2 million as of December 31, 1997.
PaineWebber and McNeil management reviewed the March 20 initial bids and the
revised bids, and McNeil management, in consultation with PaineWebber, selected
the three highest bidders. The Whitehall affiliate was not one of the three
final bidders. This selection was based on the highest total dollars offered in
the bids, the extent of contingencies contained in the bids, PaineWebber's and
McNeil management's assessment as to the ability of the bidders to secure
adequate financing for the transaction and to close the transaction and
subsequent discussions among McNeil management, PaineWebber and the bidders.
The bids submitted by the three highest bidders (taking into account the
revised bids and the original bids of the three bidders which did not submit
revised bids) totaled $750.7 million, $741.5 million and $738.7 million,
respectively, including the McNeil Partnerships' aggregate cash balance of
$36.2 million as of December 31, 1997.
From April 13, 1998 to May 29, 1998, a final due diligence period was
established. McNeil management established this additional due diligence period
to allow each of the final bidders every opportunity to complete its due
diligence and submit its highest and best bid. In addition, some of the final
bidders had requested additional time to complete their due diligence.
On April 14, 1998, PaineWebber provided the three final bidders with a
schedule summarizing significant operating and other material events that had
occurred with respect to each McNeil Partnership subsequent to the original
printing and distribution of the offering materials in early February 1998.
On April 24, 1998, PaineWebber distributed to the three final bidders an
overview of the final bid process which informed the three final bidders that
during the final due diligence period PaineWebber and McNeil management would
schedule, at the request of the three final bidders, times for these bidders to
visit the due diligence data room in Dallas, to conduct "walk through" property
inspection tours and to interview both corporate and property-level management
of the McNeil Partnerships and the properties. Also during the due diligence
period, PaineWebber and McNeil management continued to review the McNeil
portfolio and to address outstanding environmental, structural, title and
operational issues. To facilitate the final bidding and due diligence processes
and in an effort to limit potential contingencies in the final bids, PSI, at
the request of the McNeil Partnerships, prepared structural and engineering
reports for the properties, and American Title Insurance Company ("American
Title") was retained to prepare preliminary title reports and commitments. All
reports from PSI and American Title were delivered to the McNeil Partnerships
from May 14, 1998 to May 18, 1998 and were immediately available for review by
the three final bidders.
In addition, on May 22, 1998, PaineWebber provided the three final bidders
with a first quarter unaudited balance sheet for each McNeil Partnership and a
schedule summarizing significant events that had occurred with respect to each
McNeil Partnership subsequent to the original printing and distribution of the
offering
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materials and subsequent to the April 14 schedule. The May 22 schedule informed
the three final bidders that: from March 31, 1998 to April 30, 1998, the McNeil
Partnerships had sold six assets for total consideration of approximately $40.1
million; an outstanding note receivable secured by a mortgage on an
unaffiliated property had been paid-off, with the respective McNeil
Partnership's portion being $1,992,000; and one property, which secured a
mortgage with an aggregate balance of $5,957,419, had been foreclosed upon.
On May 27, 1998, PaineWebber provided each of the three final bidders with a
final bid package. The final bid package included a form letter of intent and a
summary schedule of all properties and mortgage loans of each McNeil
Partnership as of March 31, 1998. The form letter of intent served as the final
bid form and indicated the final bidder's intent to negotiate a definitive
acquisition agreement consistent with the terms set forth in the form of
acquisition agreement included in the final bid package. The final bids were
required to conform to the same requirements as the initial bids, including,
among other things, that:
. one offer should be submitted, at one price, on an all-or-none basis, for
the McNeil Partnerships, McREMI, McNeil Investors and McNeil Partners;
. the McNeil Partnerships would be acquired by merger;
. the McNeil Partnerships were seeking only cash offers for the limited
partner interests in the McNeil Partnerships (see "--Purposes and reasons
for the transaction");
. offers to acquire the general partner interests in the McNeil
Partnerships and the ownership interests in McREMI, McNeil Investors and
McNeil Partners could include cash, operating partnership units or a
combination of cash and operating partnership units;
. the McNeil Partnerships were seeking offers for all of the McNeil
Partnerships, McREMI, McNeil Investors and McNeil Partners; and
. offers for ownership interests in less than all of the McNeil
Partnerships, McREMI, McNeil Investors and McNeil Partners would not be
considered.
In addition, the final bids were required to include a cash amount of
approximately $42.0 million, representing the aggregate cash balance for all of
the McNeil Partnerships as of April 30, 1998, adjusted for asset sales,
foreclosures and pay-offs of mortgage debt subsequent to March 31, 1998. Each
final bidder was required to outline the proposed structure for its acquisition
of the McNeil portfolio and to list any contingencies to its bid. With the
exception of those listed contingencies, by executing and returning the form
letter of intent, the final bidder waived all other conditions to signing the
acquisition agreement and represented that it had completed its inspections of
the properties and the other assets to be included in the transaction and had
satisfied itself as to the condition of the properties and the other assets.
Final bids were due from the three final bidders no later than 3:00 p.m.,
Pacific time, on May 29, 1998. Two of the three final bidders submitted a bid.
The third final bidder ("Final Bidder 3") delivered a letter of interest to
McNeil management stating that it had received the final bid package on May 27
but was unable to submit a final bid by the May 29 deadline due to insufficient
time to review the bid package and related documents. However, Final Bidder 3
expressed a continued interest in a transaction for the McNeil portfolio.
PaineWebber and McNeil management reviewed the two final bids received, and
McNeil Partners, after consultation with and considering the advice of
PaineWebber, selected the winning final bid. The selection of the winning final
bidder was based on the amount of the bids, the extent of contingencies
contained in the bids, and PaineWebber's and McNeil management's assessment of
the ability of the bidders to secure adequate financing for the transaction and
the ability of the bidders to close the transaction.
The winning bidder ("Final Bidder 1") submitted a final bid of approximately
$727.4 million, including the McNeil Partnerships' aggregate cash balance of
approximately $42.0 million as of April 30, 1998, adjusted for asset sales,
foreclosures and pay-offs of mortgage debt subsequent to March 31, 1998. Final
Bidder 1's final bid also included $20.0 million to be deposited into escrow at
the closing of the transaction by Final Bidder 1
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to fund scheduled deferred maintenance, capital expenditures and undisclosed
liabilities, as determined in Final Bidder 1's sole discretion. Final Bidder 1
indicated a high likelihood that the entire $20.0 million would be spent. Final
Bidder 1's final bid also was contingent upon negotiation and execution of a
definitive acquisition agreement to provide for customary allocation of closing
costs and was subject to closing conditions and prorations. Net of the escrow
amount and the cash balance, Final Bidder 1's final bid was approximately
$665.4 million.
The second final bidder ("Final Bidder 2") submitted a final bid of
approximately $709.2 million, including the McNeil Partnerships' aggregate cash
balance of approximately $42.0 million as of April 30, 1998, adjusted for asset
sales, foreclosures and pay-offs of mortgage debt subsequent to March 31, 1998.
Net of the cash balance, Final Bidder 2's final bid was approximately $667.2
million. Final Bidder 2's bid was subject to the negotiation and execution of a
definitive acquisition agreement and a thirty-day period to review engineering,
title and survey reports; to conduct Phase II environmental testing on certain
properties; and to complete physical inspection of selected multifamily
properties.
Negotiations with the final bidders
McNeil management, PaineWebber, Skadden, Arps, Final Bidder 1 and Final
Bidder 1's advisors immediately commenced negotiating a definitive acquisition
agreement for the McNeil portfolio. Negotiations continued throughout the month
of June 1998. In early July 1998, during the course of these negotiations,
Final Bidder 1 informed McNeil management and its advisors that it was reducing
its proposed purchase price for the McNeil portfolio by $82.0 million. As a
result, Final Bidder 1's revised bid, net of the $20.0 million escrow amount
and the approximately $42.0 million cash balance, was reduced to approximately
$583.4 million. Final Bidder 1 did not provide an explanation for the reduction
in the proposed purchase price. However, McNeil management and PaineWebber
subsequently learned that beginning during the month of May 1998 and continuing
throughout the months of June and July 1998, Final Bidder 1 had been offering
for sale, but was having difficulty in selling, a similar portfolio of
properties that it owned at that time. In addition, during the months of May,
June and July 1998, the real estate market had begun to show signs of weakening
and there was increased volatility in the capital markets.
After consultation with PaineWebber, McNeil management decided to cease
negotiations with Final Bidder 1 and instructed PaineWebber to contact Final
Bidder 2. However, Final Bidder 2 declined to pursue the transaction further,
due to internal issues and volatility in the capital markets.
McNeil Partners then instructed PaineWebber to contact Final Bidder 3. On
July 26, 1998, Final Bidder 3 was provided with a draft of an acquisition
agreement for the McNeil portfolio. Following discussions among McNeil
management, PaineWebber and the management of Final Bidder 3, on July 28, 1998,
McNeil Partners and Final Bidder 3 entered into a letter agreement, expiring on
August 14, 1998, pursuant to which McNeil Partners agreed to negotiate the
terms of a definitive acquisition agreement with Final Bidder 3 on an
"exclusive basis." During the exclusivity period, McNeil management,
PaineWebber and Skadden, Arps continued to conduct discussions with Final
Bidder 3 and its legal and financial advisors with respect to the terms of a
transaction for the McNeil portfolio, including the structure of the
transaction and the aggregate purchase price.
On August 14, 1998, Final Bidder 3's exclusivity period expired. McNeil
management and PaineWebber met with the management of Final Bidder 3. At that
time, McNeil management and the management of Final Bidder 3 agreed upon an
aggregate purchase price for the McNeil portfolio of approximately $692.4
million, including the McNeil Partnerships' April 30, 1998 aggregate cash
balance of approximately $42.0 million. Net of the cash balance, the agreed
upon purchase price for the McNeil portfolio, net of the cash balance, was
approximately $650.4 million. Final Bidder 3's proposed purchase price for the
McNeil portfolio, net of the cash balance, was later reduced to approximately
$648.1 million to reflect the repayment of a mortgage note receivable.
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The structure of the transaction proposed by Final Bidder 3 contemplated
that an off-balance sheet entity to be formed by a joint venture between Final
Bidder 3 and a to-be-determined source of equity financing would acquire the
McNeil portfolio. In addition, the transaction proposed by Final Bidder 3
required Final Bidder 3 to receive debt financing secured by some of the
properties. Negotiations between McNeil management and Final Bidder 3 continued
after August 14, 1998. However, the exclusivity period was not formally
extended.
Solicitation of additional bids; continued discussions with Final Bidder 3
During the period following the expiration of Final Bidder 3's formal
exclusivity period, at McNeil management's request, PaineWebber began
contacting additional potential purchasers who might be interested in bidding
or rebidding on the McNeil portfolio. However, there was little interest at or
near Final Bidder 3's price level because beginning in August 1998 and
continuing through this time, the debt capital markets had begun to
deteriorate. Consequently, in general, lending sources became more scarce and
capital that was available for potential purchasers was available on less
favorable terms. These factors restricted potential purchasers from
competitively pricing revised bids. As a result, from August 1998 until the
first quarter of 1999, many of the formerly aggressive buyers in the real
estate industry, including several of the original bidders and other potential
purchasers of the McNeil portfolio formerly identified by PaineWebber, had
begun disposing of their real estate assets, or reducing the priority of new
acquisitions, and many of the former lenders in the industry had effectively
exited the business of providing debt financing.
Because of the unsettled condition of the real estate and capital markets
prevailing at the time, the difficulty of receiving a bid from a potential
purchaser that was higher than Final Bidder 3's bid at the time, and in
recognition of the progress made in the negotiations with Final Bidder 3,
McNeil management continued its negotiations with Final Bidder 3 during the
period that PaineWebber was contacting additional potential purchasers.
During this period, Final Bidder 3 visited and inspected each property and
performed significant due diligence. McNeil management and PaineWebber
responded to various due diligence issues raised by Final Bidder 3 and its
advisors. Among other things, McNeil management addressed and remediated, as
requested by Final Bidder 3, several environmental issues disclosed in the
environmental reports prepared by PSI. At the request of McNeil management, PSI
performed Phase II environmental testing on eight properties and Phase III
environmental testing on two properties, and American Title updated the
preliminary title reports and commitments on the properties. All third party
reports were immediately available for review by Final Bidder 3 and its
advisors as soon as the reports were delivered to McNeil management.
On October 19, 1998, PaineWebber, at McNeil management's request, met with
management of one of the original eight bidders to review the bidder's original
bid and to solicit interest in submitting a revised bid. PaineWebber provided
this bidder with the most recent due diligence information on the McNeil
portfolio, including all available third-party reports from PSI and American
Title. On October 22, 1998, this bidder submitted a revised verbal all-or-none
bid for the McNeil portfolio in the amount of $570.0 million, net of the McNeil
Partnerships' aggregate cash balance.
On November 5, 1998, PaineWebber, at McNeil management's request, met with
management of a potential purchaser who was not an original bidder in the
auction. This potential purchaser executed the form of confidentiality
agreement signed by the other bidders and began a review of the offering
materials and the most recent due diligence information on the McNeil
portfolio, including all available third-party reports from PSI and American
Title. On November 9, 1999, this potential purchaser submitted a verbal all-or-
none bid for the McNeil portfolio in the amount of $575.0 million, net of the
McNeil Partnerships' aggregate cash balance.
On November 16, 1998, after further negotiations and based on property-level
due diligence, Final Bidder 3 decreased its proposed purchase price for the
McNeil portfolio to approximately $646.1 million, net of the McNeil
Partnerships' aggregate cash balance.
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On or about December 1, 1998, PaineWebber, at McNeil management's request,
met with management of another of the original eight bidders to review the
bidder's original bid and to solicit interest in submitting a revised bid.
After this bidder signed the form of confidentiality agreement to extend its
confidentiality obligations, PaineWebber provided this bidder with the most
recent due diligence information on the McNeil portfolio, including all
available third-party reports from PSI and American Title. On December 21,
1998, this bidder submitted a revised verbal all-or-none bid for the McNeil
portfolio in the amount of $565.0 million, net of the McNeil Partnerships'
aggregate cash balance.
The McNeil General Partners and their advisors considered the three verbal
bids; however, based on the amount of the bids, McNeil management did not
believe that these bids were fair to, or in the best interests of, the limited
partners of the McNeil Partnerships.
On December 3, 1998, Final Bidder 3 sent a letter to McNeil management
outlining the final issues for discussion in the transaction documents for the
McNeil portfolio and stating that it would be prepared to sign definitive
agreements on February 2, 1999.
On December 30, 1998, McNeil Partners received a proposal from Everest
Properties II, L.L.C. ("Everest"), a limited partner of some of the McNeil
Partnerships, to purchase for $35.0 million in cash the eight self-storage
properties owned by Fund XXVII. The Everest proposal included a fee of 3% of
the purchase price to be paid to a broker affiliated with Everest and an
exclusivity provision that would have prevented the McNeil Affiliates and the
McNeil Partnerships from negotiating with other bidders, including Final Bidder
3. In addition, the Everest proposal failed to take into account the fact that
the sale of the self-storage properties of Fund XXVII would require the
approval of the limited partners of Fund XXVII. The Everest proposal requested
a response by January 8, 1999.
Throughout the month of January 1999, McNeil management, PaineWebber,
Skadden, Arps, Final Bidder 3 and Final Bidder 3's legal and financial advisors
continued to negotiate the terms of an acquisition agreement and related
transaction documents. During this period, however, Final Bidder 3 expressed
concern over its lack of equity or debt financing and the uncertainty of
available financing given the unsettled condition of the capital markets
prevailing at the time and the length of time which would likely transpire
before the closing of the transaction for the McNeil portfolio.
On or about January 6, 1999, at McNeil management's request, PaineWebber met
with Final Bidder 2. Final Bidder 2 had expressed a renewed interest in a
transaction for the McNeil portfolio and in potentially rebidding on the McNeil
portfolio. Final Bidder 2 informed PaineWebber that it had severed its
relationship with the source of financing indicated in its May 29, 1998 final
bid and had obtained a new source of financing. After Final Bidder 2's new
source of financing executed the form of confidentiality agreement signed by
the other bidders, PaineWebber provided Final Bidder 2 and its financing source
with the most recent due diligence information for the McNeil portfolio,
including all available third-party reports of PSI and American Title.
On January 7, 1999, the McNeil Investors board of directors held a special
meeting to discuss the status of discussions with Final Bidder 3 and the other
prospective purchasers and to discuss how to respond to the proposal received
from Everest. McNeil management and PaineWebber advised the McNeil Investors
board of directors that discussions were advancing between PaineWebber and
Final Bidder 3 with respect to the issues raised in Final Bidder 3's December
3, 1998 letter and that Final Bidder 3 would be meeting with potential equity
financing sources on January 8, 1999.
PaineWebber then reviewed for the McNeil Investors board of directors the
status of discussions with the original bidder who had submitted a revised,
verbal bid on December 21, 1998 and with Final Bidder 2. PaineWebber indicated
that negotiations were continuing with Final Bidder 3 as well as Final Bidder 2
and believed that Final Bidder 2 would submit another bid for the McNeil
portfolio in the next several weeks. In addition, PaineWebber stated that it
believed that the open business issues with Final Bidder 3 could likely be
resolved within a relatively short period of time.
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The McNeil Investors board of directors then considered how to respond to
the proposal received from Everest. Skadden, Arps again advised the McNeil
Investors board of its duties in connection with the transaction and with
respect to the limited partners of the McNeil Partnerships. After extensive
discussion and in recognition of the progress of discussions with Final Bidder
3 and Final Bidder 2, the McNeil Investors board of directors decided to send a
letter of response to the Everest proposal, but not to make a definitive
decision with respect to the Everest proposal until bids were received from the
other interested parties it had directed PaineWebber to contact, at which time
the terms of the Everest proposal could be evaluated along with these other
bids.
Also in early January 1999, McNeil management received a letter from High
River expressing an interest in bidding on the McNeil portfolio.
On January 12, 1999, Final Bidder 2 submitted a verbal all-or-none bid for
the McNeil portfolio in the amount of $635.0 million in cash. However, Final
Bidder 2 also requested that the McNeil Partnerships pay for the cost of a
twelve month interest rate hedge to protect Final Bidder 2 against interest
rate volatility during the period from the signing of a definitive acquisition
agreement until the closing of the transaction for the McNeil portfolio. The
estimated cost of the hedge was $12.0 million. Final Bidder 2's bid, net of the
estimated cost of the hedge, was approximately $623.0 million. In addition, one
of the principals of Final Bidder 2's new financing source died on January 23,
1999. After discussions with PaineWebber, McNeil management was of the view
that the death of the principal called into question the ability of the
financing source to close a transaction for the McNeil portfolio on a timely
basis.
On January 13, 1999, the McNeil Investors board of directors held a special
meeting to discuss the progress of discussions with Final Bidder 3, the bid
submitted by Final Bidder 2 and inquiries received from Everest and High River.
PaineWebber reviewed for the McNeil Investors board of directors the status of
negotiations with Final Bidder 2 and Final Bidder 3, and Skadden, Arps updated
the McNeil Investors board of directors on recent inquiries received from High
River and Everest with respect to the McNeil Partnerships. After discussion,
the McNeil Investors board of directors decided to proceed simultaneously with
Final Bidder 3 and Final Bidder 2, and to send to each of High River and
Everest for signature the form of confidentiality agreement signed by the other
bidders in the auction.
On or about January 25, 1999, McNeil management and Final Bidder 3
tentatively agreed to an additional reduction of approximately $2.4 million in
Final Bidder 3's proposed purchase price for the McNeil portfolio for certain
environmental issues that Final Bidder 3 believed existed at certain properties
at that time. As a result, the purchase price offered by Final Bidder 3 was
reduced to approximately $643.7 million, net of the McNeil Partnerships'
aggregate cash balance.
On January 26, 1999, the form of confidentiality agreement signed by the
other proposed purchasers and bidders in the auction was sent to High River for
signature. On February 4, 1999, counsel to High River responded that the terms
of the form of confidentiality agreement were unacceptable and therefore High
River would not sign the form of confidentiality agreement. The form of
confidentiality agreement signed by the other proposed purchasers and bidders
also was subsequently sent to Everest for its signature. Everest returned the
confidentiality agreement unsigned and with material amendments, which McNeil
Partners, in consultation with its legal advisors, considered unacceptable.
On February 4, 1999, Final Bidder 3 received preliminary approval from its
board of directors to proceed with the transaction for the McNeil portfolio
subject to receipt of equity and debt financing commitments. However, final
approval from Final Bidder 3's board of directors would be needed to permit
Final Bidder 3 to enter into definitive agreements for the transaction for the
McNeil portfolio. On February 5, 1999, in an effort to give Final Bidder 3 an
incentive to incur costs necessary to allow its financing sources to begin due
diligence, McNeil Partners entered into a new exclusivity agreement with Final
Bidder 3. The exclusivity agreement provided for an expiration date of February
9, 1999. At the time of entering into the new exclusivity agreement, Final
Bidder 3 was informed that McNeil management and PaineWebber expected to meet
with
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Final Bidder 3's financing sources and that these financing sources should
begin their financial due diligence on the McNeil portfolio prior to the end of
the exclusivity period.
During the exclusivity period, Final Bidder 3 informed McNeil management of
the identity of all of its potential debt and equity financing sources. One of
the equity financing sources identified by Final Bidder 3 was an affiliate of
Whitehall. On February 9, 1999, McNeil management and PaineWebber met with
Final Bidder 3 and representatives of Whitehall to determine the level of
commitment of Final Bidder 3's equity financing sources. On that date, Final
Bidder 3 committed to enter into a letter of intent to obtain from an affiliate
of Whitehall the equity financing. Final Bidder 3 also committed to pay a good
faith deposit to Whitehall or its affiliates. The good faith deposit was a
prerequisite for Whitehall to begin its due diligence. As of the expiration of
the agreed-upon exclusivity period, however, none of Final Bidder 3's equity or
debt financing sources had begun financial due diligence on the McNeil
portfolio, and Final Bidder 3 had not paid a good faith deposit.
From February 9, 1999 to February 22, 1999, Final Bidder 3 and McNeil
management continued to negotiate transaction documents. However, during this
time, Final Bidder 3 advised McNeil management and PaineWebber that its
prospective lending sources were very limited and that the lending sources
identified to McNeil management and PaineWebber would require a minimum due
diligence period of [60] days. In addition, Final Bidder 3 represented that its
debt financing sources would not allow a funding commitment to remain
outstanding for more than 90 days without an initial commitment fee of
approximately $1.0 million. Final Bidder 3 proposed that the McNeil
Partnerships pay this initial commitment fee.
During the first three weeks of February 1999, representatives of Whitehall,
representatives of Final Bidder 3 and their respective advisors discussed the
terms of an equity investment by Whitehall or its affiliates or designees in
the Final Bidder 3 acquisition entity. During this period, Whitehall and Final
Bidder 3 began negotiating a term sheet outlining the preliminary terms of the
proposed investment by Whitehall or its affiliates. Final Bidder 3 provided
copies of this term sheet to McNeil management. The term sheet proposed that
Whitehall or its affiliates would provide the equity financing to the Final
Bidder 3 acquisition entity by means of a special purpose acquisition entity to
be jointly owned by an affiliate of Final Bidder 3 and an affiliate of
Whitehall.
On February 22, 1999, McNeil management, PaineWebber and Skadden, Arps met
with representatives of Whitehall and Sullivan & Cromwell, Whitehall's legal
advisor, to answer questions from Whitehall and its advisors with respect to
some of the terms of the transaction negotiated between McNeil management and
Final Bidder 3. Final Bidder 3 had previously provided Whitehall with a copy of
the latest draft of the acquisition agreement negotiated between McNeil
management and Final Bidder 3. During the remainder of the week of February 22,
1999, Skadden, Arps and Sullivan & Cromwell continued to discuss some of the
aspects of Final Bidder 3's proposed transaction for the McNeil portfolio
raised in the February 22 meeting, including the structure of the proposed
transaction and the ownership of the Final Bidder 3 off-balance sheet
acquisition entity. On February 23, 1999, Final Bidder 3 informed McNeil
management that no progress had been made in negotiating the term sheet with
Whitehall.
On February 24, 1999, McNeil management, PaineWebber and Skadden, Arps
contacted representatives of Whitehall and Sullivan & Cromwell. During those
discussions, McNeil management expressed their frustration in the efforts to
reach an agreement with Final Bidder 3 with respect to a possible transaction
between Final Bidder 3 and the McNeil Partnerships. McNeil management also
asked Whitehall whether it would consider entering into a transaction with the
McNeil Partnerships in which Final Bidder 3 was not a participant. Whitehall
informed McNeil management that because of its discussions with Final Bidder 3
concerning Whitehall's potential role as an equity partner with Final Bidder 3
in a transaction between Final Bidder 3 and the McNeil Partnership, Whitehall
was not willing to consider such a transaction during the time that Final
Bidder 3 and the McNeil Partnerships were negotiating a possible transaction
between them.
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On February 25, 1999, Nolan Brothers, Inc. verbally expressed an interest in
acquiring certain real estate assets owned by Fund XXVII.
On March 1, 1999, following a telephonic special meeting, the McNeil
Investors board of directors decided to terminate discussions with Final Bidder
3 based, among other things, on the fact that Final Bidder 3 had not executed a
term sheet with Whitehall and had not paid the good-faith deposit which it had
committed to pay to Whitehall.
On March 3, 1999, at the direction of McNeil Partners, McNeil management
advised management of Final Bidder 3, and McNeil management and PaineWebber
advised representatives of Whitehall, that discussions with Final Bidder 3 were
terminated because it was unlikely that an agreement with Final Bidder 3 would
be reached and consummated.
Soon thereafter, McNeil management and PaineWebber contacted representatives
of Whitehall regarding the possibility of Whitehall pursuing a transaction for
the McNeil portfolio. During the month of March 1999, McNeil management,
Skadden, Arps, representatives of Whitehall and Sullivan & Cromwell held
exploratory discussions with respect to a possible transaction for the McNeil
portfolio. Also during this time, Whitehall began due diligence on the McNeil
portfolio. After conducting initial due diligence, Whitehall proposed to McNeil
management that a special purpose acquisition entity to be formed by an
affiliate of Whitehall would acquire the McNeil portfolio for a proposed
purchase price of $646,089,803, the same purchase price that had been agreed to
between McNeil management and Final Bidder 3 on November 16, 1998. Whitehall
and McNeil management discussed preliminarily the possibility of the McNeil
Affiliates receiving an equity interest in the special purpose acquisition
entity.
On March 25, 1999, at a special meeting, the McNeil Investors board of
directors resolved to begin initial discussions with Whitehall with respect to
the preliminary terms of a transaction for the McNeil portfolio, and in
recognition of the favorable exploratory discussions with Whitehall, also
approved the form of an exclusivity letter and confidentiality agreement to be
entered into with Whitehall.
Following the meeting of the McNeil Investors board of directors, on March
26, 1999, Whitehall, McNeil Partners, McREMI, Robert A. McNeil and Carole J.
McNeil executed the exclusivity agreement and related confidentiality
agreement. Pursuant to the terms of the exclusivity agreement, the exclusivity
period was scheduled to expire in forty-five days, on May 10, 1999, to allow
Whitehall time to complete its due diligence on the McNeil portfolio.
On April 2, 1999, McNeil management sent a letter to Nolan Brothers
acknowledging receipt of Nolan Brothers' February 25, 1999 proposal but
informing Nolan Brothers that McNeil Partners had entered into a forty-five day
exclusivity agreement with Whitehall and therefore was unable to engage in any
discussion during this period with Nolan Brothers regarding Nolan Brothers'
interest in the McNeil Partnerships. On the same date, McNeil management sent a
similar letter to Everest acknowledging receipt of Everest's previous proposal
but informing Everest that it had entered into a forty-five day exclusivity
agreement with Whitehall and therefore was unable to engage in any discussions
with Everest during this period regarding Everest's interest in the McNeil
Partnerships.
Appointment of the special committee
By the end of April, in light of favorable preliminary discussions with
Whitehall, the McNeil Investors board of directors agreed to commence
negotiating mutually acceptable definitive transaction documents with Whitehall
with respect to a transaction for the McNeil portfolio. The McNeil Investors
board of directors also determined that a special, independent committee of the
McNeil Investors board of directors should be set up to participate in the
negotiation of the terms of definitive agreements with respect to the
transaction and to evaluate the transaction on behalf of the limited partners
of the McNeil Partnerships. In addition, as a result of discussions between
McNeil management and Whitehall, Whitehall had agreed that the McNeil
Affiliates
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would receive an equity interest in the Whitehall acquisition entity in
consideration for their ownership interests in the McNeil Partnerships, assets
of McNeil Partners related to the McNeil Partnerships and certain assets of
McREMI. The McNeil Investors board of directors, after consultation with its
legal advisors, determined that a special independent committee was necessary
in light of the actual or potential conflicts of interest created by the
acquisition by the McNeil Affiliates of equity in WXI/McN Realty as a result of
the proposed transaction. See "--Interests of certain persons in matters to be
acted upon; conflicts of interest--Equity interest of McNeil Partners in
WXI/McN Realty."
On May 7, 1999, the McNeil Investors board of directors increased the
authorized number of directors constituting the McNeil Investors board of
directors from three to four and appointed Paul B. Fay, Jr. as an independent
director of McNeil Investors to fill the newly created directorship. The McNeil
Investors board of directors then constituted the special committee with all of
the power and authority of the McNeil Investors board of directors (1) to
participate, through its legal counsel and financial advisor, in negotiating
the forms, terms and conditions of the definitive agreements respecting the
transaction, and (2) with the assistance of its legal counsel and financial
advisor, to review and pass upon the terms of the transaction on behalf of the
limited partners of the McNeil Partnerships. The McNeil Investors board of
directors appointed Mr. Fay as the sole member of the special committee.
The McNeil Partnerships, on behalf of the special committee, retained
Orrick, Herrington & Sutcliffe LLP ("Orrick, Herrington") as the special
committee's legal advisor and Eastdil Realty Company as the special committee's
financial advisor. Pursuant to the engagement letter entered into between the
special committee, the McNeil Partnerships and Eastdil Realty Company, Eastdil
Realty Company agreed to review the allocation analysis performed and opinions
rendered by Stanger & Co. and, if delivered by Stanger & Co., the appraisals,
and to render to the special committee the opinions set forth in "--Opinions
and reports of financial advisors--Eastdil Realty Company opinions." See "--
Background of the transaction--Background of the auction process--Engagement of
Stanger & Co. to render the allocations."
Engagement of Stanger & Co. to render the allocations
Also on May 7, 1999, the McNeil Partnerships entered into an amended and
restated engagement letter with Stanger & Co. which provided that Stanger & Co.
would perform the allocation analysis, render the appraisals if requested and
render certain additional opinions as to the fairness from a financial point of
view to the holders of each class of limited partner units in each of the
McNeil Partnerships of the consideration to be received by the limited partners
in the transaction. See "--Opinions and reports of financial advisors--
Allocation analysis and opinions of Stanger & Co."
Negotiation of definitive transaction documents with Whitehall
On May 8, 1999, the special committee met with Orrick, Herrington and
Eastdil Realty Company to discuss the procedures that would be followed by the
special committee and the roles and responsibilities of its legal advisor and
financial advisor. Later in the meeting, McNeil management provided the special
committee with a detailed review of the auction process and the current status
of the negotiations with Whitehall. In addition, Stanger & Co. provided a
detailed verbal and written review of its activities since its engagement by
the McNeil Partnerships in January 1998, including a discussion of (1) the
history of the auction process and how that process led to Whitehall being the
proposed buyer; (2) the methodologies it was employing in connection with the
allocation analysis and opinions proposed to be delivered by Stanger & Co.; and
(3) the procedures it was following with respect to valuing each of the
properties owned by the McNeil Partnerships.
Following the appointment of the special committee, Orrick, Herrington,
McNeil management, PaineWebber, Skadden, Arps, representatives of Whitehall,
and Sullivan & Cromwell met in person and by telephone conference call several
times during the first weeks of May 1999 to discuss open issues and to
negotiate the terms of the Master Agreement and the other transaction documents
with respect to the transaction. Among the issues being discussed were
Whitehall's obligations with respect to the funding of the
54
<PAGE>
Whitehall acquisition vehicle and certain environmental, title and survey
issues that Whitehall believed existed at certain properties at that time.
Additional discussions were also held among Orrick, Herrington, McNeil
management, Skadden, Arps, representatives of Whitehall, Sullivan & Cromwell,
representatives of The Archon Group, L.P., and Arent Fox Kitner Plotkin & Kahn
PLLC ("Arent Fox"), which represented Whitehall with respect to these title and
survey issues.
On May 10, 1999, Whitehall's exclusivity period expired. Orrick, Herrington,
McNeil management, PaineWebber, Skadden, Arps, representatives of Whitehall,
Sullivan & Cromwell, representatives of Archon, and Arent Fox continued to
discuss and negotiate the terms of the Master Agreement and the other
transaction documents.
On May 13, 1999, Everest submitted a revised offer to purchase the self-
storage properties and the two office buildings owned by Fund XXVII for $52.0
million in cash. The Everest proposal included a fee of one-half of all real
estate commissions to be paid by Sellers, a sixty-day inspection period and
other material contingencies. The Everest proposal also included an exclusivity
provision that would have prevented the McNeil Affiliates and the McNeil
Partnerships from negotiating with other bidders, including Whitehall.
At a telephonic meeting held in the evening of May 13, 1999, the McNeil
Investors board of directors, after consultation with the special committee and
its advisors and in recognition of the significant progress made among the
parties in negotiating the terms of the definitive transaction documents,
considered and approved a new exclusivity agreement to be entered into with
Whitehall which would extend the exclusivity period to June 4, 1999. On May 14,
1999, Whitehall, McNeil Partners, McREMI, Robert A. McNeil and Carole J. McNeil
agreed to Whitehall's prior request to extend the exclusivity period and
entered into the new exclusivity agreement.
On May 13 and 14, 1999, lengthy discussions continued among Orrick,
Herrington, McNeil management, PaineWebber, Skadden, Arps, Sullivan & Cromwell,
representatives of Whitehall, representatives of Archon, and Arent Fox
regarding the terms and conditions of the proposed transaction documents.
On May 20, 1999, the special committee met with Orrick, Herrington to review
the status of the negotiations with Whitehall and the current draft of the
Master Agreement. By telephone, Eastdil Realty Company provided a status report
with respect to its activities and with respect to the activities of Stanger &
Co. In addition, Orrick, Herrington reviewed with the special committee the
duties and responsibilities of a board of directors and of a special committee
in transactions such as the one proposed with Whitehall.
On May 20 and 21, 1999, Orrick, Herrington, McNeil management, PaineWebber,
Skadden, Arps, representatives of Whitehall, Sullivan & Cromwell,
representatives of Archon, and Arent Fox met to discuss open issues and to
continue to negotiate the terms of the Master Agreement and the other
transaction documents with respect to the transaction.
On May 24, 1999, McNeil management sent a letter to Everest acknowledging
receipt of Everest's May 13 proposal but informing Everest that the exclusivity
agreement with Whitehall had been extended and that McNeil management therefore
was unable to engage in any discussions with Everest regarding Everest's
interest in the assets of Fund XXVII.
On May 25, 1999, representatives of Whitehall informed McNeil management
that they received approval from Whitehall's investment committee to proceed
with the transaction for the McNeil portfolio.
Also on May 25, 1999, the special committee met with Orrick, Herrington to
review the status of the negotiations with Whitehall and the current drafts of
the Master Agreement, including the provisions regarding the general partner's
obligation to terminate the Master Agreement based upon the exercise of its
fiduciary duties owing to the limited partners, the break-up fee and the
payment of certain expenses should the transaction be terminated. Eastdil
Realty Company made a verbal and written presentation to the special
55
<PAGE>
committee regarding the status of its review of the work product of Stanger &
Co. and of its independent due diligence and related analysis regarding the
allocation analysis and opinions proposed to be delivered by Stanger & Co. and
by Eastdil Realty Company as described above under "--Opinions and reports of
financial advisors." Skadden, Arps made a presentation to the special committee
regarding the pending Schofield litigation described above under "--Background
of the transaction--Background of the Schofield litigation," describing the
history of the litigation, the proposed settlement, including the involvement,
in an oversight capacity, of plaintiffs' counsel, and the schedule set by the
court to finalize the settlement.
In addition, at the May 25, 1999 meeting of the special committee,
PaineWebber made a verbal and written presentation to the special committee
regarding:
. PaineWebber's engagement by the McNeil Partnerships in November 1997 to
act as exclusive financial advisor in connection with the sale of the
McNeil portfolio,
. PaineWebber's advice as to the structure of a proposed sale that would
most likely maximize value for the limited partners of the McNeil
Partnerships,
. PaineWebber's due diligence with respect to the McNeil Partnerships and
its assistance to McNeil management in preparing appropriate offering
materials with respect to the proposed sale,
. the bidding process, including the form of the bid, the selection of the
entities to be invited to make an initial bid, the results of the initial
bid, the solicitation of the final bids, the negotiations with the final
bidders and the other circumstances leading to the current negotiations
with Whitehall,
. a comparative analysis, from a financial perspective, of the initial,
revised and final bids, and
. summary information with respect to indications of interest received by
PaineWebber during the auction process with respect to certain properties
of certain of the McNeil Partnerships.
On May 26 and May 27, 1999, Stanger & Co., in consultation with Eastdil
Realty Company, held a number of discussions with Whitehall regarding the
percentages by which the aggregate consideration to be allocated to all of the
McNeil Partnerships taken as a whole would be allocated among the individual
McNeil Partnerships. In addition, on those dates those parties and Orrick,
Herrington, McNeil management and Skadden, Arps continued their discussions
regarding the open issues and the terms and conditions of the Master Agreement.
On May 28, 1999, the special committee met with Orrick, Herrington to review
the status of the negotiations with Whitehall and to discuss the principal
unresolved issues, including the proposed provisions regarding the general
partner's obligation to terminate the Master Agreement based upon the exercise
of its fiduciary duties owing to the limited partners, the break-up fee and the
payment of certain expenses should the transaction be terminated. Orrick,
Herrington provided a detailed summary of certain of the provisions of the
current draft of the Master Agreement.
On June 1, 1999, Orrick, Herrington, McNeil management, Skadden, Arps,
representatives of Whitehall, Sullivan & Cromwell, representatives of Archon,
and Arent Fox met by telephone to resolve certain material issues with respect
to the Master Agreement and the other transaction documents. At this time,
representatives of McNeil management, the special committee and Whitehall
agreed to an aggregate purchase price reduction of $1.65 million for additional
environmental issues that Whitehall's environmental consultant identified at
certain properties at that time and for the scheduled expiration of a ground
lease at one of the properties. As a result, the aggregate purchase price
offered by Whitehall was reduced to approximately $644.4 million. This purchase
price reduction was tied to each of the specifically identified properties to
which the issues related and to the respective McNeil Partnerships which owned
those properties.
On June 2, 1999, Orrick, Herrington, McNeil management, Skadden, Arps,
Stanger & Co., Houlihan, Lokey, and Eastdil Realty Company met with
representatives of the lawyers representing the plaintiffs in the Schofield
litigation described above under "Background of the transaction--Background of
the Schofield
56
<PAGE>
litigation," and with their financial advisor, to discuss in general terms the
preliminary conclusions of Stanger & Co. with respect to its proposed
allocation analysis as well as the financial analysis of Houlihan, Lokey with
respect to the value of McREMI.
On June 3, 1999, the McNeil Investors board of directors held a meeting at
Skadden, Arps' offices in New York to hear presentations from their financial
advisors and the financial advisors to the McNeil Partnerships and to determine
whether to authorize proceeding with the transaction with Whitehall. In
attendance at the meeting were Robert A. McNeil, Carole J. McNeil, Ron K.
Taylor and Paul B. Fay, Jr., constituting the entire McNeil Investors board of
directors. Representatives of Eastdil Realty Company, Orrick, Herrington and
Skadden, Arps were also in attendance. Verbal and written presentations were
made to the McNeil Investors board of directors by representatives of Stanger &
Co. and PaineWebber, and the McNeil Investors board of directors had the
opportunity to ask questions of the representatives making the presentations.
At this point, the meeting of the McNeil Investors board of directors was
recessed and a separate meeting of the special committee was held. In
attendance at this meeting, in addition to the special committee, were Orrick,
Herrington and Eastdil Realty Company. PaineWebber was also invited to the
meeting to provide the special committee the opportunity to receive a current
update on the entire auction process and the state of the current real estate
and financial markets. Following the departure of PaineWebber, Eastdil Realty
Company provided a status report to the special committee (1) on its analysis
of the report of Stanger & Co. which had just been presented to the McNeil
Investors board of directors, and (2) on its opinions to be rendered to the
special committee covering the matters described under "--Opinions and reports
of financial advisors--Eastdil Realty Company opinions--First Eastdil Realty
Company opinion." Based on the foregoing and the presentations made at the
recessed meeting of the McNeil Investors board of directors, the special
committee concluded that negotiations with Whitehall should continue to
proceed.
Following the meeting of the special committee, the full McNeil Investors
board of directors reconvened and received a presentation from Houlihan, Lokey
with respect to the valuation of McREMI. The McNeil Investors board of
directors had an opportunity to ask questions of the individuals making the
presentation. The special committee then recommended to the McNeil Investors
board of directors, and the McNeil Investors board of directors authorized
McNeil management, its advisors, the special committee and its advisors, to
continue to proceed with negotiations of definitive transaction documents with
Whitehall.
During the following three weeks, Orrick, Herrington, McNeil management,
PaineWebber, Skadden, Arps, representatives of Whitehall and Sullivan &
Cromwell continued to negotiate the final issues with respect to the
transaction and the transaction documents, including issues regarding the
general partner's obligation to terminate the Master Agreement based upon the
exercise of its fiduciary duties owing to the limited partners, break-up fees
and certain transaction expenses, as well as certain remaining title and survey
issues which Whitehall believed existed on certain properties at the time.
On June 8, 1999, Orrick, Herrington, McNeil management, Skadden, Arps,
Stanger & Co. and Houlihan, Lokey met with representatives of the lawyers
representing the plaintiffs in the Schofield litigation and with their
financial advisor to discuss further the preliminary conclusions of Stanger &
Co. with respect to its proposed allocation analysis as well as the financial
analysis of Houlihan, Lokey with respect to the value of McREMI. This meeting
was continued on June 9, 1999, and during this meeting the Schofield
plaintiffs' lawyers and their financial advisor indicated they would support
the proposed Stanger & Co. allocation analysis.
On June 14, 1999, the special committee met by telephone with Orrick,
Herrington for the purpose of reviewing the current draft of the Master
Agreement and the principal remaining open issues, with particular emphasis on
the provisions regarding the general partner's obligation to terminate the
Master Agreement based upon the exercise of its fiduciary duties owing to the
limited partners, break-up fees and the payment of certain fees upon
termination of the Master Agreement.
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<PAGE>
On June 22, 1999, Orrick, Herrington, McNeil management, Skadden, Arps,
Sullivan & Cromwell, representatives of Whitehall, representatives of Archon,
and Arent Fox, met by telephone to attempt to resolve the remaining title and
survey issues. At this time, representatives of McNeil management, the special
committee and Archon agreed to certain per property price reconciliations in
the aggregate amount of $200,000 to be deducted on the closing date of the
transaction from the modified net working capital balances of the respective
McNeil Partnerships which own those properties. See "The Master Agreement--The
mergers--Special distribution of positive net working capital balance."
Beginning in the late afternoon of June 23, 1999, and continuing until the
morning of June 24, 1999, Skadden, Arps, McNeil management and Sullivan &
Cromwell met to finalize remaining legal issues in the Master Agreement and the
other transaction documents. Orrick, Herrington, as a representative of the
special committee, participated in portions of this meeting by telephone.
In the morning of June 24, 1999, Stanger & Co. rendered to the McNeil
Partnerships the opinions described under "--Opinions and reports of financial
advisors--Allocation analysis and opinions of Stanger & Co.--First Stanger &
Co. opinion," including opinions that the aggregate consideration, the
allocations of the aggregate consideration and the estimated per unit aggregate
amount to be received with respect to each class of limited partners of each of
the McNeil Partnerships is fair from a financial point of view to the holders
of each class of limited partner units in each of the McNeil Partnerships.
Later on June 24, 1999, the special committee met by telephone with Orrick,
Herrington for the purpose of reviewing the final negotiations with Whitehall
and the final draft of the Master Agreement and certain related documents and
preparing its recommendation to the McNeil Investors board of directors.
Following a review of the final negotiations and the final form of the Master
Agreement, the special committee spoke by telephone with representatives of (1)
PaineWebber as to whether there were any developments with respect to third
parties expressing interest in the acquisition of the McNeil Partnerships, (2)
Skadden, Arps as to the status of the settlement discussions in the Schofield
litigation, (3) Stanger & Co. with respect to the opinions mentioned
above which were delivered by it to the special committee and Orrick,
Herrington earlier on June 24, 1999 and (4) Eastdil Realty Company with respect
to its opinions rendered to the special committee and dated June 24, 1999
covering the matters described under "--Opinions and reports of financial
advisors--Eastdil Realty Company opinions--First Eastdil Realty Company
opinion." Taking into account all of the foregoing, the special committee:
. determined that the merger proposal is fair to, and in the best interests
of, the limited partners of the McNeil Partnerships, and
. recommended to the McNeil Investors board of directors the approval of
the merger proposal.
Following its meeting, the special committee participated by telephone in a
McNeil Investors board of directors meeting, during which the special committee
reported its above-described determination and recommendation.
Following the report of the special committee, the McNeil Investors board of
directors, based on the recommendation of the special committee and the
opinions rendered by Stanger & Co., unanimously:
. determined that the merger proposal is fair to, and in the best interests
of, the limited partners of each of the McNeil Partnerships,
. approved the merger proposal, and
. determined to recommend to the limited partners of each of the McNeil
Partnerships that they approve the merger proposal. See "--Purposes and
reasons for the transaction," "--Effects of the transaction," "--
Recommendations of the special committee and the McNeil Investors board
of directors" and "--Interests of certain persons in matters to be acted
upon; conflicts of interest."
In the evening of June 24, 1999, WXI/McN Realty, the McNeil Partnerships,
the McNeil General Partners and McREMI entered into the Master Agreement. On
the morning of June 25, 1999, McNeil Partners issued a press release announcing
that each of the McNeil Partnerships had entered into a definitive agreement
with WXI/McN Realty.
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<PAGE>
Events subsequent to the execution of the Master Agreement
On July 8, 1999, McNeil Partners, McREMI and Robert A. McNeil received a
letter from High River. Subject to the fulfillment of the "commencement
condition" described below, the letter stated that High River and its
affiliates would commence a tender offer for the Partnership and the other
McNeil Partnerships at the per unit prices specified below, reduced for any
distribution made with respect to the limited partner units after June 25,
1999:
<TABLE>
<S> <C>
Fund IX $ 444.99
Fund X 246.33
Fund XI 232.48
Fund XII 83.62
Fund XIV 225.21
Fund XV 168.75
Fund XX 94.82
Fund XXI(*) 125.46
Fund XXII(*) 0.26
Fund XXIII(*) 0.31
Fund XXIV 357.61
Fund XXV 0.52
Fund XXVI 0.28
Fund XXVII 10.76
Hearth Hollow 42,713.43
Midwest Properties 29,117.01
Regency North 79,841.75
</TABLE>
--------
(*)current income units only
The commencement condition was defined by High River as the Los Angeles County
Superior Court rejecting in its entirety the proposed settlement of the
Schofield litigation and directing further that any new settlement not be
approved without due notice to, and an opportunity to object by, the limited
partners of the McNeil Partnerships. On July 8, 1999, the Los Angeles County
Superior Court granted final approval to the settlement of the Schofield
litigation. In granting its approval, the court considered the High River
letter. See "--Background of the transaction--Background of the Schofield
litigation."
On July 23 1999, High River and two other affiliates of Carl C. Icahn
(Unicorn Associates Corporation and Longacre Corporation), filed a complaint
for damages in the Supreme Court of the State of New York, County of New York,
entitled High River Limited Partnership, et al. v. McNeil Partners, L.P., et
al., Index No. 99 603526. The complaint is referred to in this Proxy Statement
as the "High River Complaint." The complaint named as defendants McNeil
Partners, McNeil Investors, McREMI, Robert A. McNeil and Carole J. McNeil. High
River alleges that the defendants improperly interfered with tender offers made
by High River for limited partner units in several of the McNeil Partnerships,
by, among other things, filing purportedly frivolous litigation to delay High
River's offers, issuing purportedly false and misleading statements opposing
the offers and purportedly forcing High River itself to file litigation to
enforce its rights. High River also alleges that as a result the defendants
caused High River to incur undue expense and that the defendants ultimately
prevented High River from acquiring a greater number of limited partner units.
Plaintiffs also allege that the defendants improperly excluded High River from
participating in the auction process for the sale of the McNeil Partnerships,
and otherwise took steps to prevent its participation in the auction. In
addition, plaintiffs, who are limited partners in, among others, Funds IX, X,
XI, XII, XIV, XV, XX, XXIV, XXV, XXVI and XXVII, have also sued the defendants
based on their status as opt-outs from the Schofield settlement. Plaintiffs
seek undisclosed damages and an accounting.
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<PAGE>
On July 30, 1999, defendants filed an answer to the High River Complaint,
denying each and every material allegation contained in the High River
Complaint and asserting several affirmative defenses. Defendants have
approached the plaintiffs regarding settling the litigation, but no progress
has been made and no assurance can be given that the litigation will be
settled.
Purposes and reasons for the transaction
The transaction represents the culmination of nearly two years' efforts by
McNeil Partners to achieve a sale of the McNeil Partnerships and distribution
of the sale proceeds to the limited partners. The purpose of the transaction is
for WXI/McN Realty to acquire the general partner interests and limited partner
interests in the McNeil Partnerships, assets of McNeil Partners related to the
McNeil Partnerships and certain assets of McREMI, while providing the limited
partners of the McNeil Partnerships with the opportunity to liquidate their
investment in the McNeil Partnerships for cash.
The McNeil General Partners believe that the basis on which each of the
McNeil Partnerships will be acquired by WXI/McN Realty is fair to and in the
best interests of the limited partners of that McNeil Partnership. See "--
Position of McNeil Partners and Robert A McNeil regarding the transaction." The
McNeil General Partners also believe that the transaction will provide more
immediate liquidity to the McNeil Partnerships' limited partners than would
have been obtainable had the McNeil Partnerships been liquidated on a property
by property basis.
The McNeil Investors board of directors has unanimously determined that the
merger proposal is fair to and in the best interests of each of the McNeil
Partnerships and its limited partners. In making its determination, the McNeil
Investors board of directors relied on the recommendation of a special
committee of the McNeil Investors board of directors and on a written fairness
opinion delivered to the McNeil Investors board of directors by Stanger & Co.
on behalf of the McNeil Partnerships to the effect that the aggregate
consideration, the allocations of the aggregate consideration and the estimated
per unit aggregate amount to be received with respect to each class of limited
partners of each of the McNeil Partnerships are each fair from a financial
point of view to the holders of each class of limited partner units in each of
the McNeil Partnerships. See "--Recommendations of the special committee and
the McNeil Investors board of directors; fairness of the transaction," "--
Effects of the transaction" and "--Opinions and reports of financial advisors--
Allocation analysis and opinions of Stanger & Co. --First Stanger & Co.
opinion."
Moreover, the terms of the transaction have been reviewed and approved by
counsel to the plaintiffs in the Schofield litigation. See "--Background of the
transaction--Background of the Schofield litigation."
Consummation of the transaction will satisfy the obligations undertaken by
McNeil Partners to liquidate the public McNeil Partnerships prior to the end of
1999. See "--Background of the transaction--Restructuring of the public McNeil
Partnerships" and "--Background of the transaction--Icahn tender offers."
At the commencement of its engagement, PaineWebber advised McNeil Partners
that the highest price for the McNeil Partnerships and, therefore, the greatest
distribution to the limited partners of each of the McNeil Partnerships, would
likely be achieved by offering the McNeil Partnerships and McREMI together on
an all-or-none basis. See "--Background of the transaction--Structuring of the
transaction." On the basis of PaineWebber's advice, McNeil management decided
(1) to market the McNeil Partnerships, McNeil Investors, McNeil Partners and
McREMI as a single portfolio, and (2) to instruct prospective purchasers to
submit bids only for the entire portfolio. See "--Background of the
transaction--Background of the auction process--Structuring of the transaction"
and "--Background of the transaction--Background of the auction process--
Solicitation of final bids."
Prospective purchasers also were instructed that the McNeil Partnerships
sought only cash offers for the limited partner interests in the McNeil
Partnerships. See "--Background of the transaction--Background of the auction
process--Structuring of the transaction" and "--Background of the transaction--
Background of the auction process--Solicitation of final bids." Under the
limited partnership agreements of the public McNeil Partnerships, limited
partners owning at least 80% of the outstanding limited partner units must
approve a
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<PAGE>
reorganization transaction. A reorganization transaction includes a merger or
liquidation of a McNeil Partnership in which the limited partners would receive
securities. In contrast, approval by limited partners owning only a majority of
each class of limited partner units is required to approve a merger in which
the limited partners will receive only cash. The supermajority provision was
included in the limited partnership agreements for the purpose of protecting
limited partners against the perceived abuse of "roll-up" transactions. Because
McNeil Partners believed that it would be difficult on a practical level to
obtain the 80% vote, McNeil Partners considered only those transactions in
which the limited partners of the public McNeil Partnerships would receive
cash. See "--Alternatives to the transaction."
In addition, prospective purchasers were instructed that a transaction for
the McNeil Partnerships should be structured as a merger. McNeil Partners
believed that a merger would achieve several benefits to the limited partners
of the McNeil Partnerships that would not be achieved in a property by property
liquidation of the McNeil Partnerships. Among other things, structuring the
transaction as a merger eliminated the difficulties that would have been
encountered if prospective purchasers were allowed to purchase the more
attractive properties, leaving behind the less attractive properties that could
prove time consuming and expensive for an individual McNeil Partnership to
liquidate. Moreover, a merger also may permit the McNeil Partnerships to avoid
the payment of certain transfer taxes associated with a sale of the properties.
In addition, a merger of the McNeil Partnerships would not trigger certain due-
on-sale covenants in the mortgage debt of some of the McNeil Partnerships that
otherwise might be triggered by a sale of the individual properties of those
McNeil Partnerships. The transaction, as structured, also will allow McNeil
Partners to transfer its general partner interests in the McNeil Partnerships,
its limited partner interests in the Affiliated McNeil Partnerships, assets of
McNeil Partners and assets of McREMI to WXI/McN Realty and WXI/McN Realty's
subsidiaries in exchange for membership interests in WXI/McN Realty on a tax-
free basis and to defer substantial income tax liability that would be incurred
if there were to be a taxable sale of the properties. A taxable sale of the
properties would produce taxable gain in excess of cash proceeds because of the
relief of partnership liabilities allocated to them. See "--Federal income tax
consequences--Tax consequences to McNeil Partners."
Recommendations of the special committee and the McNeil Investors board of
directors; fairness of the transaction
Recommendations of the special committee
At a meeting held on June 24, 1999, the special committee, based on, among
other things, a fairness opinion delivered to the special committee by Eastdil
Realty Company and a fairness opinion delivered to the McNeil Investors board
of directors by Stanger & Co. on behalf of the McNeil Partnerships (see "--
Opinions and reports of financial advisors"):
. determined that the merger proposal is fair to, and in the best interests
of, the limited partners of each of the McNeil Partnerships; and
. recommended to the McNeil Investors board of directors the approval of
the merger proposal.
In determining that the merger proposal is fair to, and in the best
interests of, the limited partners of each of the McNeil Partnerships and in
recommending to the McNeil Investors board of directors the approval of the
merger proposal, the special committee considered several factors, each of
which, in the special committee's view, supported the special committee's
determinations. Material supporting factors considered by the special committee
included:
. The transaction satisfied McNeil Partners' obligations under the limited
partnership agreements of each of the public McNeil Partnerships to use
commercially reasonable efforts to complete the liquidation and
termination of the public McNeil Partnerships by December 31, 1999. In
addition, the transaction also satisfied the commitment of McNeil
Partners in a settlement of the Schofield litigation to market the McNeil
Partnerships for sale, together with McREMI, through a fair and impartial
bidding process overseen by a national investment banking firm. See "--
Background of the transaction--Restructuring
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<PAGE>
of the public McNeil Partnerships," "--Background of the transaction--
Icahn tender offers" and "--Background of the transaction--Background of
the Schofield litigation."
. The transaction was structured to maximize the value of each of the
McNeil Partnerships. PaineWebber advised McNeil Partners that the highest
and best price for the McNeil Partnerships, and therefore the greatest
distribution to the limited partners of each of the McNeil Partnerships,
would likely be achieved by offering for sale the McNeil Partnerships,
McNeil Partners, McNeil Investors and McREMI as a single portfolio on an
all-or-none basis, a structure that would allow a potential purchaser to
acquire a large portfolio of real estate managed by a competent and
experienced management team with a demonstrated track record of operating
the properties over an extended period of time. This was particularly
important because of the geographic diversity of the properties and the
age of the improvements on most of the properties. In addition, the
structure selected eliminated the difficulties that would have been
encountered if prospective purchasers were allowed to purchase the more
attractive properties, leaving behind the less attractive properties that
could prove time consuming and expensive for an individual McNeil
Partnership to liquidate. See "--Purposes and reasons for the
transaction."
. The manner in which the auction process with respect to the proposed
transaction was structured, the method and criteria for selection of the
potential bidders, the detailed information with respect to the
properties furnished to the prospective bidders, the conduct of the
initial and final bid stages of the auction process and the lengthy
negotiations that were conducted with the final bidders, ultimately
leading to WXI/McN Realty as the prospective purchaser. See "--Background
of the transaction--Background of the auction process."
. WXI/McN Realty has agreed to an aggregate purchase price for all of the
assets being acquired in the transaction. The special committee took into
account that Stanger & Co., the independent advisor to the McNeil
Partnerships, made the following allocations: (1) the allocation of the
aggregate consideration between the management assets of McREMI, on the
one hand, and the McNeil Partnerships as a group, on the other hand; (2)
the allocation of the aggregate consideration to each individual McNeil
Partnership; and (3) the allocation of the aggregate consideration
allocated to each individual McNeil Partnership among the general partner
interest in that McNeil Partnership, other assets of McREMI related to
that McNeil Partnership and each class of limited partner units in that
McNeil Partnership. The allocations and the methodology of the
allocations are described in more detail in "--Opinions and reports of
financial advisors--Allocation analysis and opinions of Stanger & Co.--
Stanger & Co. allocation analysis" and the dollar values of the
individual allocations are set forth in Table 2.
. If a participating McNeil Partnership has a positive net working capital
balance on the closing date of the transaction, limited partners of that
participating McNeil Partnership will receive their pro rata share of a
special distribution of the positive net working capital balance. The net
working capital balance of each of the McNeil Partnerships will be
calculated in accordance with the Master Agreement and will be based on a
modified net working capital balance of the McNeil Partnership estimated
as of the closing date. This special distribution will be made in
accordance with the provisions of that McNeil Partnership's limited
partnership agreement governing distributions of surplus cash, except
that the general partner of that McNeil Partnership will not receive any
part of the special distribution.
. The opinion dated June 24, 1999 of Stanger & Co. to the effect that, as
of the date of the opinion, and subject to the assumptions,
qualifications and limitations set forth in the opinion, each of the
aggregate consideration, the allocations of the aggregate consideration
and the estimated per unit aggregate amount to be received with respect
to each class of limited partners of each of the McNeil Partnerships is
fair from a financial point of view to the holders of each class of
limited partner units in each of the McNeil Partnerships. See "--Opinions
and reports of financial advisors--Allocation analysis and opinions of
Stanger & Co.--First Stanger & Co. opinion." In addition, the special
committee has also taken into account the opinion dated , 1999 of
Stanger & Co. in which Stanger & Co. rendered
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fairness opinions with respect to additional matters. See "--Opinions and
reports of financial advisors--Allocation analysis and opinions of Stanger
& Co.--Second Stanger & Co. opinion."
. The Stanger & Co. analysis concluded that the estimated per unit
aggregate amount, including both the merger consideration and the special
distribution, to be received with respect to each class of limited
partners of each of the McNeil Partnerships upon the closing of the
transaction was greater than (1) the going concern value per limited
partner unit in that McNeil Partnership, (2) the net asset value per
limited partner unit in that McNeil Partnership and (3) the liquidation
value per limited partner unit in that McNeil Partnership. See Table 1
and "--Alternatives to the transaction."
. The opinion dated June 24, 1999 of Eastdil Realty Company, which was
engaged by the McNeil Partnerships for the benefit of the special
committee as the financial advisor to the special committee, to the
effect that, as of the date of the opinion, and subject to the
assumptions, qualifications and limitations set forth in the opinion,
each of the aggregate consideration, the allocations of the aggregate
consideration and the estimated per unit aggregate amount to be received
with respect to each class of limited partners of each of the McNeil
Partnerships is fair from a financial point of view to the holders of
each class of limited partner units in each of the McNeil Partnerships.
See "--Opinions and reports of financial advisors--Eastdil Realty Company
opinions--First Eastdil Realty Company opinion." In addition, the special
committee has also taken into account the opinion dated , 1999 of
Eastdil Realty Company in which Eastdil Realty Company rendered fairness
opinions with respect to additional matters. See "--Opinions and reports
of financial advisors--Eastdil Realty Company opinions--Second Eastdil
Realty Company opinion."
. The verbal and written presentation of Houlihan, Lokey, the financial
advisor to the McNeil Affiliates, that concluded that the total
consideration that would be fairly allocable to McREMI as determined by
Stanger & Co. was at or below the low end of the range of value estimated
by Houlihan, Lokey. See "--Opinions and reports of financial advisors--
Allocation analysis and opinions of Stanger & Co.-- Stanger & Co.
allocation analysis."
. The fact that the lawyers representing the plaintiffs in the Schofield
litigation, in connection with settlement proceedings relating to that
litigation, oversaw the auction process, including the allocation
analysis rendered by Stanger & Co. This followed (1) several meetings
plaintiffs' counsel had with Stanger & Co. during which they received
detailed verbal and written presentations with respect to the allocation
analysis and were given the opportunity to ask questions and (2) several
meetings of plaintiffs' financial advisor with Stanger & Co. during which
the financial advisor was given the opportunity to ask questions and
examine the documentation forming the basis of the allocation analysis.
See "--Background of the transaction--Background of the Schofield
litigation."
. The identity of the proposed purchaser and its affiliates and the ability
of WXI/McN Realty to consummate the transaction on the terms specified in
the Master Agreement.
. The provisions in the Master Agreement allowing each of the McNeil
Partnerships to terminate its participation in the transaction if, in the
exercise of the good faith judgment of the general partner as to its
fiduciary duties to its limited partners, the general partner of that
McNeil Partnership determined that termination was required by reason of
a superior acquisition proposal being made by a third party for that
McNeil Partnership. See "The Master Agreement--Termination of the Master
Agreement--Right to terminate the Master Agreement with respect to one or
more McNeil Partnerships." The special committee recognized that any such
termination would require the payment by that terminating McNeil
Partnership to WXI/McN Realty of a break-up fee and certain reimbursable
expenses. See "The Master Agreement--Fees and expenses."
. The terms and conditions of the Master Agreement, taken as a whole, were
favorable to the limited partners of the McNeil Partnerships and thus
supported the special committee's conclusion that the merger proposal is
fair to, and in the best interests of, the limited partners of the McNeil
Partnerships.
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. In allocating the aggregate consideration, Stanger & Co. took the
position that the deficit restoration obligations of the general partners
of the McNeil Partnerships were required to be paid to the McNeil
Partnerships. As a result, the aggregate consideration allocated by
Stanger & Co. to the general partner interests in each of the McNeil
Partnerships is net of the estimated deficit restoration obligation with
respect to that McNeil Partnership. See "--Opinions and reports of
financial advisors--Allocation analysis and opinions of Stanger & Co.--
Stanger & Co. allocation analysis.
. In allocating the aggregate consideration, Stanger & Co. took the
position that no asset disposition fees were payable by any of the McNeil
Partnerships to the McNeil General Partners as a result of the
transaction. In a liquidation, the limited partnership agreements of some
of the public McNeil Partnerships provide that McNeil Partners is
entitled to receive an asset disposition fee equal to 3% of the gross
sales price of each property sold in connection with a liquidation of
that McNeil Partnership. No asset disposition fees will be paid by any of
the McNeil Partnerships as a result of the transaction.
. Each of the McNeil General Partners has agreed to irrevocably,
unconditionally and absolutely waive any and all rights it may have to
indemnification, contribution or reimbursement from any of the
participating McNeil Partnerships, whether under the limited partnership
agreement, any contractual arrangement, applicable law or otherwise, with
respect to those matters for which McNeil Partners has agreed to
indemnify WXI/McN Realty's managing member and some of its affiliates.
See "Other Agreements Between the McNeil Affiliates and Affiliates of
WXI/McN Realty--Indemnification and pledge agreement."
. Upon the completion of the transaction, the limited partners of the
participating McNeil Partnerships, other than the Affiliated McNeil
Partnerships, would receive cash in exchange for their limited partner
units and, accordingly, those limited partners would no longer bear the
risks inherent in the ownership of real property such as fluctuations in
occupancy rates, operating expenses and rental rates, which in turn may
be affected by general and local economic conditions, the supply and
demand for properties of the type owned by the McNeil Partnerships and
federal and local laws and regulations affecting the ownership and
operation of real estate.
. Commencing with the tax year following the tax year in which the closing
of the transaction occurs, the limited partners of the participating
McNeil Partnerships no longer will 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, from the participating
McNeil Partnerships.
. As to each McNeil Partnership, approval of the merger proposal requires
the affirmative vote of limited partners holding greater than 50% of each
class of limited partner units in that McNeil Partnership outstanding as
of the record date.
. Under the California Revised Limited Partnership Act, a limited partner
of some of the McNeil Partnerships [additional disclosure for Funds XX-
XXVII: including the Partnership,] who does not wish to accept the merger
consideration may dissent from the merger proposal and require that
McNeil Partnership to purchase for cash, at their fair market value, the
limited partner units owned by that limited partner, if that McNeil
Partnership participates in the transaction, the limited partner does not
vote for the merger proposal, and the limited partner follows specific
procedures set forth in the California Revised Limited Partnership Act.
In determining that the merger proposal is fair to, and in the best
interests of, the limited partners of each of the McNeil Partnerships and in
recommending to the McNeil Investors board of directors the approval of the
merger proposal, the special committee also considered factors, which, in the
special committee's view, did not support the special committee's
determinations. Material negative factors considered by the special committee
included:
. Following the transaction, the limited partners of each participating
McNeil Partnership, other than the Affiliated McNeil Partnerships, will
cease to participate in future earnings or growth, if any, of that McNeil
Partnership or benefit from increases, if any, in the value of that
McNeil Partnership.
. The transaction involves the entire McNeil portfolio, including all of
the McNeil Partnerships, assets of McNeil Partners related to the McNeil
Partnerships and certain assets of McREMI. At the
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commencement of PaineWebber's engagement, McNeil Partners determined to
structure the transaction to include certain assets of McREMI based on
PaineWebber's belief at that time that the highest price for the McNeil
Partnerships, and therefore the greatest distribution to the limited
partners of each of the McNeil Partnerships, would likely be achieved by
offering for sale the McNeil Partnerships and McREMI as a single entire
portfolio on an all-or-none basis. See "--Background of the transaction--
Background of the auction process--Structuring of the transaction."
However, it is possible that the limited partners of a McNeil Partnership
could have received more consideration than what they will receive in the
proposed transaction with WXI/McN Realty if that McNeil Partnership were
to be sold or liquidated in a transaction separate from a transaction
involving other McNeil Partnerships and/or the assets of McREMI.
. The limited partners of each participating McNeil Partnership will forego
alternatives to the transaction. These alternatives include a separate
sale of all of the assets of that McNeil Partnership and subsequent
liquidation of that McNeil Partnership or the continuation of that McNeil
Partnership as a publicly held McNeil Partnership. See "--Alternatives to
the transaction."
. There are numerous conditions to WXI/McN Realty's and Sellers'
obligations to consummate the transaction. No assurance can be given that
the transaction will be consummated. See "The Master Agreement--
Conditions to closing."
. The Master Agreement provides that in some circumstances WXI/McN Realty
will receive a break-up fee, calculated on a partnership by partnership
basis, up to an aggregate maximum of $18.0 million if the Master
Agreement is terminated. The amount of the break-up fee payable by the
Partnership is $ . The obligation of a McNeil Partnership to pay a
break-up fee may discourage third party offers for that McNeil
Partnership and may adversely affect the ability of that McNeil
Partnership to engage in another transaction following termination of the
Master Agreement in respect of that McNeil Partnership. In addition, a
McNeil Partnership may be obligated to pay a break-up fee even if it has
not entered into a definitive agreement for or consummated another
transaction. As a result, payment of the break-up fee may have an adverse
impact on the financial condition of that McNeil Partnership. See "The
Master Agreement--Fees and expenses--Partnership break-up fee."
. McNeil Partners has actual or potential conflicts of interest in
connection with recommending the approval of the merger proposal to the
limited partners of the McNeil Partnerships. See "--Effects of the
transaction--Benefits and detriments of the transaction to the McNeil
Affiliates" and "--Interests of certain persons in matters to be acted
upon; conflicts of interest."
. Each of the McNeil Partnerships did not have separate representation in
the transaction. In structuring the transaction, the special committee
represented the interests of the limited partners of all of the McNeil
Partnerships as a group and Stanger & Co. served as independent advisor
to all of the McNeil Partnerships. If separate representation had been
arranged for each McNeil Partnership, issues unique to the value of a
given McNeil Partnership might have received greater attention during the
structuring of the transaction, and the terms of the transaction might
have been different with respect to that McNeil Partnership.
. If limited partners owning more than 50% of each class of limited
partner units in a McNeil Partnership vote for the merger proposal, their
approval will bind all limited partners of that McNeil Partnership.
Therefore, a limited partner of a McNeil Partnership may vote against the
merger proposal and nevertheless have its limited partner units converted
into the right to receive cash in the transaction if the requisite vote
of the limited partners of that McNeil Partnership is obtained.
. The transaction, as structured, will allow McNeil Partners to make the
contributions of its interests in the McNeil Partnerships and the assets
of McNeil Partners and McREMI being contributed to WXI/McN Realty on a
tax-free basis and to defer substantial tax liability that would be
incurred if there were to be a taxable sale of the properties. In
contrast, limited partners will recognize gain or loss on the conversion
of their limited partner units into cash in the merger [additional
disclosure for Funds
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XX-XXVI: or on receipt of cash pursuant to the exercise of dissenters'
rights]. In general, the special distribution will not be taxable and will
be treated as a return of capital to the limited partner; provided,
however that to the extent that the special distribution received by a
limited partner exceeds that limited partner's adjusted tax basis in all
of its limited partner units that excess will be taxable and will be
treated as capital gain.
. In determining whether the requisite vote of the limited partners of a
McNeil Partnership has been obtained, limited partner units held by
McNeil Partners and its affiliates will not be excluded. McNeil Partners
and its affiliates intend to vote all of the limited partner units
beneficially owned by them in each of the McNeil Partnerships for the
merger proposal with respect to that McNeil Partnership. [Additional
disclosure for Funds IX-XI, XIV, XV, XX, XXV-XXVII: As of the record
date, McNeil Partners and some of its affiliates beneficially owned an
aggregate of limited partner units in the Partnership, representing
in the aggregate approximately % of the limited partner units in the
Partnership outstanding as of the record date. [Additional disclosure for
Fund XXIII: As of the record date, McNeil Partners beneficially owned an
aggregate of growth/shelter units in the Partnership, representing in
the aggregate approximately % of the growth/shelter units outstanding as
of the record date.]
. Limited partners of some of the McNeil Partnerships [additional
disclosure for Funds IX-XII, XIV, XV, XXVII: including the Partnership,]
do not have any dissenters' rights or other rights of appraisal, under
the state law which governs those McNeil Partnerships, the limited
partnership agreements of those McNeil Partnerships or otherwise, in
connection with the merger proposal. Therefore, dissenting limited
partners do not have the right to have their limited partner units
appraised if they disapprove of the action of the limited partners that
voted for the merger proposal. The limited partners of other McNeil
Partnerships [additional disclosure for Funds XX-XXVI: including the
Partnership,] are entitled to the benefits of dissenters' rights as
provided under applicable state law.
In the special committee's view, these countervailing factors were not
sufficient, either individually or in the aggregate, to outweigh the benefits
of the proposed transaction to the limited partners of the McNeil Partnerships.
In view of the wide variety of factors considered in connection with its
evaluation of the transaction and the merger proposal, the special committee
did not find it practicable to, and did not attempt to, quantify, rank or
otherwise assign relative weights to the specific factors it considered in
reaching its determination and recommendation.
Recommendations of the McNeil Investors board of directors
Following the meeting of the special committee, on June 24, 1999, the McNeil
Investors board of directors:
. determined that the merger proposal is fair to, and in the best interests
of, the limited partners of each of the McNeil Partnerships;
. approved the merger proposal; and
. determined to recommend to the limited partners of each of the McNeil
Partnerships that they approve the merger proposal.
The McNeil Investors board of directors based its recommendation on, among
other things, the recommendation of the special committee, the factors
enumerated above that were considered by the special committee and the fairness
opinion delivered on June 24, 1999 to the McNeil Investors board of directors
by Stanger & Co. on behalf of the McNeil Partnerships. See "--Opinions and
reports of financial advisors--Allocation analysis and opinions of Stanger &
Co.--First Stanger & Co. opinion" and "--Recommendations
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of the special committee and the McNeil Investors board of directors; fairness
of the transaction--Recommendations of the special committee." Limited partners
of the Partnership should be aware that members of the McNeil Investors board
of directors may have actual or potential conflicts of interest in making their
determinations and recommendation. The special committee was formed in part to
address these conflicts of interest. See "--Background of the transaction--
Background of the auction process--Appointment of the special committee," "--
Purposes and reasons for the transaction" and "--Interests of certain persons
in the matters to be acted upon; conflicts of interest."
Alternatives to the transaction
The McNeil Investors board of directors' assessment of the fairness of the
transaction was based on a review of different alternatives that were
available. The McNeil Investors board of directors considered two alternatives
to the merger: (1) liquidation of the Partnership and distribution of the net
cash proceeds of the liquidation and (2) continuation of the business of the
Partnership. The McNeil Investors board of directors has not considered any
liquidation or other form of transaction in which the limited partners of the
Partnership would receive anything other than cash. See "--Background of the
transaction--Background of the auction process--Structuring of the transaction"
and "--Background of the transaction--Background the auction process--
Solicitation of final bids" and "--Purposes and effects of the transaction."
Under the limited partnership agreements of the public McNeil Partnerships,
limited partners owning at least 80% of the outstanding limited partner units
must approve a reorganization transaction. A reorganization transaction
includes a merger or liquidation of the McNeil Partnership in which the limited
partners of the McNeil Partnership would receive securities. In contrast,
approval by limited partners owning only a majority of each class of limited
partner units is required to approve a merger in which the limited partners
will receive only cash. The supermajority provision was included in the limited
partnership agreements for the purpose of protecting limited partners against
the perceived abuse of "roll-up" transactions. Because McNeil Partners believed
that it would be difficult on a practical level to obtain the 80% vote, the
McNeil Investors board of directors considered only those transactions in which
the limited partners of the public McNeil Partnerships would receive cash.
Liquidation
An alternative to the transaction considered by the McNeil Investors board
of directors was to liquidate the Partnership's assets, distribute the net cash
proceeds of the liquidation to the partners and then dissolve the Partnership.
In a liquidation, McNeil Partners would market the sale of the Partnership's
properties and, if a potential purchaser is interested in purchasing a property
or properties, McNeil Partners would negotiate and enter into an agreement for
the sale of the property or properties. If a sale of properties would
constitute a sale of all or substantially all of a McNeil Partnership's
properties, McNeil Partners would be required to obtain the approval of limited
partners holding at least 50% of the outstanding limited partner units before
the sale could close. If the limited partners approved the sale and the sale
was closed, McNeil Partners would proceed to liquidate the Partnership in
accordance with the provisions of the Partnership's limited partnership
agreement and [for Funds IX-XII, XIV, XV, XX-XXVI: California] [for Fund XXVII:
Delaware] law, which governs the Partnership.
[For Funds IX-XII: Pursuant to the limited partnership agreement of the
Partnership, in a liquidation, McNeil Partners must distribute the liquidation
proceeds in the following order:
. First, to the payment of creditors of the Partnership;
. Second, to the repayment of any outstanding loans made by McNeil Partners
to the Partnership;
. Third, after McNeil Partners sets aside funds to pay liquidation expenses
and reserves for contingencies which McNeil Partners believes are
necessary, to McNeil Partners in an amount equal to the management
incentive distribution; and
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. Fourth, the remainder to the limited partners, pro rata according to the
number of limited partner units owned by the limited partners.]
[For Funds XIV, XV, XX: Pursuant to the limited partnership agreement of the
Partnership, in a liquidation, McNeil Partners must distribute the liquidation
proceeds in the following order:
. First, to the payment of creditors of the Partnership;
. Second, to the repayment of any outstanding loans made by McNeil Partners
to the Partnership;
. Third, after McNeil Partners sets aside funds to pay liquidation expenses
and reserves for contingencies which McNeil Partners believes are
necessary, to McNeil Partners and the limited partners in proportion to
their positive capital accounts after the net liquidation proceeds are
allocated to their capital accounts.]
[For Fund XXI: Pursuant to the limited partnership agreement of the
Partnership, in a liquidation, McNeil Partners must distribute the liquidation
proceeds in the following order:
. First, to the payment of creditors of the Partnership;
. Second, to the repayment of any outstanding loans made by McNeil Partners
to the Partnership;
. Third, after McNeil Partners sets aside funds to pay liquidation expenses
and reserves for contingencies which McNeil Partners believes are
necessary, to McNeil Partners and the limited partners in proportion to
their positive capital accounts after the net liquidation proceeds are
allocated to their capital accounts.
In the Partnership, each limited partner owns either current income units or
growth/shelter units. Limited partners are entitled to a specified priority
return on their investment in the Partnership depending upon whether they own
current income units or growth/shelter units and, as a result, the liquidation
distributions to limited partners would differ based on the type of units
owned.]
[For Funds XXII, XXIII: Pursuant to the limited partnership agreement of the
Partnership, in a liquidation, McNeil Partners must distribute the liquidation
proceeds in the following order:
. First, to the payment of creditors of the Partnership;
. Second, to the repayment of any outstanding loans made by McNeil Partners
to the Partnership;
. Third, after McNeil Partners sets aside funds to pay liquidation expenses
and reserves for contingencies which McNeil Partners believes are
necessary, to McNeil Partners and the limited partners in proportion to
their positive capital accounts after the net liquidation proceeds are
allocated to their capital accounts.
In the Partnership, each limited partner owns either current income units or
growth/shelter units. Limited partners are entitled to a specified priority
return on their investment in the Partnership depending upon whether they own
current income units or growth/shelter units and, as a result, the liquidation
distributions to limited partners would differ based on the type of units
owned.
. In addition, under the limited partnership agreement, McNeil Partners is
required to distribute to limited partners distributable cash from sales
or refinancings in an amount sufficient to allow payment of income tax
attributable to the sale which resulted in the generation of cash.]
[For Funds XXIV-XXVII: Pursuant to the limited partnership agreement of the
Partnership, in a liquidation, McNeil Partners must distribute the liquidation
proceeds in the following order:
. First, to the payment of creditors of the Partnership;
. Second, to the repayment of any outstanding loans made by McNeil Partners
to the Partnership;
. Third, after McNeil Partners sets aside funds to pay liquidation expenses
and reserves for contingencies which McNeil Partners believes are
necessary, to McNeil Partners and the limited partners in proportion
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to their positive capital accounts after the net liquidation proceeds are
allocated to their capital accounts.]
[For Funds IX-XII, XIV, XV, XX, XXIV-XXVII: Stanger & Co. estimated that the
distribution amount to limited partners in a liquidation, after payments are
made to creditors and to McNeil Partners for repayment of outstanding loans, if
any, and the management incentive distribution, would be $ per limited
partner unit. See Table 1.]
[For Funds XXI-XXIII: Stanger & Co. estimated that the distribution amount
to limited partners in a liquidation, after payments are made to creditors and
to McNeil Partners for repayment of outstanding loans, if any, would be $
per current income unit and $ per growth/shelter unit.]
Benefits of liquidation to the limited partners
The McNeil Investors board of directors considered the primary benefits of a
liquidation to be the following:
. Through a liquidation, the Partnership would provide for a final
disposition and liquidation of its partners' interests in the
Partnership. Limited partners in the Partnership would receive cash
liquidation proceeds.
. A liquidation would satisfy the obligations undertaken by McNeil Partners
to liquidate the Partnership. See "--Background of the transaction--
Restructuring of the public McNeil Partnerships" and "--Background of the
transaction--Icahn tender offers."
. In a liquidation, the Partnership's limited partnership agreement
requires McNeil Partners to restore any deficiency in its capital account
if the assets available for distribution upon the dissolution and
termination of the Partnership are insufficient to allow distributions to
the limited partners of the Partnership of amounts equal to the then
positive balances in their capital accounts.
. Pursuant to the limited partnership agreement of the Partnership, McNeil
Partners would be required to contribute in cash to the capital of the
Partnership an amount equal to the lesser of (a) the deficiency in McNeil
Partners' capital account and (b) [for all except Fund IX: 1.01% of the
excess of the amount in cash contributed by the limited partners to the
capital of the Partnership for limited partner units over the capital
contributions of McNeil Partners] [for Fund IX: the amount needed so that
distributions may be made to limited partners in the Partnership in an
amount equal to the then positive balances in their capital accounts].
The deficit restoration obligation of McNeil Partners with respect to the
Partnership, estimated by Arthur Andersen LLP, based upon a hypothetical
sale of the properties and liquidation of the Partnership at March 31,
1999, is approximately $ . Arthur Andersen LLP's estimate was based,
in part, on limited historical tax records prepared by other accounting
firms. Sufficient records did not exist such that Arthur Andersen LLP
could test the accuracy of prior accountant's work. Further, this
estimate was based on the Partnership's projections of 1999 operating
results through March 31, 1999 and on hypothetical asset sale/partnership
liquidation information provided by Stanger & Co. Arthur Andersen LLP has
not audited or opined on the projected results of operations or financial
information relating to such hypothetical sale/liquidation.
Disadvantages of liquidation to the limited partners
When comparing a liquidation to the proposed transaction, the McNeil
Investors board of directors also considered that the proposed transaction
provides the same benefits as described in the bullet points above, including
that the allocations of the aggregate consideration in the transaction to each
class of limited partner units in each of the McNeil Partnerships includes an
amount equal to the general partner's estimated deficit restoration obligation,
if any, to that McNeil Partnership. See "--Purposes and reasons for the
transaction" and
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"--Opinions and reports of financial advisors--Allocation analysis and opinions
of Stanger & Co.--Stanger & Co. allocation analysis."
Based on this consideration and the factors described below, the McNeil
Investors board of directors concluded that the disadvantages of liquidating
the Partnership on a property by property basis outweighed the benefits of
liquidating the Partnership. Specifically, the McNeil Investors board of
directors considered the following disadvantages of liquidating the
Partnership:
. There can be no assurance that McNeil Partners would be able to sell the
Partnership's properties for prices that would result in consideration to
the limited partners that is equal or greater than the consideration that
it is estimated they will receive in the transaction.
. Based on the analysis by Stanger & Co., it is anticipated that limited
partners of the Partnership will receive more cash proceeds per limited
partner unit in the proposed transaction than they would have received in
a liquidation. Based on the analysis of Stanger & Co., it is anticipated
that limited partners in the Partnership would receive an aggregate
amount of approximately [for all except FundsXXI-XXIII: $ per limited
partner unit] [for Funds XXI-XXIII: $ per current income unit and $
per growth/shelter unit], in a liquidation and will receive an estimated
aggregate amount of approximately [for all except Funds XXI-XXIII: $
per limited partner unit] [for Funds XXI-XXIII: $ per current income
unit and $ per growth/shelter unit] in the proposed transaction,
including the estimated per unit special distribution. See "Liquidation
Value" and "Total Per Unit Estimate" in Table 1. As discussed above, the
"Total Per Unit Estimate" of the Partnership includes an amount equal to
McNeil Partners' estimated deficit restoration obligation, if any, to the
Partnership. See "--Opinions and reports of financial advisors--
Allocation analysis and opinions of Stanger & Co.--Stanger & Co.
allocation analysis."
. In addition, based on real estate value estimates of the Partnership's
portfolio included in the analysis by Stanger & Co., it is anticipated
that the cash proceeds per limited partner unit to be received in the
proposed transaction exceed the Partnership's net asset value per limited
partner unit. Based on the analysis of Stanger & Co., it is anticipated
that limited partners in the Partnership will receive an estimated
aggregate amount of approximately [for all except Funds XXI-XXIII: $
per limited partner unit] [for Funds XXI-XXIII: $ per current income
unit and $ per growth/shelter unit] in the proposed transaction,
including the estimated per unit special distribution. The net asset
value per limited partner unit in the Partnership, based on the analysis
of Stanger & Co., is approximately [for all except Funds XXI-XXIII: $
per limited partner unit] [for Funds XXI-XXIII: $ per current income
unit and $ per growth/shelter unit]. See "Net Asset Value" and "Total
Per Unit Estimate" in Table 1.
. McNeil Partners believes that the transaction will provide more immediate
liquidity to the Partnership's limited partners than would have been
obtainable had the Partnership been liquidated on a property by property
basis. Limited partners would not receive distributions in a liquidation
as quickly as they would in the transaction. Distributions would be
payable only after the sale of the properties. There is no assurance that
the properties of the Partnership could be sold at prices comparable to
those in the transaction.
. If the Partnership determined to sell all of its properties and
liquidate, it would not be able to distribute all of the liquidation
proceeds immediately after the sale. Under the Partnership's limited
partnership agreement, McNeil Partners has the authority to set aside net
proceeds from liquidation as well as other working capital of the
Partnership to pay creditors, including creditors who may have a
contingent claim against the Partnership. The actual timing and amount of
distributions would be subject to McNeil Partners' determination of when
the reserves set aside are no longer necessary. Accordingly, there could
be no assurance as to the precise timing or amount of distributions to
the limited partners.
. Limited partners would be required to continue holding interests in the
Partnership until all contingent liabilities had been settled.
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. [Additional disclosure for Funds XX-XXVII: In a liquidation, the limited
partnership agreement of the Partnership provides that McNeil Partners
would be entitled to receive an asset disposition fee equal to 3% of the
gross sales price of each property sold by the Partnership. In allocating
the aggregate consideration in the transaction, Stanger & Co. has assumed
that no asset disposition fee is payable by the Partnership to McNeil
Partners. See "--Effects of the transaction--Benefits and detriments of
the transaction to the McNeil Affiliates." No asset disposition fee will
be paid by the Partnership as a result of this transaction.]
. Prior to the maturity date of the mortgage debt on some of the
Partnership's properties, McNeil Partners will need to either sell those
properties or refinance the mortgage debt. There is no assurance that
McNeil Partners would be able to refinance the mortgage debt on terms
that are as favorable or more favorable than the terms of the existing
mortgage debt. In addition, the obtaining of new mortgages could preclude
the sale of the Partnership's properties because of the terms of the
mortgage and the costs of terminating the mortgage.
. [Additional disclosure for Funds XX-XXVI: Limited partners would not be
entitled to dissenters' rights in a liquidation. Therefore, limited
partners would not have rights under the California Revised Limited
Partnership Act to contest the amount to be received in a liquidation.]
. Until the properties of the Partnership are sold and the Partnership is
liquidated and terminated, limited partners would continue to receive
Schedule K-1s from the Partnership, and the Partnership would continue to
have SEC and tax reporting obligations.
. Depending on the value of the properties to be sold, it may not be
economically feasible for McNeil Partners to obtain a fairness opinion
with respect to the sale of the Partnership's properties preceding a
liquidation.
Continued ownership of the Partnership
Benefits of continued ownership
Another alternative to the transaction would be to continue the Partnership
in accordance with its existing business plan, with the Partnership continuing
to be owned by the limited partners and McNeil Partners. This will be the
result if the Partnership does not participate in the transaction. The McNeil
Investors board of directors considered the primary benefits of continuing the
business of the Partnership to be as follows:
. Limited partners of the Partnership would have the potential to continue
to receive indefinitely semiannual distributions of net cash flow arising
from operations and the sale or refinancing of the Partnership's
properties.
. Continued ownership of the Partnership by the limited partners and McNeil
Partners affords the limited partners of the Partnership with the
opportunity to participate in any future appreciation in the
Partnership's properties.
. Continued ownership would mean that there would be no change in the
nature of the investment of the limited partners. Therefore, continued
ownership would avoid whatever disadvantages might result from a change
in the nature of the investment of the limited partners, including any
disadvantages as a result of the proposed transaction.
Disadvantages of continued ownership
The McNeil Investors board of directors concluded that disadvantages of
continuation of the Partnership outweighed the benefits of continuation of the
Partnership. Specifically, the McNeil Investors board of directors considered
the following disadvantages of continuing the Partnership:
. Based on an analysis by Stanger & Co., it is anticipated that the going
concern value of the Partnership per limited partner unit would be less
than the estimated per unit aggregate amount to be received in the
proposed transaction. The going concern value of the Partnership as
determined by Stanger & Co. is [for all except Funds XXI-XXIII: $ per
limited partner unit] [for Funds XXI-XXIII: $ per
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current income unit and $ per growth/shelter unit] and the estimated
aggregate amount in the transaction to be received by limited partners is
approximately [for all except Funds XXI-XXIII: $ per limited partner
unit] [for Funds XXI-XXIII: $ per current income unit and $ per
growth/shelter unit], including the estimated special distribution. See
"Going Concern Value" and "Total Per Unit Estimate" in Table 1.
. Under the Partnership's limited partnership agreement, McNeil Partners
agreed to commence a liquidation of the properties of the Partnership
seven years after the Partnership's restructuring date and to use
commercially reasonable efforts to complete the liquidation and
termination of the Partnership by December 31, 1999. Continuation of the
Partnership would not have satisfied the obligations undertaken by McNeil
Partners to liquidate the Partnership. See "--Background of the
transaction--Restructuring of the public McNeil Partnerships" and "--
Background of the transaction--Icahn tender offers."
. If the merger is not approved and the Partnership is continued, limited
partners will not have any assurance of when or if another liquidation
transaction will occur. In addition, continued ownership of the
Partnership by the limited partners would fail to secure the benefits to
the limited partners that are expected to result from the transaction,
including providing immediate liquidity to the limited partners of their
investment in the McNeil Partnerships.
. The limited partners would not have the opportunity to liquidate their
investment in the Partnership other than pursuant to sales of their
limited partner units. At present, there is no established public trading
market for the limited partner units in the Partnership and liquidity is
limited to sporadic private sales or tender offers for limited partner
units, both of which are generally at a substantial discount to the
estimated per unit aggregate amount to be received in the transaction,
including the merger consideration and estimated special distribution,
and often involve only a limited number of limited partner units. See the
"Private Sales Weighted Average" and "Tender Offer Ranges" in Table 1.
. The Partnership's limited partners would continue to own limited partner
units in the Partnership and therefore would continue to be exposed to
the risks inherent in the ownership of real property, such as
fluctuations in occupancy rates, operating expenses and rental rates,
which in turn may be affected by general and local economic conditions,
the supply and demand for properties of the type owned by the Partnership
and federal and local laws and regulations affecting the ownership and
operation of real estate.
. Until the properties of the Partnership are sold and the Partnership is
liquidated and terminated, limited partners would continue to receive
Schedule K-1s from the Partnership, and the Partnership would continue to
have SEC and tax reporting obligations.
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Table 1
Unit Value Comparisons of Alternatives to the Transaction(1)
<TABLE>
<CAPTION>
Private Sales
Weighted Tender Offer
Average (6) Ranges (7)
----------------- -------------
Total
Units Per Unit Net Asset Going Concern Liquidation Number Weighted
McNeil Partnership Outstanding Estimate (2) Value (3) Value (4) Value (5) of Units Average Low High
- ------------------ ----------- ------------ --------- ------------- ----------- -------- -------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Fund IX................. 110,170 $ 424 $ 419 $ 367 $ 397 563 $ 329 $ 200 $ 350
Fund X.................. 134,980 234 230 187 217 230 190 115 205
Fund XI................. 159,813 221 218 182 207 224 172 100 165
Fund XII................ 229,666 77 76 47 69 338 42 32 50
Fund XIV................ 86,534 214 211 189 199 66 148 89 151
Fund XV................. 102,796 160 158 142 147 238 146 115 140
Fund XX................. 49,512 92 91 61 88 N/A N/A 60 175
Fund XXI
Current income units:.. 24,863 99 94 0 74 N/A N/A 80 100
Growth/shelter units:.. 22,035 0 0 0 0 N/A N/A N/A N/A
Fund XXII
Current income units:.. 19,493,088 0.25 0.25 0.19 0.23 N/A N/A 0.07 0.12
Growth/shelter units:.. 13,201,029 0 0 0 0 N/A N/A N/A N/A
Fund XXIII
Current income units:.. 6,574,985 0.28 0.27 0.12 0.22 N/A N/A 0.01 0.15
Growth/shelter units:.. 4,850,711 0 0 0 0 N/A N/A N/A N/A
Fund XXIV............... 40,000 347 345 264 335 57 342 275 335
Fund XXV................ 82,943,685 0.50 0.50 0.43 0.48 414,487 0.36 0.26 0.33
Fund XXVI............... 86,530,671 0.27 0.27 0.23 0.26 122,562 0.24 0.16 0.23
Fund XXVII.............. 5,162,989 10.54 10.47 9.21 10.21 12,252 8.22 6 8.25
Hearth Hollow........... 35 40,115 39,414 34,729 36,843 N/A N/A 15,000 15,000
Midwest Properties...... 90 25,840 24,953 15,404 21,509 8 11,000(9) 15,000 15,000
Regency North........... 32 75,916 74,841 62,811 70,779 N/A N/A 30,000 30,000
Fairfax................. 2 450,065 436,965 294,054 386,965 N/A N/A N/A N/A
Summerhill.............. 1 9,309 0 N/A(8) 0 N/A N/A N/A N/A
</TABLE>
- ----
(1) Based upon balance sheets as of March 31, 1999, and includes impact of
the general partner's deficit restoration obligation, if any, to the
McNeil Partnership, as estimated by Arthur Andersen LLP as of March 31,
1999. Arthur Andersen LLP's estimates were based, in part, on limited
historical tax records prepared by other accounting firms. Sufficient
records did not exist such that Arthur Andersen LLP could test the
accuracy of prior accountants' work. Further, these estimates were based
on the McNeil Partnerships' projections of 1999 operating results through
March 31, 1999 and on hypothetical asset sale/partnership liquidation
information provided by Stanger & Co. Arthur Andersen LLP has not audited
or opined on the projected results of operations or financial information
relating to such hypothetical sales/liquidations.
(2) Amount includes per unit merger consideration and estimated per unit
special distribution. See Table 2.
(3) Stanger & Co. estimated the "Net Asset Value" per limited partner unit in
each McNeil Partnership as follows:
(a) Stanger & Co.'s estimate of the value of the real estate assets of the
McNeil Partnership net of the mark-to-market adjustment on the mortgage
debt of that McNeil Partnership, as described in "--Reports and opinions
of financial advisors--Allocation analysis and opinions of Stanger &
Co.--Financial analysis of Stanger & Co.;"
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<PAGE>
(b) Plus: the book value of the other tangible assets of the McNeil
Partnership as of March 31, 1999;
(c) Plus: the deficit restoration obligation, if any, of the general partner
of the McNeil Partnership, as estimated by Arthur Andersen LLP as of
March 31, 1999, assuming the McNeil Partnership had been liquidated on
that date. Arthur Andersen LLP's estimates were based, in part, on
limited historical tax records prepared by other accounting firms.
Sufficient records did not exist such that Arthur Andersen LLP could
test the accuracy of prior accountants' work. Further, these estimates
were based on the McNeil Partnerships' projections of 1999 operating
results through March 31, 1999 and on hypothetical asset
sale/partnership liquidation information provided by Stanger & Co.
Arthur Andersen LLP has not audited or opined on the projected results
of operations or financial information relating to such hypothetical
sales/liquidations.
(d) Less: the mortgage debt outstanding as of March 31, 1999;
(e) Less: other liabilities of the McNeil Partnership outstanding as of
March 31, 1999, including amounts recorded as liabilities to the general
partner of the McNeil Partnership and its affiliates, including McREMI;
and
(f) Less: the transaction expenses as estimated by McNeil Partners.
The resulting net asset value was divided by the number of limited partner
units in the McNeil Partnership outstanding as of March 31, 1999 to derive
the "Net Asset Value" per limited partner unit.
(4) Stanger & Co. estimated the "Going Concern Value" per limited partner
unit in each McNeil Partnership based upon the continued operation of the
McNeil Partnership for a ten-year period. Real estate cash flows and the
residual value of the real estate at the end of ten years were estimated
by Stanger & Co. Debt service was estimated based on the terms of the
existing mortgages in place. Stanger & Co. assumed the existing mortgages
were refinanced at the earlier of: (a) the expiration of the term of the
mortgage; (b) the date on which any prepayment penalty was eliminated;
and (c) the date on which any prepayment penalty, plus the outstanding
mortgage balance, is less than the present value, discounted at 7.5%, of
the remaining obligations due under the mortgage. The mortgage balance
and any prepayment penalties were assumed refinanced at 7.5% per annum
interest with an amortization period of 30 years. Administrative fees and
expenses were based upon normalized 1997 and 1998 expense levels. Asset
management fees were estimated in accordance with the limited partnership
agreement of the McNeil Partnership. Net cash flows calculated pursuant
to the going concern analysis were discounted to present value at a
premium to the estimated internal rate of return for the real estate
portfolio based upon several factors including illiquidity and leverage,
as estimated by Stanger & Co. The resulting going concern value was
divided by the number of limited partner units outstanding as of March
31, 1999 to derive the "Going Concern Value" per limited partner unit.
(5) Stanger & Co. estimated the "Liquidation Value" per limited partner unit
based upon the "Net Asset Value" of the McNeil Partnership, adjusted for
additional costs, estimated at 2.5% of real estate value, associated with
the sale of the assets, continued operation of the McNeil Partnership and
the wind-down of partnership operations.
(6) Per database of Stanger & Co. through March 31, 1999, except as noted.
(7) As reported by McREMI. See "Related Security Holder Matters--Past
contacts, transactions and negotiations."
(8) McNeil Summerhill I, L.P. is more than 95% leveraged and therefore "Going
Concern Value" is deemed inapplicable.
(9) As reported by McREMI.
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<PAGE>
Effects of the transaction
The Master Agreement provides that WXI/McN Realty will acquire the general
partner interests and limited partner interests in each of the McNeil
Partnerships, assets of McNeil Partners related to the McNeil Partnerships and
certain assets of McREMI. Each McNeil Partnership's participation in the
transaction is subject to the requisite approval of its limited partners.
Effects of the transaction on the Partnership
If the merger proposal is approved by the limited partners of the
Partnership and the Partnership participates in the transaction, then the
effects of the transaction with respect to the Partnership will be as follows:
. WXI/McN Realty will acquire all of the general partner interests and
limited partner interests in the Partnership, assets of McNeil Partners
related to the Partnership and assets of McREMI related to the
Partnership.
. As a result of the transaction, the Partnership will become a directly
and/or indirectly wholly owned subsidiary of WXI/McN Realty. WXI/McN
Realty or a wholly owned subsidiary of WXI/McN Realty will be the sole
limited partner of the Partnership, and a separate directly or indirectly
wholly owned subsidiary of WXI/McN Realty will be the general partner of
the Partnership. A separate directly or indirectly wholly owned
subsidiary of WXI/McN Realty will own and operate the assets of McREMI.
. Following the completion of the transaction, the current limited partners
of the Partnership will no longer have any interest in and will not be
limited partners of the Partnership and, therefore, will not participate
in the Partnership's future earnings and potential growth.
. Following the completion of the transaction with respect to the
Partnership, the limited partner units in the Partnership will cease to
be registered under the Securities Exchange Act, all tax return and SEC
reporting obligations of the Partnership will cease and limited partners
of the Partnership will no longer receive Schedule K-1s from the
Partnership.
. Limited partners of the Partnership will receive approximately [For all
except Funds XXI-XXIII: $ in cash for each limited partner unit.] [for
Funds XXI-XXIII: $ in cash for each current income unit and $ in
cash for each growth/shelter unit.] [For all except Funds XXI-XXIII: The
amount for each limited partner unit consists of merger consideration of
$ per unit and a special cash distribution estimated as of , 1999
at $ per unit.] [For Funds XXI-XXIII: The amount for each current
income unit consists of merger consideration of $ per unit and a
special cash distribution estimated as of , 1999 at $ per unit. The
amount for each growth/shelter unit consists of merger consideration of
$ per unit and a special cash distribution estimated as of , 1999
at $ per unit.]
. The merger consideration is equal to the amount of the aggregate
consideration in the transaction allocated by Stanger & Co. to each of
the limited partner units in the Partnership. If the Partnership
participates in the transaction, each limited partner unit will be
converted at the effective time of the merger of the Partnership into the
right to receive the per unit merger consideration.
. In addition, if the Partnership has a positive net working capital
balance, limited partners in the Partnership will receive their pro rata
share of a special distribution of the positive net working capital
balance. The net working capital balance of the Partnership will be
calculated in accordance with the Master Agreement and will be based on a
modified net working capital balance of the Partnership estimated as of
the closing date. This special distribution will be made in accordance
with the provisions of the Partnership's limited partnership agreement
governing distributions of surplus cash, except that the general partner
of that McNeil Partnership will not receive any part of the special
distribution.
. McNeil Partners will receive membership interests in and credit for a
capital contribution to WXI/McN Realty in exchange for its contributions
to WXI/McN Realty and WXI/McN Realty's subsidiaries of its
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<PAGE>
general partner interests in the Partnership, assets of McNeil Partners
related to the Partnership and assets of McREMI related to the
Partnership. The amount of this capital contribution will be equal to
$ , the amount of the aggregate consideration allocated by Stanger & Co.
to these contributions. See "--Opinions and reports of financial
advisors--Allocation analysis and opinions of Stanger & Co.--Stanger & Co.
allocation analysis."
. McNeil Partners also may contribute cash to WXI/McN Realty under some
circumstances and will have the right to treat some fees, expenses and
disbursements incurred by the McNeil Affiliates in connection with the
transaction as a contribution in-kind to WXI/McN Realty. In consideration
for that cash contribution and that contribution in-kind, McNeil Partners
will receive additional membership interests in WXI/McN Realty and credit
for capital contribution to WXI/McN Realty in the amount of that cash
contribution and that contribution in-kind to WXI/McN Realty. See "--
Interests of certain persons in the matters to be acted upon; conflicts
of interest--Equity interest of McNeil Partners in WXI/McN Realty."
Effects of the transaction on all of the other participating McNeil
Partnerships and the McNeil Affiliates
. For each other participating McNeil Partnership, other than the
Affiliated McNeil Partnerships, the effects of the transaction with
respect to that participating McNeil Partnership will be the same as the
effects described above with respect to the Partnership. The merger
consideration and estimated special distribution per limited partner unit
in each of the McNeil Partnerships is set forth in Table 2 in the columns
"Per Unit Merger Consideration" and "Per Unit Special Distribution." The
amount of the capital contribution by McNeil Partners to WXI/McN Realty
in exchange for its contributions to WXI/McN Realty and WXI/McN Realty's
subsidiaries of its general partner interests in each participating
McNeil Partnership, certain assets of McNeil Partners related to that
McNeil Partnership and certain assets of McREMI related to that McNeil
Partnership is set forth in Table 2 in the column entitled "MPLP
Allocation Amount."
. McNeil Partners also will receive membership interests in and credit for
a capital contribution to WXI/McN Realty in exchange for its
contributions to WXI/McN Realty and WXI/McN Realty's subsidiaries of the
limited partner interests in the Affiliated McNeil Partnership and assets
of McREMI. The amount of this capital contribution will be equal to the
aggregate consideration allocated by Stanger & Co. to these
contributions.
. If all of the McNeil Partnerships are participating McNeil Partnerships,
the portion of the aggregate consideration to be received by McNeil
Partners in the form of membership interests and credit for a capital
contribution in exchange for the contributions described in the
immediately preceding two bullet points will equal approximately $ .
See "--Interests of certain persons in the matters to be acted upon;
conflicts of interest--Equity interest of McNeil Partners in WXI/McN
Realty."
Benefits and detriments of the transaction to the McNeil Affiliates
The primary benefits of the transaction to the McNeil Affiliates are the
following:
. The transaction satisfies McNeil Partners' obligations under the limited
partnership agreements of the public McNeil Partnerships to use
commercially reasonable efforts to complete the liquidation and
termination of the public McNeil Partnerships by December 31, 1999. See
"--Background of the transaction--Restructuring of the public McNeil
Partnerships" and "--Background of the transaction--Icahn tender offers."
. The Stipulation of Settlement of the Schofield litigation also provided a
commitment of McNeil Partners to market the McNeil Partnerships for sale,
together with McREMI, through a fair and impartial bidding process
overseen by a national investment banking firm. See "--Background of the
transaction--Background of the Schofield litigation." The settlement was
not conditioned on the consummation of the transaction described in this
Proxy Statement.
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<PAGE>
. McNeil Partners will receive a portion of the aggregate consideration
equal to $ in consideration of some of its contributions to WXI/McN
Realty Company. This portion of the aggregate consideration will be paid
to McNeil Partners in the form of membership interests in and credit for
a capital contribution to WXI/McN Realty in exchange for its contribution
to WXI/McN Realty and its subsidiaries of the following: (1) its general
partner interests in each of the participating McNeil Partnerships, (2)
the limited partner units in the Affiliated McNeil Partnerships, (3)
certain assets of McNeil Partners related to the participating McNeil
Partnerships and (4) certain assets of McREMI. The amount of this capital
contribution will be equal to the aggregate consideration allocated by
Stanger & Co. to these contributions. See the "Total Allocated McNeil
Value" set forth in Table 2 . See "--Opinions and reports of financial
advisors--Allocation Analysis and opinions of Stanger & Co.--Stanger &
Co. allocation analysis" and "--Interests of certain persons in matters
to be acted upon; conflicts of interest--Equity interest of McNeil
Partners in WXI/McN Realty."
. McNeil Partners and its affiliates also will receive a portion of the
aggregate consideration for the limited partner units that they own in
the McNeil Partnerships. McNeil Partners and these affiliates will
receive the same cash consideration for each of their limited partner
units in the participating McNeil Partnerships, other than the Affiliated
McNeil Partnerships, as the other limited partners of that McNeil
Partnership. If all of the McNeil Partnerships, other than the Affiliated
McNeil Partnerships, in which McNeil Partners and these affiliates own
limited partner units are participating McNeil Partnerships, McNeil
Partners and these affiliates will receive aggregate cash consideration
of approximately $ . This figure is the sum of the per unit merger
consideration and estimated per unit special distribution for those
McNeil Partnerships. As described in the second bullet point above,
McNeil Partners will receive membership interests in WXI/McN Realty in
consideration for its contribution to WXI/McN Realty and WXI/McN Realty's
subsidiaries of its limited partner units in the Affiliated McNeil
Partnerships.
. McNeil Partners also may contribute cash to WXI/McN Realty under certain
circumstances and will receive equity interests in WXI/McN Realty and
credit for a capital contribution to WXI/McN Realty in the amount of any
cash contributed. McNeil Partners also has the right to treat some fees,
expenses and disbursements incurred by the McNeil Affiliates in
connection with the transaction as a contribution in-kind to WXI/McN
Realty. McNeil Partners will receive equity interests in WXI/McN Realty
and credit for capital contribution to WXI/McN Realty in the amount of
that contribution in-kind. See "--Interests of certain persons in matters
to be acted upon; conflicts of interest--Equity interest of McNeil
Partners in WXI/McN Realty."
. It is anticipated that immediately following the effective time of the
mergers, McNeil Partners will own in the aggregate between approximately
% and % of the then outstanding membership interests in WXI/McN Realty,
depending on the amount of financing obtained by WXI/McN Realty as of the
closing and the amount of the capital contributions of McNeil Partners to
WXI/McN Realty. The other McNeil Affiliates will indirectly beneficially
own an equity interest in WXI/McN Realty following the effective time of
the mergers as a result of their ownership of partnership interests in
McNeil Partners. See "The Master Agreement--The contributions--
Contributions to McNeil Partners by the other McNeil Affiliates."
. The membership interests received by McNeil Partners in WXI/McN Realty
will entitle McNeil Partners to receive a specified percentage return on
its investment in WXI/McN Realty and to receive distributions of WXI/McN
Realty's net cash flow and net proceeds from capital transactions in the
priority set forth in the WXI/McN Realty Operating Agreement.
Consequently, McNeil Partners and the other McNeil Affiliates, through
their ownership of partnership interests in McNeil Partners, will have a
significant interest in WXI/McN Realty and will continue to have the
opportunity to participate in any future earnings growth and to benefit
from any increases in the value of the participating McNeil Partnerships
and their properties, the McREMI assets and any other assets acquired by
WXI/McN Realty and its subsidiaries. This return will be equal to 14% or
15% per annum depending on McNeil Partners' initial capital contribution
to WXI/McN Realty. Following the effective time of the mergers,
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<PAGE>
McNeil Partners and WXI/McN Realty's managing member will be the sole
members of WXI/McN Realty.
. Under the terms of the WXI/McN Realty Operating Agreement, following the
effective time of the mergers, McNeil Partners also will have the right
to designate two of the five members of WXI/McN Realty's board of
managers. The remaining three members will be designated by WXI/McN
Realty's managing member. Action by WXI/McN Realty's board of managers
will require the affirmative vote of three of the five managers. However,
some actions of WXI/McN Realty's board of managers will require a super-
majority vote of four of the five managers. Therefore, McNeil Partners
will have a right to veto any transactions that require a supermajority
vote of WXI/McN Realty's board of managers. See "WXI/McN Realty Operating
Agreement."
. WXI/McN Realty will repay or indirectly assume all outstanding mortgage
debt of each of the participating McNeil Partnerships. McNeil Partners
and McNeil Investors currently are parties to existing indemnification
obligations or agreements relating to mortgage debt on some of the McNeil
Partnership properties and agreements with lenders or affiliates of
lenders of some mortgage debt on some of the properties. Under these
existing indemnification obligations and agreements, McNeil Partners or
McNeil Investors or both have assumed liability on behalf of one or more
McNeil Partnerships or their subsidiaries for exceptions to non-recourse
provisions contained in that mortgage debt. In the Master Agreement,
WXI/McN Realty has agreed to deliver at the closing of the transaction
any replacement agreements and documents necessary to assume all of the
obligations of Sellers (other than the participating McNeil Partnerships)
and their affiliates as indemnitor under all of those existing
indemnification obligations or agreements, and to use its reasonable
efforts to ensure that those replacement agreements and documents
delivered at the closing release Sellers (other than the participating
McNeil Partnerships) and their affiliates from all of Sellers' (other
than the participating McNeil Partnerships) and their affiliates'
obligations under those existing indemnification obligations and
agreements. See "The Master Agreement--Replacement indemnification
agreements."
. The Master Agreement provides that if McNeil Summerhill I, L.P. is a
participating McNeil Partnership, WXI/McN Realty will contribute adequate
cash to McNeil Summerhill I, L.P. to, and will cause McNeil Summerhill I,
L.P. to, repay at the effective time of the mergers the demand note,
dated November 17, 1997, payable by McNeil Summerhill I, L.P. to Robert
A. McNeil and Carole J. McNeil, together with all accrued but unpaid
interest to the effective time on the demand note. See "--Interests of
certain persons in matters to be acted upon; conflicts of interest." As
of the date of this Proxy Statement, the outstanding principal balance of
this demand note is $ , and the accrued and unpaid interest on the
demand note is $ . However, the modified net working capital balance
of McNeil Summerhill I, L.P. for purposes of determining the special
distribution for McNeil Summerhill I, L.P. will be calculated as if the
demand note was not repaid and WXI/McN Realty had not contributed cash to
McNeil Summerhill I, L.P. See "The Master Agreement--The mergers--Special
distribution of positive net working capital balance."
. The transaction, as structured, will allow McNeil Partners to transfer
its general partner interests in the McNeil Partnerships, its limited
partner units in the Affiliated McNeil Partnerships, assets of McNeil
Partners and assets of McREMI to WXI/McN Realty and WXI/McN Realty's
subsidiaries in exchange for membership interests in WXI/McN Realty on a
tax-free basis and to defer substantial income tax liability that would
be incurred if there had been a taxable sale of the properties. 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
them. See "--Federal income tax consequences--Tax consequences to McNeil
Partners."
The primary detriments of the transaction to the McNeil Affiliates are the
following:
. McNeil Partners has agreed to irrevocably, unconditionally and absolutely
waive any and all rights it may have to indemnification, contribution or
reimbursement from any of the participating McNeil Partnerships, whether
under the limited partnership agreement, any contractual arrangement,
applicable
78
<PAGE>
law or otherwise, with respect to those matters for which McNeil Partners
has agreed to indemnify WXI/McN Realty's managing member and some of its
affiliates.
. McNeil Partners and Robert A. McNeil have agreed to indemnify WXI/McN
Realty's managing member and some of its affiliates for all actual and
out-of-pocket costs, expenses, judgments, fines, losses, claims, damages
and liabilities arising from certain matters described in "Other
Agreements Between the McNeil Affiliates and Affiliates of WXI/McN
Realty--Indemnification and pledge agreement."
. In allocating the aggregate consideration, Stanger & Co. took the
position that the deficit restoration obligations of the general partners
of the McNeil Partnerships were required to be paid to the McNeil
Partnerships. As a result, the aggregate consideration allocated by
Stanger & Co. to the general partner interests in each of the McNeil
Partnerships is net of the deficit restoration obligation with respect to
that McNeil Partnership. The aggregate amount of the deficit restoration
obligations payable in respect of all of the McNeil Partnerships,
estimated by Arthur Andersen LLP, based upon a hypothetical sale of the
properties and liquidation of the McNeil Partnerships at March 31, 1999,
is approximately $6,439,000. The estimated deficit restoration obligation
payable in respect of the Partnership, estimated by Arthur Andersen LLP,
based upon a hypothetical sale of the properties and liquidation of the
McNeil Partnerships at March 31, 1999, is $ . Arthur Andersen LLP's
estimates were based, in part, on limited historical tax records prepared
by other accounting firms. Sufficient records did not exist such that
Arthur Andersen LLP could test the accuracy of prior accountants' work.
Further, these estimates were based on the McNeil Partnerships'
projections of 1999 operating results through March 31, 1999 and on
hypothetical asset sale/partnership liquidation information provided by
Stanger & Co. Arthur Andersen LLP has not audited or opined on the
projected results of operations or financial information relating to such
hypothetical sales/liquidations. See "--Opinions and reports of financial
advisors--Allocation analysis and opinions of Stanger & Co.--Stanger &
Co. allocation analysis."
. In allocating the aggregate consideration, Stanger & Co. has assumed that
no asset disposition fee is payable by any of the McNeil Partnerships to
the McNeil General Partners. In a liquidation, the limited partnership
agreements of some of the McNeil Partnerships provide that McNeil
Partners would be entitled to receive an asset disposition fee equal to
3% of the gross sales price of each property sold by that McNeil
Partnership. No asset disposition fees will be paid by any of the McNeil
Partnerships as a result of the transaction.
. The McNeil General Partners will cease to be the general partners of the
participating McNeil Partnerships following the transaction. As a result,
the McNeil General Partners will no longer be entitled to any of the
rights and benefits of a general partner of the participating McNeil
Partnerships, including the right to receive fees and other distributions
from the participating McNeil Partnerships under the limited partnership
agreements of the participating McNeil Partnerships.
. The McNeil Affiliates will no longer be in control of the participating
McNeil Partnerships and the assets of McREMI following the transaction.
See "--Interests of certain persons in matters to be acted upon;
conflicts of interest--Relationships among the McNeil Affiliates and the
McNeil Partnerships." Although McNeil Partners will own membership
interests in WXI/McN Realty following the effective time of the
transaction, McNeil Partners will not be in control of WXI/McN Realty.
McNeil Partners will have the right to designate only two of the five
members of WXI/McN Realty's board of managers. The remaining three
members of WXI/McN Realty's board of managers will be designated by
WXI/McN Realty's managing member. Except in some limited circumstances in
which the vote of four of five of the managers is required, decisions of
WXI/McN Realty's board of managers require a vote of only three of the
five members. Therefore, action generally may be taken by WXI/McN
Realty's board of managers without the approval of McNeil Partners. See
"WXI/McN Realty Operating Agreement."
. The opportunity of the McNeil Affiliates to participate in any future
earnings growth of WXI/McN Realty is limited to the percentage return on
investment to which they are entitled under the WXI/McN Realty Operating
Agreement. This percentage return is limited to 14% or 15%, depending on
McNeil
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<PAGE>
Partners' initial capital contribution to WXI/McN Realty. See "WXI/McN
Realty Operating Agreement."
Opinions and reports of financial advisors
Allocation analysis and opinions of Stanger & Co.
Each of the McNeil Partnerships engaged Stanger & Co. as its independent
advisor on January 12, 1998. Stanger & Co. was engaged based on its experience
and expertise. Stanger & Co., founded in 1978, has provided information,
research, investment banking and consulting services to clients throughout the
United States, including major New York Stock Exchange, Inc. firms and
insurance companies and over 70 companies engaged in the management and
operation of partnerships and REITs. The investment banking activities of
Stanger & Co. include financial advisory services, asset and securities
valuations, industry and company research and analysis, litigation support and
expert witness services, and due diligence investigations in connection with
both publicly registered and privately placed securities transactions.
First Stanger & Co. opinion
At the June 24, 1999 meeting of the McNeil Investors board of directors,
Stanger & Co. delivered its allocation analysis of the aggregate consideration
described below in "--Opinions and reports of financial advisors--Allocation
analysis and opinions of Stanger & Co.--Stanger & Co. allocation analysis" and
a written opinion of fairness to the effect that as of the date of the opinion,
and subject to the assumptions, qualifications and limitations set forth in the
opinion, each of the five matters set forth below was fair from a financial
point of view to the holders of each class of limited partner units in each of
the McNeil Partnerships:
. the aggregate consideration in the transaction;
. the allocation of the aggregate consideration between the management
assets of McREMI, on the one hand, and the McNeil Partnerships as a
group, on the other hand;
. the aggregate consideration allocated to each individual McNeil
Partnership;
. the methodology of allocation of the aggregate consideration allocated to
each individual McNeil Partnership, less the principal amount of all
outstanding mortgage debt of that McNeil Partnership, among the general
partner interests in that McNeil Partnership, the other assets of McREMI
related to that McNeil Partnership and each class of limited partner
units in that McNeil Partnership; and
. the estimated amount of the positive net working capital balance
estimated to be distributed per limited partner unit in each McNeil
Partnership and the amount of the aggregate consideration allocated to
each limited partner unit in each McNeil Partnership, determined as of
March 31, 1999, based upon the balance sheet of each McNeil Partnership
as of March 31, 1999, adjusted for transaction expenses and the
allocation of transaction expenses, as estimated by the McNeil General
Partners.
The written fairness opinion delivered by Stanger & Co. to the McNeil
Investors board of directors on behalf of the McNeil Partnerships on June 24,
1999 is referred to in this Proxy Statement as the "first Stanger & Co.
opinion." In making the determinations described in "--Recommendations of the
special committee and the McNeil Investors board of directors; fairness of the
transaction--Recommendations of the McNeil Investors board of directors" and in
approving the merger proposal, the McNeil Investors board of directors relied
on, among other things, the Stanger & Co. allocation analysis and the first
Stanger & Co. opinion.
The full text of the first Stanger & Co. opinion, which sets forth the
assumptions made, matters considered and qualifications and limitations on the
review undertaken by Stanger & Co., is incorporated in this Proxy Statement by
reference. The first Stanger & Co. opinion is attached as Appendix C-1 to this
Proxy Statement. The limited partners of the Partnership are urged to read
carefully the first Stanger & Co. opinion in its entirety.
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<PAGE>
Second Stanger & Co. opinion
On , 1999, Stanger & Co. delivered a second written opinion to the
McNeil Investors board of directors on behalf of the McNeil Partnerships. In
this second opinion, Stanger & Co. rendered additional opinions as to the
fairness from a financial point of view to the holders of each class of limited
partner units in each of the McNeil Partnerships as to the allocation of the
consideration described in the fourth bullet point in "--Opinions and reports
of financial advisors--Allocation analysis and opinions of Stanger & Co.--First
Stanger & Co. opinion." The second opinion delivered by Stanger & Co. on ,
1999 is referred to in this Proxy Statement as the "second Stanger & Co.
opinion." The second Stanger & Co. opinion is described in more detail below.
The full text of the second Stanger & Co. opinion, which sets forth the
assumptions made, matters considered and qualifications and limitations on the
review undertaken by Stanger & Co., is incorporated in this Proxy Statement by
reference. The second Stanger & Co. opinion is attached as Appendix C-2 to this
Proxy Statement. The limited partners of the Partnership are urged to read
carefully the second Stanger & Co. opinion in its entirety.
The second Stanger & Co. opinion was to the effect that, as of the date of
the second Stanger & Co. opinion, and subject to the assumptions,
qualifications and limitations set forth in the second Stanger & Co. opinion,
each of the matters set forth below was fair from a financial point of view to
the holders of each class of limited partner units in each of the McNeil
Partnerships:
. the aggregate consideration allocated to the general partner interests in
each McNeil Partnership (see "GP Allocation Amount" in Table 2);
. the aggregate consideration allocated to the other assets of McREMI
related to each McNeil Partnership (see "Second McREMI Allocated Value"
in Table 2);
. the aggregate consideration allocated to each class of limited partner
units in each McNeil Partnership (see "LP Allocation Amount" in Table 2);
and
. the estimated amount of the aggregate consideration allocated to each
limited partner unit in each McNeil Partnership (see "Per Unit Merger
Consideration" in Table 2) and the dollar amount of the positive net
working capital balance estimated to be distributed per limited partner
unit in each McNeil Partnership, determined as of , 1999, based upon
the balance sheet of each McNeil Partnership as of , 1999, adjusted
for transaction expenses and the allocation of transaction expenses, as
estimated by the McNeil General Partners (see "Estimated Per Unit Special
Distribution" in Table 2). See "Total Per Unit Estimate" in Table 2.
In considering the opinions described above, limited partners of the
Partnership should be aware that each of the Stanger opinions:
. was provided to the McNeil Partnerships for their information and is
directed only to the fairness, from a financial point of view, to the
holders of each class of limited partner units in each McNeil
Partnership;
. did not constitute a recommendation to the McNeil Partnerships or the
McNeil General Partners in connection with the transactions;
. did not address the merits of the underlying decision by McNeil
Partnerships or the General Partners to engage in the transactions or the
price or range of prices at which each class of limited partner units in
each McNeil Partnership may trade subsequent to the announcement or
consummation of the transactions; and
. does not constitute a recommendation to any limited partner of any McNeil
Partnership as to how that limited partner should vote on the merger
proposal, or any matter related to the merger proposal.
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<PAGE>
Although Stanger & Co. evaluated the fairness, from a financial point of
view, of the aggregate consideration and the allocation of the aggregate
consideration in the transaction to the holders of limited partner units in
each McNeil Partnership, the terms were determined through arm's-length
negotiations among McNeil management, the special committee, WXI/McN Realty and
their respective representatives. Stanger & Co. provided advice to the McNeil
Partnerships during the course of those negotiations. The McNeil Partnerships
did not provide specific instructions to, or place any limitations on, Stanger
& Co. with respect to the procedures to be followed or factors to be considered
by it in performing its analyses or providing its opinions.
In arriving at the opinions described above, Stanger & Co., among other
things:
. reviewed the Master Agreement and the WXI/McN Realty Operating Agreement;
. reviewed, in the case of the second Stanger opinion, the latest draft of
this Proxy Statement made available to it;
. reviewed the financial statements of each McNeil Partnership for the
years ended December 31, 1997 and 1998, the three months ended March 31,
1999 and the months ended , 1999;
. reviewed information provided by McREMI, as property manager, the McNeil
General Partners and each McNeil Partnership for each property owned by
that McNeil Partnership, including: property description, rentable square
footage, unit mix, year built, historical and projected operating
statements, rent rolls, tenant improvement allowances, expense
reimbursements, tax information, capital expenditure estimates, deferred
maintenance estimates, and estimates of costs to remediate environmental
conditions;
. conducted site inspections of each property and discussed with management
of McREMI, the McNeil General Partners and the McNeil Partnerships the
conditions in local rental markets and market conditions for sales and
acquisitions of properties of the type owned by each McNeil Partnership
and the historical financial statements and budgeted and projected
operations of the properties;
. reviewed surveys of competing properties prepared by or on behalf of
McREMI, the McNeil General Partners and the McNeil Partnerships,
including rental rates, vacancies, and tenant improvement allowances;
. reviewed information on acquisition criteria used by real estate
investors for properties similar to the McNeil Partnerships' properties
during 1999;
. reviewed the financial statements of McREMI and its affiliates for the
years ended December 31, 1997 and 1998, the three months ended March 31,
1999 and the months ended , 1999;
. interviewed PaineWebber regarding the bid solicitation process relating
to the transaction; and
. conducted such other studies, analyses, inquiries and investigations as
it deemed appropriate.
In rendering the Stanger & Co. opinions, Stanger & Co. relied, without
independent verification, on the accuracy and completeness in all material
respects of all financial and other information that was furnished or otherwise
communicated to Stanger & Co. by McREMI, the McNeil General Partners and the
McNeil Partnerships. Stanger & Co. did not perform an independent appraisal of
the assets and liabilities of the McNeil Partnerships or the McREMI assets.
Stanger & Co. did not conduct any engineering studies and relied on the
estimates of the management of McREMI with respect to deferred maintenance and
the estimated cost to remediate environmental conditions for each property.
Stanger & Co. relied on the assurance of McREMI, the General Partners and
the McNeil Partnerships, that:
. the property budgets and discounted cash flow analyses provided to
Stanger & Co. were in the judgment of McREMI, the General Partners and
the McNeil Partnerships reasonably prepared on bases consistent
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with actual historical experience and reflect the best currently available
estimates and good faith judgments;
. any estimates of costs to remediate environmental conditions were
adequately considered in the capital expenditure estimates provided to
Stanger & Co. and that no additional environmental conditions were
present at the McNeil Partnerships' properties;
. any historical financial data, balance sheet data, transaction cost
estimates and estimates of the deficit restoration obligation of the
McNeil General Partners which would be due upon a liquidation were
accurate in all material respects;
. no material changes have occurred in the information reviewed or in the
value of the McNeil Partnerships' properties or the McREMI assets between
the date the information was provided to Stanger & Co. and the date of
its opinion; and
. McREMI, the McNeil General Partners and the McNeil Partnerships were not
aware of any information or facts regarding the McNeil Partnerships, the
McNeil Partnerships' properties, the McREMI assets or WXI/McN Realty that
would cause the information supplied to Stanger & Co. to be incomplete or
misleading in any material respect.
Stanger & Co. did not determine or negotiate the amount or form of the
aggregate consideration in the transaction. Stanger & Co. was not requested to,
and therefore did not, make any recommendation to McREMI, the McNeil General
Partners or the limited partners of any of the McNeil Partnerships with respect
to whether to approve or reject the transactions or express any opinion as to:
. the impact of the transactions with respect to McREMI, the McNeil General
Partners or the limited partners of any McNeil Partnership that does not
participate in the transaction;
. the tax consequences of the transactions for McREMI, the McNeil General
Partners or the limited partners of any McNeil Partnership;
. WXI/McN Realty's ability to qualify as a partnership or real estate
investment trust, or the consequences of WXI/McN Realty's failure to so
qualify;
. the potential capital structure of WXI/McN Realty or its impact on the
financial performance of WXI/McN Realty's membership interests;
. WXI/McN Realty's ability to finance its obligations pursuant to the
Master Agreement or the impact of a failure to obtain financing on the
financial performance of WXI/McN Realty or the McNeil Partnerships;
. whether or not alternative methods of determining or allocating the
aggregate consideration to be received by any of the McNeil Affiliates or
the limited partners of any of the McNeil Partnerships would have also
provided fair results or results substantially similar to those of the
methodology to be used;
. alternatives to the transaction; or
. any other terms of the transaction other than the aggregate consideration
and the allocation of the aggregate consideration.
Stanger & Co. did not express any opinion to Robert A. McNeil or Carole J.
McNeil in their capacities as direct or indirect holders of general partner
interests or limited partner units in the McNeil Partnerships or in McNeil
Partners or of capital stock in McREMI. Furthermore, Stanger & Co. did not
express any opinion as to the fairness of any terms of the transaction other
than as described in the Stanger opinions, including without limitation the
fairness of the amounts or allocations of transaction costs, or the prices at
which the membership interests in WXI/McN Realty may trade, if the membership
interests were traded, following the transaction, or the trading value of the
membership interests in WXI/McN Realty compared with the current fair market
value
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<PAGE>
of any assets contributed to WXI/McN Realty in connection with the transaction
if WXI/McN Realty were to be liquidated in the current real estate market.
The foregoing description does not purport to be a complete description of
the analyses performed or the matters considered in rendering the Stanger
opinions. The analyses and the summary set forth in the Stanger opinions must
be considered as a whole, and selecting portions of such summary or analyses,
without considering all factors and analyses, would create an incomplete view
of the processes underlying the Stanger & Co. opinions. In rendering the
Stanger opinions, judgment was applied to a variety of complex analyses and
assumptions. The assumptions made and the judgments applied in rendering the
Stanger opinions are not readily susceptible to partial analysis or summary
description. The fact that any specific analysis is referred to in the Stanger
opinions or in this Proxy Statement is not meant to indicate that such analysis
was given greater weight than any other analysis.
Financial analysis of Stanger & Co.
Stanger & Co.'s financial analysis began with an estimate of the real estate
values of each of the McNeil Partnerships. To determine the value of the real
estate of each McNeil Partnership, Stanger & Co. performed a property level
review, a balance sheet review, a partnership agreement review and a bid
solicitation review, each described more fully below.
Property Level Review. Stanger & Co. performed a site inspection of each
property. In the course of the site visit, the physical facilities of each
property were observed, rental and occupancy information was obtained, local
market conditions were reviewed, similar competing properties were identified,
and local property management personnel were interviewed concerning the
property and local market conditions. Stanger & Co. also reviewed and relied
upon information provided by each McNeil Partnership and its agents including,
but not limited to, financial schedules of historical and current rental rates,
occupancy, income, expenses, reserve requirements, and related financial
information, property descriptive information including unit mix or square
footage, deferred maintenance estimates, capital budgets, and other factors
affecting the physical condition of the properties.
For each property, Stanger & Co. estimated net operating income for 1999
based upon the above review as well as a review of actual net operating income
for such property for 1995, 1996, 1997 and 1998 and the three months ended
March 31, 1999 and the 1999 budget prepared by McREMI management.
Stanger & Co. estimated the value of each property using the income approach
to valuation. For apartment and self-storage properties, Stanger & Co. relied
primarily on the direct capitalization method of the income approach. In the
direct capitalization method of the income approach, net operating income is
capitalized at a capitalization rate to derive value. The capitalization rate
used for each property was based upon Stanger & Co.'s review of: (1) published
survey data by Korpacz & Associates, Real Estate Research Corporation, Cushman
& Wakefield and National Real Estate Index; and (2) data collected by Stanger &
Co. from local market inquiries. For office and retail properties, Stanger &
Co. relied primarily on the discounted cash flow method of the income approach.
In the discounted cash flow method of the income approach, a ten-year cash flow
projection was made based upon leases in place and various assumptions
regarding renewals of such leases over a ten year period. A residual value for
the property was based upon year eleven net operating income capitalized at a
terminal capitalization rate and reduced by selling expenses. The cash flow for
the ten-year period and the residual value were discounted to present value at
a discount rate. The terminal capitalization rate and discount rate were
derived from published surveys of such data by Korpacz & Associates, Real
Estate Research Corporation and Cushman & Wakefield. The real estate value
derived under the income approach was reduced by deferred maintenance estimates
and by closing costs estimated at 2.5% and further reduced by any mark-to-
market adjustment associated with the debt encumbering each property based upon
a 7.5% per annum interest rate. Where debt was prepayable without penalty, no
mark-to-market adjustment was made. Where debt was subject to a yield
maintenance prepayment penalty, (1) the present value of the obligations under
the mortgage through the remaining term was compared to (2) the present value
of
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such obligations and any non-yield maintenance prepayment penalty at the
earliest possible prepayment date after the yield maintenance prepayment
penalty expired. The lower of the two calculations described in clauses (1) and
(2) in the preceding sentence were compared to the mortgage debt outstanding.
Where the present value of the remaining obligations exceeded the mortgage
balance, a mark-to-market adjustment for such excess was included in Stanger &
Co.'s analysis.
The following table summarizes the range of the direct capitalization rates,
terminal capitalization rates and discount rates utilized by Stanger & Co. in
its analysis of the value of the real estate assets of each McNeil Partnership.
<TABLE>
<CAPTION>
Primary
Asset Type Valuation Method Parameter Ranges
---------- --------------------- -------------------------------------------
<S> <C> <C>
Apartments.............. Direct capitalization Direct capitalization rate 8.5% to 11.0%
Self-storage............ Direct capitalization Direct capitalization rate 9.5% to 9.75%
Office.................. Discounted cash flow Terminal capitalization rate 9.5% to 11.0%
Discount rate 11.25% to 12.5%
Retail.................. Discounted cash flow Terminal capitalization rate 10.0% to 12.0%
Discount rate 11.5% to 13.5%
</TABLE>
Based on the above analysis, Stanger & Co. estimated the real estate value
of the McNeil Partnerships as a group at $601,479,000 (see "Total Asset Value"
in Table 2), as follows:
<TABLE>
<CAPTION>
McNeil Partnership Real Estate Value
- ------------------ -----------------
<S> <C>
Fund IX............. $92,748,000
Fund X.............. 68,636,000
Fund XI............. 71,138,000
Fund XII............ 56,243,000
Fund XIV............ 40,944,000
Fund XV............. 40,170,000
Fund XX............. 5,989,000
Fund XXI............ 19,222,000
Fund XXII........... 12,996,000
Fund XXIII.......... 6,430,000
</TABLE>
<TABLE>
<CAPTION>
McNeil Partnership Real Estate Value
- ------------------ -----------------
<S> <C>
Fund XXIV........... $ 15,220,000
Fund XXV............ 46,800,000
Fund XXVI........... 41,813,000
Fund XXVII.......... 52,350,000
Hearth Hollow....... 3,643,000
Midwest Properties.. 11,817,000
Regency North....... 5,030,000
Fairfax............. 3,880,000
Summerhill.......... 6,410,000
------------
Total............. $601,479,000
============
</TABLE>
Balance Sheet Review. Stanger & Co. reviewed the balance sheets of each of
the McNeil Partnerships for the years ended December 31, 1997 and 1998 and for
the three months ended March 31, 1999. Stanger & Co. identified capitalized
costs, deferred gains and other liabilities, which would not result in an asset
to be sold or liability to be assumed, and excluded such items, as appropriate,
from the analysis. Stanger & Co. also reviewed each mortgage payable by the
McNeil Partnerships and estimated liability of each mortgage payable based upon
(1) principal outstanding, (2) monthly payments, (3) interest rate, (4)
maturity date, (5) prepayment terms and (6) estimated mark-to-market adjustment
using a 7.5% per annum interest rate.
Partnership agreement review. Stanger & Co. reviewed the limited partnership
agreement of each of the McNeil Partnerships, including the provisions relating
to the fee structure, allocation of income and term of the McNeil Partnership.
Bid solicitation review. Stanger & Co. next reviewed the bid solicitation
process, including reviewing the offering materials and the bids received by
PaineWebber in care of McNeil Partners and the status of negotiations. Stanger
& Co. noted that PaineWebber identified eighteen potential purchasers and
provided the confidential offering memorandum describing the McNeil portfolio
to thirteen potential purchasers. See "--Background of the transaction--
Background of the auction process--Solicitation of initial bids." Ten of the
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thirteen prospective purchasers submitted bids to PaineWebber. Stanger & Co.
concluded that the bid solicitation process was reasonable.
Management company review. Stanger & Co. next determined the value of the
management assets and other assets of McREMI based on a management company
review. Stanger & Co. interviewed McNeil management personnel regarding the
history of McREMI and future business prospects and business plan and
interviewed certain accounting, financial reporting, property management,
property acquisitions and other personnel regarding existing resources and the
ability to manage existing assets and the ability to manage a larger asset
base. Stanger & Co. reviewed fee agreements associated with property
management, asset management, partnership management, asset disposition and
expense reimbursements. Stanger & Co. reviewed operating expenses and expense
estimates and prepared estimates of multi-year cash flow and reviewed cash flow
multiples for comparable management companies.
Stanger & Co. prepared a five-year discounted cash flow analysis by
projecting cash flow from continued management of the properties for five years
and a residual value at the end of the fifth year based upon a range of cash
flow multiples of 4 to 6. The cash flow for the five-year period and the
residual value at the end of the fifth year were discounted to present value at
discount rates ranging from 12.5% to 20%, resulting in a value range of
approximately $35 million to $38 million. Stanger & Co. also reviewed eleven
comparable management company transactions with a cash flow multiple range of
5.4 to 11.4, with an average of 7.8. The midpoint of the multiple range used by
Stanger & Co. in its analysis represents a 36% discount to the average among
the comparable transactions. As a result of the management company review,
Stanger & Co. estimated the value of the business of McREMI at $35,000,000. See
"Value of Management Assets" in Table 2.
Stanger & Co. observations regarding aggregate consideration
Stanger & Co. noted that its estimate of the aggregate value of the real
estate assets of the McNeil Partnerships and the McREMI business was
$636,479,000 (see "Total Asset Value" and "Value of Management Assets" in Table
2), as follows:
<TABLE>
<S> <C>
Real estate value of McNeil Partnerships...................... $601,479,000
Value of management assets.................................... 35,000,000
------------
Total real estate and property management assets............ $636,479,000
</TABLE>
Stanger & Co. noted that the $636,479,000 total value of the assets being
acquired was less than the aggregate consideration of $644,439,803, thus
indicating an acquisition premium for the McNeil portfolio. Taking into account
Stanger & Co.'s estimate of the total fees payable to PaineWebber, the premium
totaled $4,290,803.
<TABLE>
<S> <C>
Aggregate consideration................................... $ 644,439,803
Less: Stanger & Co.'s estimate of fees payable to
PaineWebber.............................................. (3,670,000)
-------------
Adjusted consideration.................................... $ 640,769,803
Less: Total value of assets being acquired................ (636,479,000)
-------------
Premium for the McNeil portfolio........................ $ 4,290,803
</TABLE>
Stanger & Co. concluded that because the amount of the adjusted
consideration, taking into account Stanger & Co.'s estimate of the fees payable
to PaineWebber, exceeded the total value of the assets being acquired by
WXI/McN Realty, the aggregate consideration was fair, from a financial point of
view, to the holders of each class of limited partner units in each of the
McNeil Partnerships.
Stanger & Co. allocation analysis
Pursuant to the terms of the Master Agreement, the parties agreed that
Stanger & Co. would allocate the aggregate consideration among (1) the general
partner interests in each of the McNeil Partnerships, (2) each
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class of limited partner units in each of the McNeil Partnerships and (3) the
management assets and other assets of McREMI. The allocations and the
methodology of the allocations are described in more detail in "--Opinions and
Reports of financial advisors--Stanger & Co. allocation analysis" and the
dollar values of the individual allocations are set forth in Table 2. The
Master Agreement provides that the allocations of the aggregate consideration
by Stanger & Co. are binding on Sellers and on WXI/McN Realty, its subsidiaries
and affiliates.
The results of the Stanger & Co. allocation analysis are discussed in more
detail below and are set forth in Table 2 immediately following that
discussion.
The aggregate consideration in the transaction, including all outstanding
mortgage debt of the McNeil Partnerships, is $644,439,803. The aggregate
consideration was first allocated by Stanger & Co. between:
(1) the management assets of McREMI, on the one hand (see "Partial
McREMI Allocated Value" in Table 2); and
(2) the McNeil Partnerships as a group, on the other hand (see "Total
Allocated Partnership Value" in Table 2).
This allocation was based on a ratio, the numerator of which is the sum of
the total real estate values for all of the McNeil Partnerships and the
denominator of which is the sum of the total real estate values for all of the
McNeil Partnerships and the value of the management assets of McREMI. An
aggregate of $35,236,000 has been allocated by Stanger & Co. to the management
assets of McREMI. An aggregate of $605,534,000 has been allocated by Stanger &
Co. to the McNeil Partnerships as a group. See "Total Asset Value" in Table 2.
The $605,534,000 allocated to the McNeil Partnerships as a group was then
further allocated among each of the individual McNeil Partnerships. See
"Allocated Partnership Value" in Table 2. This allocation was based on the
percentages agreed to between Stanger & Co., in consultation with Eastdil
Realty Company, and WXI/McN Realty and set forth in the Master Agreement. See
"Partnership Percentage" in Table 2. These percentages were based on the
relative real estate values of each McNeil Partnership relative to the sum of
the real estate values for all of the McNeil Partnerships, including
adjustments with respect to specific properties to take into account the June
1, 1999 aggregate purchase price reduction of $1.65 million for additional
environmental issues that Whitehall's environmental consultant identified at
those properties at that time and for the scheduled expiration of a ground
lease at one of the properties. See "--Background of the transaction--
Background of the auction process--Negotiations of definitive transaction
documents with Whitehall."
The amount of the aggregate consideration allocated to each individual
McNeil Partnership was further allocated, after subtracting the outstanding
principal balance, determined as of , 1999, of all outstanding mortgage
debt of that McNeil Partnership, between:
(1) the general partner interests taken as a whole in that McNeil
Partnership and the other assets of McREMI related to that McNeil
Partnership (see "MPLP Allocation Amount" in Table 2), net of any deficit
restoration obligation, as estimated by Arthur Andersen LLP, of the general
partner of that McNeil Partnership; and
(2) each class of limited partner units in each McNeil Partnership,
taken as a whole (see "LP Allocation Amount" in Table 2).
Arthur Andersen LLP's estimates were based, in part, on limited historical
tax records prepared by other accounting firms. Sufficient records did not
exist such that Arthur Andersen LLP could test the accuracy of prior
accountants' work. Further, these estimates were based on the McNeil
Partnerships' projections of 1999 operating results through March 31, 1999 and
on hypothetical asset sale/partnership liquidation information provided by
Stanger & Co. Arthur Andersen LLP has not audited or opined on the projected
results of operations or financial information relating to such hypothetical
sales/liquidations.
87
<PAGE>
The aggregate consideration allocated to each McNeil Partnership was
allocated between classes of limited partner units based upon the provisions of
the limited partnership agreement relating to a liquidation and termination of
the McNeil Partnership. The aggregate consideration allocated to a class of
limited partners was then allocated among the limited partner units in that
class by dividing the aggregate consideration allocated to that class by the
number of outstanding limited partner units in that class. See "Per Unit Merger
Consideration" in Table 2.
The amount of the aggregate consideration allocated in paragraph (1) above
with respect to each McNeil Partnership includes (a) an amount representing the
general partner's proportionate interest in the profits and losses of that
McNeil Partnership, based on the general partner's capital contribution, and an
amount representing the rights and other assets of that McNeil Partnership
which are being contributed to WXI/McN Realty and its subsidiaries (see "GP
Allocation Amount" in Table 2) and (b) an amount equal to the aggregate
consideration allocated by Stanger & Co. to the other assets of McREMI related
to that McNeil Partnership (see "Second McREMI Allocated Value" in Table 2). Of
the $ allocated to the general partner interests in all of the McNeil
Partnerships, $ represents the general partners' proportionate interests of
the profits and losses of the McNeil Partnerships, based on the general
partners' capital contributions, and $ represents the rights and other
assets corresponding to the McNeil Partnerships which are being contributed to
WXI/McN Realty and its subsidiaries. An aggregate of $ has been allocated to
the other assets of McREMI related to all of the McNeil Partnerships. The
aggregate consideration allocated by Stanger & Co. to all of the assets of
McREMI being acquired by WXI/McN Realty and its subsidiaries, assuming all
McNeil Partnerships participate in the transaction, is equal to the sum of the
"Partial McREMI Allocated Value" in Table 2 and the total of the amounts set
forth under "Second McREMI Allocated Value." Assuming all of the McNeil
Partnerships participate in the transaction, the "Total McREMI Allocated Value"
is equal to $ .
88
<PAGE>
Table 2
Summary of Stanger & Co. Allocation Analysis and Related Master Agreement
Calculations
(amounts in thousands, except unit and per unit amounts)(1)
<TABLE>
<CAPTION>
Real Estate Valuations
-------------------------------
Relative Percentage Principal
Based on Allocated Amount of
Total Asset Total Partnership Partnership Mortgage
McNeil Value Asset Value Percentage Value Debt
Partnership (2) (3) (4) (5) (6)
- ----------- ----------- ------------------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Fund IX......... $ 92,748 14.57% 15.4200% $ 93,373 $ (48,948)
Fund X.......... 68,636 10.78 11.4113 69,099 (36,950)
Fund XI......... 71,138 11.18 11.8272 71,168 (35,958)
Fund XII........ 56,243 8.84 9.3507 56,622 (37,345)
Fund XIV........ 40,944 6.43 6.8073 41,220 (23,617)
Fund XV......... 40,170 6.31 6.6786 40,441 (23,246)
Fund XX......... 5,989 0.94 0.9957 6,029 (2,628)
Fund XXI........ 19,222 3.02 3.1957 19,351 (12,426)
Fund XXII....... 12,996 2.04 2.1607 13,084 (7,006)
Fund XXIII...... 6,430 1.01 1.0690 6,473 (4,227)
Fund XXIV....... 15,220 2.39 2.5304 15,323 (1,650)
Fund XXV........ 46,800 7.35 7.7808 47,116 (7,078)
Fund XXVI....... 41,813 6.57 6.9517 42,095 (18,902)
Fund XXVII...... 52,350 8.22 8.7036 52,703 (0)
Hearth Hollow... 3,643 0.57 0.6056 3,667 (2,156)
Midwest
Properties...... 11,816 1.86 1.9645 11,896 (8,960)
Regency North... 5,030 0.79 0.8364 5,064 (2,411)
Fairfax......... 3,880 0.61 0.6451 3,906 (3,000)
Summerhill...... 6,410 1.01 1.0657 6,453 (6,490)
--------- ------ -------- -------- ---------
TOTAL TO LIMITED
PARTNERS
(assuming all
McNeil
Partnerships
participate).... $ 601,479 94.50% 100.0000% $605,534 $(282,638)
VALUE OF
MANAGEMENT
ASSETS.......... 35,000 5.50 -- -- --
--------- ------ -------- -------- ---------
PARTIAL McREMI
ALLOCATED
VALUE(12)
(assuming all
McNeil
Partnerships
participate).... -- -- -- 35,236 --
TRANSACTION
TOTALS.......... $ 636,479 100.00% 100.0000% $640,770(13) $(282,638)
========= ====== ======== ======== =========
TOTAL McREMI
ALLOCATED
VALUE(15)
(assuming all
McNeil
Partnerships
participate).... -- -- -- $ 35,236 --
========= ====== ======== ======== =========
TOTAL ALLOCATED
McNEIL VALUE
(assuming all
McNeil
Partnerships
participate).... -- -- -- $ 35,236 --
========= ====== ======== ======== =========
<CAPTION>
Allocated Partnership Value
--------------------------------------------------------------------
Net Allocated
Partnership Value
---------------------------------------------
MPLP Allocation
Amount (8)
--------------------
Net
Allocated Second
Partnership GP McREMI
McNeil Value Allocation Allocated LP Allocation
Partnership (7) Amount(9) Value(10) Amount(11)
- ----------- ----------- ---------- --------- -------------------------------
<S> <C> <C> <C> <C> <C>
Fund IX......... $ 44,425 $ 1,132 $ (603) $ 44,954
Fund X.......... 32,509 (2,069) (441) 29,999
Fund XI......... 35,660 (1,952) (397) 33,311
Fund XII........ 19,277 (2,901) (143) 16,233
Fund XIV........ 17,603 (305) (272) 17,026
Fund XV......... 17,195 (738) (226) 16,231
Fund XX......... 3,401 (160) (117) 3,124
Fund XXI........ 6,925 (4,028) (1,504) Current income units: 1,393
Growth/shelter units: 0
Fund XXII....... 6,078 (1,495) (686) Current income units: 3,897
Growth/shelter units: 0
Fund XXIII...... 2,246 (311) (236) Current income units: 1,699
Growth/shelter units: 0
Fund XXIV....... 13,673 (383) (232) 13,058
Fund XXV........ 40,038 (776) (250) 39,012
Fund XXVI....... 23,193 (575) (232) 22,386
Fund XXVII...... 52,073 (865) (357) 51,481
Hearth Hollow... 1,511 (41) (274) 1,196
Midwest
Properties...... 2,936 (483) (331) 2,122
Regency North... 2,653 (445) (176) 2,032
Fairfax......... 906 0 (73) 833
Summerhill...... (37) 0 0 (37)
----------- ---------- --------- -------------------------------
TOTAL TO LIMITED
PARTNERS
(assuming all
McNeil
Partnerships
participate).... $322,896 $(16,395) $(6,550) $299,951
VALUE OF
MANAGEMENT
ASSETS.......... -- -- -- --
----------- ---------- --------- -------------------------------
PARTIAL McREMI
ALLOCATED
VALUE(12)
(assuming all
McNeil
Partnerships
participate).... -- -- -- --
TRANSACTION
TOTALS.......... $322,896 $(16,395) $(6,550) $299,951
=========== ========== ========= ===============================
TOTAL McREMI
ALLOCATED
VALUE(15)
(assuming all
McNeil
Partnerships
participate).... -- -- $ 6,550 --
=========== ========== ========= ===============================
TOTAL ALLOCATED
McNEIL VALUE
(assuming all
McNeil
Partnerships
participate).... -- $ 16,395 $ 6,550 $796(14)
=========== ========== ========= ===============================
</TABLE>
89
<PAGE>
Table 2--Continued
<TABLE>
<CAPTION>
Estimated Total
Net Working Capital
Balance Estimated
-------------------- Total Net Estimated
Per Unit Net Reserves Working Per Unit Total
Units Merger Working and Capital Special Per Unit
McNeil Outstanding Consideration Capital Expenses Balance Distribution Estimate
Partnership (16) (17) (18) (19) (20) (21) (22)
- ----------- ----------- ------------- --------- ---------- --------- ------------ --------
<S> <C> <C> <C> <C> <C> <C> <C>
Fund IX................. 110,170 $ 408 $ 3,341 $ (1,575) $ 1,766 $ 16 $ 424
Fund X.................. 134,980 222 2,610 (1,018) 1,592 12 234
Fund XI................. 159,813 208 3,184 (1,184) 2,000 13 221
Fund XII................ 229,666 71 2,459 (905) 1,554 6 77
Fund XIV................ 86,534 196 2,212 (659) 1,553 18 214
Fund XV................. 102,796 158 857 (584) 273 2 160
Fund XX................. 49,512 63 1,478 (55) 1,423 29 92
Fund XXI
Current income units:.. 24,863 56 1,222 (142) 1,080 43 99
Growth/shelter units:.. 22,035 0 0 0 0 0 0
Fund XXII
Current income units:.. 19,493,088 0.20 1,188 (241) 947 0.05 0.25
Growth/shelter units:.. 13,201,029 0 0 0 0 0 0
Fund XXIII
Current income units:.. 6,574,985 0.26 275 (109) 166 0.02 0.28
Growth/shelter units:.. 4,850,711 0 0 0 0 0 0
Fund XXIV............... 40,000 326 1,038 (187) 851 21 347
Fund XXV................ 82,943,685 0.47 3,357 (839) 2,518 0.03 0.50
Fund XXVI............... 86,530,671 0.26 2,245 (645) 1,600 0.01 0.27
Fund XXVII.............. 5,162,989 9.97 3,757 (848) 2,909 0.57 10.54
Hearth Hollow........... 35 34,171 247 (39) 208 5,944 40,115
Midwest Properties...... 90 23,578 370 (167) 203 2,262 25,840
Regency North........... 32 63,500 463 (66) 397 12,416 75,916
Fairfax................. 2 416,500 137 (70) 67 33,565 450,065
Summerhill.............. 1 (37,000) 171 (125) 46 46,309 9,309
--------- --------- -------
TOTAL................... $ 30,611 $ (9,459) $21,152
========= ========= =======
</TABLE>
90
<PAGE>
- ----
(1) The numbers set forth in this Table 2 have been estimated based on the
financial statements of the McNeil Partnerships as of March 31, 1999.
Actual amounts, including the estimate allocable to McNeil Partners, will
vary with the performance of the McNeil Partnership and McNeil Partners
through the closing date. The numbers set forth in this Table 2 (other
than the "Partnership Percentage" which are set forth in the Master
Agreement) will be recalculated as of the date of the second Stanger &
Co. opinion, based on the most recent financial statements and the actual
amounts will be derived from such recalculated numbers.
(2) As determined by Stanger & Co.
(3) For each McNeil Partnership, this column equals (1) the "Total Asset
Value" for that McNeil Partnership divided by (2) $636,479, which is the
sum of the "Total Asset Values" for all McNeil Partnerships and the
"Value of Management Assets".
(4) As set forth in the Master Agreement.
(5) For each McNeil Partnership, the "Allocated Partnership Value" equals the
product of (1) $605,534, which represents the total amount allocated to
the McNeil Partnerships, and (2) the "Partnership Percentage" for that
McNeil Partnership.
(6) Represents outstanding principal as of March 31, 1999.
(7) For each McNeil Partnership, the "Net Allocated Partnership Value" equals
(1) the "Allocated Partnership Value" less (2) the "Principal Amount of
Mortgage Debt."
(8) For each McNeil Partnership, the "MPLP Allocation Amount" equals the sum
of the "GP Allocation Amount" and the "Second McREMI Allocated Value."
The "MPLP Allocation Amount" includes all amounts payable to the McNeil
Affiliates as reflected on the balance sheet as of March 31, 1999, less
the deficit restoration obligation, if any, of the general partner, as
estimated by Arthur Andersen LLP based upon a hypothetical sale of
properties and liquidation of the McNeil Partnership at March 31, 1999.
Arthur Andersen LLP's estimates were based, in part, on limited
historical tax records prepared by other accounting firms. Sufficient
records did not exist such that Arthur Andersen LLP could test the
accuracy of prior accountants' work. Further, these estimates were based
on the McNeil Partnerships' projections of 1999 operating results through
March 31, 1999 and on hypothetical asset sale/partnership liquidation
information provided by Stanger & Co. Arthur Andersen LLP has not audited
or opined on the projected results of operations or financial information
relating to such hypothetical sales/liquidations.
(9) For each McNeil Partnership, the "GP Allocation Amount" is the amount of
the aggregate consideration allocated by Stanger & Co. to the general
partner interests taken as a whole in that McNeil Partnership.
(10) For each McNeil Partnership, the "Second McREMI Allocated Value" is the
amount of the aggregate consideration allocated by Stanger & Co. to the
other assets of McREMI related to that McNeil Partnership.
(11) For each class of limited partner units in each McNeil Partnership, the
"LP Allocation Amount" is the amount of the aggregate consideration
allocated by Stanger & Co. to that class of limited partner units taken
as a whole.
(12) The "Partial McREMI Allocated Value" equals the aggregate consideration
allocated by Stanger & Co. to the management assets of McREMI. The
"Partial McREMI Allocated Value" equals the product of (1) the aggregate
consideration of approximately $3,670 and (2) 5.50%, which is for McREMI
the "Relative Percentage Based on Total Asset Value."
The Master Agreement provides that the "Total McREMI Allocated Value" will be
reduced by the product of the "Partial McREMI Allocated Value" and the
"Partnership Percentage" for each McNeil Partnership that does not
participate in the transaction.
(13) Aggregate consideration taking into account Stanger & Co.'s estimate of
fees payable to PaineWebber of approximately $3,670.
(14) Sum of "LP Allocation Amounts" for the Affiliated McNeil Partnerships.
(15) The "Total McREMI Allocated Value" equals the aggregate consideration
allocated by Stanger & Co. to all of the assets of McREMI being
contributed by McNeil Partners to WXI/McN Realty and its subsidiaries.
The "Total McREMI Allocated Value" equals the sum of (1) the "Partial
McREMI Allocated Value" (see note (12) above) and (2) the sum of the
"Second McREMI Allocated Values".
The Master Agreement provides that the "Total McREMI Allocated Value" will be
reduced by the sum of the following:
(a) the "Second McREMI Allocated Value" for each McNeil Partnership that does
not participate in the transaction, and
(b) the product of the "Partial McREMI Allocated Value" and the "Partnership
Percentage" for each McNeil Partnership that does not participate in the
transaction.
(16) As of March 31, 1999.
(17) For each class of limited partner units in a McNeil Partnership, the "Per
Unit Merger Consideration" equals (1) the "LP Allocation Amount" for that
class divided by (2) the "Units Outstanding" for that class.
(18) Estimated based upon, among other things, the balance sheet of each
McNeil Partnership as of March 31, 1999, adjusted for intangible assets,
non-cash liabilities and amounts payable to the McNeil Affiliates as
reflected on the balance sheet, and calculated in accordance with the
Master Agreement. Actual amounts, including the estimate allocable to the
McNeil Affiliates, will vary with the performance of the McNeil
Partnership and McNeil Partners through the closing date.
(19) Represents transaction costs as estimated by McNeil Partners. Assumes
estimated transaction costs of $695 are paid by McREMI, based on total
estimated transaction costs of $10,154.
(20) Estimated based upon, among other things, the balance sheet of each
McNeil Partnership as of March 31, 1999, adjusted for intangible assets,
non-cash liabilities, transaction expenses and amounts payable to the
McNeil Affiliates as reflected on the balance sheet. The "Estimated Total
Net Working Capital Balance" will be re-estimated as of the date of the
second Stanger & Co. opinion based upon a modified net working capital
balance of the McNeil Partnership calculated in accordance with the
Master Agreement and will be adjusted at closing to reflect the then
modified net working capital balance of the McNeil Partnership.
(21) For each class of limited partner units in a McNeil Partnership, the
"Estimated Per Unit Special Distribution" equals (1) the portion of the
"Estimated Total Net Working Capital Balance" which each limited partner
unit of that class is entitled to receive based on the provisions in that
McNeil Partnership's limited partnership agreement governing
distributions of surplus cash, except that the general partners of that
McNeil Partnership will not receive any part of the special distribution.
(22) For each class of limited partner units in a McNeil Partnership, the
"Total Per Unit Estimate" equals the sum of (1) the "Per Unit Merger
Consideration" for that class and (2) the "Estimated Per Unit Special
Distribution" for that class. However, if the modified net working
capital balance for a McNeil Partnership determined as of the closing
date of the transaction in accordance with the Master Agreement is a
negative number, the "LP Allocation Amount" for each class of limited
partner units in that McNeil Partnership will be reduced by the portion
of the negative modified net working capital balance which that class is
entitled to receive based on the provisions in that McNeil Partnership's
limited partnership agreement governing distributions of surplus cash. As
a result, the aggregate amount to be received per limited partner unit of
that class will be reduced by the per unit amount of the negative
modified net working capital balance allocable to that class based on the
provisions in that McNeil Partnership's limited partnership agreement
governing distributions of surplus cash, except that the general partners
of that McNeil Partnership will not receive any part of the special
distribution.
91
<PAGE>
Fee arrangements
Pursuant to the terms of its engagement letter with Stanger & Co., the
McNeil Partnerships have agreed to pay Stanger & Co. a total fee equal to $1.72
million. The total fee is payable as follows:
. $970,000 had been paid prior to execution of the Master Agreement and
prior to delivery of the first Stanger & Co. opinion;
. $500,000 became payable to Stanger & Co. upon the delivery of the first
Stanger & Co. opinion; and
. $250,000 became payable upon delivery of the second Stanger & Co.
opinion.
In addition, the McNeil Partnerships have agreed to reimburse Stanger & Co.
for all reasonable out-of-pocket expenses incurred by it in connection with the
proposed transaction, including reasonable fees and disbursements of its legal
counsel. The McNeil Partnerships have also agreed to indemnify Stanger & Co.
against certain liabilities in connection with its engagement, including
certain liabilities under the federal securities laws. In general, each of the
McNeil Partnerships will be liable to pay its ratable share of Stanger & Co.'s
fees and expenses based upon its "Partnership Percentage" set forth in Table 2.
See "The Master Agreement--Fees and expenses."
Eastdil Realty Company opinions
On May 7, 1999, the McNeil Partnerships, on behalf of the special committee,
engaged Eastdil Realty Company as its financial advisor. Eastdil Realty
Company, founded in 1967, is a private real estate investment banking firm that
specializes in the structuring and placement of debt and equity capital for
institutional grade real estate assets. Headquartered in New York City, Eastdil
Realty Company has offices in Chicago, Dallas and Los Angeles. Its aggregate
transaction experience exceeds $125 billion and encompasses all of the major
United States markets. Since January 1998, Eastdil Realty Company has
participated in completed transactions with an aggregate value of $14.4
billion, including transactions involving 61 million square feet of office
properties, 18.5 million square feet of retail properties, 17,000 apartment
units and 11,700 hotel rooms.
First Eastdil Realty Company opinion
At the June 24, 1999 meeting of the special committee, Eastdil Realty
Company delivered a verbal fairness opinion, which was subsequently confirmed
in writing, to the effect that, as of the date of the opinion, and subject to
the assumptions, qualifications and limitations set forth in the opinion:
. the Stanger & Co. allocation analysis and the opinions set forth in the
first Stanger & Co. opinion were based upon the application of
appropriate methodologies, and the factual bases utilized by Stanger &
Co. in the application of these methodologies have a reasonable basis;
. the conclusions reached in the Stanger & Co. allocation analysis and the
first Stanger & Co. opinion have a reasonable basis;
. the special committee is entitled to rely upon those conclusions; and
. each of the following five matters described below which were set forth
in the first Stanger & Co. opinion is fair from a financial point of view
to the holders of each class of limited partner units in each of the
McNeil Partnerships:
-- the aggregate consideration in the transaction;
-- the allocation of the aggregate consideration between the management
assets of McREMI, on the one hand, and the McNeil Partnerships as a
group, on the other hand;
-- the aggregate consideration allocated to each individual McNeil
Partnership;
-- the methodology of allocation of the aggregate consideration
allocated to each individual McNeil Partnership, less the principal
amount of all outstanding mortgage debt of that McNeil
92
<PAGE>
Partnership, among the general partner interests in that McNeil
Partnership, the other assets of McREMI related to that McNeil
Partnership and each class of limited partner units in that McNeil
Partnership; and
-- the estimated amount of the positive net working capital balance
estimated to be distributed per limited partner unit in each McNeil
Partnership and the amount of the aggregate consideration allocated
to each limited partner unit in each McNeil Partnership, determined
as of March 31, 1999, based upon the balance sheet of each McNeil
Partnership as of March 31, 1999, adjusted for transaction expenses
and the allocation of transaction expenses, as estimated by the
McNeil General Partners.
The written fairness opinion delivered by Eastdil Realty Company to the
special committee on June 24, 1999 is referred to in this Proxy Statement as
the "first Eastdil Realty Company opinion." In making the determinations
described in "--Recommendations of the special committee and the McNeil
Investors board of directors; fairness of the transaction--Recommendations of
the special committee," the special committee relied on, among other things,
the first Stanger & Co. opinion and the first Eastdil Realty Company opinion.
The full text of the first Eastdil Realty Company opinion, which sets forth
the assumptions made, matters considered and qualifications and limitations on
the review undertaken by Eastdil Realty Company, is incorporated in this Proxy
Statement by reference. The first Eastdil Realty Company opinion is attached
as Appendix D-1 to this Proxy Statement. The limited partners of the
Partnership are urged to read carefully the first Eastdil Realty Company
opinion in its entirety.
Second Eastdil Realty Company opinion
On , 1999, Eastdil Realty Company delivered a second written opinion
to the special committee. In this second opinion, Eastdil Realty Company
rendered additional opinions as to the fairness from a financial point of view
to the holders of each class of limited partner units in each McNeil
Partnership as to the additional matters set forth in the second Stanger & Co.
opinion. The second opinion delivered by Eastdil Realty Company on , 1999
is referred to in this Proxy Statement as the "second Eastdil Realty Company
opinion." The second Eastdil Realty Company opinion is described in more
detail below.
The full text of the second Eastdil Realty Company opinion, which sets
forth the assumptions made, matters considered and qualifications and
limitations on the review undertaken by Eastdil Realty Company, is
incorporated in this Proxy Statement by reference. The second Eastdil Realty
Company opinion is attached as Appendix D-2 to this Proxy Statement. The
limited partners of the Partnership are urged to read carefully the second
Eastdil Realty Company opinion in its entirety.
The second Eastdil Realty Company opinion was to the effect that, as of the
date of the second Eastdil Realty Company opinion, and subject to the
assumptions, qualifications and limitations set forth in the second Eastdil
Realty Company opinion:
. the Stanger & Co. allocation analysis and the opinions set forth in the
second Stanger & Co. opinion were based upon the application of
appropriate methodologies, and the factual bases utilized by Stanger &
Co. in the application of these methodologies have a reasonable basis;
. the conclusions reached in the Stanger & Co. allocation analysis and the
second Stanger & Co. opinion have a reasonable basis;
. the special committee is entitled to rely upon those conclusions; and
. each of the following four matters described below which were set forth
in the second Stanger & Co. opinion is fair from a financial point of
view to the holders of each class of limited partner units in each of the
McNeil Partnerships:
93
<PAGE>
. the aggregate consideration allocated to the general partner
interests in each McNeil Partnership;
. the aggregate consideration allocated to the other assets of McREMI
related to each McNeil Partnership;
. the aggregate consideration allocated to each class of limited
partner units in each McNeil Partnership;
. the estimated amount of the aggregate consideration allocated to each
limited partner unit in each McNeil Partnership and the dollar amount
of the positive net working capital balance estimated to be
distributed per limited partner unit in each McNeil Partnership,
determined as of , 1999, based upon the balance sheet of each
McNeil Partnership as of , 1999, adjusted for transaction
expenses and the allocation of transaction expenses, as estimated by
the McNeil General Partners.
In considering the opinions described in the second Eastdil Realty Company
opinion and in reading the discussion of the second Eastdil Realty Company
opinion set forth below, the limited partners in the Partnership should be
aware that Eastdil Realty Company:
. reviewed the Master Agreement and the WXI/McN Realty Operating Agreement;
. reviewed the latest draft of this Proxy Statement made available to it;
. reviewed the summary information provided by McREMI, as property manager,
the McNeil General Partners and the McNeil Partnerships for each of the
properties owned by the McNeil Partnerships, including: property
description, rentable square footage, unit mix, year built, historical
and projected operating statements, rent rolls, tenant improvement
allowances, expense reimbursements, tax information, capital expenditure
estimates, deferred maintenance estimates and estimates of costs to
remediate environmental conditions;
. conducted limited site inspections of certain of the McNeil Partnerships'
properties;
. discussed with management of McREMI and Stanger & Co. the conditions in
local rental markets and market conditions for sales and acquisitions of
properties of the type owned by the McNeil Partnerships and the
historical financial statements and budgeted and projected operations of
the McNeil Partnerships' properties;
. reviewed surveys of competing properties prepared by or on behalf of
McREMI, the McNeil General Partners and the McNeil Partnerships,
including rental rates, vacancies and tenant improvement allowances;
. reviewed information on acquisition criteria used by real estate
investors for properties similar to the McNeil Partnerships' properties
during 1999;
. reviewed the financial statements of McREMI and its affiliates for the
years ended December 31, 1997 and 1998, the three months ended March 31,
1999 and the months ended , 1999;
. interviewed PaineWebber regarding the bid solicitation process relating
to the transaction;
. discussed with Stanger & Co. the activities of Stanger & Co. since
January 1998 with respect to the Stanger & Co. allocation analysis and
the Stanger opinions;
. discussed with Houlihan, Lokey its valuation analysis of McREMI; and
. conducted such other studies, analyses, inquiries and investigations as
it deemed appropriate.
94
<PAGE>
In rendering its opinion, Eastdil Realty Company relied, without independent
verification, on the accuracy and completeness in all material respects of all
financial and other information that was furnished or otherwise communicated to
Eastdil Realty Company by McREMI, the McNeil General Partners and the McNeil
Partnerships. Eastdil Realty Company did not perform an independent appraisal
of the assets and liabilities of the McNeil Partnerships or the assets of
McREMI. Eastdil Realty Company did not conduct any engineering studies and
relied on the estimated cost to remediate environmental conditions for each
property.
Eastdil Realty Company relied on the assurance of McREMI, the McNeil General
Partners and the McNeil Partnerships that:
. the property budgets and discounted cash flow analyses provided to
Eastdil Realty Company were, in the judgment of McREMI, the McNeil
General Partners and the McNeil Partnerships, reasonably prepared on
bases consistent with actual historical experience and reflect the best
currently available estimates and good faith judgments;
. any estimates of costs to remediate environmental conditions were
adequately considered in the capital expenditure estimates provided to
Eastdil Realty Company and that no additional environmental conditions
are present at the properties;
. any historical financial data, balance sheet data, transaction cost
estimates and estimates of the deficit restoration obligation of the
McNeil General Partners which would be due upon a liquidation were
accurate in all material respects;
. no material changes have occurred in the information reviewed or in the
value of the properties or the business or other assets of McREMI between
the date the information was provided to Eastdil Realty Company and the
date of its opinion; and
. McREMI, the McNeil General Partners and the McNeil Partnerships were not
aware of any information or facts regarding the McNeil Partnerships, the
properties, the business or other assets of McREMI or WXI/McN Realty that
would cause the information supplied to Eastdil Realty Company to be
incomplete or misleading in any material respect.
Eastdil Realty Company did not determine or negotiate the amount or form of
the aggregate consideration in the transaction. Eastdil Realty Company was not
requested to, and therefore did not:
. make any recommendation to McREMI, the McNeil General Partners or the
limited partners of the McNeil Partnerships with respect to whether to
approve or reject the transaction; or
. express any opinion as to:
-- the impact of the transaction with respect to McREMI, the McNeil
General Partners, or the limited partners of any McNeil Partnership
that does not participate in the transaction;
-- the tax consequences of the transaction for McREMI, the McNeil
General Partners or the limited partners of any McNeil Partnership;
-- WXI/McN Realty's ability to qualify as a partnership or real estate
investment trust, or the consequences of WXI/McN Realty's failure to
so qualify;
-- the potential capital structure of WXI/McN Realty or its impact on
the financial performance of WXI/McN Realty's membership interests;
-- WXI/McN Realty's ability to finance its obligations pursuant to the
Master Agreement or the impact of a failure to obtain financing on
the financial performance of WXI/McN Realty or the McNeil
Partnerships;
-- whether or not alternative methods of determining or allocating the
aggregate consideration to be received by the McNeil General
Partners, the limited partners of the McNeil Partnerships or McREMI
would have also provided fair results or results substantially
similar to those of the methodology used;
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<PAGE>
-- alternatives to the transaction; or
-- any other terms of the transaction other than the aggregate
consideration and the allocation of the aggregate consideration.
Furthermore, Eastdil Realty Company did not express any opinion to Robert A.
McNeil or Carole J. McNeil in their capacities as direct or indirect holders of
general partner interests or limited partner units in the McNeil Partnerships
or McNeil Partners or of capital stock in McREMI. Further, Eastdil Realty
Company did not express any opinion as to the fairness of any terms of the
transaction other than as described therein, including, without limitation:
. the fairness of the amounts or allocations of transaction costs;
. the prices at which the membership interests in WXI/McN Realty may trade,
if the membership interests were traded, following the transaction; and
. the trading value of the membership interests in WXI/McN Realty, if the
membership interests were traded, compared with the current fair market
value of any assets contributed to WXI/McN Realty in connection with the
transaction if WXI/McN Realty were to be liquidated in the current real
estate market.
The second Eastdil Realty Company opinion did not purport to be a complete
description of the analyses performed or the matters considered in rendering
the second Eastdil Realty Company opinion. The analyses and the summary set
forth in the second Eastdil Realty Company opinion must be considered as a
whole, and selecting portions of such summary or analyses, without considering
all factors and analyses, would create an incomplete view of the processes
underlying the second Eastdil Realty Company opinion. In rendering the second
Eastdil Realty Company opinion, judgment was applied to a variety of complex
analyses and assumptions. The assumptions made and the judgments applied in
rendering the second Eastdil Realty Company opinion are not readily susceptible
to partial analysis or summary description. The fact that any specific analysis
is referred to in the second Eastdil Realty Company opinion or in this Proxy
Statement is not meant to indicate that such analysis was given greater weight
than any other analysis.
Financial analysis of Eastdil Realty Company
Eastdil Realty Company completed a full review of all Stanger & Co.'s files
compiled in connection with this transaction. These files contained base
information such as property inspection reports, rent and sale comparable
properties reports, market supply and demand trends, description of physical
and environmental issues (if any), appraisals (available for a limited number
of properties), offers to purchase, historic and projected revenues, operating
expenses and real estate taxes. Eastdil Realty Company did conduct limited site
inspections of certain properties to confirm or clarify base file information.
From McREMI, Eastdil Realty Company reviewed market surveys, historic and
projected income statements, property occupancy trends and other related
information to confirm and better understand Stanger & Co. file information and
conclusions. This base information was then reviewed in the context of detailed
cash flow projections prepared by Stanger & Co.
Eastdil Realty Company then determined if the projection assumptions, such
as market rental rates, market rental rate growth, vacancy (both current and
stabilized) expense ratios, projected capital expenditures, expense growth
rates, timing for lease-up of vacant space/vacant units and capital costs
associated with leasing vacant space in the retail and office properties were
reasonable given the base file information and Eastdil Realty Company's
understanding of investor underwriting parameters in the current capital market
environment. Several minor disagreements regarding projection assumptions were
discussed and resolved with Stanger & Co.
Eastdil Realty Company then analyzed the valuation parameters used by
Stanger & Co. Apartments and self-storage facilities were valued by both
Stanger & Co. and Eastdil Realty Company primarily based on direct
capitalization; discounted cash flow analysis was used as a secondary valuation
method. Valuations for office and retail properties by both Stanger & Co. and
Eastdil Realty Company were based on discounted cash flow analysis. For
apartment and self-storage properties, Eastdil Realty Company prepared summary
1999 net
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<PAGE>
operating income projections and applied capitalization rates based on Eastdil
Realty Company's current market experience and information contained in the
Stanger & Co. files. Nearly all of Eastdil Realty Company's capitalization rate
assumptions fell within Stanger & Co.'s range of 8.5% to 11.0% for apartments
and 9.5% to 9.75% for self storage. Some minor differences in capitalization
rate estimates were adequately addressed and resolved.
Eastdil Realty Company reviewed Stanger & Co.'s office and retail property
cash flow valuation parameters against Eastdil Realty Company's current market
experience. Cash flow projections were reproduced with Eastdil Realty Company's
valuation parameters; these results were then compared with Stanger & Co.'s
valuation results. After reconciliation of minor discrepancies and
interpretation differences, nearly all of Eastdil Realty Company's office and
retail valuation results used valuation parameters in the range used by Stanger
& Co. For office properties, a discount rate range of 11.25% to 12.5% and a
terminal capitalization rate range of 9.5% to 11.0% was used. For retail
properties, the discount rate range is 11.5% to 13.5%, and the terminal
capitalization rate range is 10.0% to 12.0%. These valuation parameters were
used for a ten-year cash flow projection, the predominant projection period
used by investors in today's market.
Eastdil Realty Company reviewed Stanger & Co.'s valuation for McREMI. This
review included analysis of Stanger & Co.'s six-year cash flow projection
beginning in 1999; the cash flow projection included property management fees,
asset management fees, expense reimbursements and operating expenses.
Compilation of the cash flow line items were discussed with McNeil management
and the underlying assumptions were examined by Eastdil Realty Company and
compared with historic results. No discrepancies or unreasonable assumptions
were identified. Eastdil Realty Company then reviewed Stanger & Co.'s valuation
methodology, which is a discounted cash flow analysis over a five-year holding
period; the residual calculation is a cash flow multiple applied to year six
cash flow. Eastdil Realty Company concluded that this methodology is
appropriate. Stanger & Co. utilizes a discount rate range of 12.5% to 20.0% and
a reversion multiple of 4x to 6x year six cash flow. Eastdil Realty Company
concluded that these valuation parameters are reasonable.
Fee arrangements
Pursuant to the terms of the engagement letter with Eastdil Realty Company,
on behalf of the special committee, the McNeil Partnerships have agreed to pay
Eastdil Realty Company a total fee equal to $500,000. The total fee is payable
as follows:
. $100,000 had been paid prior to execution of the Master Agreement and
prior to delivery of the first Eastdil Realty Company opinion;
. $300,000 became payable to Eastdil Realty Company upon the delivery of
the first Eastdil Realty Company opinion; and
. $100,000 became payable upon the delivery of the second Eastdil Realty
Company opinion.
In addition, the McNeil Partnerships have agreed to reimburse Eastdil Realty
Company for all reasonable out-of-pocket expenses incurred by Eastdil Realty
Company in connection with Eastdil Realty Company's services, but not including
the fees or disbursements of Eastdil Realty Company's legal counsel, if any.
The McNeil Partnerships also have agreed to indemnify Eastdil Realty Company
against certain liabilities in connection with its engagement, including
certain liabilities under the federal securities laws. In general, each of the
McNeil Partnerships will be liable to pay its ratable share of Eastdil Realty
Company's fees and expenses based upon its "Partnership Percentage" in Table 2.
See "The Master Agreement--Fees and expenses."
Position of McNeil Partners and Robert A. McNeil regarding the transaction
Each of McNeil Partners and Robert A. McNeil has concluded that the merger
proposal is fair to the limited partners of each of the McNeil Partnerships.
The conclusions of McNeil Partners and Robert A. McNeil were based upon the
determinations of the McNeil Investors board of directors, the determination
and
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<PAGE>
recommendation of the special committee, the factors that were considered by
the special committee and the fairness opinions delivered to the McNeil
Investors board of directors by Stanger & Co. on behalf of the McNeil
Partnerships and the opinions delivered to the special committee by Eastdil
Realty Company.
McNeil Partners and Robert A. McNeil have each adopted the analyses of the
special committee and the McNeil Investors board of directors in support of
their conclusions. Robert A. McNeil is the Co-Chairman of the McNeil Investors
board of directors and the sole stockholder of McNeil Investors and
participated in the deliberations of the McNeil Investors board of directors.
McNeil Investors is the general partner of McNeil Partners and therefore has
the power to take action on behalf of and make decisions on behalf of McNeil
Partners. As disclosed in the section entitled "--Interests of certain persons
in matters to be acted upon; conflicts of interest," each of McNeil Partners
and Robert A. McNeil has a financial interest in the transaction and interest
in the transaction that differ from those of the Partnership's limited
partners.
Interests of certain persons in matters to be acted upon; conflicts of interest
In considering the recommendation of the McNeil Investors board of
directors, limited partners of the McNeil Partnerships should be aware that the
McNeil Affiliates have interests in the transaction or relationships, including
those referred to below, that may present actual or potential conflicts of
interest in connection with the transaction. The special committee and the
McNeil Investors board of directors were aware of these actual or potential
conflicts of interest and considered them (as described in "--Recommendations
of the special committee and the McNeil Investors board of directors; fairness
of the transaction") along with other matters described in "--Recommendations
of the special committee and the McNeil Investors board of directors; fairness
of the transaction" and "--Effects of the transaction--Benefits and detriments
to the McNeil Affiliates." The special committee considered the conflicts of
interest of the McNeil Affiliates to be a negative factor in its determination
that the merger proposal is fair to, and in the best interests of, the limited
partners of each of the McNeil Partnerships and its determination to recommend
to the McNeil Investors board of directors the approval of the merger proposal.
See "--Recommendations of the special committee and the McNeil Investors board
of directors; fairness of the transaction--Recommendations of the special
committee."
Regardless of the actual or potential conflicts of interest of the McNeil
Affiliates, each McNeil General Partner is accountable to each of the McNeil
Partnerships of which it is a general partner, whether directly or indirectly,
and has fiduciary duties and is obligated to exercise good faith and fair
dealing toward the limited partners of each of the McNeil Partnerships of which
it is a general partner. In addition, the McNeil Investors board of directors
has fiduciary duties and is obligated to exercise good faith and fair dealing
toward the limited partners of the McNeil Partnerships of which McNeil Partners
is the general partner. The McNeil Affiliates also believe that the factors
enumerated in "--Recommendations of the special committee and the McNeil
Investors board of directors; fairness of the transaction--Recommendations of
the special committee" and "--Opinions and reports of financial advisors,"
including the fact that the transaction requires the approval of the limited
partners of each of the McNeil Partnerships, provide sufficient procedural
safeguards to minimize the effects of any actual or potential conflicts of
interest of the McNeil Affiliates in the transaction.
Relationships among the McNeil Affiliates and the McNeil Partnerships
The relationships among the McNeil Affiliates and the McNeil Partnerships
may create significant conflicts of interest in connection with the
transaction. See "Summary--Structure of the transaction--Ownership of the
McNeil Partnerships immediately prior to the transaction." McNeil Investors is
the general partner of McNeil Partners. McNeil Investors is wholly owned by
Robert A. McNeil. The sole limited partner of McNeil Partners is Robert A.
McNeil. Robert A. McNeil and Carole J. McNeil also hold two of the four seats
on the McNeil Investors board of directors and each serves as a Co-Chairman of
the McNeil Investors board of directors. The third board seat is held by Ron K.
Taylor, the President of McNeil Investors and McREMI. The fourth board seat is
held by Paul B. Fay, Jr., an independent director. Mr. Fay is also the sole
member of the special committee. See "Controlling Persons, Directors and
Executive Officers of McNeil Partners, McNeil Investors, WXI/MNL Real Estate,
L.L.C., WH Advisors, L.L.C. XI and The Goldman Sachs Group, Inc.--Background of
named persons--McNeil Partners and McNeil Investors."
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McNeil Partners is the general partner of all of the McNeil Partnerships
except Regency North, Fairfax and McNeil Summerhill I, L.P. Robert A. McNeil is
the 1% general partner of Fairfax and the 4% general partner of Regency North.
The other 1% general partner interest in Regency North is held by a third
party, First Associated Management, Inc. Robert A. McNeil and his former wife,
Sallie B. McNeil, are the only limited partners of Fairfax. Robert A. McNeil is
a 49% limited partner of Fairfax and Sallie B. McNeil is a 50% limited partner
of Fairfax. Neither First Associated Management, Inc. nor Sallie B. McNeil is
included in the definition of "McNeil Affiliates" for purposes of this Proxy
Statement.
McNeil Summerhill, Inc., a corporation wholly owned by Robert A. McNeil and
Carole J. McNeil, is the general partner of McNeil Summerhill I, L.P. Robert A.
McNeil and Carole J. McNeil are the only limited partners of McNeil Summerhill
I, L.P. In addition, Robert A. McNeil and Carole J. McNeil are the only
directors of McNeil Summerhill, Inc. and each serves as a Co-Chairman of the
McNeil Summerhill, Inc. board of directors. Carole J. McNeil also serves as
President of McNeil Summerhill, Inc.
McREMI also is wholly owned by Robert A. McNeil. Robert A. McNeil and Carole
J. McNeil hold two of the three seats on the McREMI board of directors and each
serves as a Co-Chairman of the McREMI board of directors. The third board seat
is held by Ron K. Taylor, the President of McNeil Investors and McREMI.
McREMI has management agreements with the McNeil Partnerships and McNeil
Partners. McREMI provides on-site management of the McNeil Partnerships'
properties in exchange for a monthly management fee. The table set forth below
indicates the fee paid (or payable) by each of the Partnerships to McREMI since
January 1, 1997.
<TABLE>
<CAPTION>
Annual fee payable for the year ended December 31,
--------------------------------------------------
McNeil
Partnership 1999 1998 1997
- ----------- ---------------- ---------------- ----------------
<S> <C> <C> <C>
Fund IX $ $ $
Fund X
Fund XI
Fund XII
Fund XIV
Fund XV
Fund XX
Fund XXI
Fund XXII
Fund XXIII
Fund XXIV
Fund XXV
Fund XXVI
Fund XXVII
</TABLE>
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<PAGE>
Ownership of limited partner units in the McNeil Partnerships by the McNeil
Affiliates
In addition to owning limited partner units in the Affiliated McNeil
Partnerships, McNeil Partners and some of its affiliates beneficially own
limited partner units in some of the other McNeil Partnerships. McNeil Partners
and these affiliates intend to vote all of the limited partner units
beneficially owned by them in each of the McNeil Partnerships for the merger
proposal with respect to that McNeil Partnership. See "Related Security Holder
Matters--Principal holders of limited partner units."
McNeil Partners and its affiliates are entitled to receive the same
estimated per unit aggregate amount for each of the limited partner units owned
by them in a participating McNeil Partnership, other than an Affiliated McNeil
Partnership, as all of the other limited partners in that McNeil Partnership
are entitled to receive. If all of the McNeil Partnerships in which McNeil
Partners and its affiliates own limited partner units are participating McNeil
Partnerships, McNeil Partners and these affiliates will have the right to
receive an aggregate amount of approximately $ in cash. This amount
consists of both the merger consideration and the estimated special
distribution to be received for those limited partner units.
The following table sets forth the ownership of limited partner units in the
McNeil Partnerships by McNeil Partners and its affiliates:
<TABLE>
<CAPTION>
Total Per
Number of Unit
units Percentage Estimate Aggregate cash
McNeil beneficially ownership from consideration
Name of Owner of Units Partnership owned (1) Table 2 (1)
---------------------- ----------- ------------ ---------- --------- --------------
<S> <C> <C> <C> <C> <C>
McNeil Partners, L.P..... Fund XX 4.5 * $ 92 $
McNeil Partners, L.P..... Fund XXIII 5,000 * 0.28
Opal Partners, L.P. (2).. Fund IX 5,715 5.2% 424
Opal Partners, L.P....... Fund X 1,732 1.3% 234
Opal Partners, L.P....... Fund XI 313 * 221
Opal Partners, L.P....... Fund XII 1,551.5 * 77
Opal Partners, L.P....... Fund XIV 872,384 1.0% 214
Opal Partners, L.P....... Fund XV 1,357 1.3% 160
Opal Partners, L.P....... Fund XXV 27,322 * 0.50
Opal Partners, L.P....... Fund XXVI 2,995,000 3.5% 0.27
Opal Partners, L.P....... Fund XXVII 670,634 13.0% 10.54
Dean Lontos (3).......... Fund IX 20 * 424
Dean Lontos.............. Fund XIV 20 * 214
Dean Lontos.............. Fund XV 10 * 160
Dean Lontos.............. Fund XX 174 * 92
Dean Lontos.............. Fund XXV 7,000 * 0.50
Dean Lontos.............. Fund XXVI 127,277 * 0.27
Dean Lontos.............. Fund XXVII 4,000 * 10.54
-----
Total.................. $
=====
</TABLE>
- --------
* Less than 1%.
(1) Product of "Number of units beneficially owned" and the "Total Per Unit
Estimate from Table 2."
(2) Opal Partners, L.P., a California limited partnership ("Opal Partners"), is
an affiliate of Carole J. McNeil. The general partner of Opal Partners is
DDC&R, Inc., a California corporation wholly owned by Carole J. McNeil.
Carole J. McNeil is also the sole director and sole executive officer of
DDC&R, Inc. Opal Partners was established for the benefit of Carole J.
McNeil and certain members of her family and acquired the limited partner
units owned by it in the McNeil Partnerships for investment purposes. See
"Related Security Holder Matters--Past contacts, transactions and
negotiations."
(3) Dean Lontos is the Senior Vice President, Portfolio Management, of McREMI.
Structuring of the transaction by the McNeil General Partners
The transaction has been initiated and structured by the McNeil General
Partners and individuals who are executive officers of McNeil Investors and
McREMI. See "--Purposes and reasons for the transaction" and
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"--Background of the transaction--Background of the auction process--
Structuring of the transaction." The transaction provides some benefits to the
McNeil Affiliates that may be in conflict with the benefits provided to the
limited partners of the McNeil Partnerships. See "--Effects of the
transaction--Benefits and detriments to the McNeil Affiliates."
In recognition of the actual or potential conflicts of interest of the
McNeil General Partners and some members of the McNeil Investors board of
directors in negotiating the terms of the transaction and in evaluating the
transaction on behalf of the limited partners of the McNeil Partnerships,
following preliminary discussions with Whitehall, the McNeil Investors board of
directors constituted the special committee. See
"--Background of the transaction--Background of the auction process--
Appointment of the special committee." The special committee participated,
through its legal counsel and financial advisor, in negotiating the forms,
terms and conditions of the definitive agreements in respect of the
transaction. The special committee, with the assistance of its legal counsel
and financial advisor, also reviewed and passed upon the terms of the
transaction on behalf of the limited partners of the McNeil Partnerships and
independently recommended to the McNeil Investors board of directors that the
transaction be approved. In addition, each of the McNeil Partnerships retained
Stanger & Co. as its independent advisor. Stanger & Co. has performed the
Stanger & Co. allocation analysis and rendered the Stanger & Co. opinions. The
aggregate consideration in the transaction has been allocated by Stanger & Co.
as described in the Stanger & Co. allocation analysis and as set forth in Table
2. See "--Opinions and reports of financial advisors--Allocation analysis and
opinions of Stanger & Co." In addition, Eastdil Realty Company, the financial
advisor to the special committee, has rendered the Eastdil Realty Company
opinions. See "--Opinions and reports of financial advisors--Eastdil Realty
Company opinions."
The McNeil Investors board of directors has unanimously determined that the
merger proposal is fair to and in the best interests of the Partnership and its
limited partners. In making its determination, the McNeil Investors board of
directors relied on the recommendation of a special committee of the McNeil
Investors board of directors and on the Stanger & Co. opinions to the effect
that each of the aggregate consideration, the allocations of the aggregate
consideration and the estimated aggregate amount to be received per limited
partner unit in the Partnership is fair from a financial point of view to the
holders of [each class of] [the] limited partner units in the Partnership. See
"--Recommendations of the special committee and the McNeil Investors board of
directors; fairness of the transaction--Recommendations of the McNeil Investors
board of directors." The special committee relied, among other things, upon the
Stanger & Co. opinions and the Eastdil Realty Company opinions in determining
that the merger proposal is fair to, and in the best interests of, the holders
of limited partner units in the McNeil Partnerships and in determining to
recommend to the McNeil Investors board of directors the approval of the merger
proposal. See "--Recommendations of the special committee and the McNeil
Investors board of directors; fairness of the transaction--Recommendations of
the special committee."
In addition, the terms of the transaction have been reviewed and approved by
counsel to the plaintiffs in the Schofield litigation. See "--Background of the
transaction--Background of the Schofield litigation."
Receipt of aggregate consideration by the McNeil Affiliates
The aggregate consideration in the transaction has been allocated by Stanger
& Co. as described in the Stanger & Co. allocation analysis and as set forth in
Table 2. See "--Opinions and reports of financial advisors--Allocation analysis
and opinions of Stanger & Co.--Stanger & Co. allocation analysis." Based upon
the Stanger & Co. allocation analysis and the Stanger & Co. opinions, the
McNeil Investors board of directors and the special committee have unanimously
approved the allocations of the aggregate consideration. The special committee
also relied on the Eastdil Realty Company opinions in approving the allocations
of the aggregate consideration.
McNeil Partners will receive an aggregate of $ , if all of the McNeil
Partnerships participate in the transaction, in consideration for its
contributions to WXI/McN Realty and its subsidiaries of the interests, rights
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and assets related to the participating McNeil Partnerships. See "Total
Allocated McNeil Value" in Table 2. The "Total Allocated McNeil Value" is equal
to the aggregate consideration allocated by Stanger & Co. to the general
partner interests in the McNeil Partnerships, the limited partner interests in
the Affiliated McNeil Partnerships and the assets of McREMI being contributed
to WXI/McN Realty and its subsidiaries. See "--Opinions and reports of
financial advisors--Allocation analysis and opinions of Stanger & Co.--Stanger
& Co. allocation analysis." If not all the McNeil Partnerships participate in
the transaction, the Total Allocated McNeil Value will be equal to the sum of
the following: (1) for each participating McNeil Partnership, the sum of the
amounts set forth in the column entitled "GP Allocation Amount;" (2) for
Fairfax, if it is a participating McNeil Partnership, the amount set forth in
the column entitled "LP Allocation Amount;" (3) for McNeil Summerhill I, L.P.,
if it is a participating McNeil Partnership, the amount set forth in the column
entitled "LP Allocation Amount;" and (4) the "Total McREMI Allocated Value,"
adjusted for non-participating McNeil Partnerships as described in Table 2. The
portion of the aggregate consideration to be received by McNeil Partners in
consideration of these contributions will be paid in membership interests in
WXI/McN Realty. See "--Interests of certain persons in matters to be acted
upon; conflicts of interest--Equity ownership of McNeil Partners in WXI/McN
Realty" and "WXI/McN Realty Operating Agreement." The other McNeil Affiliates
will own partnership interests in McNeil Partners following the effective time
of the mergers. See "The Master Agreement--The contributions--Contributions to
McNeil Partners by the other McNeil Affiliates."
McNeil Partners and its affiliates also will receive cash consideration for
the limited partner units that they own in the McNeil Partnerships. See "--
Interests of certain persons in matters to be acted upon; conflicts of
interest--Ownership of limited partner units in the McNeil Partnerships by the
McNeil Affiliates."
Equity interest of McNeil Partners in WXI/McN Realty
Following the effective time of the merger, McNeil Partners and WXI/McN
Realty's managing member will be the sole members of WXI/McN Realty. See
"WXI/McN Realty Operating Agreement." It is anticipated that immediately
following the effective time of the merger, McNeil Partners will own in the
aggregate between approximately % and % of the then outstanding membership
interests of WXI/McN Realty, depending on the amount of financing obtained by
WXI/McN Realty as of the closing and the amount of the capital contributions of
McNeil Partners. The other McNeil Affiliates will indirectly beneficially own
an equity interest in WXI/McN Realty as a result of their ownership of
partnership interests in McNeil Partners. See "The Master Agreement--The
contributions--Contributions to McNeil Partners by the other McNeil
Affiliates." Because the limited partners of the McNeil Partnerships will
receive cash in exchange for their limited partner units in the participating
McNeil Partnerships, other than the Affiliated McNeil Partnerships, the McNeil
Affiliates, as a result of their right to receive membership interests in
WXI/McN Realty, may have an economic interest in the transaction that is in
conflict with the economic interest of the other limited partners of the McNeil
Partnerships.
McNeil Partners will receive an equity interest in and credit for a capital
contribution to WXI/McN Realty in exchange for the following:
(1) the contributions of interests, rights, and assets to WXI/McN Realty
and its subsidiaries described above in "--Interests of certain
persons in matters to be acted upon; conflicts of interest--Receipt of
aggregate consideration by the McNeil Affiliates;"
(2) cash contributions to WXI/McN Realty under the circumstances described
below; and
(3) the treatment as a contribution-in-kind to WXI/McN Realty of certain
fees, expenses and disbursements incurred by the McNeil Affiliates in
connection with the transaction, as further described below.
The amount of the cash contribution of McNeil Partners described in
paragraph (2) above may range from zero to a maximum amount equal to the
difference determined by subtracting the Total Allocated McNeil Value from $100
million. Notwithstanding the foregoing, if the Total Allocated McNeil Value is
less than the
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Minimum Investment (as defined below), McNeil Partners is required by the
Master Agreement to make a cash contribution to WXI/McN Realty in an amount
equal to the difference determined by subtracting the Total Allocated McNeil
Value from the Minimum Investment. "Minimum Investment" means the product
determined by multiplying $60 million by the sum of the percentages set forth
in the column "Partnership Percentage" in Table 2 opposite the name of each
participating McNeil Partnership.
The Master Agreement also provides that any fees, expenses and
disbursements, including assumption fees, prepayment fees and other transaction
expenses, incurred and paid by the McNeil Affiliates in connection with the
transaction, subject to the limitations set forth in the following two
sentences, will be treated as a contribution-in-kind to WXI/McN Realty by
McNeil Partners in exchange for membership interests in WXI/McN Realty. These
fees, expenses and disbursements are subject to documentation and approval by
the WXI/McN Realty board of managers, which approval shall not be unreasonably
withheld or delayed. In addition, the amount of the fees, expenses and
disbursements that are treated as a contribution-in-kind to WXI/McN Realty by
McNeil Partners may not exceed one-half of the aggregate amount of fees,
expenses and disbursements charged to WXI/McN Realty, its subsidiaries and
affiliates by Sullivan & Cromwell with respect to negotiating and documenting
the transaction.
Retention and employment agreements
After the auction process began in late 1997, McNeil management became
concerned that some officers and key employees would leave McREMI during the
sale process. To encourage these officers to remain employed with McREMI until
the completion of a sale transaction, in March 1998, McREMI entered into
retention agreements with these officers and employees. These agreements, as
amended, provide that upon the closing of the transaction, McREMI will be
obligated to pay those officers and employees that remain employed by McREMI on
the closing date an aggregate of $ , of which $ will be paid by McREMI
and $ will be paid by the McNeil Partnerships regardless of whether any
particular McNeil Partnership participates in the transaction. The amounts
payable under the retention agreements will be paid in lieu of other amounts
that would have been payable in connection with the transaction under the
employment agreements that some of these individuals had entered into in their
capacities as officers of McREMI and McNeil Investors.
One of the officers and key employees with whom McREMI entered into a
retention agreement is Ron K. Taylor. Mr. Taylor is a director and President of
McNeil Investors and McREMI, and in these capacities he participated in the
negotiation of the Master Agreement. Pursuant to his retention agreement, upon
the closing of the transaction, Mr. Taylor will be paid $ , of which
$ will be paid by McREMI and $ will be paid by the McNeil Partnerships
regardless of whether any particular McNeil Partnership participates.
Special committee
The special committee met times from the time of its formation in May 1999
through the date of this Proxy Statement. The special committee member is
entitled to receive from McNeil Investors a fee in the amount of $25,000 for
each meeting of the McNeil Investors board of directors at which he is present
and for each meeting of the special committee, up to a maximum fee of $125,000.
In addition, the special committee member will be reimbursed by McNeil
Investors for his out-of-pocket travel and other reasonable expenses, including
reasonable attorneys' fees and expenses, incurred in connection with his
service as an independent director of McNeil Investors and as a member of the
special committee, in a manner consistent with McNeil Investors's policies and
procedures pertaining to the reimbursement of the expenses incurred by members
of its board of directors. The special committee member also is entitled to
certain indemnification rights from McNeil Investors, Robert A. McNeil and
Carole J. McNeil and to directors' and officers' liability insurance which will
be continued by McNeil Investors following the closing of the transaction.
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Financing; sources of funds
The total amount of funds required by WXI/McN Realty in connection with the
consummation of the transaction, assuming all McNeil Partnerships participate
in the transaction, is estimated to be approximately $ , including:
. payment of the cash merger consideration to the limited partners of the
McNeil Partnerships in the amount of approximately $ ;
. repayment of mortgage debt of the McNeil Partnerships in the aggregate
amount of approximately $ ;
. payment of prepayment fees relating to mortgage debt of the McNeil
Partnerships that will be repaid at closing and the payment of the
assumption fees that WXI/McN Realty is required to pay pursuant to the
Master Agreement in the aggregate amount of approximately $ (see
"The Master Agreement--Aggregate consideration--Prepayment and assumption
of mortgage debt");
. the amount of the shortfall, if any, of the amount of cash on hand held
by each of the participating McNeil Partnerships at the time of the
closing from the estimated special distribution that each participating
McNeil Partnership is expected to make (which shortfall, as of the date
of this Proxy Statement, is estimated to be approximately $ );
and
. all other expenses expected to be incurred in connection with the
transaction and other amounts that WXI/McN Realty is required to pay
pursuant to the terms of the Master Agreement in the aggregate amount of
approximately $ .
The above amounts would vary in the event that one or more of the McNeil
Partnerships are not participating McNeil Partnerships or in the event that the
amount of special distributions, expenses or other amounts vary from the
estimated amounts included above.
It is expected that the amount of funds required by WXI/McN Realty in
connection with the transaction will be obtained through a combination of
equity and debt financing. Pursuant to the terms of the WXI/McN Realty
Operating Agreement, the managing member of WXI/McN Realty, which is owned by
Whitehall and Archon, has agreed to contribute to WXI/McN Realty an amount in
cash equal to the amounts described above. Pursuant to the terms of an equity
commitment letter from Whitehall to WXI/McN Realty, Whitehall has agreed to
provide, or to cause one or more of its affiliates to provide, a cash capital
contribution to WXI/McN Realty in an amount equal to the amounts described
above. The funds to be used by Whitehall to meet its funding commitments are
expected to come from capital contributions from the partners in Whitehall. It
is also expected that WXI/McN Realty will obtain third party mortgage or other
financing that will provide a portion of the amount of required funds described
above, although WXI/McN Realty has not, as of the date of this Proxy Statement,
entered into any agreements with respect to any third party mortgage or other
financing.
Fees and expenses relating to the transaction
Except as described in "The Master Agreement--Fees and expenses," whether or
not the transaction is consummated, all costs and expenses incurred in
connection with the Master Agreement and the other transaction documents will
be paid by the party incurring those costs and expenses.
Without limiting the generality of the foregoing paragraph, whether or not
the transaction is consummated, McREMI has agreed that it will be liable for
the transaction expenses incurred by McREMI on behalf of itself and not on
behalf of the McNeil Partnerships or the McNeil Partnerships' subsidiaries.
Whether or not the transaction is consummated, each McNeil Partnership has
agreed that it will be liable for the amount of
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transaction expenses actually incurred by it on behalf of itself and its
subsidiaries and an amount equal to that McNeil Partnership's ratable share of
transaction expenses incurred by Sellers that are not specifically identifiable
to individual McNeil Partnerships based on the relative percentage set forth in
the column "Partnership Percentage" in Table 2 opposite the name of that McNeil
Partnership.
In addition, in some circumstances, WXI/McN Realty will receive a break-up
fee, calculated on a partnership by partnership basis, up to an aggregate
maximum of $18.0 million, if the Master Agreement is terminated. These
circumstances are described in "The Master Agreement--Fees and expenses--
Partnership break-up fees." In addition, in some circumstances if the Master
Agreement is terminated, Sellers and WXI/McN Realty may be required to
reimburse some of the other's expenses incurred in connection with the
transaction. See "The Master Agreement--Fees and expenses--Reimbursement of
expenses."
The following are estimates of the fees and expenses which the Partnership,
the other McNeil Partnerships, the McNeil Affiliates and WXI/McN Realty expect
to incur in connection with the transaction:
<TABLE>
<CAPTION>
To Be Paid
To Be Paid by To Be Paid To Be Paid
by the Other McNeil by the by
the Partnership Partnerships McNeil Affiliates WXI/McN Realty
--------------- ---------------- ----------------- --------------
<S> <C> <C> <C> <C>
Financial advisor fees
and expenses........... $ $ $ $
SEC filing fees.........
Legal fees and
expenses...............
Accounting fees.........
Printing and mailing
fees...................
Payment agent fees......
Solicitation fees.......
Miscellaneous fees......
----- ----- ----- -----
Total................. $ $ $ $
===== ===== ===== =====
</TABLE>
Plans for the McNeil Partnerships that participate in the transaction
As a result of the transaction, each of the participating McNeil
Partnerships will become an indirect wholly owned subsidiary of WXI/McN Realty.
WXI/McN Realty or a wholly owned subsidiary of WXI/McN Realty will become the
sole limited partner of each of the participating McNeil Partnerships, and
separate indirect wholly owned subsidiaries of WXI/McN Realty, each of which
will become the sole general partner of one or more of the participating McNeil
Partnerships, will acquire the assets of McNeil Partners related to the
participating McNeil Partnerships. A separate indirect wholly owned subsidiary
of WXI/McN Realty will own and operate the assets of McREMI contributed to
WXI/McN Realty and its subsidiaries.
Following consummation of the transaction, WXI/McN Realty will own, directly
or indirectly, all of the participating McNeil Partnerships and their
respective properties. It is expected that WXI/McN Realty will own, directly or
indirectly, and operate the participating McNeil Partnerships and their
properties after consummation of the transaction in a manner that is, except as
otherwise described below, generally consistent with past practice. WXI/McN
Realty may, however, increase capital expenditures made with respect to the
properties of the participating McNeil Partnerships, including with a view to
"repositioning" those properties, and make other changes as are deemed
appropriate by WXI/McN Realty.
It is expected that WXI/McN Realty will, contemporaneous with the closing of
the transaction, cause some of the participating McNeil Partnerships or their
subsidiaries to incur mortgage and other financing and that the proceeds of
that financing will, among other things, be used to repay the indebtedness that
will be repaid at the closing of the transaction. In addition, at times as
WXI/McN Realty may determine, WXI/McN Realty may cause some of the
participating McNeil Partnerships or their subsidiaries to refinance currently
existing
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<PAGE>
indebtedness that will not be repaid in connection with the closing of the
transaction. In both cases, the principal amount of that indebtedness incurred
by the participating McNeil Partnerships or their subsidiaries may be
materially greater than the principal amount of indebtedness currently owed by
the participating McNeil Partnerships or their subsidiaries. As a result, the
"leverage" of the participating McNeil Partnerships would increase.
As described under "WXI/McN Realty Operating Agreement--Supermajority voting
rights ," the WXI/McN Realty Operating Agreement imposes some restrictions on
the ability of WXI/McN Realty to sell multifamily assets of the participating
McNeil Partnerships prior to the fifth anniversary of the closing of the
transaction. Although WXI/McN Realty has not made any definite decisions
relating to sales of assets as of the date of this Proxy Statement, WXI/McN
Realty currently plans to dispose of some of the multifamily assets of the
participating McNeil Partnerships following the fifth anniversary of the
closing date. In addition, WXI/McN Realty plans to dispose of some of the
commercial assets of the participating McNeil Partnerships over time following
the closing of the transaction.
The subsidiary of WXI/McN Realty which will own and operate the assets of
McREMI contributed to WXI/McN Realty and its subsidiaries is referred to in
this Proxy Statement as "Management LLC." The Master Agreement provides that
for a period ending no sooner than December 31 of the calendar year following
the calendar year in which the closing occurs, WXI/McN Realty will cause
Management LLC to continue using certain of the assets of McREMI contributed in
the transaction to WXI/McN Realty and its subsidiaries, subject to certain
rights to cease using McREMI assets if WXI/McN Realty reasonably determines
that the continued use of those assets is not supported by sound business
practices and to substitute more appropriate assets if WXI/McN Realty
determines that substitution would be sound business practice. The Master
Agreement also provides that Management LLC will make offers of employment to
some employees of McREMI. See "The Master Agreement--Material covenants--
Operation of McREMI assets."
Under the terms of the WXI/McN Realty Operating Agreement, Management LLC
will be engaged as the property manager for the multifamily properties owned by
the participating McNeil Partnerships, and Management LLC or another property
manager, such as Archon, will initially be engaged as the property manager for
the commercial properties owned by the participating McNeil Partnerships. In
addition, the WXI/McN Realty Operating Agreement provides that Archon will
initially be engaged as the portfolio manager for the properties owned by the
participating McNeil Partnerships.
WXI/McN Realty intends to evaluate the business, assets, organizational
structure, policies, management and personnel of the participating McNeil
Partnerships over time and consider what other changes, if any, would be
desirable in the operations of the participating McNeil Partnerships and the
properties following the closing date. There is no assurance that the plans
described above will be realized or that WXI/McN Realty will not change its
current intentions in light of the circumstances existing at the time of those
evaluations.
Plans for the McNeil Partnerships that do not participate in the transaction
If the limited partners of the Partnership do not approve the merger
proposal, the Partnership will not participate in the transaction. As a result,
the limited partners of the Partnership will continue to own limited partner
units in the Partnership and McNeil Partners will continue to serve as the
general partner of the Partnership. Because McNeil Partners is obligated under
the Partnership's limited partnership agreement to use commercially reasonable
efforts to complete the liquidation and termination of the Partnership by
December 31, 1999, if the limited partners do not approve the merger proposal,
McNeil Partners will continue to explore alternative transactions to liquidate
the Partnership. There is no assurance, however, that, if the limited partners
do not approve the merger proposal, McNeil Partners could arrange an
alternative transaction involving the Partnership or that any alternative
transaction would result in distributions to limited partners of equal or
greater value than are estimated in connection with the transaction. In the
meantime, if the limited partners do not approve the merger proposal, McREMI,
or another property manager selected by McNeil Partners, will manage the
Partnership's properties pending a liquidation.
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<PAGE>
[For Funds XX-XXVI: Dissenters' rights
Under Article 7.6 of the California Revised Limited Partnership Act, any
limited partner of the Partnership who does not wish to accept the merger
consideration may dissent from the merger proposal and require the Partnership
to purchase for cash, at their fair market value, the limited partner units
owned by that limited partner, provided that the limited partner complies with
the provisions of Article 7.6 of the California Revised Limited Partnership
Act.
The following discussion is not a complete statement of the law pertaining
to dissenters' rights under California law, and is qualified in its entirety by
the full text of Article 7.6, which is provided in its entirety in Appendix E
to this Proxy Statement. All references in Article 7.6 and in this summary to a
"limited partner" are to the record holder of the limited partner units in the
Partnership as to which dissenters' rights are being asserted. A person having
a beneficial interest in limited partner units held of record in the name of
another person, such as a broker or nominee, must act promptly to cause the
record holder to follow properly the steps summarized below and in timely
manner to perfect dissenters' rights.
Any limited partner who wishes to exercise dissenters' rights or who wishes
to preserve the right to do so should review carefully the following discussion
and Appendix E. Failure to timely and properly comply with the procedures
specified in Article 7.6 will result in the loss of dissenters' rights.
Moreover, because of the complexity of the procedures for exercising
dissenters' rights, the Partnership believes that limited partners who consider
exercising their dissenters' rights should seek the advice of counsel.
Requirements for exercise of dissenters 'rights
Any limited partner wishing to exercise the right under Article 7.6 to
dissent from the merger proposal and demand that the Partnership purchase for
cash, at their fair market value, the limited partner units owned by that
limited partner must satisfy each of the following conditions:
(1) The limited partner must make a written demand upon the Partnership
for the purchase of its limited partner units and the payment to the
limited partner in cash of the fair market value of its limited partner
units. The demand must be received by the Partnership within 30 days after
the date on which notice of the approval of the merger proposal is mailed
by the Partnership to the Partnership's limited partners. See "--
Determination of fair market value" below.
(2) The demand must state the number of limited partner units in the
Partnership held by the limited partner and must contain a statement of
what that limited partner claims to be the fair market value of those
limited partner units on the day before the announcement of the proposed
merger. The statement of fair market value constitutes an offer by the
limited partner to sell its limited partner units at that price.
(3) The limited partner must not vote its limited partner units in favor
of the merger proposal. Because a proxy which does not contain voting
instructions will, unless revoked, be voted for the merger proposal, a
limited partner who votes by proxy and who wishes to exercise dissenters'
rights must vote against the merger proposal or abstain from voting on the
merger proposal.
(4) The limited partner must submit to the Partnership the certificate
representing the limited partner units which the limited partner demands
that the Partnership purchase, to be stamped or endorsed with a statement
that the interest is a dissenting interest or to be exchanged for
certificates of appropriate denomination so stamped or endorsed.
Neither voting in person or by proxy against, abstaining from voting on or
failing to vote on the merger proposal will constitute a written demand upon
the Partnership for the purchase of limited partner units or the payment of
their fair market value in cash within the meaning of Article 7.6. The written
demand upon the Partnership for the purchase, for cash, at their fair market
value, of limited partner units in the Partnership must be in addition to and
separate from any proxy or vote.
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<PAGE>
Only a holder of record of limited partner units issued and outstanding on
, 1999, the record date fixed by McNeil Partners for the determination of
limited partners entitled to vote on the merger proposal, or an assignee of
record of such an interest, is entitled to exercise dissenters' rights for the
limited partner units registered in that limited partner's name.
A limited partner who wishes to exercise dissenters' rights under Article
7.6 should mail or deliver a written demand, meeting the requirements of
Article 7.6, to: McNeil Partners, L.P., 13760 Noel Road, Suite 600, LB70,
Dallas, Texas 75240. A dissenting limited partner may not withdraw a demand for
payment unless the Partnership consents to that withdrawal. See "--Dissenters'
rights--Loss of status of dissenting interests."
Limited partners exercising dissenters' rights should be aware that the fair
market value of their limited partner units as determined under Article 7.6
could be more, the same as or less than the aggregate amount they would receive
in the transaction if they did not exercise dissenters' rights. Limited
partners also should be aware that opinions of financial advisors are not
opinions as to fair market value under Article 7.6.
Determination of fair market value
The fair market value of a dissenting interest is determined as of the day
before the first announcement of the terms of the proposed merger, excluding
any appreciation or depreciation in fair market value as a consequence of the
proposed merger. The transaction was first announced on June 25, 1999. See "--
Background of the transaction--Background of the auction process." Therefore,
the fair market value of limited partner units in the Partnership would be
determined as of June 24, 1999.
Within ten days after the date of approval of the merger proposal by the
required approval of the limited partners of the Partnership, the Partnership
must send a notice of that approval to the limited partners of the Partnership.
The notice must be accompanied by a copy of specified sections of Article 7.6
and a statement of the price determined by the Partnership to represent the
fair market value of the outstanding limited partner units in the Partnership.
The notice also must include a brief description of the procedure to be
followed if the limited partner desires to exercise the limited partner's
rights under those sections. The statement of the price determined by the
Partnership to represent the fair market value of the outstanding limited
partner units in the Partnership constitutes an offer by the Partnership to
purchase at that price any dissenting interests in the Partnership, unless
those interests lose their status as dissenting interests.
If the Partnership and a dissenting limited partner agree that the
dissenting limited partner's interest is a dissenting interest and agree upon
the price to be paid for the dissenting interest, the dissenting limited
partner is entitled to the agreed price, together with interest at the legal
rate on judgments from the date of the effective time of the merger. All
agreements fixing the fair market value of any dissenting limited partner's
interest between the Partnership and that limited partner must be in writing
and filed in the records of the Partnership. Subject to fraudulent transfer
laws, payment of the fair market value for a dissenting interest must be made
within 30 days after the later of (1) agreement as to the amount of that
payment or (2) satisfaction of all statutory or contractual conditions to the
merger. As a condition to receiving this payment, the limited partner must
surrender the certificates evidencing its dissenting interests.
Right to seek judicial determination
A limited partner may ask a court to determine whether its interest is a
dissenting interest, or to determine the fair market value of the dissenting
interest, or both, if either:
. the Partnership denies that the limited partner's interest in the
Partnership is a dissenting interest, or
. the Partnership and a dissenting limited partner fail to agree upon the
fair market value of that limited partner's dissenting interest.
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If either or these two requirements are met, the limited partner, within
six months after the date on which notice of the approval of the merger by the
required vote of the limited partners was mailed to the limited partner, may
file a complaint in the superior court of the proper county praying the court
to determine whether the interest is a dissenting interest, or to determine
the fair market value of the dissenting interest, or both, or may intervene in
any action pending on such a complaint. The court may appoint one or more
impartial appraisers to determine the fair market value of a dissenting
interest.
If the court determines that an interest is a dissenting interest, judgment
will be rendered against the Partnership for payment of the fair market value,
as determined by the court, of that dissenting interest, together with
interest at the legal rate on judgments from the effective time of the merger.
The judgment will be payable by the Partnership upon the endorsement and
delivery to the Partnership of the certificates representing the dissenting
interests. Any party may appeal from the judgment. The costs of the action,
including reasonable compensation for the appraisers, to be fixed by the
court, will be assessed or apportioned as the court considers equitable.
However, if the appraisal exceeds the price offered by the Partnership, the
Partnership will pay the costs, including, under some circumstances,
attorneys' fees and fees of expert witnesses. The Partnership may credit any
cash distributions made by the Partnership to a dissenting limited partner
after the effective time of the merger against any unpaid amounts remaining to
be paid by the Partnership for that dissenting interest. If litigation has
been instituted to test the sufficiency or regularity of the vote of the
limited partners in authorizing the merger, any judicial proceedings described
above will be suspended until final determination of that litigation.
Loss of status of dissenting interests
A limited partner will no longer be entitled to require the Partnership to
purchase a dissenting interest if:
. the Partnership abandons the merger;
. the limited partner transfers its interest prior to its submission for
endorsement as described in paragraph (4) above in "--Dissenter's
rights--Requirements for exercise of dissenters' rights;"
. the dissenting limited partner and the Partnership do not agree upon the
status of the interest of a dissenting partner or upon the purchase price
of the dissenting interest and neither files a complaint nor intervenes
in a pending action, as provided above in "--Dissenter's rights--Right to
seek judicial determination," six months after the date on which notice
of the approval of the merger by the required vote of the limited
partners was mailed to the limited partner; or
. the dissenting limited partner, with the consent of the Partnership,
withdraws its demand for purchase of the dissenting interest.
Failure to comply strictly with all of the procedures set forth in Article
7.6 will result in the loss of a limited partner's statutory dissenters'
rights. Consequently, any limited partner wishing to exercise dissenters'
rights is urged to consult legal counsel before attempting to exercise
dissenters' rights]
[For Funds IX-XII, XIV, XV: No dissenters' rights
If limited partners owning more than 50% of [each class of] [the] limited
partner units in the Partnership vote for the merger proposal, this approval
will bind all limited partners in the Partnership. Limited partners in the
Partnership do not have any dissenters' rights or other rights of appraisal,
under the California Uniform Limited Partnership Act which governs the
Partnership, the Partnership's limited partnership agreement or otherwise, in
connection with the merger proposal. Therefore, dissenting limited partners do
not have the right
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<PAGE>
to have the fair market value of their limited partner units paid to them or
have their limited partner units appraised if they disapprove of the action of
the limited partners that voted for the merger proposal. Limited partners of
some of the other McNeil Partnerships do have such rights under applicable
California law.]
[For Fund XXVII: No appraisal rights
If limited partners owning more than 50% of the limited partner units in the
Partnership vote for the merger proposal, this approval will bind all limited
partners in the Partnership. Limited partners in the Partnership do not have
any dissenters' rights or other rights of appraisal, under the Delaware Revised
Uniform Limited Partnership Act which governs the Partnership, the
Partnership's limited partnership agreement or otherwise, in connection with
the merger proposal. Therefore, dissenting limited partners do not have the
right to have the fair market value of their limited partner units paid to them
or have their limited partner units appraised if they disapprove of the action
of the limited partners that voted for the merger proposal. Limited partners of
some of the other McNeil Partnerships do have such rights under applicable
California law.]
Federal income tax consequences
The following summary is a general discussion of some of the federal income
tax consequences that are relevant to limited partners of the Partnership. This
summary is based on the Internal Revenue Code of 1986, as amended, applicable
Treasury regulations under the Internal Revenue Code, administrative rulings,
practice and procedures and judicial authority, all as effective as of the date
of the transaction. All of the foregoing are subject to change or alternative
construction with possible retroactive effect, and any change or alternative
construction could affect the continuing accuracy of this summary. This summary
does not discuss all aspects of federal income taxation that may be relevant to
a particular limited partner in light of that limited partner's specific
circumstances or to limited partners subject to special treatment under the
federal income tax laws (for example, except where otherwise noted, foreign
persons, dealers in securities, banks, insurance companies and tax-exempt
organizations). In addition, except as otherwise expressly indicated, this
summary does not describe any aspect of state, local, foreign or other tax
laws.
Each limited partner should consult its tax advisor as to the particular tax
consequences to that limited partner of participating in the transaction.
Taxation of special distribution of cash
The special distribution of cash, will not generally be subject to tax but
will reduce a limited partner's adjusted tax basis in its limited partner units
by the amount of the distribution (but not below zero). To the extent that the
distribution received by a limited partner exceeds that limited partner's
adjusted tax basis in all of its limited partner interests in the Partnership,
the excess will be taxable and will be treated as capital gain.
Taxable gain or loss pursuant to the merger
In general, a limited partner will recognize gain or loss on the conversion
of limited partner units into cash in the merger [additional disclosure for
Funds XX-XXVI: or on receipt of cash pursuant to the exercise of dissenters'
rights]. This gain or loss will be equal to the difference between the limited
partner's "amount realized" from the merger and the limited partner's adjusted
tax basis in the limited partner units converted. The "amount realized" will be
a sum equal to the amount of cash received by the limited partner for the
limited partner units in the merger, plus the amount of the Partnership's
liabilities allocable to the limited partner units (as determined under Section
752 of the Internal Revenue Code). In general, a limited partner's initial tax
basis in its limited partner units equals its cash investment in the
Partnership increased by that limited partner's share of the Partnership's
liabilities at the time the limited partner units were acquired.
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A limited partner's initial basis is generally increased by:
. that limited partner's share of Partnership taxable income (including its
allocable share of taxable income for the year in which the merger
occurs) and
. any increases in that limited partner's share of liabilities of the
Partnership.
A limited partner's initial basis is generally decreased (but not below zero)
by:
. that limited partner's share of Partnership cash distributions (including
the special distribution of cash on the closing date of the transaction),
. any decreases in that limited partner's share of liabilities of the
Partnership,
. that limited partner's share of losses of the Partnership (including an
allocable share of taxable loss for the year in which the merger occurs),
and
. that limited partner's share of nondeductible expenditures of the
Partnership that are not chargeable to capital.
If a limited partner's adjusted tax basis is less than its share of the
Partnership's liabilities (for example, as a result of the effect of net loss
allocations and/or distributions exceeding the cost of its limited partner
units), that limited partner's gain will exceed the cash proceeds it receives
pursuant to the merger.
Character of gain or loss recognized pursuant to the merger
Except as described below, the gain or loss recognized by a limited partner
upon receipt of cash in the merger will generally be treated as a capital gain
or loss if the limited partner units were held by the limited partner as a
capital asset. Such capital gain or loss will be treated as long-term capital
gain or loss if the limited partner's holding period for the limited partner
units exceeds one year.
If any portion of the amount realized by a limited partner is attributable
to "unrealized receivables," which includes recapture of certain depreciation
deductions previously taken, or "inventory items," as defined in Section 751 of
the Internal Revenue Code, then a portion of the limited partner's gain or loss
may be ordinary rather than capital. In addition, a limited partner will be
allocated its pro rata share of the Partnership's taxable income or loss for
the year in which the merger occurs, and therefore, will recognize ordinary
income in an amount equal to its allocable share of partnership ordinary
income. As described above, this allocation and any cash distributed by the
Partnership to the limited partner for the year in which the merger occurs will
affect the limited partner's tax basis in its limited partner units and,
therefore, the taxation of the special distribution of cash and the amount of
that limited partner's taxable gain or loss upon the conversion of its limited
partner units into cash in the merger.
Passive activity losses
Under Section 469 of the Internal Revenue Code, a non-corporate taxpayer or
personal service corporation generally can deduct "passive activity losses" in
any year only to the extent of the person's passive activity income for that
year. Closely-held corporations may not offset such losses against so-called
"portfolio" income. Substantially all post-1986 losses of limited partners from
the Partnership should be considered passive activity losses. Limited partners
may have "suspended" passive losses from the Partnership (i.e., post-1986 net
taxable losses in excess of statutorily permitted "phase-in" amounts which have
not been used to offset income from other passive activities) which may be
available to shelter gain from the special distribution or the merger in the
manner described below.
Limited partners that recognize a gain on the conversion of their limited
partner units into cash in the merger will be entitled to use their current and
"suspended" passive activity losses (if any) from the Partnership and other
passive sources to offset that gain. Limited partners that recognize a loss on
the conversion of their limited partner units into cash in the merger will be
entitled to deduct that loss currently (subject to other applicable
limitations) against the sum of their passive activity income from the
Partnership for that year (if any) plus any passive activity income from other
sources for that year. The balance of any
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<PAGE>
"suspended" losses that were not otherwise utilized against passive activity
income as described in the two preceding sentences will no longer be suspended
and will therefore be deductible (subject to any other applicable limitations)
by that limited partner against any other income of that limited partner for
that year, regardless of the character of that income. Accordingly, limited
partners should consult their tax advisors concerning whether, and the extent
to which, they have available suspended passive activity losses from the
Partnership or other investments that may be used to offset gain from the
conversion of their limited partner units into cash in the merger.
Information reporting, backup withholding and FIRPTA
A limited partner whose limited partner units are converted into cash in the
merger must file an information statement with its federal income tax return
for the year in which the merger occurs which provides the information
specified in Treasury Regulation (S) 1.751-1(a)(3).
Limited partners (other than tax-exempt persons, corporations and some
foreign persons) may be subject to 31% backup withholding unless they provide a
taxpayer identification number and certify that the taxpayer identification
number is correct or properly certify that they are awaiting a taxpayer
identification number. See the instructions to the letter of transmittal which
will be sent to you after the merger is completed.
Gain realized by a foreign limited partner on the conversion of limited
partner units into cash in the merger will be subject to Federal income tax
under the Foreign Investment in Real Property Tax Act ("FIRPTA"). Under the
FIRPTA provisions of the 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 U.S. income tax return.
See the Instructions to the letter of transmittal which will be sent to you
after the merger is completed.
Tax consequences to McNeil Partners
McNeil Partners will generally not recognize gain or loss for United States
federal income tax purposes upon its transfer of assets to WXI/McN Realty
solely in exchange for membership interests in WXI/McN Realty. McNeil Partners
will have a tax basis in the membership interests in WXI/McN Realty equal to
McNeil Partners' adjusted basis in the transferred general partner interests
increased or decreased by any increase or decrease of its share of Partnership
liabilities. One of the reasons why McNeil Partners is exchanging its general
partner interests for membership interests in WXI/McN Realty is that a taxable
purchase of the general partner interests for cash would cause McNeil Partners
to recognize taxable gain in excess of any cash proceeds received, because of
the relief of partnership liabilities allocated to them.
The transaction, as structured, will allow McNeil Partners to make the
contributions of its interests in the McNeil Partnerships and the assets of
McNeil Partners and McREMI being contributed to WXI/McN Realty on a tax-free
basis and to defer substantial tax liability that would be incurred if the
properties were disposed of in a taxable sale.
Anticipated accounting treatment
The transaction will be accounted for 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 [for Funds IX-XII, XIV, XV, XX-XXVI: California pursuant
to the California Revised Limited Partnership Act] [for Fund XXVII: Delaware
pursuant to the Delaware Revised Uniform Limited Partnership Act], after the
approval and adoption of the merger proposal and compliance with federal and
state securities laws, neither the Partnership nor WXI/McN Realty is aware of
any material United States federal or state or foreign governmental regulatory
requirement necessary to be complied with or approval that must be obtained in
connection with the transaction.
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THE MEETING
Time, date and place of the meeting
This Proxy Statement is being furnished to limited partners of the
Partnership in connection with the solicitation of proxies by and on behalf of
McNeil Partners, as general partner of the Partnership, for use at the meeting
of limited partners of the Partnership to be held at , local time, on
, 1999, at , and at any adjournments or postponements of the meeting.
Matters to be considered at the meeting
At the meeting, limited partners of the Partnership will be asked to
consider and vote on the merger proposal and to consider any other matters as
may properly come before the meeting.
In addition, if a motion is made to adjourn or postpone the meeting, the
limited partners of the Partnership may also be asked to vote on the
adjournment or postponement of the meeting. The Master Agreement provides that
McNeil Partners will recommend the adjournment of the meeting for ten days if
on the date of the meeting the Partnership has not received duly executed
proxies which, when added to the number of votes represented in person at the
meeting by persons who intend to vote for the merger proposal, will constitute
a sufficient number of votes to approve the merger proposal. However, if
limited partners holding greater than a majority of the outstanding limited
partner units in the Partnership have indicated their intention to vote
against, and have submitted duly executed proxies voting against, the merger
proposal, the Master Agreement does not require McNeil Partners to recommend
adjournment of the meeting. See "The Master Agreement--Limited partner
meetings; proxy material."
Recommendations of the McNeil Investors board of directors
The McNeil Investors board of directors, based upon the recommendation of
the special committee and the Stanger & Co. opinions, has unanimously
determined that the merger proposal is fair to and in the best interests of the
Partnership and its limited partners. Accordingly, the McNeil Investors board
of directors has unanimously approved the merger proposal and unanimously
recommends that the limited partners of the Partnership vote for the merger
proposal.
Record date; voting power
McNeil Partners has fixed the close of business on , 1999, as the record
date for determination of the limited partners entitled to notice of and to
vote at the meeting and any adjournment or postponement of the meeting. Only
holders of record of limited partner units at the close of business on ,
1999, are entitled to notice of and to vote at the meeting. As of the record
date, there were limited partner units in the Partnership issued and
outstanding and held of record by approximately holders of record. Holders
of record of limited partner units in the Partnership are entitled to one vote
for each unit that they hold on the merger proposal and any other matter that
may properly come before the meeting. [Additional disclosure for Funds XXI-
XXIII: Holders of current income units and holders of growth/shelter units will
vote separately on the merger proposal.]
Quorum
The necessary quorum for the transaction of business at the meeting is the
presence in person or by proxy of limited partners holding [for all except
Funds XXI-XXIII: a majority of the limited partner units] [for Funds XXI-XXIII:
a majority of each class of limited partner units] in the Partnership
outstanding on the record date. For purposes of determining the presence of a
quorum, abstentions will be counted by McNeil Partners as not present at the
meeting.
In the event that there are insufficient votes present at the meeting to
constitute a quorum, and proxies and votes against the proposals represent
fewer than [for all except Funds XXI-XXIII: 50% of the limited partner units]
[for Funds XXI-XXIII: 50% of each class of limited partner units], the limited
partner units for which proxies have been received may be voted to adjourn the
meeting to a later date to permit the further solicitation of proxies. Notice
of the adjourned meeting need not be given if the time and place of the
adjourned meeting is announced at the meeting, or the adjourned meeting, and
the adjournment is for not more than thirty days from the date of the original
meeting and no new record date is set.
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Vote required
The affirmative vote of limited partners holding greater than [for all
except Funds XXI-XXIII: 50% of the limited partner units] [for Funds XXI-XXIII:
50% of each class of limited partner units] in the Partnership outstanding on
the record date is required to approve the merger proposal.
Limited partners of the Partnership are urged to complete, date, sign and
promptly return the enclosed proxy. All properly executed proxies received by
McNeil Partners prior to the meeting that are not revoked will be voted at the
meeting in accordance with the instructions indicated on the proxies. If a
limited partner fails to return a proxy, the effect will be the same as a vote
against the merger proposal. If a limited partner marks "ABSTAIN" on the proxy
with respect to the merger proposal, the effect will be the same as a vote
against the merger proposal. If a limited partner returns the proxy but does
not give instructions on the proxy, that limited partner's limited partner
units will be voted for the merger proposal.
Ownership of limited partner units in the Partnership
[Additional disclosure for Funds IX-XI, XIV, XV, XX, XXV-XXVII: As of the
record date, McNeil Partners and some of its affiliates, other than the
Partnership, beneficially owned an aggregate of limited partner units in the
Partnership, representing in the aggregate approximately % of the limited
partner units outstanding on the record date. McNeil Partners and these
affiliates intend to vote all of the limited partner units beneficially owned
by them in the Partnership for the merger proposal.] [Additional disclosure for
Fund XXIII: As of the record date, McNeil Partners beneficially owned an
aggregate of growth/shelter units in the Partnership, representing in the
aggregate approximately % of the growth/shelter units outstanding on the
record date. McNeil Partners intends to vote all of the limited partner units
beneficially owned by it in the Partnership for the merger proposal.]
As of the record date, no individual or group as defined in Section 13(d)(3)
of the Securities Exchange Act, except the individuals and groups, if any, set
forth in "Related Security Holder Matters--Principal holders of limited partner
units," was known by the Partnership to own more than 5% of the limited partner
units in the Partnership.
Solicitation of proxies
Proxies are being solicited by and on behalf of McNeil Partners, as general
partner of the Partnership. The Partnership will initially pay the costs of
soliciting proxies with respect to the Partnership. In addition to solicitation
by mail, McNeil Partners and the officers, directors and employees of McNeil
Investors may solicit proxies by telephone, telegram or otherwise. The
directors, officers and employees of McNeil Investors will not receive
compensation for that solicitation but may receive reimbursement by the
Partnership for out-of-pocket expenses incurred in connection with that
solicitation. The Partnership will request that brokerage firms, fiduciaries
and other custodians forward copies of this Proxy Statement and the enclosed
form of proxy to the beneficial owners of limited partner units in the
Partnership held of record by them, and the Partnership will reimburse those
brokerage firms, fiduciaries and other custodians for their reasonable expenses
incurred in forwarding such material. The Partnership has retained persons to
aid it in the solicitation. McNeil Partners anticipates that fees plus expenses
of these persons will be approximately $ in the aggregate for all of the
McNeil Partnerships (approximately $ of which is attributable to the
Partnership). McNeil Partners anticipates that the total cost of soliciting
proxies on behalf of all of the McNeil Partnerships will be approximately $
(approximately $ of which is attributable to the Partnership), of which
approximately $ of which has been incurred to date (approximately $ of
which is attributable to the Partnership). See "Special Factors--Fees and
expenses relating to the transaction."
The matters to be considered at the meeting are of great importance to the
Partnership and to the limited partners of the Partnership. Please read and
carefully consider the information presented in this Proxy Statement and the
other documents to which we have referred you and complete, date, sign and
promptly return the enclosed proxy. Completed proxies should be returned as
soon as possible. You may return your proxy as follows:
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by regular mail, in the enclosed postage-paid envelope, to:
McNeil Partners, L.P.
Investor Services
P.O. Box 80039
Dallas, Texas 75380
or by fax to:
1-800-xxx-xxxx (Toll Free)
or by hand or overnight delivery to:
McNeil Partners, L.P.
Investor Services
13760 Noel Road, Suite 600
Dallas, Texas 75240.
An inspector of elections will be appointed at the meeting to oversee the
tabulation of the votes.
YOU SHOULD NOT SEND ANY CERTIFICATES REPRESENTING LIMITED PARTNER UNITS WITH
YOUR PROXY.
A transmittal form with instructions for the surrender of certificates in
exchange for the cash merger consideration will be mailed to you as soon as
practicable after completion of the transactions. For more information
regarding the procedures for exchanging your certificates for the cash merger
consideration, please see "The Master Agreement--The mergers--Exchange of
certificates."
List of limited partners of the Partnership
Under the federal securities laws, a limited partner of the Partnership who
is entitled to vote at the meeting may request in writing a list of the other
limited partners in the Partnership entitled to vote at the meeting to enable
the requesting limited partner to mail soliciting materials to the other
limited partners in the Partnership. Alternatively, a limited partner of the
Partnership who is entitled to vote at the meeting may request that the
Partnership mail copies of any proxy statement, form of proxy or other
soliciting material furnished by the requesting limited partner to the other
limited partners of the Partnership. The requesting limited partner must
reimburse the Partnership for the Partnership's reasonable expenses incurred in
connection with performing these services. Any requests referred to in this
paragraph should be made in writing to: McNeil Partners, L.P., P.O. Box 80039,
Dallas, Texas, 75380.
At the time of making the request, the requesting limited partner must, if
its limited partner units are held through a nominee, provide the Partnership
with a statement from the nominee or other independent third party confirming
the limited partner's beneficial ownership. In addition, the requesting limited
partner must provide the Partnership with an affidavit or similar document
that:
. identifies the proposal that will be the subject of the limited partner's
solicitation;
. states that the limited partner will not use the list for any purpose
other than to solicit limited partners of the Partnership with respect to
the same action for which the Partnership is soliciting votes; and
. states that the limited partner will not disclose the information
provided to it to any person other than a beneficial owner for whom the
request was made and an employee or agent to the extent necessary to
effectuate the communication or solicitation.
Upon termination of any solicitation by the requesting limited partner, the
requesting limited partner must return to the Partnership, without keeping any
copies, the information provided by the Partnership and any information derived
from that information. A limited partner is only entitled to the foregoing
information with respect to a McNeil Partnership in which the limited partner
holds limited partner units.
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The limited partnership agreement of the Partnership provides that a limited
partner of the Partnership has the right, upon reasonable request, to inspect
and copy the list of limited partners of that Partnership. The limited
partnership agreement of the Partnership also provides that limited partners in
the Partnership may inspect and copy, at their own expense, the list of limited
partners in the Partnership. [Additional disclosure for Funds XX-XXVI: The
California Revised Limited Partnership Act also permits a limited partner of
the Partnership to request a list of other limited partners of that
Partnership. The Partnership must deliver the list of limited partners to the
requesting limited partner at the Partnership's expense.]
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THE MASTER AGREEMENT
This section of the Proxy Statement describes various aspects of the
proposed transaction, including material provisions of the Master Agreement.
The description of the Master Agreement contained in this Proxy Statement does
not purport to be complete and is qualified in its entirety by reference to the
Master Agreement, a copy of which is attached to this Proxy Statement as
Appendix A, and which is incorporated in this Proxy Statement by reference. All
limited partners in the McNeil Partnerships are urged to read carefully the
Master Agreement in its entirety.
Parties to the Master Agreement
For a description of the parties to the transaction, see "Summary--Parties
to the transaction."
Structure of the transaction
For an overview of the structure of the transaction and the steps involved
in the transaction, see "Summary--Structure of the transaction." These steps
are described in more detail below in "--The mergers" and "--The
contributions."
Closing of the transaction
The closing of the mergers and the other transactions contemplated by the
Master Agreement will take place at a time and on a date which will be no later
than five business days after the later of:
. satisfaction or waiver of all conditions precedent to the closing of the
transaction set forth in the Master Agreement (see "--Conditions to
closing") and
. three full business days following the date of WXI/McN Realty's receipt
of the Pre-Closing Removal Notice described in "--Conditions to closing--
Removal notices" with respect to one or more McNeil Partnerships,
unless another time or date is agreed to by Sellers and WXI/McN Realty. See "--
Conditions to closing--Removal notices."
Aggregate consideration
Allocation of aggregate consideration
The aggregate consideration in the transaction, including all outstanding
mortgage debt of the McNeil Partnerships, is $644,439,803. The aggregate
consideration in the transaction has been allocated by Stanger & Co. as
described in "Special Factors--Opinions and reports of financial advisors--
Allocation analysis and opinions of Stanger & Co.--Stanger & Co. allocation
analysis." The individual allocations of the aggregate consideration are set
forth in Table 2.
Prepayment and assumption of mortgage debt
The aggregate consideration in the transaction includes an amount equal to
the outstanding mortgage debt of the McNeil Partnerships. At the effective time
of the mergers, all outstanding mortgage debt of the participating McNeil
Partnerships will either be prepaid by WXI/McN Realty or will remain
outstanding following the effective time of the mergers until its expiration or
prepayment. Some outstanding mortgage debt on the properties will be prepaid at
the effective time if the McNeil Partnerships which own those properties are
participating McNeil Partnerships, and WXI/McN Realty will pay all prepayment
fees with respect to the prepayment of that mortgage debt. Other mortgage debt
will be repaid at the effective time of the mergers if the McNeil Partnership
which owns those properties is a participating McNeil Partnership, and that
McNeil Partnership will pay the respective prepayment fees related to the
prepayment of that mortgage debt. The
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mortgage debt secured by the remainder of the properties will remain
outstanding at and after the effective time of the mergers until its expiration
or prepayment. WXI/McN Realty will pay one-half of the assumption fees, up to a
maximum of $250,000, related to the indirect assumption by WXI/McN Realty of
the mortgage debt that is not being prepaid at the effective time. The
respective participating McNeil Partnerships which own the properties that
secure the assumed mortgage debt will pay all remaining assumption fees.
The mergers
WXI/McN Realty will acquire by merger all of the participating McNeil
Partnerships except the Affiliated McNeil Partnerships. WXI/McN Realty will
acquire the Affiliated McNeil Partnerships in the manner described below in "--
The contributions." For each participating McNeil Partnership other than the
Affiliated McNeil Partnerships, a separate newly formed subsidiary limited
partnership of WXI/McN Realty will be merged with and into that participating
McNeil Partnership, with the participating McNeil Partnership surviving as a
subsidiary limited partnership of WXI/McN Realty. See "Summary--Structure of
the transaction;" Figure 7 depicts the mergers, assuming all McNeil
Partnerships participate in the transaction, and Figure 8 depicts the ownership
of the McNeil Partnerships following the mergers.
The merger of each participating McNeil Partnership will become effective at
the time on the closing date of the transaction specified in the merger
certificate for that participating McNeil Partnership or at a later time agreed
upon by the parties to the Master Agreement and set forth in each of the merger
certificates for the participating McNeil Partnerships.
Limited partners of each of the participating McNeil Partnerships, other
than the Affiliated McNeil Partnerships, will receive cash consideration in the
transaction. The aggregate amount to be received in the transaction by limited
partners of the participating McNeil Partnerships consists of two components--
the merger consideration and a special cash distribution. See "The mergers--
Merger consideration" and "--The mergers--Special distribution of positive net
working capital balance."
Merger consideration
The first component of the aggregate amount to be received by limited
partners of each of the participating McNeil Partnerships, other than the
Affiliated McNeil Partnerships, is the merger consideration. At the effective
time, as a result of the mergers, each limited partner unit in a participating
McNeil Partnership other than the Affiliated McNeil Partnerships will be
converted into the right to receive the amount in cash set forth in the column
"Per Unit Merger Consideration" in Table 2 opposite the name of that McNeil
Partnership. The merger consideration is equal to the amount of the aggregate
consideration in the transaction allocated by Stanger & Co. to the limited
partner units in that McNeil Partnership. However, if the modified net working
capital balance for a McNeil Partnership determined as of the closing date of
the transaction in accordance with the Master Agreement is a negative number,
the per unit merger consideration to be received by each class of limited
partners of that McNeil Partnership will be reduced by the per unit amount of
the negative modified net working capital allocable to that class based on the
provisions in that McNeil Partnership's limited partnership agreement governing
distributions of surplus cash. See "--The mergers--Special distribution of
positive net working capital balance."
At the effective time, each limited partner unit in a participating McNeil
Partnership will no longer be outstanding and will automatically be cancelled
and retired and will cease to exist and the limited partner that holds that
limited partner unit will cease to have any rights with respect to that limited
partner unit, except the right to receive the per unit merger consideration and
the portion of the special distribution, if any, in respect of that
participating McNeil Partnership, in each case, without interest, to which that
limited partner unit is entitled.
Exchange of certificates
The Master Agreement provides that at the effective time of the mergers,
WXI/McN Realty will deposit with a payment agent cash in an aggregate amount
equal to the sum of the amounts set forth in the column
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"LP Allocation Amount" in Table 2 opposite the name of each of the
participating McNeil Partnerships other than the Affiliated McNeil
Partnerships. However, if the modified net working capital balance for a McNeil
Partnership determined as of the closing date of the transaction in accordance
with the Master Agreement is a negative number, the "LP Allocation Amount" for
each class of limited partner units in that McNeil Partnership will be reduced
by the portion of the negative modified net working capital balance allocable
to that class based on the provisions in that McNeil Partnership's limited
partnership agreement governing distributions of surplus cash, except that the
general partner of that McNeil Partnership will not receive any part of the
special distribution. See "The mergers--Special distribution of positive net
working capital balance."
Immediately following the effective time of the mergers, the payment agent
will mail to each limited partner a letter of transmittal and instructions for
surrendering that limited partner's certificates in exchange for the per unit
merger consideration to which that holder is entitled.
Upon surrender of its certificates, a limited partner will be entitled to
receive a check in an amount equal to the product obtained by multiplying the
number of limited partner units held by that limited partner by the per unit
merger consideration set forth in Table 2 opposite the name of that McNeil
Partnership. Any certificates surrendered to the payment agent as described
above will be cancelled. Until surrendered as described above, each certificate
will be deemed at and after the effective time of the mergers to represent only
the right to receive upon that certificate's surrender the per unit merger
consideration.
In the event of a transfer of ownership of limited partner units in a McNeil
Partnership which is not registered in the transfer records of that McNeil
Partnership, payment of the per unit merger consideration which the limited
partner that holds those limited partner units has the right to receive may be
made to a transferee if the certificate representing those limited partner
units is presented to the payment agent accompanied by all documentation
required to evidence and effect that transfer.
In the event that any certificate has been lost, stolen or destroyed, the
limited partner that holds that certificate will be required to make an
affidavit that the certificate has been lost, stolen or destroyed. The payment
agent will then issue in exchange for that affidavit the per unit merger
consideration to which the limited partner that holds that certificate has the
right to receive. Unless WXI/McN Realty determines otherwise, the payment agent
will require the delivery of a suitable bond or indemnity in a form acceptable
to WXI/McN Realty.
All merger consideration paid upon the surrender or exchange of limited
partner units in the participating McNeil Partnerships will be deemed to have
been paid in full satisfaction of the rights pertaining to those limited
partner units. The surviving limited partnership of each of the mergers will
continue to have an obligation following the effective time of the mergers to
pay distributions with a record date prior to the effective time which may have
been declared by a participating McNeil Partnership on limited partner units in
that participating McNeil Partnership and which remain unpaid as of the
effective time and to distribute to the former limited partners of each
participating McNeil Partnership the special distribution of that participating
McNeil Partnership as described below in "--The mergers--Special distribution
of positive net working capital balance." After the effective time of the
mergers, no further registration of transfers of limited partner units in the
participating McNeil Partnerships outstanding immediately prior to the
effective time will be made on the books of the surviving limited partnerships.
If after the effective time certificates are presented to the surviving
partnerships for any reason, these certificates will be canceled and exchanged
for the per unit merger consideration as provided above.
The McNeil Partnerships will pay all charges and expenses relating to the
mergers, and WXI/McN Realty will reimburse the McNeil Partnerships, on the
closing date and immediately prior to the special distribution contemplated
below under "--The mergers--Special distribution of positive net working
capital balance," in an amount in cash equal to one-half of the amount of the
expenses relating to the payment agent. None of the payment agent, WXI/McN
Realty, WXI/McN Realty's subsidiaries, the Sellers nor any of their respective
affiliates will be liable to any limited partner of a participating McNeil
Partnership for any merger consideration delivered to a public official
pursuant to any applicable abandoned property, escheat or similar law.
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Special distribution of positive net working capital balance
The second component of the aggregate amount to be received by limited
partners of each of the participating McNeil Partnerships, including the
Affiliated McNeil Partnerships, is the special cash distribution. The Master
Agreement provides that on the closing date of the transaction and immediately
prior to the effective time of the mergers, a special cash distribution will be
declared to the limited partners of each participating McNeil Partnership. The
amount of the special distribution will be calculated in accordance with the
Master Agreement and is based upon a modified net working capital balance of
the McNeil Partnership as of the closing date. The special distribution will be
made in accordance with the provisions of that participating McNeil
Partnership's limited partnership agreement governing distributions of surplus
cash, except that the general partner of that McNeil Partnership will not
receive any part of the special distribution.
If on the closing date of the transaction and immediately prior to the
effective time of the mergers, the modified net working capital balance of a
participating McNeil Partnership as of that date, calculated in accordance with
the Master Agreement for that participating McNeil Partnership is a negative
number, the "LP Allocation Amount" for each class of limited partner units in
that McNeil Partnership will be reduced by the portion of the negative modified
net working capital balance allocable to that class based on the provisions in
that McNeil Partnership's limited partnership agreement governing distributions
of surplus cash. As a result, the per unit merger consideration to be received
by each class of limited partners of that McNeil Partnership will be reduced by
the per unit amount of the negative modified net working capital balance
allocable to that class.
The contributions
Contributions to McNeil Partners by the other McNeil Affiliates
The Master Agreement provides that prior to the effective time of the
mergers and following the holding of all of the limited partner meetings of the
McNeil Partnerships (see "--Material covenants--Limited partner meetings; proxy
materials"), the following transactions will occur:
(1) if Regency North is a participating McNeil Partnership, Robert A.
McNeil, a general partner of Regency North, will contribute, transfer and
assign to McNeil Partners all of the general partner interests in Regency
North owned by him in exchange for limited partner interests in McNeil
Partners;
(2) if Fairfax is a participating McNeil Partnership, Robert A. McNeil,
the general partner of Fairfax and a limited partner of Fairfax, will
contribute transfer and assign to McNeil Partners or an affiliate of McNeil
Partners all of the general partner interests in Fairfax and all of the
limited partner units in Fairfax owned by him, in each case, in exchange
for limited partner interests in McNeil Partners;
(3) if McNeil Summerhill I, L.P. is a participating McNeil Partnership,
McNeil Summerhill, Inc., the general partner of McNeil Summerhill I, L.P.,
will contribute, transfer and assign to McNeil Partners or an affiliate of
McNeil Partners all of the general partner interests in McNeil Summerhill
I, L.P. and Robert A. McNeil and Carole J. McNeil, the limited partners of
McNeil Summerhill I, L.P., will contribute, transfer and assign to McNeil
Partners all of the limited partner units in McNeil Summerhill I, L.P., in
each case, in exchange for limited partner interests in McNeil Partners;
and
(4) McREMI will contribute, transfer and assign to McNeil Partners
certain assets of McREMI related to the participating McNeil Partnerships
in exchange for limited partner interests in McNeil Partners.
As of the date of this Proxy Statement, First Associated Management, Inc., a
Texas corporation and the surviving corporation in the merger between First
Associated Management, Inc. and The Pacific Income Plan Company of California,
owns a 1% general partner interest in Regency North. It is contemplated that
prior to the contributions described in paragraphs (1) through (4) above,
McNeil Partners will purchase for cash all of the general partner interests
owned by First Associated Management, Inc. in Regency North or, alternatively,
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First Associated Management, Inc. will resign as a general partner of Regency
North in accordance with the limited partnership agreement of Regency North. In
addition, as of the date of this Proxy Statement, Sallie B. McNeil, a former
wife of Robert A. McNeil, owns a 50% limited partner interest in Fairfax. It is
contemplated that prior to the contributions described in paragraphs (1)
through (4) above, McNeil Partners will purchase for cash all of the limited
partner interests owned by Sallie B. McNeil in Fairfax.
See "Summary--Structure of the transaction." Figure 3 in that section
depicts the contributions to McNeil Partners by the other McNeil Affiliates,
assuming all McNeil Partnerships participate in the transaction, and Figure 4
in that section depicts the ownership of the McNeil Partnerships and assets of
McREMI following the contributions, assuming all McNeil Partnerships
participate in the transaction.
Replacement of general partner
Following the contributions to McNeil Partners described in paragraphs (1)
through (4) above under "--The contributions--Contributions to McNeil Partners
by the other McNeil Affiliates" and immediately prior to the effective time of
the mergers, the Master Agreement provides that McNeil Partners will
contribute, transfer and assign to the applicable subsidiaries of WXI/McN
Realty, at the direction of WXI/McN Realty, in the case of each participating
McNeil Partnership, all of the general partner interests owned by McNeil
Partners in that participating McNeil Partnership and certain assets of McNeil
Partners related to that participating McNeil Partnership.
Following these contributions, transfers and assignments, in the case of
each participating McNeil Partnership, the WXI/McN Realty subsidiary to which
those contributions, transfers and assignments have been made will be appointed
as the successor general partner of that participating McNeil Partnership. In
consideration for these contributions, transfers and assignments by McNeil
Partners, WXI/McN Realty will issue membership interests in WXI/McN Realty to
McNeil Partners. For each participating McNeil Partnership, McNeil Partners
will receive credit for a capital contribution to WXI/McN Realty in an amount
equal to the MPLP Allocation Amount set forth in Table 2 opposite the name of
that participating McNeil Partnership.
See "Summary--Structure of the transaction." Figure 5 depicts, among other
things, the replacement of the general partner of the McNeil Partnership,
assuming all McNeil Partnerships participate in the transaction.
Other contributions by McNeil Partners to WXI/McN Realty and WXI/McN Realty's
subsidiaries
Following the contributions to McNeil Partners described above under "--The
contributions--Contributions to McNeil Partners by the other McNeil Affiliates"
and immediately prior to the effective time of the mergers, the Master
Agreement provides that McNeil Partners will contribute, transfer and assign to
the applicable subsidiaries of WXI/McN Realty, at the direction of WXI/McN
Realty:
(1) if Fairfax is a participating McNeil Partnership, all of the
outstanding limited partner units in Fairfax;
(2) if McNeil Summerhill I, L.P. is a participating McNeil Partnership,
all of the outstanding limited partner units in McNeil Summerhill I, L.P.;
and
(3) the assets of McREMI related to the participating McNeil
Partnerships.
In consideration for the contributions, transfers and assignments by McNeil
Partners described in paragraphs (1) through (3) above, WXI/McN Realty will
issue membership interests in WXI/McN Realty to McNeil Partners, and McNeil
Partners will receive credit for a capital contribution to WXI/McN Realty in an
amount equal to the following amounts:
(1) In the case of paragraph (1) above, McNeil Partners will receive
credit for a capital contribution to WXI/McN Realty in an amount equal to $
, the product determined by multiplying the "Per Unit Merger
Consideration" for Fairfax set forth in Table 2 by the "Number of Units" of
Fairfax outstanding at the time of the contribution.
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(2) In the case of paragraph (2) above, McNeil Partners will receive
credit for a capital contribution to WXI/McN Realty in an amount equal to
$ , the product determined by multiplying the "Per Unit Merger
Consideration" for McNeil Summerhill I, L.P. set forth in Table 2 by the
"Number of Units" of McNeil Summerhill I, L.P. outstanding at the time of
the contribution.
(3) In the case of paragraph (3) above, McNeil Partners will receive
credit for a capital contribution to WXI/McN Realty in an amount equal to
the "Total McREMI Allocated Value," adjusted as described in Table 2, to
take into account any McNeil Partnerships which do not participate in the
transaction.
McNeil Partners also may make cash contributions to WXI/McN Realty at the
effective time and treat some fees, expenses and disbursements incurred and
paid on behalf of the McNeil Affiliates in connection with the Master Agreement
as a contribution-in-kind to WXI/McN Realty, in each case in exchange for
membership interests in WXI/McN Realty and credit for a capital contribution to
WXI/McN Realty. See "Special Factors--Interests of certain persons in matters
to be acted upon; conflicts of interest--Equity interest of McNeil Partners in
WXI/McN Realty."
See "Summary--Structure of the transaction." Figure 5 depicts, among other
things, the other contributions by McNeil Partners to WXI/McN Realty and
WXI/McN Realty's subsidiaries, assuming Fairfax and McNeil Summerhill I, L.P.
both participate in the transaction, and Figure 6 depicts the ownership of the
McNeil Partnerships and the assets of McREMI following the replacement of the
general partner of the McNeil Partnerships described in "--The contributions--
Replacement of general partner" and the other contributions by McNeil Partners
to WXI/McN Realty and WXI/McN Realty's subsidiaries, assuming all McNeil
Partnerships participate in the transaction.
Material covenants
Interim operations of Sellers
From June 24, 1999 until the effective time of the mergers, each Seller and
each of the McNeil Partnerships' subsidiaries is required to conduct its
business only in the ordinary course and in substantially the same manner as
conducted prior to the date of the Master Agreement, including diligent
performance of its landlord obligations, and to preserve intact its business
organizations and goodwill and use its reasonable efforts to keep available the
services of its officers and employees.
In addition, during this period, each Seller and each of the McNeil
Partnerships' subsidiaries is required to take the following actions, among
others:
. regularly report on material operational matters to WXI/McN Realty's
representatives;
. promptly notify WXI/McN Realty of any material emergency or change in the
condition of its business, properties, assets, liabilities or the normal
course of its businesses or in the operation of its properties, or of any
material governmental complaints, investigations or hearings;
. maintain its books and records in accordance with generally accepted
accounting principles applied consistently with past practice, and not
change in any material manner any of its methods, principles or practices
of accounting in effect as of December 31, 1998, except as may be or may
have been required by applicable law or generally accepted accounting
principles; and
. duly and timely file all reports, tax returns and other documents
required to be filed with federal, state and local authorities under the
Internal Revenue Code and maintain existing insurance coverage.
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In addition, from June 24, 1999 until the effective time of the mergers, no
Seller and none of the McNeil Partnerships' subsidiaries may, without WXI/McN
Realty's prior written consent, take the following actions, among others:
. make or rescind any express or deemed election relating to taxes;
. enter into or amend any existing leasing commission agreements, service
contracts or management agreements and not enter into or amend any
agreement with any government entity;
. amend its organizational documents;
. change the number of its shares of capital stock or its units of
partnership interest issued and outstanding, other than limited partner
units of partnership interest abandoned by a limited partner and
cancelled by the partnership. This paragraph will not prevent Fund XXVII
from repurchasing limited partner units in Fund XXVII in accordance with
its limited partnership agreement in effect on June 24, 1999;
. grant any options or other right or commitment relating to the issuance
of its shares of capital stock or its units of partnership interest, or
any security convertible into its shares of capital stock or its units of
partnership interest, or any security the value of which is measured by
its shares of capital stock or its units of partnership interest, or any
security subordinated to the claim of its general creditors;
. authorize, declare or set aside or pay any non-cash dividend or make any
other non-cash distribution or payment with respect to any of its shares
of capital stock or its units of partnership interest. Nothing in this
paragraph will prevent any Seller or any of the McNeil Partnerships'
subsidiaries from making or receiving cash distributions, cash dividends
or cash payments or will prevent Fund XXVII from repurchasing limited
partner units in Fund XXVII in accordance with its limited partnership
agreement in effect on June 24, 1999;
. directly or indirectly redeem, purchase or otherwise acquire any of its
shares of capital stock or its units of partnership interest or any
option, warrant or right to acquire, or security convertible into, its
shares of capital stock or its units of partnership interest, other than
limited partner units of partnership interest abandoned by a limited
partner and cancelled by the partnership. Nothing in this paragraph will
prevent any Seller or any of the McNeil Partnerships' subsidiaries from
making or receiving cash distributions, cash dividends or cash payments
or will prevent Fund XXVII from repurchasing limited partner units in
Fund XXVII in accordance with its limited partnership agreement in effect
on June 24, 1999;
. make any payment to McREMI or McNeil Partners in respect of any accrued
and unpaid asset management amounts, management incentive distributions,
deferred distributions, advances, overhead reimbursements or other
amounts owed or payable by McREMI, McNeil Investors, McNeil Partners or
any of the McNeil Partnerships to any one or more of McREMI, McNeil
Investors, McNeil Partners or to any of their respective stockholders or
general partners as the case may be, or to any general partner of any
McNeil Partnership, in each case that accrued in respect of any period
prior to , 1999. Nothing in this paragraph will prevent any Seller or
any of the McNeil Partnerships' subsidiaries from making or receiving
cash distributions, cash dividends or cash payments or will prevent Fund
XXVII from repurchasing limited partner units in Fund XXVII in accordance
with its limited partnership agreement in effect on June 24, 1999;
. sell, lease or amend any existing lease, other than residential leases on
approved lease forms and in conformance with WXI/McN Realty approved
rental guidelines, or grant any easement, right of way, declaration or
restriction, or mortgage, encumber, subject to any lien or otherwise
dispose of any of its real properties;
. sell, lease, mortgage, subject to any lien or otherwise dispose of any of
its personal property or intangible property, except in the ordinary
course of business or unless that property is replaced with equal quality
items;
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. make any loans, advances or capital contributions to, or investments in,
any other person other than in the ordinary course of business, other
than with respect to any accrued and unpaid asset management amounts,
management incentive distributions, deferred distributions, advances,
overhead reimbursements or other amounts owed or payable by McREMI,
McNeil Investors, McNeil Partners or any of the McNeil Partnerships to
any one or more of McREMI, McNeil Investors, McNeil Partners or to any of
their respective stockholders or general partners as the case may be, or
to any general partner of any McNeil Partnership, in each case that have
accrued in respect of any period on or after , 1999 through to and
ending on the closing date of the transaction;
. pay, discharge or satisfy any claims, liabilities or obligations, other
than the payment, discharge or satisfaction (a) of all transaction costs
in connection with the transactions contemplated by the Master Agreement
and the other transaction documents; (b) of claims, liabilities and
obligations in the ordinary course of business consistent with past
practice; (c) in accordance with their terms, of claims, liabilities and
obligations reflected or reserved against in, or contemplated by, the
financial statements of Sellers or the notes to such financial statements
included in the reports filed by Sellers with the SEC prior to June 24,
1999 or in the financial statements of Sellers or the notes to such
financial statements made available to WXI/McN Realty prior to June 24,
1999 or in the financial statements of the McNeil Partnerships'
subsidiaries or the notes to such financial statements; (d) of suits,
actions or proceedings not subject to the following paragraph in the
ordinary course of business; and (e) of the amount in excess of $190,000
per month of any accrued and unpaid asset management amounts, management
incentive distributions, deferred distributions, advances, overhead
reimbursements or other amounts owed or payable by McREMI, McNeil
Investors, McNeil Partners or any of the McNeil Partnerships to any one
or more of McREMI, McNeil Investors, McNeil Partners or to any of their
respective stockholders or general partners as the case may be, or to any
general partner of any McNeil Partnership, in each case that have accrued
in respect of any period on or after , 1999 through to and ending on
the closing date of the transactions;
. settle or compromise any claim relating to the transactions contemplated
by the Master Agreement that is brought against any Seller by any
current, former or purported holder of securities of any McNeil
Partnership, unless the settlement meets certain requirements;
. guarantee the indebtedness of another person, enter into any "keep well"
or other agreement to maintain any financial statement condition of
another person or enter into any arrangement having the economic effect
of any of the foregoing;
. except for regular year-end bonuses consistent with past practice, except
for budgeted salary increases and except for increases in salary in the
ordinary course consistent with past practice, increase any compensation
or enter into or amend any employment agreement with any of its officers,
directors or employees earning more than $70,000 per year;
. adopt any new employee benefit plan or amend any existing plans or
rights;
. merge or consolidate with any person;
. acquire or agree to acquire any business or any person;
. enter into or amend any existing leasing commission agreements, service
contracts or management agreements, or enter into any new or amend any
existing agreement with any governmental entity regarding any real
property of any McNeil Partnership;
. take any action which at the time of taking that action that party knew
or reasonably should have known would cause any representation or
warranty of Sellers set forth in the Master Agreement to become untrue in
any material respect;
. increase the number of property employees or corporate employees of
McREMI, in each case by more than 1% over the aggregate number of
employees projected in the most recent budget of McREMI; or
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. agree in writing or otherwise to take any of the foregoing actions or
agree in writing or otherwise not to take any of the actions to be taken
by Sellers or the McNeil Partnerships' subsidiaries from the date of
execution of the Master Agreement until the effective time of the
mergers.
Limited partner meetings; proxy material
Sellers have agreed to prepare, and in the case of each of the public McNeil
Partnerships, file with the SEC, as soon as practicable after the date of the
Master Agreement but in any event not later than August 31, 1999, this Proxy
Statement. The August 31 deadline for preparing, and in the case of each of the
public McNeil Partnerships filing with the SEC, may be extended by Sellers
subject to the approval of WXI/McN Realty, which approval shall not be
unreasonably withheld or delayed. In addition, if required by law, Sellers and
any person that may be deemed an affiliate of any public McNeil Partnership
have agreed to prepare and file concurrently with the filing of this Proxy
Statement for the public McNeil Partnerships the Schedule 13E-3 with the SEC
with respect to each public McNeil Partnership. WXI/McN Realty has agreed, upon
request of Sellers, to furnish Sellers with any information concerning itself,
WXI/McN Realty's managing member and Whitehall as may be required by law or by
any governmental entity in connection with this Proxy Statement, any Schedule
13E-3 or any other statement, filing, notice or application made by or on
behalf of WXI/McN Realty to any third party or any governmental entity or both
in connection with the merger proposal.
The Master Agreement provides that each McNeil Partnership other than the
Affiliated McNeil Partnerships will, as soon as practicable, subject to the
time periods set forth in its organizational documents and in applicable laws,
duly call, give notice of, convene and hold a meeting of its limited partners
for the purpose of obtaining requisite approval by its limited partners of that
McNeil Partnership of the merger proposal. See "The Meeting." The Master
Agreement provides that the meeting of the limited partners of each McNeil
Partnership will be held at the earliest practicable date following the date
this Proxy Statement is mailed to the limited partners of that McNeil
Partnership. The Master Agreement also provides that unless otherwise
prohibited by law, each McNeil Partnership and its general partner are required
to hold the limited partner meeting with respect to that McNeil Partnership,
regardless of whether the general partner of that McNeil Partnership has
withdrawn, amended or modified its recommendation that the limited partners of
that McNeil Partnership approve the merger proposal, unless that McNeil
Partnership has become an excluded McNeil Partnership pursuant to the terms of
the Master Agreement. See "--Termination of the Master Agreement--Right to
terminate the Master Agreement with respect to one or more McNeil
Partnerships."
The Master Agreement also provides that the general partner of each of the
McNeil Partnerships, other than the Affiliated McNeil Partnerships, will
recommend to the limited partners of that McNeil Partnership approval of the
merger proposal. See "Special Factors--Recommendations of the special committee
and the McNeil Investors board of directors; fairness of the transaction" and
"Special Factors--Position of McNeil Partners and Robert A. McNeil regarding
the transaction." Notwithstanding the foregoing, prior to the limited partner
meeting for a McNeil Partnership or any adjournment of the limited partner
meeting, the recommendation of the general partner of that McNeil Partnership
may be withdrawn, amended or modified as a result of the commencement or
receipt of a proposal constituting a superior acquisition proposal (as defined
below under "--Material covenants--No solicitation by Sellers") with respect to
that McNeil Partnership, but only to the extent described below in "--Material
covenants--No solicitation by Sellers."
The Master Agreement further provides that if on the date of the limited
partner meeting for a McNeil Partnership, that McNeil Partnership has not
received duly executed proxies which, when added to the number of votes
represented in person at the meeting by persons who intend to vote to adopt the
Master Agreement, will constitute a sufficient number of votes to adopt the
Master Agreement and limited partners holding greater than a majority of the
outstanding limited partner units in that McNeil Partnership have not indicated
their intention to vote against, and have not submitted duly executed proxies
voting against, the adoption of the Master Agreement, then that McNeil
Partnership and its general partner are required by the Master Agreement to
recommend the adjournment of its limited partner meeting until the date ten
days after the originally scheduled date of that limited partner meeting.
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No solicitation by Sellers
Prior to the effective time of the mergers, each Seller has agreed that:
. it will not, directly or indirectly, through any of its officers,
directors, employees or agents or representatives (including any
investment banker, attorney or accountant) retained by it, and it shall
not authorize or permit its officers, directors, employees or agents or
representatives (including any investment banker, attorney or accountant)
retained by it to, initiate, solicit or encourage any inquiries or the
making or implementation of any acquisition proposal (as defined below)
or engage in any negotiations concerning or provide any confidential
information or data to, or have any discussions with, any person relating
to an acquisition proposal, or otherwise facilitate any efforts to
attempt to make or implement an acquisition proposal;
. it will immediately cease and cause to be terminated any existing
activities, discussions or negotiations with any parties conducted prior
to the date of the Master Agreement with respect to any acquisition
proposal and will take the necessary steps to inform its officers,
directors, employees or agents or representatives (including any
investment banker, attorney or accountant) retained by it of the
obligations undertaken by it as described in "--Material covenants--No
solicitation by Sellers;" and
. it will notify WXI/McN Realty immediately if it receives any inquiries or
proposals, or any requests for information described in the first bullet
point above, or if any negotiations or discussions described in the
second bullet point above are sought to be initiated or continued with
it.
As used in this Proxy Statement, "acquisition proposal" means any proposal
or offer with respect to a merger, acquisition, purchase, tender offer,
exchange offer, consolidation or similar transaction involving all or any
significant portion of the assets (whether owned directly or indirectly) or
equity securities of, one or more of Sellers, other than the transactions with
WXI/McN Realty contemplated by the Master Agreement and the other transaction
documents.
As used in this Proxy Statement, "superior acquisition proposal" means a
bona fide acquisition proposal made by a third party for one or more of the
McNeil Partnerships which the general partner of that McNeil Partnership
determines in good faith to be more favorable to the limited partners of that
McNeil Partnership from a financial point of view than the merger proposal, and
which the general partner of that McNeil Partnership determines in good faith
is reasonably likely to be consummated.
Notwithstanding the foregoing, the general partner of any McNeil Partnership
may furnish information to or enter into discussions or negotiations with, any
person that makes an unsolicited acquisition proposal for that McNeil
Partnership, if, and only to the extent that, (a) such general partner
determines in good faith that such unsolicited acquisition proposal could
result in a superior acquisition proposal and that such action is required for
that general partner to comply with its duties to its limited partners imposed
by law; (b) prior to furnishing that information to, or entering into
discussions or negotiations with, that person, that general partner provides
written notice to WXI/McN Realty to the effect that it is furnishing
information to, or entering into discussions with, that person; (c) subject to
the following clause (d), that general partner keeps WXI/McN Realty informed of
the status but not the terms of any such discussions or negotiations with that
person; and (d) that McNeil Partnership does not enter into a binding written
agreement with respect to an acquisition proposal without providing WXI/McN
Realty with at least four business days prior notice of its intent to do so,
which notice shall disclose the material terms of the acquisition proposal. In
addition, the general partner of any McNeil Partnership may take and disclose
to the limited partners of that McNeil Partnership a position, with respect to
that McNeil Partnership, contemplated by the tender offer rules--Rule 14d-9,
"Solicitation/Recommendation Statements with Respect to Certain Tender Offers,"
and Rule 14e-2, "Position of Subject Company with Respect to a Tender Offer,"
under the Securities Exchange Act--with regard to an acquisition proposal for
that McNeil Partnership.
The general partner of any McNeil Partnership may approve and recommend a
superior acquisition proposal and, in connection with such approval and
recommendation, withdraw or modify its approval or
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recommendation of the merger proposal, prior to the approval by the limited
partners of that McNeil Partnership at the limited partner meeting or any
adjournment of the limited partner meeting of that McNeil Partnership of the
merger proposal.
The Master Agreement also provides that any disclosure that the general
partner of any McNeil Partnership may be compelled to make with respect to the
receipt of an acquisition proposal for that McNeil Partnership in order to
comply with its duties to its limited partners or that the general partner of
any McNeil Partnership may be compelled to make in order to comply with Rule
14d-9 or 14e-2 under the Securities Exchange Act, will not constitute a
violation of any of the foregoing paragraphs, provided that such disclosure
states that no action will be taken by that general partner with respect to the
withdrawal of its recommendation of the transactions contemplated by the Master
Agreement or the approval or recommendation of any acquisition proposal except
in accordance with the foregoing paragraphs.
Reasonable best efforts
The Master Agreement provides that Sellers and WXI/McN Realty will use their
reasonable best efforts, without the payment of any consideration for those
efforts and without compromising their respective rights and without incurring
additional liabilities or obligations, to take, or cause to be taken, all other
action and do, or cause to be done, all other things necessary, proper or
appropriate to consummate and make effective the transactions contemplated by
the Master Agreement and the other transaction documents.
In addition, the Master Agreement provides that Sellers will use their
reasonable best efforts:
. to cooperate with WXI/McN Realty in assisting WXI/McN Realty to obtain
new financing in connection with the mergers and the other transactions
contemplated by the Master Agreement and the other transaction documents;
. to obtain from Stanger & Co. the Stanger & Co. opinions, the Stanger &
Co. allocation analysis and, if requested, the appraisals (see "Special
Factors--Opinions and reports of financial advisors--Allocation analysis
and opinions of Stanger & Co."), and to obtain from Eastdil Realty
Company the Eastdil Realty Company opinions (see "Special Factors--
Opinions and reports of financial advisors--Eastdil Realty Company
opinions"), in each case on or prior to the date on which this Proxy
Statement is mailed to the limited partners of the McNeil Partnerships;
and
. to obtain the consent and estoppel certificates and the consents
specified in section 8.2(d) of the Master Agreement (see paragraphs (5)
and (6) under "--Conditions to closing--Conditions to WXI/McN Realty's
obligations to close"), estoppels from commercial tenants and ground
lessors and, if requested in writing by WXI/McN Realty, subordination,
non-disturbance and attornment agreements.
Sellers also have agreed to use their reasonable efforts to cooperate with
WXI/McN Realty in assisting WXI/McN Realty in its efforts to correct or satisfy
specified items relating to title to certain of the properties.
Replacement indemnification agreements
McNeil Partners and McNeil Investors currently are parties to existing
indemnification obligations or agreements relating to mortgage debt on some of
the McNeil Partnership properties and agreements with lenders or affiliates of
lenders of some mortgage debt on some of the properties. Under these existing
indemnification obligations and agreements, McNeil Partners or McNeil Investors
or both have assumed liability on behalf of one or more McNeil Partnerships or
their subsidiaries for exceptions to non-recourse provisions contained in that
mortgage debt.
In the Master Agreement, WXI/McN Realty has agreed to deliver at the closing
of the transaction any replacement agreements or other documents necessary to
assume all of the Sellers' obligations (other than the participating McNeil
Partnerships) and their affiliates as indemnitor under all of those existing
indemnification
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obligations or agreements, and to use its reasonable efforts to ensure that
those replacement agreements and other documents delivered at the closing
release Sellers (other than the participating McNeil Partnerships) and their
affiliates from all of Sellers' (other than the participating McNeil
Partnerships) and their affiliates' obligations under those existing
indemnification obligations and agreements. See "Special Factors--Effects of
the transaction--Benefits and detriments to the McNeil Affiliates."
In addition, WXI/McN Realty has agreed in the Master Agreement to indemnify
and hold harmless Sellers and their pre-closing affiliates (other than the
participating McNeil Partnerships and their subsidiaries) from and against all
obligations incurred under those existing indemnification obligations and
agreements after the closing date of the transaction.
McNeil Partners, to the extent that the obligations of McNeil Partners or
McNeil Investors as an indemnitor under any of those existing indemnification
obligations or agreements are not discharged, has agreed in the Master
Agreement to indemnify and hold harmless WXI/McN Realty from any and all
obligations incurred by McNeil Partners or McNeil Investors as an indenitor
under any of those existing indemnification obligations or agreements prior to
the closing date of the transaction.
Reimbursable proposals
The Master Agreement provides that during the period from June 24, 1999 to
the closing date of the transaction, Sellers have the option of presenting to
WXI/McN Realty for approval, which approval shall not be unreasonably withheld
or delayed, one or more proposals for capital expenditures, tenant inducements
(e.g., free rent, other cash-equivalent inducements and out-of-pocket
inducements) or commissions, specifying the budgeted amounts for these
proposals, that one or more McNeil Partnerships are contemplating in connection
with one or more new commercial leases or the lease of additional space to an
existing commercial tenant.
To the extent that any one or more of these proposals with respect to a
participating McNeil Partnership have been approved by WXI/McN Realty, WXI/McN
Realty will make a cash contribution to that participating McNeil Partnership
prior to the special distribution described in "--The mergers--Special
distribution of positive net working capital balance" in an aggregate amount
equal to the sum of the "capital expenditure reimbursement amount," calculated
as described below, for each proposal approved by WXI/McN Realty with respect
to that participating McNeil Partnership.
For any proposal that has been completed as of the estimated closing date of
the transaction, the "capital expenditure reimbursement amount" for that
proposal will equal the product determined by multiplying:
(1) an amount equal to the lesser of (a) the aggregate amount expended
or incurred through to the closing date of the transaction in connection
with that proposal and (b) the total budgeted amounts of that proposal, by
(2) a fraction, the numerator of which is the number of months,
including any fraction of a month, in the period beginning on the estimated
closing date of the transaction and ending on the last day of the initial
term of the applicable commercial lease, and the denominator of which is
the aggregate number of months in the initial term of the applicable
commercial lease. In no event will this fraction be greater than one.
For any proposal that has not been completed as of the estimated closing
date of the transaction, the "capital expenditure reimbursement amount" for
that proposal will equal the product determined by multiplying:
(1) the difference determined by subtracting
(a) the excess, if any, of (x) the sum of the aggregate amount
expended or incurred through to the closing date of the transaction in
connection with that proposal and the estimated additional amount
reasonably and in good faith jointly determined by WXI/McN Realty and
McNeil Partners
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required to be expended or incurred following the estimated closing
date of the transaction to complete that proposal over (y) the total
budgeted amounts for that proposal, from
(b) the aggregate amount expended or incurred through to the
closing date of the transaction in connection with that proposal, by
(2) a fraction, the numerator of which is the number of months,
including any fraction of a month, in the period beginning on the estimated
closing date of the transaction and ending on the last day of the initial
term of the applicable commercial lease, and the denominator of which is
the aggregate number of months in the initial term of the applicable
commercial lease. In no event will this fraction be greater than one.
The capital expenditure reimbursement amounts with respect to a
participating McNeil Partnership will be taken into account in the
determination of the modified net working capital balance and special
distribution of that participating McNeil Partnership. See "--The mergers--
Special distribution of positive net working capital balance."
Operation of McREMI assets
The Master Agreement provides that following the completion of the
transaction, Management LLC will own and operate the assets of McREMI
contributed in the transaction to WXI/McN Realty and its subsidiaries. The
Master Agreement provides that for a period ending no sooner than December 31
of the calendar year following the calendar year in which the closing occurs,
WXI/McN Realty will cause Management LLC to continue using certain of the
assets of McREMI contributed in the transaction to WXI/McN Realty and its
subsidiaries, subject to some rights to cease using McREMI assets if WXI/McN
Realty reasonably determines that the continued use of those assets is not
supported by sound business practices and to substitute more appropriate assets
if WXI/McN Realty determines that substitution would be sound business
practice. See "Special Factors--Plans for the McNeil Partnerships that
participate in the transaction."
The Master Agreement also provides that Management LLC will make offers of
employment to some employees of McREMI.
At the effective time of the mergers, McREMI will terminate the employment
of each employee that accepts an offer of employment from WXI/McN Realty or a
subsidiary of WXI/McN Realty as of the closing date and will cause the
termination of each other employee of the participating McNeil Partnerships and
their respective subsidiaries.
[Additional disclosure for Fund XXV: Harbour Club I purchase option
Fund XXV has granted to WXI/McN Realty the right to purchase the Harbour
Club I Apartments and Harbour Club Golf Course, at a price equal to $11,960,000
if (a) either Fund XXII or Fund XXIII or both are participating McNeil
Partnerships and (b) Fund XXV is an excluded McNeil Partnership. This right
will vest as of the effective time of the mergers. If WXI/McN Realty desires to
exercise its right to purchase the Harbour Club I Apartments and the Harbour
Club Golf Course, WXI/McN Realty must deliver a written notice to Fund XXV of
its election to do so promptly following the effective time of the mergers, but
in no event later than the fifteenth business day following the closing date.
In the event that WXI/McN Realty does not provide this notice to Fund XXV by
the fifteenth business day following the closing date, then WXI/McN Realty's
right will irrevocably lapse and Fund XXV's obligations in respect of that
right will be irrevocably discharged. The parties to the Master Agreement have
agreed that any closing of WXI/McN Realty's purchase of the Harbour Club I
Apartments and the Harbour Club Golf Course must be completed within 20
business days following the closing date.
Notwithstanding anything to the contrary in the Master Agreement, if WXI/McN
Realty exercises its right to purchase the Harbour Club I Apartments and the
Harbour Club Golf Course, WXI/McN Realty will pay at
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the closing of that transaction any outstanding mortgage debt secured by the
Harbour Club I Apartments or the Harbour Club Golf Course, including all
accrued but unpaid interest on that mortgage debt through the date of the
closing of WXI/McN Realty's purchase of the Harbour Club I Apartments and the
Harbour Club Golf Course, and all prepayment fees relating to that mortgage
debt. The purchase price of the Harbour Club I Apartments and the Harbour Club
Golf Course will be reduced by the amount of that mortgage debt, but not by the
amount of the related prepayment fees.
WXI/McN Realty's obligation to close its purchase of the Harbour Club I
Apartments and the Harbour Club Golf Course is subject to the fulfillment or
waiver by WXI/McN Realty on the date of that closing of the following
conditions:
. title to the Harbour Club I Apartments and the Harbour Club Golf Course
being free and clear of all material property restrictions and
encumbrances other than permitted restrictions and encumbrances and other
than matters which would not preclude the continued use of the Harbour
Club I Apartments and the Harbour Club Golf Course as they are being used
as of the date of the Master Agreement or would not materially and
adversely affect the value of the Harbour Club I Apartments and the
Harbour Club Golf Course as they are being used as of the date of the
Master Agreement; and
. Lawyer's Title Insurance Corporation, or another nationally recognized
title insurance company reasonably acceptable to Sellers and WXI/McN
Realty, being unconditionally obligated and prepared, subject to the
payment of the applicable title insurance premium and related charges at
WXI/McN Realty's sole cost and expense, to issue to or for the benefit of
WXI/McN Realty and one or more of its subsidiaries either (a) an extended
coverage ATLA owner's policy of title insurance (or the equivalent in the
applicable jurisdiction) effective as of the closing date of the
transaction for the Harbour Club I Apartments and the Harbour Club Golf
Course in an amount requested by WXI/McN Realty, which amount shall be
commercially reasonable, or (b) at the option of WXI/McN Realty, a "date-
down" to an existing policy of owner's title insurance, in each case in
accordance with the title commitments given by Lawyer's Title Insurance
Corporation to WXI/McN Realty, except for some permitted exclusions.
If one or both of the conditions set forth in the preceding bullet points
are not satisfied at the time of the closing of WXI/McN Realty's purchase of
the Harbour Club I Apartments and the Harbour Club Golf Course and WXI/McN
Realty has not waived the unsatisfied condition prior to that time, McNeil
Partners and WXI/McN Realty have agreed to negotiate in good faith a fair
reduction in the purchase price of the Harbour Club I Apartments and the
Harbour Club Golf Course to take into account the matters with respect to which
the condition is not satisfied.
At and after the effective time of the mergers, the owner of the Harbour
Club I Apartments and the Harbour Club Golf Course agrees, for so long as that
owner continues to own the Harbour Club I Apartments and the Harbour Club Golf
Course, to manage, or cause to be managed, either or both of the Harbour Club
II Apartments and the Harbour Club III Apartments, if so requested by their
respective owners, at market terms and at market rates, pursuant to a property
management agreement in a form substantially comparable to that used for
comparable properties, subject to that owner obtaining the consent or approval
of each person whose consent or approval is required to a change in the
management of that property.]
Material representations and warranties
The Master Agreement contains customary representations and warranties by
each of Sellers and WXI/McN Realty relating to, among other things:
. due incorporation or formation, valid existence and good standing;
. capitalization;
. power and authority to enter into the transaction;
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. authorization, execution, delivery and performance of the Master
Agreement and the other transaction documents;
. no conflicts with, violations of or defaults under organizational
documents, material agreements or applicable laws as a result of the
transaction;
. governmental approvals required in connection with the transaction;
. compliance with laws;
. litigation;
. brokers;
. compliance with the Investment Company Act of 1940; and
. compliance with the Hart-Scott-Rodino Antitrust Improvements Act of 1976.
These representations and warranties are subject, in certain cases, to
specified exceptions and qualifications, including, with respect to Sellers, a
"Seller material adverse effect" qualification.
"Seller material adverse effect" means a material adverse effect on the
business, properties, financial condition or results of operations of the
participating McNeil Partnerships, taken as a whole. Notwithstanding the
foregoing, the following are to be excluded from the definition of "Seller
material adverse effect" and from any determination as to whether any Seller
material adverse effect has occurred or may occur:
. the effects of changes that are generally applicable to (1) the
residential real estate industry or the commercial real estate industry
or both or (2) any material change in the financial, banking, currency or
capital markets in general, either in the United States or any
international market;
. any facts or circumstances relating to WXI/McN Realty or its affiliates;
and
. any adverse effect from and after June 24, 1999 if that effect is clearly
related to or caused by, the execution of the Master Agreement, the
transactions contemplated by the Master Agreement or by the other
transaction documents or the announcement of the Master Agreement,
including the identity of WXI/McN Realty or any of its affiliates or
subsidiaries, or the transactions contemplated by the Master Agreement.
In addition, Sellers have made representations and warranties to WXI/McN Realty
regarding:
. good and valid title to the general partner interests in the McNeil
Partnerships and the limited partner interests in Fairfax and McNeil
Summerhill I, L.P. and good and marketable title to the assets of McREMI
being contributed;
. filings with the SEC;
. financial statements;
. undisclosed liabilities;
. absence of certain changes since December 31, 1998;
. real properties;
. environmental matters;
. taxes;
. payments to employees, officers or directors;
. related party transactions;
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. employee benefits and other employee matters;
. material contracts and debt instruments;
. management agreements;
. exemption of the transaction from state takeover statutes;
. insurance;
. institution of a year 2000 compliance program;
. books and records; and
. personal property.
These representations and warranties are subject, in some cases, to
specified exceptions and qualifications, including a Seller material adverse
effect qualification.
WXI/McN Realty has also made representations and warranties to Sellers
regarding financing, including:
. that WXI/McN Realty has entered into a commitment letter for financing
from Whitehall and that Sellers have received a written limited guarantee
of WXI/McN Realty's obligations under the Master Agreement from Whitehall
and
. that regardless of whether or not the transactions contemplated by that
commitment letter or the obligations under that guarantee are performed,
WXI/McN Realty will have sufficient funds to consummate the transactions
contemplated to occur after the effective time of the mergers by the
Master Agreement and the other transaction documents.
WXI/McN Realty has also acknowledged and agreed in the Master Agreement
that its obligation to effect the transactions contemplated by the Master
Agreement and the other transaction documents is not subject to the
availability to WXI/McN Realty, WXI/McN Realty's managing member or Whitehall
or any of their respective affiliates or subsidiaries of any debt or equity or
other financing in any amount.
All of the representations and warranties set forth in the Master Agreement
terminate as of the effective time of the mergers and following the effective
time of the mergers have no further force or effect.
Conditions to closing
Conditions to each party's obligations to close
The obligations of Sellers and WXI/McN Realty to effect the transaction are
subject to the fulfillment, or waiver by each party to the Master Agreement,
at or prior to the effective time of the mergers of the following conditions:
. the approval of the merger proposal by the requisite number of limited
partner units in each participating McNeil Partnership, other than McNeil
Summerhill I, L.P., whose approval has already been obtained;
. no court or governmental entity having enacted any statute, rule,
regulation, judgment, decree, injunction or other order (1) that is in
effect and prohibits consummation of the transaction with respect to the
participating McNeil Partnerships or (2) that is enacted, issued,
promulgated, enforced or entered after the date of the Master Agreement
and is in effect and imposes restrictions on WXI/McN Realty or the
participating McNeil Partnerships with respect to the business operations
of the participating McNeil Partnerships which would result in a Seller
material adverse effect;
. no governmental entity having instituted any proceeding or threatened to
institute any proceeding seeking any statute, rule, regulation, judgment,
decree, injunction or other order described in clauses (1)
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or (2) of the immediately preceding bullet point, and no other person
having instituted any proceeding seeking any statute, rule, regulation,
judgment, decree, injunction or other order described in clauses (1) or
(2) of the immediately preceding bullet point, which is reasonably likely
to succeed;
. the obtaining or making, as the case may be, of all material actions by,
and all consents, approvals, orders or authorizations from, or filings
with, governmental entities necessary for the consummation of the
transaction with respect to the participating McNeil Partnerships;
. settlement on terms satisfactory to McNeil Partners, and substantially in
the form of the settlement agreement delivered by Sellers to WXI/McN
Realty, of all claims with respect to the participating McNeil
Partnerships, the general partners of the participating McNeil
Partnerships and the assets of McREMI asserted in connection with the
action of the Schofield litigation (see "Special Factors--Background of
the transaction--Background of the Schofield litigation"); and
. determination of the modified net working capital balance for each
participating McNeil Partnership calculated in accordance with the Master
Agreement (see "--The mergers--Special distribution of positive net
working capital balance").
The condition described in the fifth bullet point above has been satisfied.
On July 8, 1999, the court granted final approval to the settlement of the
Schofield litigation and dismissed the action.
Conditions to WXI/McN Realty's obligations to close
WXI/McN Realty's obligations to effect the transaction are subject to the
fulfillment, or waiver by WXI/McN Realty, at or prior to the effective time of
the mergers of the following additional conditions:
(1) the representations and warranties of Sellers set forth in the
Master Agreement (other than the representations and warranties that are
the subject of paragraph (2) below) being true and correct at and as of the
closing date of the transaction as though made on and as of the closing
date of the transaction but immediately prior to the transfers of assets,
rights and interests and the other transactions described in "--The
contributions" and "--The mergers" except that:
. each representation and warranty is deemed to be amended as of the
closing date (a) as described below in "--Conditions to closing--
Certain exclusions from conditions to closing" and (b) so as not to
give effect to any materiality or Seller material adverse effect
qualifiers contained in the representation or warranty,
. to the extent any representation or warranty is expressly limited by
its terms to a specific date, that representation or warranty must be
true and correct at and as of that date, and
. the condition is satisfied unless the failure of the representations
and warranties to be true and correct constitutes individually or in
the aggregate, a Seller material adverse effect.
(2) the representations and warranties of Sellers relating to:
. due incorporation, valid existence and good standing of McNeil
Investors and McREMI,
. complete and correct copies of organizational documents of Sellers,
. good and marketable title to the assets of McREMI being contributed,
. power and authority to enter into the transaction and authorization,
execution, delivery and performance of the Master Agreement and the
other transaction documents, and
. governmental approvals required in connection with the transaction,
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being true and correct in all material respects at and as of the closing
date of the transaction, as though made on and as of the closing date of
the transaction, but immediately prior to the transfers of assets, rights
and interests and the other transactions described in "--The contributions"
and "--The mergers" except that:
. each representation and warranty is deemed to be amended as of the
closing date as described below in "--Conditions to closing--Certain
exclusions from conditions to closing";
. to the extent any representation or warranty is expressly limited by
its terms to a specific date, that representation or warranty must be
true and correct at and as of that date; and
. the representations and warranties having a materiality or Seller
material adverse effect qualifier must be true and correct in all
respects;
(3) performance in all material respects by Sellers of all obligations
required to be performed by Sellers under the Master Agreement at or prior
to the effective time of the mergers, other than obligations with respect
to excluded McNeil Partnerships (see "--Termination of the Master
Agreement--Right to terminate the Master Agreement with respect to one or
more McNeil Partnerships"), including the execution and delivery of the
ancillary agreements in respect of the transaction to which any Seller is a
party;
(4) receipt by WXI/McN Realty of a certificate signed on behalf of
Sellers by an executive officer of Sellers certifying the accuracy of the
statements set forth in paragraphs (1), (2) and (3) above;
(5) Sellers having obtained the consent and estoppel certificate of each
lender of mortgage debt which is being indirectly assumed by WXI/McN
Realty;
(6) Sellers having obtained any consents or approvals which if not
obtained would have, individually or in the aggregate, a Seller material
adverse effect;
(7) on the closing date,
. title to each property owned by a participating McNeil Partnership
being free and clear of all encumbrances and property restrictions
other than permitted restrictions and encumbrances and matters which
would not reasonably preclude the continued use of that property as
it is being used as of the date of the Master Agreement or would not
reasonably materially and adversely affect the value of that property
as it is being used as of the date of the Master Agreement;
. Lawyer's Title Insurance Corporation, or another nationally
recognized title insurance company reasonably acceptable to Sellers
and WXI/McN Realty, being unconditionally obligated and prepared,
subject to the payment of the applicable title insurance premium and
related charges at WXI/McN Realty's sole cost and expense, to issue
to or for the benefit of WXI/McN Realty and one or more of its
subsidiaries, either (a) an extended coverage ATLA owner's policy of
title insurance (or the equivalent in the applicable jurisdiction)
effective as of the closing date of the transaction for each property
owned by each participating McNeil Partnership in an amount requested
by WXI/McN Realty, which amount shall be commercially reasonable, or
(b) at the option of WXI/McN Realty, a "date-down" to an existing
policy of owner's title insurance; and
. the title insurance policies referred to in clause (a) of the
immediately preceding bullet point being issued in accordance with
the title commitments given by Lawyer's Title Insurance Corporation
to WXI/McN Realty, except for some permitted exclusions;
(8) Sellers having received estoppels from tenants (including tenants
leasing space pursuant to specified commercial leases) leasing at least
seventy-five percent (75%) of the aggregate square footage leased pursuant
to all commercial leases, provided that, subject to some limitations, in
lieu of tenant
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estoppels for up to 10% of the aggregate square footage leased pursuant to
all commercial leases, McNeil Partners may deliver landlord estoppels;
(9) Sellers having received an estoppel from each lessor under a ground
lease, addressed to WXI/McN Realty and its lender;
(10) the sum of the net operating incomes, calculated as provided in the
Master Agreement, for each participating McNeil Partnership for the twelve
months ended on the last day of the most recently completed fiscal month
prior to the closing date of the transaction being greater than or equal to
the product determined by multiplying (a) 0.8723 by (b) an amount equal to
the sum of the net operating incomes, calculated as provided in the Master
Agreement, for each participating McNeil Partnership for its 1998 fiscal
year;
(11) WXI/McN Realty having received an opinion from Skadden, Arps or
other counsel to Sellers reasonably acceptable to WXI/McN Realty, dated as
of the closing date of the transaction, in respect of certain matters
relating to the pledge by McNeil Partners of its McNeil Class A Interests
in WXI/McN Realty and the Indemnification and Pledge Agreement (see
"Special Factors--Effects of the transaction--Benefits and detriments to
the McNeil Affiliates," "WXI/McN Realty Operating Agreement," and "Other
Agreements Between the McNeil Affiliates and Affiliates of WXI/McN Realty--
Indemnification and pledge agreement"); and
(12) the transactions described in "--The contributions--Replacement of
general partner" having been consummated.
Conditions to Sellers' obligations to close
Sellers' obligations to effect the transaction are subject to the
fulfillment, or waiver by Sellers', at or prior to the effective time of the
mergers of the following conditions:
(1) the representations and warranties of WXI/McN Realty set forth in
the Master Agreement being true and correct at and as of the closing date
as though made on and as of the closing date but immediately prior to the
transfers of assets, rights and interests and the other transactions
described in "--The mergers" and "--The contributions" except that:
. each representation and warranty shall be deemed to be amended as of
the closing date so as not to give effect to any materiality
qualifiers contained in the representation or warranty;
. to the extent any representation or warranty is expressly limited by
its terms to a specific date, that representation or warranty must be
true and correct at and as of that date; and
. the condition is satisfied unless the failure of the representations
and warranties to be true and correct prevents WXI/McN Realty or any
of its subsidiaries from consummating the transaction;
(2) performance in all material respects by WXI/McN Realty of all
obligations required to be performed by WXI/McN Realty under the Master
Agreement at or prior to the effective time of the mergers, other than
obligations with respect to excluded McNeil Partnerships ( see "--
Termination of the Master Agreement--Right to terminate the Master
Agreement with respect to one or more McNeil Partnerships"), including the
execution and delivery of the ancillary agreements to which either WXI/McN
Realty or any of its subsidiaries is a party;
(3) receipt by each Seller of a certificate signed on behalf of WXI/McN
Realty by a senior officer of WXI/McN Realty certifying the accuracy of the
statements set forth in paragraphs (1) and (2) above;
(4) Stanger & Co. having delivered to Sellers the allocation analysis,
the appraisals, if they had been requested by Sellers prior to the date of
the mailing of this Proxy Statement, and the Stanger & Co. opinions, in
each case, prior to the date of the mailing of this Proxy Statement, and
Sellers having received
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the Stanger & Co. opinions to the effect that each of the matters opined
upon therein and each of the allocations is fair from a financial point of
view to the holders of each class of limited partner units in each McNeil
Partnership (see "--Opinions and reports of financial advisors--Allocation
analysis and opinions of Stanger & Co."); and
(5) Eastdil Realty Company having delivered to the special committee the
Eastdil Realty Company opinions prior to the date of the mailing of this
Proxy Statement, and the special committee having received the Eastdil
Realty Company opinions to the effect that each of the matters opined upon
therein is fair from a financial point of view to the holders of each class
of limited partner units in each McNeil Partnership (see "--Opinions and
reports of financial advisors--Eastdil Realty Company opinions").
Certain exclusions from conditions to closing
The parties to the Master Agreement have agreed that because no excluded
McNeil Partnership is subject to the closing, none of the conditions to closing
described above in "--Conditions to closing" needs to be satisfied with respect
to any excluded McNeil Partnership or the subsidiaries, properties, etc. of any
excluded McNeil Partnership. See "--Termination of the Master Agreement--Right
to terminate the Master Agreement with respect to one or more McNeil
Partnerships."
The Master Agreement also provides that the following shall not be
considered in determining whether or not any or all of the conditions to
closing described above in "--Conditions to closing--Conditions to each party's
obligations to close" and "--Conditions to closing--Conditions to WXI/McN
Realty's obligations to close" have been fulfilled:
. any effect on any of the participating McNeil Partnerships' business,
properties, financial condition or results of operations resulting,
directly or indirectly, from WXI/McN Realty's failure to consent to a
commercial lease or any amendment to any commercial lease as requested by
Sellers in good faith; and
. any effect on any of the participating McNeil Partnerships' business,
properties, financial condition or results of operations resulting,
directly or indirectly, from WXI/McN Realty's failure to consent to a
proposal described in "--Material covenants--Reimbursable proposals"
proposed by Sellers in good faith.
The parties to the Master Agreement have agreed that none of the conditions
to closing described in paragraphs (1), (2), (3), (5), (6), (7), (8), (9) and
(10) under "--Conditions to closing--Conditions to WXI/McN Realty's obligations
to close," after giving effect to the paragraphs above, needs to be satisfied
with respect to any one or more McNeil Partnerships designated by WXI/McN
Realty as "Included Partnerships" (or the subsidiaries, properties, etc. of any
Included Partnership) or with respect to any one or more matters designated by
WXI/McN Realty as "Included Partnership Matters." See "--Conditions to
closing--Removal notices."
Removal notices
The Master Agreement provides that Sellers have the right to exclude one or
more McNeil Partnerships from the transaction in their discretion. For example,
Sellers may choose to exclude a particular McNeil Partnership because that
McNeil Partnership potentially may fail to satisfy the conditions to closing
described above in "--Conditions to closing--Conditions to WXI/McN Realty's
obligations to close" and therefore could result in the entire transaction
failing to close with respect to all of the participating McNeil Partnerships
unless that particular McNeil Partnership was excluded.
At any time until and including the date of the limited partner meeting for
a participating McNeil Partnership, Sellers may provide a written "Matter
Removal Notice" to WXI/McN Realty identifying that McNeil Partnership as a
"Removable Partnership" and describing in reasonable detail matters relating to
that McNeil Partnership that Sellers believe in good faith may cause that
McNeil Partnership to become an
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excluded McNeil Partnership as described in "--Termination of the Master
Agreement--Right to terminate the Master Agreement with respect to one or more
McNeil Partnerships." Upon WXI/McN Realty's receipt of any Matter Removal
Notice, WXI/McN Realty has a limited amount of time to provide written notice
to Sellers identifying which, if any, of the matters described in the Matter
Removal Notice WXI/McN Realty designates as an "Included Partnership Matter."
By designating a matter as an "Included Partnership Matter," WXI/McN Realty
agrees to close the transaction with the McNeil Partnership to which that
matter relates, provided that the McNeil Partnership is not otherwise excluded,
even if that McNeil Partnership does not satisfy the specified conditions to
closing described below.
At any time following the date of the limited partner meeting of a
participating McNeil Partnership, Sellers may provide a written "Pre-Closing
Removal Notice" to WXI/McN Realty identifying that McNeil Partnership as a
"Pre-Closing Removable Partnership" which Sellers desire to exclude from the
transaction. Upon WXI/McN Realty's receipt of any Pre-Closing Removal Notice,
WXI/McN Realty has a limited amount of time to provide written notice to
Sellers identifying which, if any, of the Pre-Closing Removable Partnerships
WXI/McN Realty designates as an "Included Partnership." By designating a McNeil
Partnership as an "Included Partnership," WXI/McN Realty agrees to close the
transaction with that McNeil Partnership, provided that it is not otherwise
excluded, even if that McNeil Partnership does not satisfy the specified
conditions to closing described in the following paragraph.
The parties to the Master Agreement have agreed that none of the conditions
to closing described in paragraphs (1), (2), (3), (5), (6), (7), (8), (9) and
(10) under "--Conditions to closing--Conditions to WXI/McN Realty's obligations
to close," after giving effect to the paragraphs in "--Conditions to closing--
Certain exclusions from conditions to closing," needs to be satisfied with
respect to any one or more Included Partnership Matters or any one or more
Included Partnerships (or any subsidiaries, properties, etc. of any Included
Partnership).
Termination of the Master Agreement
Right to terminate the Master Agreement
The Master Agreement provides that it may be terminated in its entirety at
any time prior to the effective time of the mergers, regardless of whether or
not the requisite approvals of the respective limited partners of each of the
McNeil Partnerships have been obtained, as follows:
(1) by the mutual written consent of each Seller and WXI/McN Realty;
(2) by WXI/McN Realty, on the one hand, or any Seller, on the other
hand:
(a) if any judgment, injunction, order, decree or action by any
governmental entity of competent authority preventing the consummation
of the transaction other than with respect to any excluded McNeil
Partnerships (see "--Right to terminate the Master Agreement with
respect to one or more McNeil Partnerships"), has become final and
nonappealable; or
(b) if the closing has not occurred on or before June 24, 2000;
(3) by any Seller if (a) WXI/McN Realty materially breaches any of its
representations, warranties, covenants, obligations or agreements set forth
in the Master Agreement, (b) that breach cannot be or is not remedied
within 30 days and (c) the conditions set forth in paragraphs (1) and (2)
under "--Conditions to closing--Conditions to Sellers' obligations to
close" cannot be satisfied by June 24, 2000; or
(4) by WXI/McN Realty if (a) any Seller materially breaches any of its
representations, warranties, covenants, obligations or agreements set forth
in the Master Agreement, (b) that breach cannot be or is not remedied
within 30 days and (c) the conditions set forth in paragraphs (1), (2) and
(3) under "--Conditions to Closing--Conditions to WXI/McN Realty's
obligations to close" cannot be satisfied by June 24, 2000.
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Right to terminate the Master Agreement with respect to one or more McNeil
Partnerships
In addition, under some circumstances, the Master Agreement may be
terminated with respect to a particular McNeil Partnership (an "excluded McNeil
Partnership") and that McNeil Partnership will be excluded from the
transaction, whether or not the requisite approvals of that McNeil Partnership
have been obtained, except as indicated to the contrary below. These
circumstances include, among others:
(1) by the mutual written consent of each Seller and WXI/McN Realty;
(2) by WXI/McN Realty, on the one hand, or any Seller, on the other
hand,:
(a) if, upon a vote at a duly held limited partner meeting or any
adjournment of the limited partner meeting for that McNeil Partnership,
the requisite approval of the limited partners of that McNeil
Partnership of the merger proposal has not been obtained;
(b) with respect to a McNeil Partnership if any judgment,
injunction, order, decree or action by any governmental entity of
competent authority preventing the consummation of the transaction with
respect to that McNeil Partnership has become final and nonappealable;
or
(c) in respect of Fairfax only, following the date which is the
tenth business day after the date of the mailing of this Proxy
Statement, if the requisite approval of the limited partners of Fairfax
of the replacement of general partner and the appointment of the
applicable WXI/McN Realty subsidiary as the general partner of Fairfax
described under "--The contributions--Replacement of general partner"
and the other transactions contemplated by the Master Agreement with
respect to Fairfax has not been obtained.
(3) by any Seller:
(a) if prior to the approval of the merger proposal by the limited
partners of that McNeil Partnership the general partner of that McNeil
Partnership, in the exercise of its good faith judgment as to its
fiduciary duties to the limited partners of that McNeil Partnership
and, as advised by counsel, determines that it is required to terminate
the Master Agreement with respect to that McNeil Partnership because a
superior acquisition proposal (as defined in "--Material covenants--No
solicitation by Sellers") has been made with respect to that McNeil
Partnership (see "--Material covenants--No solicitation by Sellers");
(b) in respect of any one or more of the Pre-Closing Removable
McNeil Partnerships which WXI/McN Realty has not designated in writing
as an Included Partnership by a certain date; or
(c) in respect of any one or more of the Removable McNeil
Partnerships with respect to which WXI/McN Realty has not designated in
writing as Included Partnership Matters all of the matters described in
the Matter Removal Notice by a certain date; or
(4) by WXI/McN Realty with respect to a McNeil Partnership, if the
general partner of that McNeil Partnership:
(a) has failed to recommend to the limited partners of that McNeil
Partnership the approval of the merger proposal, in connection with an
acquisition proposal by a third party in respect of that McNeil
Partnership;
(b) has withdrawn or modified in a manner adverse to WXI/McN Realty
its approval or recommendation that the limited partners of that McNeil
Partnership approve the merger proposal, in connection with an
acquisition proposal for that McNeil Partnership; or
(c) has approved or recommended an acquisition proposal for that
McNeil Partnership.
Effect of termination of the Master Agreement
If the Master Agreement is validly terminated in its entirety by any Seller
or WXI/McN Realty as provided above under "--Right to terminate the Master
Agreement," or is validly terminated by any Seller or
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WXI/McN Realty with respect to one or more McNeil Partnerships as provided
above under "--Right to terminate the Master Agreement with respect to one or
more McNeil Partnerships," the Master Agreement will become null and void and
of no further force or effect, in its entirety if it is terminated in its
entirety or with respect to one or more McNeil Partnerships if it is terminated
with respect to those McNeil Partnerships, as the case may be, and none of
Sellers or WXI/McN Realty, or any of their respective subsidiaries, or any of
their respective partners, stockholders, members, equity holders, directors,
officers, employees, affiliates, agents, representatives, successors or assigns
will have any liability or obligation under the Master Agreement except that:
. in the case of termination of the Master Agreement in its entirety, any
obligations of the parties to the Master Agreement relating to the
following will survive termination of the Master Agreement:
confidentiality; fees and expenses; effect of termination; nonsurvival of
representations, warranties and covenants; no recourse of WXI/McN Realty
and related parties to parties other than Sellers; payment of break-up
fee; reimbursement of expenses; and the provisions set forth in Article
XI of the Master Agreement;
. one or more of Sellers or WXI/McN Realty may have liability to one or
more of Sellers or WXI/McN Realty if the basis of the termination is a
willful, material breach by one or more of Sellers or WXI/McN Realty of
one or more of the provisions of the Master Agreement; and
. in the case of termination of the Master Agreement in respect of a McNeil
Partnership, the liabilities and obligations of the parties to the Master
Agreement with respect to the other McNeil Partnerships would remain in
effect, and any obligations of the parties to the Master Agreement
relating to the following will survive termination of the Master
Agreement in respect of that McNeil Partnership: confidentiality;
correction and satisfaction of specified items relating to title;
[additional disclosure for Fund XXV: the Harbour Club I purchase option;]
public announcements; fees and expenses; binding effect of Stanger
allocations; effect of termination; nonsurvival of representations,
warranties and covenants; no recourse of WXI/McN Realty and related
parties to parties other than Sellers; payment of break-up fee;
reimbursement of expenses; and the provisions set forth in Article XI of
the Master Agreement.
The confidentiality agreement entered into as of March 25, 1999 among
Whitehall, McNeil Partners and McREMI will continue in effect notwithstanding
the termination of the Master Agreement in its entirety or the termination of
the Master Agreement with respect to one or more McNeil Partnerships. WXI/McN
Realty's obligation to hold any nonpublic information relating to Sellers or
the McNeil Partnerships' subsidiaries or any of their respective businesses or
properties in confidence to the extent required by, and in accordance with, the
provisions of the confidentiality agreement, and the obligation of WXI/McN
Realty to cause its subsidiaries and affiliates and each of its and their
officers, employees, accountants, counsel, financial advisors and other
representatives to do the same, shall survive the termination of the Master
Agreement in its entirety and the termination of the Master Agreement with
respect to one or more McNeil Partnerships. Notwithstanding the foregoing,
immediately following the closing of the transaction, the rights and
obligations under the confidentiality agreement of the parties to the
confidentiality agreement will terminate with respect to any participating
McNeil Partnership and the subsidiaries of that participating McNeil
Partnership.
WXI/McN Realty has agreed in the Master Agreement that following termination
of the Master Agreement in its entirety or with respect to one or more McNeil
Partnerships, as the case may be, it will not, and will cause its affiliates
not to, oppose or seek to prevent or frustrate any transaction or agreement
that Sellers or any of their subsidiaries may propose or enter into relating to
any business combination between Sellers and any third party if the Master
Agreement is terminated in its entirety, or between Sellers and any third party
in respect of an excluded McNeil Partnership if the Master Agreement is
terminated in respect of one or more McNeil Partnerships. Notwithstanding the
foregoing, if Goldman, Sachs & Co. and its affiliates, including, without
limitation, Whitehall and WXI/McN Realty's managing member, (a) are not using
all or any portion of the material provided by the Sellers to Whitehall in
connection with Whitehall's evaluation of the transaction in violation of the
confidentiality agreement, and (b) are not using all or any portion of the
material
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provided by the Sellers to Whitehall in connection with Whitehall's evaluation
of the transaction in any of the activities specified below and (c) are not in
violation of their obligation to hold any nonpublic information relating to
Sellers or the McNeil Partnerships' subsidiaries or any of their respective
businesses or properties in confidence to the extent required by, and in
accordance with, the provisions of the confidentiality agreement, and to cause
its subsidiaries and affiliates and each of its and their officers, employees,
accountants, counsel, financial advisors and other representatives to do the
same, then nothing in the Master Agreement will in any manner apply to or
restrict the activities of Goldman, Sachs & Co. and its affiliates from
engaging in asset management, brokerage, investment advisory, investment
banking, financial advisory, anti-raid advisory, financing, trading, market
making, arbitrage and other similar activities conducted in the ordinary course
of its and its affiliates' business.
Fees and expenses
General
Except as described in the following paragraph and in "--Aggregate
consideration--Prepayment and assumption of indebtedness," "--The mergers--
Exchange of certificates," "--Fees and expenses--Partnership break-up fee" and
"--Fees and expenses--Reimbursement of expenses," whether or not the
transaction is consummated, all costs and expenses incurred in connection with
the Master Agreement and the other transaction documents including, without
limitation, the fees, expenses and disbursements of counsel, financial advisors
and accountants, will be paid by the party incurring those costs and expenses.
See "Special Factors--Fees and expenses relating to the transaction."
Without limiting the generality of the foregoing paragraph, whether or not
the transaction is consummated, McREMI has agreed that it will be liable for
the transaction expenses incurred by McREMI on behalf of itself and not on
behalf of the McNeil Partnerships or the McNeil Partnerships' subsidiaries.
Whether or not the transaction is consummated, each McNeil Partnership has
agreed that it will be liable for the amount of transaction expenses actually
incurred by it on behalf of itself and its subsidiaries and an amount equal to
that McNeil Partnership's ratable share of transaction expenses incurred by
Sellers that are not specifically identifiable to individual McNeil
Partnerships based on the relative percentage set forth in the column
"Partnership Percentage" in Table 2 opposite the name of that McNeil
Partnership. Notwithstanding the foregoing, a McNeil Partnership which becomes
an excluded McNeil Partnership as described in paragraph (2)(a) in "--
Termination of the Master Agreement--Right to terminate the Master Agreement
with respect to one or more McNeil Partnerships" will not be liable for
transaction expenses incurred by Sellers following the date on which that
McNeil Partnership became an excluded McNeil Partnership as described in such
paragraph (2)(a), and the participating McNeil Partnerships will share those
transaction expenses ratably, based on the relative percentages set forth in
the column "Partnership Percentage" in Table 2 opposite the name of the
participating McNeil Partnerships.
Partnership break-up fee
In addition, in some circumstances, WXI/McN Realty will receive a break-up
fee, calculated on a partnership by partnership basis, up to an aggregate
maximum of $18.0 million, if the Master Agreement is terminated with respect to
one or more McNeil Partnerships. In the case of termination of the Master
Agreement in these circumstances, each McNeil Partnership with respect to which
the Master Agreement has been terminated will be severally, but not jointly,
liable for payment to WXI/McN Realty of its respective partnership break-up
fee. These circumstances include, among others:
(1) a Seller terminates the Master Agreement with respect to that McNeil
Partnership because prior to the approval of the merger proposal by the
limited partners of that McNeil Partnership, the general partner of that
McNeil Partnership, in the exercise of its good faith judgment as to its
fiduciary duties to the limited partners of that McNeil Partnership and, as
advised by counsel, determines that it is required to terminate the Master
Agreement with respect to that McNeil Partnership because a superior
acquisition proposal has been made with respect to that McNeil Partnership
(see paragraph 3(a) in "--Termination of the Master Agreement--Right to
terminate the Master Agreement with respect to one or more McNeil
Partnerships");
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(2) WXI/McN Realty terminates the Master Agreement with respect to that
McNeil Partnership because the general partner of that McNeil Partnership:
. has failed to recommend to the limited partners of that McNeil
Partnership the approval of the merger proposal, in connection with
an acquisition proposal by a third party in respect of that McNeil
Partnership;
. has withdrawn or modified in a manner adverse to WXI/McN Realty its
approval or recommendation that the limited partners of that McNeil
Partnership approve the merger proposal, in connection with an
acquisition proposal for that McNeil Partnership; or
. has approved or recommended an acquisition proposal for that McNeil
Partnership (see paragraphs 4(a), (b) and (c) in "--Termination of
the Master Agreement--Right to terminate the Master Agreement with
respect to one or more McNeil Partnerships");
(3) if each of the following occurs:
. either (A) a person who is not an affiliate of WXI/McN Realty,
Whitehall or WXI/McN Realty's managing member consummates an
acquisition of more than 10% of the outstanding limited partner units
in that McNeil Partnership following the date of the Master Agreement
or (B) a person who is not an affiliate of WXI/McN Realty, WXI/McN
Realty's managing member or Whitehall makes an acquisition proposal
for that McNeil Partnership;
. WXI/McN Realty or any Seller terminates the Master Agreement with
respect to that McNeil Partnership because, upon a vote at a duly
held limited partner meeting or any adjournment of the limited
partner meeting for that McNeil Partnership, the requisite approval
of the limited partners of that McNeil Partnership of the merger
proposal has not been obtained (see paragraph 2(a) in "--Termination
of the Master Agreement--Right to terminate the Master Agreement with
respect to one or more McNeil Partnerships"); and
. that McNeil Partnership enters into a definitive agreement relating
to a higher acquisition proposal (as defined below) within six months
of that McNeil Partnership becoming an excluded McNeil Partnership;
or
(4) (A) the general partner of that McNeil Partnership as of the date of
the Master Agreement is replaced and (B) WXI/McN Realty or any Seller
terminates the Master Agreement with respect to that McNeil Partnership
because, upon a vote at a duly held limited partner meeting or any
adjournment of the limited partner meeting for that McNeil Partnership, the
requisite approval of the limited partners of that McNeil Partnership of
the merger proposal has not been obtained (see paragraph 2(a) in "--
Termination of the Master Agreement--Right to terminate the Master
Agreement with respect to one or more McNeil Partnerships").
As used in this Proxy Statement "higher acquisition proposal" means an
acquisition proposal made by one or more persons which are not affiliates of
WXI/McN Realty, Whitehall or WXI/McN Realty's managing member with respect to a
McNeil Partnership, which WXI/McN Realty and the general partner of that McNeil
Partnership jointly determine to be more favorable to the limited partners of
that McNeil Partnership from a financial point of view than the merger
proposal. Notwithstanding the foregoing, the payment of the partnership break-
up fee by such person(s) will not be taken into consideration in determining
whether or not that acquisition proposal is more favorable to the limited
partners of that McNeil Partnership from a financial point of view than the
merger proposal. If WXI/McN Realty and the general partner of the applicable
McNeil Partnership are unable to reach agreement as to whether or not that
acquisition proposal is more favorable to the limited partners of that McNeil
Partnership from a financial point of view than the merger proposal within
three business days of that McNeil Partnership's execution of definitive
documents relating to that acquisition proposal, then WXI/McN Realty and that
McNeil Partnership agree to submit their dispute to the financial advisor,
selected as described in the following sentence, whose determination will be
final and binding upon all of the parties to the Master Agreement. In the case
of a higher acquisition proposal in which the consideration
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offered to the limited partners is solely cash consideration, the financial
advisor will be Stanger & Co., and Stanger & Co. will make its determination
within ten business days. In the case of a higher acquisition proposal in which
the consideration offered to the limited partners involves non-cash
consideration, the financial advisor will be an investment bank which has been
selected by the mutual agreement of the parties, or failing that, an investment
bank which has been selected jointly by an investment bank selected by McNeil
Partners and an investment bank selected by WXI/McN Realty.
In the case of termination of the Master Agreement as set forth in
paragraphs (1) through (4) above, each McNeil Partnership with respect to which
the Master Agreement has been terminated will be severally, but not jointly,
liable for payment to WXI/McN Realty of a fee equal to the partnership break-up
fee set forth opposite the name of that excluded McNeil Partnership in the
table below:
<TABLE>
<CAPTION>
Partnership
break-
Partnership up fee
----------- -----------
<S> <C>
Fund IX................. $ 2,775,600
Fund X.................. 2,054,034
Fund XI................. 2,128,896
Fund XII................ 1,683,126
Fund XIV................ 1,225,314
Fund XV................. 1,202,148
Fund XX................. 179,226
Fund XXI................ 575,226
Fund XXII............... 388,926
Fund XXIII.............. 192,420
</TABLE>
<TABLE>
<CAPTION>
Partnership
break-
Partnership up fee
----------- -----------
<S> <C>
Fund XXIV................. $ 455,472
Fund XXV.................. 1,400,540
Fund XXVI................. 1,251,306
Fund XXVII................ 1,566,648
Hearth Hollow............. 109,009
Midwest Properties........ 353,611
Regency North............. 150,552
Fairfax................... 116,119
Summerhill................ 191,827
-----------
Total................... $18,000,000
</TABLE>
The partnership break-up fees set forth in the foregoing table were
calculated based on the percentage set forth in the column "Partnership
Percentage" in Table 2 opposite the name of each McNeil Partnership. Each
excluded McNeil Partnership will be severally liable for payment of its
partnership break-up fee as set forth in the foregoing table and no other party
to the Master Agreement will have any liability to WXI/McN Realty or to an
excluded McNeil Partnership for the partnership break-up fee of that excluded
McNeil Partnership.
Any payment of a partnership break-up fee required to be made as a result of
termination of the Master Agreement pursuant to paragraph (1) or (2) above will
be made not later than the earlier of (a) 90 days after the date of the
termination of the Master Agreement pursuant to paragraph (1) or (2) above and
(b) three business days after the date on which a definitive agreement relating
to an acquisition proposal is entered into. Any payment of a partnership break-
up fee required to be made pursuant to paragraph (1) or (2) above will accrue
interest at 10% per annum, compounded annually, from the date of the
termination of the Master Agreement pursuant to paragraph (1) or (2) above, and
no distribution or other payment will be made to the general partner or any
limited partner of that excluded McNeil Partnership until the partnership
break-up fee and the related accrued interest is paid in full.
Any payment of a partnership break-up fee required to be made as a result of
termination of the Master Agreement pursuant to paragraph (3) above will be
made not later than the earlier of (a) 90 days after the date of the
termination of the Master Agreement pursuant to paragraph (3) above and (b)
three business days after the date on which a definitive agreement relating to
a higher acquisition proposal is entered into. Any payment required to be made
pursuant to paragraph (4) above will be made not later than three business days
after the date of the termination of the Master Agreement in respect of that
excluded McNeil Partnership pursuant to paragraph (4) above. Any payment of the
partnership break-up fee required to be made pursuant to paragraph (3) or (4)
above will accrue interest at 10% per annum, compounded annually, from the date
that payment is due, and no distribution or other payment will be made to the
general partner or any limited partner of that excluded McNeil Partnership
until the partnership break-up fee and the related accrued interest is paid in
full.
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The payment of the partnership break-up fee with respect to an excluded
McNeil Partnership is compensation and liquidated damages for any loss suffered
by WXI/McN Realty or any one or more of its affiliates or subsidiaries as a
result of the failure of the transaction with respect to that excluded McNeil
Partnership to be consummated and to avoid the difficulty of determining
damages under the circumstances, and will be the sole and exclusive remedy of
WXI/McN Realty, its affiliates and subsidiaries against Sellers and the McNeil
Partnerships' subsidiaries and their respective subsidiaries, partners,
stockholders, members, equity holders, directors, officers, employees,
affiliates, agents, representatives, successors and assigns with respect to the
occurrence giving rise to that payment.
Any receipt by WXI/McN Realty of any one or more partnership break-up fees
will offset any obligation of Sellers to pay WXI/McN Realty's expenses as
described below in "--Fees and expenses--Reimbursement of expenses--WXI/McN
Realty's reimbursable expenses."
Notwithstanding the foregoing paragraphs, WXI/McN Realty will not be
entitled to receive any partnership break-up fee if at the time any party to
the Master Agreement terminates the rights and obligations under the Master
Agreement in respect of one or more excluded McNeil Partnerships as described
in "--Termination of the Master Agreement--Right to terminate the Master
Agreement with respect to one or more McNeil Partnerships," WXI/McN Realty had
breached any of its representations, warranties, covenants, obligations or
agreements set forth in the Master Agreement and, as a result, the conditions
set forth in paragraph (1) or (2) under "--Conditions to closing--Conditions to
Sellers' obligations to close" cannot be satisfied by June 24, 2000.
Reimbursement of expenses
WXI/McN Realty's reimbursable expenses
Sellers are required to pay WXI/McN Realty's and its affiliates' actual,
reasonable out-of-pocket expenses incurred in connection with the Master
Agreement and the transaction if:
(1) (a) notwithstanding the satisfaction or waiver of all of the
conditions set forth in "--Conditions to closing--Conditions to each
party's obligations to close" and "--Conditions to closing--Conditions to
Sellers' obligations to close," Sellers, exclusive of any excluded McNeil
Partnership, fail to consummate the transaction prior to June 24, 2000; or
(b) Sellers have failed to use their reasonable best efforts to
satisfy the conditions set forth in "--Conditions to closing--
Conditions to each party's obligations to close" and "--Conditions to
closing--Conditions to Sellers' obligations to close;" and
(2) WXI/McN Realty terminates the Master Agreement because:
(a) the closing has not occurred on or before June 24, 2000 (see
paragraph (2)(b) in "--Termination of the Master Agreement--Right to
terminate the Master Agreement"); or
(b) a Seller:
. materially breaches any of its representations, warranties,
covenants, obligations or agreements set forth in the Master
Agreement,
. that breach cannot be or is not remedied within 30 days, and
. the conditions set forth in paragraphs (1), (2) and (3) under
"--Conditions to closing--Conditions to WXI/McN Realty's
obligations to close" cannot be satisfied by June 24, 2000
(see paragraph (4) in "--Termination of the Master
Agreement--Right to terminate the Master Agreement").
Sellers' obligation to pay WXI/McN Realty's expenses is limited to an amount
equal to the lesser of (a) $1,500,000 and (b) WXI/McN Realty's and its
affiliates' actual, reasonable out-of-pocket expenses incurred in connection
with the transaction, including, without limitation, all attorneys',
accountants' and investment bankers' fees and expenses. Sellers will be jointly
and severally liable for the payment of those expenses.
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Notwithstanding the forgoing, Sellers will not be obligated to pay WXI/McN
Realty's expenses if, at the time of termination of the Master Agreement by
WXI/McN Realty as described in paragraph (2) above, Sellers would have been
entitled to terminate the Master Agreement because WXI/McN materially breaches
any of its representations, warranties, covenants, obligations or agreements
set forth in the Master Agreement, that breach cannot be or is not remedied
within 30 days, and the conditions set forth in paragraphs (1) and (2) under
"--Conditions to closing--Conditions to Sellers' obligations to close" cannot
be satisfied by June 24, 2000 (see paragraph (3) in "--Termination of the
Master Agreement--Right to terminate the Master Agreement"). Any payment of
WXI/McN Realty's expenses required to be made by Sellers is required to be made
not later than 90 days after Sellers have received reasonably detailed
documents from WXI/McN Realty evidencing those costs and expenses.
Notwithstanding the foregoing paragraphs, any receipt by WXI/McN Realty of
any one or more partnership break-up fees will offset any obligation of Sellers
to pay WXI/McN Realty's expenses.
Notwithstanding the foregoing paragraphs, WXI/McN Realty will not be
entitled to receive any reimbursement of expenses by Sellers if at the time any
party to the Master Agreement terminates the rights and obligations under the
Master Agreement in respect of one or more excluded McNeil Partnerships as
described in "--Termination of the Master Agreement--Right to terminate the
Master Agreement with respect to one or more McNeil Partnerships," WXI/McN
Realty had breached any of its representations, warranties, covenants,
obligations or agreements set forth in the Master Agreement and, as a result,
the conditions set forth in paragraph (1) or (2) under "--Conditions to
closing--Conditions to Sellers' obligations to close" cannot be satisfied by
June 24, 2000.
Sellers' reimbursable expenses
WXI/McN Realty is required to pay Sellers' actual, reasonable out-of-pocket
expenses incurred in connection with the transaction if:
(1) (a) notwithstanding the satisfaction or waiver of all of the
conditions set forth in "--Conditions to closing--Conditions to each
party's obligations to close" and "--Conditions to closing--Conditions to
WXI/McN Realty's obligations to close" above, WXI/McN Realty fails to
consummate the transaction prior to June 24, 2000; or
(b) WXI/McN Realty has failed to use its reasonable best efforts to
satisfy the conditions set forth in "--Conditions to closing--
Conditions to each party's obligations to close" and "--Conditions to
closing--Conditions to WXI/McN Realty's obligations to close" above;
and
(2) Sellers terminate the Master Agreement because:
(a) the closing has not occurred on or before June 24, 2000 (see
paragraph (2)(b) in "--Termination of the Master Agreement--Right to
terminate the Master Agreement"); or
(b) WXI/McN Realty:
. materially breaches any of its representations, warranties,
covenants, obligations or agreements set forth in the Master
Agreement,
. that breach cannot be or is not remedied within 30 days, and
. the conditions set forth in paragraphs (1) and (2) under "--
Conditions to closing--Conditions to Sellers' obligations to
close" cannot be satisfied by June 24, 2000 (see paragraph (3)
in "--Termination of the Master Agreement--Right to terminate
the Master Agreement").
WXI/McN Realty's obligation to pay Sellers' expenses is limited to an amount
equal to the lesser of (a) $1,500,000 and (b) Sellers' actual, reasonable out-
of-pocket expenses incurred in connection with the
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transaction, including, without limitation, all attorneys', accountants' and
investment bankers' fees and expenses.
Notwithstanding the forgoing, WXI/McN Realty will not be obligated to pay
Sellers' expenses if, at the time of termination of the Master Agreement by
Sellers as described in paragraph (2) above, WXI/McN Realty would have been
entitled to terminate the Master Agreement a Seller materially breaches any of
its representations, warranties, covenants, obligations or agreements set forth
in the Master Agreement, that breach cannot be or is not remedied within 30
days, and the conditions set forth in paragraphs (1), (2) and (3) under "--
Conditions to closing--Conditions to WXI/McN Realty's obligations to close"
cannot be satisfied by June 24, 2000 (see paragraph (4) in "--Termination of
the Master Agreement--Right to terminate the Master Agreement"). Any payment of
Sellers' expenses required to be made by WXI/McN Realty is required to be made
not later than 90 days after WXI/McN Realty has received reasonably detailed
documents from Sellers evidencing those costs and expenses.
Amendments, modification, waiver; reservation of right to revise the
transaction
The Master Agreement may be amended in writing by the parties to the Master
Agreement at any time (a) before or after any requisite approvals of the
respective partners, limited partners or stockholders, as the case may be, of
each of the parties are obtained and (b) prior to the filing of any of the
merger certificates. However, after the requisite approvals of the limited
partners of any McNeil Partnership are obtained, no amendment, modification or
supplement shall be made which by law requires the further approval of those
limited partners without obtaining that further approval.
At any time prior to the effective time of the mergers, the parties to the
Master Agreement may in writing (a) extend the time for the performance of any
of the obligations or other acts of any other party, (b) waive any inaccuracies
in the representations and warranties of any other party, or (c) waive
compliance with any of the agreements or conditions of any other party, in each
case, contained in the Master Agreement, the other transaction documents or in
any document delivered pursuant to the Master Agreement or the other
transaction documents. Any agreement on the part of a party to any extension or
waiver will be valid only if set forth in an instrument in writing signed on
behalf of that party. The failure of any party to the Master Agreement to
assert any of its rights under the Master Agreement or otherwise will not
constitute a waiver of those rights.
Sellers and WXI/McN Realty may agree in writing to change the method of
effecting the business combination between any one or more Sellers and WXI/McN
Realty, including to provide for different forms of merger. Each party to the
Master Agreement is required to cooperate in those efforts. However, no change
may (a) alter or change the amount or kind of consideration to be received by
limited partners or general partners of the participating McNeil Partnerships,
(b) adversely affect the proposed tax treatment to limited partners or general
partners of the participating McNeil Partnerships or (c) materially delay the
consummation of any transaction.
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WXI/McN REALTY OPERATING AGREEMENT
This section of the Proxy Statement describes material provisions of the
WXI/McN Realty Operating Agreement. The description of the WXI/McN Realty
Operating Agreement contained in this Proxy Statement does not purport to be
complete and is qualified in its entirety by reference to the form of the
WXI/McN Realty Operating Agreement attached to this Proxy Statement as Appendix
B, and which is incorporated in this Proxy Statement by reference. Limited
partners of the Partnership are urged to read carefully the form of the WXI/McN
Realty Operating Agreement in its entirety.
The Master Agreement provides that at the effective time of the mergers,
McNeil Partners and WXI/McN Realty's managing member will enter into the
WXI/McN Realty Operating Agreement which will govern the relationship between
McNeil Partners and WXI/McN Realty's managing member following the effective
time of the mergers.
Membership interests
The WXI/McN Realty Operating Agreement provides for the issuance of five
classes of membership interests in WXI/McN Realty, depending on the amount of
financing obtained by WXI/McN Realty as of the closing and the amount of the
capital contributions made by McNeil Partners. Each class of membership
interests will entitle its holder to receive a specified percentage return on
its investment in WXI/McN Realty and to receive distributions of WXI/McN
Realty's net cash flow and net proceeds from capital transactions in the
priority set forth in the WXI/McN Realty Operating Agreement. Consequently,
McNeil Partners and the other McNeil Affiliates, through their ownership of
partnership interests in McNeil Partners, will have a significant interest in
WXI/McN Realty and will continue to have the opportunity to participate in any
future earnings growth and to benefit from any increases in the value of the
participating McNeil Partnerships and their properties, the McREMI assets and
any other assets acquired by WXI/McN Realty and its subsidiaries.
However, the opportunity of the McNeil Affiliates to participate in any
future earnings growth of WXI/McN Realty is limited to the percentage return on
investment to which McNeil Partners is entitled. This percentage return is
limited to 14% or 15% per annum, depending on the amount of McNeil Partners'
initial capital contribution to WXI/McN Realty. WXI/McN Realty's managing
member is entitled to receive all returns in excess of the stated return which
the members are entitled to receive under the WXI/McN Realty Operating
Agreement. See "--Distributions to members of WXI/McN Realty."
A summary of the five classes of membership interests in WXI/McN Realty,
including the percentage returns on investment to which the holders of those
interests are entitled, is set forth below. In calculating the returns on
investment, the amount of the investment will be reduced by the sum of all
distributions of net cash flow and net proceeds from capital transactions made
pursuant to the WXI/McN Realty Operating Agreement to the holders of the class
of interests corresponding to that investment.
McNeil Class A Interests
The McNeil Class A Interests will be issued in consideration for the McNeil
Class A Investment. The McNeil Class A Investment is the portion of McNeil
Partners' initial capital contribution equal to the greater of: (1) the
aggregate consideration allocated by Stanger & Co. to the general partner
interests in the participating McNeil Partnerships, the limited partner
interests in the Affiliated McNeil Partnerships, the assets of McNeil Partners
related to the participating McNeil Partnership and certain assets of McREMI
contributed to WXI/McN Realty and its subsidiaries and (2) the Minimum
Investment. "Minimum Investment" means the product determined by multiplying
$60 million by the sum of the percentages set forth in the column "Partnership
Percentage" in Table 2 opposite the name of each participating McNeil
Partnership. See "Special Factors--Interests of certain persons in the
transaction; conflicts of interest--Equity interest of McNeil Partners in
WXI/McN Realty."
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The rate of return on the McNeil Class A Investment is equal to 14% per
annum, compounded annually, if McNeil Partners' initial capital contribution is
less than the $70 Million Threshold (as defined below). If McNeil Partners'
initial capital contribution is equal to or greater than the $70 Million
Threshold, the rate of return on the McNeil Class A Investment is 15% per
annum, compounded annually. The "$70 Million Threshold" means the product
determined by multiplying $70 million by the sum of the percentages set forth
in the column "Partnership Percentage" in Table 2 opposite the name of each
participating McNeil Partnership.
McNeil Class B Interests
The McNeil Class B Interests will be issued in consideration for the McNeil
Class B Investment. The McNeil Class B Investment is the sum of (1) the portion
of McNeil Partners' initial capital contribution, if any, that was not included
in the McNeil Class A Investment or the McNeil Class C Investment and (2)
additional capital contributions made by McNeil Partners. McNeil Partners does
not have the right to make additional capital contributions to WXI/McN Realty
except in some limited circumstances.
The rate of return on the McNeil Class B Investment is the same as the rate
of return on the McNeil Class A Investment.
McNeil Class C Interests
The McNeil Class C Interests will be issued in consideration for the McNeil
Class C Investment. The McNeil Class C Investment is the portion of McNeil
Partners' initial capital contribution that is in excess of the $70 Million
Threshold. Notwithstanding the foregoing, McNeil Partners will receive no
McNeil Class C Interests unless McNeil Partners' initial capital contribution
equals or exceeds the product determined by multiplying $75 million by the sum
of the percentages set forth in the column "Partnership Percentage" in Table 2
opposite the name of each participating McNeil Partnership.
The rate of return on the McNeil Class C Investment is 13% per annum,
compounded annually.
Whitehall Class A Interests
The Whitehall Class A Interests will be issued in consideration for the
Whitehall Class A Investment. The Whitehall Class A Investment is the sum of
the portion of Whitehall's initial capital contribution and the portion of any
additional capital contributions that were not included in the Whitehall Class
B Investment.
The rate of return on the Whitehall Class A Investment is the same as the
rate of return on the McNeil Class A Investment and the McNeil Class B
Investment.
Whitehall Class B Interests
The Whitehall Class B Interests will be issued in consideration for the
Whitehall Class B Investment. The Whitehall Class B Investment is the portion
of Whitehall's capital contribution equal to the sum of (1) the portion of
Whitehall's initial capital contribution that, if treated as "preferred equity
financing" (as defined below), would cause the total debt to total value ratio
of WXI/McN Realty to equal 80% and (2) the portion of any additional capital
contribution to fund working capital expenses that if treated as preferred
equity financing would cause the total debt to total value ratio of WXI/McN
Realty with respect to amounts used or incurred to funding working capital
expenses to equal 80%. The Whitehall Class B Investment is capped at
approximately $95 million, assuming all of the McNeil Partnerships participate
in the transaction. If one or more of the McNeil Partnerships does not
participate in the transaction, this cap will be reduced by the expected
preferred equity financing amounts that have been determined by WXI/McN Realty
with respect to each of the non-participating McNeil Partnerships.
The rate of return on the Whitehall Class B Investment is 14% per annum,
compounded annually.
"Preferred equity financing" as used in this Proxy Statement means (1) debt
incurred by WXI/McN Realty or its subsidiaries secured by equity interests in
one or more of WXI/McN Realty's subsidiaries or (2) preferred equity issued by
any of WXI/McN Realty's subsidiaries, which by its terms has a final redemption
or maturity date.
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<PAGE>
Distributions to members of WXI/McN Realty
Each class of membership interests in WXI/McN Realty entitles its holder to
receive distributions of WXI/McN Realty's net cash flow and net proceeds from
capital transactions in the priority set forth in the WXI/McN Realty Operating
Agreement. These priorities are summarized in the table below:
Distributions of Net Cash Flow
1. Payment of the 14% return on the Distributions of Net Proceeds from
Whitehall Class B Interests. Capital Transactions
2. Payment of the 13% return on the 1. Repayment of senior indebtedness
McNeil Class C Interests. secured by any property that is
the subject of the capital
transaction and any other amounts
required to be paid as a result
of that capital transaction
pursuant to the terms of any loan
agreement or preferred equity
financing document to which
WXI/McN Realty or any of its
subsidiaries is a party.
3. Payment of the 14% return on the
McNeil Class B Interests and the
McNeil Class A interests pro
rata.
4. Payment of the portfolio advisory
fee to WXI/McN Realty's portfolio
advisor. The portfolio advisory
fee is equal to 1% per annum of
the average monthly balance of
WXI/McN Realty's assets,
calculated as set forth in the
WXI/McN Realty Operating
Agreement.
2. Payment of any accrued and unpaid
return on the Whitehall Class B
Interests.
3. Payment of any accrued and unpaid
return on the McNeil Class C
Interests.
5. Payment of the 14% return on the
Whitehall Class A Interests.
4. Payment of any accrued and unpaid
return on the McNeil Class A
Interests and the McNeil Class B
Interests, pro rata.
6. To holders of the Whitehall Class
B Interest to return the
Whitehall Class B Investment.
7. To holders of the McNeil Class C 5. Payment of any accrued and unpaid
Interest to return the McNeil portfolio advisory fee. The
Class C Investment (provided that portfolio advisory fee accrues at
for the first five years a rate equal to 6% per annum,
following the closing, McNeil compounded annually.
Partners may elect to defer the
return of its McNeil Class C
Investment).
6. Payment of any accrued and unpaid
return on the Whitehall Class A
Interests.
8. If the amount of McNeil Partners'
initial capital contribution is 7. Return of the Whitehall Class B
equal to or greater than the $70 Investment.
Million Threshold, pro rata to
holders of the McNeil Class A
Interests, McNeil Class B
Interests and Whitehall Class A
Interests to achieve the 15%
return.
8. Return of the McNeil Class C
Investment (provided that for the
first five years following the
closing, McNeil Partners may
elect to defer the return of its
McNeil Class C Investment).
9. Pro rata return of the McNeil
Class A Investment, the McNeil 9. If the amount of McNeil Partners'
Class B Investment and the initial capital contribution is
Whitehall Class A Investment, in equal to or greater than the $70
proportion to the balances of the Million Threshold, any accrued
McNeil Class A Investment, the and unpaid 15% return on the
McNeil Class B Investment and the McNeil Class A Interests, McNeil
Whitehall Class A Investment. Class B Interests and Whitehall
Class A Interests, pro rata.
10. 100% to the Whitehall Class A
Interests. 10. Return of the McNeil Class A
Investment, the McNeil Class B
Investment and the Whitehall
Class A Investment, pro rata.
11. 100% to the Whitehall Class A
Interests.
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<PAGE>
Supermajority voting rights
Under the terms of the WXI/McN Realty Operating Agreement, following the
effective time of the mergers, McNeil Partners also will have the right to
designate two of the five members of WXI/McN Realty's board of managers. The
remaining three members will be designated by WXI/McN Realty's managing member.
Action by WXI/McN Realty's board of managers will require the affirmative vote
of three of the five managers. However, some actions of WXI/McN Realty's board
of managers will require a supermajority vote of four of the five managers.
Therefore, McNeil Partners will have a right to veto any transactions that
require a supermajority vote of WXI/McN Realty's board of managers. These
transactions include:
. material changes in WXI/McN Realty or its membership, including:
--amendment or repeal of the WXI/McN Realty Operating Agreement;
--a change in the nature of WXI/McN Realty's business;
--liquidation or dissolution of WXI/McN Realty except following
disposition of all of its assets;
--commencement of bankruptcy or a similar proceeding involving WXI/McN
Realty or a significant number of its subsidiaries or properties; and
--admission of a new member to WXI/McN Realty, transfer of interests in
WXI/McN Realty, or admission of new members, partners or stockholders
to a significant number of WXI/McN Realty's subsidiaries;
. transactions with potential negative tax effects on McNeil Partners on or
prior to the fifth anniversary of the closing date, including:
--mergers, consolidations, sales, non-ordinary course leases or
transfers of assets involving multifamily properties;
--transfers of membership interests in WXI/McN Realty or a change of
control of WXI/McN Realty; and
--repayment, refinancing or amendment of any loan agreement to the
extent it would result in McNeil Partners' share of "qualified
nonrecourse liabilities" being less than a minimum threshold; and
. certain transactions with affiliates of WXI/McN Realty, WXI/McN Realty's
managing member, Whitehall or Goldman, Sachs & Co. including:
--entering into or amending any transaction outside the ordinary course
with affiliates of WXI/McN Realty, other than retaining Goldman,
Sachs & Co. as exclusive financial advisor and Archon as portfolio
advisor or property manager;
--entering into or amending any non-market transaction outside the
ordinary course with affiliates of WXI/McN Realty; and
--entering into a transaction in which WXI/McN Realty's managing member
or Whitehall becomes the owner of an interest in any subsidiary of
WXI/McN Realty, other than as a result of its ownership of interests
in WXI/McN Realty or as a result of providing preferred equity
financing.
Management of WXI/McN Realty and its managing member
WXI/McN Realty is a Delaware limited liability company. The business and
affairs of WXI/McN Realty are controlled by WXI/MNL Real Estate, L.L.C., a
Delaware limited liability company which is currently the sole member of
WXI/McN Realty. After the effective time of the mergers, WXI/MNL Real Estate
and McNeil Partners will be the sole members of WXI/McN Realty, and WXI/MNL
Real Estate will be the sole managing member of WXI/McN Realty. Following the
effective time of the mergers, McNeil Partners will have rights to
representation on the board of managers of WXI/McN Realty and to approve some
transactions involving
149
<PAGE>
WXI/McN Realty or the participating McNeil Partnerships, in each case as
described above in "--Supermajority voting rights."
WXI/MNL Real Estate was formed in connection with the formation of WXI/McN
Realty. WXI/MNL Real Estate is owned 99% by Whitehall, a Delaware limited
partnership that was formed for the purpose of investing in debt and equity
interests in real estate assets and businesses. WH Advisors, L.L.C. XI, a
Delaware limited liability company ("WH Advisors"), acts as the sole general
partner of Whitehall. Goldman, Sachs & Co., a New York limited partnership, is
an investment banking firm and a member of the New York Stock Exchange, Inc.
and other national exchanges. Goldman, Sachs & Co. is the investment manager
for Whitehall. The Goldman Sachs Group, Inc. is a Delaware corporation and
holding company that, directly or indirectly through subsidiaries or affiliated
companies or both, is a leading investment banking organization and is a
successor-in-interest to The Goldman Sachs Group, L.P., which was merged with
and into The Goldman Sachs Group, Inc. on May 7, 1999. The Goldman Sachs Group,
Inc. owns directly and indirectly all of the partnership interests in Goldman,
Sachs & Co. and is the sole member of WH Advisors.
The principal business address of WXI/MNL Real Estate, L.L.C., Whitehall, WH
Advisors, Goldman, Sachs & Co. and The Goldman Sachs Group, Inc. is 85 Broad
Street, New York, New York 10004. The name, business address, present principal
occupation or employment and the citizenship of each manager and executive
officer of WXI/MNL Real Estate, L.L.C., each manager and executive officer of
WH Advisors and each director of The Goldman Sachs Group, Inc. is set forth in
"Controlling Persons, Directors and Executive Officers of McNeil Partners,
McNeil Investors, WXI/MNL Real Estate, L.L.C., WH Advisors, L.L.C. XI and The
Goldman Sachs Group, Inc."
150
<PAGE>
OTHER AGREEMENTS BETWEEN THE McNEIL AFFILIATES
AND AFFILIATES OF WXI/McN REALTY
Indemnification and pledge agreement
The Master Agreement provides that on the closing date of the transaction,
McNeil Partners and WXI/McN Realty's managing member will enter into an
Indemnification and Pledge Agreement. Under the Indemnification and Pledge
Agreement, McNeil Partners, and, under some circumstances, Robert A. McNeil,
has agreed to indemnify WXI/McN Realty's managing member and some of its
affiliates for all actual and out-of-pocket costs, expenses, judgments, fines,
losses, claims, damages and liabilities arising from certain matters. See
"Special Factors--Effects of the transaction--Benefits and detriments to the
McNeil Affiliates."
These matters include the following:
. claims made in derivative or class action lawsuits or both, other than
lawsuits relating to hazardous materials or any violation of any
environmental law, filed prior to the closing date of the transaction
against one or more of McREMI, the participating McNeil Partnerships and
their affiliates;
. any litigation challenging the fairness of the transaction or
challenging the fairness of the bidding process leading up to the
transaction;
. lawsuits, other than lawsuits relating to hazardous materials or any
violation of any environmental law, brought by persons who were limited
partners of a participating McNeil Partnership prior to the closing of
the transaction against that participating McNeil Partnership's general
partner, the subsidiary of WXI/McN Realty which replaced that general
partner or their affiliates for breach of fiduciary duty, usurping of
partnership opportunity or similar breach of care or loyalty claims,
which allege a disproportionate economic or personal benefit has accrued
to the McNeil Affiliates or their affiliates to the detriment of those
limited partners and which was not otherwise protected by the business
judgment rule (in other words, acts of self-dealing or acts contrary to
the best interests of the McNeil Partnership);
. any exercise of any statutory dissenters' rights or statutory rights of
appraisal by limited partners of the participating McNeil Partnerships
in connection with the mergers, to the extent that the aggregate amount
of actual and out-of-pocket costs, expenses, judgments, fines, losses,
claims, damages and liabilities exceeds the portion of the merger
consideration which the dissenting limited partner had the right to
receive and which was not paid to the dissenting limited partner;
. any obligations of McNeil Partners under any landlord estoppels
delivered by McNeil Partners to WXI/McN Realty to satisfy the condition
to closing requiring the delivery of commercial tenant estoppels (see
"The Master Agreement--Conditions to closing--Conditions to WXI/McN
Realty's obligations to close");
. any breach by McNeil Partners of its obligations to indemnify WXI/McN
Realty from obligations incurred by McNeil Partners or McNeil Investors
prior to the closing date of the transaction as an indemnitor under some
existing indemnification obligations and agreements relating to mortgage
debt on McNeil Partnership properties (see "The Master Agreement--
Material covenants--Replacement indemnification agreements"); and
. any payment required to be made by an affiliate of WXI/McN Realty's
managing member, as the indemnifying party, to other affiliates of
WXI/McN Realty, as the indemnified parties, which the affiliate of
WXI/McN Realty's managing member has agreed to indemnify for the same
matters for which McNeil Partners, and, under some circumstances, Robert
A. McNeil, has agreed to indemnify WXI/McN Realty's managing member.
To secure the payment of McNeil Partners' indemnification obligations
described above, McNeil Partners has agreed to pledge and grant a security
interest in its McNeil Class A Interests to WXI/McN Realty's managing member
for the benefit of the affiliates of WXI/McN Realty that are being indemnified
under the
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<PAGE>
Indemnification and Pledge Agreement and under the indemnification agreement
between the affiliate of WXI/McN Realty's managing member and the other
affiliates of WXI/McN Realty described in the final bullet point above. See
"WXI/McN Realty Operating Agreement--Membership interests." The sole recourse
of WXI/McN Realty and each of the other indemnified parties against McNeil
Partners with respect to the indemnifiable matters is against the pledged
interests. If McNeil Partners' investment in WXI/McN Realty with respect to the
pledged interests decreases below a minimum threshold amount because of the
receipt of a distribution of capital from WXI/McN Realty with respect to the
pledged interests or because all of the pledged interests are "cashed out" or
exchanged for non-cash consideration, cash consideration or both pursuant to
the terms of the WXI/McN Realty Operating Agreement, McNeil Partners has agreed
to cause Robert A. McNeil to execute and deliver to WXI/McN Realty's managing
member a personal indemnity for the amount necessary to make up the difference
between that minimum threshold amount and the amount of the investment, taking
into account any such personal indemnities previously delivered by Robert A.
McNeil.
The indemnification obligations of McNeil Partners and Robert A. McNeil
described above will terminate on the earlier of:
. the later of the fifth anniversary of the closing date of the
transaction and the date of the final determination, after expiration of
all appeals, of all indemnified proceedings commenced prior to the fifth
anniversary of the closing date of the transaction and payment of all
indemnifying amounts with respect to those proceedings, and
. subject to the delivery by Robert A. McNeil of the personal indemnity
described above, the date on which all of the pledged interests are
"cashed out" or exchanged for non-cash consideration, cash consideration
or both pursuant to the terms of the WXI/McN Realty Operating Agreement.
Whitehall standstill agreement
On March 25, 1999, Whitehall, its affiliates and subsidiaries and McNeil
Partners, McREMI, Robert A. McNeil and their affiliates entered into a
confidentiality agreement. In the confidentiality agreement, Whitehall agreed
that for a period until and including March 25, 2000, it would not, without the
prior written consent of McNeil Partners, McREMI, Robert A. McNeil and their
affiliates, take certain actions with respect to McNeil Partners, McNeil
Investors, McREMI, McNeil Summerhill, Inc., the McNeil Partnerships or their
subsidiaries. To induce Sellers and Robert A. McNeil to enter into the Master
Agreement, on June 24, 1999, Whitehall agreed to an extension to December 31,
2000 of the standstill provision contained in the confidentiality agreement.
The agreement extending Whitehall's standstill provision contained in the
confidentiality agreement provides that for the period commencing on June 24,
1999 and ending on and including December 31, 2000, Whitehall will not, without
the prior written consent of McNeil Partners, take any of those actions
prohibited by the standstill provision in the confidentiality agreement,
subject to limited exceptions.
The prohibited actions include, among others:
. acquiring, attempting to acquire or making an offer with respect to, or
a proposal to acquire, directly or indirectly, any securities or
property of Sellers or the McNeil Partnerships' subsidiaries, except as
expressly contemplated by the Master Agreement as a result of the
consummation of the transaction;
. proposing to enter into, directly or indirectly, any merger or business
combination involving any of Sellers or the McNeil Partnerships'
subsidiaries or the purchase, directly or indirectly, of any of the
assets of Sellers or the McNeil Partnerships' subsidiaries, except as
expressly contemplated by the Master Agreement as a result of the
consummation of the transaction;
. making or in any way participating, directly or indirectly, in any
"solicitation" of "proxies," as those terms are used in the SEC proxy
rules, to vote, or seek to advise or influence any person with respect
to the voting of any securities of any of Sellers or the McNeil
Partnerships' subsidiaries, except as contemplated by this Proxy
Statement;
. forming, joining or otherwise participating in a "group," within the
meaning of Section 13(d)(3) of the Securities Exchange Act, with respect
to any voting securities of any of Sellers or the McNeil Partnerships'
subsidiaries;
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<PAGE>
. otherwise acting, alone or in concert with others, to seek to control or
influence the management or policies of Sellers or the McNeil
Partnerships' subsidiaries or the McNeil Investors board of directors,
except as expressly contemplated by the Master Agreement as a result of
the consummation of the transaction;
. disclosing any intention, plan or arrangement inconsistent with the
foregoing; or
. loaning money to, advising, assisting or encouraging any person in
connection with any of the actions described above.
153
<PAGE>
CONTROLLING PERSONS, DIRECTORS AND EXECUTIVE OFFICERS OF
McNEIL PARTNERS, McNEIL INVESTORS, WXI/MNL REAL ESTATE, L.L.C.,
WH ADVISORS, L.L.C. XI AND THE GOLDMAN SACHS GROUP, INC.
Background of named persons
McNeil Partners and McNeil Investors
McNeil Partners has filed a Rule 13e-3 Transaction Statement with the SEC
with respect to the transaction. Information concerning McNeil Partners and
McNeil Investors is set forth in "Summary--Parties to the transaction."
Information concerning each director and executive officer of McNeil Investors,
including that person's name, position and present principal occupation or
employment, is set forth below. McNeil Partners does not have any directors or
executive officers. Unless otherwise indicated below, the business address of
each director and executive officer is 13760 Noel Road, Suite 600, LB70,
Dallas, Texas 75240, telephone number (972) 448-5800. Each of the directors and
executive officers of McNeil Investors is a citizen of the United States.
<TABLE>
<CAPTION>
Name Business Address and Principal Occupation
---- -----------------------------------------
<C> <S>
Robert A. McNeil Robert A. McNeil has served as Co-Chairman of the board of directors
of McNeil Investors since November 1990. Mr. McNeil also is Co-
Chairman of the board of directors of McREMI and McNeil Summerhill,
Inc.
Carole J. McNeil Carole J. McNeil has served as Co-Chairman of the Board of McNeil
Investors since January 1993. Ms. McNeil also is Co-Chairman of the
board of directors of McREMI and McNeil Summerhill, Inc. Ms. McNeil
also serves as President of McNeil Summerhill, Inc.
Ron K. Taylor Ron K. Taylor has been a director and President of McNeil Investors
since March 1997. Mr. Taylor served as Vice-President of McNeil
Investors from August 1994 to March 1997. Mr. Taylor also is a
director and President of McREMI and Senior Vice President of McNeil
Summerhill, Inc.
Paul B. Fay, Jr. Paul B. Fay, Jr. has served since May 1999 as a director of McNeil
Investors and as the sole member of the special committee of the
McNeil Investors board of directors formed in connection with the
transaction. Mr. Fay is the owner of The Fay Improvement Company, a
financial consulting firm. Mr Fay serves as a director of First
American Financial Corporation, Compensation Resource Group, Vestar
Securities, Inc. and Phoenix/Seneca Capital Management. Mr. Fay has
served on the respective oversight committees for each of the public
McNeil Partnerships since the respective restructuring date of that
McNeil Partnership. The oversight committee is an advisory body
composed of members appointed by but unaffiliated with McNeil
Partners.
</TABLE>
During the past five years, none of McNeil Partners, McNeil Investors or any
of the named persons set forth above has been convicted in a criminal
proceeding (excluding traffic violations or similar misdemeanors) or was a
party to a civil proceeding of a judicial or administrative body of competent
jurisdiction and as a result of that proceeding was or is subject to a
judgment, decree or final order enjoining further violations of, or prohibiting
activities subject to, federal or state securities laws or finding any
violations of those laws.
All information in this Proxy Statement concerning the named persons and any
referenced affiliates and associates is to the best knowledge of the
Partnership.
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<PAGE>
WXI/MNL Real Estate, L.L.C.
The name, position and present principal occupation of each executive
officer of WXI/MNL Real Estate, L.L.C. are set forth below. Whitehall is the
sole managing member of WXI/MNL Real Estate, L.L.C.
The business address of all the executive officers listed below except
Edward M. Siskind, G. Douglas Gunn, Todd A. Williams and Angie D. Madison is 85
Broad Street, New York, New York 10004. The business address of Edward M.
Siskind is 133 Fleet Street, London EC4A 2BB, England. The business address of
G. Douglas Gunn, Todd A. Williams and Angie Madison is 100 Crescent Court,
Suite 1000, Dallas, Texas 75201.
All executive officers and managers listed below are United States citizens.
<TABLE>
<CAPTION>
Name Position Present Principal Occupation
---- --------------------------------- ---------------------------------
<S> <C> <C>
Neidich, Daniel M. President Managing Director of Goldman,
Sachs & Co.
Rothenberg, Stuart M. Vice President Managing Director of Goldman,
Sachs & Co.
Weil, David M. Vice President Managing Director of Goldman,
Sachs & Co.
Rosenberg, Ralph F. Vice President/Assistant Managing Director of Goldman,
Secretary Sachs & Co.
Williams, Todd A. Vice President/Assistant Managing Director of Goldman,
Secretary/ Assistant Treasurer Sachs & Co.
Naughton, Kevin D. Vice Vice President of Goldman, Sachs
President/Secretary/Treasurer & Co.
Siskind, Edward M. Vice President/ Assistant Managing Director of Goldman
Treasurer Sachs International
Klingher, Michael K. Vice President Managing Director of Goldman,
Sachs & Co.
Kava, Alan S. Vice President Vice President of Goldman, Sachs
& Co.
Feldman, Steven M. Vice President Managing Director of Goldman,
Sachs & Co.
Lauer, Kate Vice President/Assistant Vice President of Goldman, Sachs
Secretary & Co.
Langer, Jonathan A. Vice President/Assistant Vice President of Goldman, Sachs
Secretary & Co.
Sack, Susan L. Vice President/Assistant Vice President of Goldman, Sachs
Secretary & Co.
Burban, Elizabeth M. Vice President/Assistant Vice President of Goldman, Sachs
Secretary & Co.
Lahey, Brian J. Vice President Vice President of Goldman, Sachs
& Co.
Gunn, G. Douglas Vice President Vice President of Goldman, Sachs
& Co.
Madison, Angie D. Vice President Vice President of Goldman, Sachs
& Co.
Brooks, Adam Assistant Vice President Associate of Goldman, Sachs & Co.
</TABLE>
155
<PAGE>
WH Advisors, L.L.C. XI
The name, position and present principal occupation of each manager and
executive officer of WH Advisors, L.L.C. XI, which is the sole general partner
of Whitehall, the sole managing member of WXI/MNL Real Estate, L.L.C., are set
forth below.
The business address of all the executive officers and managers listed below
except G. Douglas Gunn, Todd A. Williams, Angie D. Madison, Edward M. Siskind,
Paul R. Milosevich, Elizabeth A. O'Brien, Zubin P. Irani and Eli Muraidekh is
85 Broad Street, New York, New York 10004. The business address of G. Douglas
Gunn, Todd A. Williams, Angie D. Madison and Paul R. Milosevich is 100 Crescent
Court, Suite 1000, Dallas, Texas 75201. The business address of Edward M.
Siskind, Zubin P. Irani and Eli Muraidekh is 133 Fleet Street, London EC4A 2BB,
England. The business address of Elizabeth A. O'Brien is 3 Garden Road,
Central, Hong Kong.
Except for Brahm S. Cramer, who is a Canadian citizen, all executive
officers and managers listed below are United States citizens.
<TABLE>
<CAPTION>
Name Position Present Principal Occupation
---- --------------------------------- ---------------------------------
<S> <C> <C>
Rothenberg, Stuart M. Manager/Vice President Managing Director of Goldman,
Sachs & Co.
Neidich, Daniel M. Manager/President Managing Director of Goldman,
Sachs & Co.
O'Brien, Elizabeth A. Vice President/Assistant Vice President of Goldman Sachs
Secretary (Asia) L.L.C.
Weil, David M. Vice President Managing Director of Goldman,
Sachs & Co.
Rosenberg, Ralph F. Manager/Vice President/Assistant Managing Director of Goldman,
Secretary Sachs & Co.
Williams, Todd A. Vice President/Assistant Managing Director of Goldman,
Secretary/ Assistant Treasurer Sachs & Co.
Naughton, Kevin D. Vice President/Secretary/ Vice President of Goldman, Sachs
Treasurer & Co.
Siskind, Edward M. Vice President/Assistant Managing Director of Goldman
Treasurer Sachs International
Klingher, Michael K. Vice President Managing Director of Goldman,
Sachs & Co.
Gunn, G. Douglas Vice President/Assistant Vice President of Goldman, Sachs
Secretary & Co.
Lahey, Brian J. Vice President/Treasurer Vice President of Goldman, Sachs
& Co.
Kava, Alan S. Vice President Vice President of Goldman, Sachs
& Co.
Feldman, Steven M. Vice President Managing Director of Goldman,
Sachs & Co.
Madison, Angie D. Vice President/Assistant Vice President of Goldman, Sachs
Secretary & Co.
Weiss, Mitchell S. Assistant Treasurer Vice President of Goldman, Sachs
& Co.
Cramer, Brahm S. Vice President Vice President of Goldman, Sachs
& Co.
Karr, Jerome S. Vice President Vice President of Goldman, Sachs
& Co.
Lauer, Kate Vice President/Assistant Vice President of Goldman, Sachs
Secretary & Co.
Milosevich, Paul R. Vice President Vice President of Goldman, Sachs
& Co.
Mortelliti, Josephine Vice President Vice President of Goldman, Sachs
& Co.
Muraidekh, Eli Vice President Vice President of Goldman Sachs
International
Sack, Susan L. Vice President/Assistant Vice President of Goldman, Sachs
Secretary & Co.
Langer, Jonathan A. Vice President/Assistant Vice President of Goldman, Sachs
Secretary & Co.
Burban, Elizabeth M. Vice President/Assistant Vice President of Goldman, Sachs
Secretary & Co.
Bernstein, Ronald L. Assistant Vice Vice President of Goldman, Sachs
President/Assistant Secretary & Co.
Irani, Zubin P. Assistant Vice Vice President of Goldman Sachs
President/Assistant Secretary International
</TABLE>
156
<PAGE>
The Goldman Sachs Group, Inc.
The name of each director of The Goldman Sachs Group, Inc. is set forth
below.
The business address of each person listed below except John L. Thornton,
Sir John Browne and James A. Johnson is 85 Broad Street, New York, NY 10004.
The business address of John L. Thornton is 133 Fleet Street, London EC4A 2BB,
England. The business address of Sir John Browne is BP Amoco plc, Brittanic
House, 1 Finsbury Circus, London EC2M, England. The business address of James
A. Johnson is Fannie Mae, 3900 Wisconsin Avenue NW, Washington, D.C. 20016.
Each person is a citizen of the United States of America except for Sir John
Browne, who is a citizen of the United Kingdom. The present principal
occupation or employment of each of the listed persons is set forth below.
<TABLE>
<CAPTION>
Name Present Principal Occupation
---- ----------------------------
<S> <C>
Henry M. Paulson, Jr. Chairman and Chief Executive Officer of The Goldman Sachs Group, Inc.
Robert J. Hurst Vice Chairman of The Goldman Sachs Group, Inc.
John A. Thain President and Co-Chief Operating Officer of The Goldman Sachs Group, Inc.
John L. Thornton President and Co-Chief Operating Officer of The Goldman Sachs Group, Inc.
Sir John Browne Group Chief Executive of BP Amoco plc
James A. Johnson Chairman of the Executive Committee of the Board of Fannie Mae
John L. Weinberg Senior Chairman of The Goldman Sachs Group, Inc.
</TABLE>
157
<PAGE>
RELATED SECURITY HOLDER MATTERS
Additional information concerning limited partner units
[For all except Funds XXI-XXIII: As of , 1999, there were limited
partner units outstanding and holders of record of those limited partner
units.] [Funds XXI, XXII and XXIII: As of , 1999, there were current
income units outstanding and holders of record of those current income
units, and growth/shelter units outstanding and holders of record of
those growth/shelter units.]
At present, there is no established public trading market for the limited
partner units in the Partnership, nor is one expected to develop. Liquidity is
limited to sporadic private sales or tender offers for limited partner units.
See "Special Factors--Alternatives to the transaction--Continued ownership--
Disadvantages of continued ownership" and "Special Factors--Recommendations of
the special committee and the McNeil Investors board of directors; fairness of
the transaction--Recommendations of the special committee."
[For each of the McNeil Partnerships, the information set forth below with
respect to that McNeil Partnership will be included in the Proxy Statement for
that McNeil Partnership:]
[FUND IX]
The Partnership made aggregate distributions of $20.88 per limited partner
unit and $24.96 per limited partner unit to its limited partners in 1998 and
1997, respectively. The Partnership makes distributions to its limited partners
semiannually. In March 1999, the Partnership made a distribution of $6.80 per
limited partner unit to its limited partners.
[FUND X]
The Partnership made aggregate distributions of $33.34 per limited partner
unit to its limited partners in 1998. The Partnership did not pay distributions
to its limited partners in 1997. The Partnership makes distributions to its
limited partners semiannually. In March 1999, the Partnership made a
distribution of $3.70 per limited partner unit to its limited partners.
[FUND XI]
The Partnership made aggregate distributions of $26.41 per limited partner
unit to its limited partners in 1998. The Partnership did not pay distributions
to its limited partners in 1997. The Partnership makes distributions to its
limited partners semiannually. In March 1999, the Partnership made a
distribution of $3.13 per limited partner unit to its limited partners.
[FUND XII]
The Partnership made aggregate distributions of $33.73 per limited partner
unit to its limited partners in 1998. The Partnership did not pay distributions
to its limited partners in 1997. The Partnership makes distributions to its
limited partners semiannually. The Partnership has made no distributions to its
limited partners in 1999.
[FUND XIV]
The Partnership made aggregate distributions of $5.78 per limited partner
unit and $71.02 per limited partner unit to its limited partners in 1998 and
1997, respectively. The Partnership makes distributions to its limited partners
semiannually. In March 1999, the Partnership made a distribution of $5.78 per
limited partner unit to its limited partners.
158
<PAGE>
[FUND XV]
The Partnership made aggregate distributions of $7.29 per limited partner
unit and $9.75 per limited partner unit to its limited partners in 1998 and
1997, respectively. The Partnership makes distributions to its limited partners
semiannually. In March 1999, the Partnership made a distribution of $3.89 per
limited partner unit to its limited partners.
[FUND XX]
The Partnership made aggregate distributions of $146.08 per limited partner
unit and $65.64 per limited partner unit to its limited partners in 1998 and
1997, respectively. The Partnership makes distributions to its limited partners
semiannually. In March 1999, the Partnership made a distribution of $30.30 per
limited partner unit to its limited partners.
[FUND XXI]
The Partnership made no distributions to its limited partners during 1998 or
1997 and the Partnership does not anticipate making distributions to its
limited partners in 1999.
[FUND XXII]
The Partnership made no distributions to its limited partners during 1998 or
1997 and the Partnership does not anticipate making distributions to its
limited partners in 1999.
[FUND XXIII]
The Partnership made no distributions to its limited partners during 1998 or
1997 and the Partnership does not anticipate making distributions to its
limited partners in 1999.
[FUND XXIV]
The Partnership made aggregate distributions of $116.11 per limited partner
unit and $12.50 per limited partner unit to its limited partners in 1998 and
1997, respectively. The Partnership makes distributions to its limited partners
semiannually. In March 1999, the Partnership made a distribution of $6.25 per
limited partner unit to its limited partners.
[FUND XXV]
The Partnership made aggregate distributions of $33.13 per limited partner
unit and $12.06 per limited partner unit to its limited partners in 1998 and
1997, respectively. The Partnership makes distributions to its limited partners
semiannually. In March 1999, the Partnership made a distribution of $12.00 per
limited partner unit to its limited partners.
[FUND XXVI]
The Partnership made aggregate distributions of $29.33 per limited partner
unit and $8.67 per limited partner unit to its limited partners in 1998 and
1997, respectively. The Partnership makes distributions to its limited partners
semiannually. In March 1999, the Partnership made a distribution of $0.0058 per
limited partner unit to its limited partners.
[FUND XXVII]
The Partnership made aggregate distributions of $106.21 per limited partner
unit and $76.38 per limited partner unit to its limited partners in 1998 and
1997, respectively. The Partnership makes distributions to its limited partners
semiannually. In March 1999, the Partnership made a distribution of $0.2903 per
limited partner unit to its limited partners.
159
<PAGE>
The Master Agreement permits the continued declaration and payment of cash
distributions, but provides that these distributions cannot exceed $10 million
in the aggregate for all of the McNeil Partnerships for each semiannual period.
Principal holders of limited partner units
[For each of the McNeil Partnerships, the information set forth below with
respect to that McNeil Partnership will be included in the Proxy Statement for
that McNeil Partnership:]
[FUND IX] The following table sets forth as of [July 27], 1999, certain
information regarding the beneficial ownership of limited partner units in the
Partnership by McNeil Partners, including all officers, directors and employees
of McNeil Investors and McREMI, and including all affiliates of McNeil
Partners, and by each individual or "group," as defined in Section 13(d)(3) of
the Securities Exchange Act, known by the Partnership to own more than 5% of
the outstanding limited partner units in the Partnership.
<TABLE>
<CAPTION>
Number of Percentage
Limited Partner Beneficially
Name Units Owned
---- --------------- ------------
<S> <C> <C>
Opal Partners, L.P.(1)....................... 5,715 5.2%
Four Embarcadero Center
Suite 3250
San Francisco, California 94111
Dean Lontos(2)............................... 20 *
13760 Noel Road
Suite 600, LB70
Dallas, Texas 75240
Liquidity Financial Corporation.............. 6,389(4) 5.8%
2200 Powell Street, Suite 700
Emeryville, California 94608
Carl C. Icahn................................ 15,616(5) 14.2%
100 S. Bedford Road
Mount Kisco, New York 10549
</TABLE>
- --------
* Less than 1%
(1) The general partner of Opal Partners is DDC&R, Inc. The sole director, sole
executive officer and sole stockholder of DDC&R is Carole J. McNeil.
(2) Mr. Lontos is the Senior Vice President, Portfolio Management, of McREMI.
(3) Collectively owned by a group of limited partnerships affiliated with
Liquidity Financial Corporation, all of whose outstanding stock is owned by
Richard G. Wollack and Brent R. Donaldson.
(4) As set forth on Exhibit A to the High River Complaint. See "Special
Factors--Background of the transaction--Events subsequent to the execution
of the Master Agreement." Mr. Icahn shares voting and dispositive power of
the limited partner units with his affiliates High River Limited
Partnership ("High River"), Riverdale LLC ("Riverdale") and Unicorn
Associates Corporation ("Unicorn"). Mr. Icahn is the controlling member of
Riverdale, the general partner of High River and indirectly beneficially
owns all of the issued and outstanding shares of capital stock of Unicorn.
High River has sole voting and dispositive power with respect to 13,088
limited partner units, Riverdale has shared voting and dispositive power
with respect to 13,088 limited partner units and Unicorn has sole voting
and dispositive power with respect to 2,528 limited partner units.
160
<PAGE>
[FUND X] The following table sets forth as of [July 27], 1999, certain
information regarding the beneficial ownership of limited partner units in the
Partnership by McNeil Partners, including all officers, directors and employees
of McNeil Investors and McREMI, and including all affiliates of McNeil
Partners, and by each individual or "group," as defined in Section 13(d)(3) of
the Securities Exchange Act, known by the Partnership to own more than 5% of
the outstanding limited partner units in the Partnership.
<TABLE>
<CAPTION>
Number of Percentage
Limited Partner Beneficially
Name Units Owned
---- --------------- ------------
<S> <C> <C>
Opal Partners, L.P.(1)....................... 1,732 1.3%
Four Embarcadero Center
Suite 3250
San Francisco, California 94111
Everest Properties II, LLC................... 6,949 5.1%
199 South Robles Avenue
Suite 440
Pasadena, California 91101
Carl C. Icahn................................ 11,836(2) 8.8%
100 S. Bedford Road
Mount Kisco, New York 10549
</TABLE>
- --------
(1) The general partner of Opal Partners is DDC&R, Inc. The sole director, sole
executive officer and sole stockholder of DDC&R is Carole J. McNeil.
(2) As set forth on Exhibit A to the High River Complaint. See "Special
Factors--Background of the transaction--Events subsequent to the execution
of the Master Agreement." Mr. Icahn shares voting and dispositive power of
the limited partner units with his affiliates High River Limited
Partnership ("High River"), Riverdale LLC ("Riverdale") and Unicorn
Associates Corporation ("Unicorn"). Mr. Icahn is the controlling member of
Riverdale, the general partner of High River and indirectly beneficially
owns all of the issued and outstanding shares of capital stock of Unicorn.
High River has sole voting and dispositive power with respect to 9,539
limited partner units, Riverdale has shared voting and dispositive power
with respect to 9,539 limited partner units and Unicorn has sole voting and
dispositive power with respect to 2,297 limited partner units.
161
<PAGE>
[FUND XI] The following table sets forth as of [July 27], 1999, certain
information regarding the beneficial ownership of limited partner units in the
Partnership by McNeil Partners, including all officers, directors and employees
of McNeil Investors and McREMI, and including all affiliates of McNeil
Partners, and by each individual or "group," as defined in Section 13(d)(3) of
the Securities Exchange Act, known by the Partnership to own more than 5% of
the outstanding limited partner units in the Partnership.
<TABLE>
<CAPTION>
Number of Percentage
Limited Partner Beneficially
Name Units Owned
---- --------------- ------------
<S> <C> <C>
Opal Partners, L.P.(1)....................... 313 0
Four Embarcadero Center
Suite 3250
San Francisco, California 94111
Everest Properties II, LLC................... 10,651 6.7%
199 South Robles Avenue
Suite 440
Pasadena, California 91101
Carl C. Icahn................................ 18,621.67(2) 11.7%
100 S. Bedford Road
Mount Kisco, New York 10549
</TABLE>
- --------
(1) The general partner of Opal Partners is DDC&R, Inc. The sole director, sole
executive officer and sole stockholder of DDC&R is Carole J. McNeil.
(2) As set forth on Exhibit A to the High River Complaint. See "Special
Factors--Background of the transaction--Events subsequent to the execution
of the Master Agreement." Mr. Icahn shares voting and dispositive power of
the limited partner units with his affiliates High River Limited
Partnership ("High River"), Riverdale LLC ("Riverdale") and Unicorn
Associates Corporation ("Unicorn"). Mr. Icahn is the controlling member of
Riverdale, the general partner of High River and indirectly beneficially
owns all of the issued and outstanding shares of capital stock of Unicorn.
High River has sole voting and dispositive power with respect to 16,418.67
limited partner units, Riverdale has shared voting and dispositive power
with respect to 16,418.67 limited partner units and Unicorn has sole voting
and dispositive power with respect to 2,203 limited partner units.
[FUND XII] The following table sets forth as of [July 27], 1999, certain
information regarding the beneficial ownership of limited partner units in the
Partnership by McNeil Partners, including all officers, directors and employees
of McNeil Investors and McREMI, and including all affiliates of McNeil
Partners, and by each individual or "group," as defined in Section 13(d)(3) of
the Securities Exchange Act, if any, known by the Partnership to own more than
5% of the outstanding limited partner units in the Partnership.
<TABLE>
<CAPTION>
Number of Percentage
Limited Partner Beneficially
Name Units Owned
---- --------------- ------------
<S> <C> <C>
Opal Partners, L.P.(1)....................... 1,551.5 *
Four Embarcadero Center
Suite 3250
San Francisco, California 94111
</TABLE>
- --------
* Less than 1%
(1) The general partner of Opal Partners is DDC&R, Inc. The sole director, sole
executive officer and sole stockholder of DDC&R is Carole J. McNeil.
162
<PAGE>
[FUND XIV] The following table sets forth as of [July 27], 1999, certain
information regarding the beneficial ownership of limited partner units in the
Partnership by McNeil Partners, including all officers, directors and employees
of McNeil Investors and McREMI, and including all affiliates of McNeil
Partners, and by each individual or "group," as defined in Section 13(d)(3) of
the Securities Exchange Act, known by the Partnership to own more than 5% of
the outstanding limited partner units in the Partnership.
<TABLE>
<CAPTION>
Number of Percentage
Limited Partner Beneficially
Name Units Owned
---- --------------- ------------
<S> <C> <C>
Opal Partners, L.P.(1)....................... 872,384 1.0%
Four Embarcadero Center
Suite 3250
San Francisco, California 94111
Dean Lontos(2)............................... 20 *
13760 Noel Road
Suite 600, LB70
Dallas, Texas 75240
Carl C. Icahn................................ 10,631(3) 12.3%
100 S. Bedford Road
Mount Kisco, New York 10549
</TABLE>
- --------
* Less than 1%
(1) The general partner of Opal Partners is DDC&R, Inc. The sole director, sole
executive officer and sole stockholder of DDC&R is Carole J. McNeil.
(2) Mr. Lontos is the Senior Vice President, Portfolio Management, of McREMI.
(3) As set forth on Exhibit A to the High River Complaint. See "Special
Factors--Background of the transaction--Events subsequent to the execution
of the Master Agreement." Mr. Icahn shares voting and dispositive power of
the limited partner units with his affiliates High River Limited
Partnership ("High River"), Riverdale LLC ("Riverdale") and Unicorn
Associates Corporation ("Unicorn"). Mr. Icahn is the controlling member of
Riverdale, the general partner of High River and indirectly beneficially
owns all of the issued and outstanding shares of capital stock of Unicorn.
High River has sole voting and dispositive power with respect to 10,105
limited partner units, Riverdale has shared voting and dispositive power
with respect to 10,105 limited partner units and Unicorn has sole voting
and dispositive power with respect to 526 limited partner units.
163
<PAGE>
[FUND XV] The following table sets forth as of [July 27], 1999, certain
information regarding the beneficial ownership of limited partner units in the
Partnership by McNeil Partners, including all officers, directors and employees
of McNeil Investors and McREMI, and including all affiliates of McNeil
Partners, and by each individual or "group," as defined in Section 13(d)(3) of
the Securities Exchange Act, known by the Partnership to own more than 5% of
the outstanding limited partner units in the Partnership.
<TABLE>
<CAPTION>
Number of Percentage
Limited Partner Beneficially
Name Units Owned
---- --------------- ------------
<S> <C> <C>
Opal Partners, L.P.(1)....................... 1,357 1.3%
Four Embarcadero Center
Suite 3250
San Francisco, California 94111
Dean Lontos(2)............................... 10 *
13760 Noel Road
Suite 600, LB70
Dallas, Texas 75240
Carl C. Icahn................................ 10,587(3) 10.3%
100 S. Bedford Road
Mount Kisco, New York 10549
</TABLE>
- --------
* Less than 1%
(1) The general partner of Opal Partners is DDC&R, Inc. The sole director, sole
executive officer and sole stockholder of DDC&R is Carole J. McNeil.
(2) Mr. Lontos is the Senior Vice President, Portfolio Management, of McREMI.
(3) As set forth on Exhibit A to the High River Complaint. See "Special
Factors--Background of the transaction--Events subsequent to the execution
of the Master Agreement." Mr. Icahn shares voting and dispositive power of
the limited partner units with his affiliates High River Limited
Partnership ("High River"), Riverdale LLC ("Riverdale") and Unicorn
Associates Corporation ("Unicorn"). Mr. Icahn is the controlling member of
Riverdale, the general partner of High River and indirectly beneficially
owns all of the issued and outstanding shares of capital stock of Unicorn.
High River has sole voting and dispositive power with respect to 9,761
limited partner units, Riverdale has shared voting and dispositive power
with respect to 9,761 limited partner units and Unicorn has sole voting and
dispositive power with respect to 826 limited partner units.
164
<PAGE>
[FUND XX] The following table sets forth as of [July 27], 1999, certain
information regarding the beneficial ownership of limited partner units in the
Partnership by McNeil Partners, including all officers, directors and employees
of McNeil Investors and McREMI, and including all affiliates of McNeil
Partners, and by each individual or "group," as defined in Section 13(d)(3) of
the Securities Exchange Act, known by the Partnership to own more than 5% of
the outstanding limited partner units in the Partnership.
<TABLE>
<CAPTION>
Number of Percentage
Limited Partner Beneficially
Name Units Owned
---- --------------- ------------
<S> <C> <C>
McNeil Partners, L.P......................... 4.5 *
13760 Noel Road
Suite 600, LB70
Dallas, Texas 75240
Dean Lontos(1)............................... 174 *
13760 Noel Road
Suite 600, LB70
Dallas, Texas 75240
MacKenzie Patterson, Inc..................... 2,910.8 5.9%
1640 School Street, #100
Moraga, California 94556
Carl C. Icahn................................ 6,520.372(2) 13.2%
100 S. Bedford Road
Mount Kisco, New York 10549
</TABLE>
- --------
* Less than 1%
(1) Mr. Lontos is the Senior Vice President, Portfolio Management, of McREMI.
(2) As set forth on Exhibit A to the High River Complaint. See "Special
Factors--Background of the transaction--Events subsequent to the execution
of the Master Agreement." Mr. Icahn shares voting and dispositive power of
the limited partner units with his affiliates High River Limited
Partnership ("High River"), Riverdale LLC ("Riverdale") and Unicorn
Associates Corporation ("Unicorn"). Mr. Icahn is the controlling member of
Riverdale, the general partner of High River and indirectly beneficially
owns all of the issued and outstanding shares of capital stock of Unicorn.
High River has sole voting and dispositive power with respect to 5,118.938
limited partner units, Riverdale has shared voting and dispositive power
with respect to 5,118.938 limited partner units and Unicorn has sole voting
and dispositive power with respect to 1,401.434 limited partner units.
[FUND XXI] As of [July 27], 1999, no officers, directors or employees of
McNeil Investors or McREMI and no affiliates of McNeil Partners, beneficially
owned any limited partner units in the Partnership and no individual or
"group," as defined in Section 13(d)(3) of the Securities Exchange Act, was
known by the Partnership to own more than 5% of the outstanding limited partner
units in the Partnership.
[FUND XXII] As of [July 27], 1999, no officers, directors or employees of
McNeil Investors or McREMI, any affiliates of McNeil Partners, beneficially
owned any limited partner units in the Partnership and no individual or
"group," as defined in Section 13(d)(3) of the Securities Exchange Act, was
known by the Partnership to own more than 5% of the outstanding limited partner
units in the Partnership.
165
<PAGE>
[FUND XXIII] The following table sets forth as of [July 27], 1999, certain
information regarding the beneficial ownership of limited partner units in the
Partnership by McNeil Partners, including all officers, directors and employees
of McNeil Investors and McREMI, and including all affiliates of McNeil
Partners, and by each individual or "group," as defined in Section 13(d)(3) of
the Securities Exchange Act, known by the Partnership to own more than 5% of
the outstanding limited partner units in the Partnership.
<TABLE>
<CAPTION>
Number of Percentage
Limited Partner Beneficially
Name Units Owned
---- --------------- ------------
<S> <C> <C>
McNeil Partners, L.P......................... 5,000 *
13760 Noel Road
Suite 600, LB70
Dallas, Texas 75240
Everest Properties II, LLC................... 691,685 6.1%
199 South Robles Avenue
Suite 440
Pasadena, California 91101
</TABLE>
- --------
* Less than 1%
[FUND XXIV] The following table sets forth as of [July 27], 1999, certain
information regarding the beneficial ownership of limited partner units in the
Partnership by McNeil Partners, including all officers, directors and employees
of McNeil Investors and McREMI, and including all affiliates of McNeil
Partners, and by each individual or "group," as defined in Section 13(d)(3) of
the Securities Exchange Act, known by the Partnership to own more than 5% of
the outstanding limited partner units in the Partnership.
<TABLE>
<CAPTION>
Number of Percentage
Limited Partner Beneficially
Name Units Owned
---- --------------- ------------
<S> <C> <C>
Carl C. Icahn................................ 3,648(1) 9.1%
100 S. Bedford Road
Mount Kisco, New York 10549
Madison Avenue Investment Partners........... 2,003 5.0%
555 Fifth Avenue
9th Floor
New York, New York 10017
</TABLE>
- --------
(1) As set forth on Exhibit A to the High River Complaint. See "Special
Factors--Background of the transaction--Events subsequent to the execution
of the Master Agreement." Mr. Icahn shares voting and dispositive power of
the limited partner units with his affiliates High River Limited
Partnership ("High River"), Riverdale LLC ("Riverdale") and Unicorn
Associates Corporation ("Unicorn"). Mr. Icahn is the controlling member of
Riverdale, the general partner of High River and indirectly beneficially
owns all of the issued and outstanding shares of capital stock of Unicorn.
High River has sole voting and dispositive power with respect to 2,988
limited partner units, Riverdale has shared voting and dispositive power
with respect to 2,988 limited partner units and Unicorn has sole voting and
dispositive power with respect to 660 limited partner units.
166
<PAGE>
[FUND XXV] The following table sets forth as of [July 27], 1999, certain
information regarding the beneficial ownership of limited partner units in the
Partnership by McNeil Partners, including all officers, directors and employees
of McNeil Investors and McREMI, and including all affiliates of McNeil
Partners, and by each individual or "group," as defined in Section 13(d)(3) of
the Securities Exchange Act, known by the Partnership to own more than 5% of
the outstanding limited partner units in the Partnership.
<TABLE>
<CAPTION>
Number of Percentage
Limited Partner Beneficially
Name Units Owned
---- --------------- ------------
<S> <C> <C>
Opal Partners, L.P.(1)....................... 27,322 *
Four Embarcadero Center
Suite 3250
San Francisco, California 94111
Dean Lontos(2)............................... 7,000 *
13760 Noel Road
Suite 600, LB70
Dallas, Texas 75240
Everest Properties II, LLC................... 4,348,066 5.2%
199 South Robles Avenue
Suite 440
Pasadena, California 91101
Carl C. Icahn................................ 7,534,383(3) 9.1%
100 S. Bedford Road
Mount Kisco, New York 10549
</TABLE>
- --------
* Less than 1%
(1) The general partner of Opal Partners is DDC&R, Inc. The sole director, sole
executive officer and sole stockholder of DDC&R is Carole J. McNeil.
(2) Mr. Lontos is the Senior Vice President, Portfolio Management, of McREMI.
(3) As set forth on Exhibit A to the High River Complaint. See "Special
Factors--Background of the transaction--Events subsequent to the execution
of the Master Agreement." Mr. Icahn shares voting and dispositive power of
the limited partner units with his affiliates High River Limited
Partnership ("High River"), Riverdale LLC ("Riverdale") and Unicorn
Associates Corporation ("Unicorn"). Mr. Icahn is the controlling member of
Riverdale, the general partner of High River and indirectly beneficially
owns all of the issued and outstanding shares of capital stock of Unicorn.
High River has sole voting and dispositive power with respect to 6,674,690
limited partner units, Riverdale has shared voting and dispositive power
with respect to 6,674,690 limited partner units and Unicorn has sole voting
and dispositive power with respect to 859,693 limited partner units.
167
<PAGE>
[FUND XXVI] The following table sets forth as of [July 27], 1999, certain
information regarding the beneficial ownership of limited partner units in the
Partnership by McNeil Partners, including all officers, directors and employees
of McNeil Investors and McREMI, and including all affiliates of McNeil
Partners, and by each individual or "group," as defined in Section 13(d)(3) of
the Securities Exchange Act, if any, known by the Partnership to own more than
5% of the outstanding limited partner units in the Partnership.
<TABLE>
<CAPTION>
Number of Percentage
Limited Partner Beneficially
Name Units Owned
---- --------------- ------------
<S> <C> <C>
Opal Partners, L.P.(1)....................... 2,995,000 3.5%
Four Embarcadero Center
Suite 3250
San Francisco, California 94111
Dean Lontos(2)............................... 127,277 *
13760 Noel Road
Suite 600, LB70
Dallas, Texas 75240
</TABLE>
- --------
* Less than 1%
(1) The general partner of Opal Partners is DDC&R, Inc. The sole director, sole
executive officer and sole stockholder of DDC&R is Carole J. McNeil.
(2) Mr. Lontos is the Senior Vice President, Portfolio Management, of McREMI.
[FUND XXVII] The following table sets forth as of [July 27], 1999, certain
information regarding the beneficial ownership of limited partner units in the
Partnership by McNeil Partners, including all officers, directors and employees
of McNeil Investors and McREMI, and including all affiliates of McNeil
Partners, and by each individual or "group," as defined in Section 13(d)(3) of
the Securities Exchange Act, if any, known by the Partnership to own more than
5% of the outstanding limited partner units in the Partnership.
<TABLE>
<CAPTION>
Number of Percentage
Limited Partner Beneficially
Name Units Owned
---- --------------- ------------
<S> <C> <C>
Opal Partners, L.P.(1)....................... 670,634 13.0%
Four Embarcadero Center
Suite 3250
San Francisco, California 94111
Dean Lontos(2)............................... 4,000 *
13760 Noel Road
Suite 600, LB70
Dallas, Texas 75240
</TABLE>
- --------
* Less than 1%
(1) The general partner of Opal Partners is DDC&R, Inc. The sole director, sole
executive officer and sole stockholder of DDC&R is Carole J. McNeil.
(2) Mr. Lontos is the Senior Vice President, Portfolio Management, of McREMI.]
168
<PAGE>
Past contacts, transactions and negotiations
[For each of the McNeil Partnerships (except Funds XXI-XXIII), the
information set forth below with respect to that McNeil Partnership will be
included in the Proxy Statement for that McNeil Partnership:]
In addition to any past contacts, transactions and negotiations described in
this Proxy Statement, described below are any contacts, transactions or
negotiations concerning a merger, consolidation, acquisition, tender offer or
other acquisition of limited partner units, election of directors or sale or
other transfer of a material amount of assets of the Partnership which have
been entered into or which have occurred since January 1, 1997, between any
affiliates of the Partnership or between the Partnership or any of its
affiliates and any person who is not affiliated with the Partnership and who
would have a direct interest in those matters.
[FUND IX]
On January 8, 1997, Mr. Icahn, High River, Riverdale and Unicorn filed the
final amendment to the Schedule 14D-1 tender offer statement and an amendment
to the Schedule 13D statement of beneficial ownership which they had previously
filed with respect to limited partner units in the Partnership to reflect the
acquisition by High River of limited partner units in the tender offer
commenced in September 1996. See "Special Factors--Background of the
transaction--Icahn tender offers." Mr. Icahn and his affiliates reported that
an aggregate of 49,726 limited partner units were tendered to High River
pursuant to the tender offer and that following the expiration of the tender
offer, Mr. Icahn and his affiliates beneficially owned an aggregate of 13,104
limited partner units, representing in the aggregate approximately 11.9% of the
limited partner units in the Partnership outstanding at that time. See "--
Principal holders of limited partner units."
On April 6, 1998, McNeil Partners transferred to Opal Partners 5,715 limited
partner units in the Partnership, representing all of the limited partner units
held of record by McNeil Partners in the Partnership. See "Special Factors--
Interests of certain persons in matters to be acted upon; conflicts of
interest--Ownership of limited partner units in the McNeil Partnership by the
McNeil Affiliates" and "--Principal holders of limited partner units."
[FUND X]
On January 8, 1997, Mr. Icahn, High River, Riverdale and Unicorn filed the
final amendment to the Schedule 14D-1 tender offer statement and an amendment
to the Schedule 13D statement of beneficial
ownership which they had previously filed with respect to limited partner units
in the Partnership to reflect the acquisition by High River of limited partner
units in the tender offer commenced in September 1996. See "Special Factors--
Background of the transaction--Icahn tender offers." Mr. Icahn and his
affiliates reported that an aggregate of 4,476 limited partner units were
tendered to High River pursuant to the tender offer and that following the
expiration of the tender offer, Mr. Icahn and his affiliates beneficially owned
an aggregate of 11,935 limited partner units, representing in the aggregate
approximately 8.8% of the limited partner units in the Partnership outstanding
at that time. See "--Principal holders of limited partner units."
[FUND XI]
On January 8, 1997, Mr. Icahn, High River, Riverdale and Unicorn filed the
final amendment to the Schedule 14D-1 tender offer statement and an amendment
to the Schedule 13D statement of beneficial ownership which they had previously
filed with respect to limited partner units in the Partnership to reflect the
acquisition by High River of limited partner units in the tender offer
commenced in September 1996. See "Special Factors--Background of the
transaction--Icahn tender offers." Mr. Icahn and his affiliates reported that
an aggregate of 8,667 limited partner units were tendered to High River
pursuant to the tender offer and that following the expiration of the tender
offer, Mr. Icahn and his affiliates beneficially owned an aggregate of 18,305
limited partner units, representing in the aggregate approximately 11.4% of the
limited partner units in the Partnership outstanding at that time. See "--
Principal holders of limited partner units."
169
<PAGE>
[FUND XII]
Fund XII received a written offer dated July 24, 1997 from an unaffiliated
third party to purchase one of its properties known as Brendon Way Apartments
for a purchase price of $19.3 million, subject to the assumption of the
existing mortgage debt on the property. The written offer included provisions
for a thirty day inspection period and a financing period of 60 days, with the
proposed purchase to occur 30 days thereafter. McNeil Partners, on behalf of
Fund XII, determined not to pursue the sale based on market conditions at the
time and rejected the offer in writing by letter date July 28, 1997. See "--
Principal holders of limited partner units."
On April 7, 1998, Fund XII sold one of its properties known as the
Channingway Apartments to an unaffiliated third party for $19.2 million.
[FUND XIV]
On January 8, 1997, Mr. Icahn, High River, Riverdale and Unicorn filed the
final amendment to the Schedule 14D-1 tender offer statement and an amendment
to the Schedule 13D statement of beneficial ownership which they had previously
filed with respect to limited partner units in the Partnership to reflect the
acquisition by High River of limited partner units in the tender offer
commenced in September 1996. See "Special Factors--Background of the
transaction--Icahn tender offers." Mr. Icahn and his affiliates reported that
an aggregate of 2,950 limited partner units were tendered to High River
pursuant to the tender offer and that following the expiration of the tender
offer, Mr. Icahn and his affiliates beneficially owned an aggregate of 10,470
limited partner units, representing in the aggregate approximately 12.1% of the
limited partner units in the Partnership outstanding at that time. See "--
Principal holders of limited partner units."
[FUND XV]
On January 8, 1997, Mr. Icahn, High River, Riverdale and Unicorn filed the
final amendment to the Schedule 14D-1 tender offer statement and an amendment
to the Schedule 13D statement of beneficial ownership which they had previously
filed with respect to limited partner units in the Partnership to reflect the
acquisition by High River of limited partner units in the tender offer
commenced in September 1996. See "Special Factors--Background of the
transaction--Icahn tender offers." Mr. Icahn and his affiliates reported that
an aggregate of 3,597 limited partner units were tendered to High River
pursuant to the tender offer and that following the expiration of the tender
offer, Mr. Icahn and his affiliates beneficially owned an aggregate of 10,710
limited partner units, representing in the aggregate approximately 10.4% of the
limited partner units in the Partnership outstanding at that time. See "--
Principal holders of limited partner units."
[FUND XX]
On January 8, 1997, Mr. Icahn, High River, Riverdale and Unicorn filed the
final amendment to the Schedule 14D-1 tender offer statement and an amendment
to the Schedule 13D statement of beneficial ownership which they had previously
filed with respect to limited partner units in the Partnership to reflect the
acquisition by High River of limited partner units in the tender offer
commenced in September 1996. See "Special Factors--Background of the
transaction--Icahn tender offers." Mr. Icahn and his affiliates reported that
an aggregate of 1,911.366 limited partner units were tendered to High River
pursuant to the tender offer and that following the expiration of the tender
offer, Mr. Icahn and his affiliates beneficially owned an aggregate of
6,585.366 limited partner units, representing in the aggregate approximately
13.3% of the limited partner units in the Partnership outstanding at that time.
See "--Principal holders of limited partner units."
[FUND XXIV]
On January 8, 1997, Mr. Icahn, High River, Riverdale and Unicorn filed the
final amendment to the Schedule 14D-1 tender offer statement and an amendment
to the Schedule 13D statement of beneficial ownership which they had previously
filed with respect to limited partner units in the Partnership to reflect the
acquisition by High River of limited partner units in the tender offer
commenced in September 1996. See "Special Factors--Background of the
transaction--Icahn tender offers." Mr. Icahn and his affiliates reported that
an aggregate of 1,450 limited partner units were tendered to High River
pursuant to the tender offer and that following the expiration of the tender
offer, Mr. Icahn and his affiliates beneficially owned an aggregate of
170
<PAGE>
3,615 limited partner units, representing in the aggregate approximately 9.0%
of the limited partner units in the Partnership outstanding at that time. See
"--Principal holders of limited partner units."
On March 31, 1998, Fund XXIV sold one of its properties known as Southpointe
Plaza to an unaffiliated third party for $6.8 million.
[FUND XXV]
On January 8, 1997, Mr. Icahn, High River, Riverdale and Unicorn filed the
final amendment to the Schedule 14D-1 tender offer statement and an amendment
to the Schedule 13D statement of beneficial ownership which they had previously
filed with respect to limited partner units in the Partnership to reflect the
acquisition by High River of limited partner units in the tender offer
commenced in September 1996. See "Special Factors--Background of the
transaction--Icahn tender offers." Mr. Icahn and his affiliates reported that
an aggregate of 1,992,121 limited partner units were tendered to High River
pursuant to the tender offer and that following the expiration of the tender
offer, Mr. Icahn and his affiliates beneficially owned an aggregate of
7,370,576 limited partner units, representing in the aggregate approximately
8.84% of the limited partner units in the Partnership outstanding at that time.
See "--Principal holders of limited partner units."
[FUND XXVI]
On January 9, 1997, Mr. Icahn, High River, Riverdale and Unicorn filed the
final amendment to the Schedule 14D-1 tender offer statement which they had
previously filed with respect to limited partner units in the Partnership to
reflect the acquisition by High River of limited partner units in the tender
offer commenced in September 1996. See "Special Factors--Background of the
transaction--Icahn tender offers." Mr. Icahn and his affiliates reported that
an aggregate of 812,7646 limited partner units were tendered to High River
pursuant to the tender offer and that following the expiration of the tender
offer, Mr. Icahn and his affiliates beneficially owned an aggregate of 920,245
limited partner units, representing in the aggregate approximately 1.1% of the
limited partner units in the Partnership outstanding at that time. See "--
Principal holders of limited partner units."
[FUND XXVII]
On January 9, 1997, Mr. Icahn, High River, Riverdale and Unicorn filed the
final amendment to the Schedule 14D-1 tender offer statement which they had
previously filed with respect to limited partner units in
the Partnership to reflect the acquisition by High River of limited partner
units in the tender offer commenced in September 1996. See "Special Factors--
Background of the transaction--Icahn tender offers." Mr. Icahn and his
affiliates reported that an aggregate of 103,737 limited partner units were
tendered to High River pursuant to the tender offer and that following the
expiration of the tender offer, Mr. Icahn and his affiliates beneficially owned
an aggregate of 219,237 limited partner units, representing in the aggregate
approximately 4.2% of the limited partner units in the Partnership outstanding
at that time. See "--Principal holders of limited partner units."
On April 6, 1998, McNeil Partners transferred to Opal Partners 10,800
limited partner units in the Partnership, representing all of the limited
partner units held of record by McNeil Partners. Also on April 6, 1998, Robert
A. McNeil transferred to Opal Partners 659,834 limited partner units in the
Partnership, representing all of the limited partner units held of record by
Robert A. McNeil. See "Special Factors--Interests of certain persons in matters
to be acted upon; conflicts of interest--Ownership of limited partner units in
the McNeil Partnerships by the McNeil Affiliates" and "--Principal holders of
limited partner units."
[For each of Funds XXI-XXIII, the following paragraph will be included in
the Proxy Statement for that McNeil Partnership:]
Except for any past contacts, transactions and negotiations described in
this Proxy Statement, there have been no contacts, transactions or negotiations
concerning a merger, consolidation, acquisition, tender offer or other
acquisition of limited partner units, election of directors or sale or other
transfer of a material amount of
171
<PAGE>
assets of the Partnership which have been entered into or which have occurred
since January 1, 1997, between any affiliates of the Partnership or between the
Partnership or any of its affiliates and any person who is not affiliated with
the Partnership and who would have a direct interest in those matters.
Recent transactions in the Partnership's limited partner units
Since January 1, 1997, none of the Partnership, McNeil Partners, McNeil
Investors or Robert A. McNeil has made any purchases of limited partner units
in the Partnership. In addition, during the past 60 days, none of the
Partnership, McNeil Partners, McNeil Investors or Robert A. McNeil, any
pension, profit sharing or similar plan of the Partnership, McNeil Partners,
McNeil Investors or Robert A. McNeil, any of their named persons or any
associate or majority owned subsidiary of the Partnership, McNeil Partners,
McNeil Investors or Robert A. McNeil has engaged in any transaction involving
limited partner units in the Partnership.
Contracts, arrangements or understandings with respect to limited partner units
in the Partnership
Except as described in this Proxy Statement, none of the Partnership, McNeil
Partners, McNeil Investors or Robert A. McNeil or any of their named persons
has any arrangement, contract, relationship or understanding with any person
with respect to any limited partner units in the Partnership, including any
arrangement, contract, relationship or understanding concerning the transfer or
the voting of any limited partner unit in the Partnership, any joint venture,
any loan or option agreement, 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, McNeil Partners, McNeil Investors or Robert A. McNeil or any of
their named persons has any plan or proposal regarding any action or
transaction which is to occur after the transaction to which this Proxy
Statement relates and which relates to or would result in any extraordinary
corporate transaction involving the Partnership, any sale or transfer of a
material amount of the Partnership's assets, any change in the Partnership's
management, any material change in the Partnership's present rate of
distributions or present policy on indebtedness or capitalization, or any other
change in the Partnership's structure or business.
172
<PAGE>
SELECTED FINANCIAL DATA OF THE PARTNERSHIP
McNeil Real Estate Fund IX
The following table sets forth a summary of certain financial data for the
Partnership. This summary should be read in conjunction with the Partnership's
financial statements and notes thereto appearing in the Partnership's Annual
Report on Form 10-K for the year ended December 31, 1998 included with this
Proxy Statement.
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------------------------------------
Statements of Operations 1998 1997 1996 1995 1994
- ------------------------ ------------ ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Rental revenue.......... $ 20,638,884 $19,947,518 $19,732,110 $19,123,434 $18,202,306
Total revenue........... 20,818,593 20,616,269 19,964,950 19,567,182 18,642,220
Net income (loss) before
extraordinary items.... 483,203 977,262 (293,982) (328,996) (387,787)
Extraordinary items..... (405,235) -- -- -- --
Net income (loss)....... 77,968 977,262 (293,982) (328,996) (387,787)
Net income (loss) per
limited partnership
unit:
Net income (loss)
before extraordinary
items................. $ 4.17 $ 2.46 $ (13.21) $ (9.19) $ (9.21)
Extraordinary items.... (3.50) -- -- -- --
------------ ----------- ----------- ----------- -----------
Net income (loss)....... $ .67 $ 2.46 $ (13.21) $ (9.19) $ (9.21)
============ =========== =========== =========== ===========
Distributions per
limited partnership
unit:.................. $ 20.88 $ 24.96 $ -- $ -- $ --
============ =========== =========== =========== ===========
<CAPTION>
As of December 31,
----------------------------------------------------------------
Balance Sheets 1998 1997 1996 1995 1994
- -------------- ------------ ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Real estate investments,
net.................... $ 31,249,760 $33,419,436 $38,308,605 $42,434,162 $42,830,552
Asset held for sale..... 3,140,461 3,009,553 -- -- --
Total assets............ 41,373,306 44,051,144 47,650,109 49,970,886 51,749,891
Mortgage notes payable,
net.................... 49,189,188 49,745,307 50,600,006 51,390,822 52,098,952
Partners' deficit....... (12,124,605) (8,738,055) (5,828,303) (4,440,760) (3,001,001)
</TABLE>
The Partnership sold Westridge Apartments on July 30, 1996.
173
<PAGE>
McNeil Real Estate Fund X
The following table sets forth a summary of certain financial data for the
Partnership. This summary should be read in conjunction with the Partnership's
financial statements and notes thereto appearing in the Partnership's Annual
Report on Form 10-K for the year ended December 31, 1998 included with this
Proxy Statement.
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------------------------------------------
Statements of Operations 1998 1997 1996 1995 1994
- ------------------------ ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Rental revenue.......... $14,890,624 $15,471,277 $16,089,109 $16,878,076 $17,375,904
Gain on involuntary
conversion............. -- 65,800 285,127 -- --
Gain on sales of real
estate................. -- 3,063,438 353,389 3,183,698 --
Total revenue........... 15,076,467 18,829,962 16,853,542 20,258,594 17,428,487
Income (loss) before
extraordinary items.... (157,070) 3,636,976 872,382 2,193,164 (1,199,904)
Extraordinary items..... -- 518,495 269,596 -- 292,539
Net income (loss)....... (157,070) 4,155,471 1,141,978 2,193,164 (907,365)
Net income (loss) per
limited partnership
unit:
Income (loss) before
extraordinary items.. $ (1.11) $ 14.99 $ 6.14 $ 15.43 $ (10.25)
Extraordinary items... -- 2.14 1.90 -- 2.06
----------- ----------- ----------- ----------- -----------
Net income (loss) per
limited partnership
unit................... $ (1.11) $ 17.13 $ 8.04 $ 15.43 $ (8.19)
=========== =========== =========== =========== ===========
Distributions per
limited partnership
unit................... $ 33.34 $ -- $ -- $ -- $ --
=========== =========== =========== =========== ===========
<CAPTION>
As of December 31,
---------------------------------------------------------------
Balance Sheets 1998 1997 1996 1995 1994
- -------------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Real estate investments,
net.................... $26,662,414 $28,566,426 $30,257,120 $36,699,530 $37,024,893
Assets held for sale.... -- -- 5,308,731 2,237,733 7,215,032
Total assets............ 32,051,540 37,112,416 41,407,352 43,638,649 48,379,933
Mortgage notes payable,
net.................... 36,140,300 36,769,603 42,412,292 44,454,316 52,078,850
Partners' deficit....... (8,587,158) (3,046,025) (6,220,056) (6,313,367) (7,442,274)
</TABLE>
The Partnership sold the following properties during the five year period
ended December 31, 1998.
<TABLE>
<S> <C>
Property Date Sold
-------- ---------
Iberia Plaza December 12, 1997
Cave Springs Corners June 5, 1997
Parkway Plaza September 18, 1996
The Courts Apartments September 14, 1995
</TABLE>
174
<PAGE>
McNeil Real Estate Fund XI
The following table sets forth a summary of certain financial data for the
Partnership. This summary should be read in conjunction with the Partnership's
financial statements and notes thereto appearing in the Partnership's Annual
Report on Form 10-K for the year ended December 31, 1998 included with this
Proxy Statement.
<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------------------------------------------------
Statements of Operations 1998 1997 1996 1995 1994
- ------------------------ ------------ ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Rental revenue.......... $ 15,012,339 $15,187,999 $ 14,855,652 $ 14,304,055 $ 13,313,091
Total revenue........... 18,569,006 15,536,941 15,582,063 14,451,813 13,425,413
Net income (loss)....... 4,453,260 1,744,719 1,592,611 307,243 (193,822)
Net income (loss) per
limited
partnership unit...... $ 26.44 $ 3.61 $ 5.03 $ 1.83 $ (3.98)
============ =========== ============ ============ ============
Distributions per
limited
partnership unit...... $ 26.41 $ -- $ -- $ -- $ --
============ =========== ============ ============ ============
<CAPTION>
As of December 31,
-------------------------------------------------------------------
Balance Sheet 1998 1997 1996 1995 1994
- ------------- ------------ ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Real estate investments,
net.................... $ 19,670,767 $20,677,187 $ 22,992,254 $ 27,251,831 $ 27,916,213
Assets held for sale.... 4,765,942 5,910,865 4,203,597 -- --
Total assets............ 29,746,379 32,369,919 32,592,153 32,508,764 33,355,998
Mortgage notes payable,
net.................... 36,064,590 38,796,649 39,255,045 39,684,440 40,090,432
Partners' deficit....... (10,415,809) (9,793,898) (10,633,464) (11,323,378) (10,759,568)
</TABLE>
The Partnership sold the Park Apartments on April 30, 1998.
175
<PAGE>
McNeil Real Estate Fund XII
The following table sets forth a summary of certain financial data for the
Partnership. This summary should be read in conjunction with the Partnership's
financial statements and notes thereto appearing in the Partnership's Annual
Report on Form 10-K for the year ended December 31, 1998 included with this
Proxy Statement.
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------------------------------------------
Statements of Operations 1998 1997 1996 1995 1994
- ------------------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Rental revenue.......... $ 13,557,960 $ 15,427,506 $ 16,327,181 $ 17,533,914 $ 21,295,696
Total revenue........... 23,372,730 15,542,127 18,046,806 21,195,706 27,701,373
Gain on disposition of
real estate............ 9,568,850 -- 1,506,169 3,247,513 6,307,885
Income (loss) before
extraordinary item..... 8,581,958 (1,506,270) 391,871 1,183,425 3,220,934
Extraordinary gain on
extinguishment of debt,
net.................... -- -- -- 1,304,587 246,149
Net income (loss)....... 8,581,958 (1,506,270) 391,871 2,488,012 3,467,083
Net income (loss) per
limited partnership
unit:
Income (loss) before
extraordinary item..... $ 33.73 $ (6.23) $ (7.12) $ 4.89 $ 13.27
Extraordinary gain on
extinguishment of
debt................... -- -- -- 5.25 1.01
------------ ------------ ------------ ------------ ------------
Net income (loss)...... $ 33.73 $ (6.23) $ (7.12) $ 10.14 $ 14.28
============ ============ ============ ============ ============
Distributions per
limited partnership
unit................... $ 4.36 $ -- $ -- $ -- $ --
============ ============ ============ ============ ============
<CAPTION>
As of December 31,
--------------------------------------------------------------------
Balance Sheets 1998 1997 1996 1995 1994
- -------------- ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Real estate investments,
net.................... $ 24,294,678 $ 26,133,281 $ 37,221,352 $ 39,098,068 $ 40,915,017
Assets held for sale.... -- 9,303,533 -- 3,164,323 12,724,693
Total assets............ 29,708,036 40,517,097 42,666,935 52,112,866 60,189,348
Mortgage notes payable.. 37,449,291 54,200,372 54,859,073 59,160,426 68,152,522
Partners' deficit....... (13,940,076) (20,743,607) (18,381,430) (17,849,184) (19,292,331)
</TABLE>
The following properties have been sold during the five years ended December
31, 1998.
<TABLE>
<S> <C>
Property Date Sold
-------- ---------
Channingway April 1998
Millwood Park October 1996
Lamar Plaza July 1995
Sundance Apartments June 1995
Fox Run Apartments December 1994
Village East November 1994
</TABLE>
176
<PAGE>
McNeil Real Estate Fund XIV
The following table sets forth a summary of certain financial data for the
Partnership. This summary should be read in conjunction with the Partnership's
financial statements and notes thereto appearing in the Partnership's Annual
Report on Form 10-K for the year ended December 31, 1998 included with this
Proxy Statement.
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------------------------------------
Statements of Operations 1998 1997 1996 1995 1994
- ------------------------ ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Rental revenue.......... $ 8,662,524 $ 8,996,989 $ 9,429,880 $ 9,188,439 $ 8,899,488
Gain on legal
settlement............. -- -- -- 39,841 --
Gain on involuntary
conversion............. 393,795 -- -- -- 51,588
Gain on disposition of
real estate............ -- 3,081,755 -- -- --
Total revenue........... 9,159,934 12,289,725 9,536,634 9,350,464 8,988,225
Net income (loss)....... (167,386) 3,328,774 (119,302) (331,176) (300,760)
Net income (loss) per
limited partnership
unit................... $ (1.91) $ 3.02 $ (1.36) $ (3.79) $ (3.44)
=========== =========== =========== =========== ===========
Distributions per
limited partnership
unit................... $ 5.78 $ 71.02 $ -- $ -- $ --
=========== =========== =========== =========== ===========
<CAPTION>
As of December 31,
--------------------------------------------------------------
Balance Sheets 1998 1997 1996 1995 1994
- -------------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Real estate investments,
net.................... $19,397,932 $20,251,190 $21,656,966 $30,950,884 $31,396,082
Assets held for sale.... 2,192,549 1,932,910 7,942,855 -- --
Total assets............ 25,601,245 26,325,605 34,188,885 35,275,343 35,214,866
Mortgage notes payable,
net.................... 23,466,298 23,891,012 27,423,689 27,871,969 27,161,556
Partners' equity
(deficit).............. (114,266) 1,099,044 4,481,326 5,219,414 6,152,173
</TABLE>
The Partnership sold Country Hills Plaza and Midvale Plaza on April 8, 1997
and September 24, 1997, respectively.
177
<PAGE>
McNeil Real Estate Fund XV
The following table sets forth a summary of certain financial data for the
Partnership. This summary should be read in conjunction with the Partnership's
financial statements and notes thereto appearing in the Partnership's Annual
Report on Form 10-K for the year ended December 31, 1998 included with this
Proxy Statement.
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------------------------------------------
Statements of Operations 1998 1997 1996 1995 1994
- ------------------------ ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Rental revenue.......... $ 7,966,118 $ 8,042,385 $ 7,973,979 $ 7,716,859 $ 7,415,746
Total revenue........... 8,063,341 8,193,714 8,076,096 7,991,130 7,772,979
Net income (loss)....... (134,412) 107,228 (133,470) (198,113) (41,096)
Net loss per limited
partnership unit....... $ (1.29) $ (2.50) $ (5.66) $ (6.90) $ (5.19)
=========== =========== =========== =========== ===========
Distribution per limited
partnership unit....... $ 7.29 $ 9.75 $ 9.70 $ -- $ 4.86
=========== =========== =========== =========== ===========
<CAPTION>
As of December 31,
---------------------------------------------------------------
Balance Sheets 1998 1997 1996 1995 1994
- -------------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Real estate investments,
net.................... $24,285,706 $25,525,582 $30,251,493 $31,548,994 $32,336,645
Asset held for sale..... 3,487,893 3,400,316 -- -- --
Total assets............ 30,176,809 31,395,272 33,180,985 35,129,849 37,030,171
Mortgage notes payable,
net.................... 23,057,324 23,474,480 23,857,021 24,216,133 25,443,252
Partners' equity........ 5,617,266 6,994,487 8,392,642 10,037,853 10,755,778
</TABLE>
178
<PAGE>
McNeil Real Estate Fund XX
The following table sets forth a summary of certain financial data for the
Partnership. This summary should be read in conjunction with the Partnership's
financial statements and notes thereto appearing in the Partnership's Annual
Report on Form 10-K for the year ended December 31, 1998 included with this
Proxy Statement.
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------------------------------
Statements of Operations 1998 1997 1996 1995 1994
- ------------------------ ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Rental revenue.......... $1,290,193 $1,279,458 $1,413,050 $1,405,346 $1,172,233
Interest income......... 516,148 539,573 524,791 568,970 591,791
Gain on extinguishment
of mortgage loan
investment............. 1,025,833 -- -- -- --
Gain on disposition of
real estate............ -- 1,962,280 -- -- --
Net income.............. 1,258,637 2,239,792 116,736 64,116 88,909
Net income per limited
partnership unit....... $ 25.17 $ 44.78 $ 2.33 $ 1.28 $ 1.78
========== ========== ========== ========== ==========
Distributions per
limited partnership
unit................... $ 146.08 $ 65.64 $ 24.24 $ 5.05 $ 5.05
========== ========== ========== ========== ==========
<CAPTION>
As of December 31,
------------------------------------------------------
Balance Sheets 1998 1997 1996 1995 1994
- -------------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Real estate investments,
net.................... $2,848,199 $2,983,609 $5,457,587 $5,726,377 $5,938,194
Mortgage loan
investments, net....... -- 6,868,788 4,138,453 4,271,336 4,418,306
Total assets............ 6,225,467 12,112,244 13,189,106 14,345,949 14,484,111
Mortgage note payable,
net.................... 2,613,312 2,666,814 2,715,909 2,760,961 2,802,303
Partners' equity........ 3,012,266 8,986,219 9,996,414 11,079,628 11,265,513
</TABLE>
In May 1993, the Partnership foreclosed on 1130 Sacramento Condominiums in
settlement of the mortgage loan secured by the property and later sold the
property in August 1997.
179
<PAGE>
McNeil Real Estate Fund XXI
The following table sets forth a summary of certain financial data for the
Partnership. This summary should be read in conjunction with the Partnership's
financial statements and notes thereto appearing in the Partnership's Annual
Report on Form 10-K for the year ended December 31, 1998 included with this
Proxy Statement.
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------------------------------------------
Statements of Operations 1998 1997 1996 1995 1994
- ------------------------ ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Rental revenue.......... $ 5,674,766 $ 6,478,023 $ 6,434,691 $ 6,642,725 $ 8,054,097
Write-down for
impairment of real
estate................. -- (330,000) -- -- --
Gain on disposition of
real estate............ 863,350 -- -- 1,615,811 29,440
Loss before
extraordinary items.... (411,232) (1,478,604) (1,127,080) (170,804) (1,891,596)
Extraordinary items..... 1,816,152 -- -- -- --
Net income (loss)....... 1,404,920 (1,478,604) (1,127,080) (170,804) (1,891,596)
Net income (loss) per
limited partnership
unit:
Income (loss) before
extraordinary items:
Current Income Units.. $ (1.48) $ (5.34) $ (4.07) $ 31.62 $ (6.82)
Growth/Shelter Units.. (16.76) (60.00) (45.41) (42.85) (76.12)
Extraordinary items:
Current Income Units.. 6.57 -- -- -- --
Growth/Shelter Units.. 74.01 -- -- -- --
Net income (loss):
Current Income Units.. 5.09 (5.34) (4.07) 31.62 (6.82)
Growth/Shelter Units.. 57.25 (60.00) (45.41) (42.85) (76.12)
<CAPTION>
As of December 31,
---------------------------------------------------------------
Balance Sheets 1998 1997 1996 1995 1994
- -------------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Real estate investments,
net.................... $11,699,613 $17,063,666 $18,121,925 $21,671,191 $22,557,552
Assets held for sale.... -- 2,795,988 2,731,674 -- 8,153,520
Total assets............ 13,972,463 23,063,962 23,931,225 25,178,649 33,985,057
Mortgage notes payable,
net.................... 12,372,597 22,264,579 22,514,175 22,742,528 30,979,473
Partners' deficit....... (4,494,662) (5,899,582) (4,420,978) (3,293,898) (3,123,094)
</TABLE>
Homestead Manor Apartments was sold in February 1994. Wyoming Mall and
Suburban Plaza shopping centers were sold in March 1995. Fort Meigs Plaza was
sold in April 1998 and Wise County Plaza was foreclosed on by the lender in May
1998.
180
<PAGE>
McNeil Real Estate Fund XXII
The following table sets forth a summary of certain financial data for the
Partnership. This summary should be read in conjunction with the Partnership's
financial statements and notes thereto appearing in the Partnership's Annual
Report on Form 10-K for the year ended December 31, 1998 included with this
Proxy Statement.
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------------------------------------------
Statements of Operations 1998 1997 1996 1995 1994
- ------------------------ ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Rental revenue.......... $ 2,509,553 $ 2,340,806 $ 2,251,970 $ 2,456,308 $ 2,950,795
Loss on disposition of
real estate............ -- -- -- 245,637 --
Net income (loss)....... (89,405) 21,172 (220,762) (308,378) (565,993)
Net income (loss) per
thousand limited
partnership units:
Net Income (loss):
Current Income Units.. $ (.41) $ .53 $ (1.01) $ (1.40) $ (2.56)
Growth/Shelter Units.. (6.08) .78 (14.97) (20.74) (38.04)
<CAPTION>
As of December 31,
---------------------------------------------------------------
Balance Sheets 1998 1997 1996 1995 1994
- -------------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Real estate investment,
net.................... $ 5,131,904 $ 5,389,429 $ 5,318,692 $ 5,504,538 $ 5,632,109
Asset held for sale..... -- -- -- -- 4,393,157
Total assets............ 6,448,454 6,341,340 6,164,365 6,407,931 11,314,161
Mortgage notes payable,
net.................... 5,871,684 5,928,021 5,979,501 6,026,515 9,534,751
Partners' deficit....... (1,862,306) (1,772,901) (1,794,073) (1,419,024) (1,110,646)
</TABLE>
Wyoming Mall was sold on March 31, 1995.
181
<PAGE>
McNeil Real Estate Fund XXIII
The following table sets forth a summary of certain financial data for the
Partnership. This summary should be read in conjunction with the Partnership's
financial statements and notes thereto appearing in the Partnership's Annual
Report on Form 10-K for the year ended December 31, 1998 included with this
Proxy Statement.
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------------------------------
Statements of Operations 1998 1997 1996 1995 1994
- ------------------------ ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Rental revenue.......... $1,476,246 $1,398,644 $1,324,331 $1,591,118 $1,894,443
Write-down for
impairment of real
estate................. -- -- -- -- (661,921)
Gain on disposition of
real estate............ -- -- -- 554,047 --
Income (loss) before
extraordinary items.... (146,178) (92,549) (180,141) 14,174 (1,465,830)
Extraordinary items..... -- -- -- 1,435,024 --
Net income (loss)....... (146,178) (92,549) (180,141) 1,449,198 (1,465,830)
Net income (loss) per
thousand limited
partnership units:
Income (loss) before
extraordinary items:
Current Income Units.. $ (1.98) $ (1.25) $ (2.43) $ 28.89 $ (14.01)
Growth/Shelter Units.. (27.07) (17.14) (32.81) (38.59) (197.23)
Extraordinary items:
Current Income Units.. -- -- -- 88.20 --
Growth/Shelter Units.. -- -- -- 88.20 --
Net income (loss):
Current Income Units.. (1.98) (1.25) (2.43) 117.09 (14.01)
Growth/Shelter Units.. (27.07) (17.14) (32.81) 49.61 (197.23)
<CAPTION>
As of December 31,
----------------------------------------------------------
Balance Sheets 1998 1997 1996 1995 1994
- -------------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Real estate investment,
net.................... $3,286,043 $3,302,956 $3,354,442 $3,428,097 $3,546,322
Asset held for sale..... -- -- -- -- 2,373,130
Total assets............ 3,709,811 3,722,868 3,701,423 3,825,824 6,520,408
Mortgage note payable,
net.................... 3,692,420 3,726,154 3,758,380 3,787,802 3,814,667
Liabilities subject to
compromise............. -- -- -- -- 4,184,977
Partners' deficit....... (714,117) (567,939) (475,390) (290,769) (1,739,967)
</TABLE>
Woodbridge Apartments was sold on May 25, 1995. This property was placed on
the market for sale during 1994 and was classified as an asset held for sale at
December 31, 1994.
As a result of its Chapter 11 proceeding, the realization of assets and
liquidation of liabilities attributable to the Partnership were subject to
significant uncertainties. The Partnership's balance sheet as of December 31,
1994, reflects the liabilities that were deferred under the Chapter 11
proceeding as "Liabilities subject to compromise."
182
<PAGE>
McNeil Real Estate Fund XXIV
The following table sets forth a summary of certain financial data for the
Partnership. This summary should be read in conjunction with the Partnership's
financial statements and notes thereto appearing in the Partnership's Annual
Report on Form 10-K for the year ended December 31, 1998 included with this
Proxy Statement.
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------------------------------------------
Statements of Operations 1998 1997 1996 1995 1994
- ------------------------ ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Rental revenue.......... $ 3,255,378 $ 4,186,633 $ 4,136,447 $ 4,058,503 $ 4,127,396
Write-down for
impairment of real
estate................. (126,080) (220,000) (700,000) (1,500,085) --
Net income (loss)....... (473,023) 430,179 (608,182) (1,694,787) (65,511)
Net income (loss) per
limited partnership
unit................... $ (11.71) $ 10.65 $ (15.05) $ (41.95) $ (1.62)
=========== =========== =========== =========== ===========
Distributions per
limited partnership
unit................... $ 116.11 $ 12.50 $ 18.75 $ -- $ --
=========== =========== =========== =========== ===========
<CAPTION>
As of December 31,
---------------------------------------------------------------
Balance Sheets 1998 1997 1996 1995 1994
- -------------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Real estate investments,
net.................... $11,135,221 $11,397,918 $12,971,315 $22,816,356 $25,251,693
Assets held for sale.... 2,737,114 10,935,647 8,408,672 -- --
Total assets............ 15,504,391 25,301,732 23,771,150 25,912,389 27,674,971
Mortgage notes payable.. 1,650,000 5,293,017 5,421,763 5,538,527 5,660,558
Partners' equity........ 12,793,861 17,911,284 17,981,105 19,339,303 21,034,090
</TABLE>
The Partnership sold Southpointe Plaza and Island Plaza on March 31, 1998
and April 1, 1998, respectively.
183
<PAGE>
McNeil Real Estate Fund XXV
The following table sets forth a summary of certain financial data for the
Partnership. This summary should be read in conjunction with the Partnership's
financial statements and notes thereto appearing in the Partnership's Annual
Report on Form 10-K for the year ended December 31, 1998 included with this
Proxy Statement.
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------------------------------------
Statements of Operations 1998 1997 1996 1995 1994
- ------------------------ ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Rental revenue.......... $ 9,872,315 $ 9,282,309 $ 9,494,477 $ 8,783,408 $ 9,110,749
Write-down for
impairment of real
estate................. -- 3,130,000 -- 4,633,000 --
Net income (loss)....... 913,384 (3,192,087) (2,577,600) (5,943,886) (531,497)
Net income (loss) per
weighted average
thousand limited
partnership units...... $ 10.90 $ (38.10) $ (30.47) $ (70.14) $ (6.27)
=========== =========== =========== =========== ===========
Distributions per
weighted average
thousand limited
partnership units...... $ 33.13 $ 12.06 $ 2.99 $ -- $ 4.77
=========== =========== =========== =========== ===========
<CAPTION>
As of December 31,
--------------------------------------------------------------
Balance Sheets 1998 1997 1996 1995 1994
- -------------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Real estate investments,
net.................... $23,254,546 $25,003,181 $38,731,648 $40,620,473 $46,683,563
Asset held for sale..... 9,016,824 8,989,818 -- -- --
Total assets............ 37,448,501 38,562,904 44,105,856 47,723,941 53,432,562
Mortgage note payable... 7,094,110 7,155,626 7,381,507 7,381,507 7,381,507
Partners' equity........ 27,954,970 29,789,239 33,981,321 37,464,982 43,408,868
</TABLE>
184
<PAGE>
McNeil Real Estate Fund XXVI
The following table sets forth a summary of certain financial data for the
Partnership. This summary should be read in conjunction with the Partnership's
financial statements and notes thereto appearing in the Partnership's Annual
Report on Form 10-K for the year ended December 31, 1998 included with this
Proxy Statement.
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------------------------------------
Statements of Operations 1998 1997 1996 1995 1994
- ------------------------ ----------- ----------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Rental revenue.......... $ 8,985,277 $ 8,824,653 $8,579,073 $ 7,568,361 $ 6,385,998
Write-down for
impairment of real
estate................. -- -- (1,087,000) (2,200,000) --
Net loss................ (695,742) (1,003,689) (2,347,920) (5,063,046) (1,938,063)
Loss per thousand
limited partnership
units.................. $ (7.96) $ (11.48) $ (26.86) $ (57.91) $ (22.17)
=========== =========== ========== =========== ===========
Distributions per
thousand limited
partnership units...... $ 29.33 $ 8.67 $ 4.33 $ -- $ --
=========== =========== ========== =========== ===========
<CAPTION>
As of December 31,
--------------------------------------------------------------
Balance Sheets 1998 1997 1996 1995 1994
- -------------- ----------- ----------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Real estate investments,
net.................... $35,608,688 $37,259,312 38,979,116 $44,629,001 $41,738,690
Asset held for sale..... -- 3,047,765 3,008,374 -- --
Total assets............ 40,048,693 45,464,752 47,124,512 54,217,223 45,208,188
Mortgage notes payable.. 18,981,387 21,442,045 21,815,746 23,097,459 9,350,045
Partners' equity........ 19,628,145 22,862,247 24,615,924 27,338,809 32,401,855
</TABLE>
The Partnership sold Edison Ford Square on April 28, 1998.
185
<PAGE>
McNeil Real Estate Fund XXVII
The following table sets forth a summary of certain financial data for the
Partnership. This summary should be read in conjunction with the Partnership's
financial statements and notes thereto appearing in the Partnership's Annual
Report on Form 10-K for the year ended December 31, 1998 included with this
Proxy Statement.
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------------------------------------
Statements of Operations 1998 1997 1996 1995 1994
- ------------------------ ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Rental revenue.......... $ 9,135,799 $ 8,366,664 $ 7,943,383 $ 7,517,404 $ 7,234,070
Interest income on
mortgage loan
investments............ 414,070 766,211 268,665 440,658 451,841
Income before
extraordinary item..... 2,815,090 2,788,653 2,245,414 3,268,110 1,355,563
Extraordinary item...... -- -- -- (252,402) --
Net income.............. 2,815,090 2,788,653 2,245,414 3,015,708 1,355,563
Net income per weighted
average hundred limited
partnership units:
Income before
extraordinary item... $ 53.60 $ 52.72 $ 42.15 $ 60.93 $ 25.09
Extraordinary item.... -- -- -- (4.71) --
----------- ----------- ----------- ----------- -----------
Net income............ $ 53.60 $ 52.72 $ 42.15 $ 56.22 $ 25.09
=========== =========== =========== =========== ===========
Distributions per
weighted average
hundred limited
partnership units...... $ 106.21 $ 76.38 $ 113.77 $ -- $ --
=========== =========== =========== =========== ===========
<CAPTION>
As of December 31,
------------------------------------------------------------
Balance Sheets 1998 1997 1996 1995 1994
- -------------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Real estate investments,
net.................... $18,242,054 $18,630,576 $23,888,948 $24,977,575 $25,921,989
Assets held for sale.... 4,613,386 4,549,881 -- -- --
Mortgage loan
investments, net....... 1,306,488 6,956,487 4,692,760 3,597,673 4,679,929
Total assets............ 27,841,371 33,681,114 32,641,270 35,489,741 39,501,853
Long-term debt.......... -- 3,437,648 1,101,619 -- 6,726,266
Partners' equity........ 25,958,341 28,999,177 30,543,422 34,630,930 31,948,150
</TABLE>
186
<PAGE>
CERTAIN FINANCIAL PROJECTIONS OF THE PARTNERSHIP
The Partnership does not as a matter of course publicly disclose internal
budgets, plans, estimates, forecasts or projections as to future revenues,
earnings or other financial information. The projected financial data set forth
below reflect information which was contained in projections prepared by McNeil
Partners and delivered to bidders in the auction. See "Special Factors--
Background of the transaction--Background of the auction process." These
projections were based upon a variety of estimates and assumptions, the
material ones of which are set forth below. The estimates and assumptions
underlying the projections involved judgments with respect to, among other
things, future economic, competitive, and financial market conditions and
future business decisions which may not be realized and are inherently subject
to significant business, economic and competitive uncertainties, all of which
are difficult to predict and many of which are beyond the control of the
Partnership. While McNeil Partners believes these estimates and assumptions are
reasonable, there can be no assurance that the projections will be accurate,
and actual results may vary materially from those shown. In light of the
uncertainties inherent in forward looking information of any kind, the
inclusion of these projections herein should not be regarded as a
representation by the Partnership, McNeil Partners or any other person that the
anticipated results will be achieved and limited partners are cautioned not to
place undue reliance on such information.
The Partnership does not intend to update or otherwise revise the
information set forth below to reflect circumstances existing after the date of
the most recent financial statements incorporated by reference in this Proxy
Statement or to reflect the occurrence of unanticipated events. The information
set forth below should be read together with the information contained in the
Partnership's Annual Report on Form 10-K for the year ended December 31, 1998
and the information included or incorporated by reference in this Proxy
Statement.
In the normal course of operations, McNeil Partners drafted a five-year
business plan in 1998. Subject to the qualifications and limitations stated
above, the information set forth below reflects the material assumptions used
in the Partnership's 1999 Business Plan.
[For each of the McNeil Partnerships, the information set forth below with
respect to that McNeil Partnership will be included in the Proxy Statement for
that McNeil Partnership:]
<TABLE>
<CAPTION>
[Fund IX] Forecast
- --------- -------------------------------------------
Financial forecast--5-year (in
thousands) 1999 2000 2001 2002 2003
- ------------------------------ ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Operating revenues............... 21,462 22,106 22,769 23,452 24,156
Operating expenses............... (10,974) (11,241) (11,476) (11,717) (11,963)
------- ------- ------- ------- -------
Net operating income............. 10,488 10,865 11,293 11,735 12,193
Debt service..................... (5,306) (5,290) (5,220) (4,907) (4,768)
Capital improvements............. (1,601) (1,767) (1,802) (1,838) (1,875)
Tenant improvements.............. -- -- -- -- --
------- ------- ------- ------- -------
Cash flow--property operations... 3,581 3,808 4,271 4,990 5,550
Interest income.................. 66 68 70 72 74
General & administrative......... (169) (174) (179) (185) (190)
General & administrative-
affil. ......................... (547) (563) (580) (598) (616)
Asset mgt fee/MID................ (1,215) (939) (648) (334) (344)
------- ------- ------- ------- -------
Cash flow........................ 1,716 2,200 2,943 3,946 4,475
======= ======= ======= ======= =======
<CAPTION>
[Fund X] Forecast
- -------- -------------------------------------------
Financial forecast--5-year (in
thousands) 1999 2000 2001 2002 2003
- ------------------------------ ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Operating revenues............... 15,535 16,084 16,558 16,990 17,521
Operating expenses............... (7,810) (8,139) (8,317) (8,496) (8,683)
------- ------- ------- ------- -------
Net operating income............. 7,725 7,945 8,241 8,494 8,838
Debt service..................... (4,062) (4,042) (4,054) (3,856) (3,680)
Capital improvements............. (1,453) (1,252) (1,264) (1,343) (1,319)
Tenant improvements.............. (339) (176) (164) (338) (152)
------- ------- ------- ------- -------
Cash flow--property operations... 1,871 2,475 2,759 2,957 3,687
Interest income.................. 62 64 66 68 70
General & administrative......... (162) (167) (172) (177) 182)
General & administrative-
affil. ......................... (370) (381) (393) (404) (416)
Asset mgt fee/MID................ (898) (694) (479) (247) (254)
------- ------- ------- ------- -------
Cash flow........................ 503 1,297 1,782 2,197 2,904
======= ======= ======= ======= =======
</TABLE>
187
<PAGE>
<TABLE>
<CAPTION>
[Fund XI] Forecast
- --------- -------------------------------------------
Financial forecast--5-year (in
thousands) 1999 2000 2001 2002 2003
- ------------------------------ ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Operating revenues............... $15,223 $15,680 $16,150 $16,635 $17,134
Operating expenses............... (7,682) (7,812) (7,976) (8,144) (8,315)
------- ------- ------- ------- -------
Net operating income............. 7,541 7,868 8,174 8,491 8,819
Debt service..................... (3,598) (3,708) (3,702) (3,375) (3,300)
Capital improvements............. (1,002) (1,239) (1,264) (1,290) (1,315)
Tenant improvements.............. -- -- -- -- --
------- ------- ------- ------- -------
Cash flow--property operations... $ 2,941 $ 2,921 $ 3,208 $ 3,826 $ 4,204
Interest income.................. 62 64 66 68 70
General & administrative......... (161) (166) (171) (176) (181)
General & administrative--
affil. ......................... (340) (350) (361) (372) (383)
Asset mgt fee/MID................ (878) (678) (468) (241) (248)
------- ------- ------- ------- -------
Cash flow 1,624 1,791 2,274 3,105 3,462
======= ======= ======= ======= =======
<CAPTION>
[Fund XII] Forecast
- ---------- -------------------------------------------
Financial forecast--5-year (in
thousands) 1999 2000 2001 2002 2003
- ------------------------------ ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Operating revenues............... 12,888 13,241 13,641 14,053 14,472
Operating expenses............... (6,383) (6,455) (6,593) (6,735) (6,879)
------- ------- ------- ------- -------
Net operating income............. 6,505 6,786 7,048 7,318 7,593
Debt service..................... (3,479) (3,479) (3,479) (3,481) (3,490)
Capital improvements............. (1,233) (927) (924) (942) (968)
Tenant improvements.............. (6) (12) (40) -- (44)
------- ------- ------- ------- -------
Cash flow--property operations... 1,787 2,368 2,605 2,895 3,091
Interest income.................. 84 87 89 92 95
General & administrative......... (129) (133) (137) (141) (145)
General & administrative--
affil. ......................... (266) (274) (282) (291) (299)
Asset mgt fee/MID................ (753) (582) (401) (207) (213)
------- ------- ------- ------- -------
Cash flow........................ 723 1,466 1,874 2,348 2,528
======= ======= ======= ======= =======
<CAPTION>
[Fund XIV] Forecast
- ---------- -------------------------------------------
Financial forecast--5-year (in
thousands) 1999 2000 2001 2002 2003
- ------------------------------ ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Operating revenues............... 8,928 9,201 9,463 9,728 10,021
Operating expenses............... (4,280) (4,267) (4,358) (4,451) (4,547)
------- ------- ------- ------- -------
Net operating income............. 4,648 4,934 5,105 5,277 5,474
Debt service..................... (2,437) (2,437) (2,437) (2,415) (2,317)
Capital improvements............. (551) (575) (555) (638) (580)
Tenant improvements.............. (189) (20) (9) -- (165)
------- ------- ------- ------- -------
Cash flow--property operations... 1,471 1,902 2,104 2,224 2,412
Interest income.................. 46 47 49 50 52
General & administrative......... (72) (74) (76) (79) (81)
General & administrative--
affil. ......................... (222) (229) (236) (243) (250)
Asset mgt fee/MID................ (541) (418) (288) (149) (153)
------- ------- ------- ------- -------
Cash flow........................ 682 1,229 1,552 1,804 1,980
======= ======= ======= ======= =======
</TABLE>
188
<PAGE>
<TABLE>
<CAPTION>
[Fund XV] Forecast
- --------- --------------------------------------
Financial forecast--5-year (in
thousands) 1999 2000 2001 2002 2003
- ------------------------------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Operating revenues.................... 8,299 8,548 8,805 9,069 9,341
Operating expenses.................... (3,855) (3,925) (4,008) (4,092) (4,179)
------ ------ ------ ------ ------
Net operating income.................. 4,444 4,623 4,797 4,977 5,162
Debt service.......................... (2,420) (2,420) (2,420) (2,415) (2,234)
Capital improvements.................. (408) (691) (704) (718) (733)
Tenant improvements................... -- -- -- -- --
------ ------ ------ ------ ------
Cash flow--property operations........ 1,616 1,512 1,673 1,844 2,195
Interest income....................... 36 37 38 39 41
General & administrative.............. (84) (87) (89) (92) (95)
General & administrative--affil. ..... (192) (198) (204) (210) (216)
Asset mgt fee/MID..................... (508) (392) (271) (139) (144)
------ ------ ------ ------ ------
Cash flow............................. 868 872 1,148 1,442 1,781
====== ====== ====== ====== ======
<CAPTION>
[Fund XX] Forecast
- --------- --------------------------------------
Financial forecast--5-year (in
thousands) 1999 2000 2001 2002 2003
- ------------------------------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Operating revenues.................... 1,254 1,292 1,331 1,371 1,412
Operating expenses.................... (663) (684) (698) (713) (728)
------ ------ ------ ------ ------
Net operating income.................. 591 608 633 658 684
Debt service.......................... (281) (281) (281) (281) (256)
Capital improvements.................. (74) (92) (94) (96) (98)
Tenant improvements................... -- -- -- -- --
------ ------ ------ ------ ------
Cash Flow--property operation......... 236 235 258 281 330
Interest income....................... 43 44 46 47 48
General & administrative.............. (81) (83) (86) (89) (91)
General & administrative--affil....... (103) (106) (109) (113) (116)
Asset mgt fee/MID..................... (126) (97) (67) (35) (36)
------ ------ ------ ------ ------
Cash flow............................. (31) (8) 41 92 136
====== ====== ====== ====== ======
<CAPTION>
[Fund XXI] Forecast
- ---------- --------------------------------------
Financial forecast--5-year (in
thousands) 1999 2000 2001 2002 2003
- ------------------------------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Operating revenues.................... 5,266 5,424 5,587 5,754 5,927
Operating expenses.................... (2,997) (3,072) (3,136) (3,202) (3,269)
------ ------ ------ ------ ------
Net operating income.................. 2,269 2,352 2,451 2,552 2,658
Debt service.......................... (1,255) (1,255) (1,255) (1,250) (1,180)
Capital improvements.................. (470) (511) (521) (532) (542)
Tenant improvements................... -- -- -- -- --
------ ------ ------ ------ ------
Cash flow--property operations........ 544 586 675 770 936
Interest income....................... 44 45 47 48 50
General & administrative.............. (109) (112) (116) (119) (123)
General & administrative--affil....... (281) (289) (298) (307) (316)
Asset mgt fee/MID..................... (277) (214) (148) (76) (78)
------ ------ ------ ------ ------
Cash flow............................. 79 16 160 316 468
====== ====== ====== ====== ======
</TABLE>
189
<PAGE>
<TABLE>
<CAPTION>
[Fund XXII] Forecast
- ----------- --------------------------------------
Financial forecast--5-year (in
thousands) 1999 2000 2001 2002 2003
- ------------------------------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Operating revenues.................... 2,617 2,697 2,777 2,861 2,947
Operating expenses.................... (1,159) (1,179) (1,204) (1,229) (1,255)
------ ------ ------ ------ ------
Net operating income.................. 1,458 1,518 1,573 1,632 1,692
Debt service.......................... (593) (593) (593) (593) (593)
Capital improvements.................. (139) (177) (180) (184) (188)
Tenant improvements................... -- -- -- -- --
------ ------ ------ ------ ------
Cash flow--property operations........ 726 748 800 855 911
Interest income....................... 52 54 55 57 59
General & administrative.............. (39) (40) (41) (43) (44)
General & administrative--affil. ..... (59) (61) (63) (64) (66)
Asset mgt fee/MID..................... (172) (133) (92) (47) (49)
------ ------ ------ ------ ------
Cash flow............................. 508 568 660 758 811
====== ====== ====== ====== ======
<CAPTION>
[Fund XXIII] Forecast
- ------------ --------------------------------------
Financial forecast--5-year (in
thousands) 1999 2000 2001 2002 2003
- ------------------------------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Operating revenues.................... 1,550 1,597 1,645 1,694 1,745
Operating expenses.................... (810) (807) (824) (842) (859)
------ ------ ------ ------ ------
Net operating income.................. 740 790 821 852 886
Debt service.......................... (374) (374) (374) (374) (374)
Capital improvements.................. (205) (118) (120) (122) (125)
Tenant improvements................... -- -- -- -- --
------ ------ ------ ------ ------
Cash flow--property operations........ 161 298 327 356 387
Interest income....................... 9 9 10 10 10
General & administrative.............. (37) (38) (39) (40) (42)
General & administrative--affil. ..... (59) (61) (63) (64) (66)
Asset mgt fee/MID..................... (86) (66) (46) (24) (24)
------ ------ ------ ------ ------
Cash flow............................. (12) 142 189 237 265
====== ====== ====== ====== ======
<CAPTION>
[Fund XXIV] Forecast
- ----------- --------------------------------------
Financial forecast--5-year (in
thousands) 1999 2000 2001 2002 2003
- ------------------------------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Operating revenues.................... 3,226 3,376 3,469 3,560 3,653
Operating expenses.................... (1,431) (1,473) (1,510) (1,547) (1,585)
------ ------ ------ ------ ------
Net operating income.................. 1,795 1,903 1,959 2,013 2,068
Debt service.......................... (140) (158) (154) (153) (153)
Capital improvements.................. (282) (154) (171) (163) (185)
Tenant improvements................... (137) (234) (66) (40) (79)
------ ------ ------ ------ ------
Cash flow--property operations........ 1,236 1,357 1,568 1,657 1,651
Interest income....................... 34 35 36 37 38
General & administrative.............. (56) (58) (59) (61) (63)
General & administrative--affil. ..... (207) (213) (220) (226) (233)
Asset mgt fee/MID..................... (219) (169) (117) (60) (62)
------ ------ ------ ------ ------
Cash flow............................. 788 952 1,208 1,347 1,331
====== ====== ====== ====== ======
</TABLE>
190
<PAGE>
<TABLE>
<CAPTION>
[Fund XXV] Forecast
- ---------- --------------------------------------
Financial forecast--5-year (in
thousands) 1999 2000 2001 2002 2003
- ------------------------------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Operating revenues.................... 9,862 10,652 11,002 11,286 11,547
Operating expenses.................... (4,816) (4,979) (5,111) (5,138) (5,271)
------ ------ ------ ------ ------
Net operating income.................. 5,046 5,673 5,891 6,148 6,276
Debt service.......................... (792) (792) (792) (792) (792)
Capital improvements.................. (706) (481) (501) (316) (338)
Tenant improvements................... (1,045) (994) (534) (637) (1,172)
------ ------ ------ ------ ------
Cash flow--property operations........ 2,503 3,406 4,064 4,403 3,974
Interest income....................... 84 87 89 92 95
General & administrative.............. (76) (78) (81) (83) (86)
General & administrative--affil. ..... (177) (182) (188) (193) (199)
Asset mgt fee/MID..................... (625) (483) (333) (172) (177)
------ ------ ------ ------ ------
Cash flow............................. 1,709 2,749 3,552 4,047 3,607
====== ====== ====== ====== ======
<CAPTION>
[Fund XXVI] Forecast
- ----------- --------------------------------------
Financial forecast--5-year (in
thousands) 1999 2000 2001 2002 2003
- ------------------------------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Operating revenues.................... 8,834 9,567 9,914 10,193 10,484
Operating expenses.................... (4,523) (4,704) (4,842) (4,980) (5,121)
------ ------ ------ ------ ------
Net operating income.................. 4,311 4,863 5,072 5,213 5,363
Debt service.......................... (1,757) (1,758) (1,767) (1,767) (1,705)
Capital improvements.................. (600) (730) (481) (491) (504)
Tenant improvements................... (906) (777) (536) (331) (482)
------ ------ ------ ------ ------
Cash flow--property operations........ 1,048 1,598 2,288 2,624 2,672
Interest income....................... 51 53 54 56 57
General & administrative.............. (71) (73) (75) (78) (80)
General & administrative--affil. ..... (177) (182) (188) (193) (199)
Asset mgt fee/MID..................... (517) (399) (276) (142) (146)
------ ------ ------ ------ ------
Cash flow............................. 334 996 1,803 2,267 2,304
====== ====== ====== ====== ======
<CAPTION>
[Fund XXVII] Forecast
- ------------ --------------------------------------
Financial forecast--5-year (in
thousands) 1999 2000 2001 2002 2003
- ------------------------------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Operating revenues.................... 9,383 9,897 10,208 10,507 10,717
Operating expenses.................... (4,017) (4,135) (4,243) (4,353) (4,459)
------ ------ ------ ------ ------
Net operating income.................. 5,366 5,762 5,965 6,154 6,258
Debt service.......................... -- -- -- -- --
Capital improvements.................. (559) (325) (297) (318) (349)
Tenant improvements................... (599) (105) (551) (483) (830)
------ ------ ------ ------ ------
Cash flow--property operations........ 4,208 5,332 5,117 5,353 5,079
Interest income....................... 75 77 80 82 84
General & administrative.............. (44) (45) (47) (48) (50)
General & administrative--affil. ..... (325) (335) (345) (355) (366)
Asset mgt fee/MID..................... (682) (527) (364) (187) (193)
------ ------ ------ ------ ------
Cash flow............................. 3,232 4,502 4,442 4,844 4,555
====== ====== ====== ====== ======
</TABLE>
191
<PAGE>
FORWARD-LOOKING STATEMENTS
This Proxy Statement and the documents incorporated by reference contain
certain forward-looking statements regarding the operations and business of the
Partnership. Statements in this document that are not historical facts are
"forward-looking statements." Such forward-looking statements include those
relating to:
. the Partnership's future business prospects,
. possible acquisitions, and
. projected revenues, working capital, liquidity, capital needs, interest
costs and income.
The words "estimate," "project," "intend," "expect" and similar expressions
are intended to identify forward-looking statements. These forward-looking
statements are found at various places throughout this Proxy Statement.
Wherever they occur in this Proxy Statement or in other statements attributable
to the Partnership, McNeil Partners or the McNeil Affiliates, forward-looking
statements are necessarily estimates reflecting best judgments. However, these
statements still involve a number of risks and uncertainties that could cause
actual results to differ materially from those suggested by the forward-looking
statements. Discussions in this Proxy Statement under the captions "Summary,"
"Special Factors," "WXI/McN Realty Operating Agreement" and "Certain Financial
Projections of the Partnership" are particularly susceptible to risks and
uncertainties. Such forward-looking statements should, therefore, be considered
in light of various important factors, including those set forth in this Proxy
Statement and other factors set forth from time to time in the Partnership's
reports and registration statements 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. Moreover, the Partnership, through senior
management of McNeil Investors, the general partner of McNeil Partners, may
from time to time make forward-looking statements about the matters described
herein or other matters concerning the Partnership.
INDEPENDENT AUDITORS
The consolidated financial statements and schedule of the Partnership as of
December 31, 1998 and 1997, and for the three years in the period ended
December 31, 1998, incorporated by reference into this Proxy Statement, have
been audited by Arthur Andersen LLP, independent public accountants, as
indicated in their reports with respect thereto, and are included herein in
reliance upon the authority of said firm as experts in accounting and auditing
in giving said reports. It is expected that representatives of Arthur Andersen
LLP will be present at the meeting, both to respond to appropriate questions of
limited partners and to make a statement if they so desire.
LIMITED PARTNER PROPOSALS
If the merger of the Partnership is consummated, there will be no limited
partners of the Partnership other than WXI/McN Realty or its indirectly wholly
owned subsidiary. If the transaction is not consummated with respect to the
Partnership, limited partners of the Partnership would continue to be entitled
to participate in future meetings in accordance with the terms of the limited
partnership agreement. Other than the meeting scheduled to consider and vote on
the merger proposal, there are no meetings scheduled, and McNeil Partners
cannot predict when, if ever, future meetings may be called. Meetings may be
called upon notice by McNeil Partners to the limited partners or by notice to
McNeil Partners by limited partners holding at least 10% of the outstanding
units of limited partner interest. Any proposals by limited partners intended
to be presented at a meeting must be received by McNeil Partners not less than
60 nor more than 90 days prior to such meeting, provided that, in the event
that the Partnership gives less than 10 days' notice or prior public disclosure
of the date of the meeting, notice must be received by McNeil Partners no later
than the close of business on the tenth day following such notice or prior
public disclosure. For a limited partner to bring other business before a
meeting, timely notice must be received by McNeil Partners within the time
limits described above. Such notice must include a description of the proposed
business, the reasons therefore, and other specific matters. In
192
<PAGE>
each case, the notice must be given to McNeil Partners at the Partnership's
principal address. Any limited partner desiring a copy of the Partnership's
limited partnership agreement will be furnished a copy without charge upon
written request of McNeil Partners.
WHERE YOU CAN FIND MORE INFORMATION
As required by law, the Partnership files reports, proxy statements and
other information with the SEC. Because the transaction is a "going private"
transaction, the Partnership has filed a Rule 13e-3 Transaction Statement on
Schedule 13E-3 with respect to the transaction. You can read and copy these
materials at the public reference facilities maintained by the SEC at:
Room 1024
450 Fifth Street, N.W.
Washington, D.C. 20549
and at the following regional offices of the SEC:
7 World Trade Center
13th Floor
New York, New York 10048
and
Suite 1400
500 West Madison Street
Chicago, Illinois 60661.
For further information concerning the SEC's public reference rooms, you may
call the SEC at 1(800) SEC-0330. Some of this information may also be accessed
on the World Wide Web through the SEC's Internet address at
"http://www.sec.gov."
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 and the amendment proposal. Neither McNeil Partners nor the
Partnership has authorized anyone to give any information different from the
information contained in (or incorporated by reference into) this Proxy
Statement. This Proxy Statement is dated , 1999. You should not assume that
the information contained in this Proxy Statement is accurate as of any later
date, and the mailing of this Proxy Statement to limited partners shall not
create any implication to the contrary.
ANNUAL REPORT AND QUARTERLY REPORT
The Partnership's Annual Report on Form 10-K for the year ended December 31,
1998, and the Partnership's Quarterly Report on Form 10-Q for the quarter ended
, 1999 (in each case, not including exhibits to those reports), are being
mailed with this Proxy Statement to all limited partners of the Partnership.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The SEC allows us to "incorporate by reference" the information we file with
them, which means that we can disclose important information to you by
referring you to those documents. The information incorporated by reference is
an important part of this proxy statement, and information that we file later
with the SEC will
193
<PAGE>
automatically update and supersede this information. We incorporate by
reference the documents listed below and any future filings we make with the
SEC under Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act
until the transaction is completed:
. Annual Report on Form 10-K for the year ended December 31, 1998;
. Quarterly Report on Form 10-Q/A for the quarter ended March 31, 1999 and
Quarterly Report on Form 10-Q for the quarter ended June 30, 1999;
. [For all except Fund IX: Current Reports on Form 8-K dated June 29, 1999
and July 9, 1999;] [For Fund IX: Current Report on Form 8-K dated June
29, 1999 and Current Report on Form 8-K/A dated July 9, 1999;] and
[For each of the McNeil Partnerships, the information set forth below with
respect to that McNeil Partnership will be included in the Proxy Statement for
that McNeil Partnership:]
[FUND IX]
. The description of our limited partner units contained in the
Partnership's registration statement on Form S-11 declared effective by
the SEC on January 10, 1979.
[FUND X]
. The description of our limited partner units contained in the
Partnership's registration statement on Form S-11 declared effective by
the SEC on December 14, 1979.
[FUND XI]
. The description of our limited partner units contained in the
Partnership's registration statement on Form S-11 declared effective by
the SEC on September 18, 1980.
[FUND XII]
.The description of our limited partner units contained in the
Partnership's registration statement on Form S-11 declared effective by
the SEC on June 8, 1981.
[FUND XIV]
. The description of our limited partner units contained in the
Partnership's registration statement on Form S-11 declared effective by
the SEC on February 14, 1983.
[FUND XV]
. The description of our limited partner units contained in the
Partnership's registration statement on Form S-11 declared effective by
the SEC on September 14, 1984.
[FUND XX]
. The description of our limited partner units contained in the
Partnership's registration statement (File No. 2-92376) filed September
28, 1984 with the SEC.
[FUND XXI]
. The description of our limited partner units contained in the
Partnership's registration statement (File No. 2-88171) filed February 3,
1984 with the SEC and the Partnership's registration statement on Form 8-
A (File No. 0-13356) filed with the SEC.
194
<PAGE>
[FUND XXII]
. The description of our limited partner units contained in the
Partnership's registration statement (File No. 2-94740) filed February
26, 1985 with the SEC and the Partnership's registration statement on
Form 8-A (File No. 0-142686) filed with the SEC.
[FUND XXIII]
. The description of our limited partner units contained in the
Partnership's registration statement (File No. 33-1620) filed February
25, 1986 with the SEC and the Partnership's registration statement on
Form 8-A (File No. 0-15459) filed with the SEC.
[FUND XXIV]
. The description of our limited partner units contained in the
Partnership's registration statement (File No. 2-93979) filed January 8,
1985 with the SEC and the Partnership's registration statement on Form 8-
A (File No. 0-14267) filed with the SEC.
[FUND XXV]
. The description of our limited partner units contained in the
Partnership's registration statement (File No. 33-746) filed December 23,
1985 with the SEC and the Partnership's registration statement on Form 8-
A (File No. 0-15446) filed with the SEC.
[FUND XXVI]
. The description of our limited partner units contained in the
Partnership's registration statement (File No. 33-5568) filed July 22,
1986 with the SEC and the Partnership's registration statement on Form 8-
A (File No. 0-15460) filed with the SEC.
[FUND XXVII]
. The description of our limited partner units contained in the
Partnership's registration statement (File No. 33-11824) filed August 14,
1987 with the SEC and the Partnership's registration statement on Form 8-
A (File No. 0-17173) filed with the SEC.
We will mail these filings within one business day to any person, including
any beneficial owner, to whom this Proxy Statement is delivered, at no cost,
upon written or oral request to the Partnership at 13760 Noel Road, Suite 600,
LB70, Dallas, Texas 75240, telephone number 1-800-576-7907.
OTHER MATTERS
McNeil Partners does not know of any matter other than those described in
this Proxy Statement that will be presented for action at the meeting. If other
matters properly come before the meeting, the persons named as proxies intend
to vote the limited partner units represented by those proxies in accordance
with the judgment of McNeil Partners.
195
<PAGE>
APPENDIX A
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
MASTER AGREEMENT
by and among
WXI/McN Realty L.L.C.
THE McNEIL PARTNERSHIPS
(as defined herein),
McNEIL PARTNERS, L.P.,
McNEIL INVESTORS, INC.,
McNEIL REAL ESTATE MANAGEMENT, INC.
and
ROBERT A. McNEIL
Dated as of June 24, 1999.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
ARTICLE I
The Acquisition
<C> <S> <C>
Section 1.1 The Acquisition; Consideration............................ A-2
Section 1.2 Closing................................................... A-4
Section 1.3 Allocation of the Aggregate Consideration................. A-4
Section 1.4 Additional Consideration.................................. A-4
Section 1.5 Indebtedness.............................................. A-5
Section 1.6 Reservation of Right to Revise Transaction................ A-5
ARTICLE II
Transactions Related to the Mergers
Section 2.1 Certain Company Acquisition Vehicles...................... A-6
Section 2.2 Contributions to MPLP..................................... A-6
Section 2.3 Contributions by MPLP..................................... A-7
Section 2.4 Pre-Closing Distribution.................................. A-8
ARTICLE III
The Mergers
Section 3.1 The Mergers............................................... A-11
Section 3.2 Effective Time............................................ A-11
Section 3.3 Effects of the Mergers; LLC Agreement..................... A-11
Section 3.4 Conversion of Partnership Interests....................... A-11
Section 3.5 Payment of Merger Consideration........................... A-12
ARTICLE IV
Representations and Warranties of Sellers
Section 4.1 Organization, Standing and Power.......................... A-14
Section 4.2 Capital Structure; Title and Ownership of McREMI Assets... A-15
Section 4.3 Authority; Noncontravention; Consents..................... A-16
Section 4.4 Compliance with Laws...................................... A-18
Section 4.5 SEC Documents; Financial Statements; Undisclosed
Liabilities............................................... A-18
Section 4.6 Absence of Certain Changes................................ A-20
Section 4.7 Litigation................................................ A-20
Section 4.8 Properties................................................ A-21
Section 4.9 Environmental Matters..................................... A-24
Section 4.10 Taxes..................................................... A-25
Section 4.11 No Payments to Employees, Officers or Directors........... A-26
Section 4.12 Related Party Transactions................................ A-26
Section 4.13 Employee Benefits......................................... A-26
Section 4.14 Employee Matters.......................................... A-27
Section 4.15 Contracts; Debt Instruments............................... A-27
Section 4.16 Brokers................................................... A-29
Section 4.17 Management Agreements..................................... A-29
Section 4.18 INTENTIONALLY OMITTED..................................... A-29
Section 4.19 State Takeover Statutes................................... A-29
Section 4.20 Investment Company Act of 1940............................ A-29
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Page
----
<C> <S> <C>
Section 4.21 Insurance................................................. A-29
Section 4.22 Year 2000................................................. A-29
Section 4.23 Books and Records......................................... A-29
Section 4.24 Personal Property......................................... A-30
ARTICLE V
Representations and Warranties of the Company
Section 5.1 Organization, Standing and Power of the Company, the
Company LLCs and the Transitory Partnerships.............. A-30
Section 5.2 Capital Structure......................................... A-31
Section 5.3 Authority; Noncontravention; Consents..................... A-31
Section 5.4 Compliance with Laws...................................... A-33
Section 5.5 Litigation................................................ A-33
Section 5.6 Brokers................................................... A-33
Section 5.7 Investment Company Act of 1940............................ A-34
Section 5.8 Financing................................................. A-34
ARTICLE VI
Conduct of Business Pending Merger
Section 6.1 Conduct of Business of Sellers Prior to the Effective
Time...................................................... A-34
Section 6.2 Conduct of Business of the Company, the Transitory
Partnerships and the Company LLCs Prior to the Effective
Time...................................................... A-37
Section 6.3 Reimbursable Proposals.................................... A-38
ARTICLE VII
Additional Covenants
Section 7.1 Preparation of the Proxy Statement; Recommendation of
Mergers................................................... A-39
Section 7.2 Acquisition Proposals..................................... A-41
Section 7.3 Access to Information; Confidentiality.................... A-42
Section 7.4 Reasonable Best Efforts; Notification..................... A-42
Section 7.5 Public Announcements...................................... A-43
Section 7.6 Benefit Plans and Other Employee Arrangements............. A-43
Section 7.7 Ancillary Agreements...................................... A-46
Section 7.8 Support Agreements; Financing............................. A-46
Section 7.9 Fees and Expenses......................................... A-47
Section 7.10 Allocations............................................... A-47
Section 7.11 Related Party Transactions................................ A-47
Section 7.12 Stanger Reports........................................... A-48
Section 7.13 Estoppels................................................. A-48
Section 7.14 Harbour Club.............................................. A-48
Section 7.15 Material Encumbrances..................................... A-49
Section 7.16 Additional Seller Tax Covenant............................ A-50
Section 7.17 Title Deliveries.......................................... A-50
ARTICLE VIII
Conditions
Section 8.1 Conditions to Each Party's Obligation to Effect the
Mergers................................................... A-50
Section 8.2 Conditions to Obligations of the Company.................. A-51
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
Page
----
<C> <S> <C>
Section 8.3 Conditions to Obligations of Sellers..................... A-53
Section 8.4 Certain Exclusions from Conditions to Closing............ A-54
Section 8.5 Removal Notices.......................................... A-55
ARTICLE IX
Termination
Section 9.1 Termination of this Agreement Prior to the Effective
Time..................................................... A-56
Section 9.2 Effect of Termination Pursuant to Section 9.1............ A-56
Section 9.3 Termination of Certain Rights and Obligations Prior to
the Effective Time....................................... A-57
Section 9.4 Effect of Termination Pursuant to Section 9.3............ A-58
Section 9.5 Payment of Break-Up Fee.................................. A-59
Section 9.6 Reimbursement of Expenses................................ A-60
ARTICLE X
Certain Definitions; Other Matters
Section 10.1 Definitions.............................................. A-60
Section 10.2 Seller Disclosure Letter................................. A-67
Section 10.3 Interpretation........................................... A-67
ARTICLE XI
General Provisions
Section 11.1 Nonsurvival of Representations, Warranties and
Covenants................................................ A-68
Section 11.2 Non-Recourse............................................. A-68
Section 11.3 Amendment................................................ A-69
Section 11.4 Extension; Waiver........................................ A-69
Section 11.5 Notices.................................................. A-69
Section 11.6 Counterparts............................................. A-70
Section 11.7 Entire Agreement; No Third Party Beneficiaries........... A-70
Section 11.8 GOVERNING LAW............................................ A-70
Section 11.9 Assignment............................................... A-70
Section 11.10 Consent to Jurisdiction.................................. A-70
Section 11.11 Severability............................................. A-71
Section 11.12 Arbitration.............................................. A-71
</TABLE>
iii
<PAGE>
INDEX OF DEFINED TERMS
<TABLE>
<CAPTION>
Section
---------
<S> <C>
1940 Act............................................................. 4.20
Acquisition Proposal................................................. 10.1
Additional McNeil Contribution....................................... 2.3
Affected Employee.................................................... 7.6
affiliate............................................................ 10.1
Aggregate Consideration.............................................. 10.1
Agreement............................................................ Heading
Allocated McNeil Value............................................... 10.1
Allocation Analysis.................................................. 10.1
Allocations.......................................................... 10.1
Ancillary Agreements................................................. 10.1
Appraisals........................................................... 10.1
Archon............................................................... 7.7
Assignment Agreement................................................. 10.1
Assumption Fees...................................................... 1.5
Audit Date........................................................... 4.6
Board of Managers.................................................... 7.9
business day......................................................... 10.1
Buyer Plans.......................................................... 7.6
California Partnerships.............................................. 10.1
Capital Expenditure Reimbursement.................................... 6.3
Capital Expenditure Reimbursement Amount............................. 6.3
Capitalized McNeil Expenses.......................................... 7.9
Certificates......................................................... 3.5
Closing.............................................................. 1.2
Closing Date......................................................... 1.2
COBRA................................................................ 7.6
Code................................................................. 4.10
Commercial Leases.................................................... 4.8
Commercial Tenants................................................... 4.8
Commitment Letter.................................................... 5.8
Company.............................................................. Heading
Company Interests.................................................... 1.1
Company LLCs......................................................... 2.1
Company Person....................................................... 10.1
Company Reimbursable Expenses........................................ 10.1
Completed Amount..................................................... 6.3
Confidentiality Agreement............................................ 7.3
Construction Contracts............................................... 4.15
Contributing Partners................................................ 10.1
Corporate Employees.................................................. 10.1
Corporate Listed Employees........................................... 7.6
CPA Firm............................................................. 2.4
CRLPA................................................................ 10.1
Designated Partnership Matters....................................... 8.5
Designated Partnership Properties.................................... 8.5
Discretionary Closing Conditions..................................... 10.1
DLLCA................................................................ 10.1
DRULPA............................................................... 10.1
</TABLE>
iv
<PAGE>
<TABLE>
<CAPTION>
Section
---------
<S> <C>
Eastdil.............................................................. 10.1
Eastdil Engagement Letter............................................ 10.1
Eastdil Opinions..................................................... 10.1
Effective Time....................................................... 3.2
Employment List...................................................... 7.6
Encumbrance Notice................................................... 7.15
Encumbrances......................................................... 4.8
Environmental Complaints............................................. 4.9
Environmental Law.................................................... 4.9
ERISA................................................................ 4.13
Estoppel............................................................. 8.2
Excess Cash Balance.................................................. 2.4
Excess Cash Balance Schedule......................................... 2.4
Exchange Act......................................................... 4.5
Excluded McNeil Partnership.......................................... 9.3
Excluded McREMI Assets............................................... 10.1
Excluded MPLP Assets................................................. 10.1
Existing Loans....................................................... 1.5
Existing Support Agreements.......................................... 10.1
Expiration Time...................................................... 7.15
Fairfax.............................................................. Heading
First McNeil Threshold............................................... 10.1
FRULPA............................................................... 10.1
GAAP................................................................. 2.4
Governing Laws....................................................... 10.1
Governmental Entity.................................................. 4.3
GP Allocation Amount................................................. 1.3
GP Interest.......................................................... 10.1
Ground Leases........................................................ 4.8
Guarantee............................................................ 5.8
Harbour Club I....................................................... 7.14
Hazardous Material................................................... 4.9
Hearth Hollow........................................................ Heading
Higher Acquisition Proposal.......................................... 10.1
HSR Act.............................................................. 4.3
Included McNeil Partnership.......................................... 8.5
Included Partnership Matter.......................................... 8.5
Indebtedness......................................................... 4.15
Indemnification Agreement............................................ 10.1
Insurance Policies................................................... 4.21
Knowledge of Sellers................................................. 10.1
Knowledge of the Company............................................. 10.1
Known Defects........................................................ 10.1
KRULPA............................................................... 10.1
laws................................................................. 4.3
Leases............................................................... 4.8
Liens................................................................ 10.1
Listed Employee...................................................... 7.6
LLC Agreement........................................................ 10.1
LP Allocation Amount................................................. 1.3
LP Interest.......................................................... 10.1
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Section
---------
<S> <C>
Management Agreements................................................ 4.17
Management LLC....................................................... 2.1
Managing Member...................................................... 5.2
Material Contract.................................................... 4.15
Material Encumbrance................................................. 7.15
Matter Removal Notice................................................ 8.5
Matter Removal Notice Date........................................... 8.5
Matter Removal Notice Time........................................... 8.5
McNeil Cash Contribution............................................. 2.3
McNeil Limited Partner Meeting....................................... 7.1
McNeil Partnership Properties........................................ 4.8
McNeil Partnership Statements........................................ 4.5
McNeil Partnerships.................................................. Heading
McNeil Person........................................................ 10.1
McREMI............................................................... Heading
McREMI Assets........................................................ 10.1
McREMI ERISA Affiliate............................................... 4.13
McREMI 401(k) Savings Plan........................................... 7.6
McREMI Plans......................................................... 4.13
McREMI Reduction Amount.............................................. 10.1
McREMI Transaction Expenses.......................................... 10.1
Merger Certificate................................................... 3.2
Merger Consideration................................................. 3.5
Merger Expense Reimbursement......................................... 3.5
Merger Fund.......................................................... 3.5
Mergers.............................................................. 3.1
Merging Partnership.................................................. 10.1
Merging Private Partnerships......................................... 10.1
Midwest Properties................................................... Heading
MII.................................................................. Heading
MPLP................................................................. Heading
MPLP Allocation Amount............................................... 1.3
MPLP Contributions................................................... 2.3
MPLP GP Subsidiaries................................................. 10.1
MPLP Interests....................................................... 2.2
MPLP Subsidiary Corporation.......................................... 10.1
MREF IX.............................................................. Heading
MREF X............................................................... Heading
MREF XI.............................................................. Heading
MREF XII............................................................. Heading
MREF XIV............................................................. Heading
MREF XV.............................................................. Heading
MREF XX.............................................................. Heading
MREF XXI............................................................. Heading
MREF XXII............................................................ Heading
MREF XXIII........................................................... Heading
MREF XXIV............................................................ Heading
MREF XXV............................................................. Heading
MREF XXVI............................................................ Heading
MREF XXVII........................................................... Heading
MULPL................................................................ 10.1
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Section
---------
<S> <C>
Negative Excess Cash Balance......................................... 2.4
Net McREMI Allocated Value........................................... 10.1
Net Operating Income................................................. 10.1
Net Per Partnership Allocated Value.................................. 1.3
New GP LLC........................................................... 2.1
New Preliminary Excess Cash Balance.................................. 2.4
New Preliminary Excess Cash Balance Schedule......................... 2.4
New Preliminary Pre-Closing Balance Sheet............................ 2.4
Non-Terminated Loans................................................. 1.5
NOI Amount........................................................... 10.1
NOI Determination Date............................................... 8.2
Objection Period..................................................... 2.4
Objection Statement.................................................. 2.4
Option Price......................................................... 7.14
Order................................................................ 8.1
Original LLC Agreement............................................... 10.1
Other Consents....................................................... 7.13
Other Estoppels...................................................... 7.13
Other Interests...................................................... 4.2
Other Harbour Club Properties........................................ 7.14
Other Items.......................................................... 4.8
Paid Assumption Fees................................................. 1.5
Partial McREMI Allocated Value....................................... 1.3
Participating McNeil Partnership..................................... 10.1
Participating Merging Partnership.................................... 10.1
Participating Partnership Consideration Amount....................... 10.1
Partnership Break-Up Fee............................................. 10.1
Partnership Percentage............................................... 10.1
Payment Agent........................................................ 3.5
Per Partnership Allocated Value...................................... 1.3
Per Partnership Transaction Expenses................................. 10.1
Per Unit Allocation Amount........................................... 1.3
Per Unit Consideration Amount........................................ 10.1
Permitted Restrictions and Encumbrances.............................. 4.8
person............................................................... 10.1
Portfolio Advisory Agreement......................................... 10.1
Positive Excess Cash Balance......................................... 2.4
Post-Allocation Upstream Amounts..................................... 10.1
Post-Allocation Upstream Payables.................................... 10.1
Pre-Allocation Upstream Payable...................................... 10.1
Pre-Closing Balance Sheet............................................ 2.4
Pre-Closing Removable Partnership.................................... 8.5
Preferred Equity Financing........................................... 10.1
Preliminary Excess Cash Balance...................................... 10.1
Preliminary Excess Cash Balance Schedule............................. 2.4
Preliminary Pre-Closing Balance Sheet................................ 2.4
Prepayment Fees...................................................... 1.5
Private McNeil Partnership........................................... 10.1
Property Employees................................................... 10.1
Property Listed Employees............................................ 7.6
Property Restrictions................................................ 4.8
</TABLE>
vii
<PAGE>
<TABLE>
<CAPTION>
Section
----------
<S> <C>
Proxy Statement..................................................... 7.1
Proxy Mailing Date.................................................. 7.6
Public McNeil Partnership Statements................................ 4.5
Public McNeil Partnerships.......................................... 4.5
Regency North....................................................... Heading
Reimbursable Proposal............................................... 6.3
Reimbursable Proposal Amount........................................ 6.3
Related Party Transaction........................................... 10.1
Removable Partnership............................................... 8.5
Pre-Closing Removal Notice.......................................... 8.5
Pre-Closing Removal Notice Date..................................... 8.5
Pre-Closing Removal Notice Time..................................... 9.3
Rent Roll........................................................... 4.8
Replacement Support Agreements...................................... 7.8
Residential Leases.................................................. 4.8
Resolution Period................................................... 2.4
SNDA Agreements..................................................... 7.13
Schedule 13E-3...................................................... 7.1
SEC................................................................. 4.3
Second McREMI Allocated Value....................................... 1.3
Securities Act...................................................... 4.5
Seller Disclosure Letter............................................ Article IV
Seller Material Adverse Effect...................................... 10.1
Seller Reimbursable Expenses........................................ 10.1
Seller SEC Documents................................................ 4.5
Seller Statements................................................... 4.5
Seller Subsidiaries................................................. 10.1
Sellers............................................................. Heading
Severance Obligations............................................... 4.11
Shortfall Agreement................................................. 10.1
Stanger............................................................. Recitals
Stanger Determination Date.......................................... 10.1
Stanger Engagement Letter........................................... 10.1
Stanger Opinions.................................................... 10.1
Sub LLC............................................................. 2.1
subsidiary.......................................................... 10.1
Subsidiary Corporations............................................. 10.1
Subsidiary Financial Statements..................................... 4.5
Subsidiary Partnerships............................................. 10.1
Summerhill.......................................................... Heading
Summerhill GP....................................................... Heading
Summerhill Note..................................................... 7.11
Superior Acquisition Proposal....................................... 10.1
Support Agreements.................................................. 10.1
Survey Materials.................................................... 7.15
Surviving Partnership............................................... 3.1
Takeover Statute.................................................... 4.19
Taxes............................................................... 4.10
Terminated Employees................................................ 7.6
Terminated Loans.................................................... 1.5
Termination Date.................................................... 9.1
</TABLE>
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<TABLE>
<CAPTION>
Section
---------
<S> <C>
Threshold Amount..................................................... 7.6
Title Commitments.................................................... 4.8
Title Insurance Policies............................................. 4.8
Title Policies....................................................... 8.2
Total Allocated Partnership Value.................................... 1.3
Total McREMI Allocated Value......................................... 1.3
Tranche A Terminated Loans........................................... 1.5
Tranche B Terminated Loans........................................... 1.5
Transaction Documents................................................ 10.1
Transaction Expenses................................................. 10.1
Transitory Partnership............................................... 2.1
TRLPA................................................................ 10.1
Underbudgeted Amount................................................. 6.3
Upstream Payables.................................................... 10.1
Waiver Letter........................................................ 10.1
Whitehall............................................................ 5.2
</TABLE>
ix
<PAGE>
MASTER AGREEMENT
MASTER AGREEMENT (this "Agreement"), dated as of June 24, 1999, by and among
WXI/McN Realty L.L.C., a Delaware limited liability company (the "Company"),
McNeil Real Estate Fund IX, Ltd., a California limited partnership ("MREF IX"),
McNeil Real Estate Fund X, Ltd., a California limited partnership ("MREF X"),
McNeil Real Estate Fund XI, Ltd., a California limited partnership ("MREF XI"),
McNeil Real Estate Fund XII, Ltd., a California limited partnership ("MREF
XII"), McNeil Real Estate Fund XIV, Ltd., a California limited partnership
("MREF XIV"), McNeil Real Estate Fund XV, Ltd., a California limited
partnership ("MREF XV"), McNeil Real Estate Fund XX, L.P., a California limited
partnership ("MREF XX"), McNeil Real Estate Fund XXI, L.P., a California
limited partnership ("MREF XXI"), McNeil Real Estate Fund XXII, L.P., a
California limited partnership ("MREF XXII"), McNeil Real Estate Fund XXIII,
L.P., a California limited partnership ("MREF XXIII"), McNeil Real Estate Fund
XXIV, L.P., a California limited partnership ("MREF XXIV"), McNeil Real Estate
Fund XXV, L.P., a California limited partnership ("MREF XXV"), McNeil Real
Estate Fund XXVI, L.P., a California limited partnership ("MREF XXVI"), McNeil
Real Estate Fund XXVII, L.P., a Delaware limited partnership ("MREF XXVII"),
Fairfax Associates II, Ltd., a Florida limited partnership ("Fairfax"), Hearth
Hollow Associates, L.P., a Kansas limited partnership ("Hearth Hollow"), McNeil
Midwest Properties I, L.P., a Missouri limited partnership ("Midwest
Properties"), Regency North Associates, L.P., a Missouri limited partnership
("Regency North"), McNeil Summerhill I, L.P., a Texas limited partnership
("Summerhill" and, together with MREF IX, MREF X, MREF XI, MREF XII, MREF XIV,
MREF XV, MREF XX, MREF XXI, MREF XXII, MREF XXIII, MREF XXIV, MREF XXV, MREF
XXVI, MREF XXVII, Fairfax, Hearth Hollow, Midwest Properties and Regency North,
the "McNeil Partnerships"), McNeil Partners, L.P., a Delaware limited
partnership ("MPLP"), McNeil Investors, Inc., a Delaware corporation ("MII"),
McNeil Real Estate Management, Inc., a Delaware corporation ("McREMI"), McNeil
Summerhill, Inc., a Texas corporation ("Summerhill GP" and, together with MII,
MPLP, McREMI and the McNeil Partnerships, "Sellers") and Robert A. McNeil.
Certain capitalized and uncapitalized terms used in this Agreement shall have
the meanings ascribed to such terms in Section 10.1 hereof.
W I T N E S S E T H :
WHEREAS, the governing body of each of the parties to this Agreement which
are legal entities has determined that it is in the best interests of such
party's partners, limited partners, stockholders or members, as the case may
be, to enter into this Agreement and the Ancillary Agreements to which it is a
party;
WHEREAS, subject to the terms and conditions of this Agreement, in respect
of each Participating Merging Partnership, (i) the Company or, at the direction
of the Company, a subsidiary of the Company will acquire all of the LP
Interests in such Participating Merging Partnership in consideration for (A)
cash equal to the Participating Partnership Consideration Amount for such
Participating Merging Partnership, (B) the Company's repayment of the Tranche A
Terminated Loans and the Tranche B Terminated Loans of such Participating
Merging Partnership and the Company's payment of certain related fees in
accordance with Section 1.5 hereof and (C) the Company's indirect assumption of
the Non-Terminated Loans to which the properties of such Participating Merging
Partnership are subject, and (ii) a subsidiary of the Company, at the direction
of the Company, will acquire all of the GP Interests in such Participating
Merging Partnership and certain assets of MPLP relating to such Participating
Merging Partnership (including, without limitation, all of the GP Interests and
shares of capital stock owned by MPLP in any Seller Subsidiaries of such
Participating Merging Partnership) in consideration for the Company's issuance
of Company Interests to MPLP (or another designee of the Contributing
Partners), and MPLP (or another designee of the Contributing Partners) will
receive credit for a capital contribution to the Company in an amount equal to
the GP Allocation Amount for such Participating Merging Partnership in
accordance with Section 1.1 hereof;
WHEREAS, subject to the terms and conditions of this Agreement, if Fairfax
or Summerhill or both are a Participating McNeil Partnership, (i) the Company
or, at the direction of the Company, a subsidiary of the Company will acquire
all of the LP Interests in such Participating McNeil Partnership in
consideration for the
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<PAGE>
Company's issuance of Company Interests to MPLP (or another designee of the
Contributing Partners), and MPLP (or another designee of the Contributing
Partners) will receive credit for a capital contribution to the Company in an
amount equal to the LP Allocation Amount for such Participating McNeil
Partnership in accordance with Section 1.1 hereof and (ii) a subsidiary of the
Company, at the direction of the Company, will acquire all of the GP Interests
in such Participating McNeil Partnership and certain assets of MPLP relating to
such Participating McNeil Partnership (including, without limitation, all of
the GP Interests and shares of capital stock owned by MPLP in any Seller
Subsidiaries of such Participating McNeil Partnership) in consideration for the
Company's issuance of Company Interests to MPLP (or another designee of the
Contributing Partners), and MPLP (or another designee of the Contributing
Partners) will receive credit for a capital contribution to the Company in an
amount equal to the GP Allocation Amount for such Participating McNeil
Partnership in accordance with Section 1.1 hereof;
WHEREAS, subject to the terms and conditions of this Agreement, a subsidiary
of the Company, at the direction of the Company, will acquire the McREMI Assets
in consideration for the Company's issuance of Company Interests to MPLP (or
another designee of the Contributing Partners), and MPLP (or another designee
of the Contributing Partners) will receive credit for a capital contribution to
the Company in an amount equal to the Net McREMI Allocated Value in accordance
with Section 1.1 hereof;
WHEREAS, subject to the terms and conditions of this Agreement, immediately
prior to the Effective Time, in consideration for certain cash contributions
(if any) to the Company and certain expenses incurred by Sellers, the Company
will issue Company Interests to MPLP (or another designee of the Contributing
Partners) in accordance with Section 1.4 hereof, and MPLP (or another designee
of the Contributing Partners) will receive credit for a capital contribution to
the Company in an amount equal to the sum of the McNeil Cash Contribution (if
any), the Capitalized McNeil Expenses and the Additional McNeil Contribution
(if any);
WHEREAS, subject to the terms and conditions of this Agreement, on the
Closing Date and immediately prior to the Effective Time, a distribution will
be declared to the limited partners in each Participating McNeil Partnership in
an amount in cash equal to the Positive Excess Cash Balance (if any) for such
Participating McNeil Partnership;
WHEREAS, subject to the terms and conditions of this Agreement, after the
date of this Agreement and prior to the Effective Time, Robert A. Stanger &
Co., Inc. ("Stanger") will allocate the Aggregate Consideration in accordance
with Section 1.3 hereof; and
WHEREAS, the consideration being paid by the Company for the LP Interests,
the Allocations and certain related matters will be the subject of "fairness"
opinions by Stanger confirming that the Aggregate Consideration, the
Allocations and such matters are fair from a financial point of view to the
limited partners of each of the McNeil Partnerships.
NOW, THEREFORE, for and in consideration of the mutual representations,
warranties, covenants, agreements and undertakings set forth below, the parties
to this Agreement, intending to be legally bound hereby, agree as follows:
ARTICLE I
The Acquisition
Section 1.1 The Acquisition; Consideration. Upon the terms and subject to
the conditions set forth in this Agreement, the parties hereto agree that:
(a) With respect to each Participating Merging Partnership, subsidiaries of
the Company, at the direction of the Company, shall acquire all of the GP
Interests in such Participating Merging Partnership, and the Company or, at the
direction of the Company, one or more of its subsidiaries shall acquire all of
the LP Interests in such Participating Merging Partnership and certain assets
of MPLP relating to such Participating
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<PAGE>
Merging Partnership (including without limitation all of the GP Interests and
shares of capital stock owned by MPLP in any Seller Subsidiaries of such
Participating Merging Partnership). In consideration for all of the GP
Interests and all of the LP Interests in such Participating Merging Partnership
and such MPLP assets, the Company shall:
(i) at the Effective Time, in accordance with Section 3.5 hereof,
deliver to the Payment Agent cash in an amount equal to the Participating
Partnership Consideration Amount for such Participating Merging
Partnership;
(ii) immediately prior to the Effective Time, in accordance with Section
2.3 hereof and Section 6.1 of the LLC Agreement, issue to MPLP (or another
designee of the Contributing Partners) membership interests in the Company
(the "Company Interests"), and MPLP (or another designee of the
Contributing Partners) shall receive credit for a capital contribution to
the Company in an amount equal to the GP Allocation Amount for such
Participating Merging Partnership. Such Company Interests shall upon
issuance be duly authorized, validly issued, fully paid and nonassessable
and free and clear of all Liens (except as provided in the Indemnification
Agreement, the LLC Agreement or the DLLCA), and shall be issued to MPLP (or
another designee of the Contributing Partners); and
(iii) at the Effective Time, in accordance with Sections 1.5(b) and
1.5(c) hereof, pay all Tranche A Terminated Loans secured by McNeil
Partnership Properties of such Participating Merging Partnership and all
Prepayment Fees relating thereto and pay all Tranche B Terminated Loans
secured by McNeil Partnership Properties of such Participating Merging
Partnership.
(b) If Fairfax or Summerhill or both are a Participating McNeil Partnership,
with respect to each such Participating McNeil Partnership, subsidiaries of the
Company, at the direction of the Company, shall acquire all of the GP Interests
in such Participating McNeil Partnership, and the Company or, at the direction
of the Company, one or more of its subsidiaries shall acquire all of the LP
Interests in such Participating McNeil Partnership and certain assets of MPLP
relating to such Participating McNeil Partnership (including without limitation
all of the GP Interests and shares of capital stock owned by MPLP in any Seller
Subsidiaries of such Participating McNeil Partnership). In consideration for
all of the GP Interests and all of the LP Interests in such Participating
McNeil Partnership and such MPLP assets, the Company shall:
(i) immediately prior to the Effective Time, in accordance with Section
2.3 hereof and Section 6.1 of the LLC Agreement, issue to MPLP (or another
designee of the Contributing Partners) Company Interests, and MPLP (or
another designee of the Contributing Partners) shall receive credit for a
capital contribution to the Company in an amount equal to the Participating
Partnership Consideration Amount for such Participating McNeil Partnership.
Such Company Interests shall upon issuance be duly authorized, validly
issued, fully paid and nonassessable and free and clear of all Liens
(except as provided in the Indemnification Agreement, the LLC Agreement or
the DLLCA), and shall be issued to MPLP (or another designee of the
Contributing Partners);
(ii) immediately prior to the Effective Time, in accordance with Section
2.3 hereof and Section 6.1 of the LLC Agreement, issue to MPLP (or another
designee of the Contributing Partners) Company Interests, and MPLP (or
another designee of the Contributing Partners) shall receive credit for a
capital contribution to the Company in an amount equal to the GP Allocation
Amount for such Participating McNeil Partnership. Such Company Interests
shall upon issuance be duly authorized, validly issued, fully paid and
nonassessable and free and clear of all Liens (except as provided in the
Indemnification Agreement, the LLC Agreement or the DLLCA), and shall be
issued to MPLP (or another designee of the Contributing Partners); and
(iii) at the Effective Time, in accordance with Sections 1.5(b) and
1.5(c) hereof, pay all Tranche A Terminated Loans secured by McNeil
Partnership Properties of such Participating McNeil Partnership and all
Prepayment Fees relating thereto and pay all Tranche B Terminated Loans
secured by McNeil Partnership Properties of such Participating McNeil
Partnership.
(c) A subsidiary of the Company, at the direction of the Company, shall
acquire all of the McREMI Assets. In consideration for the McREMI Assets, the
Company shall issue to MPLP (or another designee of the
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<PAGE>
Contributing Partners) Company Interests, and MPLP (or another designee of the
Contributing Partners) shall receive credit for a capital contribution to the
Company in an amount equal to the Net McREMI Allocated Value. Such Company
Interests shall upon issuance be duly authorized, validly issued, fully paid
and nonassessable and free and clear of all Liens (except as provided in the
Indemnification Agreement, the LLC Agreement or the DLLCA), and shall be issued
to MPLP (or another designee of the Contributing Partners).
Section 1.2 Closing. The closing of the Mergers and the other transactions
contemplated by this Agreement to take place at the Effective Time (the
"Closing") shall take place at a time and on a date (the "Closing Date") to be
specified by the parties hereto, which shall be no later than the fifth
business day after the later of (i) the date upon which the last unsatisfied or
unwaived condition to Closing set forth in Sections 8.1, 8.2 and 8.3 hereof is
satisfied or waived and (ii) the Pre-Closing Removal Notice Date, at the
offices of Sullivan & Cromwell, 125 Broad Street, New York, New York 10004,
unless another time, date or place is agreed to in writing by Sellers and the
Company.
Section 1.3 Allocation of the Aggregate Consideration.
(a) As promptly as practicable following the date hereof and prior to the
Effective Time, Sellers shall cause Stanger to allocate the Aggregate
Consideration between (i) certain assets of McREMI, taken as a whole (the
"Partial McREMI Allocated Value"), and (ii) all of the McNeil Partnerships,
taken as a whole, including certain other assets of MPLP (assuming the
contributions in Section 2.2 hereof have been consummated) (the matters in this
clause (ii), collectively, the "Total Allocated Partnership Value").
(b) Upon the completion of the allocation described in Section 1.3(a)
hereof, the Total Allocated Partnership Value shall be allocated among the
McNeil Partnerships (the portion of the Total Allocated Partnership Value
attributable to a McNeil Partnership pursuant to this Section 1.3(b), the "Per
Partnership Allocated Value" for such McNeil Partnership), by multiplying, with
respect to each McNeil Partnership (i) the Total Allocated Partnership Value by
(ii) the Partnership Percentage of such McNeil Partnership.
(c) As promptly as practicable following the completion of the allocations
described in Sections 1.3(a) and 1.3(b) hereof and assuming that the
contributions described in Section 2.2 hereof have been consummated, Sellers
shall cause Stanger to allocate the Net Per Partnership Allocated Value of each
McNeil Partnership among (i) the GP Interests, taken as a whole, in such McNeil
Partnership and certain other assets of MPLP (for each McNeil Partnership, the
"MPLP Allocation Amount" for such McNeil Partnership) and (ii) each class of LP
Interests, taken as a whole, in such McNeil Partnership (for each class of LP
Interests in each McNeil Partnership, the "LP Allocation Amount" for such class
of LP Interests in such McNeil Partnership). For purposes of this Agreement,
"Net Per Partnership Allocated Value" of a McNeil Partnership means an amount
equal to the difference determined by subtracting (i) the aggregate outstanding
principal amount, determined as of the Stanger Determination Date, of all
Existing Loans of such McNeil Partnership from (ii) the Per Partnership
Allocated Value of such McNeil Partnership.
(d) As promptly as practicable following the completion of the allocations
described in Sections 1.3(a), 1.3(b) and 1.3(c) hereof, (i) Sellers shall cause
Stanger to render a per unit allocation of the LP Allocation Amount for each LP
Interest for each class of LP Interests in each McNeil Partnership (the "Per
Unit Allocation Amount" for such LP Interest) and (ii) Sellers shall cause
Stanger to allocate the MPLP Allocation Amount for each McNeil Partnership
among (1) certain McREMI Assets (the "Second McREMI Allocated Value") and (2)
the GP Interests, taken as a whole, in such McNeil Partnership (the "GP
Allocation Amount" for such McNeil Partnership). For purposes of this
Agreement, the "Total McREMI Allocated Value" shall equal the sum of the
Partial McREMI Allocated Value and the aggregate of the Second McREMI Allocated
Values.
(e) Each party to this Agreement agrees to be unconditionally and
irrevocably bound by the Allocations, except for manifest error in the
allocation described in Section 1.3(d) hereof.
Section 1.4 Additional Consideration. Immediately prior to the Effective
Time, in accordance with Sections 2.3 and 7.9(b) hereof and Section 6.1 of the
LLC Agreement, the Company shall issue to MPLP (or another designee of the
Contributing Partners) Company Interests, and MPLP (or another designee of the
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<PAGE>
Contributing Partners) shall receive credit for a capital contribution to the
Company in an amount equal to the sum of (A) the McNeil Cash Contribution (if
any), (B) the Capitalized McNeil Expenses and (C) the Additional McNeil
Contribution (if any). Such Company Interests shall upon issuance be duly
authorized, validly issued, fully paid and nonassessable and free and clear of
all Liens (except as provided in the Indemnification Agreement, the LLC
Agreement or the DLLCA), and shall be issued to MPLP (or another designee of
the Contributing Partners). Nothing in this Section 1.4 shall offset, or affect
in any manner, the Company Interests being issued to MPLP (or another designee
of the Contributing Partners) pursuant to Section 1.1 hereof.
Section 1.5 Indebtedness.
(a) Schedule 1.5 of the Seller Disclosure Letter sets forth all of the
indebtedness of each of the McNeil Partnerships, which indebtedness is secured
by the McNeil Partnership Properties (the "Existing Loans"), the outstanding
principal balance thereof, all accrued and unpaid interest thereon, the
interest rate thereof and the remaining term thereof, in each case, as of the
date specified on such Schedule 1.5.
(b) Notwithstanding anything to the contrary in this Agreement, the Company
shall repay at the Effective Time (including all accrued but unpaid interest
thereon through to the Effective Time) all of the Existing Loans set forth on
Annex A hereto which are secured by McNeil Partnership Properties of the
Participating McNeil Partnerships (the "Tranche A Terminated Loans").
Notwithstanding anything to the contrary in this Agreement, the Company shall
pay at the Effective Time all Prepayment Fees relating to the Tranche A
Terminated Loans. For purposes of this Agreement, the term "Prepayment Fees"
means any fees, costs and premiums charged by the lender of an Existing Loan in
connection with its prepayment.
(c) Notwithstanding anything to the contrary in this Agreement, the Company
shall repay at the Effective Time (including all accrued but unpaid interest
thereon through to the Effective Time) all of the Existing Loans set forth on
Annex B hereto which are secured by McNeil Partnership Properties of the
Participating McNeil Partnerships (the "Tranche B Terminated Loans" and,
together with the Tranche A Terminated Loans, the "Terminated Loans").
Notwithstanding anything to the contrary in this Agreement, each Participating
McNeil Partnership shall pay at the Effective Time all Prepayment Fees relating
to the Tranche B Terminated Loans secured by McNeil Partnership Properties of
such Participating McNeil Partnership.
(d) Other than the Terminated Loans, all Existing Loans outstanding
immediately prior to the Effective Time shall continue to remain outstanding at
and after the Effective Time until their expiration or prepayment (all Existing
Loans other than the Terminated Loans, the "Non-Terminated Loans").
(e) Notwithstanding anything to the contrary in this Agreement, each
Participating McNeil Partnership shall pay at the Effective Time all Assumption
Fees relating to those Non-Terminated Loans set forth on Annex C hereto which
are secured by McNeil Partnership Properties of such Participating McNeil
Partnership in an amount with respect to each such Non-Terminated Loan (the
aggregate amount of all Assumption Fees payable in respect of all such Non-
Terminated Loans, the "Paid Assumption Fees") equal to the lesser of (1) the
Assumption Fees for such Non-Terminated Loan and (2) the Prepayment Fees for
such Non-Terminated Loan; provided, however, that the Company shall pay a
portion of such Assumption Fees equal to the lesser of (1) one-half of the Paid
Assumption Fees and (2) two hundred fifty thousand dollars ($250,000). For
purposes of this Agreement, the term "Assumption Fees" means any fees, costs
and premiums charged by the lender of a Non-Terminated Loan as a result of the
change of control of the GP Interests of any Participating McNeil Partnership,
the change in the ownership of a majority of the LP Interests in any
Participating McNeil Partnership, the change (or change in control) of the
management company for the properties of any Participating McNeil Partnership,
the Merger in respect of such Participating McNeil Partnership or the other
transactions expressly contemplated by this Agreement with respect to such
Participating McNeil Partnership.
Section 1.6 Reservation of Right to Revise Transaction. If Sellers and the
Company agree in writing, the method of effecting the business combination
between any one or more Sellers and the Company may be changed, and each party
hereto shall cooperate in such efforts, including to provide for different
forms of merger; provided, however, that no such change shall (i) alter or
change the amount or kind of consideration to
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be received by holders of LP Interests and holders of GP Interests in the
Participating McNeil Partnerships, (ii) adversely affect the proposed tax
treatment to holders of LP Interests and holders of GP Interests in the
Participating McNeil Partnerships or (iii) materially delay the consummation of
any of the Mergers or the other transactions contemplated by this Agreement.
ARTICLE II
Transactions Related to the Mergers
Section 2.1 Certain Company Acquisition Vehicles.
(a) Prior to the consummation of any of the transactions contemplated by
Section 2.3(a) hereof, the Company shall (or, in only the case of clause (i)
below, may) form or cause to be formed the following entities:
(i) a single Delaware limited liability company (the "Sub LLC") which
prior to the Effective Time shall have as its sole member the Company and
at and after the Effective Time shall have as its members the Company and
after the Effective Time may have as its members one or more third persons;
(ii) separate Delaware limited liability companies (each, a "New GP
LLC") each of which shall have as its sole member the Company or the Sub
LLC; and, a New GP LLC shall be the sole general partner, together with the
Company or the Sub LLC as the sole limited partner, of the Transitory
Partnership for each Participating Merging Partnership;
(iii) for each Participating Merging Partnership, a separate limited
partnership (each, a "Transitory Partnership") formed in the state of
formation of such Participating Merging Partnership, as set forth on
Schedule 4.1(c) of the Seller Disclosure Letter, for which its
corresponding New GP LLC shall be its sole general partner and for which
the Company or the Sub LLC shall be its sole limited partner; and
(iv) an additional single Delaware limited liability company (the
"Management LLC" and, together with the Sub LLC (if the Sub LLC is formed)
and the New GP LLCs, the "Company LLCs") which shall have as its sole
member the Company or the Sub LLC.
(b) On or prior to the Effective Time, no person shall have any interest
in the Company, any Company LLC or any Transitory Partnership except as
expressly provided in this Agreement or, in the case of the Sub LLC, except as
expressly provided in the limited liability company operating agreement of the
Sub LLC.
Section 2.2 Contributions to MPLP. Following the Allocations of the
Aggregate Consideration pursuant to Section 1.3 hereof and following the
holding of all of the McNeil Limited Partner Meetings, but prior to the
Effective Time:
(a) if Fairfax is a Participating McNeil Partnership, then Robert A.
McNeil shall contribute, transfer and assign to MPLP, free and clear of all
Liens, (i) all of the GP Interests in Fairfax owned by him and (ii) all of
the LP Interests in Fairfax owned by him (which shall not include any
rights to receive any Positive Excess Cash Balance). In consideration of
the contribution of such GP Interests and such LP Interests, MPLP shall
issue LP Interests in MPLP ("MPLP Interests") in such names and
denominations as Robert A. McNeil may request. Such MPLP Interests shall
upon issuance be duly authorized, validly issued, fully paid and
nonassessable and free and clear of all Liens;
(b) if Regency North is a Participating McNeil Partnership, then Robert
A. McNeil shall contribute, transfer and assign to MPLP, free and clear of
all Liens, all of the GP Interests in Regency North owned by him. In
consideration of the contribution of such GP Interests, MPLP shall issue
MPLP Interests in such names and denominations as Robert A. McNeil may
request. Such MPLP Interests shall upon issuance be duly authorized,
validly issued, fully paid and nonassessable and free and clear of all
Liens;
(c) if Summerhill is a Participating McNeil Partnership, then (i)
Summerhill GP shall contribute, transfer and assign to MPLP, free and clear
of all Liens, all of the GP Interests in Summerhill owned by
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Summerhill GP, and (ii) Robert A. McNeil and Carole J. McNeil shall
contribute, transfer and assign to MPLP, free and clear of all Liens, all
of the LP Interests in Summerhill (which shall not include any rights to
receive any Positive Excess Cash Balance). In consideration of the
contribution of such GP Interests and such LP Interests, MPLP shall issue
MPLP Interests in such names and denominations as Robert A. McNeil and
Carole J. McNeil may request. Such MPLP Interests shall upon issuance be
duly authorized, validly issued, fully paid and nonassessable and free and
clear of all Liens; and
(d) McREMI shall contribute, transfer and assign to MPLP, free and clear
of all Liens, the McREMI Assets. In consideration of the contribution of
the McREMI Assets, MPLP shall issue MPLP Interests in such names and
denominations as McREMI may request. Such MPLP Interests shall upon
issuance be duly authorized, validly issued, fully paid and nonassessable
and free and clear of all Liens.
(e) All contributions, transfers and assignments described in this
Section 2.2 shall be effected pursuant to an instrument of assignment in
the form of the Assignment Agreement.
Section 2.3 Contributions by MPLP.
(a) Following the contributions described in Section 2.2 hereof:
(i) immediately prior to the Effective Time, at the direction of the
Company, MPLP shall contribute, transfer and assign to the applicable New
GP LLC, free and clear of all Liens, with the delivery of any applicable
certificate or power of transfer (A) all of the GP Interests owned by MPLP
in the Participating McNeil Partnership corresponding to such New GP LLC,
(B) all of the GP Interests and shares of capital stock owned by MPLP in
any Seller Subsidiaries of the Participating McNeil Partnership
corresponding to such New GP LLC, (C) all rights of MPLP related to the GP
Interests in the Participating McNeil Partnership corresponding to such New
GP LLC (other than the Excluded MPLP Assets and the McREMI Assets) and (D)
all of MPLP's rights, title and interest in and to the other assets of MPLP
(other than the Excluded MPLP Assets and the McREMI Assets) (clauses (A)
through (D), collectively, the "MPLP Contributions"). In consideration of
the contribution, transfer and assignment of the MPLP Contributions, the
Company shall issue Company Interests to MPLP (or another designee of the
Contributing Partners) in accordance with Section 1.1 hereof;
(ii) immediately prior to the Effective Time, at the direction of the
Company, MPLP shall contribute, transfer and assign to the Company or the
Sub LLC, free and clear of all Liens, (A) all of the LP Interests owned by
MPLP in Fairfax if Fairfax is a Participating McNeil Partnership and (B)
all of the LP Interests owned by MPLP in Summerhill if Summerhill is a
Participating McNeil Partnership. In consideration of the contribution,
transfer and assignment of such LP Interests, the Company shall issue
Company Interests to MPLP (or another designee of the Contributing
Partners) in accordance with Section 1.1 hereof;
(iii) immediately prior to the Effective Time, at the direction of the
Company, MPLP shall contribute, transfer and assign to Management LLC, free
and clear of all Liens, the McREMI Assets. In consideration of the
contribution, transfer and assignment of the McREMI Assets to Management
LLC, the Company shall issue Company Interests to MPLP (or another designee
of the Contributing Partners) in accordance with Section 1.1 hereof;
(iv) at the Effective Time, in the event that the Allocated McNeil Value
is less than the First McNeil Threshold, MPLP (or another designee of the
Contributing Partners) shall contribute to the Company cash in an amount
equal to the difference (such difference, the "McNeil Cash Contribution")
determined by subtracting the Allocated McNeil Value from the First McNeil
Threshold. In consideration of the contribution of the McNeil Cash
Contribution, the Company shall issue Company Interests to MPLP (or another
designee of the Contributing Partners) in accordance with Section 1.4
hereof; and
(v) at the Effective Time, in the event that the sum of the Allocated
McNeil Value and the McNeil Cash Contribution is less than one hundred
million dollars ($100,000,000), MPLP (or another designee of the
Contributing Partners) shall have the right, in its sole discretion, but
not the obligation, to contribute to the Company, upon at least thirty (30)
days notice to the Company prior to the estimated Closing Date,
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additional cash (the "Additional McNeil Contribution") in an aggregate
amount not to exceed the difference determined by subtracting (i) an amount
equal to the sum of the Allocated McNeil Value and the McNeil Cash
Contribution (if any) from (ii) one hundred million dollars ($100,000,000).
In consideration of the contribution of the Additional McNeil Contribution,
the Company shall issue Company Interests to MPLP (or another designee of
the Contributing Partners) in accordance with Section 1.4 hereof.
(b) Immediately following the MPLP Contributions, each applicable New GP LLC
shall be the sole general partner of its corresponding Participating McNeil
Partnership, and, immediately following the contributions, transfers and
assignments described in Section 2.3(a)(ii) hereof, the Company or the Sub LLC
shall be the sole limited partner of each of Fairfax and Summerhill.
Immediately following the contributions, transfers and assignments described in
Section 2.3(a) hereof, none of McREMI, MII, MPLP, Summerhill GP, Robert A.
McNeil or Carole J. McNeil shall have any interest as a partner, stockholder or
other equity holder in any Participating McNeil Partnership or any Seller
Subsidiary of a Participating McNeil Partnership, other than as holders of LP
Interests in the Participating Merging Partnerships and other than as a result
of the beneficial ownership of Company Interests by MPLP (or another designee
of the Contributing Partners).
(c) All contributions, transfers and assignments described in Sections
2.3(a)(i), 2.3(a)(ii) and 2.3(a)(iii) hereof shall be effected pursuant to an
instrument of assignment in the form of the Assignment Agreement.
Section 2.4 Pre-Closing Distribution.
(a) No less than ten (10) business days prior to the estimated Closing Date,
MPLP shall cause to be prepared and delivered to the Company an unaudited
balance sheet for each McNeil Partnership as of the last day (which shall be a
date within forty-five (45) days of the estimated Closing Date) of the most
recently completed fiscal month for which an unaudited balance sheet for such
McNeil Partnership is available (each, a "Preliminary Pre-Closing Balance
Sheet"). The Preliminary Pre-Closing Balance Sheet for each McNeil Partnership
shall be prepared in accordance with generally accepted accounting principles
("GAAP") applied consistently with past practice. The Preliminary Pre-Closing
Balance Sheet for each McNeil Partnership shall be accompanied by a schedule
setting forth the Preliminary Excess Cash Balance for such McNeil Partnership
in the form attached as Annex D hereto (the "Preliminary Excess Cash Balance
Schedule"), which shall be prepared in accordance with the methodology and
principles set forth on Annex D hereto.
(b)(i) Within four (4) business days (the "Objection Period") after the
delivery by MPLP to the Company of the Preliminary Pre-Closing Balance Sheet
and Preliminary Excess Cash Balance Schedule for a McNeil Partnership and all
relevant books and records and any work papers (including those of Arthur
Andersen LLP, Sellers' accountants) relating to the preparation of such
Preliminary Pre-Closing Balance Sheet and such Preliminary Excess Cash Balance
Schedule (including unaudited statements of operations and cash flows (prepared
in accordance with GAAP applied consistently with past practice), bills,
receipts and other written correspondence evidencing any amounts of Transaction
Expenses), the Company and its accountants shall complete their review of such
Preliminary Pre-Closing Balance Sheet and such Preliminary Excess Cash Balance
Schedule. Sellers shall make readily available to the Company, on a timely
basis during the Objection Period, all relevant books and records and any work
papers (including those of Arthur Andersen LLP, Sellers' accountants) relating
to the preparation of the Preliminary Pre-Closing Balance Sheets and the
Preliminary Excess Cash Balance Schedules (including unaudited statements of
operations and cash flows, bills, receipts and other written correspondence
evidencing any amounts of Transaction Expenses) and all other items reasonably
requested by the Company. In addition, Sellers and the Company shall make their
relevant personnel reasonably available to each other to respond to inquiries
relating to any of the materials described in the preceding sentence or any
matters raised by the Company. On or before the last day of the Objection
Period, the Company shall deliver to MPLP a reasonably detailed written
statement of any objections or disagreements, including the reasons therefor,
with respect to any Preliminary Pre-Closing Balance Sheet and Preliminary
Excess Cash Balance Schedule (the "Objection Statement") (it being understood
that neither the inclusion on any Preliminary Excess Cash Balance Schedule of
any line item not listed on Annex D hereto nor the exclusion
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from any Preliminary Excess Cash Balance Schedule of any line item listed on
Annex D hereto shall be the subject of any such objection or disagreement). If
the Company does not provide MPLP with the Objection Statement with respect to
the Preliminary Pre-Closing Balance Sheet or the Preliminary Excess Cash
Balance Schedule with respect to a McNeil Partnership within the Objection
Period, the parties hereto shall be deemed to have unconditionally accepted and
agreed to, and shall be unconditionally bound by, the Preliminary Pre-Closing
Balance Sheet, the Preliminary Excess Cash Balance Schedule and the Preliminary
Excess Cash Balance set forth on such Preliminary Excess Cash Balance Schedule,
in each case, with respect to such McNeil Partnership, other than with respect
to the Specified Transaction Expenses which shall be updated to a subsequent
date in accordance with Note 17 to the Excess Cash Balance Schedule.
(ii) In the event that the Company delivers to MPLP an Objection
Statement with respect to a Preliminary Pre-Closing Balance Sheet or the
Preliminary Excess Cash Balance Schedule with respect to a McNeil
Partnership within the Objection Period, the Company and MPLP shall have
two (2) business days (the "Resolution Period") following the receipt by
MPLP of such Objection Statement to resolve any disagreements set forth in
the Objection Statement. If the Company and MPLP are unable to resolve all
of their disagreements set forth in the Objection Statement within the
Resolution Period, the Company and MPLP shall, promptly following the
Resolution Period, submit their remaining differences to a nationally
recognized firm of independent public accountants which shall be chosen by
mutual agreement of the Company and MPLP or, in the event the Company and
MPLP are unable to agree, a firm chosen jointly by the accountants of each
of them (the "CPA Firm"). The CPA Firm, acting as experts and not as
arbitrators, shall determine, by applying the methodology and principles
set forth on Annex D hereto, and only with respect to the remaining
differences so submitted, whether and to what extent, if any, the
Preliminary Pre-Closing Balance Sheet or the amounts set forth on the
Preliminary Excess Cash Balance Schedule should be revised. The Company and
MPLP shall instruct the CPA Firm to deliver its written determination to
the Company and MPLP no later than two (2) business days after such
remaining differences are referred to the CPA Firm (unless the Company and
MPLP agree in writing, upon request of the CPA Firm, to provide the CPA
Firm with additional time to make its determination); provided, however,
that such determination shall be made no later than the day immediately
prior to the estimated Closing Date. The CPA Firm's determination relating
to each Preliminary Pre-Closing Balance Sheet and each Preliminary Excess
Cash Balance Schedule submitted to it shall be conclusive and binding upon
the parties hereto. The fees and disbursements of the CPA Firm shall be
shared equally by the Company, on the one hand, and Sellers, on the other
hand. Sellers shall make readily available to the CPA Firm, on a timely
basis during the period the CPA Firm is making its determination pursuant
to this Section 2.4(b)(ii), all relevant books and records and any work
papers (including those of Arthur Andersen LLP, Sellers' accountants)
relating to the preparation of the Preliminary Pre-Closing Balance Sheets
and Preliminary Excess Cash Balance Schedules (including unaudited
statements of operations and cash flows, bills, receipts and other written
correspondence evidencing any amounts of Transaction Expenses) and all
other items reasonably requested by the CPA Firm. In addition, Sellers and
the Company shall make their relevant personnel reasonably available to the
CPA Firm and each other to respond to any inquiries relating to the
disagreements submitted to the CPA Firm.
(iii) Each Preliminary Pre-Closing Balance Sheet, Preliminary Excess
Cash Balance Schedule and Preliminary Excess Cash Balance set forth on such
Preliminary Excess Cash Balance Schedule after having been deemed to be
accepted by the parties hereto pursuant to the last sentence of Section
2.4(b)(i) hereof or the CPA Firm's determinations in respect thereof
pursuant to Section 2.4(b)(ii) hereof are, respectively, referred to herein
as the "Pre-Closing Balance Sheet," "Excess Cash Balance Schedule" and the
"Excess Cash Balance."
(c) For each Participating McNeil Partnership for which the Excess Cash
Balance is greater than zero (a "Positive Excess Cash Balance"), MPLP shall
cause such Participating McNeil Partnership, on the Closing Date and
immediately prior to the consummation of any of the transactions contemplated
by Section 2.3(a) hereof, to irrevocably declare a cash distribution, in an
amount equal to the Positive Excess Cash Balance for such Participating McNeil
Partnership, to the persons who were limited partners (prior to the
consummation of
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any of the transactions contemplated by Section 2.3(a) hereof) of such
Participating McNeil Partnership as a special distribution in accordance with
the limited partnership agreement of such Participating McNeil Partnership. For
each Participating McNeil Partnership for which the Excess Cash Balance is less
than zero, the "Negative Excess Cash Balance" in respect of such Participating
McNeil Partnership shall be an amount equal to such negative Excess Cash
Balance. The Company and the Participating McNeil Partnerships agree to take
such actions as may be necessary to effect the distributions contemplated by
this Section 2.4(c) concurrently with the payment of the Merger Consideration
to former holders of LP Interests pursuant to Section 3.5 hereof.
(d) On and following the date of the Preliminary Pre-Closing Balance Sheet
for a McNeil Partnership, such McNeil Partnership shall not declare any
distributions with respect to any GP Interest or LP Interest in such McNeil
Partnership prior to the Effective Time, except for the distributions
contemplated by Section 2.4(c) hereof in the event such McNeil Partnership is a
Participating McNeil Partnership and except for Post-Allocation Upstream
Payables accruing through to the Closing Date.
(e) The parties hereto acknowledge and agree that immediately upon the
declaration of the Positive Excess Cash Balance, the amount of such special
distribution shall become final and binding upon the parties hereto and shall
not be offset against any other amounts due, payable or owing by any person
under this Agreement or the Ancillary Agreements (regardless of any subsequent
recalculation of the Excess Cash Balance).
(f) If the estimated Closing Date is delayed for more than ten (10) business
days and such estimated Closing Date falls more than forty-five days after the
last date of the fiscal month for which the preceding Preliminary Pre-Closing
Balance Sheet and Preliminary Pre-Closing Excess Cash Schedule for a McNeil
Partnership were prepared, MPLP and the Company shall each have the right to
cause to be reprepared and redelivered, in accordance with Section 2.4(a)
hereof, a new Preliminary Pre-Closing Balance Sheet (the "New Preliminary Pre-
Closing Balance Sheet") and a new Preliminary Excess Cash Balance Schedule (the
"New Preliminary Excess Cash Balance Schedule"), setting forth a new
Preliminary Excess Cash Balance (the "New Preliminary Excess Cash Balance"),
for such McNeil Partnership. Each such New Preliminary Pre-Closing Balance
Sheet, New Preliminary Excess Cash Balance Schedule and New Preliminary Excess
Cash Balance shall be subject to the provisions of Sections 2.4(a) through
2.4(e) hereof and shall become final and binding on the parties hereto in
accordance with Section 2.4(b) hereof; provided, however, that each party
hereto acknowledges and agrees that none of the preparation, delivery,
acceptance or resolution of disagreements with respect to any New Preliminary
Pre-Closing Balance Sheet, New Preliminary Excess Cash Balance Schedule or New
Preliminary Excess Cash Balance shall delay the Closing if the Closing would
otherwise be required to occur pursuant to the terms of this Agreement had the
preparation and delivery of such items not been requested. If the Closing would
otherwise be required to occur, or has otherwise occurred prior to the time at
which the New Preliminary Pre-Closing Balance Sheet, New Preliminary Excess
Cash Balance Schedule and New Preliminary Excess Cash Balance for a McNeil
Partnership becomes final and binding on the parties hereto in accordance with
Section 2.4(b) hereof, the parties acknowledge and agree that they shall be
bound by the immediately preceding Pre-Closing Balance Sheet, Excess Cash
Balance Schedule and Excess Cash Balance for such McNeil Partnership which has
become final and binding on the parties hereto in accordance with Section
2.4(b) hereof. Without limiting the foregoing, in the event that prior to the
Closing a New Preliminary Pre-Closing Balance Sheet, a New Preliminary Excess
Cash Balance Schedule and a New Preliminary Excess Cash Balance for a McNeil
Partnership have been deemed to be accepted by all parties hereto pursuant to
the last sentence of Section 2.4(b)(i) hereof or all disputes in connection
therewith are resolved pursuant to Section 2.4(b)(ii) hereof, respectively,
references herein to the "Pre-Closing Balance Sheet," the "Excess Cash Balance
Schedule" and the "Excess Cash Balance" for such McNeil Partnership shall be
deemed to refer to such New Preliminary Pre-Closing Balance Sheet, such New
Excess Cash Balance Schedule and such New Excess Cash Balance, respectively.
(g) Notwithstanding anything to the contrary set forth in this Agreement, in
connection with the matters contemplated by this Section 2.4, the parties
hereto acknowledge and agree that Sellers shall not be required to deliver any
work papers of Arthur Andersen LLP if the recipients thereof do not execute a
confidentiality agreement substantially comparable to the one entered into by
representatives of the Company prior to the date hereof.
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ARTICLE III
The Mergers
Section 3.1 The Mergers. Upon the terms and subject to the conditions set
forth in this Agreement, and in accordance with the applicable Governing Laws,
the Transitory Partnership corresponding to each Participating Merging
Partnership shall merge with and into its respective Participating Merging
Partnership at the Effective Time. Following the Effective Time, (i) each such
Participating Merging Partnership shall be the surviving partnership (the
"Surviving Partnership") in such merger and (ii) the applicable New GP LLC that
was the general partner of such Participating Merging Partnership immediately
following the MPLP Contributions and immediately prior to the Effective Time
shall be the sole general partner of its corresponding Surviving Partnership
and the Company or the Sub LLC shall be the sole limited partner of each
Surviving Partnership. The mergers described in this Section 3.1 are
collectively referred to in this Agreement as the "Mergers."
Section 3.2 Effective Time.
(a) Subject to the terms and conditions set forth in this Agreement, for
each Participating Merging Partnership and its respective Transitory
Partnership, a certificate of merger, articles of merger, certificate of
cancellation, statement of merger or such other documents as may be required by
the Governing Law applicable to such Participating Merging Partnership and its
corresponding Transitory Partnership (each, a "Merger Certificate"), shall be
duly executed and acknowledged by the applicable New GP LLC (or its designee),
as the general partner of such Participating Merging Partnership and its
corresponding Transitory Partnership, and thereafter delivered to the Secretary
of State of the state of formation of such Participating Merging Partnership,
as set forth on Schedule 4.1(c) of the Seller Disclosure Letter.
(b) The Mergers shall become effective at such time on the Closing Date (or
such later time as the parties may agree upon and set forth in each of the
Merger Certificates) (the "Effective Time" in respect of each such Merger) as
specified in properly executed and certified copies of the Merger Certificate
for each Participating Merging Partnership and its corresponding Transitory
Partnership are duly filed with the Secretary of State of the state of
formation of such Participating Merging Partnership, as set forth on Schedule
4.1(c) of the Seller Disclosure Letter, in accordance with the Governing Law
applicable to each such Merger. To the extent permitted by the applicable
Governing Law, each Merger Certificate shall be so filed at least one (1)
business day prior to the Closing Date.
Section 3.3 Effects of the Mergers; LLC Agreement.
(a) Each of the Mergers shall have the effects set forth under the Governing
Law applicable to such Merger.
(b) At the Effective Time, the Original LLC Agreement shall be amended and
restated in its entirety in the form of the LLC Agreement. The LLC Agreement
shall be the organizational document of the Company from and after the
Effective Time, until thereafter amended as provided therein or pursuant to
applicable law.
Section 3.4 Conversion of Partnership Interests. As of the Effective Time,
by virtue of the Mergers and without any action on the part of any party
hereto, any of the Transitory Partnerships, any Company LLC, any holder of any
LP Interest or any holder of any GP Interest:
(a) Each LP Interest of each class of LP Interests in each of the
Participating Merging Partnerships outstanding immediately prior to the
Effective Time shall be converted into and shall become the right to receive
cash (without interest thereon) in an amount equal to the Per Unit
Consideration Amount to which such LP Interest is entitled under the respective
limited partnership agreement of such Participating Merging Partnership upon
surrender of the Certificate(s) representing such LP Interest for cancellation
(or, in the case of an LP Interest in a Participating Merging Partnership which
is a Merging Private Partnership, upon the delivery of the affidavit made in
accordance with Section 3.5(d) hereof) to the Payment Agent. As of the
Effective
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Time, each such LP Interest in each of the Participating Merging Partnerships
shall no longer be outstanding and shall automatically be cancelled and retired
and shall cease to exist, and each holder of an LP Interest shall cease to have
any rights with respect thereto, except the right to receive the Per Unit
Consideration Amount and the Positive Excess Cash Balance (if any) in respect
of such Participating Merging Partnership, in each case, without interest
thereon, to which such LP Interest is entitled.
(b) As of the Effective Time, each LP Interest in each Transitory
Partnership issued and outstanding as of the Effective Time shall be converted
into one fully issued and nonassessable LP Interest in the Surviving
Partnership in each Merger between such Transitory Partnership and its
corresponding Participating Merging Partnership.
(c) Each GP Interest in each of the Participating Merging Partnerships
outstanding immediately prior to the Effective Time shall be converted into and
shall become one fully paid and nonassessable GP Interest in the Surviving
Partnership in each Merger. As of the Effective Time, each GP Interest in each
Transitory Partnership shall no longer be outstanding and shall automatically
be cancelled and retired and shall cease to exist, and each holder of such GP
Interests shall cease to have any rights in respect thereto.
Section 3.5 Payment of Merger Consideration.
(a) At the Effective Time, as required by Section 3.5(b) hereof, the Company
shall deposit with such agent or agents as may be appointed by the Company (the
"Payment Agent") for the benefit of the holders of LP Interests in the
Participating Merging Partnerships, cash in an aggregate amount equal to the
sum of the Participating Partnership Consideration Amounts for each
Participating McNeil Partnership (such sum, the "Merger Consideration," and the
Merger Consideration deposited with the Payment Agent is referred to as the
"Merger Fund").
(b) Immediately following the Effective Time, the Payment Agent shall mail
to each holder of record of certificate(s) which immediately prior to the
Effective Time represented outstanding LP Interests in the Participating
Merging Partnerships (the "Certificates") and which were converted into the
right to receive the Merger Consideration pursuant to Section 3.4 hereof (or,
in the case of any Participating Merging Partnership which is a Merging Private
Partnership, each holder of record of an LP Interest in such Merging Private
Partnership): (i) a letter of transmittal (which shall specify that delivery
shall be effected and risk of loss and title to the LP Interests shall pass to
the Company only upon delivery of the Certificates (or, in the case of any
Participating Merging Partnership which is a Merging Private Partnership, upon
the delivery by such holder of record of appropriate documentation and the
delivery by MPLP of the affidavit specified in Section 3.5(d) hereof) to the
Payment Agent and shall be in such form and have such other provisions as the
Company may reasonably specify); and (ii) instructions for effecting the
surrender of the Certificates (or delivery of such appropriate documentation
and affidavit) in exchange for the Per Unit Consideration Amount which such
holder has the right to receive pursuant to Section 3.4 hereof (taking into
account different classes (if any) of LP Interests in such Participating
Merging Partnership). Upon surrender of a Certificate for cancellation (or
delivery of such appropriate documentation and affidavit) to the Payment Agent
together with such letter of transmittal duly executed, the holder of such LP
Interests shall be entitled to receive in exchange therefor a check
representing the Per Unit Consideration Amount which such holder has the right
to receive pursuant to Section 3.4 hereof, and any Certificates so surrendered
shall forthwith be cancelled. In the event of a transfer of ownership of LP
Interests in a Participating Merging Partnership which is not registered in the
transfer records of such Participating Merging Partnership, payment of the Per
Unit Consideration Amount which such holder has the right to receive pursuant
to Section 3.4 hereof may be made to a transferee if the Certificate
representing such LP Interests (or, in the case of any Participating Merging
Partnership which is a Merging Private Partnership, if the affidavit specified
in Section 3.5(d) hereof and a suitable bond or indemnity) is presented to the
Payment Agent accompanied by all documents required to evidence and effect such
transfer. Until surrendered as contemplated by this Section 3.5, each
Certificate shall be deemed at and after the Effective Time to represent only
the right to receive upon such Certificate's surrender the Per Unit
Consideration Amount which the holder of such Certificate has the right to
receive pursuant to Section 3.4
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hereof. The Surviving Partnerships shall have the right to, and shall, take all
steps necessary to ensure compliance, and shall comply, with all withholding
obligations with respect to any foreign holders of LP Interests in connection
with the payment of any Per Unit Consideration Amount. No interest will be paid
or will accrue on any Per Unit Consideration Amount upon the surrender of any
Certificate.
(c) In the event that any Certificate shall have been lost, stolen or
destroyed, the Payment Agent shall issue in exchange therefor, upon the making
of an affidavit of that fact by the holder thereof, the Per Unit Consideration
Amount which the holder of such Certificate has the right to receive pursuant
to Section 3.4 hereof; provided, however, that the Payment Agent shall (unless
the Company determines otherwise) require the delivery of a suitable bond or
indemnity, the form of which bond or indemnity shall be acceptable to the
Company.
(d) In the case of LP Interests in the Participating Merging Partnerships
which are Merging Private Partnerships, the Payment Agent shall issue in
exchange therefor, upon the making of an affidavit as to the identity of each
owner of LP Interests in such Merging Private Partnership by MPLP (in the case
of Hearth Hollow and Midwest Properties) and Robert A. McNeil (in the case of
Regency North), the Per Unit Consideration Amount which the holder of LP
Interests therein has the right to receive pursuant to Section 3.4 hereof.
(e) All Merger Consideration paid upon the surrender for exchange of LP
Interests in the Participating Merging Partnerships in accordance with the
terms of this Agreement shall be deemed to have been paid in full satisfaction
of all rights pertaining to such LP Interests; provided, however, that
notwithstanding anything to the contrary contained in this Agreement, the
Surviving Partnership in each of the Mergers shall continue to have an
obligation following the Effective Time (i) to pay distributions with a record
date prior to the Effective Time which may have been declared by a
Participating Merging Partnership on LP Interests in such Participating McNeil
Partnership in accordance with the terms of this Agreement or declared prior to
the date of this Agreement and, in either case, which remain unpaid at the
Effective Time and (ii) to distribute to the former limited partners of each
Participating Merging Partnership the Positive Excess Cash Balance (if any) in
respect of such Participating Merging Partnership in accordance with Section
2.4(c) hereof. From and after the Effective Time, there shall be no further
registration of transfers on the transfer books of the Surviving Partnerships
of LP Interests in the Participating Merging Partnerships which were
outstanding immediately prior to the Effective Time. If, after the Effective
Time, Certificates are presented to the Surviving Partnerships for any reason,
such Certificates shall be canceled and exchanged as provided in this Section
3.5. If, after the Effective Time, owners of LP Interests in any Merging
Private Partnerships who are identified on the affidavits described in Section
3.5(d) hereof request payment in respect of such LP Interests from the
Surviving Partnerships for any reason, the Per Unit Consideration Amount which
such owner has the right to receive pursuant to Section 3.4 hereof and which
has not theretofore been paid to such owner shall be delivered to such owner in
exchange for such LP Interests.
(f) None of the Payment Agent, the parties to this Agreement, the Transitory
Partnerships, the Company LLCs or any of their respective affiliates shall be
liable to any holder of an LP Interest in a Participating Merging Partnership
for cash from the Merger Fund delivered to a public official pursuant to any
applicable abandoned property, escheat or similar law.
(g) Any portion of the Merger Fund which remains undistributed to the
holders of LP Interests in the Participating Merging Partnerships for a period
of six months after the Effective Time shall be delivered to the Company, upon
demand of the Company, and any such holder who has not theretofore complied
with this Section 3.5 shall thereafter look only to the Company for payment of
the Per Unit Consideration Amount which such holder had the right to receive
pursuant to Section 3.4 hereof, and any unpaid distributions, subject to
applicable escheat and other similar laws. The McNeil Partnerships shall pay
all charges and expenses relating to the Mergers, and the Company shall
reimburse the McNeil Partnerships, on the Closing Date and immediately prior to
the distributions contemplated by Section 2.4(c) hereof, in an amount in cash
equal to one-half of the amount of the charges and expenses relating to the
Payment Agent (the "Merger Expense Reimbursement").
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ARTICLE IV
Representations and Warranties of Sellers
Except as set forth in the disclosure letter delivered by Sellers to the
Company prior to the execution of this Agreement (the "Seller Disclosure
Letter") and referenced in the particular section of this Agreement to which
exception is being taken, (i) MPLP, in its capacity as general partner of each
of the McNeil Partnerships (other than Fairfax, Regency North and Summerhill),
represents and warrants to the Company as of the date of this Agreement as to
each of the McNeil Partnerships (other than Fairfax, Regency North and
Summerhill) and such McNeil Partnership's respective Seller Subsidiaries (if
any), (ii) MII, in its capacity as general partner of MPLP, represents and
warrants to the Company as of the date of this Agreement as to MPLP and as to
each of the McNeil Partnerships (other than Fairfax, Regency North and
Summerhill) and such McNeil Partnership's respective Seller Subsidiaries (if
any), (iii) each McNeil Partnership severally (and not jointly) represents and
warrants to the Company as of the date of this Agreement as to itself and its
respective Seller Subsidiaries (if any), (iv) Robert A. McNeil, in his capacity
as the general partner of Fairfax and a general partner of Regency North,
represents and warrants to the Company as of the date of this Agreement as to
each of Fairfax and Regency North and Regency North's Seller Subsidiaries, (v)
Fairfax represents and warrants to the Company as of the date of this Agreement
as to itself, (vi) Regency North represents and warrants to the Company as of
the date of this Agreement as to itself and its Seller Subsidiaries, (vii)
Summerhill GP, in its capacity as general partner of Summerhill, represents and
warrants to the Company as of the date of this Agreement as to Summerhill,
(viii) Summerhill represents and warrants to the Company as of the date of this
Agreement as to itself and its Seller Subsidiaries, (ix) MPLP represents and
warrants to the Company as of the date of this Agreement as to itself, (x) MII
represents and warrants to the Company as of the date of this Agreement as to
itself, (xi) Summerhill GP represents and warrants to the Company as of the
date of this Agreement as to itself and (xii) McREMI represents and warrants to
the Company as of the date of this Agreement as to itself, in each case, as
follows:
Section 4.1 Organization, Standing and Power.
(a) Each of McREMI and MII is a corporation duly incorporated, validly
existing and in good standing under the laws of the State of Delaware, and
Summerhill GP is a corporation duly incorporated, validly existing and in good
standing under the laws of the State of Texas, and each of McREMI, MII and
Summerhill GP has the requisite corporate power and authority to carry on its
business as now being conducted and is duly qualified or licensed to do
business as a foreign corporation and is in good standing (with respect to
jurisdictions which recognize such concept) in each jurisdiction in which the
nature of its business or the ownership or leasing of its properties makes such
qualification or licensing necessary, other than in such jurisdictions where
the failure to be so qualified or licensed or to be in good standing,
individually or in the aggregate, would not have a Seller Material Adverse
Effect.
(b) MPLP is a limited partnership duly formed, validly existing and in good
standing under the laws of the State of Delaware, has the requisite partnership
power and authority to carry on its business as now being conducted and is duly
qualified or licensed to do business as a foreign limited partnership and is in
good standing (with respect to jurisdictions which recognize such concept) in
each jurisdiction in which the nature of its business or the ownership or
leasing of its properties makes such qualification or licensing necessary,
other than in such jurisdictions where the failure to be so qualified or
licensed or to be in good standing, individually or in the aggregate, would not
have a Seller Material Adverse Effect.
(c) Each McNeil Partnership is a limited partnership duly formed, validly
existing and in good standing under the laws of the state of formation set
forth opposite the name of such partnership on Schedule 4.1(c) of the Seller
Disclosure Letter, has the requisite partnership power and authority to carry
on its business as now being conducted and is duly qualified or licensed to do
business as a foreign limited partnership and is in good standing (with respect
to jurisdictions which recognize such concept) in each jurisdiction in which
the nature of its business or the ownership or leasing of its properties makes
such qualification or licensing necessary, other than in such jurisdictions
where the failure to be so qualified or licensed or to be in good standing,
individually or in the aggregate, would not have a Seller Material Adverse
Effect.
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(d) Complete and correct copies of the respective charters and bylaws of
McREMI, MII and Summerhill GP and complete and correct copies of the respective
certificate of limited partnership and limited partnership agreements of MPLP
and the McNeil Partnerships, in each case as amended or supplemented to the
date of this Agreement, have been made available to the Company.
(e) Each Subsidiary Corporation is a corporation duly incorporated and
validly existing under the laws of its jurisdiction of incorporation and has
the requisite corporate power and authority to carry on its business as now
being conducted, and each Subsidiary Partnership is a partnership duly formed
and validly existing under the laws of its jurisdiction of formation and has
the requisite partnership power and authority to carry on its business as now
being conducted. Each Seller Subsidiary is duly qualified or licensed to do
business and is in good standing (with respect to jurisdictions which recognize
such concept) in each jurisdiction in which the nature of its business or the
ownership or leasing of its properties makes such qualification or licensing
necessary, other than in such jurisdictions where the failure to be so
qualified or licensed, individually or in the aggregate, would not have a
Seller Material Adverse Effect. True and correct copies of the respective
certificate of incorporation, by-laws, partnership agreement, limited
partnership agreement, certificate of partnership and certificate of limited
partnership, as applicable, and other organizational documents of each Seller
Subsidiary, in each case as amended or supplemented to the date of this
Agreement, have been made available to the Company.
Section 4.2 Capital Structure; Title and Ownership of McREMI Assets.
(a) Schedule 4.2(a) of the Seller Disclosure Letter sets forth the following
information with respect to MPLP and each of the McNeil Partnerships, opposite
the name of such partnership: (i) the capital structure of such partnership
(including, with respect to each McNeil Partnership, the number of limited
partners of such partnership as of the date specified in such Schedule 4.2(a));
(ii) as of the date specified in such Schedule 4.2(a), to the best Knowledge of
Sellers, the ownership of any holders of five percent or more of the
partnership interests of such partnership; (iii) the general partners of such
partnership; (iv) any other names such partnership was formerly known as; and
(v) with respect to each McNeil Partnership, each real property owned directly
by such McNeil Partnership or owned by a Seller Subsidiary of such McNeil
Partnership. MII is the sole general partner of MPLP. Except as set forth in
this Section 4.2 or on Schedule 4.2(a) of the Seller Disclosure Letter and
except as contemplated by the terms of this Agreement, no other units of
partnership interest or other equity interests in the McNeil Partnerships were
issued, reserved for issuance or outstanding. All outstanding units of
partnership interest or other equity interest of each McNeil Partnership (i)
have been duly authorized and are validly issued, fully paid and nonassessable
and (ii) are subject to no restrictions except as set forth in the limited
partnership agreement of such McNeil Partnership. Except as set forth on
Schedule 4.2(a) of the Seller Disclosure Letter, none of the McNeil
Partnerships has issued or granted or is a party to any outstanding
commitments, agreements, options, arrangements or undertakings of any kind
relating to units of partnership interest or any other equity interest of such
McNeil Partnership or securities convertible into units of partnership interest
or any other equity interest of such McNeil Partnership.
(b) Except as set forth on Schedule 4.2(b) of the Seller Disclosure Letter,
as of the date of this Agreement, McREMI has, and immediately prior to the
contributions described in Section 2.3(a)(iii) hereof MPLP will have, good and
marketable title to all of the McREMI Assets free and clear of all Liens.
(c) As of the date of this Agreement, except as set forth on Schedule 4.2(c)
of the Seller Disclosure Letter, (i) Robert A. McNeil has good and valid title
to all of the GP Interests in Fairfax, (ii) Robert A. McNeil has good and valid
title to all of the GP Interests in Regency North owned by him, (iii)
Summerhill GP has good and valid title to all of the GP Interests in
Summerhill, (iv) MPLP has good and valid title to (A) all of the GP Interests
in each McNeil Partnership (other than Fairfax, Regency North and Summerhill),
(B) all of the GP Interests in the MPLP GP Subsidiaries, and (C) all of the
shares of capital stock in the MPLP Subsidiary Corporations, (v) Robert A.
McNeil has good and valid title to all of the LP Interests in Fairfax owned by
him, and (vi) Robert A. McNeil and Carole J. McNeil have good and valid title
to all of the LP Interests in Summerhill, in the case of each of clauses (i)
through (vi) above, free and clear of all Liens.
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(d) Immediately prior to the contributions described in Sections 2.3(a)(i),
2.3(a)(ii) and 2.3(a)(iii) hereof, MPLP shall have (i) good and valid title to
(A) all of the GP Interests in each Participating McNeil Partnership, (B) all
of the GP Interests in the MPLP GP Subsidiaries of the Participating McNeil
Partnerships, and (C) all of the shares of capital stock in the MPLP Subsidiary
Corporation of the Participating McNeil Partnerships, in each case, free and
clear of all Liens, (ii) good and valid title to all of the LP Interests in
Fairfax, free and clear of all Liens, if Fairfax is a Participating McNeil
Partnership, (iii) good and valid title to all of the LP Interests in
Summerhill, free and clear of all Liens, if Summerhill is a Participating
McNeil Partnership, and (iv) good and marketable title to all of the McREMI
Assets, free and clear of all Liens.
(e) Except as set forth on Schedule 4.2(e) of the Seller Disclosure Letter,
all distributions to holders of LP Interests in the McNeil Partnerships which
have been declared by any McNeil Partnership prior to the date of this
Agreement have been paid in full.
(f) Except as set forth on Schedule 4.2(f) of the Seller Disclosure Letter
and except for interests in certain of the Seller Subsidiaries and certain of
the McNeil Partnerships, none of the McNeil Partnerships or MPLP owns directly
or indirectly any interest or investment (whether equity or debt) in any
corporation, partnership, joint venture, business trust or other entity (other
than investments in investment securities) ("Other Interest"). None of the
Seller Subsidiaries owns directly or indirectly any Other Interest other than
its interest (if any) in other Seller Subsidiaries.
(g) Schedule 4.2(a) of the Seller Disclosure Letter sets forth, with respect
to each Seller Subsidiary: (i) the identity (including any names it was
formerly known as) and equity interest of any person with any equity interest
in such Seller Subsidiary and (ii) each real property owned by such Seller
Subsidiary. Except as set forth in this Section 4.2, no other shares of capital
stock, partnership interests or other equity interests in the Seller
Subsidiaries were issued, reserved for issuance or outstanding. Each of the
outstanding shares of capital stock or outstanding partnership interests in
each of the Seller Subsidiaries of the McNeil Partnerships is duly authorized,
validly issued, fully paid and nonassessable (other than to secure any
outstanding indebtedness to third party lenders with respect to any McNeil
Partnership Property owned directly or indirectly by such Seller Subsidiary).
Other than as set forth on Schedule 4.2(a) of the Seller Disclosure Letter,
each Seller Subsidiary of a McNeil Partnership is wholly-owned, directly or
indirectly, by MPLP, such McNeil Partnership or other Seller Subsidiaries of
such McNeil Partnership, free and clear of all Liens. None of the Seller
Subsidiaries has issued or granted or is a party to any outstanding
commitments, agreements, options, arrangements or undertakings of any kind
relating to shares of capital stock, partnership interests or other equity
interests of such Seller Subsidiary or securities convertible into shares of
capital stock, partnership interests or other equity interests of such Seller
Subsidiary.
Section 4.3 Authority; Noncontravention; Consents.
(a) Each of MII, McREMI and Summerhill GP has the requisite corporate power
and authority to enter into this Agreement and the other Transaction Documents
to which it is a party and to consummate the transactions contemplated by this
Agreement and the other Transaction Documents to which it is a party. MPLP has
the requisite partnership power and authority to enter into this Agreement and
the other Transaction Documents to which it is a party and to consummate the
transactions contemplated by this Agreement and the other Transaction Documents
to which it is a party. Each McNeil Partnership has the requisite partnership
power and authority to enter into this Agreement and the other Transaction
Documents to which it is a party and, subject to the requisite approvals of its
partners, to consummate the transactions contemplated by this Agreement and the
other Transaction Documents to which it is a party. The execution and delivery
by each Seller of this Agreement and the other Transaction Documents to which
such Seller is a party and the consummation by such Seller of the transactions
contemplated by this Agreement and the other Transaction Documents to which
such Seller is a party have been duly authorized by all necessary action on the
part of such Seller, except for and subject to the approval by each Merging
Partnership of the Merger in respect of such Merging Partnership, the MPLP
Contributions in respect of such Merging Partnership and the appointment of the
applicable New GP LLC as the successor general partner of such Merging
Partnership by the requisite approval of the limited partners of such Merging
Partnership. This Agreement has been duly executed and
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delivered by each Seller, and each of the other Transaction Documents has been
duly executed and delivered by each Seller which is a party thereto, and,
assuming the due execution and delivery of this Agreement and each such other
Transaction Document by every other party hereto and thereto, respectively,
this Agreement and each of such other Transaction Documents each constitutes a
valid and binding obligation of such Seller, enforceable against such Seller in
accordance with and subject to its terms, subject, as to enforcement, to (i)
applicable bankruptcy, insolvency, reorganization, moratorium or similar laws
now or hereinafter in effect affecting creditors' rights generally and (ii)
general principles of equity. The board of directors of MII (as general partner
of the general partner of each of the McNeil Partnerships, other than Fairfax,
Regency North and Summerhill), the board of directors of Summerhill GP (as the
general partner of Summerhill), Robert A. McNeil (as the general partner of
Fairfax and a general partner of Regency North) and the limited partners of
Summerhill have duly and validly approved, and taken all action required to be
taken by them for the consummation of, the Mergers, the MPLP Contributions, the
appointments of the applicable New GP LLCs as the successor general partners of
the McNeil Partnerships and the other transactions contemplated by this
Agreement and the other Transaction Documents.
(b) With respect to each Seller, except as set forth on Schedule 4.3(b) of
the Seller Disclosure Letter, the execution, delivery and performance by such
Seller of this Agreement and the other Transaction Documents to which such
Seller is a party do not, and the consummation by such Seller of the
transactions contemplated by this Agreement and the other Transaction Documents
to which such Seller is a party and compliance by such Seller with the
provisions of this Agreement and the other Transaction Documents to which such
Seller is a party shall not, conflict with, or result in any violation of, or
default (with or without notice or lapse of time, or both) under, or give rise
to a right of termination, cancellation or acceleration of any obligation or to
loss of a benefit under, or any other change in rights or obligations of any
party under (including the right to amend or modify or refuse to perform or
comply with), or result in the creation of any Lien upon any of the properties
or assets of such Seller or its Seller Subsidiaries under, (i) (A) in the case
of McREMI, MII, Summerhill GP and each Subsidiary Corporation, the respective
charter and bylaws of McREMI, MII, Summerhill GP and each such Subsidiary
Corporation, each as amended or supplemented to the date of this Agreement, and
(B) in the case of MPLP, each McNeil Partnership and each such Subsidiary
Partnership, the respective certificate of partnership, certificate of limited
partnership, partnership agreement or limited partnership agreement of MPLP,
each McNeil Partnership and each such Subsidiary Partnership, each as amended
or supplemented to the date of this Agreement, (ii) any loan or credit
agreement, note, bond, mortgage, indenture, lease or other material agreement
or obligation applicable to such Seller or its Seller Subsidiaries or their
respective properties or assets, or (iii) subject to the governmental filings
and other matters referred to in the following sentence of this Section 4.3(b),
any judgment, order, decree, statute, law, ordinance, rule, regulation,
arbitration award, agency requirement, license or permit of any Governmental
Entity (collectively, "laws") applicable to such Seller or its Seller
Subsidiaries or their respective properties or assets, other than, in the case
of clause (ii) or (iii) above, any such conflicts, violations, defaults,
rights, losses, changes or Liens that, individually or in the aggregate, would
not have a Seller Material Adverse Effect or prevent the consummation by such
Seller of the transactions contemplated by this Agreement and the other
Transaction Documents to which such Seller is a party. With respect to each
Seller, no consent, approval, order or authorization of, or filing with, any
federal, state or local government or any court, administrative or regulatory
agency or commission or other governmental authority or agency, domestic or
foreign (each, a "Governmental Entity"), or third party is required by or with
respect to such Seller or its Seller Subsidiaries in connection with the
execution and delivery by such Seller of this Agreement or the other
Transaction Documents to which such Seller is a party, or the consummation by
such Seller of the transactions contemplated by this Agreement and the other
Transaction Documents to which such Seller is a party, except for (i) the
filing with the Securities and Exchange Commission (the "SEC") by the Public
McNeil Partnerships of the Proxy Statements and, if required by applicable law,
the Schedule 13E-3, (ii) the acceptance for record of the Merger Certificate
and any other documents required by the Governing Law applicable to each
Merging Partnership and each Transitory Partnership, by the Secretary of State
of the state of formation of such Merging Partnership and such Transitory
Partnership, (iii) requisite approval of the limited partners of the Merging
Partnerships, and (iv) such other consents, approvals, orders or authorizations
of, or filings with, any Governmental Entity or third party (A) as
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are set forth on Schedule 4.3(b) of the Seller Disclosure Letter or (B) which,
if not obtained or made, would not have, individually or in the aggregate, a
Seller Material Adverse Effect or prevent the consummation by such Seller of
the transactions contemplated by this Agreement and the other Transaction
Documents to which such Seller is a party.
(c) Solely for purposes of determining compliance with the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the "HSR Act"), each Seller
confirms that the conduct of its business consists solely of investing in,
owning, developing and operating, directly or indirectly through its
subsidiaries, real estate for the benefit of its stockholders or partners, as
the case may be, and that the McREMI Assets consist of management contracts
relating to the McNeil Partnership Properties owned by the Participating McNeil
Partnerships or their Seller Subsidiaries and other assets directly relating to
the Participating McNeil Partnerships or their Seller Subsidiaries.
Section 4.4 Compliance with Laws. Other than in respect of Environmental
Laws and except as set forth on Schedule 4.4 of the Seller Disclosure Letter,
Sellers and the Seller Subsidiaries are not violating or failing to comply
with, and have not violated or failed to comply with, any law of any
Governmental Entity applicable to their business, properties or operations,
except to the extent that such violation or failure to comply, individually or
in the aggregate, would not have a Seller Material Adverse Effect or prevent
the consummation by any Seller of the transactions contemplated by this
Agreement and the other Transaction Documents to which such Seller is a party.
Except as set forth in the Seller SEC Documents filed prior to the date hereof,
and, except as set forth on Schedules 4.4, 4.7, 4.8(b), 4.8(c), 4.9 and 4.10 of
the Seller Disclosure Letter, no investigation or review by any Governmental
Entity with respect to any of Sellers or Seller Subsidiaries is pending or, to
the Knowledge of Sellers, threatened, nor has any Governmental Entity indicated
an intention to conduct the same, except for those the outcome of which would
not, individually or in the aggregate, have a Seller Material Adverse Effect or
prevent the consummation by any Seller of the transactions contemplated by this
Agreement and the other Transaction Documents to which such Seller is a party.
To the Knowledge of Sellers, no material change is required in Sellers' or the
Seller Subsidiaries' processes, properties or procedures in connection with any
such laws, and except as set forth on Schedules 4.4, 4.7, 4.8(b), 4.8(c), 4.9
and 4.10 of the Seller Disclosure Letter, Sellers have not received any written
notice or communication of any material noncompliance with any such laws that
has not been cured. Except as set forth on Schedules 4.4, 4.8(a), 4.8(b),
4.8(c), 4.8(e) and 4.9 of the Seller Disclosure Letter, each of Sellers and
each of the Seller Subsidiaries has all permits, licenses, trademarks, trade
names, copyrights, service marks, franchises, variances, exemptions, orders and
other authorizations, consents and approvals from Governmental Entities
necessary to conduct its business as presently conducted except those the
absence of which would not, individually or in the aggregate, have a Seller
Material Adverse Effect or prevent the consummation by any Seller of the
transactions contemplated by this Agreement and the other Transaction Documents
to which such Seller is a party.
Section 4.5 SEC Documents; Financial Statements; Undisclosed Liabilities.
(a) The McNeil Partnerships that are required to file reports with the SEC
pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), are identified on Schedule 4.5(a) of the Seller
Disclosure Letter (collectively, the "Public McNeil Partnerships"), and have
filed all required reports, schedules, forms, statements and other documents
with the SEC since January 1, 1996 (collectively, including any such reports
filed in the period subsequent to the date hereof but prior to the Closing
Date, and as amended, the "Seller SEC Documents," and the financial statements
of the Public McNeil Partnerships included in the Seller SEC Documents, the
"Public McNeil Partnership Statements"). All of the Seller SEC Documents (other
than preliminary material), as of their respective filing dates, complied (or,
in the case of any Seller SEC Documents filed in the period subsequent to the
date hereof but prior to the Closing Date, will comply as of their respective
filing dates) in all material respects with all applicable requirements of the
Securities Act of 1933, as amended (the "Securities Act"), and the Exchange
Act, and, in each case, the rules and regulations promulgated thereunder
applicable to such Seller SEC Documents. None of the Seller SEC Documents at
the time of filing contained (or, in the case of any Seller SEC Documents filed
in the period subsequent to the date hereof but prior to the Closing Date, will
contain at the time of filing) any untrue
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statement of a material fact or at the time of filing omitted (or, in the case
of any Seller SEC Documents filed in the period subsequent to the date hereof
but prior to the Closing Date, will omit at the time of filing) to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading.
(b) Each of the Private McNeil Partnerships has made available to the
Company copies of its unaudited balance sheets as of March 31, 1999 and
December 31, 1998 and its related unaudited statements of operations and cash
flows for the three-month period ended March 31, 1999 and for the year ended
December 31, 1998 (such financial statements, collectively with the Public
McNeil Partnership Statements, the "McNeil Partnership Statements"). In
addition: Regency North has made available to the Company copies of the audited
balance sheet as of December 31, 1998 and the related audited statements of
operations and cash flows for the year ended December 31, 1998 for Regency
North Apartments Limited Partnership, a Subsidiary Partnership of Regency
North; Hearth Hollow has made available to the Company copies of the audited
balance sheet as of December 31, 1998 and the related audited statements of
operations and cash flows for the year ended December 31, 1998 for Hearth
Hollow Apartments Limited Partnership, a Subsidiary Partnership of Hearth
Hollow; and Midwest Properties has made available to the Company copies of its
audited balance sheet as of December 31, 1998 and its audited statements of
operations and cash flows for the year ended December 31, 1998 and copies of
the audited balance sheets as of December 31, 1998 and the related audited
statements of operations and cash flows for the year ended December 31, 1998
for each of Cedarwood Hills Associates and East Bay Village Apartments Limited
Partnership, each of which is a Subsidiary Partnership of Midwest Properties
(all such financial statements described in this sentence, the "Subsidiary
Financial Statements"). McREMI has made available to the Company copies of its
unaudited balance sheet as of March 31, 1999 and its audited balance sheet as
of December 31, 1998, and its related unaudited statements of operations and
cash flows for the three-month period ended March 31, 1999 and its related
audited statements of operations and cash flows for the year ended December 31,
1998. MII and MPLP have made available to the Company copies of their unaudited
consolidated balance sheet as of March 31, 1999 and their audited consolidated
balance sheet as of December 31, 1998, and their related unaudited consolidated
statements of operations and cash flows for the three-month period ended March
31, 1999 and their related audited consolidated statements of operations and
cash flows for the year ended December 31, 1998. The financial statements of
McREMI and the consolidated financial statements of MII and MPLP made available
to the Company in accordance with this paragraph (b), together with the McNeil
Partnership Statements, are referred to in this Agreement as the "Seller
Statements."
(c) The Public McNeil Partnership Statements complied (or, in the case of
Public McNeil Partnership Statements contained in any Seller SEC Documents
filed in the period subsequent to the date hereof but prior to the Closing
Date, will comply) as to form in all material respects with the published rules
and regulations of the SEC with respect thereto in effect at the time of such
filing, and the audited Seller Statements have been prepared (or, in the case
of any Seller Statements prepared for any period subsequent to the date hereof
but prior to the Closing Date, will be prepared) in accordance with GAAP in
effect at the time of such preparation applied on a consistent basis during the
periods involved (except as may be indicated in the notes thereto). Each of the
Seller Statements fairly presented (or, in the case of any Seller Statements
for such Seller prepared for any period subsequent to the date hereof but prior
to the Closing Date, will fairly present) in all material respects the
financial position of the applicable Seller (and its consolidated subsidiaries,
if applicable) for which such Seller Statements were prepared as of the date
thereof and fairly presented (or, in the case of any Seller Statements for such
Seller prepared for any period subsequent to the date hereof but prior to the
Closing Date, will fairly present) in all material respects the results of
operations, cash flows and changes in financial position of such Seller or the
consolidated results of operations, cash flows and changes in financial
position of the applicable Seller or Seller Subsidiary for which such Seller
Statements were prepared for the period then ended (subject, in the case of
unaudited statements, to normal year-end audit adjustments).
(d) Except for liabilities and obligations set forth in the Seller SEC
Documents filed prior to the date hereof, in the Seller Statements (including
the notes thereto) made available to the Company or contained in
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Seller SEC Documents filed prior to the date hereof or in the Subsidiary
Financial Statements (including the notes thereto) or on Schedule 4.5(d) of the
Seller Disclosure Letter and except for liabilities and obligations incurred in
the ordinary course since the respective dates of the balance sheets included
in the Seller Statements made available to the Company or contained in Seller
SEC Documents filed prior to the date hereof, there are no liabilities or
obligations of the Seller (or its consolidated subsidiaries, if applicable) in
respect of which such Seller Statement was prepared of any nature (whether
accrued, absolute, contingent or otherwise) required by GAAP to be set forth on
the respective balance sheets of such Seller (and its consolidated
subsidiaries, if applicable) included in the Seller Statements made available
to the Company or contained in the Seller SEC Documents filed prior to the date
hereof or in the notes thereto and which, individually or in the aggregate,
would have a Seller Material Adverse Effect or prevent the consummation by
Sellers of the transactions contemplated by this Agreement and the other
Transaction Documents to which Sellers are parties.
Section 4.6 Absence of Certain Changes. Except as disclosed in the Seller
SEC Documents filed prior to the date hereof, in the Seller Statements
(including the notes thereto) made available to the Company prior to the date
hereof or the Subsidiary Financial Statements (including the notes thereto) or
on Schedule 4.6 of the Seller Disclosure Letter, since December 31, 1998 (the
"Audit Date"), the McNeil Partnerships have conducted their businesses only in
the ordinary course and there has not been: (i)(x) any change in the financial
condition, properties, businesses or results of operations of the McNeil
Partnerships and their consolidated subsidiaries (taken as a whole) or (y) to
the Knowledge of Sellers, any development or combination of developments with
respect to the McNeil Partnerships and their consolidated subsidiaries (taken
as a whole) that in the case of clause (x) or (y), individually or in the
aggregate, has had or would have a Seller Material Adverse Effect; (ii) any
damage, destruction, loss, whether or not covered by insurance, or other event
with respect to the McNeil Partnerships and their consolidated subsidiaries
(taken as a whole) which, individually or in the aggregate, has had or would
have a Seller Material Adverse Effect; (iii) except for regular semiannual
distributions in an amount not to exceed ten million dollars ($10,000,000) in
the aggregate for each such semiannual period or except as otherwise provided
in this Agreement, any authorization, declaration, setting aside or payment of
any dividend or other distribution (whether in cash, stock or property) with
respect to the units of partnership interest of the McNeil Partnerships; (iv)
any reclassification of the units of partnership interest of the McNeil
Partnerships or any issuance or the authorization of any issuance of any other
securities in respect of, in lieu of or in substitution for units of
partnership interest in the McNeil Partnerships; (v) any change in accounting
methods, principles or practices of the McNeil Partnerships materially
affecting the assets, liabilities or business of the McNeil Partnerships (taken
as a whole), except insofar as may have been required by a change in Law or
GAAP; (vi) except as permitted by the terms of this Agreement, any amendment of
any employment, consulting, severance, retention or any other similar agreement
between the McNeil Partnerships and any officer or director of the McNeil
Partnerships; or (vii) any acquisition or disposition of any real property of
the McNeil Partnerships or their Seller Subsidiaries, or any commitment to do
so, made by any Seller or the Seller Subsidiaries. Since the date of this
Agreement, there has not been any increase in the compensation payable or that
would become payable by the McNeil Partnerships or their Seller Subsidiaries to
officers or key employees of Sellers or the Seller Subsidiaries, or any
amendment of any compensation or benefit plans (if any) of, McREMI, the McNeil
Partnerships or their Seller Subsidiaries, other than regular year-end bonuses
consistent with past practice, budgeted salary increases, increases in salary
in the ordinary course consistent with past practice, any such increase in
compensation or amendment that would not result in any liability or obligation
of the Company or any of the Participating McNeil Partnerships or their
respective subsidiaries after the Closing Date.
Section 4.7 Litigation. Schedule 4.7 of the Seller Disclosure Letter sets
forth a list of all litigation in which service of process has been received by
any Seller or any Seller Subsidiary or which, to the Knowledge of Sellers, is
threatened against any Seller or any Seller Subsidiary or affects any Seller,
any Seller Subsidiary or any McNeil Partnership Property, in each case as of
the date specified in such Schedule 4.7. Except as disclosed on Schedule 4.7 of
the Seller Disclosure Letter, as of the date of this Agreement, there is no
suit, action or proceeding pending in which service of process has been
received by the McNeil Partnerships or any Seller Subsidiary or, to the
Knowledge of Sellers, threatened against any McNeil Partnership or any Seller
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Subsidiary or affects any McNeil Partnership, any Seller Subsidiary or any
McNeil Partnership Property. Other than as indicated on Schedule 4.7 of the
Seller Disclosure Letter, (i) none of the suits, actions or proceedings pending
with respect to which service of process has been received by any McNeil
Partnership or any Seller Subsidiary or, to the Knowledge of Sellers,
threatened against any McNeil Partnership or any Seller Subsidiary or affecting
any McNeil Partnership, any Seller Subsidiary or any McNeil Partnership
Property, individually or in the aggregate, would have a Seller Material
Adverse Effect or prevent the consummation by any Seller of the transactions
contemplated by this Agreement and the other Transaction Documents to which
such Seller is a party, and (ii) there is no judgment, decree, rule or order of
any Governmental Entity or arbitrator outstanding against or affecting any
McNeil Partnership or any Seller Subsidiary or any McNeil Partnership Property
having, or which in the future would have, a Seller Material Adverse Effect or
prevent the consummation by any Seller of the transactions contemplated by this
Agreement and the other Transaction Documents to which such Seller is a party.
Section 4.8 Properties.
(a) (i) Except as set forth on Schedule 4.8(a) of the Seller Disclosure
Letter, the McNeil Partnerships or the Seller Subsidiaries own good and
insurable fee simple title (or, with respect to those real properties listed on
Schedule 4.8(a) of the Seller Disclosure Letter as being leasehold interests,
own good and valid leasehold estates) to each of the real properties identified
on Schedule 4.8(a) of the Seller Disclosure Letter (the "McNeil Partnership
Properties"), which are all of the real estate properties owned by them as of
the date of this Agreement, and no other person has any ownership interest in
the McNeil Partnership Properties or any contract, option, right of first
refusal or other agreement to purchase any McNeil Partnership Property or any
part thereof, except as set forth on such Schedule 4.8(a) or otherwise provided
in this Agreement. As of the date of this Agreement, Schedule 4.8(a) of the
Seller Disclosure Letter contains a list of the latest surveys and owner's
title policies obtained by Sellers with respect to each of the McNeil
Partnership Properties, true and complete copies of which surveys and title
policies have been made available to the Company. Each of the McNeil
Partnership Properties is owned by the McNeil Partnerships or the Seller
Subsidiaries, free and clear of all Liens, mortgages or deeds of trust,
security interests or other encumbrances on title (collectively,
"Encumbrances") and is not subject to any rights of way, easements, restrictive
covenants, declarations, written agreements, laws, ordinances and regulations
affecting building use or occupancy, or reservations of any interest in title
(collectively, "Property Restrictions"), except for the following
(collectively, except for the matters set forth under the caption "Other Items"
on Schedule 4.8(a) of the Seller Disclosure Letter (such matters, the "Other
Items"), the "Permitted Restrictions and Encumbrances"): (i) Property
Restrictions and Encumbrances disclosed on the title commitments attached to
the letter agreement between Lawyer's Title Insurance Corporation and Arent Fox
Kintner Plotkin & Kahn PLLC, dated as of June 23, 1999 (such title commitments,
as marked, together with such letter agreement, the "Title Commitments"), or of
which the Company has knowledge (other than the Other Items, matters disclosed
by new surveys of a McNeil Partnership Property obtained by the Company after
June 1, 1999 (unless such matters were specifically and expressly disclosed by,
and were readily and directly apparent from, the existing surveys referenced on
Schedule 4.8(a)), matters marked "omit", "delete" or otherwise noted as being
required to be omitted or satisfied on the Title Commitments, and matters
identified as the "Task List" (excluding the matters listed on Schedule A to
the Task List) on Schedule 4.8(a) of the Seller Disclosure Letter); (ii)
Property Restrictions imposed or promulgated by law or any Governmental Entity
with respect to real property, including zoning regulations, which would not
materially and adversely affect the continued use or value of any McNeil
Partnership Property as it is being used as of the date of this Agreement;
(iii) mechanics', carriers', workmen's and repairmen's liens, which are being
contested in good faith, have heretofore been bonded or which, individually or
in the aggregate, do not exceed one hundred thousand dollars ($100,000); (iv)
Property Restrictions and Encumbrances which (A) could not reasonably preclude
the continued use of such McNeil Partnership Property as it is being used as of
the date of this Agreement or (B) could not reasonably materially and adversely
affect the value of such McNeil Partnership Property as it is being used as of
the date of this Agreement; (v) Taxes that are not yet delinquent; (vi) as of
the date of this Agreement, the Existing Loans; and (vii) as of the Closing
Date, the Non-Terminated Loans.
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(i) Schedule 4.8(a) of the Seller Disclosure Letter contains a true and
complete list of all of the ground leases affecting the McNeil Partnership
Properties (the "Ground Leases"). To the Knowledge of Sellers, each such
Ground Lease is in full force and effect, has not been modified or amended
in any way except by a document listed in Schedule 4.8(a) of the Seller
Disclosure Letter. Each of Sellers and its Seller Subsidiaries has fully
performed all of their material obligations under such Ground Leases.
Except as set forth on Schedule 4.8(a) of the Seller Disclosure Letter,
neither any of Sellers nor any of the Seller Subsidiaries has received any
written notice of any default by it, as tenant, under any Ground Lease and,
to the Knowledge of Sellers, there is no fact or circumstance which, with
the giving of notice or the passage of time, would result in a material
default under such Ground Lease.
(b) Except for Permitted Restrictions and Encumbrances, except as disclosed
on Schedule 4.8(b) or 4.8(o) of the Seller Disclosure Letter or in the
documents referenced in such Schedule 4.8(b) or 4.8(o) and except as otherwise
set forth in the most recent capital expenditure budget of the McNeil
Partnerships, true and complete copies of which have been made available to the
Company: (i) there is no certificate, permit or license from any Governmental
Entity having jurisdiction over the McNeil Partnership Properties, and there is
no agreement, easement or other right which is necessary to permit the lawful
use and operation of the buildings and improvements on the McNeil Partnership
Properties as they are being used as of the date of this Agreement, or which is
necessary to permit the lawful use and operation of all driveways, roads and
other means of lawful egress and ingress to and from the McNeil Partnership
Properties, that has not been obtained and is not in full force and effect, and
there is no pending threat of modification or cancellation thereof, except
where the failure to obtain the same would not have a Seller Material Adverse
Effect or prevent the consummation by any Seller of the transactions
contemplated by this Agreement and the other Transaction Documents to which
such Seller is a party; (ii) to the Knowledge of Sellers, all of the McNeil
Partnership Properties have sufficient parking that complies with all laws and
that is part of the McNeil Partnership Properties; (iii) none of Sellers or the
Seller Subsidiaries has received any written notice of any violation of any
federal, state or municipal Law issued by a Governmental Entity materially and
adversely affecting any portion of any McNeil Partnership Property; (iv) to the
Knowledge of Sellers, except for Known Defects, there are no structural defects
relating to any individual McNeil Partnership Property which would cost more
than twenty thousand dollars ($20,000) to repair or which, individually or in
the aggregate, would have a Seller Material Adverse Effect; (v) to the
Knowledge of Sellers, except for Known Defects, there are no individual McNeil
Partnership Properties whose building systems and fixtures are not in working
order and repair and which would cost more than twenty thousand dollars
($20,000) to repair or which, individually or in the aggregate, would have a
Seller Material Adverse Effect; (vi) there is no physical damage to any McNeil
Partnership Property for which there is no insurance in effect covering the
cost of restoration, except for such physical damage that would not have a
Seller Material Adverse Effect; and (vii) each McNeil Partnership Property is
an independent property that does not rely on any facilities (other than public
facilities and public roads) located on any property not included in such
McNeil Partnership Property to fulfill any requirement of any Governmental
Entity or for the furnishing to such McNeil Partnership Property of any
essential building systems or utilities, except for any such reliance for which
such McNeil Partnership Property has a legal or equitable right with respect
thereto.
(c) Except for Permitted Restrictions and Encumbrances and except as
disclosed on Schedule 4.8(a) or 4.8(c) of the Seller Disclosure Letter or in
the documents referenced in such Schedule 4.8(a) or 4.8(c), none of the McNeil
Partnerships has received written notice to the effect that there are, and, to
the Knowledge of Sellers, there are no, (i) condemnation or rezoning
proceedings that are pending or threatened with respect to the McNeil
Partnership Properties that would have a Seller Material Adverse Effect or (ii)
any zoning, building or similar laws, codes, ordinances, orders or regulations
or condition or agreements contained in any easement, restrictive covenant or
any similar instrument or agreement affecting any McNeil Partnership Property
that are or will be violated by the continued maintenance, operation or use of
any buildings or other improvements on the McNeil Partnership Properties or by
the continued maintenance, operation or use of the parking areas where such
violation would have a Seller Material Adverse Effect. Except for Known Defects
and except as disclosed on Schedule 4.8(a) or 4.8(c) of the Seller Disclosure
Letter, in the documents referenced in such Schedule 4.8(a) or 4.8(c) or in the
Seller Statements (including the notes thereto) or the Subsidiary Financial
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Statements (including the notes thereto) made available to the Company or
contained in Seller SEC Documents filed prior to the date hereof, or except as
would not have a Seller Material Adverse Effect, all work to be performed,
payments to be made and actions to be taken by Sellers or the Seller
Subsidiaries prior to the date of this Agreement pursuant to any agreement
entered into with a Governmental Entity in connection with a site approval,
zoning reclassification or similar action relating to any McNeil Partnership
Property (e.g., Local Improvement District or Road Improvement District, but
excluding any such approval, reclassification or action relating to
environmental matters) or as required as a condition to the issuance of any
building permit, certificate of occupancy or zoning variance relating to any
McNeil Partnership Property (e.g., off-site improvements or services or zoning
proffers), has been performed, paid or taken, as the case may be, and, to the
Knowledge of Sellers, there is no planned or proposed work, payments or actions
that may be required after the date of this Agreement pursuant to such
agreements.
(d) As of the date hereof, to the Knowledge of Sellers, other than Permitted
Restrictions and Encumbrances, there are no Encumbrances or defects in title to
any McNeil Partnership Property or any matters affecting title to, or ownership
of, the McNeil Partnership Properties which would materially and adversely
affect the continued use or value of the McNeil Partnership Properties as they
are being used as of the date of this Agreement.
(e) Except as disclosed on Schedule 4.8(e) of the Seller Disclosure Letter,
(i) as of the date hereof, valid policies of title insurance (the "Title
Insurance Policies") have been issued insuring the applicable McNeil
Partnership's or Seller Subsidiary's fee simple (or ground leasehold, as
applicable) title to each of the McNeil Partnership Properties in amounts at
least equal to the purchase price thereof paid by such Seller or Seller
Subsidiary or their respective predecessor, (ii) the Title Insurance Policies
are in full force and effect and (iii) as of the date hereof, to the Knowledge
of Sellers, no claim has been made against any Title Insurance Policy.
(f) Each of the rent rolls for each McNeil Partnership Property as set forth
in Schedule 4.8(f) of the Seller Disclosure Letter dated as of May 1999 (except
for a date otherwise indicated therein) and each of the updated rent rolls to
be made available to the Company within 15 days prior to the estimated Closing
Date (each, a "Rent Roll") is true, complete and accurate as of its date.
(g) Sellers have made available to the Company true, complete and accurate
copies of all leases for space as of the date of this Agreement in the McNeil
Partnership Properties identified on Annex E hereto as "Commercial Properties"
(the "Commercial Leases"), and all amendments, modifications and supplements
thereto through to the date hereof. Sellers have made available to the Company
true, complete and accurate copies of (i) all Commercial Leases as of the date
of this Agreement and (ii) the form of lease for leases for space as of the
date of this Agreement in the McNeil Partnership Properties not identified on
Annex E hereto as "Commercial Properties" (the "Residential Leases" and,
together with the Commercial Leases, the "Leases"). As of the date of each Rent
Roll, there are no Leases not shown on such Rent Roll, and, to the Knowledge of
Sellers, except for Permitted Restrictions and Encumbrances, as of the date of
each Rent Roll no third party has any occupancy or use rights with respect to
any McNeil Partnership Properties except pursuant to the Leases shown on such
Rent Roll. As of the date of the Rent Roll, except as set forth on Schedule
4.8(g) of the Seller Disclosure Letter, all Leases shown on the Rent Roll are
in full force and effect, each tenant has commenced paying rent thereunder, and
all construction and other obligations of the landlord to be performed as of
the date hereof in connection with the commencement of each Lease have been
performed in full, except where the failure to be in full force or effect, the
failure to commence payment of rent or to perform such obligations would not
have a Seller Material Adverse Effect.
(h) Except as set forth on Schedule 4.8(h) of the Seller Disclosure Letter,
as of the date specified in such Schedule 4.8(h), no tenant is in default under
its Lease for failure to pay rent or other sums when due under its Lease. To
the Knowledge of Sellers, except as set forth on Schedule 4.8(h) of the Seller
Disclosure Letter, no tenant is in default under its Lease which default would
have a Seller Material Adverse Effect. To the Knowledge of Sellers, as of the
date of each Rent Roll, no tenant thereunder is entitled to any free rent,
rebate, rent concession, deduction or offset not set forth in the Leases or not
otherwise approved as a Reimbursable Proposal.
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(i) (A) No Seller nor any Seller Subsidiary has failed to perform its
material obligations under any Lease, (B) no Seller nor any Seller Subsidiary
has received any written notice of its default under any of the Leases, and (C)
except as set forth in the Leases, as of the date of each Rent Roll, no tenant
thereunder is entitled to receive money, or any contribution from any Seller or
any Seller Subsidiary, either in money or in kind, on account of the
construction of any improvements, or setoff any amounts against its rental
obligations, which has not otherwise been approved as a Reimbursable Proposal,
except in the case of clauses (A), (B) and (C) as set forth on Schedule 4.8(i)
of the Seller Disclosure Letter or except where such failure to perform, such
default or such entitlement would not have a Seller Material Adverse Effect.
Except as set forth on Schedule 4.8(i) of the Seller Disclosure Letter, to the
Knowledge of Sellers, there are no bankruptcy, reorganization, insolvency or
similar proceedings pending against any tenants under Commercial Leases (the
"Commercial Tenants").
(j) To the Knowledge of Sellers, as of the date of each Rent Roll, there are
no verbal agreements with any tenant, and, to the Knowledge of Sellers, there
are no parties in adverse possession of any part of any McNeil Partnership
Property.
(k) INTENTIONALLY OMITTED.
(l) (i) All tenant improvements and other tenant inducement costs that are
the responsibility of the landlord under any Lease executed prior to the date
hereof have been completed or fully paid or will be completed or fully paid by
the McNeil Partnerships or their respective Seller Subsidiaries, as applicable,
on or prior to the Closing Date and (ii) there is no tenant improvement work in
process for which the landlord is responsible nor any unspent tenant allowance,
other than, in the case of clauses (i) and (ii), for Reimbursable Proposals.
(m) All tenant security deposits are noted in the accounting records of the
applicable McNeil Partnerships or their respective Seller Subsidiaries and are
held in segregated accounts identified as set forth on Schedule 4.8(m) of the
Seller Disclosure Letter.
(n) Except as set forth on Schedule 4.8(n) of the Seller Disclosure Letter,
there has been no delivery of any written notice to the McNeil Partnerships or
the Seller Subsidiaries regarding any, and to the Knowledge of Sellers there is
no, pending cancellation of any insurance on any McNeil Partnership Property or
repairs, alterations or other work thereon which have been required by any
insurance policy or any Governmental Entities.
(o) Schedule 4.8(o) of the Seller Disclosure Letter sets forth a true and
complete list, as of the date of this Agreement, of all structural reports
regarding the McNeil Partnership Properties that have been ordered and secured
by Sellers or the Seller Subsidiaries, and true and complete copies of such
reports have been made available to the Company. The parties hereto acknowledge
and agree that all Known Defects are deemed to be incorporated by reference
into such Schedule 4.8(o).
(p) All of the McNeil Partnership Properties are managed by McREMI or are
self-managed.
(q) Schedule 4.8(q) of the Seller Disclosure Letter sets forth a true and
complete list, as of the date of this Agreement, of all delinquent real
property tax bills for the McNeil Partnership Properties, true and complete
copies of which have been made available to the Company prior to the date
hereof. True and complete copies of all real property tax bills for the McNeil
Partnership Properties for the most recent fiscal year have been made available
to the Company prior to the date hereof. To the Knowledge of Sellers, true and
complete copies of all real property tax bills for the McNeil Partnership
Properties for the fiscal year ended December 31, 1997 have been made available
to the Company prior to the date hereof. To the Knowledge of Sellers, none of
Sellers nor any Seller Subsidiary has received any written notice of any
proposed special assessments or proposed reassessments relating to the McNeil
Partnership Properties.
Section 4.9 Environmental Matters. For purposes of this Section 4.9, the
term "Hazardous Material" means any substance, material or waste which is
regulated in any concentration or is otherwise defined by any
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federal, state or local governmental body under Environmental Law as a
"hazardous waste," "hazardous material," "hazardous substance," "extremely
hazardous waste," "restricted hazardous waste," "contaminant," "toxic waste" or
"toxic substance" under any provision of Environmental Law, which includes
petroleum, petroleum products or by-products, asbestos, presumed asbestos-
containing material or asbestos-containing material, lead-containing paint or
plumbing, radioactive material or radon, urea formaldehyde and polychlorinated
biphenyls. Except as disclosed on Schedule 4.9 of the Seller Disclosure Letter
or in the reports referenced in such Schedule 4.9 and except for Known Defects
and except for matters which would not have, individually or in the aggregate,
a Seller Material Adverse Effect:
(a) To the Knowledge of Sellers, there is not present in, on or under any
McNeil Partnership Property any Hazardous Material in such form or quantities
as to create, and Sellers and the Seller Subsidiaries have not created, any
liability or obligation under federal, state, local or other governmental
statute, law (including common law), ordinance or regulation, relating to, or
dealing with the protection of human health or the environment in effect as of
the date of this Agreement ("Environmental Law") for any McNeil Partnership;
(b) There is no pending request, claim, written notice, investigation,
demand, administrative proceeding, hearing or litigation, nor, to the Knowledge
of Sellers, is one threatened, alleging liability under, violation of, or
noncompliance with any Environmental Law or any license, permit or other
authorization issued pursuant thereto ("Environmental Complaints") relating to
any McNeil Partnership Property (or any real property formerly owned or
operated by any of the McNeil Partnerships or any of the Seller Subsidiaries)
and against Sellers or the Seller Subsidiaries, and there is no reasonable
basis for believing that circumstances or conditions exist which would support
any such Environmental Complaint against Sellers or the Seller Subsidiaries
relating to the McNeil Partnership Properties;
(c) Sellers have developed and implemented appropriate operation and
maintenance programs for all of the McNeil Partnership Properties which contain
"Asbestos Containing Materials," have complied with all applicable regulations
of the Occupational Health and Safety Administration regarding asbestos
notification to workers and tenants, and have complied with all applicable
provisions of the Lead Based Paint Hazard Reduction Act of 1992 and all
regulations promulgated thereto;
(d) The McNeil Partnership Properties comply with all Environmental Laws;
(e) To the actual knowledge, without any inquiry of or investigation by, the
individuals listed on Schedule 10.1(a) of the Seller Disclosure Letter, no real
property formerly owned or operated by any of the McNeil Partnerships or any of
the Seller Subsidiaries was contaminated with any Hazardous Material during or
prior to such period of ownership or operations; and
(f) Sellers have made available to the Company copies of all material
environmental reports, studies, assessments, sampling data and other
environmental information, in each case, that is in their possession and that
relates to Sellers or the Seller Subsidiaries or their respective current
properties or operations.
Section 4.10 Taxes.
(a) Except as set forth on Schedule 4.10 of the Seller Disclosure Letter,
each McNeil Partnership and its respective Seller Subsidiaries has prepared in
good faith and timely filed all Tax returns and reports required to be filed by
it (after giving effect to any filing extension properly granted by a
Governmental Entity having authority to do so) and has paid (or has had paid on
its behalf) all Taxes shown on such returns and reports as required to be paid
by it or that each McNeil Partnership is obligated to withhold from amounts
owing to any employee, creditor or third party. Except as set forth on Schedule
4.10 of the Seller Disclosure Letter, to the Knowledge of Sellers, all Tax
returns are complete, correct and accurate and the McNeil Partnerships and
their respective Seller Subsidiaries are not required to pay any Taxes other
than as shown on such returns. Except for Taxes that are being contested in
good faith by appropriate proceedings and for which such McNeil Partnership
shall have set aside on its books adequate reserves, which are set forth on
Schedule 4.10 of the Seller Disclosure Letter, none of the McNeil Partnerships
is being audited by any Governmental Entity and there are
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no pending or, to the Knowledge of Sellers, threatened audits, examinations,
investigations or other proceedings in respect of Taxes or Tax matters. The
most recent audited McNeil Partnership Statements contained in the Seller SEC
Documents or made available to the Company, as the case may be, reflect an
adequate reserve for all material Taxes payable by the McNeil Partnerships and
their respective Seller Subsidiaries for all taxable periods and portions
thereof through the date of such financial statements, which Taxes are material
to the McNeil Partnerships and their respective Seller Subsidiaries taken as a
whole. Except as set forth on Schedule 4.10 of the Seller Disclosure Letter, to
the Knowledge of Sellers, no deficiencies for any Taxes have been proposed,
asserted or assessed against the McNeil Partnerships and their respective
Seller Subsidiaries, and no requests for waivers of the time to assess any such
Taxes are pending. As used in this Agreement, "Taxes" includes all federal,
state, local and foreign income, property, franchise, employment, excise and
other taxes together with penalties, interest or additions to Tax with respect
thereto (but shall not include any sales or use taxes).
(b) The McNeil Partnerships and the Seller Subsidiaries that have been
partnerships, joint ventures or disregarded entities or limited liability
companies since formation have at all times qualified as partnerships or
disregarded entities for federal income tax purposes. The McNeil Partnerships
and the Seller Subsidiaries that have been partnerships, joint ventures or
disregarded entities or limited liability companies since formation are not
publicly traded partnerships within the meaning of Section 7704 of the Internal
Revenue Code of 1986, as amended (the "Code"), or otherwise taxable as an
association for federal income tax purposes.
Section 4.11 No Payments to Employees, Officers or Directors. Except for the
contracts listed on Schedule 4.11 of the Seller Disclosure Letter or as
otherwise provided for in this Agreement, there is no employment or severance
contract, or other plan, arrangement or agreement, entitling any employees of
McREMI or the officers of any Seller Corporation to severance pay, or
requiring, accelerating the time of payment or vesting, increasing or
triggering payments or funding (through a grantor trust or otherwise) of
compensation or benefits, cancellation of indebtedness or other obligation
(collectively, "Severance Obligations") to be made on a change of control or
otherwise as a result of the consummation of the transactions contemplated by
this Agreement and the other Transaction Documents, with respect to any present
or former employee, officer or director of McREMI or such Seller Corporation.
Section 4.12 Related Party Transactions. Set forth on Schedule 4.12 of the
Seller Disclosure Letter is a list of all Related Party Transactions as of the
date of this Agreement. Complete and correct copies, to the extent available,
documenting the Related Party Transactions have been made available to the
Company.
Section 4.13 Employee Benefits.
(a) Schedule 4.13 of the Seller Disclosure Letter contains a true and
complete list as of the date of this Agreement of each: "welfare plan," fund,
contract, policy or program (within the meaning of section 3(1) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA")); "pension plan,"
fund or program (within the meaning of section 3(2) of ERISA); employment,
termination or severance agreement; and other employee benefit plan, fund,
program, contract agreement or arrangement, in each case, that is sponsored,
maintained or contributed to or required to be contributed to by McREMI or by
any trade or business, whether or not incorporated, that together with McREMI
would be deemed a "single employer" within the meaning of section 4001(b) of
ERISA (a "McREMI ERISA Affiliate"), or to which McREMI or any McREMI ERISA
Affiliate is party, for the benefit of any employee or former employee of
McREMI (the "McREMI Plans").
(b) With respect to each McREMI Plan, McREMI has heretofore made available
to the Company true and complete copies of such McREMI Plan and any amendments
thereto, any related trust insurance contract or other funding vehicle, any
reports or summaries required under ERISA or the Code and the most recent
determination letter received from the Internal Revenue Service with respect to
each McREMI Plan intended to qualify under section 401 of the Code.
(c) No liability under Title IV or section 302 of ERISA has been incurred by
McREMI or any McREMI ERISA Affiliate with respect to any ongoing, frozen or
terminated "single-employer plan," within the meaning
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of Section 4001(a)(15) of ERISA, currently or formerly maintained by any of
them, or the single-employer plan of a McREMI ERISA Affiliate, that has not
been satisfied in full, and, to the Knowledge of Sellers, no condition exists
that presents a material risk to McREMI or any McREMI ERISA Affiliate of
incurring any such liability, other than liability for premiums due the Pension
Benefit Guaranty Corporation (which premiums have been paid when due).
(d) No McREMI Plan is a "multiemployer pension plan," as defined in section
3(37) of ERISA, and neither McREMI nor any McREMI ERISA Affiliate has
contributed to a multiemployer plan at any time on or after September 1, 1980.
No notice of a "reportable event", within the meaning of Section 4043 of ERISA
for which the 30-day reporting requirement has not been waived, has been
required to be filed for any McREMI Plan or by any McREMI ERISA Affiliate
within the twelve-month period ending on the date hereof or will be required to
be filed in connection with the transactions contemplated by this Agreement.
(e) Each McREMI Plan has been operated and administered in all material
respects in accordance with its terms and applicable law, including but not
limited to ERISA and the Code.
(f) Each McREMI Plan intended to be "qualified" within the meaning of
section 401(a) of the Code has received a favorable determination letter from
the Internal Revenue Service stating that it is so qualified, and, to the
Knowledge of Sellers, no event has occurred since the date of such
determination that would adversely affect such determination.
(g) There are no pending or, to the Knowledge of Sellers, anticipated claims
by or on behalf of any McREMI Plan, by any employee or beneficiary covered
under any such McREMI Plan, or otherwise involving any such McREMI Plan (other
than routine claims for benefits). None of Sellers nor any of the Seller
Subsidiaries has engaged in a transaction with respect to any McREMI Plan that,
assuming the taxable period of such transaction expired as of the date hereof
or as of the Closing Date, could subject McREMI, any McNeil Partnership or any
Seller Subsidiary to a tax or penalty imposed by either Section 4975 of the
Code or Section 502(i) of ERISA in an amount which would be material.
(h) All contributions required to be made under the terms of any McREMI Plan
have been timely made or have been reflected on the audited or unaudited
balance sheet of McREMI made available to the Company.
(i) McREMI has no obligations for retiree health and life benefits under any
McREMI Plan. McREMI may amend or terminate any such McREMI Plan at any time
without incurring any liability thereunder, other than claims for benefits
accrued prior to the Effective Time.
Section 4.14 Employee Matters.
(a) Except for the officers of the Seller Corporations set forth on Schedule
4.14(a) of the Seller Disclosure Letter, none of the McNeil Partnerships nor
any of their respective Seller Subsidiaries has any employees.
(b) Schedule 4.14(b) of the Seller Disclosure Letter lists the employee
handbooks of McREMI in effect as of the date of this Agreement. A copy of each
such employee handbook has been made available to the Company. Except as set
forth on Schedule 4.14(b) of the Seller Disclosure Letter, such handbooks
fairly and accurately summarize all material employee policies, vacation
policies and payroll practices of McREMI.
Section 4.15 Contracts; Debt Instruments.
(a) Except as set forth on Schedule 4.15(a) of the Seller Disclosure Letter,
none of Sellers or the Seller Subsidiaries has received a written notice that
any Seller or any Seller Subsidiary is in violation of or in default under, nor
does there exist any condition which upon the passage of time or the giving of
notice or both would cause such a violation of or default under, any loan or
credit agreement, note, bond, mortgage, indenture, lease, permit, concession,
franchise, license or any other material contract, agreement, arrangement or
understanding (each, a "Material Contract"), to which it is a party or by which
it or any of its properties or assets is bound, nor does such a violation or
default exist, except to the extent that such violation or default,
individually or in
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the aggregate, would not have a Seller Material Adverse Effect or prevent the
consummation of the transactions contemplated by this Agreement and the other
Transaction Documents to which such Seller is a party. Each Material Contract
which has not been filed as an exhibit to any of the Seller SEC Documents has
been previously made available to the Company (except as noted on Schedule
4.15(a) of the Seller Disclosure Letter) and a list of all Material Contracts
that have not been so filed is set forth in Schedule 4.15(a) of the Seller
Disclosure Letter. Except as set forth in the Seller SEC Documents filed prior
to the date hereof or on Schedule 4.15(a) of the Seller Disclosure Letter,
there is no contract or agreement that purports to limit in any material
respect the geographic location in which McREMI, any of the McNeil Partnerships
or any of the Seller Subsidiaries may conduct its business.
(b) Except for any of the following expressly identified in the Seller SEC
Documents, Schedule 4.15(b) of the Seller Disclosure Letter sets forth a list,
as of the date of this Agreement, of each loan or credit agreement, note, bond,
mortgage, indenture, security agreement, financing statement and any other
material agreement and instrument and all amendments thereto pursuant to which
any Indebtedness of Sellers or any Seller Subsidiary is outstanding or may be
incurred or secured. For purposes of this Agreement, "Indebtedness" means
(i) indebtedness for borrowed money, whether secured or unsecured, (ii)
obligations under conditional sale or other title retention agreements relating
to property purchased by such person, (iii) capitalized lease obligations, (iv)
obligations under any interest rate cap, swap, collar or similar transaction or
currency hedging transactions (valued at the termination value thereof) and (v)
guarantees of any such Indebtedness of any other person.
(c) Except as set forth on Schedule 4.15(b) of the Seller Disclosure Letter,
as of the date of this Agreement, there is no interest rate cap, interest rate
collar, interest rate swap, currency hedging transaction or any other agreement
relating to a similar transaction to which any Seller or any Seller Subsidiary
is a party or an obligor with respect thereto.
(d) Except as set forth on Schedule 4.15(d) of the Seller Disclosure Letter,
none of Sellers nor any Seller Subsidiary is party to any agreement which would
restrict any of them from prepaying any of their material Indebtedness without
penalty or premium at any time or which requires any of them to maintain any
amount of Indebtedness with respect to any McNeil Partnership Property.
(e) Except as set forth on Schedule 4.15(e) of the Seller Disclosure Letter,
none of Sellers nor any Seller Subsidiary is a party to any agreement relating
to the management or leasing of any McNeil Partnership Property by any person
other than McREMI, except the commercial listing agreements listed on
Schedule 4.15(e) of the Seller Disclosure Letter and except for any service
agreement which either (i) is cancellable upon no greater than sixty (60) days'
notice or (ii) which requires Sellers to make annual payments pursuant thereto
not in excess of fifty thousand dollars ($50,000) per year. Complete and
correct copies of such commercial listing agreements and such service
agreements have been made available to the Company.
(f) None of Sellers nor any Seller Subsidiary is a party to any agreement
pursuant to which any Seller or any Seller Subsidiary manages any real
properties other than the McNeil Partnership Properties, except for the
agreements listed on Schedule 4.15(f) of the Seller Disclosure Letter.
(g) Except for budgeted construction disclosed in the most recent capital
expenditure budget of the McNeil Partnership Properties (a true and complete
copy of which has been made available to the Company), Schedule 4.15(g) of the
Seller Disclosure Letter lists all agreements entered into by any Seller or any
Seller Subsidiary relating to the development or construction of, or additions
or expansions to, any McNeil Partnership Property which are currently in effect
as of the date specified in such Schedule 4.15(g) (collectively, the
"Construction Contracts") and under which Sellers or any Seller Subsidiary
currently has, or expects to incur, an obligation in excess of twenty-thousand
dollars ($20,000). Complete and correct copies of Construction Contracts in
effect as of the date specified in Schedule 4.15(g) of the Seller Disclosure
Letter and under which Sellers or any Seller Subsidiary currently has, or
expects to incur, an obligation in excess of fifty thousand dollars ($50,000)
in any calendar year have been made available to the Company.
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(h) Schedule 4.15(h) of the Seller Disclosure Letter lists all agreements,
which are currently in effect as of the date hereof, entered into by any Seller
or any Seller Subsidiary or affecting any McNeil Partnership Property providing
for the sale of, or option to sell, any McNeil Partnership Properties or the
purchase of, or option to purchase, any real estate.
(i) Except as set forth on Schedule 4.15(i) of the Seller Disclosure Letter,
none of Sellers nor any Seller Subsidiary has any continuing contractual
liability (i) for indemnification or otherwise under any agreement relating to
the sale of real estate previously owned, whether directly or indirectly, by
any Seller or any Seller Subsidiary or (ii) to pay any additional purchase
price for any McNeil Partnership Property.
Section 4.16 Brokers. No broker, investment banker, financial advisor or
other person, other than PaineWebber Incorporated, Eastdil, Susan Barlow,
Stanger, and Houlihan, Lokey, Howard & Zukin, the arrangements with which have
previously been made available to the Company, is entitled to any broker's,
finder's, financial advisor's, valuation or other similar fee or commission in
connection with the transactions contemplated by this Agreement or the other
Transaction Documents based upon arrangements made by or on behalf of Sellers,
and Sellers shall pay all such fees at or prior to the Closing.
Section 4.17 Management Agreements. The management agreements listed on
Schedule 4.17 of the Seller Disclosure Letter (the "Management Agreements") are
in full force and effect and no violations of such agreements currently are
occurring by Sellers or the Seller Subsidiaries or, to the Knowledge of
Sellers, parties other than Sellers or the Seller Subsidiaries.
Section 4.18 INTENTIONALLY OMITTED.
Section 4.19 State Takeover Statutes. Each Seller has taken all actions
necessary to exempt the transactions contemplated by this Agreement and the
other Transaction Documents to which it is a party from the operation of any
"fair price," "moratorium," "control share acquisition" or any other anti-
takeover statute or similar statute that applies to such Seller (a "Takeover
Statute") or any antitakeover provision contained in the limited partnership
agreement, certificate of incorporation or by-laws of any Seller.
Section 4.20 Investment Company Act of 1940. None of Sellers or the Seller
Subsidiaries is, or at the Effective Time will be, required to be registered
under the Investment Company Act of 1940, as amended (the "1940 Act").
Section 4.21 Insurance.
(a) Schedule 4.21(a) of the Seller Disclosure Letter sets forth a true,
correct and complete list, as of the date of this Agreement, of all material
fire and casualty, general liability, business interruption, product liability,
and sprinkler and water damage insurance policies maintained by Sellers (the
"Insurance Policies"). To the Knowledge of Sellers, such Insurance Policies
have been in full force and effect since January 1, 1999.
(b) To the Knowledge of Sellers, Schedule 4.21(b) sets forth a true and
correct list of all Insurance Policies (together with the names of the
respective carriers of such Insurance Policies) maintained by Sellers for any
period since January 1, 1992.
Section 4.22 Year 2000. Sellers are taking steps to institute a program
which is intended to ensure (it being acknowledged and agreed by the parties
hereto that such intention may never be realized) that software systems of
Sellers do not cause the McNeil Partnerships or the Seller Subsidiaries to
experience invalid or incorrect results or abnormal software operation related
to calendar year 2000 except where such invalid or incorrect results or
abnormal software operation would not, individually or in the aggregate, have a
Seller Material Adverse Effect.
Section 4.23 Books and Records. The books and records of each of Sellers and
the Seller Subsidiaries (including, without limitation, the books of account,
minute books and LP Interest record books) are complete
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and correct in all material respects. The minute books of each of Sellers and
the Seller Subsidiaries contain accurate and complete records in all material
respects of all meetings held of, and corporate or other action taken by, the
equity holders and the boards of directors (or similar governing body) of the
respective entities and no meetings of or actions by such equity holders or any
such boards of directors (or similar governing body) have been held or taken
for which minutes have not been prepared and are not contained in such minute
books.
Section 4.24 Personal Property. The McNeil Partnerships or the Seller
Subsidiaries have good title to, or a valid leasehold interest in, or other
good and sufficient right to use, all tangible personal properties that are
material to the business and operations of the McNeil Partnerships and the
Seller Subsidiaries taken as a whole.
ARTICLE V
Representations and Warranties of The Company
The Company represents and warrants to each Seller as follows:
Section 5.1 Organization, Standing and Power of the Company, the Company
LLCs and the Transitory Partnerships.
(a) The Company is a limited liability company duly formed and validly
existing under the laws of the State of Delaware and has the requisite power
and authority to carry on its business as now being conducted and on or prior
to the Effective Time will be duly qualified or licensed to do business and
will be in good standing (with respect to jurisdictions which recognize such
concept) in each jurisdiction in which the nature of its business or the
ownership, leasing or use of its properties makes such qualification or
licensing necessary, other than in jurisdictions where the failure to be so
qualified or licensed or to be in good standing, individually or in the
aggregate, would not prevent the consummation by the Company of the
transactions contemplated by this Agreement and the other Transaction Documents
to which the Company is a party. The Company has delivered to Sellers complete
and correct copies of the Original LLC Agreement, as amended or supplemented to
the date of this Agreement. The Company was formed solely for the purpose of
engaging in the transactions contemplated by this Agreement and has not engaged
in any business activities or conducted any operations other than as expressly
provided for in this Agreement. Other than the Transitory Partnerships and the
Company LLCs upon their formation, the Company has never owned any capital
stock or other equity interests in any other person.
(b) Prior to the contributions described in Section 2.3(a) hereof and in
Section 6.1 of the LLC Agreement, the Company will have no assets or
liabilities or obligations whatsoever (other than the rights and obligations
set forth in this Agreement, the LLC Agreement, the Commitment Letter and any
debt commitment letter the Company may obtain) (the parties hereto acknowledge
and agree that nothing in this Section 5.1(b) shall affect or be deemed to
amend or modify any provision of this Agreement, including Sections 8.1, 8.2
and 8.3 hereof).
(c) From the time of their formation through to the Effective Time, each
Company LLC and each Transitory Partnership will be an entity duly formed and
validly existing under the laws of the state of its formation and shall have
the requisite power and authority to carry on its business and will be duly
qualified or licensed to do business and will be in good standing (with respect
to jurisdictions which recognize such concept) in each jurisdiction in which
the nature of its business or the ownership, leasing or use of its properties
makes such qualification or licensing necessary, other than in such
jurisdictions where the failure to be so qualified or licensed or to be in good
standing, individually or in the aggregate, would not prevent the consummation
of the transactions contemplated by this Agreement. The Company will deliver to
Sellers complete and correct copies of the formation documents of each Company
LLC and each Transitory Partnership. Each Company LLC and each Transitory
Partnership will be formed solely for the purpose of engaging in the
transactions contemplated by this Agreement and will not engage in any business
activities or conduct any operations other than as expressly provided for in
this Agreement. Other than as expressly contemplated by this Agreement, from
the date of their formation through to the Effective Time, each of the
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Company LLCs and each of the Transitory Partnerships will not own any capital
stock or other equity interests in any other person (other than the Transitory
Partnerships and the Company LLCs), will conduct no business and will have no
assets or liabilities or obligations whatsoever.
(d) The Company has delivered to Sellers complete and correct copies of the
certificate of formation, limited liability company operating agreement and
other organizational documents of the Company, each as amended and supplemented
to the date of this Agreement. The Company will deliver to Sellers upon
formation complete and correct copies of the certificate of limited
partnership, limited partnership agreement, certificate of formation, limited
liability company operating agreement and other organizational documents of
each of the Company LLCs and each of the Transitory Partnerships, each as
amended and supplemented to the date of this Agreement.
Section 5.2 Capital Structure.
(a) As of the date of this Agreement and as of the time immediately prior to
the contributions described in Section 2.3(a) hereof, WXI/MCN Real Estate,
L.L.C., a Delaware limited liability company (the "Managing Member"), owns all
of the outstanding interests in and is the sole member of the Company. As of
the date of this Agreement and as of the Closing Date, Whitehall Street Real
Estate Limited Partnership XI, a Delaware limited partnership ("Whitehall"), is
the managing member of the Managing Member. At any and all times prior to the
Effective Time, Whitehall shall continue to be the managing member of the
Managing Member, and the Managing Member shall continue to own all of the
outstanding interests in the Company and shall be the sole member of the
Company. All outstanding interests in the Company (i) have been duly authorized
and are validly issued, fully paid and nonassessable and (ii) are subject to no
restriction, except as provided in the Original LLC Agreement. Except as set
forth in this Section 5.2, no interests in the Company are issued, reserved for
issuance or outstanding, and none of the Managing Member, the Company or any
affiliate or subsidiary of the Company has outstanding any obligations the
holders of which have the right to vote (or which are convertible, exchangeable
or exercisable for interests having the right to vote) with members of the
Company on any matter. Except as set forth above, there are no outstanding
securities, interests, options, warrants, calls, rights, commitments,
agreements, arrangements or undertakings of any kind obligating the Managing
Member, the Company or any affiliate or subsidiary of the Company to issue,
deliver or sell, or cause to be issued, delivered or sold, additional interests
in the Company or securities or interests convertible, exchangeable or
exercisable into interests in the Company. There are no agreements,
arrangements or understandings of any kind with respect to the voting of
interests in the Company or which restrict the transfer of any such interests,
except as provided in the Original LLC Agreement.
(b) Upon the formation of each Company LLC and each Transitory Partnership,
all outstanding interests in each Company LLC and each Transitory Partnership
(i) will have been duly authorized and validly issued, fully paid and
nonassessable and (ii) will be subject to no restriction, except as provided in
the organizational documents of such entities. As of its formation and through
to the Effective Time, the Company will own all of the outstanding interests in
the Sub LLC (if the Sub LLC is formed), and the Company or the Sub LLC will own
all of the outstanding interests in the other Company LLCs. As of their
formation and through to the Effective Time, the Company or the Sub LLC will
own all of the outstanding LP Interests in, and the applicable New GP LLC will
own all of the outstanding GP Interests in, each Transitory Partnership. Except
as expressly provided for in this Agreement, from their formation through to
the Effective Time, no interests in the Company LLCs or the Transitory
Partnerships will be issued, reserved for issuance or outstanding, and there
will be no outstanding securities, interests, options, warrants, calls, rights,
commitments, agreements, arrangements or undertakings of any kind obligating
any such entity to issue, deliver or sell, or cause to be issued, delivered or
sold, additional interests in such entity or securities or interests
convertible, exchangeable or exercisable into interests in such entity.
Section 5.3 Authority; Noncontravention; Consents.
(a) The Company has the requisite power and authority to enter into this
Agreement and the other Transaction Documents to which it is a party, and to
consummate the transactions contemplated by this
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Agreement and the other Transaction Documents to which it is a party. The
execution and delivery by the Company of this Agreement and the other
Transaction Documents to which it is a party and the consummation by the
Company of the transactions contemplated by this Agreement and the other
Transaction Documents to which it is a party have been duly authorized by all
necessary action on the part of the Company. This Agreement has been duly
executed and delivered by the Company, and each of the other Transaction
Documents to which the Company is a party has been duly executed and delivered
by the Company, and, assuming the due execution and delivery of this Agreement
and such other Transaction Documents by every other party hereto and thereto,
respectively, this Agreement and such other Transaction Documents each
constitutes a valid and binding obligation of the Company enforceable against
the Company in accordance with and subject to its terms, subject, as to
enforcement, to (i) applicable bankruptcy, insolvency, reorganization,
moratorium or similar laws now or hereinafter in effect affecting creditors'
rights generally and (ii) general principles of equity. The governing body of
the Company has duly and validly approved, and taken all action required to be
taken by them for the consummation of the Mergers, the MPLP Contributions, the
appointments of the applicable New GP LLCs as the successor general partners of
the McNeil Partnerships and the other transactions contemplated by this
Agreement and the other Transaction Documents.
(b) Prior to the Effective Time, the Company shall have taken all necessary
action to permit the issuance of the Company Interests required to be issued to
the Contributing Partners pursuant to Sections 1.1 and 1.4 hereof. The issuance
and delivery by the Company of such Company Interests shall be, prior to any of
the contributions described in Section 2.3(a) hereof, duly and validly
authorized by all necessary action on the part of the Company. Such Company
Interests, when issued to the Contributing Partners in accordance with the
terms of this Agreement and the LLC Agreement, shall have been duly authorized
and shall be validly issued, fully paid and nonassessable and not subject to
any Liens or any rights or restrictions other than such rights and restrictions
with respect to such Company Interests as set forth in the LLC Agreement, the
Indemnification Agreement or the DLLCA.
(c) The execution, delivery and performance by the Company of this Agreement
and the other Transaction Documents to which it is a party do not, and the
consummation by the Company of the transactions contemplated by this Agreement
and the other Transaction Documents to which it is a party and compliance by
the Company with the provisions of this Agreement and the other Transaction
Documents to which it is a party shall not, conflict with, or result in any
violation of, or default (with or without notice or lapse of time, or both)
under, or give rise to a right of termination, cancellation or acceleration of
any obligation or to loss of a benefit under, or any other change in rights or
obligations of any party under (including the right to amend or modify or
refuse to perform or comply with), or result in the creation of any Lien upon
any of the properties or assets of the Managing Member, the Company or any of
its subsidiaries under (i) the certificate of formation, operating agreement or
other organizational documents of the Company or the Managing Member, the
charter, bylaws or other organizational documents of any such subsidiary which
is a corporation or the partnership agreement, certificate of partnership, or
limited partnership agreement, certificate of limited partnership or other
organizational documents or operating or similar agreements (as the case may
be) of any such subsidiary which is an entity other than a corporation, each as
amended or supplemented to the date of this Agreement, (ii) any loan or credit
agreement, note, bond, mortgage, indenture, lease or other material agreement
or other obligation, applicable to the Managing Member, the Company or to any
of its subsidiaries or to their respective properties or assets, or (iii)
subject to the governmental filings and other matters referred to in Section
5.3(d) hereof, any Laws applicable to the Managing Member, the Company or to
any of its subsidiaries or to their respective properties or assets, other
than, in the case of clause (ii) or (iii) above, any such conflicts,
violations, defaults, rights, losses or Liens that, individually or in the
aggregate, would not prevent the consummation of the transactions contemplated
by this Agreement and the other Transaction Documents to which the Company, any
Company LLC or any Transitory Partnership is a party.
(d) No consent, approval, order or authorization of, or filing with any
Governmental Entity or third party is required by or with respect to the
Managing Member, the Company or any of the Company's affiliates or subsidiaries
in connection with the execution and delivery of this Agreement or the other
Transaction
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Documents or the consummation by the Company of the transactions contemplated
by this Agreement and the other Transaction Documents, except for (i) the
acceptance for record of the Merger Certificate and any other documents
required by the Governing Law applicable to each Participating McNeil
Partnership and its respective Transitory Partnership, by the Secretary of
State of the state of formation of such Participating McNeil Partnership and
such Transitory Partnership or (ii) such other consents, approvals, orders or
authorizations of, or filings with, any Governmental Entity or third party
which, if not obtained or made, would not prevent the consummation of the
transactions contemplated by this Agreement and the other Transaction Documents
to which the Company, any Company LLC or any Transitory Partnership is a party.
(e) For purposes of determining compliance with the HSR Act only, the
Company confirms that the conduct of its business and the business of its
subsidiaries consists solely of investing in, owning, developing, managing and
operating real estate, directly or through one or more subsidiaries, for the
benefit of its stockholders or members, as the case may be.
Section 5.4 Compliance with Laws. None of the Managing Member, the Company
nor any of the Company's subsidiaries is violating or failing to comply with,
or has violated or failed to comply with, any Law of any Governmental Entity
applicable to its business, properties or operations, except to the extent that
such violation or failure to comply, individually or in the aggregate, would
not prevent the consummation of the transactions contemplated by this Agreement
and the other Transaction Documents to which the Company, any Company LLC or
any Transitory Partnership is a party. No investigation or review by any
Governmental Entity with respect to the Managing Member, the Company or any
subsidiary of the Company is pending or, to the Knowledge of the Company,
threatened, nor has any Governmental Entity indicated an intention to conduct
the same, except for those the outcome of which would not, individually or in
the aggregate, prevent the consummation of the transactions contemplated by
this Agreement and the other Transaction Documents to which the Company, any
Company LLC or any Transitory Partnership is a party. To the Knowledge of the
Company, no material change is required in the processes, properties or
procedures of the Managing Member, the Company or any subsidiary of the Company
in connection with any such Laws, and neither the Managing Member, the Company
nor any subsidiary of the Company has received any written notice or
communication of any material noncompliance with any such Laws that has not
been cured. Each of the Managing Member, the Company and each of the
subsidiaries of the Company has all permits, licenses, trademarks, trade names,
copyrights, service marks, franchises, variances, exemptions, orders and other
authorizations, consents and approvals from Governmental Entities necessary to
conduct its business as presently conducted except those the absence of which
would not, individually or in the aggregate, prevent the consummation of the
transactions contemplated by this Agreement and the other Transaction Documents
to which the Company, any Company LLC or any Transitory Partnership is a party.
Section 5.5 Litigation. (i) There is no suit, action or proceeding pending
in which service of process has been received by or, to the Knowledge of the
Company, threatened against or affecting, the Managing Member, the Company or
any subsidiary of the Company that, individually or in the aggregate, would
prevent the consummation of the transactions contemplated by this Agreement and
the other Transaction Documents to which the Company, any Company LLC or any
Transitory Partnership is a party, and (ii) there is no judgment, decree, rule
or order of any Governmental Entity or arbitrator outstanding against the
Managing Member, the Company or any subsidiary of the Company as of the date of
this Agreement which would prevent the consummation of the transactions
contemplated by this Agreement and the other Transaction Documents to which the
Company, any Company LLC or any Transitory Partnership is a party.
Section 5.6 Brokers. Neither the Managing Member, the Company nor any
affiliate or subsidiary of the Company has entered into any agreement with any
broker, investment banker, financial advisor or other person which would
require the Company or Sellers, individually or in the aggregate, to pay any
broker's, finder's, financial advisor's, valuation or other similar fee or
commission in connection with the transactions contemplated by this Agreement
or the other Transaction Documents.
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Section 5.7 Investment Company Act of 1940. Neither the Managing Member, the
Company nor any subsidiary of the Company is, or at the Effective Time will be,
required to be registered under the 1940 Act.
Section 5.8 Financing. The Company has entered into a written commitment
letter for financing from Whitehall (the "Commitment Letter"), and Sellers have
received a written guarantee of the Company's obligations under this Agreement
from Whitehall (the "Guarantee"). Regardless of whether or not the transactions
contemplated by the Commitment Letter are consummated or the obligations under
the Guarantee are performed, immediately prior to the Effective Time, the
Company will have sufficient funds to consummate the transactions contemplated
to occur at or after the Effective Time by this Agreement and the other
Transaction Documents. A true, correct and complete copy of the Commitment
Letter and the Guarantee have been delivered to Sellers prior to the date
hereof. The Commitment Letter and the Guarantee are, and have been at all times
since entered into, in full force and effect and have not been withdrawn or
amended or breached by any party thereto. Notwithstanding anything to the
contrary in this Agreement or the other Transaction Documents or the Commitment
Letter or the Guarantee (in each case, whether express or implied), the Company
acknowledges and agrees that its obligation to effect the transactions
contemplated by this Agreement and the other Transaction Documents is not
subject to the availability to Whitehall, the Managing Member, the Company or
any of their respective affiliates or subsidiaries (including affiliates and
subsidiaries both prior to and following the Effective Time) of any debt or
equity or other financing in any amount whatsoever. The parties hereto
acknowledge and agree that nothing in this Section 5.8 shall affect the
condition to Closing set forth in Section 8.2(d)(i) hereof.
ARTICLE VI
Conduct of Business Pending Merger
Section 6.1 Conduct of Business of Sellers Prior to the Effective
Time. Prior to the Effective Time, except as consented to in writing by the
Company (which consent shall not be unreasonably withheld or delayed), except
as expressly provided for in this Agreement or the other Transaction Documents,
and except as set forth in Schedule 6.1 of the Seller Disclosure Letter, each
Seller covenants that it shall, and shall cause each of its respective Seller
Subsidiaries to:
(a) conduct its business only in the ordinary course and in
substantially the same manner as conducted prior to the date of this
Agreement (including diligent performance of their landlord obligations);
(b) preserve intact its business organizations and goodwill and use its
reasonable efforts to keep available the services of its officers and
employees;
(c) confer on a regular basis with one or more representatives of the
Company to report on material operational matters (it being understood that
all such conversations and exchange of documents (if any) shall be subject
to the Confidentiality Agreement);
(d) promptly notify the Company of any material emergency or other
material change in the condition (financial or otherwise), of its business,
properties, assets, liabilities or the normal course of its businesses or
in the operation of its properties, or of any material governmental
complaints, investigations or hearings (including any fire or casualty
losses or receipt of any written violation notices);
(e) maintain its books and records in accordance with GAAP applied
consistently with past practice and not change in any material manner any
of its methods, principles or practices of accounting in effect at the
Audit Date, except as may be (or may have been) required by applicable law
or GAAP;
(f) duly and timely file all reports, tax returns and other documents
required to be filed with federal, state, local and other authorities,
under the Code and maintain existing insurance coverage;
(g) not make or rescind any express or deemed election relating to
Taxes;
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(h) not amend its certificate of incorporation, bylaws, certificate of
limited partnership, limited partnership agreement, certificate of
partnership, partnership agreement or similar organizational documents, as
the case may be, except to cure any ambiguity, to correct or supplement any
provision therein which may be inconsistent with any other provision
therein, or with law, or as may otherwise be required in connection with
the filing of the Proxy Statements and the review of the Proxy Statements
by the SEC;
(i) not make any change in the number of its shares of capital stock or
units of partnership interest issued and outstanding, other than with
respect to units of partnership interest abandoned by a limited partner and
cancelled by the partnership; provided, however, that nothing contained in
this paragraph (i) shall prevent MREF XXVII from repurchasing units of its
LP Interests in accordance with its limited partnership agreement in effect
on the date hereof;
(j) not grant any options or other right or commitment relating to the
issuance of its shares of capital stock or units of partnership interest or
any security convertible into its shares of capital stock or units of
partnership interest, or any security the value of which is measured by its
shares of capital stock or units of partnership interest or any security
subordinated to the claim of its general creditors;
(k) not (i) authorize, declare, set aside or pay any non-cash dividend
or make any other non-cash distribution or payment with respect to any of
its shares of capital stock or units of partnership interest, (ii) directly
or indirectly redeem, purchase or otherwise acquire any of its shares of
capital stock or units of partnership interest or any option, warrant or
right to acquire, or security convertible into, its shares of capital stock
or units of partnership interest, other than units of partnership interest
abandoned by a limited partner and cancelled by the partnership or (iii)
make any payment to McREMI or MPLP in respect of any Pre-Allocation
Upstream Payable; provided, however, that nothing contained in this
paragraph (k): (1) shall prevent any Seller or any Seller Subsidiary from
making or receiving cash distributions, cash dividends or cash payments
(including, without limitation, Post-Allocation Upstream Payables); or (2)
shall prevent MREF XXVII from repurchasing units of its LP Interests in
accordance with its limited partnership agreement in effect on the date
hereof;
(l) not sell, lease, or amend any existing lease (other than Residential
Leases on lease forms previously approved by the Company and in conformance
with rental guidelines previously approved by the Company), or grant any
easement, right of way, declaration, restriction, mortgage, encumber,
subject to any Lien or otherwise dispose of any of its real properties;
provided, however, that following a request by Sellers to enter into a new
Commercial Lease or to renew an existing Commercial Lease, the Company
shall be required to notify Sellers in writing as to whether or not the
Company consents to such new Commercial Lease or such renewal within five
(5) business days after Sellers' request therefor; provided further,
however, that nothing contained in this paragraph (l) shall prevent any
Seller or any Seller Subsidiary from replacing existing mortgage debt on
any of its properties (whether real, personal or intangible) prior to the
Stanger Determination Date, without the consent of the Company, so long as
such replacement debt is prepayable at any time without penalty, premium,
exit fees or similar charges and has terms substantially similar to those
of mortgage debt incurred by any Seller or any Seller Subsidiary in the
ordinary course of business and does not contain any participating or
contingent interest features;
(m) not sell, lease, mortgage, subject to any Lien or otherwise dispose
of any of its personal property or intangible property, except in the
ordinary course of business or unless such property is replaced with equal
quality items;
(n) not make any loans, advances or capital contributions to, or
investments in, any other person, other than in the ordinary course of
business and other than with respect to Post-Allocation Upstream Payables;
provided, however, that nothing contained in this paragraph (n) shall
prevent any Seller or any Seller Subsidiary from replacing existing
mortgage debt on any of its properties (whether real, personal or
intangible) prior to the Stanger Determination Date, without the consent of
the Company, so long as such replacement debt is prepayable any time
without penalty, premium, exit fees or similar charges and has terms
substantially similar to those of mortgage debt incurred by any Seller or
any Seller Subsidiary in the ordinary course of business and does not
contain any participating or contingent interest features;
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(o) not pay, discharge or satisfy any claims, liabilities or obligations
(absolute, accrued, asserted or unasserted, contingent or otherwise), other
than the payment, discharge or satisfaction (i) of all transaction costs in
connection with the transactions contemplated by this Agreement and the
other Transaction Documents, (ii) of claims, liabilities and obligations in
the ordinary course of business consistent with past practice, (iii) in
accordance with their terms, of claims, liabilities and obligations
reflected or reserved against in, or contemplated by, the Seller Statements
(or the notes thereto) included in the Seller SEC Documents filed prior to
the date hereof or in the Seller Statements (or the notes thereto) made
available to the Company prior to the date hereof or in the Subsidiary
Financial Statements (or the notes thereto); (iv) of suits, actions or
proceedings not subject to Section 6.1(v) hereof in the ordinary course of
business; and (v) of Post-Allocation Upstream Payables;
(p) not guarantee the indebtedness of another person, enter into any
"keep well" or other agreement to maintain any financial statement
condition of another person or enter into any arrangement having the
economic effect of any of the foregoing;
(q) except for regular year-end bonuses consistent with past practice,
except for budgeted salary increases and except for increases in salary in
the ordinary course consistent with past practice, not increase any
compensation or enter into or amend any employment agreement with any of
its officers, directors or employees earning more than seventy thousand
dollars ($70,000) per annum, other than waivers by employees of benefits
under such agreements and other than any such increase in compensation,
agreement or amendment that would not result in any increased liability or
obligation upon the Company or any of the Participating McNeil Partnerships
or their subsidiaries after the Closing Date;
(r) not adopt any new employee benefit plan or amend any existing plans
or rights, except for changes which are required by law, except for changes
which are not in the aggregate more favorable to participants than
provisions presently in effect, and except for changes which would not
result in any increased liability or obligation upon the Company or any of
the Participating McNeil Partnerships or their subsidiaries after the
Closing Date;
(s) not merge or consolidate with any person;
(t) in any transaction or series of related transactions involving
capital, securities, other assets (including cash) or indebtedness of such
Seller or its respective Seller Subsidiaries, not acquire or agree to
acquire by merging or consolidating with, or by purchasing all or any
portion of the equity securities or all or any assets of, or by any other
manner, any business or any person;
(u) not enter into any new or amend any existing leasing commission
agreements, service contracts or management agreements, and not enter into
any new or amend any existing agreement with any Governmental Entity
regarding any McNeil Partnership Property, other than, in either case, (1)
agreements entered into in the ordinary course of business which are
cancellable upon no greater than sixty (60) days' notice and (2) agreements
which are terminable upon the Closing without causing the Company or its
subsidiaries to incur fees and costs or creating any liabilities for the
Company or the Participating McNeil Partnerships or their subsidiaries
after the Closing Date;
(v) not settle or compromise any claim relating to the transactions
contemplated by this Agreement that is brought against any Seller by any
current, former or purported holder of any securities of any McNeil
Partnership without the prior written consent of the Company, which consent
shall not be unreasonably withheld or delayed, other than settlements or
compromises of such claim (i) which involve the making of a lump sum cash
payment as the only obligation of the applicable Sellers or Seller
Subsidiaries as a result of such settlements or compromises, (ii) which
irrevocably and unconditionally release the applicable Sellers, Seller
Subsidiaries, the Company and their affiliates in form consented to by the
Company (which consent shall not be unreasonably withheld or delayed) from
all claims brought, (iii) where any payment under clause (i) above is made
prior to the date of the Pre-Closing Balance Sheets or no payment is
required to be paid by any Participating McNeil Partnership or its Seller
Subsidiaries, and (iv) which do not involve any admission of wrongdoing on
the part of the applicable Participating McNeil Partnerships, their
respective Seller Subsidiaries or the Company;
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(w) not take any action which, at the time of the taking of such action,
such party knew or reasonably should have known would cause any
representation or warranty of Sellers set forth in Article IV hereof to
become untrue in any material respect;
(x) not increase the number of Property Employees or Corporate
Employees, in each case by more than 1% over the aggregate number of
employees projected in the most recent budget of McREMI; and
(y) not agree in writing or otherwise to not take any of the actions
described in paragraphs (a) through (f) of this Section 6.1 or not agree in
writing or otherwise to take any of the actions described in paragraphs (g)
through (x) of this Section 6.1.
Section 6.2 Conduct of Business of the Company, the Transitory Partnerships
and the Company LLCs Prior to the Effective Time. Prior to the Effective Time,
except as consented to in writing by MPLP on behalf of Sellers (which consent
shall not be unreasonably withheld or delayed) or except as expressly provided
for in this Agreement or the other Transaction Documents, the Company covenants
that it shall and, as applicable, shall cause the Managing Member and each of
the Company's subsidiaries to:
(a) not conduct any business whatsoever directly or indirectly through
the Company, the Transitory Partnerships or the Company LLCs;
(b) promptly notify Sellers of any material emergency or other material
change in the condition (financial or otherwise) of its assets or the
incurrence of any liabilities or any material emergency or other material
change (financial or otherwise) in Whitehall;
(c) duly and timely file all reports, tax returns and other documents
required to be filed with federal state, local and other authorities;
(d) not amend the limited partnership agreement, certificate of limited
partnership, operating agreement or other organizational documents of the
Company, the Managing Member, any of the Transitory Partnerships or any of
the Company LLCs;
(e) not make any change (including without limitation in the number
thereof) in any membership or other equity interests in the Company, the
Managing Member, any of the Transitory Partnerships or any of the Company
LLCs, in each case, issued or outstanding;
(f) not grant any options or other right or commitment relating to any
membership or other equity interests in the Company, the Managing Member,
any of the Transitory Partnerships or any of the Company LLCs or any
security convertible into any membership or other equity interests in the
Company, the Managing Member, any of the Transitory Partnerships or any of
the Company LLCs, or any security the value of which is measured by any
membership or other equity interests in the Company, the Managing Member,
any of the Transitory Partnerships or any of the Company LLCs or any
security subordinated to the claim of its general creditors; provided,
however, that nothing contained in this paragraph (f) shall prevent the
formation of the Sub LLC and the issuance of the Preferred Equity Financing
(the parties hereto acknowledge and agree that nothing in this Section
6.2(f) shall affect or be deemed to amend or modify any provision of this
Agreement, including Sections 5.8, 8.1, 8.2 and 8.3 hereof);
(g) (i) not authorize, declare, set aside or pay any dividend or make
any other distribution or payment with respect to any membership or other
equity interests in the Company, the Managing Member, any of the Transitory
Partnerships or any of the Company LLCs and (ii) not directly or indirectly
redeem, purchase or otherwise acquire any membership or other equity
interests in the Company, the Managing Member, any of the Transitory
Partnerships or any of the Company LLCs or any option, warrant or right to
acquire, or security convertible into, membership or other equity interests
in the Company, the Managing Member, any of the Transitory Partnerships or
any of the Company LLCs;
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(h) not permit the Company, the Managing Member, any of the Transitory
Partnerships or any of the Company LLCs to make any loans, advances or
capital contributions to, or investments in, any other person; provided,
however, that nothing contained in this paragraph (h) shall prevent the
formation of the Sub LLC and the issuance of the Preferred Equity Financing
(the parties hereto acknowledge and agree that nothing in this Section
6.2(h) shall affect or be deemed to amend or modify any provision of this
Agreement, including Sections 5.8, 8.1, 8.2 and 8.3 hereof);
(i) not permit the Company, the Managing Member, any of the Transitory
Partnerships or any of the Company LLCs to incur any claims, liabilities or
obligations (absolute, accrued, asserted or unasserted, contingent or
otherwise) of any kind or nature whatsoever (other than claims, liabilities
and obligations against any such person for breaches of this Agreement or
any other agreements to which any such person is a party and other than the
Preferred Equity Financing and other financing that the Company or its
subsidiaries may enter into to effect the transactions contemplated by this
Agreement) (the parties hereto acknowledge and agree that nothing in this
Section 6.2(i) shall affect or be deemed to amend or modify any provision
of this Agreement, including Sections 5.8, 8.1, 8.2 and 8.3 hereof);
(j) not permit the Company, the Managing Member, any of the Transitory
Partnerships or any of the Company LLCs to issue or sell any equity
interests, or grant, confer or award any options, warrants or rights of any
kind to acquire any equity interests, including securities convertible or
exchangeable for equity interests in one or more of the Company, the
Managing Member, any of the Transitory Partnerships or any of the Company
LLCs; provided, however, that nothing contained in this paragraph (j) shall
prevent the formation of the Sub LLC and the issuance of the Preferred
Equity Financing (the parties hereto acknowledge and agree that nothing in
this Section 6.2(j) shall affect or be deemed to amend or modify any
provision of this Agreement, including Sections 5.8, 8.1, 8.2 and 8.3
hereof);
(k) not permit the Company, the Managing Member, any of the Transitory
Partnerships or any of the Company LLCs to incur, guarantee the
indebtedness of another person, enter into any "keep well" or other
agreement to maintain any financial statement condition of another person
or enter into any arrangement having the economic effect of any of the
foregoing;
(l) not permit the Company, the Managing Member, any of the Transitory
Partnerships or any of the Company LLCs to merge or consolidate with any
person;
(m) not permit the Company, the Managing Member, any of the Transitory
Partnerships or any of the Company LLCs to sell, assign, convey, lease,
mortgage, pledge, transfer or otherwise dispose of any of its assets or
properties or adopt any plan of liquidation, dissolution or winding-up;
(n) not take any action which, at the time of the taking of such action,
such party knew or reasonably should have known would cause any
representation or warranty of the Company set forth in Article V hereof to
become untrue in any material respect; and
(o) not agree in writing or otherwise to not take any of the actions
described in paragraphs (b) and (c) of this Section 6.2 or not agree in
writing or otherwise to take any of the actions described in paragraph (a)
and paragraphs (d) through (n) of this Section 6.2.
Section 6.3 Reimbursable Proposals.
(a) During the period from the date hereof through to the Closing Date,
Sellers shall have the option of presenting to the Company one or more
proposals for capital expenditures, tenant inducements (e.g., free rent, other
cash-equivalent inducements, and out-of-pocket inducements) or commissions,
specifying the budgeted amounts therefor, that one or more McNeil Partnerships
are contemplating in connection with one or more new Commercial Leases or the
lease of additional space to an existing Commercial Tenant (each such capital
expenditure, tenant inducement or commission proposal, a "Reimbursable
Proposal"). In addition, the parties hereto acknowledge that on or prior to the
date of this Agreement, Sellers have presented to the Company, and the Company
has approved, the Reimbursable Proposals and the budgeted amounts therefor
listed on Schedule 6.3 of the Seller Disclosure Letter.
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(b) To the extent any one or more Reimbursable Proposals with respect to any
Participating McNeil Partnership have been approved by the Company on or prior
to the date hereof or are approved by the Company (which approval shall not be
unreasonably withheld or delayed) subsequent to the date hereof, the Company
shall make a cash contribution to such Participating McNeil Partnership, prior
to the distributions contemplated by Section 2.4(c) hereof, in an amount equal
to the Capital Expenditure Reimbursement for such Participating McNeil
Partnership which shall be taken into consideration in the determination of the
Excess Cash Balance of such Participating McNeil Partnership in accordance with
the Excess Cash Balance Schedule for such Participating McNeil Partnership.
(c) For purposes of this Agreement, the following terms shall have the
following meanings:
(i) "Capital Expenditure Reimbursement" means, for any McNeil
Partnership, the sum of the Capital Expenditure Reimbursement Amounts for
each Reimbursable Proposal for such McNeil Partnership.
(ii) "Capital Expenditure Reimbursement Amount" means, for each
Reimbursable Proposal, an amount equal to the product determined by
multiplying (A) the Reimbursable Proposal Amount for such Reimbursable
Proposal by (B) a fraction (in no event shall such fraction be greater than
one (1)), the numerator of which is the number of months (including any
fraction thereof) in the period beginning on the estimated Closing Date and
ending on the last day of the initial term of the applicable Commercial
Lease and the denominator of which is the aggregate number of months in the
initial term of the applicable Commercial Lease.
(iii) "Completed Amount" means, for any Reimbursable Proposal, an amount
equal to the aggregate amount expended or incurred through to the estimated
Closing Date in connection with such Reimbursable Proposal.
(iv) "Reimbursable Proposal Amount" means, for any Reimbursable
Proposal, an amount equal to the lesser of (1) the Completed Amount and (2)
the total budgeted amounts for such Reimbursable Proposal; provided,
however, that for any Reimbursable Proposal which will be uncompleted as of
the estimated Closing Date, the "Reimbursable Proposal Amount" for such
Reimbursable Proposal shall be an amount equal to the difference determined
by subtracting (x) the Underbudgeted Amount (if any) for such Reimbursable
Proposal from (y) the Completed Amount for such Reimbursable Proposal.
(v) "Underbudgeted Amount" means, for any Reimbursable Proposal, the
excess (if any) of (1) the sum of (A) the Completed Amount and (B) the
estimated additional amount (which is reasonably and in good faith jointly
determined by the Company and MPLP) required to be expended or incurred
following the estimated Closing Date to complete such Reimbursable Proposal
over (2) the total budgeted amounts for such Reimbursable Proposal.
ARTICLE VII
Additional Covenants
Section 7.1 Preparation of the Proxy Statement; Recommendation of Mergers.
(a) With respect to each Merging Partnership, Sellers shall prepare (and, in
the case of each of the Public McNeil Partnerships, file with the SEC) as soon
as practicable after the date of this Agreement, but in any event not later
than August 31, 1999, which date may be extended by Sellers (subject to
approval of the Company, which shall not be unreasonably withheld or delayed)
or by the Company, a proxy statement with respect to the McNeil Limited Partner
Meeting of such Merging Partnership to approve the Merger in respect of such
Merging Partnership, the MPLP Contributions with respect to such Merging
Partnership, the appointment of the applicable New GP LLC as the successor
general partner of such Merging Partnership and the other transactions
contemplated by this Agreement (each, a "Proxy Statement"). If required by law,
Sellers and any person that may be deemed to be an affiliate of any Public
McNeil Partnership shall prepare and file concurrently with the filing of the
Proxy Statement for such Public McNeil Partnership a Statement on
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Schedule 13E-3 (each, a "Schedule 13E-3") with the SEC with respect to such
Public McNeil Partnership. The Company shall, upon request by Sellers, furnish
Sellers with such information concerning itself, the Managing Member and
Whitehall as may be required by law or by any Governmental Entity in connection
with any Proxy Statement, any Schedule 13E-3 or any other statement, filing,
notice or application made by or on behalf of the Company to any third party or
any Governmental Entity or both in connection with the Mergers, the MPLP
Contributions, the appointments of the applicable New GP LLCs as the successor
general partners of the McNeil Partnerships and the other transactions
contemplated by this Agreement. Sellers shall use their reasonable best efforts
to (i) promptly respond to any comments of the SEC and (ii) cause the
respective Proxy Statements to be mailed to the limited partners of the
respective Merging Partnerships as promptly as practicable after the date of
this Agreement. Sellers shall notify the Company promptly of the receipt of any
comments from the SEC and of any request by the SEC for amendments or
supplements to any Proxy Statement or any Schedule 13E-3 or for additional
information and shall supply the Company with copies of all correspondence
between Sellers or any of their representatives, on the one hand, and the SEC,
on the other hand, with respect to any Proxy Statement or any Schedule 13E-3.
The Proxy Statements for the Public McNeil Partnerships and the Schedule 13E-3s
shall comply in all material respects with all applicable requirements of law
and the rules and regulations of the SEC. Whenever any event occurs which is
required to be set forth in an amendment or supplement to any Proxy Statement,
Sellers and the Company each shall promptly inform the other of such
occurrences and Sellers shall prepare (and, in the case of the Public McNeil
Partnerships, file with the SEC) and mail to the limited partners of the
applicable Merging Partnership such amendment or supplement to such Proxy
Statement. Whenever any event occurs which is required to be set forth in an
amendment or supplement to any Schedule 13E-3, Sellers shall promptly inform
the Company of such occurrence, and Sellers and the affiliates of the
applicable Public McNeil Partnership shall file such amendment or supplement.
The Proxy Statements (at the respective dates thereof and at the dates of the
respective McNeil Limited Partner Meetings) and Schedule 13E-3s (at the
respective dates thereof) will not include an untrue statement of a material
fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading; provided, however, that the foregoing
shall not apply to the extent that any such untrue statement of a material fact
or omission to state a material fact was made by Sellers in reliance upon and
in conformity with information concerning the Company or any affiliates of the
Company or concerning the Transitory Partnerships or the Company LLCs furnished
to Sellers in writing by the Company specifically for use in any such Proxy
Statements or Schedule 13E-3s.
(b) Each Merging Partnership shall, as soon as practicable following the
date of this Agreement, subject to the time periods set forth in its
organizational documents and in applicable laws, duly call, give notice of,
convene and hold a meeting of its limited partners (a "McNeil Limited Partner
Meeting") to be held at the earliest practicable date following the date the
applicable Proxy Statement is mailed to its limited partners for the purpose of
obtaining requisite approval by its limited partners of the Merger in respect
of such Merging Partnership, the MPLP Contributions with respect to such
Merging Partnership, the appointment of the applicable New GP LLC as the
general partner of such Merging Partnership and the other transactions
contemplated by this Agreement. Unless otherwise prohibited by law, each
Merging Partnership and its general partner shall be required to hold the
McNeil Limited Partner Meeting with respect to such Merging Partnership,
regardless of whether the general partner of such Merging Partnership has
withdrawn, amended or modified its recommendation that the limited partners of
such Merging Partnership approve the Merger in respect of such Merging
Partnership, the MPLP Contributions with respect to such Merging Partnership,
the appointment of the applicable New GP LLC as the general partner of such
Merging Partnership and the other transactions contemplated by this Agreement,
unless this Agreement has been terminated in respect of such Merging
Partnership pursuant to the provisions of Section 9.3 hereof. The general
partner of each of the Merging Partnerships shall recommend to the limited
partners of such Merging Partnership approval of the Merger in respect of such
Merging Partnership, the MPLP Contributions with respect to such Merging
Partnership, the appointment of the applicable New GP LLC as the successor
general partner of such Merging Partnership and the other transactions
contemplated by this Agreement; provided, however, that prior to the McNeil
Limited Partner Meeting for such Merging Partnership (or any adjournment
thereof), the recommendation of the general
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partner of such Merging Partnership may be withdrawn, modified or amended as a
result of the commencement or receipt of a proposal constituting a Superior
Acquisition Proposal with respect to such Merging Partnership, but only to the
extent expressly permitted under Section 7.2 hereof.
(c) If on the date of the McNeil Limited Partner Meeting for a Merging
Partnership, such Merging Partnership has not received duly executed proxies
which, when added to the number of votes represented in person at the meeting
by persons who intend to vote to adopt this Agreement, will constitute a
sufficient number of votes to adopt this Agreement (and limited partners
holding greater than a majority of the outstanding LP Interests in such Merging
Partnership have not indicated their intention to vote against, and have not
submitted duly executed proxies voting against, the adoption of this
Agreement), then such Merging Partnership and its general partner shall
recommend the adjournment of its McNeil Limited Partner Meeting until the date
ten (10) days after the originally scheduled date of such McNeil Limited
Partner Meeting.
Section 7.2 Acquisition Proposals. Prior to the Effective Time, each Seller
agrees that:
(a) it shall not, directly or indirectly, through any of its officers,
directors, employees or agents or representatives (including any investment
banker, attorney or accountant) retained by it, and it shall not authorize or
permit its officers, directors, employees or agents or representatives
(including any investment banker, attorney or accountant) retained by it to,
initiate, solicit or encourage any inquiries or the making or implementation of
any Acquisition Proposal or engage in any negotiations concerning or provide
any confidential information or data to, or have any discussions with, any
person relating to an Acquisition Proposal, or otherwise facilitate any efforts
to attempt to make or implement an Acquisition Proposal;
(b) it shall immediately cease and cause to be terminated any existing
activities, discussions or negotiations with any parties conducted heretofore
with respect to any Acquisition Proposal and shall take the necessary steps to
inform its officers, directors, employees or agents or representatives
(including any investment banker, attorney or accountant) retained by it of the
obligations undertaken in this Section 7.2; and
(c) it shall notify the Company immediately if it receives any such
inquiries or proposals, or any requests for such information, or if any such
negotiations or discussions are sought to be initiated or continued with it;
provided, however, that nothing contained in this Section 7.2: (i) shall
prohibit the general partner of any McNeil Partnership from furnishing
information to or entering into discussions or negotiations with, any person
that makes an unsolicited Acquisition Proposal for such McNeil Partnership, if,
and only to the extent that, (A) such general partner determines in good faith
that such unsolicited Acquisition Proposal could result in a Superior
Acquisition Proposal and that such action is required for such general partner
to comply with its duties to its limited partners imposed by law, (B) prior to
furnishing such information to, or entering into discussions or negotiations
with, such person, such general partner provides written notice to the Company
to the effect that it is furnishing information to, or entering into
discussions with, such person and (C) (1) subject to clause (2) below, such
general partner keeps the Company informed of the status (not the terms) of any
such discussions or negotiations and (2) such general partner complies with the
last sentence of Section 9.3(b) hereof; or (ii) to the extent applicable, shall
prohibit the general partner of any McNeil Partnership from taking and
disclosing to the limited partners of such McNeil Partnership a position, with
respect to such McNeil Partnership, contemplated by Rules 14d-9 and 14e-2 under
the Exchange Act with regard to an Acquisition Proposal for such McNeil
Partnership; provided further, however, that the general partner of any McNeil
Partnership may approve and recommend a Superior Acquisition Proposal and, in
connection therewith, withdraw or modify its approval or recommendation of this
Agreement, the Merger in respect of such McNeil Partnership, the MPLP
Contributions with respect to such McNeil Partnership, the appointment of the
applicable New GP LLC as the successor general partner of such McNeil
Partnership and the other transactions contemplated by this Agreement, prior to
the approval by the holders of LP Interests of such McNeil Partnership of this
Agreement, the Merger in respect of such McNeil Partnership, the MPLP
Contributions with respect to such McNeil Partnership, the appointment of the
applicable New GP LLC as the successor general partner of such McNeil
Partnerships and the other transactions contemplated by this Agreement at the
McNeil Limited Partner Meeting (or any adjournment thereof) of such McNeil
Partnership. Any disclosure that the general partner of any
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McNeil Partnership may be compelled to make with respect to the receipt of an
Acquisition Proposal for such McNeil Partnership in order to comply with its
duties to its limited partners or that the general partner of any McNeil
Partnership may be compelled to make in order to comply with Rule 14d-9 or 14e-
2, shall not constitute a violation of this Section 7.2, provided that such
disclosure states that no action shall be taken by such general partner with
respect to the withdrawal of its recommendation of the transactions
contemplated hereby or the approval or recommendation of any Acquisition
Proposal except in accordance with this Section 7.2.
Section 7.3 Access to Information; Confidentiality.
(a) Subject to the requirements of confidentiality agreements entered into
with third parties and subject to all other legal limitations (including
attorney-client and work product privileges, confidentiality, antitrust and
fair trade limitations), Sellers shall (and shall cause their respective Seller
Subsidiaries to) afford to the Company and to the officers, employees,
accountants, counsel, financial advisors and other representatives of the
Company, reasonable access during normal business hours prior to the Effective
Time to such Sellers' and such Seller Subsidiaries' respective properties,
books, contracts, commitments, personnel and records, and Sellers shall (and
shall cause their respective Seller Subsidiaries to) promptly make available to
the Company or its representatives all information concerning such Sellers' and
such Seller Subsidiaries' respective business, properties and personnel as the
Company or its representatives may reasonably request; provided, however, that
no investigation pursuant to this Section 7.3 shall affect or be deemed to
modify any representation or warranty made by Sellers.
(b) Following the date of this Agreement and until and including the Closing
Date, Sellers will prepare in accordance with GAAP applied consistently with
past practice and make available to the Company (i) within forty-five (45) days
following the end of any fiscal quarter, a copy of the unaudited quarterly
balance sheet and related unaudited statements of operations and cash flows for
such quarter for each Private McNeil Partnership that is a Participating McNeil
Partnership at such time and (ii) within fifteen (15) days following the end of
each fiscal month, a copy of the unaudited monthly balance sheet and related
unaudited statements of operations and cash flows for such month for each
Participating McNeil Partnership and a Preliminary Excess Cash Balance Schedule
for each such Participating McNeil Partnership. Sellers and the Company will
use their best efforts to respond to any inquiries any such party may have
concerning such quarterly and monthly financial statements and monthly
Preliminary Excess Cash Balance Schedules. No such discussion or failure to
raise issues shall become final and binding upon any party hereto except
pursuant to Section 2.4(b) hereof.
(c) The Company shall, and shall cause its subsidiaries and affiliates to,
and shall cause each of their officers, employees, accountants, counsel,
financial advisors and other representatives to, hold any nonpublic information
relating to Sellers or the Seller Subsidiaries or any of their respective
businesses or properties in confidence to the extent required by, and in
accordance with, the provisions of the letter agreement dated as of March 25,
1999 among Whitehall, MPLP and McREMI (the "Confidentiality Agreement"),
regardless of whether such information was disclosed pursuant to this Section
7.3 or any other provision of this Agreement.
Section 7.4 Reasonable Best Efforts; Notification.
(a) Subject to the terms and conditions provided in this Agreement, Sellers,
on the one hand, and the Company, on the other hand, shall use their respective
reasonable best efforts: (i) to cooperate with one another in (A) determining
which consents, approvals, orders or authorizations of, or filings with, any
Governmental Entities are required to be obtained or made prior to the
Effective Time in connection with the execution and delivery of this Agreement
and the other Transaction Documents, and the consummation of the transactions
contemplated hereby and thereby, and (B) timely making all such filings and
timely seeking all such consents, approvals, orders or authorizations; (ii)
subject to Section 7.8 hereof, without the payment of any consideration
therefor (except as expressly contemplated by this Agreement) and without
compromising their respective rights and without incurring additional
liabilities or obligations, to obtain in writing any consents, approvals,
orders or authorizations required from non-governmental third parties to
effectuate the Mergers, the MPLP Contributions, the appointments of the
applicable New GP LLCs as the successor general partners of the
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McNeil Partnerships and the other transactions contemplated by this Agreement
and the other Transaction Documents, such consents, approvals, orders or
authorizations to be in form reasonably satisfactory to Sellers and the Company
(it being acknowledged and agreed that nothing in this Section 7.4(a)(ii) shall
affect or be deemed to amend or modify any provision of this Agreement,
including Sections 5.8, 8.1, 8.2 and 8.3 hereof); and (iii) without the payment
of any consideration therefor and without compromising their respective rights
and without incurring additional liabilities or obligations, to take, or cause
to be taken, all other action and do, or cause to be done, all other things
necessary, proper or appropriate to consummate and make effective the
transactions contemplated by this Agreement and the other Transaction Documents
(it being acknowledged and agreed that nothing in this Section 7.4(a)(iii)
shall affect or be deemed to amend or modify any provision of this Agreement,
including Sections 5.8, 8.1, 8.2 and 8.3 hereof).
(b) If at any time after the Effective Time any further action is necessary
or desirable to carry out the purpose of this Agreement, without the payment of
any consideration therefor and without compromising their respective rights and
without incurring additional liabilities or obligations, each Seller and the
Company shall, and each shall cause its respective affiliates and subsidiaries
to, take all such necessary action. Without the payment of any consideration
therefor and without compromising their respective rights and without incurring
additional liabilities or obligations, Sellers shall use their reasonable
efforts to cooperate with the Company in assisting the Company in its efforts
to correct or satisfy the items set forth on Schedule A to the Seller's Task
List. The Company shall indemnify and hold Sellers harmless for any and all
losses or damages (including reasonable attorneys' fees) that Sellers may
suffer in connection with such cooperative efforts.
(c) Promptly following the Effective Time, McREMI or MPLP shall file
Schedule K-1s with supporting documents (not including Form 15s) with respect
to the Participating McNeil Partnerships to reflect the change of status of
each Participating McNeil Partnership as a result of the transactions
contemplated hereby.
Section 7.5 Public Announcements.
(a) Sellers, on the one hand, and the Company, on the other hand, shall
consult with each other before the issuance by any of them or by any of their
affiliates, and shall provide each other the opportunity to review and comment
upon, any press release or other written public statements with respect to the
transactions contemplated by this Agreement and the other Transaction
Documents, and shall not, and shall cause their affiliates not to, issue any
such press release or make any such written public statement prior to such
consultation, except as may be required by applicable law, court process or by
obligations pursuant to any listing agreement with any national securities
exchange. The parties agree that the initial press release to be issued with
respect to the transactions contemplated by this Agreement and the other
Transaction Documents shall be in the form mutually agreed to by the parties to
this Agreement prior to the execution of this Agreement.
(b) Prior to the Closing, the Company shall not, and shall cause its
subsidiaries and affiliates not to, and shall cause each of their respective
partners, equity holders, members, officers, directors, managers, employees,
agents, accountants, counsel, financial advisors and other representatives not
to, publicly announce or disclose to any person (other than to senior
management of Sellers and, after notifying such lenders and prospective third
party property managers verbally of the confidential nature of such proposal or
intention, any existing or prospective lenders of the Company and any
prospective third party property managers for the Commercial Properties),
whether verbally or in writing, any proposal or intention to sell, transfer or
otherwise dispose of, in any manner (including by way of merger, consolidation,
exchange, business combination or any other transaction), directly or
indirectly, any of the McNeil Partnerships, Seller Subsidiaries, McNeil
Partnership Properties or assets of McREMI.
Section 7.6 Benefit Plans and Other Employee Arrangements.
(a)(i) Prior to the date of the mailing of the Proxy Statements for the
Participating McNeil Partnerships (the "Proxy Mailing Date"), the Company shall
provide a written list (the "Employment List") to Sellers of each employee of
Sellers or any Seller Subsidiary to whom, as of the Effective Time, the Company
shall cause
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Management LLC to offer employment (each such employee, a "Listed Employee")
provided that such employee is still an employee of McREMI as of the Effective
Time. The Listed Employees shall be comprised of two groups: one group shall be
comprised of Property Employees for Multifamily Properties and shall be
designated on the Employment List as the "Property Listed Employees" (the
"Property Listed Employees") and the other group shall be comprised of
Corporate Employees and shall be designated on the Employment List as the
"Corporate Listed Employees" (the "Corporate Listed Employees"). The Property
Listed Employees shall not constitute less than 75% of those employees of
McREMI who, as of the Proxy Mailing Date, were Property Employees for
Multifamily Properties with respect to the Participating McNeil Partnerships.
The Corporate Listed Employees shall not constitute less than the Threshold
Amount of those employees of McREMI, who, as of the Proxy Mailing Date, were
Corporate Employees. For purposes of this Agreement, the "Threshold Amount"
shall be an amount equal to the product determined by multiplying (A) the
number of Corporate Employees as of the Proxy Mailing Date by (B) 0.5 by (C) a
fraction, the numerator of which is the total number of McNeil Partnership
Properties of the Participating McNeil Partnerships and their Seller
Subsidiaries and the denominator of which is the total number of McNeil
Partnership Properties of the McNeil Partnerships and their Seller
Subsidiaries. The Company shall cause Management LLC to make such offers of
employment on terms and conditions that are considered reasonable and customary
in the real estate asset/property management industry as of the Closing Date,
taking into account the geographic location of the employee to whom such offer
of employment is being made. All such offers of employment may be made subject
to drug testing, criminal background checks and credit checks.
(ii) The Company shall cause Management LLC to continue the employment of
any Property Employee and any Corporate Employee who accepts such offer of
employment for a period ending on December 31st of the calendar year following
the calendar year in which the Closing occurs subject to termination for cause,
resignation, retirement, performance reasons or business reasons. For purposes
of this Agreement, any employee that accepts an offer of employment from the
Company (or a subsidiary or affiliate of the Company) as of the Closing Date
shall be referred to as an "Affected Employee."
(iii) In addition to continuing the workforce of McREMI in accordance with
this Section 7.6, the Company shall cause Management LLC, for a period ending
on December 31st of the calendar year following the calendar year in which the
Closing occurs to continue utilizing the McREMI Assets listed on Annex H hereto
to the extent those assets are transferred at Closing; provided, however, that,
to the extent the Company reasonably determines that the continued utilization
of a specific McREMI Asset is not supported by sound business practices,
Management LLC may cease utilization of such asset and, if the Company
reasonably determines that a substitution (which can be accomplished by way of
purchasing, licensing, or leasing such substituted asset from a third party or
an affiliate of the Company or developing such substituted asset in Management
LLC) of such asset would be sound business practice, substitute a more
appropriate asset in its stead; provided further, however, that if the Company
determines not to substitute an asset for a discontinued asset it will not
permit Management LLC to utilize an asset of Archon or its subsidiaries to
provide the underlying function of the discontinued asset. In the event that
Management LLC requires additional employees (because of any Affected
Employee's termination, resignation, death, or retirement), such additional
employees shall become employees of Management LLC.
(iv) Neither the Company (nor any subsidiary or affiliate of the Company)
shall have any obligation to continue the employment of any Affected Employee
that is not a Property Listed Employee or a Corporate Listed Employee for any
specified period of time following the Closing.
(b) At the Effective Time, McREMI shall terminate the employment of each
Affected Employee and shall cause the termination of employment of each other
employee of the Participating McNeil Partnerships and their respective Seller
Subsidiaries, and the employment of each Affected Employee by the Company,
Management LLC or their respective subsidiaries, as the case may be, shall
commence. The Company shall, or shall cause the appropriate subsidiary or
affiliate to, provide health, pension, retirement, disability and other
employee
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benefits to each Affected Employee on the same terms as, or on terms not less
favorable in the aggregate than, those provided to such Affected Employee
immediately prior to the Effective Time (such benefits, the "Buyer Plans").
Prior to the Effective Time, McREMI and each applicable Seller Subsidiary shall
cause the cancellation of all employment related agreements (including, without
limitation, all of the agreements listed on Schedule 4.11 of the Seller
Disclosure Letter) between it and any of its officers or directors and shall
pay all fees and costs related to such cancellation. Subject to the provisions
of this Section 7.6(b), the Company retains the right to amend or terminate any
of the Buyer Plans at any time.
(c) As of the Effective Time, Affected Employees shall cease to participate
in the McREMI Plans and shall commence participation or shall become eligible
to participate in all Buyer Plans maintained after the Effective Time in
accordance with the second sentence of Section 7.6(b) hereof. McREMI shall
retain responsibility for all McREMI Plan claims incurred by Affected Employees
prior to the Effective Time regardless of when such claim is reported or made.
For purposes of this Section 7.6(c), a claim shall be deemed to have been
incurred when the medical or other service giving rise to the claim is
performed, except that disability claims shall be deemed to have been incurred
on the date the Affected Employee becomes disabled.
(d) The Company shall, or shall cause its appropriate subsidiary or
affiliate to, give each Affected Employee full credit for up to five accrued
vacation days (in accordance with Item I of Note 18 to the applicable
Participating McNeil Partnership's Excess Cash Balance Schedule) and full
credit for purposes of eligibility, vesting, accruing subsequent vacation days
and determination of the level of benefits under each Buyer Plan (other than
incentive compensation plans) for such Affected Employee's service with McREMI
to the same extent recognized by such Seller or Seller Subsidiary immediately
prior to the Effective Time.
(e) The Company shall, or shall cause its appropriate subsidiary or
affiliate to, waive all limitations as to preexisting conditions exclusions and
waiting periods with respect to participation and coverage requirements
applicable to each Affected Employee under any Buyer Plan (except for
preexisting conditions with respect to life insurance coverage), other than
limitations or waiting periods that are already in effect with respect to such
Affected Employee and that have not been satisfied as of the Effective Time
under any McREMI Plan maintained for the Affected Employee immediately prior to
the Effective Time.
(f) Prior to the Effective Time, McREMI shall terminate any 401(k) Savings
Plan of McREMI (each, a "McREMI 401(k) Savings Plan"), and each employee who is
a participant in any such terminated McREMI 401(k) Savings Plan shall have the
right to elect to receive a distribution of all of such employee's account
balance in such McREMI 401(k) Savings Plan (subject to, and in accordance with,
the provisions of such McREMI 401(k) Savings Plan and applicable law). The
Company shall, or shall cause its appropriate subsidiary or Archon to, take any
and all necessary action (subject to, and in accordance with, the provisions of
the Buyer Plan and applicable law) to cause the trustee of a defined
contribution plan of the Company (or its subsidiaries or Archon), if requested
to do so by a distributee who is an Affected Employee, to accept the direct
"roll over" of all or a portion of any such distribution from any McREMI 401(k)
Savings Plan.
(g) Except as set forth in Section 7.6(h) hereof, McREMI shall be liable for
and be responsible for the administration of all claims, losses, damages and
expenses and other liabilities and obligations relating to or arising out of
all workers' compensation claims of Affected Employees pending as of the
Effective Time, or made after the Effective Time but relating to events
occurring prior to the Effective Time. The Company and its subsidiaries that
employ such Affected Employees shall be liable for and be responsible for the
administration of all claims, losses, damages and expenses and other
liabilities and obligations relating to or arising out of all workers'
compensation claims of Affected Employees made after the Effective Time and
relating to events occurring after the Effective Time.
(h) McREMI shall give or arrange for written notice to be provided to those
employees (and their spouses) of McREMI who are not deemed Affected Employees
(the "Terminated Employees") of their right to elect to pay continuation
coverage under Section 4980B of the Code ("COBRA") in accordance with
applicable
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law. With respect to continuation coverage under COBRA required to be provided
by McREMI, the Company shall, if requested by McREMI, be responsible following
the Effective Time for administering on behalf of McREMI (without cost to
McREMI) the provision of such coverage for (A) all former McREMI employees and
their present or former dependents covered under COBRA at the Effective Time
and (B) all Terminated Employees and their present or former dependents;
provided, however, that the Company shall not be responsible for any
liabilities associated with COBRA benefit claims (other than liabilities
associated with the failure by the Company to pay-over to the appropriate
insurers the insurance premiums collected from COBRA participants).
(i) Sellers shall, or shall cause their respective Seller Subsidiaries to,
take all necessary action to satisfy, or set aside sufficient funds to satisfy,
all Severance Obligations for the Terminated Employees on or prior to the
Closing Date.
Section 7.7 Ancillary Agreements.
(a) Immediately prior to the Effective Time, each party hereto shall, and
shall cause its affiliates to, execute and deliver each Ancillary Agreement to
which such party or such party's affiliate is a party.
(b) At the Closing, the Company shall, and the Company shall cause Archon
Group, L.P. ("Archon") to, execute and deliver the Portfolio Advisory
Agreement.
Section 7.8 Support Agreements; Financing.
(a) The Company shall, and shall cause the Company's subsidiaries to,
deliver at the Closing such agreements, instruments and other documents
(collectively, the "Replacement Support Agreements") as may be necessary to
assume all of Sellers' and their affiliates' (other than the Participating
McNeil Partnerships' and their subsidiaries') obligations as an indemnitor
under any and all Existing Support Agreements on terms no less favorable than
those under the Existing Support Agreements on the date hereof. The Company
shall use its reasonable efforts to ensure that the Replacement Support
Agreements shall contain provisions releasing Sellers and their pre-Closing
affiliates (other than the Participating McNeil Partnerships and their
subsidiaries) from all obligations thereunder. Without limiting the foregoing,
the Company hereby agrees to indemnify and hold harmless Sellers and their pre-
Closing affiliates (other than the Participating McNeil Partnerships and their
subsidiaries) from and against all obligations incurred under the Existing
Support Agreements from and after the Closing Date. MPLP, to the extent that
the obligations of MPLP or MII as an indemnitor under any Existing Support
Agreement are not discharged thereunder, agrees to indemnify and hold harmless
the Company from and against all obligations incurred by MPLP or MII as an
indemnitor under any such Existing Support Agreement prior to the Closing Date.
(b) Without the payment of any consideration therefor (other than as
expressly contemplated by this Agreement), without compromising any rights and
without incurring additional liabilities or obligations, Sellers shall take all
necessary action (including using their reasonable best efforts to obtain any
third party consents) and the Company shall, and shall cause its subsidiaries
and affiliates to, take all necessary action (including cooperating with
Sellers to obtain any third party consents), (i) to enable the Company to repay
all Terminated Loans at the Effective Time and (ii) to permit the Non-
Terminated Loans to continue to remain outstanding without penalty at and after
the Effective Time until their expiration or prepayment as indebtedness of the
persons which incurred the Non-Terminated Loans prior to the Effective Time (it
being acknowledged and agreed that nothing in this Section 7.8(b) shall affect
or shall be deemed to amend or modify any provision of this Agreement,
including Sections 1.5, 8.1, 8.2 and 8.3 hereof).
(c) Without limiting, amending or modifying any other provision of this
Agreement (including Sections 5.8, 8.1, 8.2 and 8.3 hereof), without the
payment of any consideration therefor, without compromising any rights and
without incurring additional liabilities or obligations, Sellers shall
cooperate with the Company to
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assist the Company in obtaining new financing in connection with the Mergers
and the other transactions contemplated by this Agreement and the other
Transaction Documents.
Section 7.9 Fees and Expenses.
(a) Except as expressly provided to the contrary in this Agreement, whether
or not the transactions contemplated by this Agreement or the other Transaction
Documents are consummated, all costs and expenses incurred in connection with
this Agreement and the other Transaction Documents including, without
limitation, the fees, expenses and disbursements of counsel, financial advisors
and accountants, shall be paid by the party incurring such costs and expenses.
Without limiting the generality of the foregoing, whether or not the
transactions contemplated by this Agreement or the other Transaction Documents
are consummated, McREMI agrees that it shall be liable for the McREMI
Transaction Expenses and each McNeil Partnership agrees that it shall be liable
for its Per Partnership Transaction Expenses; provided, however, that a McNeil
Partnership which becomes an Excluded McNeil Partnership pursuant to Section
9.3(a) hereof shall not be liable for its Per Partnership Transaction Expenses
incurred following the date on which such McNeil Partnership became an Excluded
McNeil Partnership pursuant to Section 9.3(a) hereof, and the Participating
McNeil Partnerships shall share such expenses ratably, based on their relative
Partnership Percentages.
(b) Any Assumption Fees, Prepayment Fees and Transaction Expenses (including
without limitation the McREMI Transaction Expenses) paid by the Contributing
Partners or any Seller (other than a McNeil Partnership) and any fees, expenses
and disbursements incurred and paid by the Contributing Partners or any Seller
(other than a McNeil Partnership) in connection with this Agreement and the
other Transaction Documents, subject to documentation and approval (which shall
not be unreasonably withheld or delayed) by the Board of Managers of the
Company (the "Board of Managers"), in an aggregate amount not to exceed one-
half of the aggregate amount of fees, expenses and disbursements charged to the
Company, its subsidiaries and affiliates by Sullivan & Cromwell with respect to
negotiating and documenting the transactions contemplated by this Agreement and
the other Transaction Documents, shall be treated as a contribution in-kind to
the Company (the "Capitalized McNeil Expenses") by MPLP (or another designee of
the Contributing Partners) in exchange for Company Interests in accordance with
Section 1.4 hereof.
Section 7.10 Allocations. The Company and Sellers each covenant (which
covenant shall survive the Closing and the Effective Time), and the LLC
Agreement shall provide (until thereafter changed in accordance with the terms
of the LLC Agreement or applicable law), that the Allocations shall be binding
on Sellers and on the Company, its subsidiaries and affiliates and shall be
adhered to by Sellers and by the Company, its subsidiaries and affiliates for
the purposes of reporting the book and tax basis of the Company's assets.
Section 7.11 Related Party Transactions.
(a) Prior to the Effective Time, except as consented to in writing by the
Company (which consent shall not be unreasonably withheld or delayed), or
except as expressly provided for in this Agreement or the other Transaction
Documents, Sellers shall, and shall cause the Seller Subsidiaries to, settle
all Related Party Transactions with respect to the Participating McNeil
Partnerships in the ordinary course of business prior to the Effective Time. In
the event that any Related Party Transaction is not settled prior to the
Effective Time, such Related Party Transaction shall be cancelled as of the
Effective Time, and all fees and costs related to such cancellation shall be
taken into consideration in calculating the Excess Cash Balance of the
applicable Participating McNeil Partnerships in accordance with the Excess Cash
Balance Schedule.
(b) Notwithstanding anything to the contrary in this Agreement, if
Summerhill is a Participating McNeil Partnership, the Company shall contribute
adequate cash to Summerhill to, and shall cause Summerhill to, repay at the
Effective Time (including all accrued but unpaid interest thereon through to
the Effective Time) the demand note, dated November 17, 1997, payable by
Summerhill to Robert A. McNeil and Carole J. McNeil
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(the "Summerhill Note"). The parties hereto acknowledge and agree that in
determining the Excess Cash Balance of Summerhill, the Summerhill Note shall be
deemed to be a current liability and no adjustment shall be made to the cash
line item to reflect any payment of the Summerhill Note or any contribution of
cash to effect such payment.
Section 7.12 Stanger Reports. Sellers shall use their reasonable best
efforts to obtain from Stanger the Stanger Opinions, the Allocation Analysis
and, if requested, the Appraisals, and to obtain from Eastdil the Eastdil
Opinions, in each case on or prior to the date on which the Proxy Statements
are mailed to the limited partners of the McNeil Partnerships in accordance
with Section 7.1 hereof.
Section 7.13 Estoppels.
(a) Without the payment of any consideration therefor (other than as
expressly contemplated by this Agreement), without compromising any rights and
without incurring additional liabilities or obligations, Sellers shall use
their reasonable best efforts to obtain (i) the consent and estoppel
certificates and the consents (in each case, in the forms attached as exhibits
to this Agreement) specified in Section 8.2(d) hereof, (ii) the Estoppels (in
each case, in the forms attached as exhibits to this Agreement) from all
Commercial Tenants and from all lessors under each Ground Lease and (iii)
subject to Section 7.13(b) hereof, subordination, non-disturbance and
attornment agreements (the "SNDA Agreements") in the event that the Company
requests in writing that Sellers assist in obtaining SNDA Agreements.
(b) In the event that the Company requests in writing that Sellers assist in
obtaining (i) any consents or estoppels specified in Section 8.2(d) hereof in a
form other than the forms attached as Exhibits to this Agreement ("Other
Consents"), (ii) any Estoppels in a form other than the forms attached as
Exhibits to this Agreement ("Other Estoppels") or (iii) any SNDA Agreements,
the parties hereto acknowledge and agree that Sellers shall have no obligation
to comply with such requests of the Company until Sellers and the Company reach
a mutually acceptable agreement as to the timing of the solicitation of the
Other Consents, Other Estoppels and SNDA Agreements in relation to the
requisite dating of the consents, the consent and estoppel certificates and the
Estoppels attached to this Agreement and as to the content of the Other
Consents, Other Estoppels and SNDA Agreements. Nothing in this Section 7.13(b)
shall limit, amend or modify any other provision of this Agreement (including
Sections 5.8, 8.1, 8.2 and 8.3 hereof), or shall require the payment of any
consideration therefor by any Seller, or shall require compromising any rights
of any Seller or shall require any Seller to incur additional liabilities or
obligations.
Section 7.14 Harbour Club.
(a) If (i) either MREF XXII or MREF XXIII or both are Participating McNeil
Partnerships and (ii) MREF XXV is an Excluded McNeil Partnership, then MREF XXV
hereby grants to the Company the right (which right shall vest as of the
Effective Time) to purchase the property known as Harbour Club I Apartments,
located at 49000 Denton Road, Belleville, Michigan, together with the property
known as the Harbour Club Golf Course (together, "Harbour Club I"), at a price
equal to eleven million nine hundred sixty thousand dollars ($11,960,000) (the
"Option Price"). In the event that the Company desires to exercise such right,
the Company shall deliver a written notice to MREF XXV of its election to do so
promptly following the Effective Time, but in no event later than the fifteenth
business day following the Closing Date. In the event that such notice has not
been provided to MREF XXV by the Company by such fifteenth business day, then,
to the extent such right has vested in accordance with this Section 7.14(a),
such right shall irrevocably lapse and MREF XXV's obligations in respect
thereof shall be irrevocably discharged. The parties hereto acknowledge and
agree that the closing of the Company's purchase of Harbour Club I must be
completed within twenty (20) business days following the Closing Date.
(b) Notwithstanding anything to the contrary in this Agreement, in the event
that the Company exercises its right to purchase Harbour Club I in accordance
with Section 7.14(a) hereof, the Company shall pay at the closing of such
transaction any indebtedness outstanding which is secured by Harbour Club I
(including all
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accrued but unpaid interest thereon through to the date of such closing) and
all prepayment fees relating to such indebtedness on Harbour Club I and the
Option Price shall be reduced by the amount of such indebtedness (and not the
prepayment fees).
(c) The obligations of the Company to effect the closing of the Company's
purchase of Harbour Club I pursuant to Section 7.14(a) hereof is subject to the
fulfillment (or waiver by the Company) on the date of such closing of the
following conditions: (i) title to Harbour Club I shall be free and clear of
all Property Restrictions and Encumbrances other than the Permitted
Restrictions and Encumbrances and any matters arising after the Expiration Time
(or, in the case of the Survey Materials, after the Survey Materials Expiration
Time) which (A) would not preclude the continued use of Harbour Club I as it is
being used as of the date of this Agreement or (B) would not materially and
adversely affect the value of Harbour Club I as it is being used as of the date
of this Agreement and (ii) Lawyer's Title Insurance Company (or such other
nationally recognized title insurance company reasonably acceptable to Sellers
and the Company) shall be unconditionally obligated and prepared, subject to
the payment of the applicable title insurance premium and related charges at
the Company's sole cost and expense, to issue to or for the benefit of the
Company and one or more of its subsidiaries, a Title Policy (or the equivalent
in the applicable jurisdiction) for Harbour Club I in an amount requested by
the Company, which shall be a commercially reasonable amount, or, at the option
of the Company, a "date-down" to an existing policy of owner's title insurance.
Such Title Policy shall be issued in accordance with the Title Commitment for
Harbour Club I. In the event that one or both of the conditions set forth in
the immediately preceding clauses (i) and (ii) are not satisfied at the time of
the closing of the Company's purchase of Harbour Club I and the Company has not
waived any such unsatisfied condition prior to such time, MPLP and the Company
agree to negotiate in good faith a fair reduction in the Option Price to take
into account the matters with respect to which such conditions are not
satisfied.
(d) At and after the Effective Time, the owner of Harbour Club I agrees, for
so long as such owner shall continue to own Harbour Club I, to manage, or cause
to be managed, either or both of the Other Harbour Club Properties, if so
requested by the respective owners thereof, at market terms and at market
rates, pursuant to a property management agreement in a form substantially
comparable to that used for comparable properties, subject to such owner
obtaining the consent or approval of each person whose consent or approval
shall be required to a change in the management of such property. For purposes
of this Agreement, "Other Harbour Club Properties" means the property known as
the Harbour Club II Apartments and the property known as the Harbour Club III
Apartments, each located at 49000 Denton Road, Belleville, Michigan.
Section 7.15 Material Encumbrances.
(a) In the event that Other Items, or surveys that were received by the
Company after June 1, 1999, with respect to McNeil Partnership Properties, in
each case received prior to the Expiration Time (the Other Items and such
surveys, collectively, the "Survey Materials"), disclose any Property
Restrictions, Encumbrances or other matters affecting title to such McNeil
Partnership Property (other than Permitted Restrictions and Encumbrances) which
reasonably could preclude the continued use of such McNeil Partnership Property
as it is being used as of the date of this Agreement or reasonably could
materially and adversely affect the value of such McNeil Partnership Property
as it is being used as of the date of this Agreement (each, a "Material
Encumbrance") (it being understood and agreed that the absence of legal access
to a public right of way or utilities shall be a Material Encumbrance), the
Company shall promptly, and in no event later than 5:00 p.m., New York City
time, on July 16, 1999 (the "Expiration Time"), deliver a written notice (the
"Encumbrance Notice") to Sellers of such Material Encumbrance, which notice
shall describe in reasonable detail such Material Encumbrance and the manner in
which such Material Encumbrance reasonably could preclude the continued use of
such McNeil Partnership Property as it was being used as of the date of this
Agreement or reasonably could materially and adversely affect the value of such
McNeil Partnership Property as it was being used as of the date of this
Agreement, and the Company shall include a copy of the Survey Materials
disclosing such Material Encumbrance; provided, however, that the failure to
provide such information and description shall not vitiate the legal effect of
having sent such Encumbrance Notice if such Encumbrance Notice was otherwise
sent in good faith.
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(b) If the Company shall fail to deliver an Encumbrance Notice prior to the
Expiration Time with respect to one or more Material Encumbrances on one or
more McNeil Partnership Properties, then from and after the Expiration Time
(regardless of whether or not the Company was aware of any such Material
Encumbrance as of the Expiration Time, and regardless of whether or not the
Company has obtained all of the Other Items), (i) each such Material
Encumbrance shall automatically be deemed to be a Permitted Restriction and
Encumbrance for all purposes under this Agreement, (ii) each such Material
Encumbrance shall not be considered in determining whether or not a Seller
Material Adverse Effect has occurred for any and all purposes under this
Agreement (including Article VIII hereof) and (iii) the Company shall be deemed
to have waived all conditions to the Closing set forth in Article VIII hereof
relating to such Survey Materials (including, without limitation, whether or
not the representations and warranties contained in Section 4.8 hereof were
true and correct and whether or not the condition set forth in Section 8.2(e)
hereof has been fulfilled).
Section 7.16 Additional Seller Tax Covenant. From the date of this Agreement
until the Closing Date, the McNeil Partnerships shall at all times qualify, and
Sellers shall cause any of the Seller Subsidiaries that have been partnerships,
joint ventures or disregarded entities or limited liability companies since
formation to continue to qualify, as partnerships or disregarded entities for
federal income tax purposes. From the date of this Agreement until the Closing
Date, the McNeil Partnerships shall not at any time become, and Sellers shall
not permit any Seller Subsidiaries that have been partnerships, joint ventures
or disregarded entities or limited liability companies since formation to
become, publicly traded partnerships within the meaning of Section 7704 of the
Code or otherwise taxable as an association for federal income tax purposes.
Section 7.17 Title Deliveries. The Sellers shall arrange for the delivery of
the documents, certificates, affidavits and undertakings reasonably required by
the title insurer for the issuance of the title insurance coverage contemplated
by Section 8.2(e) hereof (provided that the Company, the Participating McNeil
Partnerships and their respective subsidiaries shall not be liable directly or
indirectly for such certificates, affidavits or undertakings).
ARTICLE VIII
Conditions
Section 8.1 Conditions to Each Party's Obligation to Effect the
Mergers. Subject to Section 8.4 hereof, the obligations of each party to effect
the Mergers of the Participating McNeil Partnerships and the other transactions
relating to the Participating McNeil Partnerships which are contemplated by
this Agreement to be performed at or after the Effective Time shall be subject
to the fulfillment (or waiver by each party hereto) at or prior to the
Effective Time of the following conditions:
(a) Limited Partner Approvals. This Agreement and the transactions
contemplated hereby shall have been approved and adopted by the requisite
approval of the limited partners of each Participating McNeil Partnership
(other than Summerhill, whose approval has been obtained prior to the date
hereof).
(b) No Injunctions or Restraints. No court or other Governmental Entity
of competent jurisdiction shall have enacted, issued, promulgated, enforced
or entered any statute, rule, regulation, judgment, decree, injunction or
other order (whether temporary, preliminary or permanent) (i) that is in
effect and prohibits consummation of the Mergers of the Participating
McNeil Partnerships, the MPLP Contributions relating to the Participating
McNeil Partnerships, the appointment of each of the applicable New GP LLCs
as the general partner of its corresponding Participating McNeil
Partnership or any other transactions with respect to the Participating
McNeil Partnerships expressly contemplated by this Agreement or (ii) that
is enacted, issued, promulgated, enforced or entered after the date of this
Agreement and, in any such case, is in effect and imposes restrictions on
the Company or the Participating McNeil Partnerships with respect to the
business operations of the Participating McNeil Partnerships which would
result in a Seller Material Adverse Effect (clauses (i) and (ii),
collectively, an "Order"), and no Governmental Entity shall have
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instituted any proceeding or threatened to institute any proceeding seeking
any such Order, and no other person shall have instituted any proceeding
seeking any such Order which is reasonably likely to succeed.
(c) Certain Actions and Consents. All material actions by, and all
consents, approvals, orders or authorizations from, or filings with,
Governmental Entities of competent authority necessary for the consummation
of the Mergers of the Participating McNeil Partnerships, the MPLP
Contributions relating to the Participating McNeil Partnerships, the
appointment of each of the applicable New GP LLCs as the general partner of
its corresponding Participating McNeil Partnership or any other
transactions with respect to the Participating McNeil Partnerships
expressly contemplated by this Agreement shall have been obtained or made,
as the case may be.
(d) Settlement of Class Action Litigation. All claims with respect to
the Participating McNeil Partnerships, the general partners of the
Participating McNeil Partnerships and the McREMI Assets asserted in
connection with the action of James F. Schofield, Gerald C. Gillett, Donna
S. Gillett, Jeffrey Homburger, Louise C. Homburger, Elizabeth Jung, Robert
Lewis, Morton Farber and Warren Heller v. McNeil Partners, L.P., McNeil
Investors, Inc., McNeil Real Estate Management, Inc., Robert A. McNeil,
Carole J. McNeil, Donald K. Reed and McNeil Pacific Investors Fund 1972,
Ltd., McNeil Real Estate Fund IX, Ltd., McNeil Real Estate Fund X, Ltd.,
McNeil Real Estate Fund XI, Ltd., McNeil Real Estate Fund XII, Ltd., McNeil
Real Estate Fund XIV, Ltd., McNeil Real Estate Fund XV, Ltd., McNeil Real
Estate Fund XX, L.P., McNeil Real Estate Fund XXI, L.P., McNeil Real Estate
Fund XII, L.P., McNeil Real Estate Fund XXIV, L.P., McNeil Real Estate Fund
XXV, L.P. McNeil Real Estate Fund XXVI, L.P., and McNeil Real Estate Fund
XXVII, L.P. (Case No. BC133799), Superior Court of the State of California,
County of Los Angeles, shall have been settled on terms satisfactory to
MPLP and such settlement shall be substantially in the form of the
settlement agreement delivered by Sellers to the Company prior to the date
hereof.
(e) Determination of Excess Cash Balances. The Excess Cash Balance shall
have been determined for each Participating McNeil Partnership in
accordance with Section 2.4 hereof.
Section 8.2 Conditions to Obligations of the Company. Subject to Section
8.4 hereof, the obligations of the Company to effect the Mergers of the
Participating McNeil Partnerships and the other transactions relating to
the Participating McNeil Partnerships which are contemplated by this
Agreement to be performed at or after the Effective Time are further
subject to the fulfillment (or waiver by the Company) at or prior to the
Effective Time of the following conditions:
(a) Representations and Warranties.
(i) The representations and warranties of Sellers set forth in Article
IV of this Agreement (other than the representations and warranties that
are the subject of Section 8.2(a)(ii) below) shall be true and correct at
and as of the Closing Date (each such representation and warranty shall be
deemed to be amended as of the Closing Date (i) in accordance with Section
8.4 hereof and (ii) so as not to give effect to any materiality or Seller
Material Adverse Effect qualifiers contained therein), as though made on
and as of the Closing Date but immediately prior to the transfers of
assets, rights and interests and the other transactions contemplated by
Articles II and III of this Agreement, except to the extent any
representation or warranty is expressly limited by its terms to a specific
date, in which case such representation or warranty shall be true and
correct at and as of such date; provided, however, that the condition set
forth in this Section 8.2(a) shall be deemed satisfied if the respects in
which such representations and warranties (as each has been deemed amended
as of the Closing Date) are not true and correct at and as of the Closing
Date but immediately prior to the transfers of assets, rights and interests
and the other transactions contemplated by Articles II and III of this
Agreement, or at and as of such other date, would not constitute,
individually or in the aggregate, a Seller Material Adverse Effect.
(ii) The representations and warranties of Sellers set forth in Sections
4.1(a), 4.1(d), 4.2(b), 4.3(a) and 4.3(c) hereof (each such representation
and warranty shall be deemed to be amended as of the Closing
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Date in accordance with Section 8.4 hereof) shall be true and correct in
all material respects (other than the representations and warranties having
a materiality or Seller Material Adverse Effect qualifier, which
representations and warranties shall be true and correct in all respects)
at and as of the Closing Date, as though made on and as of the Closing Date
but immediately prior to the transfers of assets, rights and interests and
the other transactions contemplated by Articles II and III of this
Agreement, except to the extent any representation or warranty is expressly
limited by its terms to a specific date, in which case such representation
or warranty shall be true and correct at and as of such date.
(b) Performance of Obligations of Sellers. Sellers shall have performed in
all material respects all obligations required to be performed by them under
this Agreement at or prior to the Effective Time (other than obligations with
respect to Excluded McNeil Partnerships), including the execution and delivery
of the Ancillary Agreements to which any Seller is a party.
(c) Officer's Certificate. The Company shall have received a certificate
signed on behalf of Sellers by an executive officer thereof certifying the
accuracy of the statements set forth in Sections 8.2(a) and 8.2(b) hereof.
(d) Consents.
(i) Sellers shall have obtained the consent and estoppel certificate of
each lender of the Non-Terminated Loans listed on Schedule 8.2(d)(i) of the
Seller Disclosure Letter, in the form of the consent and estoppel
certificate attached as Exhibit A hereto or in the form(s) of a consent or
estoppel certificate or both returned by the person from whom such consent
and estoppel certificate is being sought pursuant to this Section 8.2(d)(i)
provided such form(s) of consent or estoppel certificate is substantially
comparable to the form of the consent and estoppel certificate attached as
Exhibit A hereto.
(ii) Sellers shall have obtained any consents or approvals which if not
obtained would have, individually or in the aggregate, a Seller Material
Adverse Effect, in the form of the consent attached as Exhibit B hereto or
in the form of the consent returned by the person whose consent is being
sought pursuant to this Section 8.2(d)(ii) provided such form of consent is
substantially comparable to the form of the consent attached as Exhibit B
hereto.
(e) Title. On the Closing Date, (i) title to each McNeil Partnership
Property owned by a Participating McNeil Partnership shall be free and clear of
all Encumbrances and Property Restrictions other than Permitted Restrictions
and Encumbrances and other than any matters disclosed after the Expiration Time
(other than the Survey Materials) which (A) would not reasonably preclude the
continued use of such McNeil Partnership Property as it is being used as of the
date of this Agreement or (B) would not reasonably materially and adversely
affect the value of such McNeil Partnership Property as it is being used as of
the date of this Agreement and (ii) Lawyer's Title Insurance Corporation (or
such other nationally recognized title insurance company reasonably acceptable
to Sellers and the Company) shall be unconditionally obligated and prepared,
subject to the payment of the applicable title insurance premium and related
charges at the Company's sole cost and expense, to issue to or for the benefit
of the Company and one or more of its subsidiaries, an extended coverage ATLA
owner's policy of title insurance effective as of the Closing Date (the "Title
Policies") (or the equivalent in the applicable jurisdiction) for each McNeil
Partnership Property owned by a Participating McNeil Partnership in an amount
requested by the Company, which amount shall be commercially reasonable, or, at
the option of the Company, a "date-down" to an existing policy of owner's title
insurance. Such Title Policies shall be issued in accordance with the Title
Commitments; provided, however, that, notwithstanding anything to the contrary
set forth in this Agreement or in the Title Commitments, the title exceptions
listed on Schedule A to the Task List need not be omitted from the Title
Policies and the title company requirements listed on Schedule A to the Task
List need not be satisfied in determining whether or not this Section 8.2(e)
has been satisfied.
(f) Estoppels.
(i) Sellers shall have received from tenants (which tenants shall
include the tenants leasing space pursuant to the Commercial Leases listed
on Schedule 8.2(f)(i) of the Seller Disclosure Letter) leasing at
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least seventy-five percent (75%) of the aggregate square footage leased
pursuant to all Commercial Leases, a certificate (an "Estoppel"), addressed
to the Company and its lender (as defined in the Estoppel attached as
Exhibit D hereto), dated not more than sixty (60) days prior to the Closing
Date, in either (A) the form of Estoppel attached as Exhibit D hereto or
(B) the form of Estoppel returned by the tenant whose Estoppel is being
sought pursuant to this Section 8.2(f)(i) provided such form of Estoppel is
substantially comparable to the form of Estoppel attached as Exhibit D
hereto. The Company hereby acknowledges and agrees that, in lieu of any one
or more of such Estoppels, MPLP may deliver a landlord Estoppel provided
that (A) such form of landlord Estoppel is in the form of Estoppel attached
as Exhibit D hereto, (B) the landlord Estoppels delivered by MPLP pursuant
to this Section 8.2 (f)(i) shall not be given in respect of more than ten
percent (10%) of the aggregate square footage leased pursuant to all
Commercial Leases and (C) such landlord Estoppels delivered by MPLP shall
not be delivered in respect of the Commercial Leases listed on Schedule
8.2(f)(i) of the Seller Disclosure Letter.
(ii) Sellers shall have received an Estoppel from each lessor under a
Ground Lease, addressed to the Company and its lender (as defined in the
Estoppel attached as Exhibit E hereto), dated not more than sixty (60) days
prior to the Closing Date in either (A) the form of Estoppel attached as
Exhibit E hereto or (B) the form of Estoppel returned by the lessor whose
Estoppel is being sought pursuant to this Section 8.2(f)(ii) provided such
form of Estoppel is substantially comparable to the form of Estoppel
attached as Exhibit E hereto.
(g) Opinion Relating to the Pledge. The Company shall have received an
opinion from Skadden, Arps, Slate, Meagher & Flom LLP or other counsel to
Sellers reasonably acceptable to the Company, dated as of the Closing Date,
substantially in the form attached as Exhibit C hereto.
(h) Percentage Reduction in NOI. The sum of the Net Operating Incomes for
each Participating McNeil Partnership for the twelve months ended on the NOI
Determination Date shall be greater than or equal to the product determined by
multiplying (i) 0.8723 by (ii) an amount equal to the sum of the NOI Amounts
for each Participating McNeil Partnership. For purposes of this Agreement, the
term "NOI Determination Date" means the last day of the most recently completed
fiscal month prior to the Closing Date.
(i) Consummation of the Contributions. The transactions contemplated by
Sections 2.2 and 2.3(a) hereof shall have been consummated.
Section 8.3 Conditions to Obligations of Sellers. Subject to Section 8.4
hereof, the obligations of Sellers to effect the Mergers of the Participating
McNeil Partnerships and the other transactions contemplated by this Agreement
relating to the Participating McNeil Partnerships which are to be performed at
or after the Effective Time are further subject to the fulfillment (or waiver
by each Seller) at or prior to the Effective Time of the following conditions:
(a) Representations and Warranties. The representations and warranties
of the Company set forth in Article V of this Agreement shall be true and
correct at and as of the Closing Date (each such representation and
warranty shall be deemed to be amended as of the Closing Date so as not to
give effect to any materiality qualifiers contained therein), as though
made on and as of the Closing Date but immediately prior to the transfers
of assets, rights and interests and the other transactions contemplated by
Articles II and III of this Agreement, except to the extent any
representation or warranty is expressly limited by its terms to a specific
date, in which case such representation or warranty shall be true and
correct at and as of such date; provided, however, that the condition set
forth in this Section 8.3(a) shall be deemed satisfied if the respects in
which such representations and warranties (as each has been deemed amended
as of the Closing Date) are not true and correct at and as of the Closing
Date but immediately prior to the transfers of assets, rights and interests
and the other transactions contemplated by Articles II and III of this
Agreement, or at and as of such other date, would not prevent the Company,
any Company LLC or any Transitory Partnership from consummating the
transactions contemplated by this Agreement and the other Transaction
Documents.
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(b) Performance of Obligations of the Company. The Company shall have
performed in all material respects all obligations required to be performed
by it under this Agreement at or prior to the Effective Time (other than
obligations with respect to Excluded McNeil Partnerships), including the
execution and delivery of the Ancillary Agreements to which either the
Company or any of its affiliates is a party.
(c) Officers' Certificate. Each Seller shall have received a certificate
signed on behalf of the Company by a senior officer of the Company
certifying the accuracy of the statements set forth in Sections 8.3(a) and
8.3(b) hereof.
(d) Fairness Opinions.
(i) Stanger shall have delivered to Sellers (A) the Allocation
Analysis, (B) the Appraisals (if they had been requested by Sellers
prior to the date of the mailing of the Proxy Statements) and (C) the
Stanger Opinions, in each case, prior to the date of the mailing of the
Proxy Statements for the Participating McNeil Partnerships. The Sellers
shall have received the Stanger Opinions to the effect that each of the
matters opined upon therein and each of the Allocations is fair from a
financial point of view to the holders of each class of LP Interests in
each McNeil Partnership.
(ii) Eastdil shall have delivered to the Special Committee the
Eastdil Opinions prior to the date of the mailing of the Proxy
Statements for the Participating McNeil Partnerships. The Special
Committee shall have received the Eastdil Opinions to the effect that
each of the matters opined upon therein is fair from a financial point
of view to the holders of each class of LP Interests in each McNeil
Partnership.
Section 8.4 Certain Exclusions from Conditions to Closing.
(a) Notwithstanding anything to the contrary in this Agreement (including
Sections 8.1, 8.2 and 8.3 hereof), the parties hereto acknowledge and agree
that, in accordance with Section 9.4 hereof, none of the conditions to Closing
set forth in Sections 8.1, 8.2 and 8.3 hereof shall be deemed to be unsatisfied
because such condition was not satisfied with respect to an Excluded McNeil
Partnership (or such Excluded McNeil Partnerships' subsidiaries, properties,
etc.) (i.e., since no Excluded McNeil Partnership is subject to the Closing,
the conditions to the Closing need not be satisfied with respect to any
Excluded McNeil Partnership, such Excluded McNeil Partnerships' subsidiaries,
properties, etc.).
(b) Notwithstanding anything to the contrary in this Agreement (including
Sections 8.1 and 8.2 hereof), the following shall not be considered in
determining whether or not any or all of the conditions set forth in Sections
8.1 and 8.2 hereof have been fulfilled: (i) any effect on any of the
Participating McNeil Partnerships' business, properties, financial condition or
results of operations resulting, directly or indirectly, from the Company's
failure to consent to a Commercial Lease or any amendment to any Commercial
Lease as requested by Sellers in good faith pursuant to Section 6.1(l) hereof;
and (ii) any effect on any of the Participating McNeil Partnerships' business,
properties, financial condition or results of operations resulting, directly or
indirectly, from the Company's failure to consent to a Reimbursable Proposal
proposed by Sellers in good faith.
(c) Notwithstanding anything to the contrary in this Agreement (including
Sections 8.1, 8.2 and 8.3 hereof), the parties hereto acknowledge and agree
that none of the Discretionary Closing Conditions shall be deemed to be
unsatisfied because such condition was not satisfied with respect to any one or
more Included McNeil Partnerships (or such Included McNeil Partnerships'
subsidiaries, properties, etc.).
(d) Notwithstanding anything to the contrary in this Agreement (including
Sections 8.1, 8.2 and 8.3 hereof), the parties hereto acknowledge and agree
that none of the Discretionary Closing Conditions shall be deemed to be
unsatisfied because such condition was not satisfied with respect to any one or
more Included Partnership Matters.
(e) Notwithstanding anything to the contrary in this Agreement (including
Sections 8.1, 8.2 and 8.3 hereof), the parties hereto acknowledge and agree
that Section 7.15(b) hereof shall be given effect prior to
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determining whether or not any or all of the conditions set forth in Sections
8.1 and 8.2 hereof have been fulfilled.
Section 8.5 Removal Notices.
(a) In the case of any Participating McNeil Partnership, at any time after
the date of this Agreement through to the date of the McNeil Limited Partner
Meeting for such Participating McNeil Partnership, the Sellers may provide a
written notice (the "Matter Removal Notice") to the Company identifying such
Participating McNeil Partnership as a "Removable Partnership" and which shall
describe in reasonable detail certain matters relating to such Participating
McNeil Partnership as "Designated Partnership Matters" that Sellers believe in
good faith may cause the Participating McNeil Partnership to become an Excluded
McNeil Partnership.
(b) Upon the Company's receipt of the Matter Removal Notice (the earlier of
(1) the tenth full business day following the date of the Company's receipt of
the Matter Removal Notice and (2) the third full business day following the
date of the Company's receipt of the Pre-Closing Removal Notice, the "Matter
Removal Notice Date"), the Company shall have until 5:00 p.m., New York City
time, on the Matter Removal Notice Date to provide written notice to Sellers,
which notice shall identify which (if any) of the Designated Partnership
Matters the Company designates as an "Included Partnership Matter."
(c) In the case of any Participating McNeil Partnership, at any time
following the date of the McNeil Limited Partner Meeting for a Participating
McNeil Partnership, the Sellers may provide a written notice (the "Pre-Closing
Removal Notice") to the Company identifying such Participating McNeil
Partnership as a "Pre-Closing Removable Partnership" which may or may not (in
the sole and absolute discretion of the Sellers) designate certain of the
McNeil Partnership Properties of such Pre-Closing Removable Partnership as
"Designated Partnership Properties."
(d) Upon the Company's receipt of the Pre-Closing Removal Notice (the third
full business day following the date of the Company's receipt of the Pre-
Closing Removal Notice, the "Pre-Closing Removal Notice Date"), the Company
shall have until 5:00 p.m., New York City time, on the Pre-Closing Removal
Notice Date to provide written notice to Sellers, which notice shall identify
which (if any) of the Pre-Closing Removable Partnerships the Company designates
as an "Included McNeil Partnership."
(e) The parties hereto acknowledge and agree that the exercise (or lack of
exercise) by any Seller of its rights under Sections 8.5(a) and 8.5(c) hereof
and the exercise (or lack of exercise) by the Company of its rights under
Sections 8.5(b) and 8.5(d) hereof shall not be the basis of any suit, action or
proceeding by any person against any party to this Agreement or their
respective affiliates, and shall not constitute a presumption that any McNeil
Partnership has, in fact, violated any representation, warranty, covenant or
agreement in this Agreement or that the conditions to Closing with respect to
any McNeil Partnership were not, in fact, satisfied.
(f) If the Closing occurs and if one or more McNeil Partnerships became an
Excluded McNeil Partnership by operation of Section 9.3(f), 9.3(g) or 9.3(h)
hereof, each party to this Agreement hereby waives any rights it may have to
file or commence any suit, action or proceeding against each other party to
this Agreement or their respective affiliates with respect to any such Excluded
McNeil Partnership and hereby irrevocably and unconditionally releases each
such other party and its affiliates from any and all claims, known or unknown,
it may have relating to the transactions contemplated by this Agreement and the
other Transaction Documents with respect to any such Excluded McNeil
Partnership.
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ARTICLE IX
Termination
Section 9.1 Termination of this Agreement Prior to the Effective Time. This
Agreement may be terminated at any time prior to the Effective Time (regardless
of whether or not the requisite approvals of the respective limited partners of
each of the McNeil Partnerships have been obtained) as follows:
(a) by the mutual written consent of each Seller and the Company;
(b) by the Company, on the one hand, or any Seller, on the other hand,
upon written notice given to the other if any judgment, injunction, order,
decree or action by any Governmental Entity of competent authority
preventing the consummation of the transactions contemplated by this
Agreement (other than transactions relating to the Excluded McNeil
Partnerships) shall have become final and nonappealable;
(c) by the Company, on the one hand, or any Seller, on the other hand,
upon written notice given to the other if the Closing shall not have
occurred on or before the twelve (12)-month anniversary of the date of this
Agreement (the "Termination Date");
(d) by any Seller upon written notice given to the Company, upon a
material breach on the part of the Company of any representation, warranty,
covenant, obligation or agreement of the Company set forth herein that is
not curable or, if curable, is not cured within thirty (30) days after
written notice of such breach is given by any Seller to the party
committing such breach, if the conditions set forth in Section 8.3(a) or
8.3(b) hereof would be incapable of being satisfied by the Termination
Date; or
(e) by the Company upon written notice given to Sellers, upon a material
breach on the part of Sellers of any representation, warranty, covenant,
obligation or agreement of Sellers set forth herein that is not curable or,
if curable, is not cured within thirty (30) days after written notice of
such breach is given by the Company to the party committing such breach, if
the conditions set forth in Section 8.2(a) or 8.2(b) hereof would be
incapable of being satisfied by the Termination Date.
Section 9.2 Effect of Termination Pursuant to Section 9.1. In the event of
the termination of this Agreement by any Seller or the Company as provided in
Section 9.1 hereof, this Agreement shall become null and void and of no further
force or effect, and there shall be no liability or obligation hereunder on the
part of Sellers or the Company, or any of their respective subsidiaries, or any
of their respective general partners, limited partners, partners, stockholders,
members, equity holders, directors, officers, employees, affiliates, agents,
representatives, successors or assigns, except (i) any obligations of the
parties to this Agreement under Sections 7.3(c), 7.9(a), 9.2, 9.4, 9.5 and 9.6
hereof and Article XI hereof shall survive such termination and (ii) one or
more of Sellers or the Company, as the case may be, may have liability to one
or more of Sellers or the Company, as the case may be, if the basis of the
termination is a willful, material breach by one or more of Sellers or the
Company, as the case may be, of one or more of the provisions of this
Agreement. Furthermore, if this Agreement is terminated pursuant to Section 9.1
hereof, the Company shall not, and shall cause its affiliates not to, oppose or
seek to prevent or frustrate any transaction or agreement that Sellers or any
of their subsidiaries may propose or enter into relating to any business
combination between Sellers and any third party; provided, however, that if (1)
Goldman, Sachs & Co. and its affiliates (including, without limitation,
Whitehall and the Managing Member) are not using all or any portion of the
Evaluation Material (as defined in the Confidentiality Agreement) in violation
of the Confidentiality Agreement, and (2) Goldman, Sachs & Co. and its
affiliates (including, without limitation, Whitehall and the Managing Member)
are not using all or any portion of the Evaluation Material (as defined in the
Confidentiality Agreement) in any of the activities specified below and (3)
Goldman, Sachs & Co. and its affiliates (including, without limitation,
Whitehall and the Managing Member) are not in violation of Section 7.3(c)
hereof, then nothing in this Agreement shall in any manner apply to or restrict
the activities of Goldman, Sachs & Co. and its affiliates from engaging in
asset management, brokerage, investment advisory, investment banking, financial
advisory, anti-raid advisory, financing, trading, market making, arbitrage and
other similar activities conducted in the ordinary course of its and its
affiliates' business.
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Section 9.3 Termination of Certain Rights and Obligations Prior to the
Effective Time. Certain rights and obligations under this Agreement of one or
more McNeil Partnerships (each, an "Excluded McNeil Partnership") and of all of
the parties hereto in respect of each such Excluded McNeil Partnership may be
terminated at any time prior to the Effective Time (regardless of whether or
not the requisite approvals of the respective limited partners of the McNeil
Partnerships have been obtained (except as indicated to the contrary below)) as
follows:
(a) by the Company, on the one hand, or any Seller, on the other hand,
upon written notice given to the other if, upon a vote at a duly held
McNeil Limited Partner Meeting (or any adjournment thereof) for such McNeil
Partnership, the requisite approval of the limited partners of such McNeil
Partnership of the Merger in respect of such McNeil Partnership, the MPLP
Contributions with respect to such McNeil Partnership, the appointment of
the applicable New GP LLC as the general partner of such McNeil Partnership
and the other transactions contemplated by this Agreement with respect to
such McNeil Partnership, shall not have been obtained as contemplated by
Section 7.1 hereof;
(b) by any Seller upon written notice given to the Company, if, prior to
the approval by the holders of LP Interests of such McNeil Partnership of
this Agreement, the Merger in respect of such McNeil Partnership, the MPLP
Contributions with respect to such McNeil Partnership, the appointment of
the applicable New GP LLC as the successor general partner of such McNeil
Partnerships and the other transactions contemplated by this Agreement at
the McNeil Limited Partner Meeting (or any adjournment thereof) of such
McNeil Partnership, in the exercise of good faith judgment of the general
partner of such McNeil Partnership as to its fiduciary duties to the
limited partners of such McNeil Partnership as imposed by law, such general
partner, as advised by counsel, determines that such termination is
required by reason of a Superior Acquisition Proposal being made with
respect to such McNeil Partnership. Each McNeil Partnership agrees that it
shall not enter into a binding written agreement with respect to an
Acquisition Proposal without providing the Company with at least four
business days prior notice of its intent to do so (which notice shall
disclose the material terms of such Acquisition Proposal).
(c) by the Company upon written notice given to the applicable McNeil
Partnership, if the general partner of such McNeil Partnership (A) has
failed to recommend to the limited partners of such McNeil Partnership the
approval of the Merger in respect of such McNeil Partnership, the MPLP
Contributions with respect to such McNeil Partnership, the appointment of
the applicable New GP LLC as the successor general partner of such McNeil
Partnership and the other transactions contemplated by this Agreement with
respect to such McNeil Partnership, in connection with an Acquisition
Proposal by a third party in respect of such McNeil Partnership, (B) has
withdrawn or modified in a manner adverse to the Company its approval or
recommendation that the limited partners of such McNeil Partnership approve
the Merger in respect of such McNeil Partnership, the MPLP Contributions
with respect to such McNeil Partnership, the appointment of the applicable
New GP LLC as the successor general partner of such McNeil Partnership and
the other transactions contemplated by this Agreement with respect to such
McNeil Partnership, in connection with an Acquisition Proposal for such
McNeil Partnership, or (C) has approved or recommended an Acquisition
Proposal for such McNeil Partnership;
(d) by the Company, on the one hand, or any Seller, on the other hand,
with respect to a McNeil Partnership, upon written notice given to the
other if any judgment, injunction, order, decree or action by any
Governmental Entity of competent authority preventing the consummation of
the transactions contemplated by this Agreement with respect to such McNeil
Partnership shall have become final and nonappealable;
(e) by the mutual written consent of each Seller and the Company;
(f) by any Seller upon written notice to the Company, in respect of any
McNeil Partnership which owns any McNeil Partnership Property in respect of
which an Encumbrance Notice has been delivered to Sellers pursuant to
Section 7.15 hereof;
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(g) after 5:00 p.m., New York City time, on the Pre-Closing Removal
Notice Date but at least two (2) business days prior to the estimated
Closing Date (such time, the "Pre-Closing Removal Notice Time"), by any
Seller upon written notice to the Company, in respect of any one or more of
the Pre-Closing Removable Partnerships which the Company has not designated
in writing as an Included McNeil Partnership by the Pre-Closing Removal
Notice Time;
(h) after 5:00 p.m., New York City time, on the Matter Removal Notice
Date but no later than the earlier of (1) the tenth business day following
the Matter Removal Notice Date and (2) the day which is at least two (2)
business days prior to the estimated Closing Date (such time, the "Matter
Removal Notice Time"), by any Seller upon written notice to the Company, in
respect of any one or more of the Removable Partnerships with respect to
which the Company has not designated in writing as Included Partnership
Matters all of the Designated Partnership Matters by the Matter Removal
Notice Time; or
(i) in respect of Fairfax only, following the date which is the tenth
business day after the date of the mailing of the Proxy Statements for the
Participating McNeil Partnerships, by the Company, on the one hand, or any
Seller, on the other hand, upon written notice given to the other if the
requisite approval of the limited partners of Fairfax of the MPLP
Contributions with respect to Fairfax, the appointment of the applicable
New GP LLC as the general partner of Fairfax and the other transactions
contemplated by this Agreement with respect to Fairfax shall not have been
obtained.
Section 9.4 Effect of Termination Pursuant to Section 9.3. In the event of
the termination of certain rights and obligations under this Agreement of one
or more Excluded McNeil Partnerships and of all of the parties hereto in
respect of such Excluded McNeil Partnerships as provided in Section 9.3 hereof,
all of the rights and obligations under this Agreement of each such Excluded
McNeil Partnership and of all of the other parties hereto in respect of each
such Excluded McNeil Partnership shall become null and void and of no further
force or effect, and there shall be no liability or obligation hereunder of
such Excluded McNeil Partnership or of the other parties hereto in respect of
any such Excluded McNeil Partnership on the part of any other party hereto, or
their respective subsidiaries, or any of their respective general partners,
partners, stockholders, members, equity holders, directors, officers,
employees, affiliates, agents, representatives, successors or assigns, except
(i) any obligations of the parties to this Agreement under Sections 7.3(c),
7.4(b), 7.5, 7.9(a), 7.10, 7.14, 9.4, 9.5 and 9.6 hereof and Article XI hereof
(other than Section 11.3 hereof) shall survive such termination and (ii) one or
more of Sellers or the Company, as the case may be, may have liability to one
or more of Sellers or the Company, as the case may be, if the basis of the
termination is a willful, material breach by one or more of Sellers or the
Company, as the case may be, of one or more of the provisions of this
Agreement; provided, however, that except as provided in this Section 9.4,
nothing in this Section 9.4 shall otherwise affect any of the rights or
obligations under this Agreement of any party to this Agreement. Furthermore,
if the obligations and liabilities under this Agreement in respect of an
Excluded McNeil Partnership are terminated pursuant to Section 9.3 hereof, the
Company shall not, and shall cause its affiliates not to, oppose or seek to
prevent or frustrate any transaction or agreement that Sellers or any of their
subsidiaries may propose or enter into relating to any business combination
between Sellers and any third party in respect of such Excluded McNeil
Partnership; provided, however, that if (1) Goldman, Sachs & Co. and its
affiliates (including, without limitation, Whitehall and the Managing Member)
are not using all or any portion of the Evaluation Material (as defined in the
Confidentiality Agreement) in violation of the Confidentiality Agreement, and
(2) Goldman, Sachs & Co. and its affiliates (including, without limitation,
Whitehall and the Managing Member) are not using all or any portion of the
Evaluation Material (as defined in the Confidentiality Agreement) in any of the
activities specified below and (3) Goldman, Sachs & Co. and its affiliates
(including, without limitation, Whitehall and the Managing Member) are not in
violation of Section 7.3(c) hereof, then nothing in this Agreement shall in any
manner apply to or restrict the activities of Goldman, Sachs & Co. and its
affiliates from engaging in asset management, brokerage, investment advisory,
investment banking, financial advisory, anti-raid advisory, financing, trading,
market making, arbitrage and other similar activities conducted in the ordinary
course of its and its affiliates' business.
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Section 9.5 Payment of Break-Up Fee.
(a) If the rights and obligations under this Agreement in respect of one or
more Excluded McNeil Partnerships have been terminated pursuant to Section
9.3(b) or 9.3(c) hereof, each such Excluded McNeil Partnership shall be
severally (and not jointly) liable for payment to the Company of a fee equal to
the Partnership Break-Up Fee determined in respect of such Excluded McNeil
Partnership. Each Excluded McNeil Partnership shall be severally liable for
payment of the Partnership Break-Up Fee in respect of itself, and no other
party to this Agreement shall have any liability to the Company or an Excluded
McNeil Partnership for the Partnership Break-Up Fee of such Excluded McNeil
Partnership. Any payment required to be made pursuant to this Section 9.5(a) as
a result of termination of this Agreement pursuant to Section 9.3(b) or 9.3(c)
hereof shall be made not later than the earlier of (A) ninety (90) days after
the date of the termination of this Agreement pursuant to Section 9.3(b) or
9.3(c) hereof and (B) three (3) business days after the date on which a
definitive agreement relating to an Acquisition Proposal is entered into. Any
payment required to be made pursuant to this Section 9.5(a) with respect to an
Excluded McNeil Partnership shall accrue interest at ten percent (10%) per
annum, compounded annually, from the date of the termination under Section
9.3(b) or 9.3(c) hereof and no distribution or other payment shall be made to
the general partner or any limited partner of such Excluded McNeil Partnership
until such payment pursuant to this Section 9.5(a) and such accrued interest is
paid in full.
(b) If (i) (A) either (1) a person who is not an affiliate of the Company,
Whitehall or the Managing Member consummates an acquisition of more than 10% of
the outstanding LP Interests of a McNeil Partnership following the date of this
Agreement or (2) a person who is not an affiliate of the Company, Whitehall or
the Managing Member makes an Acquisition Proposal for a McNeil Partnership, and
(B) such McNeil Partnership becomes an Excluded McNeil Partnership through the
operation of Section 9.3(a) hereof and (C) such McNeil Partnership enters into
a definitive agreement relating to a Higher Acquisition Proposal within six
months of such McNeil Partnership becoming an Excluded McNeil Partnership, or
(ii) (A) the general partner of a McNeil Partnership as of the date of this
Agreement is replaced and (B) such McNeil Partnership becomes an Excluded
McNeil Partnership through the operation of Section 9.3(a) or 9.3(i) hereof,
then, in the case of either clause (i) or (ii), each such Excluded McNeil
Partnership shall be severally (and not jointly) liable for payment to the
Company of a fee equal to the Partnership Break-Up Fee determined in respect of
such Excluded McNeil Partnership. Any payment required to be made pursuant to
clause (i) of the first sentence of this Section 9.5(b) shall be made not later
than the earlier of (A) ninety (90) days after the date of the termination of
this Agreement pursuant to Section 9.3(a) hereof and (B) three (3) business
days after the date on which a definitive agreement relating to a Higher
Acquisition Proposal is entered into. Any payment required to be made pursuant
to clause (ii) of the first sentence of this Section 9.5(b) shall be made not
later than three (3) business days after the date of the termination of this
Agreement in respect of such Excluded McNeil Partnership pursuant to Section
9.3 hereof. Any payment required to be made pursuant to this Section 9.5(b)
with respect to an Excluded McNeil Partnership shall accrue interest at ten
percent (10%) per annum, compounded annually, from the date such payment is due
and no distribution or other payment shall be made to the general partner or
any limited partner of such Excluded McNeil Partnership until such payment
pursuant to this Section 9.5(b) and such accrued interest is paid in full.
(c) The payment of the Partnership Break-Up Fee with respect to an Excluded
McNeil Partnership shall be compensation and liquidated damages for any loss
suffered by the Company or any one or more of its affiliates or subsidiaries as
a result of the failure of the Merger of such Excluded McNeil Partnership and
the other transactions contemplated by this Agreement with respect to such
Excluded McNeil Partnership to be consummated and to avoid the difficulty of
determining damages under the circumstances, and shall be the sole and
exclusive remedy of the Company, its affiliates and subsidiaries against
Sellers and the Seller Subsidiaries and their respective subsidiaries, general
partners, limited partners, partners, stockholders, members, equity holders,
directors, officers, employees, affiliates, agents, representatives, successors
and assigns with respect to the occurrence giving rise to such payment.
(d) If at the time any party hereto terminates the rights and obligations
under this Agreement in respect of one or more Excluded McNeil Partnerships
pursuant to Section 9.3 hereof, there had been a breach of any
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representation, warranty, covenant, obligation or agreement on the part of the
Company, such that the conditions set forth in Section 8.3(a) or 8.3(b) hereof
would be incapable of being satisfied by the Termination Date, the Company
shall not be entitled to any of the benefits of this Section 9.5 or Section 9.6
hereof.
Initials:
/s/ J L
------------------
(Jonathan Langer on behalf of the Company)
/s/ R A M
------------------
(Robert A. McNeil on behalf of himself and Sellers)
Section 9.6 Reimbursement of Expenses.
(a) If (i) (A) notwithstanding the satisfaction or waiver of all of the
conditions set forth in Sections 8.1 and 8.3 hereof, Sellers (exclusive of any
Excluded McNeil Partnership) fail to consummate prior to the Termination Date
the Mergers of the Participating McNeil Partnerships and the other transactions
contemplated by this Agreement to occur at the Effective Time or (B) Sellers
have failed to use their reasonable best efforts in accordance with Section
7.4(a) hereof to satisfy the conditions set forth in Sections 8.1 and 8.3
hereof, and (ii) the Company terminates this Agreement pursuant to Section
9.1(c) or 9.1(e) hereof, then Sellers shall pay to the Company an amount equal
to the Company Reimbursable Expenses for which Sellers shall be jointly and
severally liable; provided, however, that no amount shall be payable by Sellers
to the Company pursuant to this Section 9.6(a) if, at the time of such
termination, Sellers would have been entitled to terminate this Agreement
pursuant to Section 9.1(d) hereof. Any payment required to be made by Sellers
pursuant to this Section 9.6(a) shall be made not later than ninety (90) days
after Sellers have received reasonably detailed documents from the Company
evidencing such costs and expenses.
(b) If (i) (A) notwithstanding the satisfaction or waiver of all of the
conditions set forth in Sections 8.1 and 8.2 hereof, the Company fails to
consummate prior to the Termination Date the Mergers and the other transactions
contemplated by this Agreement to occur at the Effective Time or (B) the
Company has failed to use its reasonable best efforts in accordance with
Section 7.4(a) hereof to satisfy the conditions set forth in Sections 8.1 and
8.2 hereof, and (ii) Sellers terminate this Agreement pursuant to Section
9.1(c) or 9.1(d) hereof, then the Company shall pay to Sellers an amount equal
to the Seller Reimbursable Expenses; provided, however, that no amount shall be
payable by the Company to Sellers pursuant to this Section 9.6(b) if, at the
time of such termination, the Company would have been entitled to terminate
this Agreement pursuant to Section 9.1(e) hereof. Any payment required to be
made by the Company pursuant to this Section 9.6(b) shall be made not later
than ninety (90) days after the Company has received reasonably detailed
documents from Sellers evidencing such costs and expenses.
(c) The parties hereto agree that any receipt by the Company of any one or
more Partnership Break-Up Fees shall offset any obligation of Sellers to pay
the Company Reimbursable Expenses.
ARTICLE X
Certain Definitions; Other Matters
Section 10.1 Definitions. For purposes of this Agreement and the Seller
Disclosure Letter, the following terms shall have the following meanings:
"Acquisition Proposal" means any proposal or offer with respect to a merger,
acquisition, purchase, tender offer, exchange offer, consolidation or similar
transaction involving all or any significant portion of the assets (whether
owned directly or indirectly) or equity securities of, one or more of Sellers,
other than the transactions with the Company contemplated by this Agreement and
the other Transaction Documents.
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"affiliate" of any person means another person that directly or indirectly
controls, is controlled by, or is under common control with, such first
person, where "control" means the possession, directly or indirectly, of the
power to direct or cause the direction of the management policies of a person,
whether through the ownership of voting securities, by contract, as trustee or
executor, or otherwise.
"Aggregate Consideration" means six hundred forty-four million four hundred
thirty-nine thousand eight hundred three dollars ($644,439,803).
"Allocated McNeil Value" means the sum of (i) the Net McREMI Allocated
Value, (ii) the sum of the GP Allocation Amounts for each Participating McNeil
Partnership, (iii) the Participating Partnership Consideration Amount for
Fairfax if Fairfax is a Participating McNeil Partnership, and (iv) the
Participating Partnership Consideration Amount for Summerhill if Summerhill is
a Participating McNeil Partnership.
"Allocation Analysis" shall have the meaning ascribed to such term in the
Stanger Engagement Letter.
"Allocations" means any and all of the allocations described in Sections
1.3(a), 1.3(b), 1.3(c) and 1.3(d) hereof.
"Ancillary Agreements" means the LLC Agreement, the Portfolio Advisory
Agreement, the Indemnification Agreement, the Replacement Support Agreements,
the Shortfall Agreement and the Waiver Letter.
"Appraisals" shall have the meaning ascribed to such term in the Stanger
Engagement Letter.
"Assignment Agreement" means the Instrument of Assignment attached hereto
as Exhibit H.
"business day" means any day excluding: Saturday, Sunday and any day which
is in the City of New York a legal holiday or a day upon which banking
institutions in the City of New York are required or authorized by law or
other governmental action to close.
"California Partnerships" means the following McNeil Partnerships, each of
which is a California limited partnership: MREF IX, MREF X, MREF XI, MREF XII,
MREF XIV, MREF XV, MREF XX, MREF XXI, MREF XXII, MREF XXIII, MREF XXIV, MREF
XXV and MREF XXVI.
"Company Person" means (i) Whitehall, (ii) the Managing Member, (iii) any
and all affiliates and subsidiaries of the Company, Whitehall and the Managing
Member and any and all indirect and direct holders of beneficial interests in
the Company, Whitehall or the Managing Member and (iv) in respect of each
person specified in clauses (i), (ii) and (iii), each such person's respective
directors, officers, partners, members, employees, controlling persons, agents
and representatives; provided, however, that in no event shall the Company be
a Company Person.
"Company Reimbursable Expenses" means an amount equal to the lesser of (i)
one million five hundred thousand dollars ($1,500,000) and (ii) the Company's
and its affiliates' actual, reasonable out-of-pocket expenses incurred in
connection with this Agreement and the transactions contemplated by this
Agreement (including, without limitation, all attorneys', accountants' and
investment bankers' fees and expenses).
"Contributing Partners" means Robert A. McNeil, Carole J. McNeil, MPLP and
MII.
"Corporate Employees" means any and all employees of McREMI who are not
Property Employees; provided that this definition shall not include any
persons hired by Sellers to conduct the proxy solicitation process.
"CRLPA" means the California Revised Limited Partnership Act.
"Discretionary Closing Conditions" means those closing conditions set forth
in Sections 8.2(a), 8.2(b), 8.2(d), 8.2(e), 8.2(f) and 8.2(h) hereof, after
having taken into account the effects of Section 8.4 hereof.
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"DLLCA" means the Delaware Limited Liability Company Act.
"DRULPA" means the Delaware Revised Uniform Limited Partnership Act.
"Eastdil" means Eastdil Realty Company.
"Eastdil Engagement Letter" means the letter agreement between the McNeil
Partnerships and Eastdil, dated as of May 7, 1999, as the same may be amended
from time to time.
"Eastdil Opinions" shall mean the opinions of Eastdil described in the
Eastdil Engagement Letter.
"Excluded McREMI Assets" means assets relating to persons which are not
Participating McNeil Partnerships or to the properties of any such person
(e.g., Management Agreements for any McNeil Partnership Properties owned by any
Excluded McNeil Partnership), leased assets, all leases for space, any McREMI
Assets that were not transferrable, and any and all rights under the
Transaction Documents.
"Excluded MPLP Assets" means all of the GP Interests in McNeil Pacific
Investors Fund 1972, all of the GP Interests in McNeil Pension Investment Fund,
Ltd., all of the GP Interests in each Excluded McNeil Partnership and all
rights related thereto, all of the GP Interests and shares of capital stock
owned by MPLP in any Seller Subsidiary of an Excluded McNeil Partnership, all
assets relating to persons which are not Participating McNeil Partnerships,
leased assets, and any and all rights under the Transaction Documents.
"Existing Support Agreements" means all Support Agreements listed on
Schedule 10.1(c) of the Seller Disclosure Letter.
"Financial Advisor" shall mean, (i) in the case of a Higher Acquisition
Proposal in which the consideration offered to the limited partners is solely
cash consideration, Stanger (provided that Stanger shall make such
determination within ten (10) business days) and (ii) in the case of a Higher
Acquisition Proposal in which the consideration offered to the limited partners
involves non-cash consideration, an investment bank which has been selected by
the mutual agreement of the parties, or failing that, an investment bank which
has been selected jointly by an investment bank selected by MPLP and an
investment bank selected by the Company.
"First McNeil Threshold" means an amount equal to the product determined by
multiplying (i) sixty million dollars ($60,000,000) by (ii) the sum of the
Partnership Percentages for each Participating McNeil Partnership.
"FRULPA" means the Florida Revised Uniform Limited Partnership Act.
"Governing Laws" means the CRLPA, DRULPA, MULPL, KRULPA, TRLPA and FRULPA,
as applicable.
"GP Interest" means: (i) with respect to any limited partnership, a unit of
general partnership interest in such partnership; and (ii) with respect to a
McNeil Partnership, the units of general partnership interest held by the
general partner of such McNeil Partnership and all of the rights in respect
thereof, including not only the general partner's proportionate interest of the
profits and losses of that McNeil Partnership based on the general partner's
capital contribution but also the rights and other assets (if any)
corresponding to such McNeil Partnership which are being contributed to the
applicable New GP LLC at the direction of the Company in accordance with
Article II hereof.
"Higher Acquisition Proposal" means an Acquisition Proposal made by one or
more persons which are not affiliates of the Company, Whitehall or the Managing
Member with respect to a McNeil Partnership, which the Company and the general
partner of such McNeil Partnership jointly determine to be more favorable to
the limited partners of such McNeil Partnership from a financial point of view
than the Merger and the other transactions contemplated by this Agreement with
respect to such McNeil Partnership; provided, however, that
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the payment of the Partnership Break-Up Fee by such person(s) shall not be
taken into consideration in determining whether or not such Acquisition
Proposal is more favorable to the limited partners of such McNeil Partnership
from a financial point of view than the Merger and the other transactions
contemplated by this Agreement with respect to such McNeil Partnership;
provided further, however, that if the Company and the general partner of the
applicable McNeil Partnership are unable to reach agreement as to whether or
not such Acquisition Proposal is more favorable to the limited partners of such
McNeil Partnership from a financial point of view than the Merger and the other
transactions contemplated by this Agreement with respect to such McNeil
Partnership within three (3) business days of such McNeil Partnership's
execution of definitive documents relating to such Acquisition Proposal, then
the Company and such McNeil Partnership agree to submit such dispute to the
Financial Advisor whose determination shall be final and binding upon all of
the parties hereto.
"Indemnification Agreement" means the Indemnification and Pledge Agreement,
in the form attached as Exhibit F hereto, by and between MPLP (or another
designee of the Contributing Partners) and the Managing Member.
"Knowledge of Sellers" (or words of similar import) means the actual
knowledge, after due inquiry, of those individuals identified on Schedule
10.1(a) of the Seller Disclosure Letter.
"Knowledge of the Company" (or words of similar import) means the actual
knowledge, after due inquiry, of the officers of Whitehall, the Managing
Member, the Company and the Company's subsidiaries.
"Known Defects" means any and all reports, and any and all facts and
conclusions set forth therein, which were commissioned or requested and
received by the Company or any of its affiliates in connection with the
transactions contemplated by this Agreement or the other Transaction Documents
and which relate to, or were prepared in connection with, environmental or
structural matters with respect to any one or more properties currently or
formerly owned, operated or leased by any Seller or any of its subsidiaries.
"KRULPA" means the Kansas Revised Uniform Limited Partnership Act.
"Liens" means any and all options, claims, security interests, pledges,
liens, charges, encumbrances or restrictions (whether on voting, sale,
transfer, disposition or otherwise), whether imposed by agreement,
understanding, law or otherwise, other than, in the case of any of the McNeil
Partnerships, Liens created pursuant to the terms of the limited partnership
agreement for such McNeil Partnership, and other than Liens relating to Non-
Terminated Loans.
"LLC Agreement" means the First Amended and Restated Limited Liability
Company Agreement of the Company, in the form attached as Exhibit G to this
Agreement.
"LP Interest" means a unit of limited partnership interest in a limited
partnership.
"McNeil Person" means (i) Robert A. McNeil and Carole J. McNeil, (ii) any
and all affiliates and subsidiaries of each Seller, (iii) any and all indirect
and direct holders of beneficial interests in each Seller and (iv) in respect
of each Seller and each person specified in clauses (i), (ii) and (iii), each
of their respective directors, officers, partners, members, employees,
controlling persons, agents and representatives; provided, however, that in no
event shall the definition of McNeil Person include any party to this Agreement
(other than Robert A. McNeil); provided further, however, that the definition
of McNeil Person shall include Robert A. McNeil.
"McREMI Assets" means all of McREMI's right, title and interest in and to
all of the assets of McREMI and all rights of McREMI relating thereto, other
than the Excluded McREMI Assets.
"McREMI Reduction Amount" means an amount equal to the sum of (i) the
product determined by multiplying (A) the Partial McREMI Allocated Value by (B)
the sum of the Partnership Percentages for each
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Excluded McNeil Partnership (if any) and (ii) the sum of the Second McREMI
Allocated Values for each Excluded McNeil Partnership.
"McREMI Transaction Expenses" means the Transaction Expenses incurred by
McREMI on behalf of itself and not on behalf of the McNeil Partnerships or
their Seller Subsidiaries.
"Merging Partnership" means each McNeil Partnership other than Fairfax and
Summerhill.
"Merging Private Partnerships" means Hearth Hollow, Midwest Properties and
Regency North.
"MPLP GP Subsidiaries" means the Subsidiary Partnerships designated as "MPLP
GP Subsidiaries" on Annex G hereto.
"MPLP Subsidiary Corporation" means the Subsidiary Corporation designated as
a "MPLP Subsidiary Corporation" on Annex F hereto.
"MULPL" means the Missouri Uniform Limited Partnership Law.
"Net McREMI Allocated Value" means an amount equal to the difference
determined by subtracting (i) the McREMI Reduction Amount (if any) from (ii)
the Total McREMI Allocated Value.
"Net Operating Income" means, for any McNeil Partnership, the adjusted net
operating income of such McNeil Partnership calculated in accordance with GAAP
applied consistently with past practice and in accordance with the methodology
set forth in Schedule 10.1(b) of the Seller Disclosure Letter.
"NOI Amount" means, with respect to a McNeil Partnership, the amount set
forth on Schedule 8.2(h) of the Seller Disclosure Letter in the column entitled
"Adjusted NOI" opposite the name of such McNeil Partnership.
"Original LLC Agreement" means the limited liability company agreement of
the Company dated June 17, 1999, by the Managing Member as the sole member
thereof, a true and correct copy of which has been delivered by the Company to
Sellers prior to the date hereof.
"Participating McNeil Partnership" means, from time to time, a McNeil
Partnership which is not an Excluded McNeil Partnership at such time.
"Participating Merging Partnership" means each Participating McNeil
Partnership other than Fairfax and Summerhill.
"Participating Partnership Consideration Amount" means, with respect to each
Participating McNeil Partnership, an amount equal to the difference determined
by subtracting (i) an amount equal to the absolute value of the Negative Excess
Cash Balance (if any) for such Participating McNeil Partnership from (ii) the
sum of the LP Allocation Amounts for each class of LP Interests in such
Participating McNeil Partnership.
"Partnership Break-Up Fee" means, with respect to an Excluded McNeil
Partnership, an amount equal to the product determined by multiplying (i)
eighteen million dollars ($18,000,000) by (ii) the Partnership Percentage for
such McNeil Partnership.
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"Partnership Percentage" means, with respect to a McNeil Partnership, the
percentage set forth below opposite the name of such McNeil Partnership.
<TABLE>
<S> <C>
Hearth Hollow.................................................... 0.6056%
Midwest Properties............................................... 1.9645%
Regency North.................................................... 0.8364%
Fairfax.......................................................... 0.6451%
Summerhill....................................................... 1.0657%
MREF IX.......................................................... 15.4200%
MREF X........................................................... 11.4113%
MREF XI.......................................................... 11.8272%
MREF XII......................................................... 9.3507%
MREF XIV......................................................... 6.8073%
MREF XV.......................................................... 6.6786%
MREF XX.......................................................... 0.9957%
MREF XXI......................................................... 3.1957%
MREF XXII........................................................ 2.1607%
MREF XXIII....................................................... 1.0690%
MREF XXIV........................................................ 2.5304%
MREF XXV......................................................... 7.7808%
MREF XXVI........................................................ 6.9517%
MREF XXVII....................................................... 8.7036%
</TABLE>
"Per Partnership Transaction Expenses" means, with respect to a McNeil
Partnership, the sum of (i) the amount of Transaction Expenses actually
incurred by such McNeil Partnership on behalf of itself and its Seller
Subsidiaries and (ii) in the case of Transaction Expenses incurred by Sellers
that are not specifically identifiable to individual McNeil Partnerships, an
amount equal to such McNeil Partnership's ratable share of such Transaction
Expenses based on its relative Partnership Percentage.
"Per Unit Consideration Amount" means, with respect to an LP Interest in a
McNeil Partnership, an amount equal to the difference determined by subtracting
(i) an amount equal to the absolute value of the applicable portion of the
Negative Excess Cash Balance (if any) for such Participating McNeil Partnership
attributable to such LP Interest from (ii) the Per Unit Allocation Amount for
such LP Interest.
"person" means an individual, corporation, partnership, limited partnership,
limited liability company, syndicate, trust, association, unincorporated
organization, governmental entity, political subdivision, or an agency or
instrumentality of a governmental entity.
"Portfolio Advisory Agreement" shall have the meaning ascribed to such term
in the LLC Agreement.
"Post-Allocation Upstream Amounts" means any and all Upstream Payables
accruing in respect of the period commencing on the Stanger Determination Date
through to and ending on the Closing Date.
"Post-Allocation Upstream Payables" means the excess (if any) of any and all
Post-Allocation Upstream Amounts over an amount equal to the product determined
by multiplying the number of fiscal months between the Stanger Determination
Date (including any fraction thereof) and the Closing Date by one hundred
ninety thousand dollars ($190,000).
"Pre-Allocation Upstream Payable" means any Upstream Payable accruing in
respect of any period prior to the Stanger Determination Date.
"Preferred Equity Financing" shall have the meaning ascribed to such term in
the LLC Agreement.
"Preliminary Excess Cash Balance" shall have the meaning, for a particular
McNeil Partnership, ascribed to the term "Excess Cash Balance" on the Excess
Cash Balance Schedule for such McNeil Partnership.
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"Private McNeil Partnership" means each Merging Private Partnership and
Summerhill and Fairfax.
"Property Employees" means any and all employees of McREMI whose salaries
are reimbursed to McREMI in whole or in part by the McNeil Partnership
Properties or the owners of the McNeil Partnership Properties.
"Related Party Transaction" means any agreement or intercompany account
between any Participating McNeil Partnership or its subsidiaries, on the one
hand, and any Seller or any of its affiliates or any of their respective
officers or directors, or any relative of any of the foregoing, on the other
hand; provided, however, that the definition of Related Party Transactions
shall not include (i) any Pre-Allocation Upstream Payables, (ii) the Summerhill
Note or (iii) any agreement or intercompany account among any Participating
McNeil Partnership and any of its subsidiaries, on the one hand, and any one or
more Participating McNeil Partnerships and their subsidiaries, on the other
hand.
"Seller Material Adverse Effect" means a material adverse effect on the
business, properties, financial condition or results of operations of the
Participating McNeil Partnerships, taken as a whole; provided, however, that
the following shall be excluded from the definition of "Seller Material Adverse
Effect" and from any determination as to whether such Seller Material Adverse
Effect has occurred or may occur: (i) the effects of changes that are generally
applicable to (A) the residential real estate industry or the commercial real
estate industry or both or (B) any material change in the financial, banking,
currency or capital markets in general (either in the United States or any
international market); and (ii) any facts or circumstances relating to the
Company or its affiliates; provided further, however, that any such adverse
effect from and after the date hereof shall also be excluded from such
determination if such effect is clearly related to or caused by, the execution
of this Agreement, the transactions contemplated hereby or by the other
Transaction Documents or the announcement of this Agreement (including the
identity of the Company or any of its affiliates or subsidiaries) or the
transactions contemplated hereby or thereby.
"Seller Reimbursable Expenses" means an amount equal to the lesser of (i)
one million five hundred thousand dollars ($1,500,000) and (ii) Sellers'
actual, reasonable out-of-pocket expenses incurred in connection with this
Agreement and the transactions contemplated by this Agreement (including,
without limitation, all attorneys', accountants' and investment bankers' fees
and expenses and all Transaction Expenses).
"Seller Subsidiaries" means the subsidiary partnerships of the McNeil
Partnerships listed on Annex G to this Agreement (the "Subsidiary
Partnerships") and the subsidiary corporations listed on Annex F to this
Agreement (the "Subsidiary Corporations") which hold GP Interests in certain of
the Subsidiary Partnerships.
"Shortfall Agreement" shall have the meaning ascribed to such term in the
LLC Agreement.
"Stanger Determination Date" means the final date prior to which Stanger has
taken Upstream Payables into account in determining the Total McREMI Allocated
Value or any Allocation. The parties hereto acknowledge and agree that any
dispute as to the Stanger Determination Date or whether or not any Upstream
Payable has been included in determining the Total McREMI Allocated Value or
any Allocation shall be submitted to and decided by Stanger.
"Stanger Engagement Letter" means the Amended and Restated Agreement, dated
as of May 7, 1999, by and among Stanger and the McNeil Partnerships, as the
same may be amended from time to time.
"Stanger Opinions" shall have the meaning ascribed to the term "Opinions" in
the Stanger Engagement Letter.
"subsidiary" of any person means another person, an amount of the voting
securities, other voting ownership or voting partnership interests of which is
sufficient to elect at least a majority of its Board of Directors or other
governing body (or, if there are no such voting interests, 50% or more of the
equity interests of which) is owned directly or indirectly by such first
person.
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"Superior Acquisition Proposal" means a bona fide Acquisition Proposal made
by a third party for one or more of the McNeil Partnerships which the general
partner of each such McNeil Partnership determines in good faith to be more
favorable to the limited partners of such McNeil Partnership from a financial
point of view than the Mergers and the other transactions contemplated by this
Agreement with respect to such McNeil Partnership, and which such general
partner determines in good faith is reasonably likely to be consummated.
"Support Agreements" means any indemnification obligation or agreement
relating to one or more Non-Terminated Loans and any other agreement with a
lender of a Non-Terminated Loan (or an affiliate of such lender) whereby
liability has been assumed on behalf of a Participating McNeil Partnership or
its subsidiaries for exceptions to nonrecourse provisions contained in the Non-
Terminated Loans.
"Transaction Documents" means this Agreement, Ancillary Agreements, the
Commitment Letter, the Guarantee and the other documents, instruments and
agreements entered into in connection with the transactions contemplated by
this Agreement or the Ancillary Agreements, including certain letter agreements
dated as of the date hereof between one or more of the parties hereto and all
assignment agreements executed in connection with the transactions contemplated
by Sections 2.2 and 2.3(a)(i), 2.3(a)(ii) and 2.3(a)(iii) hereof.
"Transaction Expenses" means, with respect to any person, the aggregate
amount of all costs, fees and expenses incurred by such person with respect to
the transactions contemplated by the Transaction Documents.
"TRLPA" means the Texas Revised Limited Partnership Act.
"Upstream Payables" means any accrued and unpaid asset management amounts,
management incentive distributions, deferred distributions, advances, overhead
reimbursements or other amounts owed or payable by McREMI, MII, MPLP or any of
the McNeil Partnerships to any one or more of McREMI, MII, MPLP or to any of
their respective stockholders or general partners (as the case may be), or to
any general partner of any McNeil Partnership.
"Waiver Letter" means the letter agreement, to be dated the Closing Date, by
and among MPLP, Summerhill and Robert A. McNeil, and acknowledged by the
Company.
Section 10.2 Seller Disclosure Letter. The parties hereto agree that any
information provided in any Schedule of the Seller Disclosure Letter is
considered disclosed in each and every other Schedule of the Seller Disclosure
Letter, and shall qualify the corresponding section of this Agreement, to the
extent it is clear from a reading of such information that such information is
applicable to such other section. Any disclosure in any Schedule of the Seller
Disclosure Letter of any contract, document, liability, default, breach,
violation, limitation, impediment or other matter, although the provision for
such disclosure may require such disclosure only if such contract, document,
liability, default, breach, violation, limitation, impediment or other matter
be "material," shall not be construed against any party to this Agreement, as
an assertion by such party, that any such contract, document, liability,
default, breach, violation, limitation, impediment or other matter is, in fact,
material.
Section 10.3 Interpretation. When a reference is made in this Agreement to a
section, article, paragraph, clause, annex or exhibit, such reference shall be
to a reference to this Agreement unless otherwise clearly indicated to the
contrary. The descriptive article and section headings herein are intended for
convenience of reference only and are not intended to be a part of or to affect
the meaning or interpretation of this Agreement. Whenever the words
"transactions contemplated by this Agreement or the other Transaction
Documents" (or words of similar import) are used in this Agreement, they shall
be deemed not to include the Preferred Equity Financing or any other financing
contemplated by the Company or its affiliates either before, concurrently with
or following the Closing (it being understood that nothing in this sentence
shall affect or be deemed to amend or modify Section 8.2(d)(i) hereof).
Whenever the words "include", "includes" or "including" are used in this
Agreement they shall be deemed to be followed by the words "without
limitation." The words "hereof," "herein" and "herewith" and words of similar
import shall, unless otherwise
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stated, be construed to refer to this Agreement as a whole and not to any
particular provision of this Agreement. The meaning assigned to each term used
in this Agreement shall be equally applicable to both the singular and the
plural forms of such term, and words denoting any gender shall include all
genders. Where a word or phrase is defined herein, each of its other
grammatical forms shall have a corresponding meaning. The parties have
participated jointly in the negotiation and drafting of this Agreement and the
other Transaction Documents; consequently, in the event an ambiguity or
question of intent or interpretation arises, this Agreement and each of the
other Transaction Documents shall be construed as if drafted jointly by the
parties thereto, and no presumption or burden of proof shall arise favoring or
disfavoring any party by virtue of the authorship of any provision of this
Agreement or of any of the other Transaction Documents.
ARTICLE XI
General Provisions
Section 11.1 Nonsurvival of Representations, Warranties and Covenants. Other
than the covenants and agreements set forth in Sections 3.3, 3.5, 7.3(c)
(except for rights and obligations thereunder with respect to Participating
McNeil Partnerships which shall not survive the Effective Time), 7.4(b), 7.6,
7.8(a), 7.9, 7.10, 7.11, 7.14, 9.4, 9.5 and 9.6 hereof and in this Article XI,
all of the representations, warranties, covenants, agreements and undertakings
set forth in this Agreement or in any instrument delivered pursuant to this
Agreement confirming the representations, warranties, covenants, agreements and
undertakings set forth in this Agreement shall terminate as of the Effective
Time and shall have no further force or effect. The parties hereto hereby agree
that, other than the representations and warranties contained in Articles IV
and V hereof, no representations or warranties are being made in this Agreement
by any party hereto.
Section 11.2 Non-Recourse. The Company (on behalf of itself and each Company
Person) acknowledges and agrees that notwithstanding anything to the contrary
in this Agreement or under applicable law: (i) this Agreement shall not create
or be deemed to create or permit any liability or obligation on part of any
McNeil Person and no McNeil Person shall be bound or have any liability
hereunder (other than Robert A. McNeil solely in respect of Sections 2.2(a),
2.2(b) and 2.2(c)(ii) hereof); and (ii) the Company and each Company Person
shall look solely to the assets of Sellers for satisfaction of any liability of
Sellers under this Agreement, and neither the Company nor any Company Person
shall seek recourse or commence any action against any McNeil Person or any
McNeil Person's assets, for the performance or payment of any obligation of
Sellers (other than against Robert A. McNeil solely in respect of his
obligations under Sections 2.2(a), 2.2(b) and 2.2(c)(ii) hereof) under this
Agreement. This Agreement (except with respect to Sections 2.2(a), 2.2(b) and
2.2(c)(ii) hereof), is executed on behalf of certain Sellers by Robert A.
McNeil in his capacity, as the case may be, as a general partner, stockholder,
officer or director of such Seller, or as a general partner, stockholder,
officer or director of a Seller which is a stockholder or general partner of
another Seller, and not individually or personally. The Company (on behalf of
itself and each Company Person) has conducted its own independent review and
analysis of the business, operations, technology, assets, liabilities, results
of operations, financial condition and prospects of the business of Sellers and
acknowledges that Sellers have provided the Company and the Company Persons
with access to certain personnel, properties, premises and books and records of
such business for this purpose. In entering into this Agreement, the Company
has relied solely upon the investigation and analysis of itself and the Company
Persons and the specific representations and warranties of Sellers set forth in
Article IV of this Agreement, and the Company (on behalf of itself and each
Company Person) acknowledges and agrees (i) that, except for the specific
representations and warranties of Sellers contained in Article IV hereof, no
Seller or McNeil Person makes or has made any representation or warranty,
either express or implied, as to the accuracy or completeness of any of the
information (including any projections, estimates or other forward-looking
information) provided (including in any management presentations, information
memorandum, supplemental information or other materials or information with
respect to any of the above) or otherwise made available to the Company or any
Company Person, and (ii) that, to the fullest extent permitted by law, none of
the McNeil Persons shall have any liability or responsibility whatsoever to the
Company or any
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Company Person on any basis (including in contract or tort, under federal or
state securities laws or otherwise) based upon any information provided or made
available, or statements made (or any omissions therefrom), to the Company or
any Company Person, including in respect of the specific representations and
warranties set forth in Article IV of this Agreement. Notwithstanding anything
to the contrary in this Section 11.2, nothing in this Section 11.2 shall be
deemed to affect or modify in any way the rights and obligations under the LLC
Agreement or the Indemnification Agreement of the parties thereto.
Section 11.3 Amendment. This Agreement may be amended in writing by the
parties hereto at any time (i) before or after any requisite approvals of the
respective partners, limited partners or stockholders, as the case may be, of
each of the parties are obtained and (ii) prior to the filing of any of the
Merger Certificates with the Secretary of State of any of the states of
formation of the McNeil Partnerships set forth on Schedule 4.1(c) of the Seller
Disclosure Letter; provided, however, that, after the requisite approvals of
the limited partners of any McNeil Partnership are obtained, no such amendment,
modification or supplement shall be made which by law requires the further
approval of such limited partners without obtaining such further approval.
Section 11.4 Extension; Waiver. At any time prior to the Effective Time, the
parties may in writing (i) extend the time for the performance of any of the
obligations or other acts of any other party, (ii) waive any inaccuracies in
the representations and warranties of any other party, or (iii) waive
compliance with any of the agreements or conditions of any other party, in each
case, contained in this Agreement, the other Transaction Documents or in any
document delivered pursuant to this Agreement or the other Transaction
Documents. Any agreement on the part of a party to any such extension or waiver
shall be valid only if set forth in an instrument in writing signed on behalf
of such party. The failure of any party to this Agreement to assert any of its
rights under this Agreement or otherwise shall not constitute a waiver of those
rights.
Section 11.5 Notices. All notices, requests, claims, demands and other
communications under this Agreement shall be in writing and shall be delivered
personally, sent by overnight courier (providing proof of delivery or refusal
of delivery) to the parties or sent by telecopy (providing confirmation of
transmission) at the following addresses or telecopy numbers (or at such other
address or telecopy number for a party as shall be specified by like notice):
(a) if to any McNeil Entity, to:
Robert and Carole McNeil
229 Polhemus Avenue
Atherton, California 94027
Telecopier No.: (650) 323-0720
with copies to:
Robert and Carole McNeil
1001 California Street, #600
San Francisco, California 94018
Telecopier No.: (415) 441-2380
and:
Skadden, Arps, Slate, Meagher & Flom LLP
919 Third Avenue
New York, New York 10022
Attention: Martha E. McGarry, Esq.
Telecopier No.: (212) 735-2000
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(b) if to the Company, to:
WXI/McN Realty L.L.C.
85 Broad Street
New York, New York 10004
Attention: Ralph Rosenberg
Telecopier No.: (212) 357-5505
with copies to:
Sullivan & Cromwell
125 Broad Street
New York, New York 10004
Attention: Gary Israel, Esq.
Telecopier No.: (212) 558-3588
All notices shall be deemed given only when actually received. In no event
shall the provision of notice pursuant to this Section 11.5 constitute notice
for service of any writ, process or summons in any suit, action or other
proceeding.
Section 11.6 Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each
of the parties and delivered to the other parties.
Section 11.7 Entire Agreement; No Third Party Beneficiaries. This Agreement
(including the Seller Disclosure Letter), the other Transaction Documents, the
Confidentiality Agreement and the other agreements entered into in connection
with the Mergers and the other transactions contemplated by this Agreement (i)
constitute the entire agreement and supersede all prior agreements and
understandings, both written and verbal, between the parties with respect to
the subject matter thereof and (ii) are not intended to confer upon any person
(other than the parties to this Agreement and the Contributing Partners) any
rights or remedies whatsoever. Immediately following the Closing, the rights
and obligations under the Confidentiality Agreement of the parties thereto
shall terminate with respect to any Participating McNeil Partnership and the
Seller Subsidiaries of such Participating McNeil Partnership.
Section 11.8 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, REGARDLESS OF
THE LAWS THAT MIGHT OTHERWISE GOVERN UNDER APPLICABLE PRINCIPLES OF CONFLICTS
OF LAWS THEREOF.
Section 11.9 Assignment. Neither this Agreement nor any of the rights,
interests or obligations under this Agreement shall be assigned or delegated,
in whole or in part, by operation of law or otherwise by any of the parties
without the prior written consent of the other parties. Subject to the
preceding sentence, this Agreement shall be binding upon, inure to the benefit
of, and be enforceable by, the parties and their respective successors and
assigns.
Section 11.10 Consent to Jurisdiction. Each of the parties hereto
irrevocably and unconditionally submits to the non-exclusive jurisdiction of
the United States District Court for the Southern District of New York or, if
such court will not accept jurisdiction, the Supreme Court of the State of New
York or any court of competent civil jurisdiction sitting in New York County,
New York. In any action, suit or other proceeding, each of the parties hereto
irrevocably and unconditionally waives and agrees not to assert by way of
motion, as a defense or otherwise any claims that it is not subject to the
jurisdiction of the above courts, that such action or suit is brought in an
inconvenient forum or that the venue of such action, suit or other proceeding
is improper. Each of the parties hereto also agrees that any final and
unappealable judgment against a party hereto in connection with any action,
suit or other proceeding shall be conclusive and binding on such party and that
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such award or judgment may be enforced in any court of competent jurisdiction,
either within or outside of the United States. A certified or exemplified copy
of such award or judgment shall be conclusive evidence of the fact and amount
of such award or judgment.
Section 11.11 Severability. Any term or provision of this Agreement which is
invalid or unenforceable in any jurisdiction shall, as to that jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction. If any provision of
this Agreement is so broad as to be unenforceable, the provision shall be
interpreted to be only so broad as is enforceable.
Section 11.12 Arbitration. With respect to a determination of the CPA Firm
pursuant to Section 2.4(b) hereof and the determination of the Financial
Advisor with respect to a Higher Acquisition Proposal, each party hereto agrees
that such determination shall be final and binding upon such party. Judgment on
the determination may be entered in any court of competent jurisdiction (within
and outside the United States). In the event that any party to this Agreement
fails to comply, in the case of the determination of the CPA Firm, with the
procedures set forth in Section 2.4(b) hereof or the orders of the CPA Firm or
the determination of the CPA Firm, or, in the case of the determination of the
Financial Advisor, with the orders of the Financial Advisor or the
determination of the Financial Advisor and in either case, with this Section
11.2, then such noncomplying party shall be liable for all costs and expenses,
including attorneys' fees, incurred by a party in its effort to obtain either
an order to compel compliance with such procedures or such orders, or an
enforcement of the determination, from a court of competent jurisdiction.
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IN WITNESS WHEREOF, each of the parties has executed this Master Agreement,
or has caused this Master Agreement to be executed on its behalf by its officer
thereunto duly authorized, as of the date first above written.
WXI/McN Realty L.L.C.
By: WXI/MCN Real Estate, L.L.C., its
Managing Member
By: Whitehall Street Real Estate
Limited Partnership XI, its
Managing Member
By: WH Advisors, L.L.C. XI, its
General Partner
/s/ Jonathan Langer
By: _________________________________
Name: Jonathan Langer
Title: Vice President
McNEIL INVESTORS, INC.
/s/ Robert A. McNeil
By:__________________________________
Name: Robert A. McNeil
Title: Chairman of the Board
McNEIL REAL ESTATE MANAGEMENT, INC.
/s/ Robert A. McNeil
By:__________________________________
Name: Robert A. McNeil
Title: Co-Chairman of the Board
McNEIL PARTNERS, L.P.
By: McNeil Investors, Inc., its
General Partner
/s/ Robert A. McNeil
By:__________________________________
Name: Robert A. McNeil
Title: Chairman of the Board
on behalf of itself and each of the
McNeil Partnerships (other than
Regency North, Fairfax and
Summerhill)
REGENCY NORTH ASSOCIATES, L.P.
/s/ Robert A. McNeil
By:__________________________________
Name: Robert A. McNeil
Title: General Partner
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FAIRFAX ASSOCIATES II, LTD.
/s/ Robert A. McNeil
By:__________________________________
Name: Robert A. McNeil
Title: General Partner
McNEIL SUMMERHILL I, L.P.
By: McNeil Summerhill, Inc. its
General Partner
/s/ Robert A. McNeil
By:__________________________________
Name: Robert A. McNeil
Title: Co-Chairman of the Board
McNEIL SUMMERHILL, INC.
/s/ Robert A. McNeil
By:__________________________________
Name: Robert A. McNeil
Title: Co-Chairman of the Board
/s/ Robert A. McNeil
_____________________________________
Robert A. McNeil
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<PAGE>
APPENDIX B
FIRST AMENDED AND RESTATED
LIMITED LIABILITY COMPANY OPERATING AGREEMENT
OF
WXI/McN REALTY L.L.C.
THE INTERESTS OF THE MEMBERS ISSUED UNDER THIS AGREEMENT HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 OR THE SECURITIES LAWS OF ANY STATE
OR THE DISTRICT OF COLUMBIA. NO RESALE OR TRANSFER OF AN INTEREST BY A MEMBER
IS PERMITTED EXCEPT IN ACCORDANCE WITH THE PROVISIONS OF THIS AGREEMENT AND ANY
APPLICABLE FEDERAL OR STATE SECURITIES LAWS, AND ANY VIOLATION OF SUCH
PROVISIONS COULD EXPOSE THE SELLING OR TRANSFERRING MEMBER AND THE COMPANY TO
LIABILITY.
Dated as of , 1999
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TABLE OF CONTENTS
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R E C I T A L S......................................................... B-1
ARTICLE 1. DEFINITIONS.................................................. B-1
1.1 Definitions.................................................... B-1
1.2 Terms Generally................................................ B-13
1.3 Definitions from Master Agreement.............................. B-13
ARTICLE 2. THE COMPANY AND ITS BUSINESS................................. B-13
2.1 Effectiveness of the Agreement; Continuation................... B-13
2.2 Company Name................................................... B-14
2.3 Term........................................................... B-14
2.4 Amendments to Certificate of Formation......................... B-14
2.5 Business; Scope of Members' Authority.......................... B-14
2.6 Principal Office; Mailing Address; Registered Agent............ B-15
2.7 Fiscal Year.................................................... B-15
2.8 Company Property............................................... B-15
2.9 No State Law Partnership....................................... B-15
2.10 Names and Addresses of Members................................. B-15
2.11 Representations by Members..................................... B-15
2.12 Additional Representations by Whitehall........................ B-16
2.13 Additional Representations by McNeil........................... B-17
2.14 Indemnification................................................ B-17
ARTICLE 3. MANAGEMENT OF COMPANY BUSINESS; MAJOR DECISIONS.............. B-17
3.1 Management Generally........................................... B-17
3.2 Managers and Officers: Number, Appointment, Removal,
Qualifications, Etc............................................ B-18
3.3 Committees..................................................... B-19
3.4 Managers' Expenses............................................. B-19
3.5 Meetings of Managers........................................... B-19
3.6 Quorum......................................................... B-19
3.7 Voting Requirements............................................ B-20
3.8 Actions Requiring Super-majority Approval...................... B-20
3.9 Role of the Portfolio Advisor and Limitations on Its
Authority...................................................... B-21
ARTICLE 4. RIGHTS AND DUTIES OF MEMBERS AND BOARD OF MANAGERS........... B-22
4.1 Approved Budget and Business Plan.............................. B-22
4.2 Other Activities of the Members................................ B-22
4.3 Indemnification................................................ B-22
4.4 Compensation of Members and their Affiliates; Goldman, Sachs &
Co. as Exclusive Financial Advisor............................. B-22
4.5 Dealing with Members........................................... B-23
4.6 Use of Company Property........................................ B-23
4.7 Designation of Tax Matters Member.............................. B-23
4.8 Proposed Transactions After Five Years......................... B-23
4.9 McNeil's Right Prior to Bankruptcy Filing...................... B-24
4.10 Refinancing after Five Years................................... B-24
4.11 Senior Indebtedness and Preferred Equity Financing............. B-25
4.12 Property Manager............................................... B-25
4.13 Binding Effect of Asset Allocations............................ B-25
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4.14 Reservation of Rights......................................... B-25
4.15 Taxation as a Partnership..................................... B-25
4.16 Harbour Club Properties....................................... B-25
4.17 Preferred Equity Financing.................................... B-26
ARTICLE 5. BOOKS AND RECORDS; REPORTS................................... B-26
5.1 Books and Records............................................. B-26
5.2 Availability of Books and Records; Return of Books and
Records....................................................... B-26
5.3 Reports and Statements; Annual Budgets and Business Plans..... B-26
5.4 Accounting Expenses........................................... B-27
5.5 Bank Account.................................................. B-27
ARTICLE 6. CAPITAL CONTRIBUTIONS AND LIABILITIES........................ B-27
6.1 Initial Capital Contributions and Initial Capital Accounts of
the Members................................................... B-27
6.2 Working Capital Contributions and Other Additional Capital
Contributions................................................. B-28
6.3 Capital of the Company........................................ B-28
6.4 Distributions as Working Capital Reserves..................... B-28
6.5 Failure to Fund the McNeil Cash Contribution.................. B-29
6.6 Limited Liability of Members.................................. B-30
ARTICLE 7. CAPITAL ACCOUNTS, PROFITS AND LOSSES AND ALLOCATIONS......... B-30
7.1 Capital Accounts.............................................. B-30
7.2 Profits and Losses............................................ B-30
ARTICLE 8. APPLICATIONS AND DISTRIBUTIONS OF NET CASH FLOW AND NET
PROCEEDS FROM CAPITAL TRANSACTIONS............................ B-32
8.1 Applications and Distributions................................ B-32
ARTICLE 9. TRANSFER OF COMPANY INTERESTS................................ B-35
9.1 Transfers of Interests by Members............................. B-35
9.2 Transfer Binding on Company................................... B-36
9.3 Certain Limitations........................................... B-36
9.4 Acceptance of Prior Acts...................................... B-36
ARTICLE 10. DISSOLUTION; WINDING UP AND DISTRIBUTION OF ASSETS.......... B-37
10.1 Dissolution................................................... B-37
10.2 Winding Up.................................................... B-37
10.3 Distribution of Assets........................................ B-37
10.4 Certificate of Cancellation................................... B-38
10.5 Claims of the Members......................................... B-38
ARTICLE 11. AMENDMENTS.................................................. B-38
11.1 Amendments.................................................... B-38
ARTICLE 12. MISCELLANEOUS............................................... B-38
12.1 Further Assurances............................................ B-38
12.2 Notices....................................................... B-38
12.3 Headings and Captions......................................... B-38
12.4 Variance of Pronouns.......................................... B-38
12.5 Counterparts.................................................. B-38
12.6 Governing Law................................................. B-38
12.7 Waiver of Jury Trial.......................................... B-38
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12.8 Consent to Jurisdiction......................................... B-39
12.9 Specific Performance............................................ B-39
12.10 Partition....................................................... B-39
12.11 Severability.................................................... B-39
12.12 Successors and Assigns.......................................... B-39
12.13 Entire Agreement................................................ B-39
12.14 Waivers......................................................... B-39
12.15 Maintenance as a Separate Entity................................ B-39
12.16 Confidentiality................................................. B-40
12.17 No Third Party Beneficiaries.................................... B-40
12.18 Power of Attorney............................................... B-40
12.19 Construction of this Agreement.................................. B-40
12.20 Non-Recourse.................................................... B-41
12.21 Setoff.......................................................... B-41
12.22 Arbitration..................................................... B-41
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iii
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FIRST AMENDED AND RESTATED
LIMITED LIABILITY COMPANY OPERATING AGREEMENT
OF
WXI/McN REALTY L.L.C.
FIRST AMENDED AND RESTATED LIMITED LIABILITY COMPANY OPERATING AGREEMENT of
WXI/McN Realty L.L.C., a Delaware limited liability company, dated as of
, , by and between (i) WXI/MNL Real Estate L.L.C., a Delaware
limited liability company ("Whitehall"), and (ii) McNeil Partners, L.P., a
Delaware limited partnership ("McNeil").
R E C I T A L S
WHEREAS, the Company was formed as a Delaware limited liability company
pursuant to the Certificate of Formation on June 17, 1999; and
WHEREAS, the Parties hereto desire to continue the Company and to enter into
this Agreement, all as contemplated by the Master Agreement.
NOW, THEREFORE, in order to carry out their intent as expressed above and in
consideration of the mutual agreements hereinafter contained and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties, intending to be legally bound, hereby covenant and
agree as follows:
ARTICLE 1.
Definitions
1.1 Definitions. As used in this Agreement, the following terms shall have
the meanings set forth below:
"Additional Capital Contributions" shall mean, with respect to any Member,
the amount of any cash contributions (including the Initial Working Capital
Contribution) and the value of any non-cash contributions made to the Company
by such Member in excess of such Member's Initial Capital Contribution.
Notwithstanding anything to the contrary contained herein, if Whitehall would
otherwise be entitled to receive a cash distribution of Net Cash Flow or Net
Proceeds from Capital Transactions pursuant to Section 8.1(b) or 8.1(c) from
the Company, Whitehall may elect to forego receipt of all or a portion of such
distribution and have the amount so foregone treated as an Additional Capital
Contribution in accordance with Section 6.4.
"Affiliate" of any Person shall mean another Person that directly or
indirectly controls, is controlled by, or is under common control with, such
first Person.
"Agreement" shall mean this Limited Liability Company Operating Agreement,
as it may hereafter be amended or modified from time to time.
"Annual Budget" shall mean the annual operating budget and annual capital
budget for the Company as amended from time to time, prepared by the Portfolio
Advisor for the approval of the Board of Managers pursuant to the terms of the
Portfolio Advisory Agreement and Section 4.1 hereof.
"Appraised Value" shall mean the value determined by written agreement
between Whitehall and McNeil or, failing such an agreement within 10 days after
the appraisal procedure is commenced, (i) in the event that Whitehall and
McNeil have agreed upon an investment bank to serve as Appraiser, the value of
the non-cash consideration shall be determined by the Appraiser and (ii) in the
event that Whitehall and McNeil have requested that their respective investment
banks appoint a third investment bank to act as Appraiser, the value
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of the non-cash consideration shall be determined by the Appraiser's
determination of the Independent Value. In the case of clause (ii), the
investment bank appointed by Whitehall shall make a determination of the value
of the non-cash consideration (the "Whitehall Value") and the investment bank
appointed by McNeil shall make a determination of the value of the non-cash
consideration (the "McNeil Value"). The Appraiser shall then make its own
determination of the value of the non-cash consideration (the "Independent
Value"). If the Independent Value is closer to the Whitehall Value, the
Appraised Value shall be equal to the Whitehall Value. If the Independent Value
is closer to the McNeil Value, the Appraised Value shall be equal to the McNeil
Value. If the Independent Value is equally distant to the McNeil Value and the
Whitehall Value, the Appraised Value shall be equal to the Independent Value.
At the time the Appraiser is appointed, the Members shall direct the Appraiser
to determine the Appraised Value within 30 days.
"Appraiser" shall mean the nationally recognized investment bank (defined
according to Securities Data Co. as one of the top 10 underwriters of equity
initial public offerings in the United States during calendar year 1998) or the
nationally recognized investment banks selected by the Members to determine the
Appraised Value pursuant to Section 4.8(b)(iii). In the event the Members
cannot agree on an investment bank to act as Appraiser within 10 days, each
Member shall appoint a nationally recognized investment bank and those two
investment banks shall appoint a third investment bank to act as Appraiser. In
no event shall the Appraiser be Goldman, Sachs & Co., PaineWebber Incorporated
or any of their respective Affiliates.
"Approved Budget" shall mean the Annual Budget for the Budget Year in
question, in each case as approved by the Board of Managers in accordance with
the provisions hereof and as any of the same may be amended from time to time
in accordance with the provisions of this Agreement.
"Archon" shall mean Archon Group, L.P., a Delaware limited partnership.
"Asset Allocation" shall mean (A) with respect to the McREMI Assets, the Net
McREMI Allocated Value, (B) the Allocations ascribed to (i) each of the
Participating McNeil Partnerships, (ii) the general partnership interests (and
the rights and assets associated therewith) in each of the Participating McNeil
Partnerships, (iii) the limited partnership interests in Fairfax held by MPLP
and (iv) the limited partnership interests in Summerhill held by MPLP, all as
set forth on Schedule 1 hereto and (C) such property level value allocations as
the Board of Managers shall determine in its discretion, consistent with the
value set forth in clause (A) above. [Schedule 1 will reflect the Allocations
calculated by Stanger pursuant to Section 1.3 of the Master Agreement.]
"Average Monthly Balance" for any month shall be an amount equal to the mean
of (x) the sum of (i) the aggregate Initial Values of the Company Assets
(excluding the McREMI Assets) owned by the Company or its Subsidiaries as of
the first day of such month and (ii) the Additional Amount as of the first day
of such month and (y) the sum of (i) the aggregate Initial Values of the
Company Assets (excluding the McREMI Assets) owned by the Company or its
Subsidiaries as of the last day of such month and (ii) the Additional Amount as
of the last day of such month. The "Initial Value" of a Company Asset as of any
specified date shall be equal to the sum of (1) the initial Book Value of such
Company Asset at the time acquired by or contributed to the Company or its
Subsidiaries plus (2) the entire amount of capital expenditures (as reflected
in the financial statements of the Company or its Subsidiaries) spent by the
Company or its Subsidiaries on capital improvements for such Company Asset
through such specified date (calculated on a cumulative basis). The "Additional
Amount" as of any particular time of determination shall mean an amount equal
to the product of (x) $ [insert the Net McREMI Allocated Value] and (y)
a fraction, the numerator of which is the aggregate initial Book Values of all
of the Properties owned by the Company and its Subsidiaries as of the date of
determination (excluding any Property that is acquired by the Company or any of
its Subsidiaries after the Effective Time), and the denominator of which is the
aggregate initial Book Values of all of the Properties owned by the Company and
its Subsidiaries as of the Effective Time.
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"Assumption Fees" shall mean any fees payable to any lender of borrowed
money secured by one or more Properties owned, directly or indirectly, by one
of the Participating McNeil Partnerships in connection with the transactions
contemplated in the Master Agreement.
"Bankruptcy" shall mean, with respect to the affected party: (i) the entry
of an Order for Relief under the Bankruptcy Code; (ii) the admission by such
party of its inability to pay its debts as they mature; (iii) the making by it
of an assignment for the benefit of creditors; (iv) the filing by it of a
petition in bankruptcy or a petition for relief under the Bankruptcy Code or
any other applicable federal or state bankruptcy or insolvency statute or any
similar law; (v) the expiration of sixty (60) days after the filing of an
involuntary petition under the Bankruptcy Code or an involuntary petition
seeking liquidation, reorganization, arrangement or readjustment of its debts
under any other federal or state insolvency law, provided that the same shall
not have been vacated, set aside or stayed within such sixty (60)-day period;
(vi) an application by such party for the appointment of a receiver for the
assets of such party; or (vii) the imposition of a judicial or statutory lien
on all or a substantial part of its assets unless such lien is discharged or
vacated or the enforcement thereof stayed within thirty (30) days after its
effective date.
"Bankruptcy Code" shall mean Title 11 of the United States Code, as amended.
"Board of Managers" shall have the meaning set forth in Section 3.1(a).
"Book Value" shall mean, with respect to any Company Asset, its adjusted
basis for federal income tax purposes, except that (i) the initial Book Value
of any Company Asset contributed by a Member to the Company or otherwise
acquired by the Company in either case pursuant to the Master Agreement shall
be an amount equal to the value given such Company Asset in accordance with the
Allocations (as defined in the Master Agreement) and otherwise in accordance
with the definition of Asset Allocation and (ii) the initial Book Value of any
other Company Asset contributed by a Member to the Company shall be the agreed
upon gross fair market value of such asset, and in all cases such Book Value
shall thereafter be adjusted in a manner consistent with Treasury Regulations
Section 1.704-l(b)(2)(iv)(g) for revaluations pursuant to Section 7.1(b) and
for the Depreciation taken into account with respect to such asset. The initial
Book Value of each of the Company Assets is set forth on Schedule 2 attached
hereto.
"Budget Year" shall mean (i) the period beginning on the Closing Date and
ending on December 31, 1999 and (ii) thereafter, any successive yearly period
(beginning January 1 and ending December 31).
"Business Plan" shall mean, with respect to each Budget Year, the Approved
Budget for such Budget Year in effect together with the annual strategic plan
prepared by the Portfolio Advisor and approved by the Board of Managers for
such Budget Year in accordance with the terms of the Portfolio Advisory
Agreement (as such strategic plan and/or Approved Budget may be modified from
time to time by the Board of Managers).
"Capital Account" shall mean, when used in respect of any Member, the
Capital Account maintained for such Member in accordance with Section 7.1, as
said Capital Account may be increased, decreased or adjusted from time to time
pursuant to the terms of this Agreement.
"Capital Contribution" shall mean, with respect to any Member, the sum of
such Member's Initial Capital Contribution and any Additional Capital
Contributions made by such Member.
"Capital Transaction" shall mean (i) the sale or other disposition of all or
any part of the assets of the Company or any of its Subsidiaries, (ii) a
casualty (where the proceeds from any casualty insurance will not be used in
their entirety to either restore such Property or to repay indebtedness secured
by such Property) or condemnation (where the proceeds from such condemnation
will not be used in their entirety to either restore such Property or to repay
indebtedness secured by such Property) of any Property or any part thereof, or
(iii) any refinancing of any indebtedness of the Company or any of its
Subsidiaries.
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"Certificate of Formation" shall mean the Certificate of Formation of the
Company as filed with the Secretary of State of the State of Delaware, as the
same may hereafter be amended and/or restated from time to time in accordance
with the terms and provisions of this Agreement.
"Closing Date" shall have the meaning ascribed to such term in the Master
Agreement.
"Code" shall mean the Internal Revenue Code of 1986, as amended, or any
corresponding provision(s) of succeeding law.
"Commercial Properties" shall mean those Properties listed on Schedule 3
hereto. [List all properties of all Participating McNeil Partnerships
designated as "Commercial Properties" on Annex A to the Master Agreement].
"Company" shall mean WXI/McN Realty L.L.C., a Delaware limited liability
company, as said Company may from time to time be hereafter constituted.
"Company Assets" shall mean, from time to time, all of the assets of the
Company and its Subsidiaries and any property (real, personal, tangible or
intangible, including the Properties, the McREMI Assets and the interests in
the Participating McNeil Partnerships and their Subsidiaries) or estate
acquired in exchange therefor or in connection therewith as of such time.
"Company Person" shall mean (i) Whitehall, (ii) the Company, (iii) Whitehall
XI, (iv) any and all Affiliates and Subsidiaries of the Company, or of
Whitehall or of Whitehall XI and any and all indirect and direct holders of
beneficial interests in the Company, or in Whitehall or of Whitehall XI and (v)
in respect of each Person specified in clauses (i), (ii), (iii) and (iv), each
of their respective directors, officers, partners, members, employees,
controlling persons, agents and representatives.
"Confidential Information" shall have the meaning set forth in Section
12.15.
"control" shall mean, when used with respect to any Person, the power to
direct the management and policies of such Person, directly or indirectly,
whether through the ownership of voting securities or other voting interests,
by contract, as trustee or executor or otherwise, and the terms "controlling"
and "controlled" shall have the meanings correlative to the foregoing.
"Depreciation" shall mean, with respect to any Fiscal Year, all deductions
attributable to depreciation or cost recovery with respect to Company Assets,
including any improvements made thereto and any tangible personal property
located therein, or amortization of the cost of any intangible property or
other assets acquired by the Company, which have a useful life exceeding one
year; provided, however, that with respect to any Company Asset whose tax basis
differs from its Book Value at the beginning of such Fiscal Year or other
period, Depreciation shall be an amount which bears the same ratio to such
beginning Book Value as the depreciation, amortization or other cost recovery
deduction for such period with respect to such asset for federal income tax
purposes bears to its adjusted tax basis as of the beginning of such Fiscal
Year; provided further, however, that if the federal income tax depreciation,
amortization or other cost recovery deduction for such Fiscal Year is zero,
Depreciation shall be determined using any reasonable method selected by the
Board of Managers.
"Effective Time" shall have the meaning ascribed to such term in the Master
Agreement.
"Equity Commitment Letter" shall mean that equity commitment letter
agreement, dated as of June , 1999 between Whitehall XI and the Company.
"Fiscal Year" shall mean the fiscal year of the Company, which shall be the
calendar year; but upon dissolution of the Company, "Fiscal Year" shall mean
the period from the end of the last preceding Fiscal Year to the date of such
dissolution.
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"Full Pre Lock-out Payment" shall mean an amount in cash equal to the net
present value of the sum of all distributions which would be made to the
holders of the McNeil Interest pursuant to Section 8.1(b) (using a discount
rate equal to the 30-day Treasury bill rate at the time of the payment of the
Full Pre Lock-out Payment) based upon the following assumptions: (1) adequate
funds are available to make all such distributions; (2) the distributions to be
made pursuant to Sections 8.1(b)(ii) and 8.1(b)(iii) will be timely paid in
full such that there is no accrued, unpaid McNeil Class C Return or Preferred
14% Return for each month through and including the fifth anniversary of the
Closing Date; and (3) a single distribution will be made pursuant to Sections
8.1(b)(vii), 8.1(b)(viii) and 8.1(b)(ix) on the fifth anniversary of the
Closing Date to pay to the holders of the McNeil Interest the Preferred 15%
Return (if such holders are entitled to such payment pursuant to Section
8.1(b)(viii)) and to return to the holders of the McNeil Interest the full
amount of the McNeil Investment.
"Full Post Lock-out Payment" shall mean an amount in cash equal to the full
amount required to be distributed in the aggregate to all of the holders of the
McNeil Interest pursuant to Section 8.1(c) as of the date of such calculation,
which calculation assumes there were sufficient funds to distribute at least
one dollar to the holders of the Whitehall Class A Interest under Section
8.1(c)(xi).
"Gross Operating Expenses" shall mean with respect to any period, the sum of
(i) all costs and expenses incurred by the Company and its Subsidiaries in the
operation of the Properties as contemplated by this Agreement (excluding
Working Capital Expenses paid from Company reserves or from the Initial Working
Capital Contribution), (ii) all costs and expenses incurred by the Company and
its Subsidiaries in the operation of the Company's business as contemplated by
this Agreement, including, without limitation, the Property Management Fee, and
(iii) debt service on, and escrows and other payments under, any indebtedness
of the Company or any of its Subsidiaries (including any Senior Indebtedness
and any Preferred Equity Financing).
"Gross Operating Income" shall mean with respect to any period, all cash
receipts of the Company and its Subsidiaries from the operation of its
business, including gross rental income received by the Company and its
Subsidiaries from tenants at the Properties and including payments by tenants
in respect of tenant reimbursable expenses, but excluding proceeds from Capital
Transactions, Capital Contributions and Working Capital Reserves.
"Harbour Club Phase Four" shall mean the property known as Harbour Club IV,
located at 48611 South 1-94 Service Drive, Belleville, Michigan.
"Harbour Club Phase One" shall mean the property known as Harbour Club I
Apartments, located at 4900 Denton Road, Belleville, Michigan.
"immediate family member" shall have the meaning ascribed to such term in
Instruction 2 of Item 404(a) of Regulation S-K under the Securities Act.
"Indemnification Agreement" shall mean the Indemnification and Pledge
Agreement, dated as of the date hereof, among McNeil, Whitehall, the persons
listed on Schedule I thereto and Whitehall, as agent for the benefit of the
Whitehall Parties (as defined therein).
"Initial Capital Contribution" shall mean, with respect to any Member, the
aggregate initial capital contribution made by such Member pursuant to Section
6.1.
"Initial QNL Amount" shall mean the greater of (i) ten million dollars
($10,000,000) and (ii) the difference determined by subtracting (A) the sum of
the Designated Debt Amounts (as defined and set forth on Schedule 4) for the
Excluded McNeil Partnerships (if any) from (B) fifty million dollars
($50,000,000). The Initial QNL Amount shall be reduced by McNeil's share of
"nonrecourse liabilities" (within the meaning of Treasury Regulation Section
1.752) attributable to indebtedness that is repaid or otherwise extinguished as
a result of a foreclosure (including a Preferred Equity Financing Foreclosure),
the granting of a deed in lieu of
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foreclosure, condemnation, casualty or Bankruptcy (in each case, subject to
Section 4.9) where such triggering event causes a default with respect to
indebtedness secured directly or indirectly by 25% or more by value of the
Company Assets at the time of such triggering event.
"Initial Working Capital Contribution" shall have the meaning set forth in
Section 6.2(a).
"Interest" shall mean all of the membership interests of a Member in the
Company at any particular time, including the right of such Member to any and
all benefits to which a Member may be entitled as provided in this Agreement
and under applicable law, together with the obligations of such Member to
comply with all the terms and provisions of this Agreement and under applicable
law.
"Investment" shall mean (i) with respect to McNeil, the McNeil Investment,
(ii) with respect to Whitehall, the Whitehall Investment, and (iii) with
respect to any other Member, an amount equal to the difference determined by
subtracting (A) the sum of all distributions of capital, if any, to such Member
pursuant to Sections 8.1(b) and 8.1(c) from (B) the aggregate Capital
Contribution of such Member.
"IRS" shall mean the Internal Revenue Service and any successor agency or
entity thereto.
"LLCA" shall mean the Delaware Limited Liability Company Act, as amended
from time to time.
"Loan Agreements" shall mean those loan agreements, mortgages, pledges,
guaranties and the like secured by any Property or by which the Company or any
of its Subsidiaries is bound, whether now existing or hereafter entered into.
"Losses" shall have the meaning set forth in Section 7.2.
"Major Decisions" shall have the meaning set forth in Section 3.1(b).
"Manager" shall mean any of the Whitehall Managers or McNeil Managers.
"Master Agreement" shall mean the Master Agreement, dated as of ,
1999, by and among the Company, the McNeil Partnerships (as defined therein),
McNeil, McNeil Investors, Inc., McREMI, McNeil Summerhill, Inc. and Robert A.
McNeil.
"McNeil Class A Interest" shall mean the membership Interests in the Company
that entitle the holder thereof to distributions pursuant to Sections
8.1(b)(iii), 8.1(b)(viii), 8.1(b)(ix), 8.1(c)(iv), 8.1(c)(ix) and 8.1(c)(x) in
respect of the McNeil Class A Investment.
"McNeil Class B Interest" shall mean the membership Interests in the Company
that entitle the holder thereof to distributions pursuant to Sections
8.1(b)(iii), 8.1(b)(viii), 8.1(b)(ix), 8.1(c)(iv), 8.1(c)(ix) and 8.1(c)(x) in
respect of the McNeil Class B Investment.
"McNeil Class C Interest" shall mean the membership Interests in the Company
that entitle the holder thereof to distributions pursuant to Sections
8.1(b)(ii), 8.1(b)(vii), 8.1(c)(iii) and 8.1(c)(viii) in respect of the McNeil
Class C Investment.
"McNeil Class A Investment" shall mean an amount equal to the excess, if
any, of (A) the greater of (1) the First McNeil Threshold and (2) the Allocated
McNeil Value, over (B) the sum of all distributions made to holders of the
McNeil Class A Interest pursuant to Sections 8.1(b)(ix) and 8.1(c)(x), subject
to adjustment pursuant to Section 6.5.
"McNeil Class B Investment" shall mean an amount equal to the excess, if
any, of (A) an amount equal to the difference determined by subtracting (x) the
sum of the initial McNeil Class C Investment and the initial McNeil Class A
Investment from (y) McNeil's Initial Capital Contribution and any and all
Additional Capital
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Contributions made by McNeil pursuant to Sections 4.9 and 4.16, over (B) the
sum of all distributions made to holders of the McNeil Class B Interest
pursuant to Sections 8.1(b)(ix) and 8.1(c)(x).
"McNeil Class C Investment" shall mean an amount equal to the excess, if
any, of (A) the portion of McNeil's Initial Capital Contribution that is in
excess of the McNeil Threshold Amount and that is paid in cash, over (B) the
sum of all distributions to holders of the McNeil Class C Interest pursuant to
Sections 8.1(b)(vii) and 8.1(c)(viii); provided, however, that the McNeil Class
C Investment shall equal zero if McNeil's Initial Capital Contribution does not
equal or exceed $75,000,000 multiplied by the Value Fraction.
"McNeil Class C Return" shall mean, with respect to the holders of the
McNeil Class C Interest, a 13% per annum, annually compounded return on the
McNeil Class C Investment. To the extent the McNeil Class C Investment varies
during a month, the McNeil Class C Return shall be calculated assuming that all
decreases or increases in the McNeil Class C Investment occurred on the first
day of such month.
"McNeil Interest" shall mean collectively, the McNeil Class A Interest, the
McNeil Class B Interest and the McNeil Class C Interest.
"McNeil Investment" shall mean an amount equal to the excess, if any, of (A)
the aggregate Capital Contribution of McNeil, subject, in the case of the
McNeil Class A Investment only, to adjustment pursuant to Section 6.5, over (B)
the sum of all distributions of capital to holders of the McNeil Interest
pursuant to Sections 8.1(b)(vii), 8.1(b)(ix), 8.1(c)(viii) and 8.1(c)(x).
"McNeil Managers" shall have the meaning set forth in Section 3.2(a).
"McNeil Person" shall mean (i) any and all Affiliates and Subsidiaries of
McNeil and any and all indirect and direct holders of beneficial interests in
McNeil and (ii) in respect of McNeil and each Person specified in clause (i),
each of their respective directors, officers, partners, members, employees,
controlling persons, agents and representatives.
"McNeil Portion" shall mean an amount equal to the sum of all distributions
which would be required to be made to the holders of the McNeil Interest
pursuant to Section 8.1(c), calculated as if the amount of funds being
distributed pursuant to Section 8.1(c) is equal to the aggregate cash and non-
cash consideration (using the Appraised Value) being paid to all of the Members
in the Proposed Company Transaction.
"McNeil Threshold Amount" shall mean an amount equal to $70,000,000,
multiplied by the Value Fraction.
"McREMI" shall mean McNeil Real Estate Management, Inc., a Delaware
corporation.
"McREMI Assets" shall have the meaning ascribed to such term in the Master
Agreement.
"Member-Funded Debt" shall mean any non-recourse debt of the Company that is
loaned or guaranteed by any Member and/or is treated as Member non-recourse
debt with respect to a Member under Treasury Regulations Section 1.704-2(b)(4).
"Members" shall mean, Whitehall, McNeil and any Person who is admitted as a
Member pursuant to Section 9.2 hereof.
"Minimum Gain" shall mean an amount equal to the excess of the principal
amount of debt, for which no Member is liable ("non-recourse debt"), over the
adjusted basis of the Company Assets encumbered by such nonrecourse debt which
represents the minimum taxable gain that would be recognized by the Company if
the nonrecourse debt were foreclosed upon and the Company Assets were
transferred to the creditor in satisfaction thereof, and which is referred to
as "minimum gain" in Treasury Regulations Section 1.704-2(b)(2). A Member's
share of Minimum Gain shall be determined pursuant to Treasury Regulations
Section 1.704-2.
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"Multifamily Properties" shall mean those Properties listed on Schedule 5
hereto. [List all properties of all Participating McNeil Partnerships not
designated as "Commercial Properties" on Annex E to the Master Agreement.]
"Net Cash Flow" shall mean, for any period, the excess of Gross Operating
Income over Gross Operating Expenses for such period, less Working Capital
Reserves and Recurring Replacement Reserves.
"Net Proceeds from Capital Transactions" shall mean in the case of any
Capital Transaction, the gross proceeds from such Capital Transaction, after
deducting therefrom: (i) all costs and fees incurred by the Company in
connection with such Capital Transaction, including, without limitation, the
Portfolio Advisory Incentive Fee, (ii) reserves for contingent liabilities in
connection with such Capital Transaction, the amount of which reserves shall be
determined in good faith by the Board of Managers and (iii) Working Capital
Reserves and Recurring Replacement Reserves.
"Net Working Capital Amount" shall mean, with respect to a Participating
McNeil Partnership, the excess of the Positive Excess Cash Balance of such
Participating McNeil Partnership over the cash on hand of such Participating
McNeil Partnership immediately prior to the Effective Time.
"Officers" shall mean the Persons appointed as officers of the Company from
time to time by the Board of Managers, but no such Person shall be deemed an
Officer after such Person is removed as an Officer, which removal of any
Officer is subject to the sole discretion of the Board of Managers with or
without cause.
"Organizational Document" shall mean, with respect to any Person: (i) in the
case of a corporation, such Person's certificate of incorporation and by-laws,
and any shareholder agreement, voting trust or similar arrangement applicable
to any of such Person's authorized shares of capital stock; (ii) in the case of
a partnership, such Person's certificate of limited partnership, partnership
agreement, voting trusts or similar arrangements applicable to any of its
partnership interests; (iii) in the case of a limited liability company, such
Person's certificate of formation or articles of organization, limited
liability company operating agreement or other document affecting the rights of
holders of limited liability company interest; or (iv) in the case of any other
legal entity, such Person's organizational documents and all other documents
affecting the rights of holders of equity interests in such Person.
"Original LLC Agreement" shall mean the Limited Liability Company Operating
Agreement of the Company, dated as of June 17, 1999, by Whitehall as the sole
member thereof.
"Percentage Interest" shall mean as of any date with respect to any Member,
the percentage obtained when such Member's Investment is divided by the
aggregate Investment of all Members, as such percentage may be adjusted from
time to time pursuant to the terms hereof.
"Person" shall mean any individual, partnership, corporation, limited
liability company, trust or other legal entity.
"Pledged Interests" shall have the meaning ascribed to such term in the
Indemnification Agreement.
"Portfolio Advisor" shall mean Archon or such other portfolio advisor as the
Board of Managers shall select.
"Portfolio Advisory Agreement" shall mean the agreement between the Company
and the Portfolio Advisor in respect of the management of the assets of the
Company as contemplated herein, which agreement shall initially be that certain
Portfolio Advisory Agreement, dated as of the date hereof between the Company
and Archon, in the form attached hereto as Exhibit A, and any supplement,
amendment, renewal or replacement thereof.
"Portfolio Advisory Fee" shall mean the fee payable monthly to the Portfolio
Advisor pursuant to the Portfolio Advisory Agreement, the amount of which shall
be equal to 1.0% per annum of the Average Monthly
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Balance of the Company Assets. To the extent Net Cash Flow is not sufficient to
pay the Portfolio Advisory Fee with respect to a given month in accordance with
Section 8.1(b)(iv), the amount not paid shall accrue at a rate equal to six
percent (6%) per annum (compounded annually) and shall be paid as provided
under Sections 8.1(b)(iv) and 8.1(c)(v).
"Portfolio Advisory Incentive Fee" shall mean the fee payable by the Company
to the Portfolio Advisor for overseeing the disposition of each Property, which
fee shall be in an amount equal to 25 basis points multiplied by the
Consideration received by the Company or its Subsidiaries in connection with
such disposition. "Consideration" shall mean (x) with respect to the sale of a
Property, the gross sales price (i.e., before deduction, for example, but
without limitation, of brokerage charges, property or transfer taxes or other
similar charges) payable to the Company for such Property, less the amount of
any purchase money mortgage loan granted by the Company or its Subsidiaries,
and (y) with respect to any purchase money mortgage loan granted by the Company
or its Subsidiaries, all payments of principal and interest if and when
collected by the Company or its Subsidiaries.
"Preferred Equity Financing" shall mean, from time to time, (i) the
aggregate amount of debt owed by the Company and/or one or more of its
Subsidiaries and secured by equity interests in one or more of the Company's
Subsidiaries and (ii) the aggregate amount of preferred equity issued by one or
more of the Company's Subsidiaries, which by its terms has a final redemption
or maturity date.
"Preferred Equity Financing Documents" shall mean those agreements, pledges,
guaranties and other documents evidencing the rights of a holder of Preferred
Equity Financing.
"Preferred Equity Financing Foreclosure" shall mean the exercise of rights
or remedies by the holder of any Preferred Equity Financing which may include
such holder causing a Proposed Multifamily Transaction, a Tax Event Transaction
or a Proposed Company Transaction to occur after such holder has obtained
management control over one or more of the Company's Subsidiaries that is the
subject of such transaction.
"Preferred 14% Return" shall mean, with respect to the holders of the McNeil
Class A Interest, the McNeil Class B Interest and the Whitehall Class A
Interest, a 14% per annum, annually compounded return on the McNeil Class A
Investment, the McNeil Class B Investment and the Whitehall Class A Investment,
respectively. To the extent the McNeil Class A Investment, the McNeil Class B
Investment and the Whitehall Class A Investment vary during a month, the
Preferred 14% Return with respect to such Investment shall be calculated based
on the assumption that all decreases or increases in such Investment occurred
on the first day of such month.
"Preferred 15% Return" shall mean, with respect to the holders of the McNeil
Class A Interest, the McNeil Class B Interest and the Whitehall Class A
Interest, a 15% per annum, annually compounded return on the McNeil Class A
Investment, the McNeil Class B Investment and the Whitehall Class A Investment,
respectively. To the extent the McNeil Class A Investment, the McNeil Class B
Investment and the Whitehall Class A Investment vary during a month, the
Preferred 15% Return with respect to such Investment shall be calculated based
on the assumption that all decreases or increases in such Investment occurred
on the first day of such month.
"Profits" shall have the meaning set forth in Section 7.2.
"Property" shall mean each real property now or hereafter owned by the
Company or any of its Subsidiaries, together with all buildings and
improvements situated thereon and personal property owned by the Company or its
Subsidiaries related thereto.
"Property Management Fee" shall mean the management fee payable to each
Property Manager pursuant to the applicable management agreement.
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"Property Manager" shall mean with respect to a Property, subject to Section
4.12, Management LLC or such other property manager as the Board of Managers
shall select to manage such Property.
"Proposed Change of Control Transaction" shall mean any one or a series of
the following transactions following the consummation of which shall result in
(x) Whitehall owning a Percentage Interest in the Company that is less than 50%
of the Percentage Interest in the Company owned by Whitehall on the date hereof
or (y) Whitehall not having the right to designate at least three of the five
Managers:
(i) any Transfer (other than Transfers permitted pursuant to Section
9.1(a)); or
(ii) any capital reorganization of the Company (including an
extraordinary dividend (other than a cash dividend)), consolidations of
Interests, combination or substitution of Interests, Interest exchange,
conversion or cancellation of Interests, or securitization and subsequent
public offering of Interests.
"Proposed Company Transaction" shall mean any one or a series of the
following transactions: (i) any merger, consolidation, amalgamation, business
combination, recapitalization or reorganization involving the Company or all or
substantially all of the Company's Subsidiaries (excluding any such transaction
which does not involve third Persons); (ii) any split-up, spin-off or other
corporate division involving the Company or all or substantially all of the
Company's Subsidiaries; (iii) any transaction similar to those described in
clause (i) or (ii) above involving the Company or all or substantially all of
the Company's Subsidiaries; or (iv) any sale, assignment, conveyance (other
than the granting of a mortgage), lease (other than in the ordinary course of
the Company's business), transfer or other disposition of all or substantially
all of the Company Assets; provided, however, that a Preferred Equity Financing
shall not be considered a Proposed Company Transaction.
"Proposed Multifamily Transaction" shall mean any of the following: (i) any
merger, consolidation, amalgamation, business combination, recapitalization or
reorganization involving one or more Multifamily Properties; (ii) any split-up,
spin-off or other corporate division involving one or more Multifamily
Properties; (iii) any sale, assignment, conveyance (excluding the granting of a
mortgage), lease (excluding leases entered into in the ordinary course of the
Company's business), transfer or other disposition, in one or a series of
transactions, of one or more of the Multifamily Properties; and (iv) any
proposal, plan or intention by or on behalf of the Company to do any of the
foregoing or any agreement to engage in any of the foregoing entered into by or
on behalf of the Company or otherwise binding upon the Company; provided,
however, that a Preferred Equity Financing shall not be considered a Proposed
Multifamily Transaction.
"Recurring Replacement Reserves" shall mean an amount reserved each month by
the Company from its Gross Operating Income and its proceeds from Capital
Transactions for the payment of Working Capital Expenses, the amount of which
reserve shall be determined in good faith by the Board of Managers but which in
no event shall exceed an aggregate amount equal to the sum of (i) $250 per
annum per unit contained in the Multifamily Properties and (ii) $0.20 per annum
per gross square foot contained in the Commercial Properties.
"Senior Indebtedness" shall mean, from time to time, the aggregate amount of
debt for borrowed money owed by the Company and/or its Subsidiaries that is
secured by one or more of the Properties, secured by any of the other Company
Assets or unsecured.
"Shortfall Agreement" shall mean the letter agreement between Whitehall XI
and MPLP, in the form attached hereto as Exhibit B.
"Subsidiary" of (i) the Company shall mean each of the Participating McNeil
Partnerships and (ii) any Person (including the Company) shall mean any other
Person more than 50% of the equity of which is owned, directly or indirectly,
by such first Person or a Subsidiary of such first Person or over which such
first Person or a Subsidiary of such first Person directly or indirectly has
the right to appoint a majority of the board of directors, the board of
managers or other relevant governing body.
"Tax Event Transaction" shall mean any of the following: (i) any merger,
consolidation, amalgamation, business combination, recapitalization or
reorganization involving the Company or one or more of its
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Subsidiaries (other than (1) any such transaction which does not involve third
Persons and (2) any such transaction which is effected solely for the purpose
of selling one or more Commercial Properties); (ii) any split-up, spin-off or
other corporate division involving the Company or its Subsidiaries (other than
any such transactions which is effected solely for the purpose of selling one
or more Commercial Properties); (iii) any Transfer (other than Transfers
permitted pursuant to Section 9.1(a) or 9.1(b)) or any capital reorganization
involving the Company (including without limitation an extraordinary dividend,
consolidation of Interests, combination or substitution of Interests, Interest
exchange, conversion or cancellation of Interests, or securitization and
subsequent public offering of Interests, but excluding any Preferred Equity
Financing involving one or more of the Company's Subsidiaries); (iv) any
Proposed Change of Control Transaction prior to the fifth anniversary of the
Closing Date; and (v) any proposal, plan or intention by or on behalf of the
Company or Whitehall to do any of the foregoing or any agreement to engage in
any of the foregoing entered into by or on behalf of the Company or Whitehall
or otherwise binding upon the Company or Whitehall.
"Tax Gross-Up Amount" shall equal the excess of the Tax Amount over the
Present Value Amount determined as follows: (a) the "Tax Amount" shall equal
the "Gain Amount" multiplied by the highest combined marginal federal, state
and local income tax rate applicable to an individual residing in any place of
residence of Robert A. McNeil or Carole J. McNeil (taking into account amount
and character of the gain) for the taxable year of the Tax Event Transaction or
any distributions relating thereto; (b) the "Gain Amount" shall equal income
and gain recognized by McNeil (or any Transferee of all or any portion of the
McNeil Interest pursuant to Section 9.1) as a result of the Tax Event
Transaction or any distributions relating thereto; and (c) the "Present Value
Amount" shall equal the present value of a hypothetical Tax Amount, calculated
using the following assumptions: (1) the discount rate used to determine the
net present value is equal to the 30 day Treasury bill rate at the time of the
payment of the Full Pre Lock-out Payment; (2) the Gain Amount consists of the
sum of (A) monthly allocations of ordinary income necessary to support the
Preferred 14% Return with respect to the McNeil Class A Interest and the McNeil
Class B Interest, allocated at the end of each calendar month from the date of
the Tax Event Transaction to and including the fifth anniversary of the Closing
Date, and (B) the remaining income and gain that would have been recognized by
McNeil (or any Transferee of all or any portion of the McNeil Interest pursuant
to Section 9.1) as if the Tax Event Transaction had occurred on the fifth
anniversary of the Closing Date.
"Tax Matters Member" shall mean Whitehall.
"Total CapEx Debt to Total CapEx Cost Ratio of the Company" shall mean as of
any date of determination, a fraction expressed as a percentage that results
from dividing (A) the total amount of all Senior Indebtedness and all Preferred
Equity Financing incurred from and after the Effective Time to fund Working
Capital Expenses by (B) the sum of (1) all Additional Capital Contributions
used to fund Working Capital Expenses and (2) the total amount of all Senior
Indebtedness and all Preferred Equity Financing incurred from and after the
Effective Time to fund Working Capital Expenses.
"Total Debt to Total Cost Ratio of the Company" shall mean as of any date of
determination, a fraction expressed as a percentage that results from dividing
(A) the total amount of all Senior Indebtedness and all Preferred Equity
Financing outstanding as of the Effective Time by (B) the sum of (1)
Whitehall's Initial Capital Contribution, (2) McNeil's Initial Capital
Contribution and (3) the total amount of all Senior Indebtedness and all
Preferred Equity Financing outstanding as of the Effective Time.
"Transfer" shall mean with respect to any Member, (i) any transfer, sale,
pledge, hypothecation, encumbrance, assignment or other disposition of all or
any portion of the Interest of such Member or the proceeds thereof (whether
voluntarily, involuntarily, by operation of law or otherwise) and (ii) any
transfer, sale, pledge, hypothecation, encumbrance, assignment or other
disposition of any stock, partnership interest, beneficial interest or other
ownership interest in such Member (whether directly or indirectly or whether
voluntarily, involuntarily, by operation of law or otherwise); provided,
however, that (1) with respect to the foregoing clause (i), any pledge or
hypothecation by a Member of its Interest in connection with a bona fide
financing transaction shall not be considered to be a Transfer (it being
understood that any foreclosure upon
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any pledge or hypothecation or comparable collateralization of a Member's
Interest shall be deemed to be a Transfer for purposes of this Agreement); and
(2) with respect to the foregoing clause (ii), that a Transfer shall not
include any transfer, sale, pledge, hypothecation, encumbrance, assignment or
other disposition of all or any portion of the direct or indirect ownership
interests in (x) Whitehall XI (so long as (A) The Goldman Sachs Group, Inc.
and/or its successors and assigns, including any Person that succeeds to all or
substantially all of the business currently conducted by The Goldman Sachs
Group, Inc. or its Affiliates continues directly or indirectly to control
Whitehall XI, and (B) Whitehall XI continues to control Whitehall), (y) Archon
and (z) McNeil (provided that the other party in any such transaction is any
Person specified in Sections 9.1(b)(i), 9.1(b)(ii), 9.1(b)(iii), 9.1(b)(iv) or
9.1(b)(v)).
"Transferee" shall mean any Person to whom a Member (or Transferee) is
permitted to Transfer all or a portion of such Member's Interest pursuant to
Section 9.1(a) or 9.1(b) hereof.
"Treasury Regulations" shall mean the regulations promulgated under the
Code, as such regulations are in effect on the Closing Date.
"Value Fraction" shall mean a fraction (x) the numerator of which is the
amount equal to the sum of the Per Partnership Allocated Values for each
Participating McNeil Partnership and (y) the denominator of which is the Total
Allocated Partnership Value.
"Whitehall" shall have the meaning set forth in the first paragraph of this
Agreement.
"Whitehall XI" shall mean Whitehall Street Real Estate Limited Partnership
XI, a Delaware limited partnership.
"Whitehall Class A Interest" shall mean the membership Interests in the
Company that entitle the holder thereof to distributions pursuant to Sections
8.1(b)(v), 8.1(b)(viii), 8.1(b)(ix), 8.1(b)(x), 8.1(c)(vi), 8.1(c)(ix),
8.1(c)(x) and 8.1(c)(xi) in respect of the Whitehall Class A Investment.
"Whitehall Class B Interest" shall mean the membership Interests in the
Company that entitle the holder thereof to distributions pursuant to Sections
8.1(b)(i), 8.1(b)(vi), 8.1(c)(ii) and 8.1(c)(vii) in respect of the Whitehall
Class B Investment.
"Whitehall Class A Investment" shall mean an amount equal to the excess, if
any, of (A) the difference determined by subtracting (x) the sum of (1) the
Whitehall Class B Investment as of the Closing Date and (2) that portion of any
Additional Capital Contribution made by Whitehall that is included in the
Whitehall Class B Investment from (y) Whitehall's Capital Contribution, over
(B) the sum of all distributions made to holders of the Whitehall Class A
Interest pursuant to Sections 8.1(b)(ix) and 8.1(c)(x).
"Whitehall Class B Investment" shall mean that portion of Whitehall's
Capital Contribution equal to the excess, if any, of (A) the lesser of (x) the
sum of (1) that portion of Whitehall's Initial Capital Contribution that, if
treated as Preferred Equity Financing, would cause the Total Debt to Total Cost
Ratio of the Company to equal 80% and (2) that portion of any Additional
Capital Contribution made by Whitehall used to fund Working Capital Expenses
that, if treated as Preferred Equity Financing, would cause the Total CapEx
Debt to Total CapEx Cost Ratio of the Company to equal 80% and (y) 105% of the
sum of the amounts relating to the Participating McNeil Partnerships set forth
on Schedule 6, over (B) the sum of all distributions to holders of the
Whitehall Class B Interest pursuant to Sections 8.1(b)(vi) and 8.1(c)(vii).
Except for any portion of an Additional Capital Contribution made by Whitehall
which is treated as a part of the Whitehall Class B Investment pursuant to
clause (A)(x)(2) above, all portions of any Additional Capital Contributions
made by Whitehall shall be treated as part of the Whitehall Class A Investment.
Notwithstanding anything to the contrary in this definition of "Whitehall Class
B Investment", in no event shall the aggregate amount of Capital Contributions
included as part of the Whitehall Class B Investment exceed [105% of the sum of
the amounts relating to the Participating McNeil Partnerships set forth on
Schedule 6].
"Whitehall Class B Return" shall mean, with respect to the holder of the
Whitehall Class B Interest, a 14% per annum, annually compounded return on the
Whitehall Class B Investment. To the extent the Whitehall
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Class B Investment varies during a month, the Whitehall Class B Return shall
be calculated assuming that all decreases or increases in the Whitehall Class
B Investment occurred on the first day of such month.
"Whitehall Interest" shall mean collectively, the Whitehall Class A
Interest and the Whitehall Class B Interest.
"Whitehall Investment" shall mean an amount equal to the excess, if any, of
(A) the aggregate Capital Contribution of Whitehall, subject to adjustment, in
the case of Whitehall Class A Investment only, pursuant to Section 6.5, over
(B) the sum of all distributions of capital to holders of the Whitehall
Interest pursuant to Sections 8.1(b)(vi), 8.1(b)(ix), 8.1(c)(vii) and
8.1(c)(x). The Initial Working Capital Contribution with respect to Whitehall
and any other Additional Capital Contributions with respect to Whitehall shall
not be treated as a Capital Contribution by Whitehall and shall not be
included in the calculation of its Whitehall Class B Return, Preferred 14%
Return, Preferred 15% Return or Percentage Interest until such amount is
funded by Whitehall.
"Whitehall Managers" shall have the meaning set forth in Section 3.2(a).
"Working Capital Expenses" shall mean costs and expenses incurred by the
Company and its Subsidiaries in connection with capital improvements, tenant
improvements, leasing commissions, and environmental remediation at the
Properties and in connection with debt service shortfalls on any indebtedness
of the Company or any of its Subsidiaries or any debt service shortfalls on
Preferred Equity Financing.
"Working Capital Reserves" shall mean the amount reserved by the Company
out of its Gross Operating Income and its proceeds from Capital Transactions
each month for the payment of Working Capital Expenses and any other expenses
of the Company and its Subsidiaries, the amount of which reserve shall be
determined by the Board of Managers in good faith, but which shall be equal to
$0 until such time as Whitehall shall have contributed the entire Initial
Working Capital Contribution to the capital of the Company.
1.2 Terms Generally For all purposes of this Agreement, except as otherwise
expressly provided or unless the context otherwise requires:
(a) the terms defined in this Article (or elsewhere herein) include both
the plural and the singular;
(b) the words "herein," "hereof" and "hereunder" and other words of
similar import refer to this Agreement as a whole and not to any particular
Article, Section or other subdivision;
(c) the words "including"and "include" and other words of similar import
shall be deemed to be followed by the phrase "without limitation;" and
(d) when a reference is made in this Agreement to a Section or Article,
such reference shall be to a section or article of this Agreement, unless
otherwise clearly indicated to the contrary.
1.3 Definitions from Master Agreement. Capitalized terms used but not
defined herein shall have the meanings ascribed to such terms in the Master
Agreement.
ARTICLE 2.
The Company and Its Business
2.1 Effectiveness of the Agreement; Continuation. On June 17, 1999, the
Company was formed as a Delaware limited liability company pursuant to the
Certificate of Formation executed and filed by Whitehall in the Office of the
Secretary of State of the State of Delaware pursuant to the provisions of the
LLCA. Notwithstanding anything to the contrary contained herein or in the
Original LLC Agreement, this Agreement shall become effective upon the
Effective Time. The Original LLC Agreement shall continue in full force and
effect and shall govern the operation of the Company at all times prior to the
Effective Time. The Members hereby agree to continue the Company as a limited
liability company pursuant to the provisions of the LLCA, and all other
pertinent laws of the State of Delaware, for the purposes and upon the terms
and conditions
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hereinafter set forth. The Members agree that the rights and liabilities of the
Members shall be as provided in the LLCA except as otherwise herein expressly
provided. Whitehall (as an authorized person pursuant to the LLCA) shall file
and record any amendments and/or restatements to the Certificate of Formation
and such other ministerial documents as may be required or appropriate under
the laws of the State of Delaware and of any other jurisdiction in which the
Company may conduct business as a result of the execution of this Agreement.
Whitehall (as an authorized person pursuant to the LLCA) has caused the
Certificate of Formation to be filed with the Secretary of State of the State
of Delaware. A photocopy of each such document has been delivered to and
ratified and approved by each Member. Each Member is hereby admitted as a
Member of the Company as of the Effective Time and, by its execution and
delivery of this Agreement, agrees to be bound by the Certificate of Formation
and the terms and provisions of this Agreement.
2.2 Company Name. The business of the Company shall continue to be conducted
under the name of "WXI/McN Realty L.L.C." in the State of Delaware and under
such name or such assumed names as the Board of Managers deem necessary or
appropriate to comply with the requirements of any other jurisdiction in which
the Company may be required to qualify. Legal and beneficial title to any
properties, real and personal, which may at any time during the term of the
Company be owned or leased by the Company shall be held in the name of the
Company or any of its Subsidiaries.
2.3 Term. The term of the Company commenced on June 17, 1999 and shall
continue in full force and effect until terminated following dissolution on
December 31, 2015 or such earlier date of dissolution as hereinafter provided.
2.4 Amendments to Certificate of Formation. Whitehall shall have the power
and authority to execute and file any required amendments to the Certificate of
Formation and shall do all other acts requisite for the constitution of the
Company as a limited liability company pursuant to the LLCA and other laws of
the State of Delaware or any other applicable law; provided, however, that
nothing in this Section 2.4 shall, or shall be construed to, grant Whitehall
the authority or power to unilaterally amend this Agreement or any term or
provision hereof. The Company shall, upon request, provide any Member with
copies of each amendment, restatement or other document as executed, filed or
recorded, as the case may be.
2.5 Business; Scope of Members' Authority.
(a) The Company has been organized solely for the purpose of (i) acquiring,
holding, financing, refinancing, maintaining and managing the McREMI Assets,
(ii) acquiring, holding, financing, refinancing and managing the interests in
the Participating McNeil Partnerships and (iii) directly or indirectly, owning,
financing, refinancing, managing, maintaining, operating, improving, leasing,
selling and otherwise disposing of the Properties. The Company is empowered
under law to do any and all acts and things necessary, appropriate, proper,
advisable, incidental to or convenient for the furtherance and accomplishment
of the purposes and business described herein and for the protection and
benefit of the Company, including, without limitation, full power and
authority, directly or indirectly (including through its Subsidiaries), to
enter into, perform and carry out contracts of any kind, borrow money and issue
evidences of indebtedness whether or not secured by any mortgage, deed of
trust, pledge or other lien, acquire, own, manage, improve and develop any real
property (or any interest therein), and sell, transfer and dispose of any such
real property.
(b) Except as otherwise expressly and specifically provided in this
Agreement, no Member shall have any authority to bind, to act for, to sign for
or to assume any obligation or responsibility on behalf of, any other Member.
Neither the Company nor any Member shall, by virtue of executing this
Agreement, be responsible or liable for any indebtedness or obligation of any
other Member incurred or arising either before or after the Effective Time,
except that (i) the Company (but not any Member) shall be responsible and
liable for those responsibilities, liabilities, indebtedness, and obligations
assumed or incurred by the Company at and after the Effective Time pursuant to
the terms of the Master Agreement and (ii) Whitehall (and not McNeil) shall be
solely responsible and liable for those responsibilities, liabilities,
indebtedness and obligations assumed or incurred by the Company prior to the
Effective Time other than (1) those responsibilities, liabilities, indebtedness
and obligations assumed or incurred by the Company pursuant to Sections 7.6,
7.10 and 7.15 of
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the Master Agreement and (2) the indebtedness incurred by the Company solely to
fund the payment of the Funding Amount (as defined in the Equity Commitment
Letter).
2.6 Principal Office; Mailing Address; Registered Agent. The principal
office and mailing address of the Company shall be c/o Whitehall Street Real
Estate Limited Partnership XI, 100 Crescent Court, Dallas, Texas 75201. The
Company may change its place of business or mailing address or both to such
location or locations as may at any time or from time to time be determined by
Whitehall. The name and address of the registered agent upon whom process
against the Company may be served is The Corporation Trust Company, 1209 Orange
Street, Wilmington, Delaware 19801.
2.7 Fiscal Year. The Fiscal Year shall end on December 31 in each year;
provided, however, that upon dissolution of the Company, the Fiscal Year shall
end on the date of such dissolution.
2.8 Company Property. No Company Assets shall be deemed to be owned by any
Member individually, but shall be owned by and title shall be vested solely in
the Company. The Interests of the Members in the Company shall constitute
personal property.
2.9 No State Law Partnership. The Members intend that the Company not be a
partnership, limited partnership or joint venture and that no Member be a
partner or joint venturer of any other Member for any purposes other than
applicable tax laws. This Agreement shall not be construed to suggest
otherwise.
2.10 Names and Addresses of Members. The names and addresses of the Members
are as follows:
WXI/MNL Real Estate, L.L.C.
c/o Whitehall Street Real Estate
Limited Partnership XI
c/o WH Advisors, LLC XI
85 Broad Street
New York, New York 10004
Attn: Chief Financial Officer
McNeil Partners, L.P.
c/o Robert and Carole McNeil
229 Polhemus Avenue
Atherton, California 94027
Telecopier No: (650) 323-0720
with copies to:
Robert and Carole McNeil
1001 California Street, #600
San Francisco, California 94018
Telecopier No.: (415) 441-2380
and
Skadden, Arps, Slate, Meagher & Flom LLP
919 Third Avenue
New York, New York 10022
Attention: Martha E. McGarry, Esq.
Telecopier No.: (212) 735-2000
2.11 Representations by Members. Each Member represents, warrants, agrees
and acknowledges as of the date hereof that:
(a) it is a corporation, limited partnership or limited liability
company, as applicable, duly organized or formed and validly existing and
in good standing under the laws of the state of its organization or
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formation; it has all requisite corporate, limited partnership or limited
liability company power and authority to enter into this Agreement, to
acquire and hold its Interest and to perform its obligations hereunder; and
the execution, delivery and performance of this Agreement by such Member
has been duly authorized by all necessary corporate, limited partnership or
limited liability company action on the part of such Member;
(b) the execution and delivery of this Agreement by such Member and the
performance of its obligations hereunder will not (i) conflict with, result
in a breach of or constitute a default (or any event that, with notice or
lapse of time, or both, would constitute a default) or result in the
acceleration of any obligation under any of the terms, conditions or
provisions of any other agreement or instrument to which it is a party or
by which it is bound or to which any of its property or assets is subject,
(ii) conflict with or violate any of the provisions of its Organizational
Documents, or (iii) violate any statute or any order, rule or regulation of
any court or governmental or regulatory agency, body or official applicable
to such Member or its property or assets; such Member has obtained each
consent, approval, authorization or order of any court or governmental
agency or body required for the execution and delivery of this Agreement by
such Member and performance by such Member of its obligations hereunder;
(c) there is no action, suit or proceeding pending against such Member
or, to its knowledge, threatened in any court or by or before any other
governmental agency or instrumentality that would prohibit its entering
into, or that could have a material adverse effect on its ability to
perform its obligations under, this Agreement;
(d) assuming the due execution and delivery of this Agreement by the
other Member, this Agreement is a binding agreement on the part of such
Member enforceable in accordance with its terms against such Member;
(e) neither it nor any of its Affiliates has employed any broker or
finder, or incurred any liability for any brokerage commission or finder's
fee, in connection with the sale or contribution of the McREMI Assets or
interests in the Participating McNeil Partnerships to the Company or any of
the other transactions contemplated by this Agreement or the Master
Agreement except for PaineWebber Incorporated, Eastdil Realty Company and
Robert A. Stanger & Co., Inc., whose fees shall be paid by one or more of
McNeil and the Participating McNeil Partnerships, and Houlihan, Lokey,
Howard & Zukin and Susan Barlow, all of whose fees shall be paid by McNeil;
and
(f) (i) such Member and each of its beneficial owners is an "accredited
investor" (as defined in Rule 501 of Regulation D promulgated under the
Securities Act of 1933, as amended) and (ii) such Member is acquiring its
Interest as a member in the Company for its own account, for investment
purposes only, and not with a view to the distribution or resale thereof,
in whole or in part.
Each Member agrees that it will not make any Transfer, or solicit offers to buy
from or otherwise approach or negotiate in respect thereof with any Person or
Persons whomsoever, all or any portion of its Interest in any manner that would
violate or cause the Company or any Member to violate applicable federal or
state securities laws.
2.12 Additional Representations by Whitehall. Whitehall further represents,
warrants, agrees and acknowledges to McNeil as of the date hereof that:
(a) The Company is a limited liability company duly formed and validly
existing under the laws of the State of Delaware and has the requisite
power and authority to carry on its business as conducted prior to the
Effective Time and is duly qualified or licensed to do business and is in
good standing (with respect to jurisdictions which recognize such concept)
in each jurisdiction in which the nature of its business prior to the
Effective Time or the ownership, leasing or use of its properties makes
such qualification or licensing necessary. The Company has delivered to
McNeil complete and correct copies of the Original LLC Agreement and the
Certificate of Formation, as each has been amended or supplemented to the
date of this Agreement.
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(b) The Company was formed solely for the purpose of engaging in the
transactions contemplated by this Agreement and the Master Agreement and
has not engaged in any business activities or conducted any operations
other than as expressly provided for in the Master Agreement. Other than
the Transitory Partnerships and the Company LLCs upon their formation, the
Company has never owned any capital stock or other equity interests in any
other Person. Prior to the contributions described in Section 2.3(a) of the
Master Agreement and in Section 6.1 of this Agreement, the Company will
have no assets or liabilities or obligations whatsoever (other than the
rights and obligations pursuant to the Master Agreement, this Agreement and
the Commitment Letter).
2.13 Additional Representations by McNeil. McNeil further represents,
warrants, agrees and acknowledges to Whitehall as of the date hereof that:
(a) Immediately prior to the contributions described in Section 2.3(a)
of the Master Agreement, MPLP had good and valid title to all of the GP
Interests in each Participating McNeil Partnership, the McREMI Assets and
the LP Interests in each of Fairfax and Summerhill (to the extent such
McNeil Partnerships are Participating McNeil Partnerships) in each case
free and clear of all Liens.
(b) Upon the occurrence of the contributions described in Section 2.3(a)
of the Master Agreement, the GP Interests in each Participating McNeil
Partnership, the McREMI Assets and the LP Interests in each of Fairfax and
Summerhill (to the extent such McNeil Partnerships are Participating McNeil
Partnerships) shall have been contributed, transferred or otherwise
assigned, at the direction of the Company, to one or more of the Company or
its wholly owned Subsidiaries, in any such case, free and clear of all
Liens (other than Liens relating to Non-Terminated Loans).
2.14 Indemnification. The representations, warranties and covenants of the
Members set forth in Sections 2.11, 2.12 and 2.13 are made as of the Effective
Time and shall survive the Effective Time indefinitely. Each Member agrees to
indemnify, defend, and hold the Company and the other Members harmless against
all claims, demands, actions, obligations, causes of action, losses and
expenses, including reasonable fees and expenses of counsel, suffered or
incurred by, or asserted against, any of them relating to or arising from any
inaccuracy in or breach of the representations, warranties or covenants made by
such Member in Sections 2.11, 2.12 and 2.13.
ARTICLE 3.
Management of Company Business; Major Decisions
3.1 Management Generally.
(a) The management of the Company shall be vested exclusively in a board of
five (5) managers (each manager, a "Manager" and, collectively, the "Board of
Managers"). Except as expressly set forth herein to the contrary, the Members,
in their capacity as members of the Company, shall have no part in the
management or control of the Company and shall have no authority or right to
act on behalf of or bind the Company in connection with any matter. Each of the
Members agrees that all determinations, decisions, and actions made or taken by
or on behalf of the Board of Managers in accordance with the terms of this
Agreement and applicable law shall be conclusive and binding upon the Company,
the Members, and their respective successors, assigns, and personal
representatives.
(b) Without in any way limiting the foregoing, but subject to Section 3.8,
the Board of Managers shall have the exclusive right to decide (affirmatively
or negatively) all material matters relating to the Company, its Subsidiaries
and the Properties, including, without limitation, matters (collectively, the
"Major Decisions") regarding:
(i) the sale, financing or refinancing of any one or more of the
Properties;
(ii) capital or other expenditures;
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(iii) terminating or modifying commercial leases and entering into new
commercial leases;
(iv) concessions granted to tenants (including free rent and tenant
improvements) in connection with any commercial lease;
(v) subject to Section 4.9, the filing of a petition in Bankruptcy or
similar proceedings;
(vi) tenant leases and other expenses;
(vii) settling any litigation or arbitration;
(viii) investments of cash of the Company or any of its Subsidiaries;
(ix) entering into service contracts not contemplated by the applicable
approved Business Plan;
(x) engagement of Property Managers;
(xi) approval of the standard lease form used for each Commercial
Property and the standard lease form for each Multifamily Property, and
approval of any lease that deviates substantially from the applicable
standard form;
(xii) any call for the making of Additional Capital Contributions by
Whitehall;
(xiii) subject to the terms and provisions of this Agreement, any
decision relating to the distribution of cash and allocation of taxable
income and loss;
(xiv) modifications to the insurance program required by the applicable
approved Business Plan; and
(xv) subject to the terms and provisions of this Agreement, setting
reserves.
3.2 Managers and Officers: Number, Appointment, Removal, Qualifications,
Etc.
(a) The total number of Managers shall at all times equal five. Whitehall
shall at all times be entitled to designate three of the five Managers (the
"Whitehall Managers") to serve until the first annual meeting of Members and
until each such Manager's successor has been elected and qualified and
Whitehall shall have the right to elect three Managers upon each annual
election of Managers. McNeil shall at all times be entitled to designate two of
the five Managers (the "McNeil Managers") to serve until the first annual
meeting of Members and until each such Manager's successor has been elected and
qualified and McNeil shall have the right to elect two Managers upon each
annual election of Managers.
(b) No Manager may be removed from office (with or without cause) without
the consent of the Member who elected such Manager. Each Member shall have the
sole right to remove, at any time and for any reason with or without cause, any
Manager appointed by such Member and to appoint a successor Manager to fill any
vacancy caused by the removal, resignation, death or incapacity of any Manager
appointed by such Member. Each Member agrees to fill any such vacancy as soon
as practicable and agrees that it will use its best efforts to fill any such
vacancy within 30 days of such vacancy. Each Member agrees to give the Company
and the other Member prompt written notice of any appointment or removal of any
of its Managers.
(c) Whitehall shall have the right to designate one of the five Managers as
Chairman of the Board of Managers. The Chairman shall preside over meetings of
the Board of Managers. The Chairman shall at all times be a Manager of the
Company. Except to preside over meetings of the Board of Managers, the Chairman
by virtue of such title shall have no other authority or power not possessed by
the other Managers. If no Chairman is designated by Whitehall, or if at any
meeting of the Board of Managers the Chairman is not present within fifteen
minutes after the time appointed for holding such meeting, any Whitehall
Manager present may choose one of their number to preside over such meeting as
chairman.
(d) The Board of Managers may appoint the Officers of the Company, which may
consist of, among other officers, a President, a Secretary and a Treasurer. The
Board of Managers may also appoint such other Officers
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and agents as it shall deem necessary or advisable. All Officers and agents
shall hold their offices for such terms and shall exercise such powers and
perform such duties as shall be determined from time to time by the Board of
Managers. Any two or more offices may be held by the same person. An Officer of
the Company shall hold office until his or her successor is duly appointed and
qualified or until his or her death, resignation or removal from office. Any
Officer appointed by the Board of Managers may be removed at any time, with or
without cause, by the affirmative vote of the majority of the Board of
Managers. Any vacancy occurring in any office of the Company shall be filled by
the Board of Managers.
(e) Any Manager designated pursuant to this Section 3.2 shall assume the
powers, duties and obligations of a Manager as provided under this Agreement
and of a manager under the LLCA and shall be subject to the terms hereof and
thereof.
(f) The Board of Managers shall have the right to delegate authority to the
Officers, provided that the Board of Managers does not delegate the authority
to make any decision regarding the matters described in Section 3.1(b)(i),
3.1(b)(v), 3.1(b)(xii), 3.1(b)(xiii), 3.1(b)(xv) or 3.8 or any matter which by
the terms of this Agreement requires a Super-majority Vote or the consent of
McNeil.
3.3 Committees. The Board of Managers shall not have the power to create
committees.
3.4 Managers' Expenses. Except as agreed to between the Members, each Member
shall bear all costs incurred by the Managers designated by such Member and no
Manager shall be entitled to any compensation from the Company or its
Subsidiaries for serving in the capacity as a Manager or as the Chairman of the
Board of Managers.
3.5 Meetings of Managers.
(a) The Board of Managers shall meet not less frequently than quarterly,
upon written notice duly given by any Whitehall Manager to all Managers,
provided that any failure to so meet shall not give rise to any presumption or
inference that the Members shall have any liability for the obligations of the
Company; and provided further that if a meeting has not been called by a
Whitehall Manager within 60 days after the last day of the immediately
preceding fiscal second quarter or fiscal year end, as the case may be, any
McNeil Manager may give notice to all Managers of such meeting.
(b) Notwithstanding anything to the contrary contained herein or in the
LLCA, subject to the proviso in Section 3.5(a), the Board of Managers shall
meet upon the request of any Whitehall Manager conveyed in writing to each
other Manager, at a time no fewer than three (3) and no more than ten (10) days
after such notice is given and at a place in New York, New York, Dallas, Texas
or such other reasonable place as is specified in such notice; provided,
however, that attendance at such meeting may be telephonic.
(c) To the extent permitted by any applicable law, the Managers, may
participate in any meeting of the Board of Managers by means of conference
telephone or similar communications equipment by means of which all individuals
participating in the meeting can hear and be heard by all other participants,
and such participation shall constitute presence in person at such meeting.
(d) A waiver of notice signed by a Manager shall be deemed equivalent to
notice, whether signed before, at or after the meeting. Attendance at a meeting
shall constitute a waiver of notice.
(e) Unless otherwise prohibited by law, any action required or permitted to
be taken by the Board of Managers may be taken without a meeting, without prior
notice and without a vote if a consent or consents in writing, setting forth
the action so taken, shall be signed by all five of the Managers. The
resolution and the written consents thereto by the Managers shall be filed with
the minutes of the proceedings of the Board of Managers.
3.6 Quorum. At all meetings of the Board of Managers three out of the five
Managers shall constitute a quorum for the transaction of business; provided,
however, that any Whitehall Manager shall have the right to
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represent and vote the interests of one or both of the other Whitehall Managers
and either McNeil Manager shall have the right to represent and vote the
interests of the other McNeil Manager, in which event the absent Managers shall
be deemed present for purposes of constituting a quorum. In the event that at
any meeting of the Managers a quorum shall not be present, the Managers present
may adjourn the meeting from time to time until a quorum shall be present.
3.7 Voting Requirements. When action is to be taken by vote of the Board of
Managers, each Manager shall be accorded one vote; provided, however, that any
Whitehall Manager shall have the right to represent and vote the interests of
one or both of the other Whitehall Managers and either McNeil Manager shall
have the right to represent and vote the interests of the other McNeil Manager.
Except as provided in Section 3.8, all actions of the Board of Managers must be
approved by the affirmative vote of at least three of the five Managers (a
"Majority Vote").
3.8 Actions Requiring Super-majority Approval. Notwithstanding any other
provision of this Agreement or applicable law to the contrary, each of the
Members hereby agrees that neither the Board of Managers nor the Company shall
take, and shall not permit any of the Company's Subsidiaries to take, any of
the following actions without the approval of at least four (4) of the five (5)
Managers (a "Super-majority Vote") (which approval shall not be delegable to
any Manager, any committee of the Board of Managers or any Officers of the
Company, notwithstanding any other provision of this Agreement or applicable
law to the contrary):
(a) Any amendment or repeal of this Agreement or any term or provision
hereof.
(b) Any Proposed Multifamily Transaction on or prior to the fifth
anniversary of the Closing Date, other than (i) a Proposed Multifamily
Transaction in which no gain or loss is recognized by McNeil under Section
704(c) of the Code, (ii) as the result of a foreclosure (including a
Preferred Equity Financing Foreclosure), the granting of a deed in lieu of
foreclosure, condemnation, casualty or Bankruptcy (in each case under this
clause (ii), subject to Section 4.9) or (iii) a Proposed Multifamily
Transaction that may be deemed to be included in the definition of Tax
Event Transaction (which does not involve the disposition of any Commercial
Properties).
(c) Any Tax Event Transaction on or prior to the fifth (5th) anniversary
of the Closing Date, other than (A) any Tax Event Transaction resulting
from a Preferred Equity Financing Foreclosure and (B) any Tax Event
Transaction that results in the holders of the McNeil Interest receiving in
the aggregate an amount of cash (on the date of closing of the Tax Event
Transaction) equal to the sum of the Full Pre Lock-out Payment and the Tax
Gross-Up Amount. The Company shall notify the holders of the McNeil
Interest in writing of a Tax Event Transaction within two (2) business days
of signing an agreement with respect to a Tax Event Transaction (the
"Notice Date").
(d) Any change in the nature of the Company's business as conducted
immediately following the Effective Time.
(e) Any repayment, refinancing of or amendment to any Loan Agreement,
prior to the fifth (5th) anniversary of the Closing Date, to the extent the
same would result in McNeil's share of "nonrecourse liabilities" (within
the meaning of Treasury Regulation Section 1.752) and "qualified
nonrecourse financing" (within the meaning of Section 465 of the Code)
being less than the Initial QNL Amount.
(f) A liquidation or dissolution of the Company except following the
disposition of all of the Company Assets.
(g) Any commencement of Bankruptcy or similar proceedings by the Company
or the Board of Managers which involves the Company or a significant number
of its Subsidiaries or Properties.
(h) (i) The admission of a new Member to the Company (other than in
accordance with Article 9), (ii) any Transfer (other than Transfers
permitted by Section 9.1(a) or 9.1(b)) or (iii) the admission (through one
or a series of transactions) of new members, partners or equity holders to
a significant number of the
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Company's Subsidiaries (except with respect to this clause (iii), in
connection with a Preferred Equity Financing approved by a Majority Vote of
the Board of Managers).
(i) Entering into or amending any transaction or transactions outside of
the ordinary course of business with Goldman, Sachs & Co., Whitehall or
Whitehall XI, or any Affiliate (excluding any Subsidiary of the Company) of
any of the foregoing, other than (i) retaining Goldman, Sachs & Co. (and/or
one or more of its Affiliates) as the Company's exclusive financial and
sales advisor for the sale, financing, refinancing, merger, combination,
disposition or similar transaction with respect to the Company, some or all
of its Subsidiaries or some or all of the Properties (excluding the sale of
an individual Property or a portfolio of fewer than five Properties) and
(ii) services provided by Archon as Portfolio Advisor or, subject to
Section 4.12, as a Property Manager.
(j) Notwithstanding any exception in clause (i) above, entering into or
amending any transaction or transactions with Goldman, Sachs & Co.,
Whitehall or Whitehall XI, or any Affiliate (excluding any Subsidiary of
the Company) of any of the foregoing, which provides for rates or terms
(including arrangements relating to compensation, commissions, fees or
indemnification) that are not substantially comparable to market rates and
terms for comparable services rendered by comparable firms.
(k) Any transaction following the consummation of which would result in
Whitehall or Whitehall XI or any of their respective Affiliates owning any
direct or indirect interest in any Subsidiary of the Company (including the
Participating McNeil Partnerships and their respective Subsidiaries), other
than as a result of the ownership of Company Interests by Whitehall and as
a result of Whitehall or one or more Affiliates being the provider of
Preferred Equity Financing.
(l) Each of the Members hereby agrees that the Company's execution and
delivery of the Portfolio Advisory Agreement does not require a Super-
majority Vote.
3.9 Role of the Portfolio Advisor and Limitations on Its Authority.
(a) The Board of Managers shall have the right to delegate to the Portfolio
Advisor the right and duty to manage the day-to-day operational affairs of the
Company and to implement the decisions made on behalf of the Company by the
Board of Managers or any Officers in accordance with the terms of this
Agreement and applicable laws and regulations and such other rights and powers
as are granted to the Portfolio Advisor hereunder or under the Portfolio
Advisory Agreement and as the Board of Managers may from time to time expressly
delegate to the Portfolio Advisor; provided, however, that the Board of
Managers shall not delegate to the Portfolio Advisor the authority to make any
decision regarding the matters described in Section 3.1(b)(i), 3.1(b)(v),
3.1(b)(xii), 3.1(b)(xiii), 3.1(b)(xv) or 3.8 or any matter which by the terms
of this Agreement requires a Super-majority Vote or the consent of McNeil.
(b) Neither McNeil nor any McNeil Manager shall (nor shall McNeil nor any
McNeil Manager have any right, power or authority to), without the prior
approval of Whitehall, bind or take any action on behalf of or in the name of
the Company, or enter into any commitment or obligation binding upon the
Company, except for (i) actions authorized under this Agreement, (ii) actions
authorized by Whitehall in the manner set forth herein and (iii) actions
(excluding the execution of any document on behalf of the Company) which, at
the time of the taking of such action, McNeil or any McNeil Manager did not
reasonably believe would be binding upon the Company. McNeil shall indemnify
and hold harmless the Company and the Members and their Affiliates from and
against any and all claims, demands, losses, damages, liabilities, lawsuits and
other proceedings, judgments and awards, and costs and expenses (including, but
not limited to, reasonable attorneys' fees) arising, directly or indirectly, in
whole or in part, out of any breach of the provisions of this Section 3.9(b) by
McNeil or any McNeil Manager.
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ARTICLE 4.
RIGHTS AND DUTIES OF MEMBERS AND BOARD OF MANAGERS
4.1 Approved Budget and Business Plan. Prior to the end of each Fiscal Year,
the Board of Managers shall review, revise and approve an Annual Budget and a
Business Plan for the next succeeding Fiscal Year prepared by the Portfolio
Advisor for each Budget Year and any amendments and modifications thereto.
4.2 Other Activities of the Members.
(a) Each Member may engage or invest in any other activity or venture or
possess any interest therein independently or with others. None of the Members,
the Managers, the Officers, the Company or any other Person employed by,
related to or in any way affiliated with any Member, any Manager, any Officer
or the Company shall have any duty or obligation to disclose or offer to the
Company or the Members, or obtain for the benefit of the Company or the
Members, any other activity or venture or interest therein. None of the
Company, the Members, the creditors of the Company or any other Person having
any interest in the Company shall have (A) any claim, right or cause of action
against any Member or any other Person employed by, related to or in any way
affiliated with, any Member by reason of any direct or indirect investment or
other participation, whether active or passive, in any such activity or venture
or interest therein or (B) any right to any such activity or venture or
interest therein or the income or profits derived therefrom.
4.3 Indemnification. No Member, Manager or Officer shall be liable,
responsible or accountable in damages or otherwise to the Company, any third
Person or to any other Member for (i) any act performed within the scope of the
authority conferred on such Member, Manager or Officer by this Agreement or any
act that is in breach of its fiduciary duties except for the gross negligence,
fraud or willful misconduct of such Member, Manager or Officer in carrying out
its obligations hereunder and except for acts in contravention of an express
term of this Agreement, (ii) such Member's, Manager's or Officer's failure or
refusal to perform any act, except those required by the terms of this
Agreement, (iii) such Member's, Manager's or Officer's performance of, or
failure to perform, any act on the reasonable reliance on advice of legal
counsel to the Company or (iv) the negligence, dishonesty or bad faith of any
agent, consultant or broker of the Company selected, engaged or retained in
good faith and with reasonable prudence. In any threatened, pending or
completed action, suit or proceeding, each Member, Manager and Officer shall be
fully protected and indemnified and held harmless by the Company against all
liabilities, obligations, losses, damages, penalties, actions, judgments,
suits, proceedings, costs, expenses and disbursements of any kind or nature
whatsoever (including, without limitation, reasonable attorneys' fees, costs of
investigation, fines, judgments and amounts paid in settlement, actually
incurred by such Member, Manager or Officer in connection with such action,
suit or proceeding) by virtue of its status as Member, Manager or Officer or
with respect to any action or omission taken or suffered in good faith, other
than liabilities and losses resulting from the gross negligence, fraud or
willful misconduct of such Member, Manager or Officer; provided, however, such
Member, Manager or Officer shall not be so indemnified for any acts in
contravention of an express term of this Agreement. The indemnification
provided by this Section 4.3 shall be recoverable only out of the assets of the
Company and its Subsidiaries, and no Member, Manager or Officer shall have any
personal liability (or obligation to contribute capital to the Company) on
account thereof.
4.4 Compensation of Members and their Affiliates; Goldman, Sachs & Co. as
Exclusive Financial Advisor. No Member or any Affiliate of any Member, shall be
entitled to compensation from the Company in connection with any matter that
may be undertaken in connection with the fulfillment of its duties and
responsibilities hereunder, except: (i) as provided in this Section 4.4; (ii)
as set forth in any agreement or agreements with the Portfolio Advisor or,
subject to Section 4.12, with Archon as a Property Manager; or (iii) in
connection with a guaranty or other recourse obligation provided or incurred by
a Member (or an Affiliate of a Member) to a lender providing financing to the
Company, its Subsidiaries, or any Property, the Member (or such Affiliate)
providing or incurring such guaranty or other recourse obligation may recover
from the
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Company a reasonable fee, in accordance with market rates (including in respect
of commissions and fees) and terms, in exchange for such services.
The Members covenant and agree that:
(i) the Company will exclusively retain Goldman, Sachs & Co. (as well as
such Affiliate(s) as Goldman, Sachs & Co. may designate from time to time)
to provide sales advisory services to the Company in connection with any
sale, merger, combination, disposition or similar transaction involving the
Company or any of its Subsidiaries or Properties or any related series of
sales, mergers, combinations, dispositions or other similar transactions
(other than sales of individual Properties or portfolios of fewer than five
Properties), and
(ii) the Company will exclusively retain Goldman, Sachs & Co. (and/or
its Affiliates) and will use its best efforts to cause its Subsidiaries to
exclusively retain Goldman, Sachs & Co. (and/or its Affiliates) to provide
all financial advisory and investment banking services to the Company in
connection with any financing, refinancing or similar transaction involving
the Company or any of its Subsidiaries or Properties (other than sales of
individual Properties or portfolios of fewer than five Properties).
If Goldman, Sachs & Co. (and/or its Affiliate(s)) agrees to accept such
engagement (as described above), such engagement shall be negotiated on an
arms-length basis and Goldman, Sachs & Co. (and/or their respective
Affiliate(s)) shall be entitled to receive from the Company fees and
commissions for such services in accordance with market rates and terms and
indemnification in accordance with market terms for comparable services
rendered by comparable firms.
4.5 Dealing with Members. Subject to all other provisions of this Agreement,
the fact that a Member, an Affiliate of a Member, or any officer, director,
employee, partner, consultant or agent of a Member, is directly or indirectly
interested in or connected with any Person employed by the Company to render or
perform a service shall not prohibit the Company from employing such Person on
an arm's length basis and at market rates (including in respect of commissions
and fees) and terms, and neither the Company nor any of the other Members shall
have any right in or to any income or profits derived therefrom by reason of
this Agreement.
4.6 Use of Company Property. No Member shall make use of the funds or
property of the Company or its Subsidiaries, or assign its rights to specific
property, other than for the business or benefit of the Company or its
Subsidiaries.
4.7 Designation of Tax Matters Member. The Tax Matters Member shall act as
the "tax matters partner" of the Company, as provided in the regulations
pursuant to Section 6231 of the Code. Each Member hereby approves of such
designation and agrees to execute, certify, acknowledge, deliver, swear to,
file and record at the appropriate public offices such documents as may be
deemed necessary or appropriate to evidence such approval. To the extent and in
the manner provided by applicable Code sections and regulations thereunder, the
Tax Matters Member (a) shall furnish the name, address, profits interest and
taxpayer identification number of each Member to the IRS and (b) shall inform
each Member of administrative or judicial proceedings for the adjustment of
Company items required to be taken into account by a Member for income tax
purposes. Each Member hereby reserves all rights under applicable law with
respect to the activities undertaken by the Tax Matters Member, including the
right to retain independent counsel of its choice at its expense. The Company
shall indemnify the Tax Matters Member for any liabilities incurred in such
capacity.
4.8 Proposed Transactions After Five Years.
(a) In the event of any Proposed Change of Control Transaction that is
proposed to be consummated after the fifth (5th) anniversary of the Closing
Date, then Whitehall shall give McNeil written notice of the Proposed Change of
Control Transaction and McNeil shall be "cashed-out" upon the consummation of
such Proposed Change of Control Transaction. In exchange for all of the McNeil
Interest, the holders of the McNeil Interest
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shall be paid in the aggregate an amount in cash equal to the Full Post Lock-
out Payment upon the closing of such Proposed Change of Control Transaction.
(b) In the event of a Proposed Company Transaction that is proposed to be
consummated after the fifth (5th) anniversary of the Closing Date the following
shall apply:
(i) If any portion of the consideration to be received by the Members in
connection with any Proposed Company Transaction shall be other than cash,
the consideration to be received by the holders of the McNeil Interest
shall be of the same type and shall have the same terms as the
consideration received by Whitehall.
(ii) Except as provided in Section 4.8(b)(iii), Whitehall shall
determine the value of any non-cash consideration to be received by the
Members in any Proposed Company Transaction and if Whitehall determines
that the value of such non-cash consideration plus any cash consideration
to be received by the holders of the McNeil Interest is sufficient to
provide to the holders of the McNeil Interest a Full Post Lock-out Payment,
the holders of the McNeil Interest shall have the right to either (i)
exchange all of the McNeil Interest upon the closing of such Proposed
Company Transaction for such cash and non-cash consideration having a value
(using Whitehall's valuation) equal to the Full Post Lock-out Payment, or
(ii) exchange all of the McNeil Interest upon the closing of such Proposed
Company Transaction for cash in an amount equal to the Full Post Lock-out
Payment. McNeil shall have the right to engage, at the sole expense of the
holders of the McNeil Interest, an investment bank or other appraiser to
assist the holders of the McNeil Interest in determining whether to take
the non-cash consideration or the cash.
(iii) If such Proposed Company Transaction involves non-cash
consideration (other than publicly traded securities) and Whitehall
determines that the value of the non-cash consideration plus any cash
consideration to be received by the holders of the McNeil Interest is not
sufficient to make the Full Post Lock-out Payment, McNeil shall have the
right, at the Company's expense, to commence the process to determine the
Appraised Value of such non-cash consideration as set forth in the
definitions of "Appraiser" and "Appraisal Value" in Section 1.1. The
holders of the McNeil Interest shall have the option, in McNeil's sole
discretion, to exchange all of the McNeil Interest upon the closing of such
Proposed Company Transaction for such cash and non-cash consideration
having a value (using the Appraised Value) equal to the McNeil Portion or
to receive cash in the amount equal to the McNeil Portion.
4.9 McNeil's Right Prior to Bankruptcy Filing. Notwithstanding anything to
the contrary contained in this Agreement, none of the Company, the Members or
the Board of Managers shall commence, take any action to commence, or cause to
be commenced by the Company or by any one or more of the Company's
Subsidiaries, any Bankruptcy unless (i) at least thirty (30) days prior
thereto, the Board of Managers shall have given McNeil written notice of such
contemplated commencement of a Bankruptcy, (ii) the Board of Managers shall
have given McNeil the opportunity during such thirty (30) day period to make
any Additional Capital Contribution as the Board of Managers shall reasonably
and in good faith determine is necessary to prevent such commencement or action
and (iii) prior to the expiration of such thirty (30) day period, McNeil shall
not have made such Additional Capital Contribution.
4.10 Refinancing after Five Years. If at any time following the fifth (5th)
anniversary of the Closing Date the Company elects to repay, refinance or
otherwise alter, modify or amend the terms of any indebtedness, including
without limitation any Loan Agreement, to which the Properties are subject, and
such repayment, refinancing or other alteration, modification or amendment
would result in McNeil's share of "nonrecourse liabilities" (within the meaning
of Treasury Regulation Section 1.752) and "qualified nonrecourse financing"
(within the meaning of Section 465 of the Code) being less than an amount equal
to (x) the Initial QNL Amount multiplied by (y) a fraction the numerator of
which shall equal the aggregate initial Book Value of all of the Properties
owned by the Company after such refinancing, repayment or alteration (excluding
Commercial Properties) and the denominator of which shall equal the aggregate
initial Book Values of all of the Properties owned by the Company as of the
Closing Date (excluding the Commercial Properties), then (i) such repayment,
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refinancing or other alteration, modification or amendment shall be discussed
at a meeting of the Board of Managers prior to any action being taken to repay,
refinance or otherwise alter, modify or amend the terms of any indebtedness,
including without limitation any Loan Agreement, to which the Properties are
subject, and (ii) the Company shall allocate, to the extent allocable all (or
the maximum portion allocable under applicable laws) of the Company's
"nonrecourse liabilities" and "qualified nonrecourse financing" to McNeil
provided that such allocation does not and may not result in any adverse
economic effect on Whitehall at the time of such allocation or at any future
time, as the same may be determined by Whitehall in Whitehall's sole
discretion. Notwithstanding anything to the contrary contained in this
Agreement, at no time shall McNeil be allocated less than its Percentage
Interest of "nonrecourse liabilities" and "qualified nonrecourse financing". If
at any time, McNeil's share of "nonrecourse liabilities" or "qualified
nonrecourse financing" is less than the amount determined pursuant to the first
sentence of this Section 4.10, then, at the request of a McNeil Manager, the
Board of Managers shall discuss the matter, McNeil agreeing that the Company
and the Board of Managers shall have no obligation to take any action in
connection therewith.
4.11 Senior Indebtedness and Preferred Equity Financing. The Board of
Managers shall have the authority to obtain, on behalf of the Company and its
Subsidiaries, any or all of the Company's and its Subsidiaries' financing
(including Senior Indebtedness and Preferred Equity Financing) from Goldman,
Sachs & Co. and/or its Affiliates (as lender) at market rates and terms and/or
from any other non-affiliated lender as the Board of Managers in good faith
deems appropriate.
4.12 Property Manager. The Property Manager will be responsible for property
management. For the Multifamily Properties, the Property Manager will be
Management LLC for the period ending on December 31st of the calendar year
following the calendar year in which the Closing occurs and thereafter may be
Management LLC or an appropriate third-party property management agent which
may include Archon. For the Commercial Properties, the Board of Managers will
select Management LLC as Property Manager or an appropriate third-party
property management agent which may include Archon. All property management
services will be performed on an arm's-length basis and at market fees.
4.13 Binding Effect of Asset Allocations. The Asset Allocations shall be
binding on the Company and the Members and shall be adhered to by the Company
and the Members for the purposes of reporting the book and tax basis of the
Company Assets.
4.14 Reservation of Rights. Notwithstanding anything to the contrary
contained in this Agreement, nothing in this Agreement shall (or shall be
construed to) constitute a waiver by any Member of its rights under applicable
law and its right to retain independent counsel of its choice at such Member's
expense.
4.15 Taxation as a Partnership. The Members intend and shall take, or shall
cause the Company to take, any and all reasonable actions to ensure that the
Company shall be treated as a partnership for income tax purposes and that any
of the Subsidiaries of the Company that have been partnerships, joint ventures,
disregarded entities or limited liability companies since formation shall
continue to qualify, as partnerships or disregarded entities for income tax
purposes.
4.16 Harbour Club Properties.
(a) Each of the Members covenants and agrees to make an Additional Capital
Contribution to the Company in accordance with such Member's Percentage
Interest, determined immediately prior to the making by any Member of any
Additional Capital Contribution pursuant to this Section 4.16(a), to fund the
purchase price of Harbour Club Phase Four if the Company elects to purchase
Harbour Club Phase Four. The Additional Capital Contribution made by McNeil
pursuant to this Section 4.16(a) shall be included as part of the McNeil Class
B Investment. The Additional Capital Contribution made by Whitehall pursuant to
this Section 4.16(a) shall be included as part of the Whitehall Class A
Investment. The Company or one of its Subsidiaries will hold Harbour Club Phase
Four as a Company Asset until the Board of Managers decides to dispose of such
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<PAGE>
asset. If either Member shall fail to make its required Capital Contribution
pursuant to this Section 4.16(a), the other Member may purchase Harbour Club
Phase Four directly and not through the Company.
(b) In the event that the Company exercises its option to purchase Harbour
Club Phase One, pursuant to Section 7.14 of the Master Agreement, each of the
Members covenants and agrees to make an Additional Capital Contribution to the
Company in accordance with such Member's Percentage Interest, determined
immediately prior to the making by any Member of any Additional Capital
Contribution pursuant to this Section 4.16(b), to fund the purchase price of
Harbour Club Phase One. The Additional Capital Contribution made by McNeil
pursuant to this Section 4.16(b) shall be included as part of the McNeil Class
B Investment. The Additional Capital Contribution made by Whitehall pursuant to
this Section 4.16(b) shall be included as part of the Whitehall Class A
Investment. The Company or one of it Subsidiaries will hold Harbour Club Phase
One as a Company Asset until the Board of Managers decides to dispose of such
asset. If either Member shall fail to make its required Capital Contribution
pursuant to this Section 4.16(b), the other Member may purchase Harbour Club
Phase One directly and not through the Company.
4.17 Preferred Equity Financing. The Company shall, and shall cause its
Subsidiaries to, use reasonable efforts to achieve financing with respect to
those Properties that are security for Non-Terminated Loans by replacing each
such Non-Terminated Loan with mortgage or Preferred Equity Financing on
commercially reasonable terms when each such Non-Terminated Loan becomes
prepayable without any penalty.
ARTICLE 5.
Books And Records; Reports
5.1 Books and Records. At all times during the existence of the Company, the
Board of Managers shall keep or cause to be kept true and complete books and
records of the Company and its Subsidiaries (including all records that the
Company may be required to maintain by the LLCA or other provisions of
applicable law) in which shall be entered fully and accurately each transaction
of the Company and it Subsidiaries. Such books and records shall be kept on the
basis of the Fiscal Year in accordance with the accrual method of accounting,
and shall reflect all transactions of the Company and its Subsidiaries in
accordance with generally accepted accounting principles.
5.2 Availability of Books and Records; Return of Books and Records. All of
the books and records referred to in Section 5.1 (which shall include an
executed copy of this Agreement and the Certificate of Formation, and any
amendments thereto) shall at all times be maintained at the principal office of
the Company or such other location as the Board of Managers may determine
(which other location shall be communicated to all of the Members), and shall
be open to the inspection and examination of the Members or their
representatives during reasonable business hours.
5.3 Reports and Statements; Annual Budgets and Business Plans. Prior to the
end of each Fiscal Year, the Board of Managers shall review, revise and approve
an Annual Budget for the succeeding Fiscal Year. For each Fiscal Year, the
Board of Managers shall cause to be sent to each Person who was a Member at any
time during such Fiscal Year, by no later than February 15 of the succeeding
Fiscal Year, an annual report of the Company including an annual balance sheet,
profit and loss statement and a statement of changes in financial position, and
a statement showing distributions to the Members all as prepared in accordance
with generally accepted accounting principles consistently applied and audited
by the Company's independent public accountants, which shall be a nationally
recognized accounting firm (as the Board of Managers shall decide), and a
statement showing allocations to the Members of taxable income, gains, losses,
deductions and credits, as prepared by such accountants (it being acknowledged
that the Board of Managers' obligations hereunder are not to guaranty timely
delivery of audits, tax returns or similar third-party work product). For each
quarter of each Fiscal Year, the Board of Managers shall cause to be sent to
each Person that was a Member at any time
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<PAGE>
during such quarter, within forty-five (45) days after the end of such quarter,
(i) quarterly financial statements of the Company, including a quarterly
balance sheet, profit and loss statement and a statement of changes in
financial position, and a statement showing distributions to the Members, all
as prepared in accordance with generally accepted accounting principles
consistently applied and (ii) such tax estimates as any such Member shall
reasonably request. In addition, the Board of Managers shall cause to be sent
to each Member (i) by no later than February 15 (or as soon thereafter as
practicable) of each Fiscal Year, completed IRS Schedules K-1 prepared by the
Company's accountants and (ii) such other information concerning the Company
and reasonably requested by any Member as is necessary for the preparation of
each Member's federal, state and local income or other tax returns.
5.4 Accounting Expenses. All out-of-pocket expenses payable in connection
with the keeping of the books and records of the Company and the preparation of
audited or unaudited financial statements and federal and local tax and
information returns required to implement the provisions of this Agreement or
required by any governmental authority with jurisdiction over the Company shall
be borne by the Company as an ordinary expense of its business.
5.5 Bank Account. The Company shall, as soon as reasonably practicable,
establish and maintain segregated bank accounts in the Company's name and for
the Company's business, which accounts shall, to the extent reasonably
practicable, be interest-bearing.
ARTICLE 6.
Capital Contributions and Liabilities
6.1 Initial Capital Contributions and Initial Capital Accounts of the
Members.
(a) Immediately prior to the Effective Time, MPLP was required to contribute
to the Company (or to one or more of its Subsidiaries, at the direction of the
Company) (i) the McREMI Assets, (ii) the general partnership interests (and the
rights and assets associated therewith) in each of the Participating McNeil
Partnerships, (iii) the limited partnership interests in Fairfax held by MPLP
at such time if Fairfax was a Participating McNeil Partnership, (iv) the
limited partnership interests in Summerhill held by MPLP at such time if
Summerhill was a Participating McNeil Partnership and (v) the McNeil Cash
Contribution. McNeil has also contributed the Capitalized McNeil Expenses [and
additional cash equal to the Additional McNeil Contribution]; provided,
however, that any McNeil Class C Investment may only be funded by McNeil or an
Affiliate of McNeil and may not be funded, in whole or in part, by a third-
party investor; provided, further, that any Whitehall Class B Investment may
only be funded by Whitehall or an Affiliate of Whitehall and may not be funded
in whole or in part, by a third party investor.
(b) Immediately prior to the Effective Time, Whitehall was required to
contribute to the Company (i) cash in the amount of $ [insert an
amount equal to the Funding Amount (as defined in the Equity Commitment
Letter)] as required by the Equity Commitment Letter, and has also contributed
(ii) $ representing all of the costs incurred and paid by Whitehall
on behalf of the Company in connection with the negotiation, documentation, due
diligence and consummation of the transactions described in this Agreement and
the Master Agreement.
(c)(i) As of the Effective Time, each Member's Initial Capital Contribution
is in the amount set forth below:
<TABLE>
<CAPTION>
Initial
Capital
Member Contribution
------ ------------
<S> <C>
Whitehall.................................................... $
McNeil....................................................... $
Total...................................................... $
</TABLE>
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<PAGE>
(ii) As of the Effective Time, the Members shall have the initial Capital
Account balances and the initial Percentage Interests as set forth below:
<TABLE>
<CAPTION>
Initial
Capital Percentage
Member Account Interest
------ ------- ----------
<S> <C> <C>
Whitehall.............................................. $
McNeil................................................. $
Total................................................ $
</TABLE>
(iii) As of the Effective Time the McNeil Class A Investment, the McNeil
Class B Investment, the McNeil Class C Investment, the Whitehall Class A
Investment and the Whitehall Class B Investment are in the amounts set forth
below:
<TABLE>
<S> <C>
McNeil Class A Investment.......................................... $
McNeil Class B Investment.......................................... $
McNeil Class C Investment.......................................... $
Whitehall Class A Investment....................................... $
Whitehall Class B Investment....................................... $
</TABLE>
6.2 Working Capital Contributions and Other Additional Capital
Contributions.
(a) Whitehall shall make additional cash capital contributions to the
Company in an aggregate amount (the "Initial Working Capital Contribution")
equal to the difference determined by subtracting (x) the sum of the Net
Working Capital Amounts for each Participating McNeil Partnership from (y) the
product of $40,000,000 multiplied by the Value Fraction. The Initial Working
Capital Contribution shall be contributed to the capital of the Company by
Whitehall from time to time as the Board of Managers deems necessary in its
reasonable discretion to pay for Working Capital Expenses. All contributions
made by Whitehall on account of the Initial Working Capital Contribution shall
be included within the definition of Additional Capital Contributions.
(b) After Whitehall has fully funded the Initial Working Capital
Contribution, Whitehall may, at any time or times, make in cash Additional
Capital Contributions to the Company that the Board of Managers determines are
necessary or desirable to conduct the business of the Company in the event
Working Capital Reserves and Recurring Replacement Reserves are not sufficient
to pay for such cost or expense.
(c) Except as provided in Sections 4.9 and 4.16, McNeil shall have no right
or obligation to make any Additional Capital Contributions to the Company.
(d) Notwithstanding anything to the contrary in this Agreement, if a Member
shall guarantee any indebtedness of the Company, such Member shall not receive
any credit to its Capital Account as a result of such guarantee and such
guarantee shall not be considered to be a Capital Contribution unless, and only
to the extent that, such Member makes a payment in respect of that guarantee
and such payment is not immediately reimbursed by the Company.
6.3 Capital of the Company. Except as otherwise expressly provided herein,
no Member shall be entitled to withdraw or receive any interest or other return
on, or return of, all or any part of its Capital Contribution, or to receive
any property of the Company (other than cash) in return for its Capital
Contributions.
6.4 Distributions as Working Capital Reserves. Notwithstanding anything to
the contrary contained herein, if Whitehall would otherwise be entitled to
receive a cash distribution of Net Cash Flow or Net Proceeds from Capital
Transactions pursuant to Section 8.1(b) or 8.1(c) from the Company, Whitehall
may elect to forego receipt of all or a portion of such distribution and have
the amount so foregone treated as part of the Initial Working Capital
Contribution (or, after the Initial Working Capital Contribution has been
funded in full, as an Additional Capital Contribution; provided the Board of
Managers shall have determined in good
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<PAGE>
faith (by Majority Vote) that such Capital Contribution is required for use by
the Company within a reasonable period of time following the date upon which
such distribution of cash would otherwise have been made to Whitehall. In such
event Whitehall will be treated as if it had (i) received distributions equal
to the amount it would have received pursuant to Section 8.1(b) or 8.1(c) had
Whitehall not foregone such distribution and (ii) made an Additional Capital
Contribution in such amount (any such Additional Capital Contribution shall
first be treated as part of the Initial Working Capital Contribution until the
Initial Working Capital Contribution has been fully funded).
6.5 Failure to Fund the McNeil Cash Contribution. (a) If McNeil shall fail
to make the McNeil Cash Contribution in the full amount required pursuant to
the Master Agreement (the "Failed Contribution") at the Effective Time, then
Whitehall may, but shall not be obligated to, fund all or part of such Failed
Contribution. At any time after funding all or part of a Failed Contribution,
Whitehall may elect either of the following:
(i) Whitehall may at any time (even after first electing to proceed
under paragraph (ii) below, but after termination of the Partner Loan)
elect to treat the portion (the "Funded Portion") of the Failed
Contribution funded by Whitehall as a Capital Contribution (which shall be
deemed part of Whitehall's Initial Capital Contribution and the Whitehall
Class A Investment) by Whitehall with the dilution of McNeil provided for
in Section 6.5(b) below.
(ii) Whitehall may elect to treat the Funded Portion as a loan (a
"Partner Loan") by Whitehall to McNeil, which Partner Loan shall be treated
as (i) a demand loan made by Whitehall to McNeil (bearing interest at 20%
per annum, compounded annually) followed by (ii) a Capital Contribution by
McNeil to the Company. Any such Partner Loan (to the extent of unpaid
principal and interest) shall be recourse only to the McNeil Class A
Interest and shall be repaid directly by the Company on behalf of McNeil
from amounts otherwise distributable to McNeil pursuant to Section 8.1 or
10.3 hereof. Any such distributions used to repay such Partner Loan shall
be applied first to accrued but unpaid interest and then to principal of
the Partner Loan. Whitehall may, at any time prior to the full repayment of
such Partner Loan, elect to terminate such Partner Loan and have the McNeil
Class A Investment, McNeil's Percentage Interest and, at the election of
Whitehall, McNeil's Capital Account diluted as set forth in Section 6.5(b)
below, with the amount of the entire outstanding principal and accrued but
unpaid interest (as of the date of such termination) of the Partner Loan
treated as the amount of the Funded Portion and not as a Capital
Contribution of McNeil, and the McNeil Class A Investment, the Whitehall
Class A Investment, the McNeil and Whitehall Percentage Interests and, at
the election of Whitehall, the McNeil and Whitehall Capital Accounts,
adjusted accordingly.
(b) If Whitehall elects to make a Capital Contribution for McNeil (instead
of a Partner Loan) or elects to terminate a Partner Loan and have the
provisions of this Section 6.5(b) apply then the adjustments set forth in
clauses (i) and (ii) and, only upon the election of Whitehall, clause (iii)
shall be made:
(i) The Percentage Interest of Whitehall shall be increased so that it
is equal to the percentage (rounded up to the nearest one hundredth of one
percent) obtained by dividing (A) the sum of (1) all Capital Contributions
made by Whitehall other than the Funded Portion and (2) the product of (x)
2.0 and (y) the Funded Portion by (B) the sum of all Members' Capital
Contributions as of such date (including the Funded Portion), and the
Percentage Interest of McNeil shall be decreased by the amount of the
increase in Whitehall's Percentage Interest.
(ii) The Whitehall Class A Investment shall be increased by an amount
equal to the product of (A) 2.0 and (B) the Funded Portion and the McNeil
Investment shall be reduced by an amount equal to the Funded Portion;
provided, however, that this clause (ii) shall not cause an adjustment to
the Percentage Interests of Whitehall and McNeil which has already been
effected pursuant to Section 6.5(b)(i).
(iii) Whitehall's Capital Account shall be increased as required under
Section 7.1(b), and shall be further increased by an amount equal to the
Funded Portion; and McNeil's Capital Account shall be reduced by an amount
equal to the Funded Portion.
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<PAGE>
6.6 Limited Liability of Members. No Member shall be bound by, nor be
personally liable for, the expenses, liabilities, indebtedness or obligations
of the Company. The liability of each Member shall be limited solely to the
amount of its Capital Contribution; provided, however, that after a Member has
received a distribution from the Company, such Member may be liable to the
Company for the amount of the distribution but only to the extent required by
Section 18-607 of the LLCA.
ARTICLE 7.
Capital Accounts, Profits and Losses and Allocations
7.1 Capital Accounts
(a) The Company shall establish and maintain a Capital Account for each
Member in accordance with federal income tax accounting principles. Each
Member's Capital Account as of the Effective Time initially will be equal to
the value of its Initial Capital Contribution.
(b) The Capital Account of each Member shall be increased by (i) the amount
of any cash and the agreed Book Value of property (net of liabilities
encumbering the property) as of the date of contribution of any property
subsequently contributed as a capital contribution to the capital of the
Company by such Member, (ii) the amount of any Profits allocated to such Member
and (iii) such Member's pro rata share (determined in the same manner as such
Member's share of Profits pursuant to Section 7.2) of income of the Company
that is exempt from tax. The Capital Account of each Member shall be decreased
by (i) the amount of any Losses allocated to such Member, (ii) the amount of
distributions to such Member and (iii) such Member's pro rata share (determined
in the same manner as such Member's share of Losses pursuant to Section 7.2) of
any other expenditures of the Company that are not deductible in computing
Company Profits or Losses and which are not chargeable to capital account. In
all respects, the Member's Capital Accounts shall be determined in accordance
with the detailed capital accounting rules set forth in Treasury Regulations
Section 1.704-1(b)(2)(iv) and shall be adjusted upon the occurrence of certain
events as provided in Treasury Regulations Section 1.704-1(b)(2)(iv)(f).
(c) A Transferee of all (or a portion) of an Interest shall succeed to the
Capital Account (or portion of the Capital Account) attributable to the
transferred Interest.
7.2 Profits and Losses.
(a) The profits and losses of the Company ("Profits" and "Losses") shall be
the net income or net loss (including capital gains and losses), respectively,
of the Company determined for each Fiscal Year in accordance with the
accounting method followed for federal income tax purposes except that in
computing Profits and Losses, all depreciation and cost recovery deductions
shall be deemed equal to Depreciation and gains or losses shall be determined
by reference to Book Value rather than tax basis.
(b) Whenever a proportionate part of the Profits or Losses is allocated to a
Member, every item of income, gain, loss, deduction or credit entering into the
computation of such Profits or Losses or arising from the transactions with
respect to which such Profits or Losses were realized shall be credited or
charged, as the case may be, to such Member in the same proportion; provided,
however, that "recapture income", if any, shall be allocated to the Members who
were allocated the corresponding depreciation deductions.
(c) If any Member transfers all or any part of its Interest during any
Fiscal Year or its Interest is increased or decreased, Profits and Losses
attributable to such Interest for such Fiscal Year shall be apportioned between
the transferor and transferee or computed as to such Member, as the case may
be, ratably on a daily basis, provided in all events that any apportionment
described above shall be permissible under the Code and applicable regulations
thereunder.
(d) For all purposes, including federal, state and local income tax
purposes, Profits shall be allocated in each Fiscal Year among all the Members
pursuant to this Section 7.2(d) for the current period (i) first, to the
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<PAGE>
holders of the Whitehall Class B Interest in an amount equal to the
distributions made pursuant to Sections 8.1(b)(i) and 8.1(c)(ii) and (ii)
thereafter, in proportion to the aggregate distributions of cash paid to such
Member in respect of such period. In no instance, however, shall McNeil or any
Affiliate of McNeil be allocated Profits in a given year greater than the cash
distributed to them during that year.
(e) For all purposes, including federal, state and local income tax
purposes, Losses shall be allocated each Fiscal Year among all the Members in
accordance with their Percentage Interests.
(f) Notwithstanding Sections 7.2(d) and (e) hereof:
(i) For federal income tax purposes but not for purposes of crediting or
charging Capital Accounts, depreciation or gain or loss realized by the
Company with respect to any property that was contributed to the Company or
that was held by the Company at a time when the Book Value of the Company
Assets was adjusted pursuant to the third sentence of Section 7.1(b) shall,
in accordance with the "traditional method" under Section 704(c) of the
Code and Treasury Regulations Sections 1.704-1(b)(2)(iv)(d) and (f), be
allocated among the Members in a manner which takes into account the
differences between the adjusted basis for federal income tax purposes to
the Company of its interest in such property and the fair market value of
such interest at the time of its contribution or revaluation.
(ii) If there is a net decrease in the Minimum Gain of the Company
during a taxable year (including any Minimum Gain attributable to Member-
Funded Debt), each Member at the end of such year shall be allocated, prior
to any other allocations required under this Article 7, items of gross
income (including net gain) for such year (and, if necessary, for
subsequent years) in the amount and proportions described in Treasury
Regulations Sections 1.704-2(g) and 1.704-2(i)(4).
(iii) In the event any Member unexpectedly receives any adjustments,
allocations or distributions described in Treasury Regulations Sections
1.704-(b)(2)(ii)(d)(4), (5) or (6), items of Company income and gain shall
be specially allocated to each such Member in an amount and manner
sufficient to eliminate, to the extent required by the Treasury
Regulations, the deficit of such Member's Capital Account (as determined
under Treasury Regulations Section 1.704-1) as quickly as possible,
provided that an allocation pursuant to this subsection 7.2(f)(iii) shall
be made only if and to the extent that such Member would have such Capital
Account deficit after all other allocations provided for in Section 7.2
have been tentatively made as if this subsection 7.2(f)(iii) were not in
this Agreement.
(iv) In the event any Member has a deficit balance in such Member's
Capital Account (as determined after crediting such Capital Account for any
amounts that such Member is obligated to restore or is deemed obligated to
restore pursuant to (a) any provision of this Agreement and (b) the
penultimate sentences of Treasury Regulations Section 1.704-(g)(1) and
1.704-2(i)(5), items of Company income and gain shall be specially
allocated to such Member in an amount and manner sufficient to eliminate
such deficit (as so determined) of such Member's Capital Account as quickly
as possible; provided, however, that an allocation pursuant to this Section
7.2(f)(iv) shall be made only if and to the extent that such Member would
have such Capital Account deficit (as so determined) after all other
allocations provided for in Section 7.2 (other than Section 7.2(f)(iii))
have been tentatively made as if this Section 7.2(f)(iv) were not in this
Agreement.
(v) Notwithstanding the allocations provided for in sub-section (i) of
this Section 7.2(f) and Sections 7.2(d) and (e), if there is a net increase
in Minimum Gain of the Company during a taxable year of the Company that is
attributable to Member-Funded Debt then first Depreciation, to the extent
the increase in such Minimum Gain is allocable to depreciable property, and
then a proportionate part of other deductions and expenditures described in
Section 705(a)(2)(B) of the Code, shall be allocated to the lending or
guaranteeing Member (and to joint lenders or guarantors in proportion to
their relative obligations), provided that the total amount of deductions
so allocated for any year shall not exceed the increase in Minimum Gain
attributable to such Member-Funded Debt in such year.
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(vi) Any special allocation under Sections 7.2(f)(ii) through (v) shall
be taken into account in computing subsequent allocations of Profits and
Losses of any item thereof pursuant to this Article 7 so that the net
amount of any items so allocated and the Profits, Losses and all items
thereof allocated to each Member pursuant to this Article 7 shall, to the
extent permissible under Section 704(b) of the Code and the Treasury
Regulations promulgated thereunder, be equal to the net amount that would
have been allocated to each Member pursuant to this Article 7 if such
special allocation had not occurred.
(vii) The Members intend that the provisions of this Article 7 be
interpreted, to the extent permissible under Section 704(b) of the Code and
the Treasury Regulations promulgated thereunder, to produce liquidating
distributions pursuant to Section 10.3(b) hereof that do not differ from
the distributions that would have been made had liquidating distributions
been controlled by Article 8 hereof, and the Board of Managers shall be
entitled to the extent permissible under Section 704(b) of the Code and the
Treasury Regulations promulgated thereunder, to specially allocate items of
income, gain and loss to the Members to achieve this result.
(g) No Member shall be responsible to restore or repay to the Company or any
other Member any deficit in such Member's Capital Account existing at any time.
ARTICLE 8.
Applications and Distributions of Net Cash Flow
and Net Proceeds from Capital Transactions
8.1 Applications and Distributionss.
(a) Distributions of Net Cash Flow shall be made to the Members by the
Company in accordance with Section 8.1(b) within twenty-five (25) days after
the end of each month, subject to the terms of any Loan Agreements to the
contrary. Net Proceeds from Capital Transactions shall be made to the Members
by the Company as soon as practicable after the closing of the Capital
Transaction that generated such Net Proceeds from Capital Transactions, subject
to the terms of any Loan Agreement or Preferred Equity Financing Document to
the contrary.
(b) Net Cash Flow with respect to each calendar month shall be distributed
to the Members and paid to the Portfolio Advisor in the following order of
priority (and the calculations described in the following clauses shall be made
as of the last date of each month), subject to the other terms of this Article
8:
(i) First, to the holders of the Whitehall Class B Interest until such
holders have received payment of an amount equal to the excess, if any, of
(A) the Whitehall Class B Return payable by the Company to such holders
from the Effective Time to the date of such distribution over (B) the sum
of all prior distributions to the holders of the Whitehall Class B Interest
pursuant to this Section 8.1(b)(i) and Section 8.1(c)(ii).
(ii) Second, to holders of the McNeil Class C Interest until such
holders have received payment of an amount equal to the excess, if any, of
(A) the McNeil Class C Return payable by the Company to such holders from
the Effective Time to the date of such distribution over (B) the sum of all
prior distributions to holders of the McNeil Class C Interest pursuant to
this Section 8.1(b)(ii) and Section 8.1(c)(iii).
(iii) Third, to holders of the McNeil Class B Interest and the McNeil
Class A Interest pro rata (based on the McNeil Class B Investment and the
McNeil Class A Investment, respectively) until such holders have received
payment of an amount equal to the excess, if any, of (A) the Preferred 14%
Return with respect to the McNeil Class A Investment and the McNeil Class B
Investment, respectively, payable by the Company to such holders from the
Effective Time to the date of such distribution over (B) the sum of all
prior distributions to such holders pursuant to this Section 8.1(b)(iii)
and Section 8.1(c)(iv).
(iv) Fourth, to the Portfolio Advisor until the Portfolio Advisor has
received the portion of the Portfolio Advisory Fee payable for such month
and any accrued and unpaid portion of the Portfolio Advisory Fee plus all
accrued interest thereon.
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(v) Fifth, to holders of the Whitehall Class A Interest until such
holders have received payment of an amount equal to the excess, if any, of
(A) the Preferred 14% Return with respect to the Whitehall Class A
Investment payable by the Company to such holders from the Effective Time
to the date of such distribution over (B) the sum of all prior
distributions to such holders pursuant to this Section 8.1(b)(v) and
Section 8.1(c)(vi).
(vi) Sixth, to holders of the Whitehall Class B Interest to return the
Whitehall Class B Investment.
(vii) Seventh, to holders of the McNeil Class C Interest to return the
McNeil Class C Investment; provided, however, that for a period of five
years commencing on the Closing Date, such holders may elect not to receive
amounts payable pursuant to this Section 8.1(b)(vii).
(viii) Eighth, in the event that the amount of McNeil's Initial Capital
Contribution is equal to or greater than the McNeil Threshold Amount, to
holders of the McNeil Class B Interest, the McNeil Class A Interest and the
Whitehall Class A Interest pro rata (based on the McNeil Class B
Investment, the McNeil Class A Investment and the Whitehall Class A
Investment, respectively) until such time as such holders have each
received aggregate distributions to achieve a Preferred 15% Return with
respect to the McNeil Class B Investment, the McNeil Class A Investment and
the Whitehall Class A Investment, respectively, payable by the Company to
each of such holders from the Effective Time to the date of such
distribution over (A) with respect to holders of the McNeil Class B
Interest and the McNeil Class A Interest, respectively, the sum of all
prior distributions to such holders pursuant to Section 8.1(b)(iii),
Section 8.1(c)(iv), this Section 8.1(b)(viii) and Section 8.1 (c)(ix) and
(B) with respect to holders of the Whitehall Class A Interest, the sum of
all prior distributions to such holders pursuant to Section 8.1(b)(v),
Section 8.1(c)(vi), this Section 8.1(b)(viii) and Section 8.1(c)(ix). Such
pro rata distributions to holders of the McNeil Class B Interest, the
McNeil Class A Interest and the Whitehall Class A Interest shall be in
proportion to the balances of the unpaid amount necessary to achieve such
Preferred 15% Return with respect to the McNeil Class B Investment, the
McNeil Class A Investment and the Whitehall Class A Investment,
respectively, for each Member holding such Interests (i.e., each such
Member would receive a portion of the distribution equal to the product
determined by multiplying (A) the aggregate amount of funds subject to
distribution pursuant to this clause (viii) by (B) a fraction the numerator
of which shall be equal to the amount necessary for such Member to achieve
the Preferred 15% Return with respect to the McNeil Class B Investment, the
McNeil Class A Investment and the Whitehall Class A Investment,
respectively, held by such Member and the denominator of which shall be
equal to the aggregate amount necessary for each Member holding such
Interests to achieve the Preferred 15% Return with respect to the McNeil
Class B Investment, the McNeil Class A Investment and the Whitehall Class A
Investment held by such Member).
(ix) Ninth, to holders of the McNeil Class B Interest, the McNeil Class
A Interest and the Whitehall Class A Interest pro rata to return the McNeil
Class B Investment, the McNeil Class A Investment and the Whitehall Class A
Investment, respectively, in proportion to the balances of the McNeil Class
B Investment, the McNeil Class A Investment and the Whitehall Class A
Investment (i.e., each Member holding such Interests would receive a
portion of the distribution equal to the product determined by multiplying
(A) the aggregate amount of funds subject to distribution pursuant to this
clause (ix) by (B) a fraction the numerator of which shall be equal to the
McNeil Class B Investment, the McNeil Class A Investment and the Whitehall
Class A Investment of such Member, as applicable, and the denominator of
which shall be equal to the sum of the McNeil Class B Investment, the
McNeil Class A Investment and the Whitehall Class A Investment.
(x) Thereafter, 100% to holders of the Whitehall Class A Interest.
(c) Net Proceeds from Capital Transactions shall be distributed to the
Members and paid to the Portfolio Advisor in the following order of priority
(and the calculations described in the following clauses shall be made as of
the date of each distribution), subject to the other terms of this Article 8:
(i) First, to repay all outstanding Senior Indebtedness secured by the
Property or Properties which are the subject of such Capital Transaction
and any other amount required to be paid as a result of such
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Capital Transaction pursuant to the terms of any Loan Agreement or
Preferred Equity Financing Document to which the Company or any Subsidiary
is a party.
(ii) Second, to the holders of the Whitehall Class B Interest until such
holders have received all accrued but unpaid amounts payable to such
holders pursuant to Section 8.1(b)(i).
(iii) Third, to holders of the McNeil Class C Interest until such
holders have received all accrued but unpaid amounts payable to such
holders pursuant to Section 8.1(b)(ii).
(iv) Fourth, to holders of the McNeil Class B Interest and the McNeil
Class A Interest pro rata (based on the McNeil Class B Investment and the
McNeil Class A Investment, respectively) until such holders have received
all accrued but unpaid amounts payable to such holders pursuant to Section
8.1(b)(iii).
(v) Fifth, to the Portfolio Advisor until the Portfolio Advisor has
received all accrued but unpaid amounts payable to the Portfolio Advisor
pursuant to Section 8.1(b)(iv).
(vi) Sixth, to holders of the Whitehall Class A Interest until such
holders have received all accrued but unpaid amounts payable to such
holders pursuant to Section 8.1(b)(v).
(vii) Seventh, to holders of the Whitehall Class B Interest to return
the Whitehall Class B Investment.
(viii) Eighth, to holders of the McNeil Class C Interest to return the
McNeil Class C Investment; provided, however, that for a period of five
years commencing on the Closing Date, such holders may elect not to receive
amounts payable pursuant to this Section 8.1(c)(viii).
(ix) Ninth, in the event that the amount of McNeil's Initial Capital
Contribution is equal to or greater than the McNeil Threshold Amount, to
holders of the McNeil Class B Interest, the McNeil Class A Interest and the
Whitehall Class A Interest pro rata (based on the McNeil Class B
Investment, the McNeil Class A Investment and the Whitehall Class A
Investment, respectively) until such time as such holders have each
received aggregate distributions to achieve a Preferred 15% Return with
respect to the McNeil Class B Investment, the McNeil Class A Investment and
the Whitehall Class A Investment, respectively, payable by the Company to
each of such holders from the Effective Time to the date of such
distribution over (A) with respect to holders of the McNeil Class B
Interest and the McNeil Class A Interest, the sum of all prior
distributions to such holders pursuant to Sections 8.1(b)(iii), 8.1(c)(iv),
8.1(b)(viii) and this Section 8.1(c)(ix) and (B) with respect to holders of
the Whitehall Class A Interest, the sum of all prior distributions to such
holders pursuant to Sections 8.1(b)(v), 8.1(c)(vi), 8.1(b)(viii) and this
Section 8.1(c)(ix). Such pro rata distributions to holders of the McNeil
Class B Interest, the McNeil Class A Interest and the Whitehall Class A
Interest shall be in proportion to the balances of the unpaid amount
necessary to achieve such Preferred 15% Return with respect to the McNeil
Class B Investment, the McNeil Class A Investment and the Whitehall Class A
Investment, respectively, for each Member holding such Interests (i.e.,
each such Member would receive a portion of the distribution equal to the
product determined by multiplying (A) the aggregate amount of funds subject
to distribution pursuant to this clause (ix) by (B) a fraction the
numerator of which shall be equal to the amount necessary for such Member
to achieve the Preferred 15% Return with respect to the McNeil Class B
Investment, the McNeil Class A Investment and the Whitehall Class A
Investment held by such Member and the denominator of which shall be equal
to the aggregate amount necessary for each Member holding such Interests to
achieve the Preferred 15% Return with respect to the McNeil Class B
Investment, the McNeil Class A Investment and the Whitehall Class A
Investment held by such Member).
(x) Tenth, to holders of the McNeil Class B Interest, the McNeil Class A
Interest and the Whitehall Class A Interest pro rata to return the McNeil
Class B Investment, the McNeil Class A Investment and the Whitehall Class A
Investment, respectively, in proportion to the balances of the McNeil Class
B
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Investment, the McNeil Class A Investment and the Whitehall Class A
Investment (i.e., each Member holding such Interests would receive a
portion of the distribution equal to the product determined by multiplying
(A) the aggregate amount of funds subject to distribution pursuant to this
clause (x) by (B) a fraction the numerator of which shall be equal to the
McNeil Class B Investment, the McNeil Class A Investment and the Whitehall
Class A Investment of such Member, as applicable, and the denominator of
which shall be equal to the sum of the McNeil Class B Investment, the
McNeil Class A Investment and the Whitehall Class A Investment).
(xi) Thereafter, 100% to holders of the Whitehall Class A Interest.
(d) Upon the making of any distribution pursuant to Article 8 to any Member
of the Company, all Members shall be given reasonably detailed information in
writing by the Company identifying the amount of such distribution and the
Sections and clauses of this Article pursuant to which such distribution was
made.
ARTICLE 9.
Transfer of Company Interests
9.1 Transfers of Interests by Members.
(a) Whitehall and any Transferee of any of the Whitehall Interest pursuant
to this Section 9.1(a) shall have the right to Transfer all or any portion of
its Interest to (i) any Affiliate of Whitehall (provided such Person at all
times remains an Affiliate of Whitehall), or (ii) to any other Person upon
obtaining a Super-majority Vote of the Board of Managers, in the case of each
of clause (i) and (ii), subject to Sections 9.1(c), 9.1(d), 9.2, 9.3, and 9.4.
In addition, on or after the fifth (5th) anniversary of the Closing Date,
Whitehall and any Transferee of any of the Whitehall Interest pursuant to this
Section 9.1(a) shall have the right to Transfer all or any portion of its
Interest to any Person, provided Whitehall complies with Section 4.8(a), and
otherwise subject to Sections 9.1(c), 9.1(d), 9.2, 9.3 and 9.4. Whitehall shall
have no other right to make any Transfer of all or any portion of its Interest.
(b) McNeil and any Transferee of any of the McNeil Interest pursuant to this
Section 9.1(b) shall have the right to Transfer all or any portion of its
Interest to (i) Robert A. McNeil, Carole J. McNeil, or immediate family members
of Robert A. McNeil or Carole J. McNeil or both, (ii) one or more trusts or
other estate planning vehicles established for the benefit of immediate family
members of Robert A. McNeil or Carole J. McNeil or both, (iii) any Affiliate of
Robert A. McNeil or Carole J. McNeil or both (provided such Person at all times
remains an Affiliate of Robert A. McNeil or Carole J. McNeil), (iv) any Person
approved by the Board of Managers and (v) any Person, as the result of
testamentary laws or instruments of inheritance, in the case of each of clauses
(i) through (v), subject to Sections 9.1(c), 9.1(d), 9.2, 9.3 and 9.4. McNeil
shall have no other right to make any Transfer of all or any portion of its
Interest. Any Transfer (including any pledge or hypothecation) of the Pledged
Interests shall be made explicitly subject to the Indemnification Agreement.
(c) Except as provided in Sections 9.1(a) and (b), all Transfers are
prohibited. Any purported Transfer in violation of this Article 9 shall be void
ab initio, and shall not bind the Company or the other Members, and the Member
whose Interest was directly or indirectly Transferred shall indemnify and hold
the Company and the other Members harmless from and against any federal, state
or local income taxes, or transfer taxes, including transfer gains taxes,
arising as a result of, or caused directly or indirectly by, such purported
Transfer.
(d) Any Transferee desiring to make a further Transfer shall become subject
to all of the provisions of this Article 9 and of this Agreement to the same
extent and in the same manner as any Member desiring to make any Transfer.
(e) The giving of any consent to a Transfer by the Super-majority Vote of
the Board of Managers or by any Member in any one or more instances shall not
limit or waive the need for such consent in any other or subsequent instance.
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9.2 Transfer Binding on Company.
(a) No Transfer permitted to be made under this Agreement shall be binding
upon the Company, and no Transferee of all or any part of a Member's Interest
shall be admitted to the Company as a Member, unless and until:
(i) any consent to the Transfer required by this Agreement (including
without limitation any Super-majority Vote) shall have been obtained;
(ii) in the case of a Transfer of a Member's Interest, a duplicate
original of such instrument of Transfer, duly executed and acknowledged by
the transferor, has been delivered to the Company, and such instrument
evidences (1) the written acceptance by the Transferee of all of the terms
and provisions of this Agreement, and (2) the Transferee's representation
that such Transfer was made in accordance with all applicable laws and
regulations;
(iii) in the case of a Transfer of a Member's Interest, the Board of
Managers has entered such Transferee as a Member on the books and records
of the Company, which the Board of Managers is hereby directed to do upon
satisfaction of such requirements; and
(iv) in the case of a Transfer of a Member's Interest, such Transferee
shall have paid all reasonable legal fees and filing costs in connection
with the substitution as a Member.
(b) Notwithstanding anything to the contrary contained in this Agreement, no
Transfer of all or a portion of an Interest shall be made, and the Board of
Managers shall have the right to prohibit and may refuse to accept any
Transfer, unless: (i) registration is not required under the Securities Act of
1933, as amended, in respect of such Transfer; (ii) such Transfer does not
violate any applicable federal or state securities, real estate syndication, or
comparable laws; (iii) such Transfer will not be subject to, or such Transfer,
when aggregated with prior Transfers will not result in the imposition of, any
state, city or local transfer taxes, including, without limitation, any
transfer gains taxes, unless such transferor pays such taxes; and (iv) such
Transfer will not cause the Company to be treated as a "publicly-traded
partnership" within the meaning of Section 7704 of the Code. The Board of
Managers may elect prior to any Transfer to require an opinion of counsel with
respect to any of the foregoing matters.
(c) Subject to Section 9.3, a Transferee who has become a Member in
accordance with this Section 9.2 has, to the extent of the transferred
Interest, all of the rights, powers and benefits of and is subject to the
restrictions and liabilities of a Member under this Agreement and the LLCA with
respect to such transferred Interest. Upon admission of a Transferee as a
Member, the transferor of the Interest so held by such new Member shall cease
to be a Member of the Company to the extent of such transferred Interest.
9.3 Certain Limitations. Unless and until a Transferee is admitted as a
Member pursuant to Section 9.2, a Transferee of a Member's Interest in whole or
in part shall not be entitled to designate one or more Managers to serve on the
Board of Managers (to the extent such right has been Transferred to such
Transferee) or to become or to exercise the rights of a Member, including the
right to require any information or accounting of the Company's business or the
right to inspect the Company's books and records. Such Transferee shall only be
entitled to receive, to the extent of the Interest transferred to such
Transferee, the share of distributions and Profits and Losses, including
distributions with respect to the return of Capital Contributions, to which the
Transferee would otherwise be entitled in respect of the transferred Interest.
The transferor of such Interest shall have the right to designate one or more
Managers to serve on the Board of Managers (to the extent such transferor had
such right prior to such Transfer) until such Transferee is admitted to the
Company as a Member pursuant to Section 9.2 with respect to the Transferred
Interest (but only if such right to designate one or more Managers to the Board
of Managers was Transferred to such Transferee).
9.4 Acceptance of Prior Acts. Any Transferee who becomes a Member in
accordance with Section 9.2, by so becoming a Member, accepts, ratifies and
agrees to be bound by all actions duly taken pursuant to the terms and
provisions of this Agreement by the Company prior to the date it became a
Member and, without limiting the generality of the foregoing, specifically
ratifies and approves all agreements and other instruments as may have been
executed and delivered on behalf of the Company prior to such date and which
are in force and effect on such date.
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ARTICLE 10.
Dissolution; Winding Up and Distribution of Assets
10.1 Dissolution. The Company shall be dissolved and its affairs shall be
wound up upon the first to occur of the following:
(i) December 31, 2015;
(ii) subject to Section 3.8, the written direction of the Board of
Managers;
(iii) the Bankruptcy, death, dissolution, expulsion, incapacity or
withdrawal of any Member or the occurrence of any other event that
terminates the continued membership of any Member, unless within one
hundred eighty (180) days after such event the remaining Members agree in
writing to continue the business of the Company, provided, however, that,
notwithstanding the foregoing, no Member shall have the right to (i)
withdraw or resign as a Member of the Company, (ii) redeem, or request
redemption of, its Interest or any part thereof or (iii) dissolve itself
voluntarily;
(iv) any event that makes it unlawful for the Company's business to be
continued; or
(v) the entry of a decree of judicial dissolution under Section 18-802
of the LLCA.
10.2 Winding Up.
(a) In the event of the dissolution of the Company pursuant to Section 10.1,
the Board of Managers shall wind up the Company's affairs; provided, however,
that a reasonable time shall be allowed for the orderly liquidation of the
Company and the satisfaction of all liabilities to creditors so as to enable
the Members to minimize the normal losses attendant upon a liquidation. The
Members shall continue to share Profits and Losses during liquidation in the
same proportion, as specified in Section 7.2 hereof, as before liquidation.
Each Member shall be furnished with a statement audited by the Company's
accountants that shall set forth the assets and liabilities of the Company as
of the date of dissolution. Each Member (and its Affiliates) shall pay to the
Company all amounts then owing by it (and them) to the Company).
(b) Upon dissolution of the Company, Whitehall may, in the name of, and for
and on behalf of, the Company, prosecute and defend suits, whether civil,
criminal or administrative, settle and close the Company's business, dispose of
and convey the Company's property, discharge or make reasonable provision for
the Company's liabilities, and distribute to the Members in accordance with
Section 10.3 any remaining assets of the Company, all without affecting or
increasing any liability or obligation of the Members, including the Member
participating in the winding up of the Company's affairs and shall comply with
the provisions of Section 18-804(b) of the LLCA.
10.3 Distribution of Assets. Upon the winding up of the Company, the assets
shall be distributed as follows:
(a) to creditors of the Company, including Members who are creditors, to
the extent permitted by law, in satisfaction of liabilities of the Company,
whether by payment or by establishment of adequate reserves, other than
liabilities for distributions to Members and former members under Section
18-601 or Section 18-604 of the LLCA; and
(b) to the Members in accordance with their respective Capital Account
balances after allocation of Profits and Losses for the period ending
immediately prior to such distribution and after giving effect to all
contributions, distributions and allocations for all periods.
For the purpose of making liquidating distributions required by this Section
10.3, the Board of Managers may determine whether to distribute all or any
portion of the Company Assets in-kind or to sell all or any portion of the
Company Assets and distribute the proceeds therefrom. To the extent that the
Board of Managers determines that all or any portion of the Company Assets
shall be sold, such Company Assets shall be sold as promptly as practicable, in
a commercially reasonable manner.
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10.4 Certificate of Cancellation. Within ninety (90) days following the
dissolution and the commencement of winding up of the Company, or at any time
there are no Members, certificates of cancellation shall be filed with the
Secretary of State of the State of Delaware under Section 18-203 of the LLCA.
10.5 Claims of the Members. The Members shall look solely to the Company
Assets for the return of their Capital Contributions, and if the Company Assets
remaining after payment of or due provision for all debts, liabilities and
obligations of the Company are insufficient to return such Capital
Contributions, the Members shall have no recourse against the Company or any
other Member or any other Person. No Member with a negative balance in such
Member's Capital Account shall have any obligation to the Company or to the
other Members or to any creditor or other Person to restore such negative
balance upon dissolution or termination of the Company or otherwise.
ARTICLE 11.
Amendments
11.1 Amendments. This Agreement may not be amended or supplemented, and no
provisions hereof may be modified or waived, except by an instrument in writing
signed by all of the Members.
ARTICLE 12.
Miscellaneous
12.1 Further Assurances. Each party to this Agreement agrees to execute,
acknowledge, deliver, file and record such further certificates, amendments,
instruments and documents, and to do all such other acts and things, as may be
required by law or as, in the reasonable judgment of the Board of Managers, may
be necessary or advisable to carry out the intent and purpose of this
Agreement.
12.2 Notices. Unless otherwise specified in this Agreement, all notices,
demands, elections, requests or other communications that any party to this
Agreement may desire or be required to give hereunder shall be in writing and
shall be given by hand by depositing the same in the United States mail, first
class postage prepaid, certified mail, return receipt requested, or by a
recognized overnight courier service providing confirmation of delivery, to the
addresses set forth in Sections 2.6 and 2.10, or at such other address as may
be designated by the addressee thereof (which in the case of the Company, shall
be designated by the Board of Managers) upon written notice to all of the
Members. All notices given pursuant to this Section 12.2 shall be deemed to
have been given (i) if delivered by hand on the date of delivery or on the date
delivery was refused by the addressee or (ii) if delivered by United States
mail or by overnight courier, on the date of delivery as established by the
return receipt or courier service confirmation (or the date on which the return
receipt or courier service confirms that acceptance of delivery was refused by
the addressee). Except as specified in Section 2.6, in no event shall the
provision of notice in accordance with this Section 12.2 constitute notice for
service of any writ, process or summons in any suit, action or other
proceeding.
12.3 Headings and Captions. All headings and captions contained in this
Agreement and the table of contents hereto are inserted for convenience only
and shall not be deemed a part of this Agreement.
12.4 Variance of Pronouns. All pronouns and all variations thereof shall be
deemed to refer to the masculine, feminine or neuter, singular or plural, as
the identity of the Person or entity may require.
12.5 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall constitute an original and all of which, when
taken together, shall constitute one Agreement.
12.6 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE, WITHOUT REGARD TO CONFLICT
OF LAW PROVISIONS THEREOF.
12.7 WAIVER OF JURY TRIAL. EACH OF THE MEMBERS (ON BEHALF OF ITSELF, ITS
AFFILIATES, AND THE HOLDERS OF INDIRECT AND DIRECT BENEFICIAL INTERESTS IN
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ITSELF) AND THE COMPANY, HAVING CAREFULLY CONSIDERED THE ISSUE, AND HAVING
SOUGHT AND OBTAINED THE ADVICE OF COUNSEL, KNOWINGLY, INTENTIONALLY AND
IRREVOCABLY WAIVE ANY RIGHT TO TRIAL BY JURY WITH RESPECT TO ANY CLAIM OR
PROCEEDING RELATED TO OR ARISING OUT OF THIS AGREEMENT OR ANY OF THE
TRANSACTIONS CONTEMPLATED HEREBY.
12.8 Consent to Jurisdiction. Each Member and the Company hereby irrevocably
consents and agrees, for the benefit of each Member, that any legal action,
suit or proceeding against it with respect to its obligations, liabilities or
any other matter under or arising out of or in connection with this Agreement
and with respect to the enforcement, modification, vacation or correction of an
award rendered in an arbitration proceeding may be brought in any federal or
state court located in New York City (each a "New York Court"), and hereby
irrevocably accepts and submits to the exclusive jurisdiction of each such New
York Court, as the case may be, with respect to any such action, suit or
proceeding. Each Member and the Company hereto waives any objection which it
may now or hereafter have to the laying of venue of any of the aforesaid
actions, suits or proceedings brought in any such New York Court and hereby
further waives and agrees not to plead or claim in any such New York Court that
any such action, suit or proceeding brought therein has been brought in an
inconvenient forum.
12.9 Specific Performance. Each Member and the Company recognizes and agrees
that if for any reason any of the provisions of this Agreement are not
performed in accordance with their specific terms or are otherwise breached,
immediate and irreparable harm or injury would be caused for which money
damages would not be an adequate remedy. Accordingly, each Member and the
Company agrees that, in addition to any other available remedies, each Member
shall be entitled to an injunction restraining any violation or threatened
violation of the provisions of this Agreement without the necessity of posting
a bond or other form of security. In the event that any action should be
brought in equity to enforce the provisions of this Agreement, no party will
allege, and each party hereby waives the defense, that there is an adequate
remedy at law.
12.10 Partition. The Members hereby agree that no Member nor any successor-
in-interest to any Member shall have the right to have the Company Assets
partitioned, or to file a complaint or institute any proceeding at law or in
equity to have the Company Assets partitioned, and each Member, on behalf of
himself, his successors, representatives, heirs and assigns, hereby waives any
such right.
12.11 Severability. Any term or provision of this Agreement which is invalid
or unenforceable in any jurisdiction shall, as to that jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction. If any provision of
this Agreement is so broad as to be unenforceable, the provision shall be
interpreted to be only so broad as is enforceable.
12.12 Successors and Assigns. This Agreement shall be binding upon the
Members and their respective successors, executors, administrators, legal
representatives, heirs, legal assigns and assigns permitted hereunder and shall
inure to the benefit of the Members, and, except as otherwise provided herein,
their respective successors, executors, administrators, legal representatives,
heirs, legal assigns and assigns permitted hereunder. No Person other than the
Members and their respective successors, executors, administrators, legal
representatives, heirs, legal assigns and permitted assigns shall have any
rights or claims under this Agreement.
12.13 Entire Agreement. This Agreement supersedes all prior agreements among
the parties with respect to the subject matter hereof and contains the entire
Agreement among the parties with respect to such subject matter.
12.14 Waivers. No waiver of any provision hereof by any party hereto shall
be deemed a waiver by any other party nor shall any such waiver by any party be
deemed a continuing waiver of any matter by such party.
12.15 Maintenance as a Separate Entity. The Company shall maintain books and
records and bank accounts separate from those of its Affiliates (other than the
Company's Subsidiaries); shall at all times hold
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itself out to the public as a legal entity separate and distinct from any of
its Affiliates (other than the Company's Subsidiaries) (including in its
operating activities, in entering into any contract, in preparing its financial
statements, and on its stationery and any signs it posts), and shall cause its
Affiliates (other than the Company's Subsidiaries) to do the same and to
conduct business with it on an arm's-length basis; shall not commingle its
assets with assets of any of its Affiliates (other than the Company's
Subsidiaries); shall not guarantee any obligation of any of its Affiliates
(other than the Company's Subsidiaries); shall cause its business to be carried
on by the Board of Managers; and shall keep minutes of all meetings of the
Members.
12.16 Confidentiality.
(a) The Members agree not to disclose or permit the disclosure of any of the
terms of this Agreement or of any other confidential, non-public or proprietary
information relating to the Company, the Company's Subsidiaries, any Property
or the business of the Company (collectively, "Confidential Information"),
provided that such disclosure may be made (i) to any Person who is a partner,
officer, director or employee of such Member or counsel to or accountants of
such Member solely for their use and on a need-to-know basis, provided that
such Persons are notified of the Members' confidentiality obligations
hereunder, (ii) with the prior written consent of Whitehall, (iii) subject to
Section 12.16(b), pursuant to a subpoena or order issued by a court, arbitrator
or governmental body, agency or official, (iv) to any lender providing
financing to the Company, or (v) if in the opinion of counsel to the Member
seeking to disclose such Confidential Information, such disclosure is required
under the federal securities laws or the rules of regulation of any relevant
exchange.
(b) In the event that a Member shall receive a request to disclose any
Confidential Information under a subpoena or order, such Member shall (i)
promptly notify the other Members thereof, (ii) consult with the Board of
Managers on the advisability of taking steps to resist or narrow such request
and (iii) if disclosure is required or deemed advisable by the Board of
Managers, cooperate with the Board of Managers in any attempt it may make to
obtain an order or other assurance that confidential treatment will be accorded
the Confidential Information that is disclosed. In the event such Member is
compelled to disclose such Confidential Information, such Member shall use all
reasonable efforts to cause disclosure only of such minimal amount of
Confidential Information as is required to deemed advisable to be so disclosed.
(c) Except to satisfy requirements of law and only to the extent of such
requirements, no Member shall issue or publish any press release, tombstone or
other public communication about the formation or existence of the Company
without the express written consent of the other Members.
12.17 No Third Party Beneficiaries. This Agreement is not intended and shall
not be construed as granting any rights, benefits or privileges to any Person
not a party to this Agreement. Without limiting the generality of the
foregoing, no creditor of the Company, or of any Member shall have any right
whatsoever to require any Member to contribute capital to the Company.
12.18 Power of Attorney. Each Member does hereby irrevocably constitute and
appoint the Board of Managers with full power of substitution, as its true and
lawful attorney, in its name, place and stead, to execute, acknowledge, swear
to, deliver, record and file, as appropriate and in accordance with this
Agreement (i) all amendments to the original Certificate of Formation required
or permitted by law or the provisions of this Agreement and (ii) all
certificates and other ministerial instruments requiring execution by the
Members or any of them and deemed necessary or advisable by the Board of
Managers to qualify or continue the Company as a company wherein the members
have limited liability in the jurisdictions where the Company may be conducting
its operations.
12.19 Construction of this Agreement. The parties have participated jointly
in the negotiation and drafting of this Agreement. Consequently, in the event
an ambiguity or question of intent or interpretation arises, this Agreement
shall be construed as if drafted jointly by the parties thereto, and no
presumption or burden of proof shall arise favoring or disfavoring any party by
virtue of the authorship of any provision of this Agreement.
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12.20 Non-Recourse.
(a) Whitehall (on behalf of itself and the other Company Persons)
acknowledges and agrees that notwithstanding anything to the contrary in this
Agreement or under applicable law: (i) this Agreement shall not create or be
deemed to create or permit any liability or obligation on the part of any
McNeil Person, and no McNeil Person shall be bound or have any liability
hereunder; and (ii) any and all Company Persons shall look solely to the assets
of McNeil for satisfaction of any liability of McNeil under this Agreement, and
no Company Person shall seek recourse or commence any action against any McNeil
Person's assets, for the performance or payment of any obligation of McNeil
under this Agreement. Whitehall (on behalf of itself and the other Company
Persons) acknowledges and agrees that the Company Persons have conducted their
own independent review and analysis of the business, operations, technology,
assets, liabilities, results of operations, financial condition and prospects
of the business of the McNeil Partnerships and acknowledge that they have
received access to certain personnel, properties, premises and books and
records of such business for this purpose. In entering into this Agreement,
Whitehall has relied solely upon its own investigation and analysis and the
specific representations and warranties of McNeil made in this Agreement, and
(i) acknowledges that, except for the specific representations and warranties
of McNeil contained in this Agreement, neither McNeil nor any other McNeil
Person makes or has made any representation or warranty, either express or
implied, as to the accuracy or completeness of any of the information
(including any projections, estimates or other forward-looking information)
provided (including in any management presentations, information memorandum,
supplemental information or other materials or information with respect to any
of the above) or otherwise made available to Company Persons in connection with
the transactions contemplated by this Agreement and (ii) agrees, to the fullest
extent permitted by law, that: (i) none of the McNeil Persons shall have any
liability or responsibility whatsoever to any Company Person under this
Agreement on any basis (including in contract or tort, under federal or state
securities laws or otherwise) based upon any information provided or made
available, or statements made (or any omissions therefrom), to any Company
Person in connection with the transactions contemplated by this Agreement; and
(2) that McNeil shall not have any liability or responsibility whatsoever to
any Company Person under this Agreement on any basis (including in contract or
tort, under federal or state securities laws or otherwise (other than fraud or
willful misrepresentation)) based upon any information provided or made
available, or statements made (or any omissions therefrom), to any Company
Person in connection with the transactions contemplated by this Agreement,
except as and only to the extent expressly set forth in this Agreement and
subject to any limitations and restrictions contained in this Agreement.
(b) Notwithstanding anything to the contrary in Section 12.20(a), nothing in
Section 12.20(a) shall be deemed to affect or modify in any way the rights and
obligations under the Master Agreement and the Indemnification Agreement of the
parties thereto.
12.21 Setoff. Whitehall acknowledges and agrees (on behalf of itself and
each other Company Person) that no Company Person shall have any right
hereunder or pursuant to Law to offset or retain any amounts due or owing by
any McNeil Person against any amounts due or owing (or to become due or owing)
to any Company Person under any other agreement, contract or understanding
(including, without limitation, the Master Agreement); provided, however, that
nothing in this Section 12.21 shall be deemed to affect or modify in any way
the rights and obligations under the Indemnification Agreement of the parties
thereto.
12.22 Arbitration. With respect to a determination of the Appraised Value by
the Appraiser in accordance with the terms of this Agreement, each Member
agrees that the determination of the Appraised Value by the Appraiser shall be
final and binding upon such party. Judgment on the determination may be entered
in any court of competent jurisdiction (within and outside the United States).
In the event that any Member fails to comply with the procedures set forth in
this Agreement relating to the determination of the Appraised Value, or this
Section 12.22, then such noncomplying Member shall be liable for all costs and
expenses, including attorneys' fees, incurred by a party in its effort to
obtain either an order to compel compliance with the such procedures or such
orders, or an enforcement of the determination, from a court of competent
jurisdiction.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this First Amended and
Restated Limited Liability Company Operating Agreement as of the day and year
first above written.
MEMBERS:
WXI/MNL Real Estate, L.L.C.
By: Whitehall Street Real Estate
Limited Partnership XI, its
Managing Member
By: WH Advisors, L.L.C. XI,
its General Partner
By:__________________________
Name: Jonathan Langer
Title: Vice President
McNeil Partners, L.P.
By: McNeil Investors, Inc.
its General Partner
By:______________________________
Name: Robert A. McNeil
Title: Chairman of the Board
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<PAGE>
APPENDIX C-1
ROBERT A. STANGER & CO., INC.
Investment Banking
1129 Broad Street
Shrewsbury, NJ 07702-4314
June 24, 1999
McNeil Real Estate Fund IX, Ltd. McNeil Real Estate Fund XXIV, L.P.
McNeil Real Estate Fund X, Ltd. McNeil Real Estate Fund XXV, L.P.
McNeil Real Estate Fund XI, Ltd. McNeil Real Estate Fund XXVI, L.P.
McNeil Real Estate Fund XII, Ltd. McNeil Real Estate Fund XXVII, L.P.
McNeil Real Estate Fund XIV, Ltd. Hearth Hollow Associates, L.P.
McNeil Real Estate Fund XV, Ltd. McNeil Midwest Properties I, L.P.
McNeil Real Estate Fund XX, L.P. Regency North Associates, L.P.
McNeil Real Estate Fund XXI, L.P. Fairfax Associates II, Ltd.
McNeil Real Estate Fund XXII, L.P. McNeil Summerhill I, L.P.
McNeil Real Estate Fund XXIII, L.P.
Gentlemen:
The general partners (the "General Partners") of the above identified
partnerships (the "Partnerships") have advised us that the Partnerships are
contemplating a transaction (the "Transaction") pursuant to an agreement (the
"Master Agreement") in which WXI/McN Realty, L.L.C., a newly formed Delaware
limited liability company (the "Company"), will acquire (i) the general
partnership interests in each of the Partnerships and certain rights and assets
relating thereto (collectively, the "General Partner Interests"), (ii) the
limited partnership interests in each of the Partnerships (the "Limited Partner
Interests") and (iii) the assets of McNeil Real Estate Management, Inc. and
certain rights relating thereto (collectively, the "McREMI Assets"), in
exchange for cash and membership interests in the Company ("Membership
Interests") and the prepayment and assumption of indebtedness of the
Partnerships and their subsidiaries (collectively, the total cash, Membership
Interests and the aggregate amount of indebtedness being prepaid or assumed are
referred to herein as the "Aggregate Consideration"). The Aggregate
Consideration will approximate $644,440,000. Capitalized terms used but not
defined herein have the meanings ascribed to such terms in the Master
Agreement.
We understand that, pursuant to the terms of the Master Agreement, the
parties to the Master Agreement have agreed to allocate the Aggregate
Consideration between certain assets of McREMI (the "Partial McREMI Allocated
Value"), on the one hand, and all of the Partnerships taken as a whole
(collectively, the "Total Allocated Partnership Value"), on the other hand,
pursuant to an Allocation Analysis (the "Allocation Analysis") prepared by
Robert A. Stanger & Co., Inc. ("Stanger"). We understand that the Total
Allocated Partnership Value will be allocated among the individual Partnerships
pursuant to the terms of the Master Agreement (the portion of the Total
Allocated Partnership Value allocated to each Partnership, the "Per Partnership
Allocated Value" for such Partnership). In rendering the Allocation Analysis,
the Per Partnership Allocated Value will be reduced by the aggregate amount of
indebtedness of such Partnership (the "Net Per Partnership Allocated Value").
We understand that, pursuant to the terms of the Master Agreement, the parties
to the Master Agreement have agreed to allocate the Net Per Partnership
Allocated Value of each Partnership among the General Partner Interests in each
Partnership (which shall include a further allocation between the proportional
interest in such Partnership based upon capital contributions and each of the
rights and other assets corresponding to such Partnership which are being
contributed in connection with such interests in accordance with Article II of
the Master Agreement), the amounts due to McREMI (the "Second McREMI Allocated
Value"), and each class of Limited Partner Interests in such Partnership (the
"Limited Partner Consideration Amount"). We understand that the Master
Agreement contemplates a special payment to Limited Partners of each
Partnership at or around the closing date of the Transaction in an amount equal
to the estimated working capital balance as of such date (the "Excess Cash
Balance"). The Excess Cash Balance and the Limited Partner Consideration Amount
of each Partnership will be paid to holders of Limited Partner Interests of
each Partnership based upon the provisions of the partnership agreement of each
Partnership relating to a liquidation.
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<PAGE>
We understand that limited partners in each of the Partnerships will have
the opportunity to approve or reject the participation by their Partnership in
the Transaction pursuant to a proxy statement and a limited partners meeting
which will be prepared and held, respectively, in connection with the
Transaction, and further that limited partners in each Partnership (except
Fairfax Associates II, Ltd. ("Fairfax") and McNeil Summerhill I, L.P.
("Summerhill")), will receive only cash in exchange for Limited Partner
Interests. We understand that affiliates of the General Partners are expected
to contribute assets to the Company in connection with the Transaction
(including the General Partner Interests in each of the Partnerships, the
Limited Partner Interests in Fairfax and Summerhill, the McREMI Assets and
additional cash) with an aggregate value range of $60 million to $100 million,
representing approximately 28.0% to 46.7% of the initial mezzanine debt and
equity capitalization of the Company.
You have requested that Stanger provide an opinion as to the fairness, from
a financial point of view, to the holders of each class of Limited Partner
Interests in each Partnership of: (i) the Aggregate Consideration to be paid
for the McREMI Assets and the Limited Partner Interests and General Partner
Interests in the Partnerships in connection with the Transaction; (ii) the
allocation of the Aggregate Consideration between the Partial McREMI Allocated
Value, on the one hand, and the Total Allocated Partnership Value, on the other
hand; (iii) the Per Partnership Allocated Value for each Partnership; (iv) the
methodology of allocation of the Per Partnership Allocated Value, less
indebtedness prepaid or assumed, among the General Partner Interests, the
Second McREMI Allocated Value and each class of Limited Partner Interests; and
(v) the estimated per unit Excess Cash Balance and Limited Partner
Consideration Amount with respect to each class of Limited Partner Interest for
each Partnership determined as of March 31, 1999, based upon the balance sheet
of each Partnership as of such date adjusted for transaction expenses and the
allocation thereof, as estimated by the General Partner.
Stanger, founded in 1978, has provided research, investment banking and
consulting services to clients located throughout the United States, including
major New York Stock Exchange member firms and insurance companies and over
seventy companies engaged in the management and operation of partnerships and
real estate investment trusts. The investment banking activities of Stanger
include financial advisory services, asset and securities valuations, industry
and company research and analysis, litigation support and expert witness
services, and due diligence investigations in connection with both publicly
registered and privately placed securities transactions.
Stanger, as part of its investment banking business, is regularly engaged in
the valuation of businesses and their securities in connection with mergers,
acquisitions, and reorganizations and for estate, tax, corporate and other
purposes. In particular, Stanger's valuation practice principally involves
partnerships, partnership securities and the assets typically owned through
partnerships including, but not limited to, real estate, mortgages secured by
real estate, oil and gas reserves, cable television systems, and equipment
leasing assets.
In arriving at the opinion set forth below, we have:
. Reviewed the most recently available draft of the Master Agreement and
the First Amended and Restated Limited Liability Company Operating
Agreement of WXI/McN Realty L.L.C.;
. Reviewed the financial statements of the Partnerships for the years ended
December 31, 1997 and 1998 and the three months ended March 31, 1999;
. Reviewed information provided by McREMI, as property manager, the General
Partners and the Partnerships for each property (the "Property" or
"Properties") owned by the Partnerships including: property description,
rentable square footage, unit mix, year built, historical and projected
operating statements, rent rolls, tenant improvement allowances, expense
reimbursements, tax information, capital expenditure estimates, deferred
maintenance estimates, and estimates of costs to remediate environmental
conditions;
. Conducted site inspections of each Property and discussed with management
of McREMI, the General Partners and the Partnerships the conditions in
local rental markets and market conditions for sales and acquisitions of
properties of the type owned by the Partnerships and the historical
financial statements and budgeted and projected operations of the
Properties;
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<PAGE>
. Reviewed surveys of competing properties prepared by or on behalf of
McREMI, the General Partners and the Partnerships, including rental
rates, vacancies, and tenant improvement allowances;
. Reviewed information on acquisition criteria used by real estate
investors for properties similar to the Properties during 1999;
. Reviewed the financial statements of McREMI and its affiliates for the
years ended December 31, 1997 and 1998 and the three months ended March
31, 1999;
. Interviewed PaineWebber Incorporated regarding the conduct of the bid
solicitation process relating to the Transaction; and
. Conducted such other studies, analyses, inquiries and investigations as
we deemed appropriate.
In rendering this opinion, we have relied, without independent verification,
on the accuracy and completeness in all material respects of all financial and
other information that was furnished or otherwise communicated to us by McREMI,
the General Partners and the Partnerships. We have not performed an independent
appraisal of the assets and liabilities of the Partnerships or the McREMI
Assets. We have not conducted any engineering studies and have relied on the
estimates of the management of McREMI with respect to deferred maintenance and
the estimated cost to remediate environmental conditions for each Property. We
have not reviewed any proxy statement prepared in connection with the
Transaction as one was not available on the date hereof.
We have relied on the assurance of McREMI, the General Partners and the
Partnerships, that: (i) the Property budgets and discounted cash flow analyses
provided to us were in the judgment of McREMI, the General Partners and the
Partnerships reasonably prepared on bases consistent with actual historical
experience and reflect the best currently available estimates and good faith
judgments; (ii) any estimates of costs to remediate environmental conditions
are adequately considered in the capital expenditure estimates provided to us
and that no additional environmental conditions are present at the Properties;
(iii) any historical financial data, balance sheet data, transaction cost
estimates and estimates of the deficit restoration obligation of the general
partner which would be due upon a liquidation are accurate in all material
respects; (iv) no material changes have occurred in the information reviewed or
in the value of the Properties or the McREMI Assets between the date the
information was provided to us and the date of this letter; and (v) McREMI, the
General Partners and the Partnerships are not aware of any information or facts
regarding the Partnerships, the Properties, the McREMI Assets or the Company
that would cause the information supplied to us to be incomplete or misleading
in any material respect.
We did not determine or negotiate the amount or form of the Aggregate
Consideration. We have not been requested to, and therefore do not: (i) make
any recommendation to McREMI, the General Partners or the Limited Partners with
respect to whether to approve or reject the Transaction; or (ii) express any
opinion as to (a) the impact of the Transaction with respect to McREMI, the
General Partners or the Limited Partners of any Partnership that does not
participate in the Transaction; (b) the tax consequences of the Transaction for
McREMI, the General Partners or the Limited Partners of any Partnership; (c)
the Company's ability to qualify as a McNeil Partnership or real estate
investment trust, or the consequences of the Company's failure to so qualify;
(d) the potential capital structure of the Company or its impact on the
financial performance of the Membership Interests; (e) the Company's ability to
finance its obligations pursuant to the Master Agreement or the impact of a
failure to obtain financing on the financial performance of the Company or the
Partnerships; (f) whether or not alternative methods of determining or
allocating the Aggregate Consideration to be received by the General Partners,
Limited Partners of the Partnerships or McREMI would have also provided fair
results or results substantially similar to those of the methodology to be
used; (g) alternatives to the Transaction; or (h) any other terms of the
Transaction other than the Aggregate Consideration and the allocation thereof.
Furthermore, we are not expressing any opinion herein to Robert A. McNeil or
Carole McNeil in their capacities as direct or indirect holders of General or
Limited Partner Interests in the Partnerships or McNeil Partners, L.P. or of
capital stock in McREMI. Further, we are not expressing any opinion herein as
to the
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<PAGE>
fairness of any terms of the Transaction other than as described herein,
including without limitation: (i) the fairness of the amounts or allocations of
Transaction costs, or (ii) the prices at which the Membership Interests in the
Company may trade, if at all, following the Transaction, or the trading value
of the Membership Interests compared with the current fair market value of any
assets contributed to the Company in connection with the Transaction if the
Company were to be liquidated in the current real estate market.
This letter does not purport to be a complete description of the analyses
performed or the matters considered in rendering our opinion. The analyses and
the summary set forth herein must be considered as a whole, and selecting
portions of such summary or analyses, without considering all factors and
analyses, would create an incomplete view of the processes underlying this
opinion. In rendering this opinion, judgment was applied to a variety of
complex analyses and assumptions. The assumptions made and the judgments
applied in rendering the opinion are not readily susceptible to partial
analysis or summary description. The fact that any specific analysis is
referred to herein is not meant to indicate that such analysis was given
greater weight than any other analysis.
Based upon and subject to the foregoing, it is our opinion that, as of the
date of this letter, each of the matters set forth in the following clauses (i)
through (v) is fair from a financial point of view to the holders of each class
of Limited Partner Interests in each Partnership: (i) the Aggregate
Consideration to be paid for the McREMI Assets and the Limited Partner
Interests and General Partner Interests; (ii) the allocation of the Aggregate
Consideration between the Partial McREMI Allocated Value, on the one hand, and
the Total Allocated Partnership Value, on the other hand; (iii) the Per
Partnership Allocated Value; (iv) the methodology of allocation of the Per
Partnership Allocated Value, less indebtedness prepaid or assumed, among the
General Partner Interests, the Second McREMI Allocated Value and each class of
Limited Partner Interest; and (v) the estimated per unit Excess Cash Balance
and Limited Partner Consideration Amount with respect to each class of Limited
Partner Interest for each Partnership determined as of March 31, 1999, based
upon the balance sheet of each Partnership as of such date adjusted for
transaction expenses and the allocation thereof, as estimated by the General
Partners.
This letter and the opinions set forth herein were delivered pursuant to the
Amended and Restated Agreement, dated as of May 7, 1999, between Stanger and
the Partnerships and, in accordance with such agreement, Stanger acknowledges
that further letters, allocations and opinions shall be delivered to the
Partnerships subsequent to the date hereof in accordance with the terms of such
agreement, including with respect to the matters described in the following
paragraph.
It is our understanding that, at or around the date the preliminary proxy
statements are submitted to the Securities and Exchange Commission ("SEC") for
review, the Excess Cash Balance and the allocation of the Per Partnership
Allocated Value, less indebtedness prepaid or assumed, among the General
Partner Interests, the Second McREMI Allocated Value and each class of Limited
Partner Interests for each of the Partnerships will be redetermined to reflect
the operation of the Partnerships and related changes in working capital during
such period and that Stanger will be requested to render an opinion as to the
fairness from a financial point of view to the Limited Partners of each
Partnership of the allocation of the Per Partnership Allocated Value, less
indebtedness prepaid or assumed, among the General Partner Interests, the
Second McREMI Allocated Value and each class of Limited Partner Interests of
such Partnership in connection with the Transaction.
Yours truly,
/s/ Robert A. Stanger & Co., Inc.
_________________________________
Robert A. Stanger & Co., Inc.
Shrewsbury, New Jersey
June 24, 1999
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APPENDIX D-1
EASTDIL REALTY COMPANY, LLC
10100 Santa Monica Boulevard
Suite 2430
Los Angeles, California 90067
June 24, 1999
Special Committee of the Board of Directors
of McNeil Investors, Inc.
c/o Paul B. Fay, Jr.
3766 Clay Street
San Francisco, CA 94118
Dear Mr. Fay:
We have been engaged pursuant to an Agreement dated as of May 7, 1999 (the
"Agreement") by the Special Committee of the Board of Directors of McNeil
Investors, Inc. (the "Committee") to render certain opinions in connection with
the proposed transaction (the "Transaction") whereby a newly formed Delaware
limited liability company (the "Company") to be owned by Robert A. McNeil and
Carole J. McNeil (and/or affiliates thereof) and Whitehall Street Real Estate
Limited Partnership XI (and/or affiliates thereof) shall, in exchange for
ownership interests in such entity (the "Membership Interests"), cash and the
assumption of certain indebtedness (collectively, the "Aggregate
Consideration"), acquire (i) all of the general partnership interests of the
Partnerships listed on Appendix I hereto (the "Partnerships"), and certain
rights and assets related thereto (the "General Partner Interests"), (ii) all
of the limited partnership interests of the Partnerships (the "Limited Partner
Interests") and (iii) certain of the assets of McNeil Real Estate Management,
Inc. and certain rights related thereto (the "McREMI Assets"), in each case,
pursuant to a Master Agreement (the "Master Agreement"). The Aggregate
Consideration specified in the Master Agreement is approximately $644,440,000.
The Partnerships and Robert A. Stanger & Co., Inc. ("Stanger") have entered
into an Amended and Restated Agreement dated as of May 7, 1999 (the "Stanger
Agreement"), whereunder Stanger has agreed to render to the Partnerships
certain allocations and opinions, all as more fully contemplated in Sections 1
and 2 of the Stanger Agreement.
Pursuant to the terms of the Master Agreement, the allocation of the
Aggregate Consideration between certain assets of McREMI (the "Partial McREMI
Allocated Value"), on the one hand, and all of the Partnerships, taken as a
whole (the "Total Allocated Partnership Value"), on the other hand, has been
made pursuant to an Allocation Analysis dated June 24, 1999 (the "Allocation
Analysis") prepared by Stanger. The Allocation Analysis also reflects the
allocation of the Total Allocated Partnership Value among the individual
Partnerships (the portion of the Total allocated Partnership Value allocated to
each Partnership, the "Per Partnership Allocated Value" for such Partnership,
and the Per Partnership Allocated Value for each Partnership reduced by the
aggregate amount of indebtedness of such Partnership, the "Net Per Partnership
Allocated Value"). Pursuant to the terms of the Master Agreement, the
allocation of the Net Per Partnership Allocated value of each Partnership among
the General Partner Interests in such Partnership (which shall include a
further allocation between the proportional interest in such Partnership based
upon capital contributions and each of the rights and other assets
corresponding to such Partnership which are being contributed in connection
with such interests in accordance with Article II of the Master Agreement,
including the amounts due to McREMI (the "Second McREMI Allocated Value")) and
each class of Limited Partner Interests in such Partnership (the "Limited
Partner Consideration Amount") will be made by Stanger. The Allocation Analysis
contains the methodology to be used by Stanger to determine the allocation
described in the preceding sentence and reflects a preliminary allocation of
such amounts as of March 31, 1999. As set forth in the Stanger Opinion this
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allocation will be updated prior to the closing of the Transaction. We
understand that the Master Agreement contemplates a special payment to Limited
Partners of each Partnership (the "Limited Partners") at or around the closing
date of the Transaction in an amount equal to the estimated working capital
balance as of such date (the "Excess Cash Balance"). The Excess Cash Balance
of, and the Limited Partner Consideration Amount allocable to, each class of
Limited Partners of each Partnership will be paid to such Limited Partners
based upon the provisions of the partnership agreement of such Partnership
relating to a liquidation.
We understand that the Limited Partners in each of the Partnerships will
have the opportunity to approve or reject the participation by their
Partnership in the Transaction pursuant to a proxy statement and a Limited
Partners meeting which will be prepared and held, respectively, in connection
with the Transaction, and further that limited partners in each Partnership
(except Fairfax Associates II, Ltd. ("Fairfax") and McNeil Summerhill I, L.P.
("Summerhill")), will receive exclusively cash in exchange for Limited Partner
Interests. We understand that affiliates of the General Partners are expected
to contribute assets to the Company in connection with the Transaction
(including the General Partner Interests in each of the Partnerships, the
Limited Partner Interests in Fairfax and Summerhill, the McREMI Assets and
additional cash) with an aggregate value range of $60 million to $100 million,
representing approximately 28.0% to 46.7% of the initial mezzanine debt and
equity capitalization of the Company.
Pursuant to the Stanger Agreement, Stanger has delivered the Allocation
Analysis and its opinion dated June 24, 1999 (the "Stanger Opinion") as to the
fairness, from a financial point of view, to the holders of each class of
Limited Partnership Interests in each Partnership of: (i) the Aggregate
Consideration to be paid for the McREMI Assets and the Limited Partner
Interests and General Partner Interests in connection with the Transaction;
(ii) the allocation of the Aggregate Consideration between the Partial McREMI
Allocated Value, on the one hand, and the Total Allocated Partnership Value, on
the other hand; (iii) the Per Partnership Allocated Value for each Partnership;
(iv) the methodology of allocation of the Net Per Partnership Allocated Value
of each Partnership among the General Partner Interests, the Second McREMI
Allocated Value and each class of Limited Partner Interests of such
Partnership; and (v) the estimated per unit Excess Cash Balance and Limited
Partner Consideration Amount with respect to each class of Limited Partner
Interests for each Partnership determined as of March 31, 1999, based upon the
balance sheet of each Partnership as of such date adjusted for transaction
expenses and the allocation thereof, as estimated by the General Partners of
each Partnership (the "General Partners").
The qualifications of and experience of Stanger and the bases for the
conclusions reached in the Allocation Analysis and the Stanger Opinion are
included in the Allocation Analysis and the Stanger Opinion.
Stanger was retained by the Partnership on January 12, 1998 for the purpose
of conducting a valuation analysis of the Partnerships. The Allocation Analysis
and the Stanger Opinion provide a summary description of the activities of
Stanger during the period of its engagement by the Partnerships. We were
retained by the Special Committee on May 7, 1999 and by agreement with the
Special Committee the scope of our involvement with respect to the matters
covered by the Allocation Analysis and the Stanger Opinion has been
considerably more narrow than that of Stanger.
Founded in 1967, we are a private real estate investment banking firm that
specializes in the structuring and placement of debt and equity capital for
institutional grade real estate assets. Headquartered in New York City, we have
offices in Chicago, Dallas, and Los Angeles. Our aggregate transaction
experience exceeds $125 billion and encompasses all of the major United States
markets. Since January 1998, we have completed transactions with a value of
$14.4 billion which include 61 million square feet of office properties, 18.5
million square feet of retail properties, 17,000 apartment units, and 11,700
hotel rooms.
You have requested that we deliver our opinions that:
(i) the Allocation Analysis and Stanger Opinion are based upon the
application of appropriate methodologies and that the factual bases
utilized by Stanger in the application of such methodologies have a
reasonable basis,
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(ii) the conclusions reached in the Allocation Analysis and Stanger
Opinion have a reasonable basis, and
(iii) the Special Committee is entitled to rely upon such conclusions.
You have also requested that we deliver our opinion, based on our limited
review, as more fully set forth in this letter, as to the fairness, from a
financial point of view to the holders of each class of Limited Partnership
Interests in each of the Partnerships, of each of the matters specified in
clauses (i) through (v) of the final paragraph on page 5 of the Stanger
Opinion.
In arriving at the opinions expressed herein, we have:
-- Reviewed the most current drafts made available to us of the Master
Agreement and the First Amended and Restated Limited Liability Company
Operating Agreement with respect to the Company;
-- Reviewed the summary information provided by McREMI, as property
manager, the General Partners and the Partnerships for each of the
properties owned by the Partnerships (the "Properties") including:
property description, rentable square footage, until mix, year built,
historical and projected operating statements, rent rolls, tenant
improvement allowances, expense reimbursements, tax information, capital
expenditure estimates, deferred maintenance estimates, and estimates of
costs to remediate environmental conditions;
-- Conducted limited site inspections of certain of the Properties;
-- Discussed with management of McREMI and with Stanger the conditions in
local rental markets and market conditions for sales and acquisitions of
properties of the type owned by the Partnerships and the historical
financial statements and budgeted and projected operations of the
Properties;
-- Reviewed surveys of competing properties prepared by or on behalf of
McREMI, the General Partners and the Partnerships, including rental
rates, vacancies, and tenant improvement allowances;
-- Reviewed information on acquisition criteria used by real estate
investors for properties similar to the Properties during 1999;
-- Reviewed the financial statements of McREMI and its affiliates for the
years ended December 31, 1997 and 1998 and the three months ended March
31, 1999;
-- Interviewed PaineWebber Incorporated regarding the conduct of the bid
solicitation process relating to the Transaction;
-- Discussed with Stanger the activities of Stanger since January 1998 with
respect to the Allocation Analysis and the Stanger Opinion;
-- Discussed with Houlihan Lokey Howard & Zukin Capital its valuation
analysis of McREMI; and
-- Conducted such other studies, analyses, inquiries and investigations as
we deemed appropriate.
In rendering this opinion, we have relied, without independent verification,
on the accuracy and completeness in all material respects of all financial and
other information that was furnished or otherwise communicated to us by McREMI,
the General Partners and the Partnerships. We have not performed an independent
appraisal of the assets and liabilities of the Partnerships or the McREMI
Assets. We have not conducted any engineering studies and have relied on the
estimates of the management of McREMI with respect to deferred maintenance and
the estimated cost to remediate environmental conditions for each Property. We
have not reviewed any proxy statement prepared in connection with the
Transaction as one was not available on the date hereof.
We have relied on the assurance of McREMI, the General Partners and the
Partnerships, that: (i) the Property budgets and discounted cash flow analyses
provided to us were in the judgment of McREMI, the
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General Partners and the Partnerships reasonably prepared on bases consistent
with actual historical experience and reflect the best currently available
estimates and good faith judgments; (ii) any estimates of costs to remediate
environmental conditions are adequately considered in the capital expenditure
estimates provided to us and that no additional environmental conditions are
present at the Properties; (iii) any historical financial data, balance sheet
data, transaction cost estimates and estimates of the deficit restoration
obligation of the General Partners which would be due upon a liquidation are
accurate in all material respects; (iv) no material changes have occurred in
the information reviewed or in the value of the Properties or the McREMI
Assets between the date the information was provided to us and the date of
this letter; and (v) McREMI, the General Partners and the Partnerships are not
aware of any information or facts regarding the Partnerships, the Properties,
the McREMI Assets or the Company that would cause the information supplied to
us to be incomplete or misleading in any material respect.
We did not determine or negotiate the amount or form of the Aggregate
Consideration. We have not been requested to, and therefore do not: (i) make
any recommendation to McREMI, the General Partners or the Limited Partners
with respect to whether to approve or reject the Transaction; or (ii) express
any opinion as to (a) the impact of the Transaction with respect to McREMI,
the General Partners, or the Limited Partners of any Partnership that does not
participate in the Transaction; (b) the tax consequences of the Transaction
for McREMI, the General Partners or the Limited Partners of any Partnership;
(c) the Company's ability to qualify as a McNeil Partnership or real estate
investment trust, or the consequences of the Company's failure to so qualify;
(d) the potential capital structure of the Company or its impact on the
financial performance of the Membership Interests; (e) the Company's ability
to finance its obligations pursuant to the Master Agreement or the impact of a
failure to obtain financing on the financial performance of the Company or the
Partnerships; (f) whether or not alternative methods of determining or
allocating the Aggregate Consideration to be received by the General Partners,
Limited Partners of the Partnerships or McREMI would have also provided fair
results or results substantially similar to those of the methodology used; (g)
alternatives to the Transaction; or (h) any other terms of the Transaction
other than the Aggregate Consideration and the allocation thereof.
Furthermore, we are not expressing any opinion herein to Robert A. McNeil or
Carole J. McNeil in their capacities as direct or indirect holders of General
or Limited Partner Interests in the Partnerships or McNeil Partners, L.P. or
of capital stock in McREMI. Further, we are not expressing any opinion herein
as to the fairness of any terms of the Transaction other than as described
herein, including without limitation: (i) the fairness of the amounts or
allocations of Transaction costs, or (ii) the prices at which the Membership
Interests in the Company may trade, if at all, following the Transaction, or
the trading value of the Membership Interests compared with the current fair
market value of any assets contributed to the Company in connection with the
Transaction if the Company were to be liquidated in the current real estate
market.
This letter does not purport to be a complete description of the analyses
performed or the matters considered in rendering our opinion. The analyses and
the summary set forth herein must be considered as a whole, and selecting
portions of such summary or analyses, without considering all factors and
analyses, would create an incomplete view of the processes underlying this
opinion. In rendering this opinion, judgment was applied to a variety of
complex analyses and assumptions. The assumptions made and the judgments
applied in rendering the opinion are not readily susceptible to partial
analysis or summary description. The fact that any specific analysis is
referred to herein is not meant to indicate that such analysis was given
greater weight than any other analysis.
Based upon and subject to the foregoing, it is our opinion that, as of the
date of this letter:
(i) the Allocation Analysis and Stanger Opinion are based upon the
application of appropriate methodologies and that the factual bases
utilized by Stanger in the application of such methodologies have a
reasonable basis,
(ii) the conclusions reached in the Allocation Analysis and Stanger
Opinion have a reasonable basis,
(iii) the Special Committee is entitled to rely upon such conclusions,
and
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(iv) each of the matters set forth in the following clauses (a) through
(e) is fair from a financial point of view to the holders of each class of
Limited Partnership Interests in each of the Partnerships: (a) the
Aggregate Consideration to be paid for the McREMI Assets and the Limited
Partner Interests and General Partner Interests; (b) the allocation of the
Aggregate Consideration between Partial McREMI Allocated Value, on the one
hand, and the Total Allocated Partnership Value, on the other hand; (c) the
Per Partnership Allocated Value for each Partnership; (d) the methodology
of allocation of the Net Per Partnership Allocated Value of each
Partnership among the General Partner Interests, the Second McREMI
Allocated Value, and each class of Limited Partner Interest of such
Partnership; and (v) the estimated per unit Excess Cash Balance and Limited
Partner Consideration Amount with respect to each class of Limited Partner
Interests for each Partnership determined as of March 31, 1999, based upon
the balance sheet of each Partnership as of such date adjusted for
transaction expenses and the allocation thereof, as estimated by the
General Partners.
This letter and the opinions set forth herein are being delivered pursuant
to the Agreement and, in accordance with the Agreement, we acknowledge that
further opinions shall be delivered to the Special Committee subsequent to the
date hereof in accordance with the terms of the Agreement.
Very truly yours,
/s/ Eastdil Realty Company L.L.C.
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APPENDIX E
ARTICLE 7.6. OF THE CALIFORNIA CORPORATIONS CODE
(S) 15679.1. Reorganization; control
(a) For purposes of this article, "reorganization" refers to either of the
following:
(1) A merger pursuant to Article 7.5 (commencing with Section 15678.1).
(2) The acquisition by one limited partnership in exchange in whole or
part for its partnership interests (or the partnership interests or equity
securities of a McNeil Partnership or other entity that is in control of
the acquiring limited partnership) of partnership interests of another
limited partnership if, immediately after the acquisition, the acquiring
limited partnership has control of the other limited partnership.
(3) The acquisition by one limited partnership in exchange in whole or
in part for its partnership interests (or the partnership interests or
equity securities of a McNeil Partnership or other entity which is in
control of the acquiring limited partnership) or for its debts securities
(or debt securities of a limited partnership or other entity which is in
control of the acquiring limited partnership) which are not adequately
secured and which have a maturity date in excess of five years after the
consummation of the acquisition, or both, of all or substantially all of
the assets of another limited partnership.
(b) For purposes of this article, "control" means the possession, direct or
indirect, of the power to direct or cause the direction of the management and
policies of a limited partnership.
(S) 15679.2. Purchase of dissenting partnership interests; fair market value;
dissenting interest; dissenting limited partner
(a) If the approval of outstanding limited partnership interests is required
for a limited partnership to participate in a reorganization, pursuant to the
limited partnership agreement of the partnership, or otherwise, then each
limited partner of the limited partnership holding those interests may, by
complying with this article, require the limited partnership to purchase for
cash, at its fair market value, the interest owned by the limited partner in
the limited partnership, if the interest is a dissenting interest as defined in
subdivision (b). The fair market value shall be determined as of the day before
the first announcement of the terms of the proposed reorganization, excluding
any appreciation or depreciation in consequence of the proposed reorganization.
(b) As used in this article, "dissenting interest" means the interest of a
limited partner that satisfies all of the following conditions:
(1) Either:
(A) The interest was not, immediately prior to the reorganization,
either (i) listed on any national securities exchange certified by the
Commissioner of Corporations under subdivision (o) of Section 25100, or
(ii) listed on the list of OTC margin stocks issued by the Board of
Governors of the Federal Reserve System, provided that in either such
instance the limited partnership whose outstanding interests are so
listed provides, in its notice to limited partners requesting their
approval of the proposed reorganization, a summary of the provisions of
this section and Sections 15679.3, 15679.4, 15679.5, and 15679.6.
(B) Demands for payment are filed with respect to 5 percent or more
of the outstanding interests of any class of interests described in
clause (i) or (ii) of subparagraph (A).
(2) Which was outstanding on the date for the determination of limited
partners entitled to vote on the reorganization.
(3) (i) Which was not voted in favor of the reorganization, or (ii) if
the interest is described in clause (i) or (ii) of subparagraph (A) of
paragraph (1), was voted against the reorganization; provided, however,
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that clause (i) rather than clause (ii) of this paragraph applies in any
event where the approval for the proposed reorganization is sought by
written consent rather than at a meeting.
(4) Which the limited partner has demanded that the limited partnership
purchase at its fair market value in accordance with Section 15679.3.
(5) Which the limited partner submits for endorsement, if applicable, in
accordance with Section 15679.4.
(c) As used in this article, "dissenting limited partner" means the
recordholder of a dissenting interest, and includes an assignee of record
of such an interest.
(S) 15679.3. Notice of approval of reorganization by outstanding interests;
statement of price; written demand for purchase; contents of demand
(a) If limited partners have a right under Section 15679.2, subject to
compliance with paragraphs (4) and (5) of subdivision (b) thereof, to require
the limited partnership to purchase their limited partnership interests for
cash, such limited partnership shall mail to each such limited partner a notice
of the approval of the reorganization by the requisite vote or consent of the
limited partners, within 10 days after the date of such approval, accompanied
by a copy of this section and Sections 15679.2, 15679.4, 15679.5, and 15679.6,
a statement of the price determined by the limited partnership to represent the
fair market value of its outstanding interests, and a brief description of the
procedure to be followed if the limited partner desires to exercise the limited
partner's rights under such sections. The statement of price constitutes an
offer by the limited partnership to purchase at the price stated any dissenting
interests as defined in subdivision (b) of Section 15679.2, unless they lose
their status as dissenting interests under Section 15679.11.
(b) Any limited partner who has a right to require the limited partnership
to purchase the limited partner's interest for cash under Section 15679.2,
subject to compliance with paragraphs (4) and (5) of subdivision (b) thereof,
and who desires the limited partnership to purchase such interest, shall make
written demand upon the limited partnership for the purchase of such interest
and the payment to the limited partner in cash of its fair market value. The
demand is not effective for any purpose unless it is received by the limited
partnership or any transfer agent thereof (1) in the case of interests
described in clause (i) or (ii) of subparagraph (A) of paragraph (1) of
subdivision (b) of Section 15679.2, not later than the date of the limited
partners' meeting to vote on the reorganization, or (2) in any other case,
within 30 days after the date on which notice of the approval of the
reorganization by the requisite vote or consent of the limited partners is
mailed by the limited partnership to the limited partners.
(c) The demand shall state the number or amount of the limited partner's
interest in the limited partnership and shall contain a statement of what such
limited partner claims to be the fair market value of that interest on the day
before the announcement of the proposed reorganization. The statement of fair
market value constitutes an offer by the limited partner to sell the interest
at such price.
(S) 15679.4. Notice of the number or amount of interest demanded to be
purchased; conditions; transfers of interests; new certificates or statements
Within 30 days after the date on which notice of the approval of the
outstanding interests of the limited partnership is mailed to the limited
partner pursuant to subdivision (a) of Section 15679.3, the limited partner
shall submit to the limited partnership at its principal office or at the
office of any transfer agent thereof, (a) if the interest is evidenced by a
certificate, the limited partner's certificate representing the interest which
the limited partner demands that the limited partnership purchase, to be
stamped or endorsed with a statement that the interest is a dissenting interest
or to be exchanged for certificates of appropriate denominations so stamped or
endorsed, or (b) if the interest is not evidenced by a certificate, written
notice of the number or amount of interest which the limited partner demands
that the limited partnership purchase. Upon subsequent transfers of the
dissenting interest on the books of the limited partnership, the new
certificates or other written statement
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issued therefor shall bear a like statement, together with the name of the
original holder of the dissenting interest.
(S) 15679.5. Agreements fixing fair market value of dissenting interest;
payment
(a) If the limited partnership and the dissenting limited partner agree that
such limited partner's interest is a dissenting interest and agree upon the
price to be paid for the dissenting interest, the dissenting limited partner is
entitled to the agreed price with interest thereon at the legal rate on
judgments from the date of consummation of the reorganization. All agreements
fixing the fair market value of any dissenting limited partner's interest as
between the limited partnership and such limited partner shall be in writing
and filed in the records of the limited partnership.
(b) Subject to the provisions of Section 15679.8, payment of the fair market
value for a dissenting interest shall be made within 30 days after the amount
thereof has been agreed or within 30 days after any statutory or contractual
conditions to the reorganization are satisfied, whichever is later, and in the
case of dissenting interests evidenced by certificates of interest, subject to
surrender of such certificates of interest, unless provided otherwise by
agreement.
(S) 15679.6. Denial of status as dissenting interest; failure to agree upon
fair market value; complaint; filing; joinder of parties; trial of action
(a) If the limited partnership denies that a limited partnership interest is
a dissenting interest, or the limited partnership and a dissenting limited
partner fail to agree upon the fair market value of a dissenting interest, then
such limited partner or any interested limited partnership, within six months
after the date on which notice of the approval of the reorganization by the
requisite vote or consent of the limited partners was mailed to the limited
partner, but not thereafter, may file a complaint in the superior court of the
proper county praying the court to determine whether the interest is a
dissenting interest, or the fair market value of the dissenting interest, or
both, or may intervene in any action pending on such a complaint.
(b) Two or more dissenting limited partners may join as plaintiffs or be
joined as defendants in any such action and two or more such actions may be
consolidated.
(c) On the trial of the action, the court shall determine the issues. If the
status of the limited partnership interest as a dissenting interest is in
issue, the court shall first determine that issue. If the fair market value of
the dissenting interest is in issue, the court shall determine, or shall
appoint one or more impartial appraisers to determine, the fair market value of
the dissenting interest.
(S) 15679.7. Appraisals; appointment of appraiser; report; submission to court;
confirmation; failure to file report; determination by court; judgment; appeal;
costs
(a) If the court appoints an appraiser or appraisers, they shall proceed
forthwith to determine the fair market value per interest of the outstanding
limited partnership interests of the limited partnership, by class if
necessary. Within the time fixed by the court, the appraisers, or a majority of
them, shall make and file a report in the office of the clerk of the court.
Thereupon, on the motion of any party, the report shall be submitted to the
court and considered on such additional evidence as the court considers
relevant. If the court finds the report reasonable, the court may confirm it.
(b) If a majority of the appraisers appointed fails to make and file a
report within 30 days from the date of their appointment, or within such
further time as may be allowed by the court, or the report is not confirmed by
the court, the court shall determine the fair market value per interest of the
outstanding limited partnership interests of the limited partnership, by class
if necessary.
(c) Subject to Section 15679.8, judgment shall be rendered against the
limited partnership for payment of an amount equal to the fair market value, as
determined by the court, of each dissenting interest which any
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dissenting limited partner who is a party, or has intervened, is entitled to
require the limited partnership to purchase, with interest thereon at the legal
rate on judgments from the date of consummation of the reorganization.
(d) Any such judgment shall be payable forthwith, provided, however, that
with respect to limited partnership interests evidenced by transferable
certificates of interest, only upon the endorsement and delivery to the limited
partnership of those certificates representing the interests described in the
judgment. Any party may appeal from the judgment.
(e) The costs of the action, including reasonable compensation for the
appraisers, to be fixed by the court, shall be assessed or apportioned as the
court considers equitable, but, if the appraisal exceeds the price offered by
the limited partnership, the limited partnership shall pay the costs
(including, in the discretion of the court, if the value awarded by the court
for the dissenting interest is more than 125 percent of the price offered by
the limited partnership under subdivision (a) of Section 15679.3, attorneys'
fees and fees of expert witnesses).
(S) 15679.8. Extent payment to dissenting partners would require return of
portion thereof by reason of Uniform Fraudulent Transfer Act; dissenting
partners as creditors
To the extent that the payment to dissenting limited partners of the fair
market value of their dissenting interests would require the dissenting limited
partners to return such payment or a portion thereof by reason of Section 15666
or the Uniform Fraudulent Transfer Act (Chapter 1 (commencing with Section
3439) of Title 2 of Part 2 of Division 4 of the Civil Code), then that payment
or portion thereof shall not be made and the dissenting limited partners shall
become creditors of the limited partnership for the amount not paid, together
with interest thereon at the legal rate on judgments until the date of payment,
but subordinate to all other creditors in any proceeding relating to the
winding up and dissolution of the limited partnership, such debt to be payable
when permissible.
(S) 15679.9. Cash distributions to dissenting partner after reorganization, but
prior to payments by limited partner; credit
Any cash distributions made by a limited partnership to a dissenting limited
partner after the date of consummation of the reorganization, but prior to any
payment by the limited partnership for such dissenting limited partner's
interest, shall be credited against the total amount to be paid by the limited
partnership for such dissenting interest.
(S) 15679.10 Dissenting limited partners; rights and privileges; withdrawal of
demand for payment
Except as expressly limited by this article, dissenting limited partners
shall continue to have all the rights and privileges incident to their
interests immediately prior to the reorganization, including limited liability,
until payment by the limited partnership for their dissenting interests. A
dissenting limited partner may not withdraw a demand for payment unless the
limited partnership consents thereto.
(S) 15679.11 Dissenting interests; loss of status
A dissenting interest loses its status as a dissenting interest and the
holder thereof ceases to be a dissenting limited partner and ceases to be
entitled to require the limited partnership to purchase the interest upon the
happening of any of the following:
(a) The limited partnership abandons the reorganization. Upon
abandonment of the reorganization, the limited partnership shall pay, on
demand, to any dissenting limited partner who has initiated proceeding in
good faith under this article, all reasonable expenses incurred in such
proceedings and reasonable attorneys' fees.
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(b) The interest is transferred prior to its submission for endorsement
in accordance with Section 15679.4.
(c) The dissenting limited partner and the limited partnership do not
agree upon the status of the interest as a dissenting interest or upon the
purchase price of the dissenting interest, and neither files a complaint
nor intervenes in a pending action, as provided in Section 15679.6, within
six months after the date upon which notice of the approval of the
reorganization by the requisite vote or consent of limited partners was
mailed to the limited partner.
(d) The dissenting limited partner, with the consent of the limited
partnership, withdraws such limited partner's demand for purchase of the
dissenting interest.
(S) 15679.12 Litigation; suspension of proceedings pursuant to (S)(S) 15679.6
and 15679.7
If litigation is instituted to test the sufficient or regularity of the vote
or consent of the limited partners in authorizing a reorganization, any
proceedings under Sections 15679.6 and 15679.7 shall be suspended until final
determination of that litigation.
(S) 15679.13 Application of article
(a) This article applies to the following:
(1) A domestic limited partnership formed on or after January 1, 1991.
(2) A foreign limited partnership if (A) the foreign limited partnership
was formed on or after January 1, 1991, or filed an application to qualify
to do business on or after January 1, 1991, and (B) limited partners
holding more than 50 percent of the voting power held by all limited
partners of the foreign limited partnership reside in this state.
(3) A limited partnership if the partnership agreement so provides or if
all general partners and a majority in interest of the limited partners
determine that this article shall apply.
(b) This article does not apply to limited partnership interests governed by
limited partnership agreements whose terms and provisions specifically set
forth the amount to be paid in respect of such interests in the event of a
reorganization of the limited partnership, or to limited partnerships with 35
or fewer limited partners, unless the partnership agreement provides that this
article shall apply or unless all general partners and a majority in interest
of the limited partners agree that this article shall apply.
(S) 15679.14 Right to attack validity of reorganization; action to set aside
or rescind
(a) No limited partner of a limited partnership who has a right under this
article to demand payment of cash for the interest owned by such limited
partner in a limited partnership shall have any right at law or in equity to
attack the validity of the reorganization, or to have the reorganization set
aside or rescinded, except in an action to test whether the vote or consent of
limited partners required to authorize or approve the reorganization has been
obtained in accordance with the procedures established therefor by the
partnership agreement of the limited partnership.
(b) If one of the parties to a reorganization is directly or indirectly
controlled by, or under common control with, another party to the
reorganization, subdivision (a) shall not apply to any limited partner of such
controlled party who has not demanded payment of cash for such limited
partner's interest pursuant to this article; but if such limited partner
institutes any action to attack the validity of the reorganization or to have
the reorganization set aside or rescinded, the limited partner shall not
thereafter have any right to demand payment of cash for such limited partner's
interest pursuant to this article.
(c) If one of the parties to a reorganization is directly or indirectly
controlled by, or under common control with, another party to the
reorganization, then, in any action to attack the validity of the
reorganization or to
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have the reorganization set aside or rescinded, (1) a party to a reorganization
which controls another party to a reorganization shall have the burden of
proving that the transaction is just and reasonable as to the limited partners
of the controlled party, and (2) a person who controls two or more parties to a
reorganization shall have the burden of proving that the transaction is just
and reasonable as to the limited partners of any party so controlled.
(d) Subdivisions (b) and (c) shall not apply if a majority in interest of
the limited partners other than limited partners who are directly or indirectly
controlled by, or under common control with, another party to the
reorganization approve or consent to the reorganization.
(e) This section shall not prevent a partner of a limited partnership that
is a party to a reorganization from bringing an action against a general
partner of the limited partnership, the limited partnership, or any person
controlling a general partner at law or in equity as to any matters (including,
without limitation, an action for breach of fiduciary obligation or fraud)
other than to attack the validity of the reorganization or to have the
reorganization set aside or rescinded.
E-6
<PAGE>
REVOCABLE PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE GENERAL PARTNER
The undersigned hereby appoints Ron K. Taylor, Barbara Smith and Robert A.
McNeil, or any of them, with full power of substitution, as attorneys, agents
and proxies (the "Proxies") to vote on behalf of the undersigned at the meeting
of limited partners of [NAME OF PARTNERSHIP] to be held on [MEETING DATE] at
[MEETING TIME], local time, or any adjournment or postponement of the meeting:
1. Proposal to approve the Master Agreement, dated as of June 24, 1999, by
and among WXI/McN Realty L.L.C., McNeil Real Estate Fund IX, Ltd., McNeil Real
Estate Fund X, Ltd., McNeil Real Estate Fund XI, Ltd., McNeil Real Estate Fund
XII, Ltd., McNeil Real Estate Fund XIV, Ltd., McNeil Real Estate Fund XV, Ltd.,
McNeil Real Estate Fund XX, L.P., McNeil Real Estate Fund XXI, L.P., McNeil
Real Estate Fund XXII, L.P., McNeil Real Estate Fund XXIII, L.P., McNeil Real
Estate Fund XXIV, L.P., McNeil Real Estate Fund XXV, L.P., McNeil Real Estate
Fund XXVI, L.P., McNeil Real Estate Fund XXVII, L.P., Hearth Hollow Associates,
L.P., McNeil Midwest Properties I, L.P., Regency North Associates, L.P.,
Fairfax Associates II, Ltd., McNeil Summerhill I, L.P., McNeil Partners, L.P.,
McNeil Investors, Inc., McNeil Real Estate Management, Inc., McNeil Summerhill,
Inc. and Robert A. McNeil. This proposal, together with the Master Agreement
and all of the transactions contemplated by the Master Agreement, is referred
to in the accompanying Proxy Statement as the "merger proposal." Approval of
the merger proposal will also constitute approval of all of the transactions
contemplated by the Master Agreement, including:
. McNeil Partners' contribution of all of its general partner interests in
the Partnership to a newly-formed limited liability company indirectly
wholly-owned by WXI/McN Realty and the appointment of this subsidiary as
the new general partner of the Partnership, and
. the merger of a newly-formed limited partnership indirectly wholly-owned
by WXI/McN Realty with and into the Partnership.
[_] FOR [_] AGAINST [_] ABSTAIN
In their discretion, the Proxies are authorized to vote on such other
business as may properly come before the meeting.
This form of proxy is first being mailed to limited partners on or about
[MAILING DATE].
THIS PROXY IS CONTINUED ON THE REVERSE SIDE. PLEASE SIGN ON THE REVERSE SIDE
AND RETURN PROMPTLY.
<PAGE>
THE GENERAL PARTNER RECOMMENDS A VOTE FOR THE MERGER 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.
Dated: ______________________1999
Instructions For Returning Proxy -----------------------------------
(Signature)
Please mark, sign, date and
return this proxy promptly using -----------------------------------
the enclosed postage paid envelope (Signature of Joint Owner)
to:
Title: ____________________________
McNeil
Partners, L.P. Please sign exactly as name
Investor appears hereon. When limited
Services partner units are held by joint
P. O. Box 80039 tenants, both should sign. When
Dallas, TX 75380 signing as an attorney, executor,
administrator, trustee or
OR guardian, please give full title
of such. If a corporation, please
BY FAX: 1-800-XXX-XXXX sign name by President or other
authorized officer. If a
OR partnership, please sign
partnership name by authorized
BY HAND OR OVERNIGHT DELIVERY TO: person.
McNeil Partners, L.P.
Investor Services
13760 Noel Road, Suite 600
Dallas, TX 75240
Questions and Information
If you have questions regarding
the merger proposal or need
assistance in completing your
proxy, you may call:
McNeil Partners, L.P.
Investor Services
1-800-576-7909
[Space for name and address of
investor]
Please mark address changes or
corrections above. For all other
corrections or changes, please
contact McNeil Investor Services
at the number listed above.
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY PROMPTLY AS INSTRUCTED ABOVE.
