FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
X Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended June 30, 1997 or
Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to
Commission File Number: 0-17582
AMERICA FIRST PREP FUND 2 PENSION SERIES LIMITED PARTNERSHIP
(Exact name of registrant as specified in its charter)
Delaware 47-0719051
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
Suite 400, 1004 Farnam Street, Omaha, Nebraska 68102
(Address of principal executive offices) (Zip Code)
(402) 444-1630
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
YES X NO
<PAGE> - i -
Part I. Financial Information
Item 1. Financial Statements
AMERICA FIRST PREP FUND 2 PENSION SERIES LIMITED PARTNERSHIP
BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
June 30, 1997 Dec. 31, 1996
-------------- --------------
<S> <C> <C>
Assets
Cash and temporary cash investments, at cost which
approximates market value $ 2,563,358 $ 2,072,577
Investment in mortgage-backed securities (Note 5) 7,734,371 8,506,853
Investment in preferred real estate participations (PREPs),
net of valuation allowance (Note 6) - -
Interest receivable 57,925 60,561
Other assets 37,828 50,805
-------------- --------------
$ 10,393,482 $ 10,690,796
============== ==============
Liabilities and Partners' Capital
Liabilities
Accounts payable (Note 7) $ 39,149 $ 54,401
Distribution payable (Note 4) 99,474 101,945
-------------- --------------
138,623 156,346
-------------- --------------
Partners' Capital
General Partner 100 100
Beneficial Unit Certificate Holders
($11.32 per BUC in 1997 and $11.63 in 1996) 10,254,759 10,534,350
-------------- --------------
10,254,859 10,534,450
-------------- --------------
$ 10,393,482 $ 10,690,796
============== ==============
</TABLE>
AMERICA FIRST PREP FUND 2 PENSION SERIES LIMITED PARTNERSHIP
STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
For the For the For the Six For the Six
Quarter Ended Quarter Ended Months Ended Months Ended
June 30, 1997 June 30, 1996 June 30, 1997 June 30, 1996
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Income
Mortgage-backed securities income $ 141,564 $ 168,964 $ 285,537 $ 338,523
Equity in earnings of property partnerships 21,049 2,573 47,061 42,727
Interest income on temporary cash investments 35,128 21,908 67,741 45,531
--------------- --------------- --------------- ---------------
197,741 193,445 400,339 426,781
Expenses
General and administrative expenses (Note 7) 52,626 46,850 98,416 91,805
--------------- --------------- --------------- ---------------
Net income $ 145,115 $ 146,595 $ 301,923 $ 334,976
=============== =============== =============== ===============
Net income allocated to:
General Partner $ 2,996 $ 3,145 $ 6,029 $ 6,328
BUC Holders 142,119 143,450 295,894 328,648
--------------- --------------- --------------- ---------------
$ 145,115 $ 146,595 $ 301,923 $ 334,976
=============== =============== =============== ===============
Net income per BUC $ .16 $ .16 $ .33 $ .36
=============== =============== =============== ===============
The accompanying notes are an integral part of the financial statements.
</TABLE>
<PAGE> - 1 -
AMERICA FIRST PREP FUND 2 PENSION SERIES LIMITED PARTNERSHIP
STATEMENT OF PARTNERS' CAPITAL
FOR THE SIX MONTHS ENDED JUNE 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
Beneficial Unit
General Certificate
Partner Holders Total
-------------- ---------------- ---------------
<S> <C> <C> <C>
Partners' Capital (excluding net unrealized holding losses)
Balance at December 31, 1996 $ 100 $ 10,573,074 $ 10,573,174
Net income 6,029 295,894 301,923
Cash distributions paid or accrued (Note 4) (6,029) (596,858) (602,887)
-------------- ---------------- ---------------
100 10,272,110 10,272,210
-------------- ---------------- ---------------
Net unrealized holding losses
Balance at December 31, 1996 - (38,724) (38,724)
Net change - 21,373 21,373
-------------- ---------------- ---------------
- (17,351) (17,351)
-------------- ---------------- ---------------
Balance at June 30, 1997 $ 100 $ 10,254,759 $ 10,254,859
============== ================ ===============
</TABLE>
AMERICA FIRST PREP FUND 2 PENSION SERIES LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
For the Six For the Six
Months Ended Months Ended
June 30, 1997 June 30, 1996
--------------- ---------------
<S> <C> <C>
Cash flows from operating activities
Net income $ 301,923 $ 334,976
Adjustments to reconcile net income to net cash
provided by operating activities
Equity in earnings of property partnerships (47,061) (42,727)
Amortization of discount on mortgage-backed securities (3,808) (5,254)
Decrease in interest receivable 2,636 2,984
Decrease in other assets 12,977 2,577
Decrease in accounts payable (15,252) (14,629)
--------------- ---------------
Net cash provided by operating activities 251,415 277,927
--------------- ---------------
Cash flows from investing activities
Mortgage principal payments received 797,663 348,774
Distributions received from PREPs 47,061 42,727
--------------- ---------------
Net cash provided by investing activities 844,724 391,501
--------------- ---------------
Cash flow used in financing activity
Distributions paid (605,358) (637,726)
--------------- ---------------
Net increase in cash and temporary cash investments 490,781 31,702
Cash and temporary cash investments at beginning of period 2,072,577 1,813,499
--------------- ---------------
Cash and temporary cash investments at end of period $ 2,563,358 $ 1,845,201
=============== ===============
The accompanying notes are an integral part of the financial statements.
</TABLE>
<PAGE> - 2 -
AMERICA FIRST PREP FUND 2 PENSION SERIES LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1997
(UNAUDITED)
1. Organization
America First PREP Fund 2 Pension Series Limited Partnership (the Partnership)
was formed on February 2, 1988, under the Delaware Revised Uniform Limited
Partnership Act for the purpose of acquiring a portfolio of federally-insured
multifamily mortgages and other investments including preferred real estate
participations (PREPs). PREPs consist of equity interests which are intended
to provide the Partnership with a participation in the net cash flow and net
sale or refinancing proceeds of the properties collateralizing the mortgage
loans. The Partnership began operations with the first escrow closing on May
25, 1988, and will continue in existence until December 31, 2017, unless
terminated earlier under the provisions of the Partnership Agreement. The
General Partner of the Partnership is America First Capital Associates Limited
Partnership Six (AFCA 6).
2. Summary of Significant Accounting Policies
A) Financial Statement Presentation
The financial statements of the Partnership are prepared without audit on
the accrual basis of accounting in accordance with generally accepted
accounting principles. The financial statements should be read in
conjunction with the financial statements and notes thereto included in
the Partnership's Annual Report on Form 10-K for the year ended December
31, 1996. In the opinion of management, all normal and recurring
adjustments necessary to present fairly the financial position at June
30, 1997, and results of operations for all periods presented have been
made.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
B) Investment in Mortgage-Backed Securities
Investment securities are classified as held-to-maturity,
available-for-sale, or trading. Investments classified as
held-to-maturity are carried at amortized cost. Investments classified as
available-for-sale are reported at fair value with any unrealized gains or
losses excluded from earnings and reflected as a separate component of
partners' capital. Subsequent increases and decreases in the net
unrealized gain/loss on the available-for-sale securities are reflected as
adjustments to the carrying value of the portfolio and adjustments to the
component of partners' capital. The Partnership does not have investment
securities classified as trading.
C) Investment in PREPs
The investment in PREPs consists of interests in limited partnerships
which own properties underlying the mortgage-backed securities and are
accounted for using the equity method. When an investment in a PREP has
been reduced to zero, earnings are recorded to the extent that
distributions are received. PREPs are not insured or guaranteed. The
value of these investments is a function of the value of the real estate
underlying the PREPs.
D) Allowance for Losses on Investments in PREPs
The allowance for losses on investments in PREPs is a valuation reserve
which has been established at a level that management feels is adequate to
absorb potential losses on investments in PREPs. The allowance is based
on management's best estimate of the net realizable value of such
properties; however, the ultimate realized values may vary from these
estimates. The allowance is periodically reviewed and adjustments are
made to the allowance when there are significant changes in the estimated
net realizable value of the properties underlying the PREPs.
<PAGE> - 3 -
AMERICA FIRST PREP FUND 2 PENSION SERIES LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1997
(UNAUDITED)
E) Income Taxes
No provision has been made for income taxes since Beneficial Unit
Certificate (BUC) Holders are required to report their share of the
Partnership's income for federal and state income tax purposes.
F) Temporary Cash Investments
Temporary cash investments are invested in short-term debt securities
purchased with an original maturity of three months or less.
G) Net Income Per BUC
Net income per BUC has been calculated based on the number of BUCs
outstanding (905,974) for all periods presented.
3. Partnership Reserve Account
The Partnership maintains a reserve account which consisted of the following
at June 30, 1997:
<TABLE>
<S> <C>
Cash and temporary cash investments $ 2,485,395
GNMA Certificates 1,433,898
FNMA Certificates 1,020,877
---------------
$ 4,940,170
===============
</TABLE>
The reserve account was established to maintain working capital for the
Partnership and is available for distribution to BUC Holders and for any
contingencies related to Permanent Investments and the operation of the
Partnership. See Note 5 regarding the investment in mortgage-backed
securities.
4. Partnership Income, Expenses and Cash Distributions
The Partnership Agreement contains provisions for distributing the cash
available for distribution and for the allocation of income and expenses for
tax purposes among AFCA 6 and BUC Holders.
Cash distributions included in the financial statements represent the actual
cash distributions made during each period, and the cash distributions accrued
at the end of each period.
5. Investment in Mortgage-Backed Securities
The mortgage-backed securities held by the Partnership represent Government
National Mortgage Association (GNMA) Certificates and Federal National
Mortgage Association (FNMA) Certificates. The GNMA Certificates are backed by
first mortgage loans on multifamily housing properties and pools of
single-family properties. The FNMA Certificates are backed by pools of
single-family properties. The GNMA Certificates are debt securities issued by
a private mortgage lender and are guaranteed by GNMA as to the full and timely
payment of principal and interest on the underlying loans. The FNMA
Certificates are debt securities issued by FNMA and are guaranteed as to the
full and timely payment of principal and interest on the underlying loans.
At June 30, 1997, the total amortized cost, gross unrealized holding gains,
gross unrealized holding losses, and aggregate fair value of
available-for-sale securities are $2,472,126, $21,214, $38,565 and $2,454,775,
respectively. The total amortized cost, gross unrealized holding gains, gross
unrealized holding losses, and aggregate fair value of held-to-maturity
securities are $5,279,596, $150,928, $285,620 and $5,144,904, respectively.
<PAGE> - 4 -
AMERICA FIRST PREP FUND 2 PENSION SERIES LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1997
(UNAUDITED)
Descriptions of the Partnership's mortgage-backed securities at June 30,
1997, are as follows:
<TABLE>
<CAPTION>
Number Interest Maturity Carrying
Type of Security and Name Location of Units Rate Date Amount
---------------------------------- -------------------- -------- -------- ------------- ---------------
<S> <C> <C> <C> <C> <C>
Held-to-Maturity
GNMA Certificates:
Broadmoor Court Colorado Springs, CO 47 9.25% 10/15/29 $ 580,032
Owings Chase Apartments Pikesville, MD 234 6.75% 12/15/23 3,173,556
Pools of single-family mortgages 8.74%(1) 2016 to 2018 1,526,008
--------------
5,279,596
--------------
Available-for-Sale
GNMA Certificates:
Pools of single-family mortgages 6.03%(1) 2008 730,971(2)
Pools of single-family mortgages 7.58%(1) 2008 702,927(2)
FNMA Certificates:
Pools of single-family mortgages 5.52%(1) 2000 1,020,877(2)
---------------
2,454,775
---------------
Balance at June 30, 1997 $ 7,734,371
===============
</TABLE>
(1) Represents yield to the Partnership.
(2) Reserve account asset - see Note 3.
Reconciliation of the carrying amount of the mortgage-backed securities is as
follows:
<TABLE>
<S> <C>
Balance at December 31, 1996 $ 8,506,853
Additions
Amortization of discount on mortgage-backed securities 3,808
Change in net unrealized holding losses on available-for-sale securities 21,373
Deduction
Mortgage principal payments received (1) (797,663)
---------------
Balance at June 30, 1997 $ 7,734,371
===============
(1) Includes proceeds of $556,444 received from GNMA due to the redemption
of the GNMA Certificate related to Ashwood Apartments.
</TABLE>
6. Investment in PREPs
The Partnership's PREPs consist of interests in limited partnerships which own
multifamily properties financed by the Partnership. The limited partnership
agreements originally provided for the payment of a base return on the equity
provided to the limited partnerships and for the payment of additional amounts
out of a portion of the net cash flow or net sale or refinancing proceeds of
the properties subject to various priority payments. Certain of the
agreements have been amended to defer payment of the base return.
<PAGE> - 5 -
AMERICA FIRST PREP FUND 2 PENSION SERIES LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1997
(UNAUDITED)
Descriptions of the PREPs at June 30, 1997, are as follows:
<TABLE>
<CAPTION>
Carrying
Name Location Partnership Name Amount
-------------------------- -------------------- ----------------------------- -----------------
<S> <C> <C> <C>
Broadmoor Court Colorado Springs, CO Stazier Associates Colorado Springs, Ltd. $ 53,547
Owings Chase Apartments Pikesville, MD Owings Chase Limited Partnership 150,000
Laurel Park Apartments Riverdale, GA Gold Key Venture -
-----------------
203,547
Less valuation allowance (203,547)
-----------------
Balance at June 30, 1997 $ -
=================
</TABLE>
Reconciliation of the carrying amount of the PREPs is as follows:
<TABLE>
<S> <C>
Balance at December 31, 1996 $ -
Addition
Equity in earnings of property partnerships 47,061
Deduction
Distributions received from PREPs (47,061)
-----------------
Balance at June 30, 1997 $ -
=================
</TABLE>
7. Transactions with Related Parties
Substantially all the Partnership's general and administrative expenses are
paid by AFCA 6 or an affiliate and reimbursed by the Partnership. The amount
of such expenses reimbursed to AFCA 6 during 1997 was $108,087 ($63,428 for
the quarter ended June 30, 1997). The reimbursed expenses are presented on a
cash basis and do not reflect accruals made at quarter end.
AFCA 6 is entitled to an administrative fee of .35% per annum of the
outstanding principal amounts invested in mortgage-backed securities, PREPs,
and temporary cash investments to be paid by the Partnership to the extent
such amount is not paid by property owners. During 1997, AFCA 6 earned
administrative fees of $12,461 ($6,196 for the quarter ended June 30, 1997),
all of which was paid by the Partnership.
The general partner of the property partnership which owns Owings Chase
Apartments is principally owned by an employee of an affiliate of AFCA 6.
Such employee has a nominal interest in the affiliate. Affiliates of AFCA 6
also own small interests in the general partner. The general partner has a
nominal interest in the property partnership's profits, losses and cash flow
which is subordinate to the interest of the Partnership. The general partner
did not receive cash distributions from the property partnership in 1997.
An affiliate of AFCA 6 has been retained to provide property management
services for Laurel Park Apartments and Owings Chase Apartments. The fees for
services provided represent the lower of (i) costs incurred in providing
management of the property, or (ii) customary fees for such services
determined on a competitive basis and amounted to $21,426 in 1997 ($10,967 for
the quarter ended June 30, 1997).
<PAGE> - 6 -
AMERICA FIRST PREP FUND 2 PENSION SERIES LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1997
(UNAUDITED)
8. Subsequent Event
On July 29, 1997, the Partnership announced that it had signed an Agreement
and Plan of Merger, dated as of July 29, 1997 (the Merger Agreement), among
the Partnership, America First Participating Preferred Equity Mortgage Fund
Limited Partnership, a Delaware limited partnership (Prep Fund 1), America
First PREP Fund 2 Limited Partnership, a Delaware limited partnership (Prep
Fund 2 and together with the Partnership and Prep Fund 1, the Funds), America
First Mortgage Investments, Inc., a newly formed Maryland corporation (AFM),
and AF Merger, L.P., a newly formed Delaware limited partnership and a
subsidiary of AFM (AFM L.P.), which contemplates a business combination
transaction (the Merger) pursuant to which Prep Fund 1 and Prep Fund 2 will
merge with AFM, with AFM surviving such merger, and the Partnership will merge
with AFM L.P., with the Partnership surviving such merger. The Merger, which
is expected to be accomplished on a tax-deferred basis for investors in the
Funds, will not be consummated unless both Prep Fund 1 and Prep Fund 2
participate in the Merger. The participation of the Partnership is not a
condition to the closing of the Merger with respect to Prep Fund 1 and Prep
Fund 2.
As a result of the Merger, (i) the outstanding BUCs of the Partnership
(Pension BUCs) will be converted, at the rate of approximately 1.31 shares for
each Pension BUC, into a maximum of 1,183,373 shares of common stock, par
value $0.01 per share, of AFM (the Common Stock), (ii) the outstanding
Exchangeable Units of Prep Fund 1 will be converted, at the rate of 1.00 share
for each Exchangeable Unit, into 5,775,797 shares of Common Stock and (iii)
the outstanding BUCs of Prep Fund 2 (Prep Fund 2 BUCs) will be converted, at
the rate of approximately 1.26 shares for each Prep Fund 2 BUC, into 2,012,336
shares of Common Stock. If the Partnership participates in the Merger,
holders of Pension BUCs will be given the option, in lieu of receiving shares
of Common Stock, to remain as investors in the Partnership (the Retention
Option). To the extent that holders of Pension BUCs elect the Retention
Option, the aggregate number of shares of Common Stock otherwise issuable to
the such holders in the Merger will be accordingly reduced. In connection
with the organization of AFM, the general partners of the Funds (the General
Partners) were issued 90,621 shares of Common Stock and will not be issued any
additional shares as a result of the Merger.
Upon consummation of the Merger, AFM will become an externally advised
mortgage real estate investment trust owning, directly and indirectly, the
mortgage-backed securities, mortgage loans and other assets, subject to
liabilities, held by the Funds. AFM's business strategy will be to build on
and extend the business plans and investment methods and policies of the Funds
by employing leverage, investing primarily in adjustable-rate mortgage-backed
securities and mortgage loans and varying its investments over time.
Consequently, following the Merger, AFM intends to replace a substantial
portion of the Funds' current portfolio with a portfolio of adjustable-rate
mortgage-backed securities, mortgage loans and other related assets.
Pursuant to the Merger Agreement, each of the Funds shall generally bear their
own expenses in connection with the Merger. However, if the Merger Agreement
is terminated because a Fund (the Terminating Fund) has triggered certain of
the events of termination specified therein and such Terminating Fund has, on
or prior to the date of such termination, received a proposal constituting a
superior Competing Transaction (as such term is defined in the Merger
Agreement) that has not been offered on substantially equivalent terms to any
of the other Funds (each, an Excluded Fund), then each Terminating Fund agrees
to reimburse each Excluded Fund for its share of the out-of-pocket expenses
incurred in connection with the Merger Agreement, plus any expenses incurred
in enforcing the provisions of the obligations thereunder. Furthermore, if
the Partnership is the Terminating Fund, Prep Fund 1 and Prep Fund 2 shall
have the right (i) to continue with the Merger, (ii) to terminate the
Partnership's obligations under the Merger Agreement and (iii) to be
reimbursed by the Partnership for its share of such expenses.
<PAGE> - 7 -
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Liquidity and Capital Resources
The Partnership originally acquired: (i) five mortgage-backed securities
guaranteed as to principal and interest by the Government National Mortgage
Association (GNMA) collateralized by first mortgage loans on multifamily
housing properties located in four states (the GNMA Certificates); (ii)
various mortgage-backed securities collateralized by pools of single-family
mortgages and guaranteed as to principal and interest by either GNMA or the
Federal National Mortgage Association (FNMA) (the Single-Family Certificates);
and (iii) limited partnership interests (PREPs) in five limited partnerships
which own the multifamily housing properties financed by the GNMA
Certificates. The Partnership has been repaid by GNMA on the GNMA
Certificates collateralized by the Villages at Moonraker, Laurel Park
Apartments and, during January of 1997, Ashwood Apartments. During 1995, the
Partnership withdrew as a limited partner of the operating partnership which
owns the Villages at Moonraker and, therefore, no longer holds its PREP in
this property. During the fourth quarter of 1996, the Partnership sold its
PREP in Ashwood Apartments. The Partnership has retained its PREP in Laurel
Park Apartments. Collectively, the two remaining GNMA Certificates and the
three remaining PREPs are referred to as the Permanent Investments. In
addition, the Partnership held various Single-Family Certificates at June 30,
1997.
The following table shows the occupancy levels of the properties financed by
the Partnership, in which the Partnership continues to hold an equity
interest, at June 30, 1997.
<TABLE>
<CAPTION>
Number Percentage
Number of Units of Units
Property Name Location of Units Occupied Occupied
- ------------------------------------- ------------------ --------- ---------- -----------
<S> <C> <C> <C> <C>
Broadmoor Court Colorado Springs, CO 47 41 87%
Laurel Park Apartments Riverdale, GA 387 370 96%
Owings Chase Apartments Pikesville, MD 234 222 95%
--------- ---------- -----------
668 633 95%
========= ========== ===========
</TABLE>
Distributions
Cash distributions paid or accrued per Beneficial Unit Certificate (BUC) were
as follows:
<TABLE>
<CAPTION>
For the Six For the Six
Months Ended Months Ended
June 30, 1997 June 30, 1996
-------------- --------------
<S> <C> <C>
Regular monthly distributions
Income $ .3266 $ .3628
Return of Capital .3322 .3288
-------------- --------------
$ .6588 $ .6916
============== ==============
Distributions
Paid out of cash flow (including mortgage principal payments) $ .6588 $ .6916
============== ==============
</TABLE>
<PAGE> - 8 -
Regular monthly distributions to investors consist primarily of interest and
principal received on GNMA Certificates and Single-Family Certificates.
Additional cash for distributions is received from PREPs and temporary cash
investments. The Partnership may draw on reserves to pay operating expenses
or to supplement cash distributions to BUC Holders. The Partnership is
permitted to replenish its reserves through the sale or refinancing of
assets. During 1997, a net amount of $496,699 of undistributed mortgage
principal payments was placed in reserves (a net amount of $24,176 was
withdrawn from reserves for the quarter ended June 30, 1997). The total
amount held in reserves at June 30, 1997, was $4,940,170 of which $2,454,775
was invested in Single-Family Certificates.
The Partnership believes that cash provided by operating and investing
activities and, if necessary, withdrawals from the Partnership's reserves will
be adequate to meet its short-term and long-term liquidity requirements,
including the payments of distributions to BUC Holders. Under the terms of
the Partnership Agreement, the Partnership has the authority to enter into
short-term and long-term debt financing arrangements; however, the Partnership
currently does not anticipate entering into such arrangements. The
Partnership is not authorized to issue additional BUCs to meet short-term and
long-term liquidity requirements.
Asset Quality
The Partnership continues to receive monthly principal and interest payments
on its GNMA Certificates and Single-family Certificates which are fully
guaranteed either by GNMA or FNMA. The obligations of GNMA are backed by the
full faith and credit of the United States government.
PREPs, however, are not insured or guaranteed. The value of these investments
is a function of the value of the real estate underlying the PREPs. It is the
policy of the Partnership to make a periodic review of the real estate
underlying the PREPs in order to establish, when necessary, a valuation
reserve on the investment in PREPs. The allowance for losses on investment in
PREPs is based on the fair value of the properties underlying the PREPs. The
fair value of the properties underlying the PREPs is based on management's
best estimate of the net realizable value of such properties; however, the
ultimate realized values may vary from these estimates. The allowance is
periodically reviewed and adjustments are made to the allowance when there are
significant changes in the estimated net realizable value of the properties
underlying the PREPs. Internal property valuations and reviews performed
during the six months ended June 30, 1997, indicated that the PREPs recorded
on the balance sheet at June 30, 1997, required no adjustments to their
current carrying amounts.
The overall status of the Partnership's Permanent Investments has remained
relatively constant since March 31, 1997.
Results of Operations
The tables below compare the results of operations for each period shown.
<TABLE>
<CAPTION>
For the For the Increase
Quarter Ended Quarter Ended (Decrease)
June 30, 1997 June 30, 1996 From 1996
--------------- --------------- ---------------
<S> <C> <C> <C>
Mortgage-backed securities income $ 141,564 $ 168,964 $ (27,400)
Equity in earnings of property partnerships 21,049 2,573 18,476
Interest income on temporary cash investments 35,128 21,908 13,220
--------------- --------------- ---------------
197,741 193,445 4,296
General and administrative expenses (52,626) (46,850) 5,776
--------------- --------------- ---------------
Net income $ 145,115 $ 146,595 $ (1,480)
=============== =============== ===============
</TABLE>
<PAGE> - 9 -
<TABLE>
<CAPTION>
For the Six For the Six Increase
Months Ended Months Ended (Decrease)
June 30, 1997 June 30, 1996 From 1996
--------------- --------------- ---------------
<S> <C> <C> <C>
Mortgage-backed securities income $ 285,537 $ 338,523 $ (52,986)
Equity in earnings of property partnerships 47,061 42,727 4,334
Interest income on temporary cash investments 67,741 45,531 22,210
--------------- --------------- ---------------
400,339 426,781 (26,442)
General and administrative expenses (98,416) (91,805) 6,611
--------------- --------------- ---------------
Net income $ 301,923 $ 334,976 $ (33,053)
=============== =============== ===============
</TABLE>
Mortgage-backed securities income decreased for the quarter and six months
ended June 30, 1997, compared to the same periods in 1996. Approximately
$12,900 of such decrease for the quarter and $25,800 of such decrease for the
six months was due to the redemption of the GNMA Certificate related to
Ashwood Apartments. The remaining decrease of approximately $14,500 for the
quarter and $27,200 for the six months was due to the continued amortization
of the principal balances of the Partnership's other mortgage-backed
securities.
Equity in earnings of property partnerships is a function of the cash flow
received by the Partnership from its interest in the operating partnerships
which own the properties. Prior to the write-down of each investment in PREPs
to zero, equity in earnings of property partnerships also reflects the
Partnership's allocable share of earnings generated by each of the properties.
Equity in earnings of property partnerships increased for the quarter and six
months ended June 30, 1997, compared to the same periods in 1996.
Approximately $21,000 of such increase for the quarter and six months is
attributable to the Partnership receiving a distribution from Owings Chase
Apartments during the quarter ended June 30, 1997, whereas the Partnership did
not receive a distribution from Owings Chase Apartments during the quarter or
six months ended June 30, 1996. The distribution received from Owings Chase
for the quarter and six months ended June 30, 1997 was partially offset by a
decrease of approximately $2,600 and $14,800, respectively, from Ashwood
Apartments. The Partnership no longer receives distributions from Ashwood
Apartments due to the sale of the Partnership's PREP in such property in
December 1996. Also contributing to the decrease for the six months ended
June 30, 1997, was a decrease of $1,900 in cash flow received from Broadmoor
Court.
The increase in interest on temporary cash investments for the quarter and six
months ended June 30, 1997, compared to the same periods in 1996 was primarily
attributable to the increase in cash reserves as a result of the redemption of
the GNMA Certificate related to Ashwood Apartments and the sale of the
Partnership's PREP in Ashwood Apartments.
General and administrative expenses increased for the quarter and six months
ended June 30, 1997, compared to the same periods in 1996 due primarily to
costs of approximately $5,600 incurred during the quarter and six months ended
June 30, 1997, in conjunction with the proposed merger described in Note 8 to
the financial statements. Also contributing to the increase was an increase
in salaries expense, which was partially offset by an overall decrease in
other general and administrative expenses.
<PAGE> - 10 -
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
4(a) Agreement of Limited Partnership dated May 25, 1988
(incorporated herein by reference to Form 10-Q dated
June 30, 1988 filed pursuant to Section 13 or 15(d) of
the Securities Act of 1934 by America First PREP Fund 2
Pension Series Limited Partnership (Commission File No.
33-13407)).
4(b) Form of Certificate of Beneficial Unit Certificate
(incorporated herein by reference to Form 10-Q dated
June 30, 1988 filed pursuant to Section 13 or 15(d) of
the Securities Act of 1934 by America First PREP Fund 2
Pension Series Limited Partnership (Commission File No.
33-13407)).
4(c) Agreement and Plan of Merger, dated as of July 29, 1997,
among the Registrant, America First
Participating/Preferred Equity Mortgage Fund Limited
Partnership, America First Prep Fund 2 Limited Partnership
and AF Merger, L.P..
(b) Form 8-K
The registrant did not file a report on Form 8-K during the
quarter for which this report is filed.
<PAGE> - 11 -
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Dated: August 13, 1997 AMERICA FIRST PREP FUND 2
PENSION SERIES LIMITED PARTNERSHIP
By America First Capital
Associates Limited
Partnership Six, General
Partner of the Registrant
By America First Companies L.L.C.,
General Partner of America
First Capital Associates
Limited Partnership Six
By /s/ Michael Thesing
Michael Thesing,
Vice President and
Principal Financial
Officer
<PAGE> - 12 -
EXHIBIT 4(c)
AGREEMENT AND PLAN OF MERGER
Dated as of July 29, 1997,
Among
AMERICA FIRST MORTGAGE INVESTMENTS, INC.,
AMERICA FIRST PARTICIPATING/PREFERRED EQUITY MORTGAGE
FUND LIMITED PARTNERSHIP,
AMERICA FIRST PREP FUND 2 LIMITED PARTNERSHIP,
AMERICA FIRST PREP FUND 2 PENSION SERIES LIMITED PARTNERSHIP,
And
AF MERGER, L.P.
TABLE OF CONTENTS
Page
----
ARTICLE I
The Merger
SECTION 1.1 The Merger. . . . . . . . . . . . . . . . . . . . . . . . . . . 1
SECTION 1.2 Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
SECTION 1.3 Effective Date. . . . . . . . . . . . . . . . . . . . . . . . . 2
SECTION 1.4 Effects of the Merger . . . . . . . . . . . . . . . . . . . . . 2
SECTION 1.5 Organizational Documents. . . . . . . . . . . . . . . . . . . . 2
(a) The Company . . . . . . . . . . . . . . . . . . . . . . . . . . 2
(b) Pension Fund. . . . . . . . . . . . . . . . . . . . . . . . . . 2
SECTION 1.6 Officers and Directors. . . . . . . . . . . . . . . . . . . . . 2
SECTION 1.7 General Partner of Pension Fund . . . . . . . . . . . . . . . . 2
SECTION 1.8 Principal Executive Office. . . . . . . . . . . . . . . . . . . 2
ARTICLE II
Effect of the Merger on the Exchange Units
of the Partnerships; Exchange of Certificates
SECTION 2.1 Effect on Exchange Units; Conversion of Exchange Units. . . . . 2
SECTION 2.2 Exchange of Certificates. . . . . . . . . . . . . . . . . . . . 3
(a) Exchange Agent. . . . . . . . . . . . . . . . . . . . . . . . . 3
(b) Provision of Common Stock . . . . . . . . . . . . . . . . . . . 3
(c) Exchange Procedure. . . . . . . . . . . . . . . . . . . . . . . 3
(d) Record Dates; Distributions with Respect to Unconverted Exchange
Units. . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
(e) No Further Ownership Rights in Exchange Units . . . . . . . . . 4
(f) No Liability. . . . . . . . . . . . . . . . . . . . . . . . . . 4
(g) No Fractional Shares. . . . . . . . . . . . . . . . . . . . . . 4
(h) Withholding Rights. . . . . . . . . . . . . . . . . . . . . . . 5
ARTICLE III
Representations and Warranties
SECTION 3.1 Representations and Warranties of the Partnerships. . . . . . . 5
(a) Organization, Standing and Power of the Partnership . . . . . . 5
(b) Capital Structure . . . . . . . . . . . . . . . . . . . . . . . 5
(c) Authority; Noncontravention; Consents . . . . . . . . . . . . . 6
(d) SEC Documents; Financial Statements; Undisclosed Liabilities. . 7
(e) Absence of Certain Changes or Events. . . . . . . . . . . . . . 7
(f) Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . . 8
(g) Brokers; Fees and Expenses. . . . . . . . . . . . . . . . . . . 8
(h) Compliance with Laws. . . . . . . . . . . . . . . . . . . . . . 8
(i) Contracts; Debt Instruments . . . . . . . . . . . . . . . . . . 8
(j) Tangible Property and Assets. . . . . . . . . . . . . . . . . . 8
(k) Books and Records . . . . . . . . . . . . . . . . . . . . . . . 9
(l) Registration Statement. . . . . . . . . . . . . . . . . . . . . 9
(m) Vote Required . . . . . . . . . . . . . . . . . . . . . . . . . 9
ARTICLE IV
Covenants
SECTION 4.1 Conduct of Business by the Partnerships . . . . . . . . . . . . 9
SECTION 4.2 Other Actions . . . . . . . . . . . . . . . . . . . . . . . . . 9
SECTION 4.3 Payments of Dividends By the Company. . . . . . . . . . . . . . 10
ARTICLE V
Additional Covenants
SECTION 5.1 Preparation of the Registration Statement and the Consent
Solicitation. . . . . . . . . . . . . . . . . . . . . . . . . 10
Statement/Prospectus. . . . . . . . . . . . . . . . . . . . . . 10
SECTION 5.2 Best Efforts; Notification. . . . . . . . . . . . . . . . . . . 10
SECTION 5.3 No Solicitation of Transactions . . . . . . . . . . . . . . . . 11
SECTION 5.4 Public Announcements. . . . . . . . . . . . . . . . . . . . . . 11
SECTION 5.5 Listing of Common Stock . . . . . . . . . . . . . . . . . . . . 11
SECTION 5.6 Indemnification . . . . . . . . . . . . . . . . . . . . . . . . 12
<PAGE> -i-
Page
----
ARTICLE VI
Conditions Precedent
SECTION 6.1 Conditions to Each Party's Obligation to Effect the Merger. . . 13
(a) Approval of Unitholders of Prep Fund 1 and Prep Fund 2. . . . . 13
(b) Listing of Common Stock . . . . . . . . . . . . . . . . . . . . 13
(c) Absence of Certain Conditions . . . . . . . . . . . . . . . . . 13
(d) Registration Statement. . . . . . . . . . . . . . . . . . . . . 13
(e) No Injunctions or Restraints. . . . . . . . . . . . . . . . . . 13
(f) Opinion Related to Partnership Status of the Partnership. . . . 13
(g) Opinion Related to REIT Status of the Company . . . . . . . . . 14
(h) The Investment Company Act Opinion. . . . . . . . . . . . . . . 14
(i) Consents and Approvals. . . . . . . . . . . . . . . . . . . . . 14
(j) Absence of Material Adverse Effects . . . . . . . . . . . . . . 14
SECTION 6.2 Conditions to Obligations of the Partnerships . . . . . . . . . 14
(a) Representations and Warranties. . . . . . . . . . . . . . . . . 14
(b) Performance of Obligations of the Other Partnerships. . . . . . 14
(c) Material Adverse Change . . . . . . . . . . . . . . . . . . . . 14
(d) Consents. . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
SECTION 6.3 Conditions to Obligations of Pension Fund 20. . . . . . . . . . 15
ARTICLE VII
General Partner Actions
SECTION 7.1 General Partner Actions . . . . . . . . . . . . . . . . . . . . 15
ARTICLE VIII
Termination, Amendment and Waiver
SECTION 8.1 Termination . . . . . . . . . . . . . . . . . . . . . . . . . . 15
SECTION 8.2 Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
SECTION 8.3 Effect of Termination . . . . . . . . . . . . . . . . . . . . . 16
SECTION 8.4 Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
SECTION 8.5 Extension; Waiver . . . . . . . . . . . . . . . . . . . . . . . 16
ARTICLE IX
General Provisions
SECTION 9.1 Nonsurvival of Representations and Warranties . . . . . . . . . 17
SECTION 9.2 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
SECTION 9.3 Interpretation. . . . . . . . . . . . . . . . . . . . . . . . . 17
SECTION 9.4 Counterparts. . . . . . . . . . . . . . . . . . . . . . . . . . 17
SECTION 9.5 Entire Agreement; No Third-Party Beneficiaries. . . . . . . . . 17
SECTION 9.6 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . 18
SECTION 9.7 Assignment. . . . . . . . . . . . . . . . . . . . . . . . . . . 18
SECTION 9.8 Enforcement . . . . . . . . . . . . . . . . . . . . . . . . . . 18
ARTICLE X
Certain Definitions
SECTION 10.1 Certain Definitions. . . . . . . . . . . . . . . . . . . . . . 18
Exhibits
A Charter of the Company
B Bylaws of the Company
C Amended Charter of the Company
D Pension Fund Agreement
E Certificate of Limited Partnership of Pension Fund
<PAGE> -ii-
AGREEMENT AND PLAN OF MERGER (the "Agreement"), dated as of July 29, 1997,
among AMERICA FIRST MORTGAGE INVESTMENTS, INC., a Maryland corporation (the
"Company"), AMERICA FIRST PARTICIPATING/PREFERRED EQUITY MORTGAGE FUND
LIMITED PARTNERSHIP, a Delaware limited partnership ("Prep Fund 1"), AMERICA
FIRST PREP FUND 2 LIMITED PARTNERSHIP, a Delaware limited partnership ("Prep
Fund 2"), AMERICA FIRST PREP FUND 2 PENSION SERIES LIMITED PARTNERSHIP, a
Delaware limited partnership ("Pension Fund" and together with Prep Fund 1 and
Prep Fund 2, the "Partnerships") and AF MERGER, L.P., a Delaware limited
partnership subsidiary of the Company ("Partnership Merger Sub").
RECITALS
WHEREAS, certain terms used herein shall have the meanings assigned to
them in Article X of this Agreement;
WHEREAS, the Board of Directors of the Company and the general partners
of each of the Partnerships (the "General Partners"), together with the
Special Committee (as herein defined), have determined that it is advisable
and in the best interest of the Company and Partnership Merger Sub, on the one
hand, and the Partnerships, on the other hand, and their respective
stockholders and Unitholders, as the case may be, to proceed with the
strategic business combination involving the five entities on the terms
described in this Agreement, pursuant to which (i) Prep Fund 1 and Prep Fund 2
will merge with the Company, the Company will be the surviving corporation in
such merger and each Prep Fund 1 Unit and Prep Fund 2 BUC will be converted
into the right to receive common stock, par value $0.01 per share, of the
Company (the "Common Stock") and (ii) Pension Fund will merge with Partnership
Merger Sub, Pension Fund will be the surviving limited partnership in such
merger and each Pension BUC will be converted into the right to receive Common
Stock, except for those Pension BUCs held by Unitholders electing to exercise
their option to retain their current investment in Pension Fund (the
"Retention Option") (the transactions described in (i) and (ii) above being
referred to herein as the "Merger");
WHEREAS, the Company, as the surviving corporation in the Merger with
Prep Fund 1 and Prep Fund 2, intends that, following the Merger, it shall be
subject to taxation as a real estate investment trust (a "REIT") within the
meaning of the Internal Revenue Code of 1986, as amended (the "Code"); and
WHEREAS, Pension Fund, as the surviving limited partnership in the Merger
with Partnership Merger Sub, intends that, following the Merger, it shall
continue to be subject to taxation as a partnership under the Code.
NOW, THEREFORE, in consideration of the representations, warranties,
covenants and agreements contained in this Agreement, the parties agree as
follows:
ARTICLE I
The Merger
SECTION 1.1 The Merger. Upon the terms and subject to the conditions
set forth in this Agreement, (i) in accordance with the Maryland General
Corporation Law (the "MGCL") and the Delaware Revised Uniform Limited
Partnership Act (the "DRULPA"), Prep Fund 1 and Prep Fund 2 shall be merged
with and into the Company at the Effective Time (as defined below) and (ii) in
accordance with DRULPA, Pension Fund shall be merged with Partnership Merger
Sub at the Effective Time. Following the Merger, (i) the separate existence
of Prep Fund 1 and Prep Fund 2 shall cease and the Company shall continue as
the surviving corporation and shall succeed to and assume all the rights and
obligations of Prep Fund 1 and Prep Fund 2 in accordance with the MGCL and
DRULPA and (ii) the separate existence of Partnership Merger Sub shall cease
and Pension Fund shall continue as the surviving limited partnership and shall
succeed to and assume all the rights and obligations of Partnership Merger Sub
in accordance with the DRULPA.
SECTION 1.2 Closing. The closing of the Merger will take place at
10:00 A.M. Eastern Time, on a date to be specified by the parties, which
(subject to satisfaction or waiver of the conditions set forth in Sections 6.2
and 6.3) shall be no later than the second business day after satisfaction or
waiver of the conditions set forth in Section 6.1 (the "Closing Date"), at the
offices of Rogers & Wells, 200 Park Avenue, New York, New York 10166, unless
another date or place is agreed to in writing by the parties hereto.
<PAGE> -1-
SECTION 1.3 Effective Date. As soon as practicable following the
satisfaction or waiver of the conditions set forth in Article VI, the parties
shall file the articles of merger, certificate of merger or other appropriate
documents for the merger of Prep Fund 1 and Prep Fund 2 with and into the
Company executed in accordance with Section 3-110 of the MGCL and Section
17-211 of the DRULPA and the certificate of merger or other appropriate
documents for the merger of Pension Fund with Partnership Merger Sub executed
in accordance with Section 17-211 of the DRULPA (collectively, the "Articles
of Merger") and shall make all other filings or recordings required under the
MGCL or the DRULPA to effect the Merger. The Merger shall become effective at
such time as the Articles of Merger have been duly filed with the Department
of Assessments and Taxation of the State of Maryland and the Office of the
Secretary of State of the State of Delaware, or at such other time as the
parties shall specify in the Articles of Merger (the time and the date the
Merger becomes effective being, the "Effective Time" and the "Effective Date,"
respectively), it being understood that the parties shall cause the Effective
Time to occur on the Closing Date.
SECTION 1.4 Effects of the Merger. The Merger shall have the effects
set forth in the MGCL or the DRULPA, as appropriate.
SECTION 1.5 Organizational Documents.
(a) The Company. The Articles of Incorporation of the Company as
in effect on the date hereof are substantially in the form of Exhibit A hereto
(the "Charter"). The bylaws of the Company as in effect on the date hereof
are substantially in the form of Exhibit B hereto (the "Bylaws"). Prior to
the Effective Time, the Charter shall be amended and restated by the Amended
and Restated Articles of Incorporation substantially in the form of Exhibit C
hereto (the "Amended Charter") and as amended shall continue to be in effect
after the Merger.
(b) Pension Fund. The Agreement of Limited Partnership, dated as
of May 25, 1988, of Pension Fund as in effect on the date hereof and
substantially in the form of Exhibit D hereto (the "Pension Fund Agreement"),
shall be in effect after the Merger. The certificate of limited partnership
of Pension Fund in effect on the date hereof and substantially in the form of
Exhibit E hereto, shall continue to be in effect after the Merger.
SECTION 1.6 Officers and Directors. The officers of the Company
immediately following the Effective Time shall continue to be the officers of
the Company. The Board of Directors of the Company immediately following the
Effective Time shall continue to be composed of the current members of the
Board of Directors of the Company.
SECTION 1.7 General Partner of Pension Fund. Immediately following
the Effective Time, the general partner of Pension Fund shall continue to be
America First Capital Associates Limited Partnership Six, a Delaware limited
partnership ("AFCA 6").
SECTION 1.8 Principal Executive Office. The principal executive
office of the Company following the Effective Date shall continue to be in New
York, New York.
ARTICLE II
Effect of the Merger on the Exchange Units of the Partnerships; Exchange of
Certificates
SECTION 2.1 Effect on Exchange Units; Conversion of Exchange Units.
By virtue of the Merger and without any action on the part of any Unitholder
participating in the Merger:
<PAGE> -2-
(a) At the Effective Time, each issued and outstanding Prep Fund 1
Unit, Prep Fund 2 BUC and Pension BUC (except those Pension BUCs held by
Unitholders electing the Retention Option) shall be converted into the right
to receive from the Company 1.00, 1.262758 and 1.306189, respectively, fully
paid and nonassessable shares of Common Stock. At the Effective Time, all
such Exchange Units shall no longer be outstanding and shall automatically be
canceled and retired and all rights with respect thereto shall cease to exist,
and each holder of a certificate representing any such Exchange Unit (an
"Exchange Unit Certificate") shall cease to have any rights with respect
thereto, except the right to receive, upon surrender of such certificate in
accordance with Section 2.2(c), certificates representing the shares of Common
Stock required to be delivered under this Section 2.1 and any cash in lieu of
fractional shares of Common Stock to be issued or paid in consideration
therefor upon surrender of such certificate (the "Merger Consideration") and
any dividends or other distributions to which such holder is entitled pursuant
to Section 2.2(d), in each case, without interest and less any required
withholding taxes.
(b) Notwithstanding the foregoing, the parties understand that
following the Merger the rights of each stockholder of the Company under this
Section 2.1 will be subject to the ownership limitations and other related
provisions contained in the Amended Charter.
SECTION 2.2 Exchange of Certificates.
(a) Exchange Agent. Prior to the Effective Time, the Company and
the Partnerships shall jointly appoint a bank or trust company to act as
exchange agent (the "Exchange Agent") for the exchange of the Merger
Consideration upon surrender of Exchange Unit Certificates or cancellation of
uncertificated Exchange Units, as the case may be.
(b) Provision of Common Stock. The Company shall provide to the
Exchange Agent on or before the Effective Time, for the benefit of the
Unitholders participating in the Merger, sufficient shares of Common Stock
issuable in exchange for the issued and outstanding Exchange Units pursuant to
Section 2.1.
(c) Exchange Procedure. As soon as reasonably practicable after
the Effective Time, the Exchange Agent shall mail to each holder of record of
a Exchange Unit Certificate whose Units were converted into the right to
receive the Merger Consideration pursuant to Section 2.1, (i) a letter of
transmittal (which shall specify that delivery shall be effected, and risk of
loss and title to the Exchange Unit Certificates shall pass, only upon
delivery of the Exchange Unit Certificates to the Exchange Agent and shall be
in a form and have such other provisions as the Company may reasonably
specify) and (ii) instructions for use in effecting the surrender of the
Exchange Unit Certificates in exchange for the Merger Consideration. Upon
surrender of a Exchange Unit Certificate for cancellation to the Exchange
Agent, together with such letter of transmittal, duly completed and executed,
and such other documents as may reasonably be required by the Exchange Agent,
the holder of such Exchange Unit Certificate shall be entitled to receive in
exchange therefor the Merger Consideration and any dividends or other
distributions to which such holder is entitled pursuant to Section 2.2(d), and
the Exchange Unit Certificate so surrendered shall forthwith be canceled. In
the event of a transfer of ownership of Exchange Units which is not registered
in the transfer records of the appropriate Partnership, payment may be made to
a person other than the person in whose name the Exchange Unit Certificate so
surrendered is registered if such Exchange Unit Certificate shall be properly
endorsed or otherwise be in proper form for transfer and the person requesting
such payment either shall pay any transfer or other taxes required by reason
of such payment being made to a person other than the registered holder of
such Exchange Unit Certificate or establish to the satisfaction of the Company
that such tax or taxes have been paid or are not applicable. Until
surrendered as contemplated by this Section 2.2, each Exchange Unit
Certificate shall be deemed at any time after the Effective Time to represent
only the right to receive upon such surrender the Merger Consideration,
without interest, into which the Exchange Units theretofore represented by
such Exchange Unit Certificate shall have been converted pursuant to Section
2.1 and any dividends or other distributions to which such holder is entitled
pursuant to Section 2.2(d). No interest will be paid or will accrue on the
Merger Consideration upon the surrender of any Exchange Unit Certificate or on
any cash payable pursuant to Section 2.2(d) or Section 2.2(g).
(d) Record Dates; Distributions with Respect to Unconverted
Exchange Units.
<PAGE> -3-
(i) From the date of this Agreement, the Company and the
Partnerships shall cooperate to establish and maintain record and payment
dates for regular quarterly cash distributions on their respective capital
stock and Units, such that the record and payment dates, respectively, for
each of the Company and the Partnerships occur on the same calendar date.
(ii) No dividends or other distributions with respect to
Exchange Units with a record date after the Effective Time shall be paid to
the holder of any unsurrendered Exchange Unit Certificate with respect to the
Exchange Units represented thereby, and no cash payment in lieu of fractional
shares shall be paid to any such holder pursuant to Section 2.2(g), in each
case until the surrender of such Exchange Unit Certificate in accordance with
this Article II. Subject to the effect of applicable abandoned property,
escheat or similar laws, following surrender of any such Exchange Unit
Certificate there shall be paid to the holder of such Exchange Unit
Certificate, without interest, (A) at the time of such surrender, the amount
of any cash payable in lieu of any fractional share of Common Stock to which
such holder is entitled pursuant to Section 2.2(g) and (B) if such Exchange
Unit Certificate is exchangeable for one or more whole shares of Common Stock,
(x) at the time of such surrender, the amount of dividends or other
distributions with a record date after the Effective Time theretofore paid
with respect to such whole shares of Common Stock and (y) at the appropriate
payment date, the amount of dividends or other distributions with a record
date after the Effective Time but prior to such surrender and with a payment
date subsequent to such surrender payable with respect to such whole shares of
Common Stock.
(e) No Further Ownership Rights in Exchange Units. All Merger
Consideration paid upon the surrender of Exchange Unit Certificates in
accordance with the terms of this Article II (and any cash paid pursuant to
Section 2.2(g)) shall be deemed to have been paid in full satisfaction of all
rights pertaining to the Exchange Units theretofore represented by such
Exchange Unit Certificates, subject, however, to the obligation of the Company
to pay, without interest, any dividends or make any other distributions with a
record date prior to the Effective Time which may have been declared or made
by the Partnerships on such Exchange Units in accordance with the terms of
this Agreement or prior to the date of this Agreement and which remain unpaid
at the Effective Time and have not been paid prior to such surrender, and
there shall be no further registration of transfers on the transfer books of
the Partnerships of the Exchange Units which were outstanding immediately
prior to the Effective Time (except for transfers of Pension BUCs held by
Unitholders electing the Retention Option). If, after the Effective Time,
Exchange Unit Certificates are properly presented to the Company they shall be
canceled and exchanged as provided in this Article II.
(f) No Liability. None of the Company, the Partnerships,
Partnership Merger Sub or the Exchange Agent shall be liable to any person in
respect of any Merger Consideration delivered to a public official pursuant to
any applicable abandoned property, escheat or similar law. Any portion of the
Merger Consideration delivered to the Exchange Agent pursuant to this
Agreement that remains unclaimed for six months after the Effective Time shall
be redelivered by the Exchange Agent to the Company, upon demand, and any
holders of Exchange Unit Certificates who have not theretofore complied with
Section 2.2(c) shall thereafter look only to the Company for delivery of the
Merger Consideration, subject to applicable abandoned property, escheat and
other similar laws.
(g) No Fractional Shares.
(i) No certificates or scrip representing fractional shares
of Common Stock shall be issued upon the surrender for exchange of Exchange
Unit Certificates, and such fractional share interests will not entitle the
owner thereof to vote, to receive dividends or to any other rights of a
stockholder of the Company.
<PAGE> -4-
(ii) Notwithstanding any other provision of this Agreement, each
holder of Exchange Units exchanged in the Merger who would otherwise have been
entitled to receive a fraction of a share of Common Stock (after taking into
account all Exchange Unit Certificates delivered by such holder) shall
receive, from the Exchange Agent in accordance with the provisions of this
Section 2.2(g), a cash payment in lieu of such fractional share of Common
Stock representing such holder's proportionate interest, if any, in the net
proceeds from the sale by the Exchange Agent in one or more transactions
(which sale transactions shall be made at such times, in such manner and on
such terms as the Exchange Agent shall determine in its reasonable discretion)
on behalf of all such holders of the aggregate of the fractional shares of
Common Stock which would otherwise have been issued (the "Fractional
Shares"). The sale of the Fractional Shares by the Exchange Agent shall be
executed on the New York Stock Exchange (the "NYSE") or such other nationally
recognized securities exchange (collectively, a "National Exchange") on which
the Common Stock is traded through one or more member firms of the NYSE or a
National Exchange and shall be executed in round lots to the extent
practicable. Until the net proceeds of such sale or sales have been
distributed to the holders of Exchange Unit Certificates, the Exchange Agent
will hold such proceeds in trust (the "Exchange Trust") for the holders of
Exchange Unit Certificates. The Company shall pay all commissions, transfer
taxes and other out-of-pocket transaction costs, including the expenses and
compensation of the Exchange Agent, incurred in connection with this sale of
the Fractional Shares. As soon as practicable after the determination of the
amount of cash, if any, to be paid to holders of Exchange Unit Certificates in
lieu of any fractional shares of Common Stock, the Exchange Agent shall make
available such amounts to such holders of Exchange Unit Certificates without
interest.
(h) Withholding Rights. The Company or the Exchange Agent shall
be entitled to deduct and withhold from the Merger Consideration otherwise
payable pursuant to this Agreement to any Unitholder such amounts as the
Company or the Exchange Agent is required to deduct and withhold with respect
to the making of such payment under the Code, or any provision of state, local
or foreign tax law. To the extent that amounts are so withheld by the Company
or the Exchange Agent, such withheld amounts shall be treated for all purposes
of this Agreement as having been paid to the holder of the Exchange Units, in
respect of which such deduction and withholding was made by the Company or the
Exchange Agent.
ARTICLE III
Representations and Warranties
SECTION 3.1 Representations and Warranties of the Partnerships. Each
of the Partnerships represents and warrants to the other Partnerships, the
Company and Partnership Merger Sub as follows:
(a) Organization, Standing and Power of the Partnership. The
Partnership is a limited partnership duly organized and validly existing under
the laws of Delaware and has the requisite power and authority to carry on its
business as now being conducted. The Partnership is duly qualified or
licensed to do business and is in good standing in each jurisdiction in which
the nature of its businesses or the ownership of its assets 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 material adverse effect on the businesses, properties,
assets, financial conditions or results of operations of the Partnership
(a "Partnership Material Adverse Effect").
(b) Capital Structure. Prep Fund 1 represents and warrants that
(i) its sole general partner is America First Capital Associates Limited
Partnership Three, a Delaware limited partnership ("AFCA 3"), (ii) its sole
limited partner is America First Fiduciary Corporation Number Six, a Nebraska
corporation ("AFFC 6"), and (iii) on the date hereof, there were 5,775,797
Prep Fund 1 Units representing limited partnership interests in Prep Fund 1
assigned by AFFC 6 outstanding. Prep Fund 2 represents and warrants that (i)
its sole general partner is AFCA 6, (ii) its sole limited partner is America
First Fiduciary Corporation Number Fourteen, a Nebraska corporation ("AFFC
14"), and (iii) on the date hereof, there were 1,593,604 Prep Fund 2 BUCs
representing limited partnership interests in Prep Fund 2 assigned by AFFC 14
outstanding. Pension Fund represents and warrants that (i) its sole general
partner is AFCA 6, (ii) its sole limited partner is America First Fiduciary
Corporation Number Sixteen, a Nebraska corporation ("AFFC 16"), and (iii) on
the date hereof, there were 905,974 Pension BUCs representing limited
<PAGE> -5-
partnership interests in Pension Fund assigned by AFFC 16 outstanding. On the
date of this Agreement, except as set forth in this Section 3.1(b), no other
Units of the Partnership were outstanding. All outstanding Units are validly
issued, fully paid and nonassessable and not subject to preemptive rights.
There are no bonds, debentures, notes or other indebtedness of the Partnership
having the right to vote (or convertible into, or exchangeable for, securities
having the right to vote) on any matters on which Unitholders may vote. There
are no outstanding securities, options, warrants, calls, rights, commitments,
agreements, arrangements or undertakings of any kind to which the Partnership
is a party or by which such entity is bound, obligating the Partnership to
issue, deliver or sell, or cause to be issued, delivered or sold, additional
Units, voting securities or other ownership interests of or obligating the
Partnership to issue, grant, extend or enter into any such security, option,
warrant, call, right, commitment, agreement, arrangement or undertaking.
There are no outstanding contractual obligations of the Partnership to
repurchase, redeem or otherwise acquire any Units, voting securities or other
ownership interests in the Partnership or make any material investment (in the
form of a loan, capital contribution or otherwise) in any Person.
(c) Authority; Noncontravention; Consents. The Partnership has
the requisite power and authority to enter into this Agreement. The
Partnership has the requisite power and authority, subject to approval of the
Merger, this Agreement and any other transactions contemplated hereby by the
requisite vote of the Unitholders (the "Unitholder Approvals"), to consummate
the Merger and other transactions contemplated by this Agreement to which the
Partnership is a party. The execution and delivery of this Agreement by the
Partnership and the consummation by the Partnership and other transactions
contemplated hereby to which the Partnership is a party have been duly
executed and authorized by all necessary action on the part of the
Partnership, subject to approval of this Agreement pursuant to the Unitholder
Approvals. This Agreement has been duly executed and delivered by the
Partnership and constitutes a valid and binding obligation of the Partnership,
enforceable against such entity in accordance with its terms. The execution
and delivery of this Agreement by the Partnership does not, and the
consummation of the Merger and other transactions contemplated hereby and
thereby to which the Partnership is a party and compliance by the Partnership
with the provisions of this Agreement will 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 material benefit under, or
result in the creation of any pledge, claim, lien, charge, encumbrance or
security interest of any kind or nature whatsoever (a "Lien") upon any of the
properties or assets of the Partnership under (i) the partnership agreement
(the "Partnership Agreement") or certificate of limited partnership of the
Partnership, each as amended or supplemented to the date of this Agreement,
(ii) any loan or credit agreement, note, bond, mortgage, indenture, reciprocal
easement agreement, lease or other agreement, instrument, permit, concession,
franchise or license applicable to the Partnership or its properties or assets
or (iii) subject to the governmental filings and other matters referred to in
the following sentence, any judgement, order, decree, statute, law, ordinance,
rule or regulation (collectively "Laws") applicable to the Partnership or its
properties or assets, other than, in the case of clause (ii) or (iii), any
such conflicts, violations, defaults, rights or Liens that individually or in
the aggregate would not (x) have a Partnership Material Adverse Effect or (y)
prevent the consummation of the Merger or other transactions contemplated
hereby. No consent, approval, order or authorization of, or registration,
declaration or filing with, any federal, state or local government or any
court, administrative authority or agency (a "Governmental Entity"), is
required by or with respect to the Partnership in connection with the
execution and delivery of this Agreement by the Partnership or the
consummation by the Partnership of the Merger and other transactions
contemplated hereby and thereby, except for (i) the filing with the Securities
and Exchange Commission ("SEC") of (x) a consent solicitation
statement/prospectus (the "Consent Solicitation Statement/Prospectus")
relating to the approval by Unitholders of the Merger, this Agreement and the
other transactions contemplated by this Agreement, and a registration
statement relating to the issuance of the Merger Consideration ("Registration
Statement") in which the Consent Solicitation Statement/Prospectus will be
included as a prospectus and (y) such reports under Section 13(a) and Section
14 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), as
may be required in connection with this Agreement and the other transactions
contemplated by this Agreement, (ii) the filing of the Articles of Merger for
the Merger with the Department of Assessments and Taxation of the State of
Maryland and the Office of the Secretary of State of the State of Delaware,
<PAGE> -6-
(iii) such other consents, approvals, orders, authorizations, registrations,
declarations and filings which, if not obtained or made, would not prevent or
delay in any material respect the consummation of the Merger or any of the
transactions contemplated by this Agreement or otherwise prevent the
Partnership from performing its obligations under this Agreement in any
material respect or have, individually or in the aggregate, a Partnership
Material Adverse Effect.
(d) SEC Documents; Financial Statements; Undisclosed Liabilities.
Each of Prep Fund 1, Prep Fund 2 and Pension Fund have filed all required
reports, schedules, forms, statements and other documents with the SEC since
December 31, 1986, June 30, 1987 and March 31, 1988, respectively (the
"Partnership SEC Documents"). All of the Partnership SEC Documents (other
than preliminary material), as of their respective filing dates, complied 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
Partnership SEC Documents. None of the Partnership SEC Documents at the time
of filing contained any untrue statement of a material fact or omitted 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, except to the extent such statements have been
modified or superseded by later filed Partnership SEC Documents. There is no
unresolved violation, criticism or exception by any Governmental Entity of
which the Partnership has received written notice with respect to such entity
or statement which, if resolved in a manner unfavorable to the Partnership
could have a Partnership Material Adverse Effect. The financial statements of
the Partnership included in the Partnership SEC Documents complied as to form
in all material respects with applicable accounting requirements and the
published rules and regulations of the SEC with respect thereto, have been
prepared in accordance with generally accepted accounting principles ("GAAP")
(except, in the case of interim financial statements, as permitted by Forms
10-Q and 8-K of the SEC) applied on a consistent basis during the periods
involved (except as may be indicated in the notes thereto) and fairly
presented, in accordance with the applicable requirements of GAAP, the
financial position of the Partnership as of the dates thereof and the results
of operations and cash flows of the Partnership for the periods then ended
(subject, in the case of interim financial statements, to normal year-end
adjustments). Except as permitted by Section 4.1 (for the purposes of this
sentence, as if Section 4.1 had been in effect since December 31, 1996), the
Partnership does not have any liabilities or obligations of any nature
(whether accrued, absolute, contingent or otherwise) required by GAAP to be
set forth on a balance sheet of the Partnership or in the notes thereto and
which, individually or in the aggregate, would have a Partnership Material
Adverse Effect.
(e) Absence of Certain Changes or Events. Except as disclosed in
the Partnership SEC Documents filed and publicly available prior to the date
of this Agreement (referred to collectively as the "Partnership Filed SEC
Documents"), since the date of the most recent financial statements included
in the Partnership Filed SEC Documents (the "Financial Statement Date") and to
the date of this Agreement, the Partnership has conducted its business only in
the ordinary course and there has not been (i) any material adverse change in
the business, financial condition or results of operations of the Partnership
that has resulted or would result, individually or in the aggregate, in
Economic Losses (as defined in Section 6.2 below) of the greater of $1,000,000
or 5% of the Net Asset Value (as hereinafter defined) of such Partnership (a
"Partnership Material Adverse Change"), nor has there been any occurrence or
circumstance that with the passage of time would reasonably be expected to
result in a Partnership Material Adverse Change, (ii) except for regular
quarterly distributions not in excess of $.2649 per Unit in the case of Prep
Fund 1, $.3354 per unit in the case of Prep Fund 2, and $.3314 per Unit in the
case of Pension Fund, with customary record and payment date, any declaration,
setting aside or payment of any dividend or other distribution (whether in
cash, stock or property) with respect to any of the Units, (iii) any split,
combination or reclassification of any of the Units or any issuance or the
authorization of any issuance of any other securities in respect of, in lieu
of or in substitution for, or giving the right to acquire by exchange or
exercise, Units, except as permitted by Section 4.1, (iv) any damage,
destruction or loss, whether or not covered by insurance, that has or would
have a Partnership Material Adverse Effect or (v) any change in accounting
methods, principles or practices by the Partnership materially affecting its
assets, liabilities or business, except insofar as may have been disclosed in
the Partnership Filed SEC Documents or required by a change in GAAP.
<PAGE> -7-
(f) Litigation. Except as disclosed in the Partnership Filed SEC
Documents and other than routine tort litigation arising from the ordinary
course of operations of the Partnership which are covered by adequate
insurance, there is no suit, action or proceeding pending or, to the knowledge
of the Partnership, threatened against or affecting such entity that,
individually or in the aggregate, could reasonably be expected to (i) have a
Partnership Material Adverse Effect or (ii) prevent the consummation of the
Merger or any of the transactions contemplated by this Agreement, nor is there
any judgment, decree, injunction, rule or order of any Governmental Entity or
arbitrator outstanding against the Partnership having, or which, insofar as
reasonably can be foreseen, in the future would have, any such effect.
(g) Brokers; Fees and Expenses. No broker, investment banker,
financial advisor or other person, other than PaineWebber Incorporated
("PaineWebber"), the fees and expenses of which, as set forth in a letter
agreement between the General Partners and PaineWebber, will be paid by the
Partnerships pro rata in accordance with their respective net asset values as
used to determine the allocation of Common Stock among the Partnerships in the
Merger (the "Net Asset Values") and Oppenheimer & Co. ("Oppenheimer"), the
fees and expenses of which, as set forth in a letter agreement between the
General Partners, together with the Special Committee and Oppenheimer, will be
paid by the Partnerships pro rata in accordance with their respective Net
Asset Values, is entitled to any broker's, finder's, financial advisor's or
other similar fee or commission in connection with the Merger based upon
arrangements made by or on behalf of the Partnership.
(h) Compliance with Laws. Except as disclosed in the Partnership
Filed SEC Documents, the Partnership has not violated or failed to comply with
any statute, law, ordinance, regulation, rule, judgment, decree or order of
any Governmental Entity applicable to its business, properties or operations,
except for violations and failures to comply that would not, individually or
in the aggregate, reasonably be expected to result in a Partnership Material
Adverse Effect.
(i) Contracts; Debt Instruments.
(i) The Partnership is not in violation of or in default
under, in any material respect (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 material loan or credit agreement, note,
bond, mortgage, indenture, lease, permit, concession, franchise or license, or
any agreement to acquire real property, or any other material contract,
agreement, arrangement or understanding, to which it is a party or by which it
or any of its properties or assets is bound, except for violations or defaults
that would not, individually or in the aggregate, result in a Partnership
Material Adverse Effect.
(ii) Except for any of the following expressly identified in
the most recent financial statements contained in the Partnership Filed SEC
Documents and except as permitted by Section 4.1, there are no loan or credit
agreements, notes, bonds, mortgages, indentures and other agreements and
instruments outstanding pursuant to which the Partnership is indebted in an
aggregate principal amount in excess of $2,000,000 per item or pursuant to
which such indebtedness may be incurred. For purposes of this Section
3.1(i)(ii), "indebtedness" shall mean, with respect to any person, without
duplication, (A) all indebtedness of such person for borrowed money, whether
secured or unsecured, (B) all obligations of such person under conditional
sale or other title retention agreements related to property purchased by such
person, (C) all capitalized lease obligations of such person, (D) all
obligations of such person under interest rate or currency hedging
transactions (valued at the termination value thereof), (E) all guarantees of
such person of any such indebtedness of any other person and (F) any
agreements to provide any of the foregoing.
(j) Tangible Property and Assets. The Partnership has good and
marketable fee simple title to, those assets set forth in its most recent
report filed with the SEC on Form 10- Q, free and clear of all Liens other
than (i) any statutory Lien arising in the ordinary course of business by
operation of law with respect to a liability that is not yet due or delinquent
and (ii) any easement, restriction or minor imperfection of title or similar
Lien which individually or in the aggregate with other such Liens does not
materially impair the value of the property or asset subject to such Lien or
the use of such property or asset in the conduct of the business of the
Partnership.
<PAGE> -8-
(k) Books and Records.
(i) The books of account and other financial records of the
Partnership are in all material respects true, complete and correct, have been
maintained in accordance with good business practices, and are accurately
reflected in all material respects in the financial statements included in the
Partnership Filed SEC Documents.
(ii) The Partnership has made available to the other
Partnerships true and correct copies of the partnership agreement and, if
applicable, certificate of limited partnership of the Partnership as amended
to date.
(l) Registration Statement. The information furnished by the
Partnership for inclusion in the Registration Statement will not, as of the
effective date of the Registration Statement, contain 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 not misleading.
(m) Vote Required. The affirmative vote of at least a majority of
the outstanding Units of the Partnership is the only vote of any security
holder in the Partnership (under applicable law or otherwise) to approve the
Merger, this Agreement and the other transactions contemplated hereby.
ARTICLE IV
Covenants
SECTION 4.1 Conduct of Business by the Partnerships. During the
period from the date of this Agreement to the Effective Time, the Partnerships
shall carry on their respective businesses in the usual, regular and ordinary
course in substantially the same manner as heretofore conducted and, to the
extent consistent therewith, use commercially reasonable efforts to preserve
intact its current business organization, goodwill, ongoing businesses and
its status as a partnership within the meaning of the Code. Without limiting
the generality of the foregoing, the following additional restrictions shall
apply. During the period from the date of this Agreement to the Effective
Time, except as otherwise contemplated by this Agreement, each Partnership
shall not (and shall not authorize or commit or agree to):
(a) (i) split, combine or reclassify any Units or partnership
interests or issue or authorize the issuance of any other securities in
respect of, in lieu of or in substitution for Units or partnership interests
or (ii) purchase, redeem or otherwise acquire any Units or partnership
interests;
(b) issue, deliver or sell, or grant any option or other right,
in respect of, any Units or partnership interests, any other voting or
redeemable securities of the Partnership or any securities convertible into,
or any rights, warrants or options to acquire, any such voting securities or
convertible or redeemable securities, except to the respective Partnership;
(c) amend the partnership agreement of the respective Partnership;
(d) merge or consolidate with any Person;
(e) make any tax election (unless required by law or necessary to
preserve the respective Partnership's status as a partnership);
(f) (i) change in any material manner any of its methods, principles
or practices of accounting, except as may be required by the SEC, applicable
law or GAAP or (ii) make or rescind any express or deemed election relating to
tax matters; or
(g) pay any distribution except regular quarterly distributions
that are not in excess of $.2649, $.3354 or $.3314 per Unit of Prep Fund 1,
Prep Fund 2 or Pension Fund, respectively.
SECTION 4.2 Other Actions. Each of the Partnerships shall not take
any action that would result in (i) any of the representations and warranties
of such party (without giving effect to any "knowledge" qualification) set
forth in this Agreement that are qualified as to materiality becoming untrue,
(ii) any of such representations and warranties (without giving effect to any
"knowledge" qualification) that are not so qualified becoming untrue in any
material respect or (iii) except as contemplated by Section 7.1, any of the
conditions to the Merger set forth in Article VI not being satisfied.
<PAGE> -9-
SECTION 4.3 Payments of Dividends By the Company. The Company has
set, for the first year following the Merger, the rate of its quarterly
distributions to stockholders at $.265 per share of Common Stock ($1.06 on an
annual basis); provided, however, the payment of such distributions shall be
subject to the provisions of Section 2-311 of the MGCL.
ARTICLE V
Additional Covenants
SECTION 5.1 Preparation of the Registration Statement and the
Consent Solicitation Statement/Prospectus.
(a) As soon as practicable following the date of this Agreement,
the Partnerships shall prepare and file with the SEC a preliminary
Registration Statement in form and substance satisfactory to each of the
Partnerships in which the Consent Solicitation Statement/Prospectus will be
included as a prospectus. Each of the Partnerships shall use its best efforts
to (i) respond to any comments of the SEC and (ii) have the Registration
Statement declared effective under the Securities Act and the rules and
regulations promulgated thereunder as promptly as practicable after such
filing and to keep the Registration Statement effective as long as is
necessary to consummate the Merger. Each Partnership shall use its best
efforts to mail the Consent Solicitation Statement/Prospectus to the
Unitholders as promptly as practicable after the Registration Statement is
declared effective. Each party will notify the other promptly of the receipt
of any comments from the SEC and of any request by the SEC for amendments or
supplements to the Registration Statement the Consent Solicitation
Statement/Prospectus or for additional information and will supply the other
Partnerships with copies of all correspondence between such party or any of
its representatives and the SEC with respect to the Registration Statement or
the Consent Solicitation Statement/Prospectus. The Registration Statement and
the Consent Solicitation Statement/Prospectus shall comply in all material
respects with all applicable requirements of Law. Whenever any event occurs
which is required to be set forth in an amendment or supplement to the
Registration Statement or the Consent Solicitation Statement/Prospectus, the
Partnership, as the case may be, shall promptly inform the other Partnerships
of such occurrences and cooperate in filing with the SEC, and/or mailing to
the Unitholders such amendment or supplement in a form reasonably acceptable
to the Partnerships.
(b) Each Partnership covenants that the Consent Solicitation
Statement/Prospectus shall include the recommendation of the General Partner
of such Partnership to the effect the Merger and this Agreement are fair to,
and in the best interests of, Unitholders and a recommendation of the Special
Committee (the "Special Committee") of the board of Managers of America First
Companies L.L.C. in favor of the Merger and this Agreement; provided, however,
that the recommendation of such General Partner or the Special Committee may
not be included or may be withdrawn, modified or amended if such General
Partner or the Special Committee shall approve or recommend a Superior
Competing Transaction (as defined below) or enter into an agreement with
respect to such Superior Competing Transaction and the General Partner of such
Partnership and the Special Committee determines in good faith that they are
in compliance with Section 7.1.
SECTION 5.2 Best Efforts; Notification.
(a) Upon the terms and subject to the conditions set forth in this
Agreement, each of the Partnerships agrees to use its best efforts to take, or
cause to be taken, all actions, and to do, or cause to be done, and to assist
and cooperate with the other Partnerships in doing all things necessary,
proper or advisable to fulfill all conditions applicable to such party
pursuant to this Agreement and to consummate and make effective, in the most
expeditious manner practicable, the Merger and the other transactions
contemplated hereby, including (i) the obtaining of all necessary actions or
nonactions, waivers, consents and approvals from Governmental Entities and the
making of all necessary registrations and filings and the taking of all
reasonable steps as may be necessary to obtain an approval, waiver or
exemption from, or to avoid an action or proceeding by, any Governmental
Entity, (ii) the obtaining of all necessary consents, approvals, waivers or
exemption from non-governmental third parties, (iii) the defending of any
lawsuits or other legal proceedings, whether judicial or administrative,
challenging the Merger, this Agreement or the consummation of the Merger and
the other transactions contemplated hereby, including seeking to have any stay
or temporary restraining order entered by any court or other Governmental
<PAGE> -10-
Entity vacated or reversed, and (iv) the execution and delivery of any
additional instruments necessary to consummate the Merger and the other
transactions contemplated by, and to fully carry out the purposes of, this
Agreement; provided, however, that a party shall not be obligated to take any
action pursuant to the foregoing if the taking of such action or the obtaining
of any waiver, consent, approval or exemption is reasonably likely to result
in the imposition of a condition or restriction of the type referred to in
Section 6.1(e).
(b) Each Partnership shall give prompt notice to the other
Partnerships, if (i) any representation or warranty made by it contained in
this Agreement that is qualified as to materiality becomes untrue or
inaccurate in any respect or any such representation or warranty that is not
so qualified becomes untrue or inaccurate in any material respect or (ii) it
fails to comply with or satisfy in any material respect any covenant,
condition or agreement to be complied with or satisfied by it under this
Agreement; provided, however, that no such notification shall affect the
representations, warranties, covenants or agreements of the parties or the
conditions to the obligations of the parties under this Agreement.
SECTION 5.3 No Solicitation of Transactions. Subject to Section 7.1,
each of the Partnerships shall not directly or indirectly, through any
officer, director, employee, agent, investment banker, financial advisor,
attorney, accountant, broker, finder or other representative, initiate or
solicit (including by way of furnishing non-public information or assistance)
any inquiries or the making of any proposal that constitutes, or may
reasonably be expected to lead to, any Competing Transaction (as defined
below), or authorize or permit any of its partners, Unitholders, officers,
directors, employees or agents, attorneys, investment bankers, financial
advisors, accountants, brokers, finders or other representatives retained by
it to take any such action. Each of the Partnerships shall notify the other
parties in writing (as promptly as practicable) of all of the relevant details
relating to all inquiries and proposals which it or any such officer,
director, employee, agent, investment banker, financial advisor, attorney,
accountant, broker, finder or other representative may receive relating to any
of such matters and if such inquiry or proposal is in writing, each of the
Partnerships shall deliver to the other parties a copy of such inquiry or
proposal. For purposes of this Agreement, "Competing Transaction" shall mean
any of the following (other than the Merger and the other transactions
contemplated by this Agreement): (i) any merger, consolidation, share
exchange, business combination, or similar transaction involving a
Partnership; (ii) any sale, lease, exchange, mortgage, pledge, transfer or
other disposition of 30% or more of the assets of such Partnership in a single
transaction or series of related transactions, excluding any bona fide
financing transactions which do not, individually or in the aggregate, have as
a purpose or effect the sale or transfer of control of such assets; (iii) any
tender offer or exchange offer for 30% or more of the outstanding Units of
such Partnership or the filing of a registration statement under the
Securities Act in connection therewith; or (iv) any public announcements of a
proposal, plan or intention to do any of the foregoing or any agreement to
engage in any of the foregoing.
SECTION 5.4 Public Announcements. Each Partnership and the Company
will consult with the other parties before issuing, and provide the other
parties the opportunity to review and comment upon, any press release or other
public statements with respect to the Merger and shall not issue any such
press release or make any such 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
Merger will be in the form agreed to by the parties hereto prior to the
execution of this Agreement.
SECTION 5.5 Listing of Common Stock. The Company will promptly
prepare and submit to the NYSE a listing application covering the Common Stock
issuable in the Merger. Prior to the Effective Time, the Company shall use
its best efforts to have the NYSE approve for listing, upon official notice of
issuance, the Common Stock to be issued in the Merger.
<PAGE> -11-
SECTION 5.6 Indemnification.
(a) (i) Each Partnership and, from and after the Effective Time,
the Company shall, indemnify, defend and hold harmless each person who is now
or has been at any time prior to the date hereof or who becomes prior to the
Effective Time, a General Partner or an affiliate of such General Partner of
such Partnership or an officer or a member of the board of managers or board
of directors, (or any regular or Special Committee thereof, including the
Special Committee) or any committee thereof of any such general partner or
affiliate (the "Indemnified Parties") against all losses, claims, damages,
costs, expenses (including attorneys' fees and expenses), liabilities or
judgments or amounts that are paid in settlement of, with the approval of the
indemnifying party (which approval shall not be unreasonably withheld), or
otherwise in connection with any threatened or actual claim, action, suit,
proceeding or investigation based on or arising out of the fact that such
person is or was a General Partner or an affiliate of such General Partner of
such Partnership or an officer or a member of the board of managers or board
of directors (or any regular or special committee thereof, including the
Special Committee) or any committee thereof of any such general partner or
affiliate at or prior to the Effective Time, whether asserted or claimed prior
to, or at or after, the Effective Time ("Partnership Indemnified
Liabilities"), including all Partnership Indemnified Liabilities based on, or
arising out of, or pertaining to this Agreement or the Merger, in each case to
the full extent a Partnership is permitted under its Partnership Agreement to
indemnify its own partners or the Company is permitted under Maryland law to
indemnify such persons, as the case may be, (and such Partnership or the
Company, as the case may be, will pay expenses in advance of the final
disposition of any such action or proceeding to each Indemnified Party to the
full extent permitted by law, subject to the limitations set forth in Section
5.6(a)(iii)).
(ii) Any Indemnified Parties proposing to assert the right to
be indemnified under this Section 5.6 shall, promptly after receipt of notice
of commencement of any action against such Indemnified Parties in respect of
which a claim is to be made under this Section 5.6 against any Partnership
and/or the Company (collectively, the "Indemnifying Parties"), notify the
Indemnifying Parties of the commencement of such action, enclosing a copy of
all papers served. If any such action is brought against any of the
Indemnified Parties and such Indemnified Parties notify the Indemnifying
Parties of its commencement, the Indemnifying Parties will be entitled to
participate in and, to the extent that they elect by delivering written notice
to such Indemnified Parties promptly after receiving notice of the
commencement of the action from the Indemnified Parties, to assume the defense
of the action and after notice from the Indemnifying Parties to the
Indemnified Parties of their election to assume the defense, the Indemnifying
Parties will not be liable to the Indemnified Parties for any legal or other
expenses except as provided below and except for the reasonable costs of
investigation subsequently incurred by the Indemnified Parties in connection
with the defense. If the Indemnifying Parties assume the defense, the
Indemnifying Parties shall have the right to settle such action without the
consent of the Indemnified Parties; provided, however, that the Indemnifying
Parties shall be required to obtain such consent (which consent shall not be
unreasonably withheld) if the settlement includes any admission of wrongdoing
on the part of the Indemnified Parties or any decree or restriction on the
Indemnified Parties or their partners, officers or directors; provided,
further, that no Indemnifying Parties, in the defense of any such action
shall, except with the consent of the Indemnified Parties (which consent shall
not be unreasonably withheld), consent to entry of any judgment or enter into
any settlement that does not include as an unconditional term thereof the
giving by the claimant or plaintiff to such Indemnified Parties of a release
from all liability with respect to such action. The Indemnified Parties will
have the right to employ their own counsel in any such action, but the fees,
expenses and other charges of such counsel will be at the expense of such
Indemnified Parties unless (i) the employment of counsel by the Indemnified
Parties has been authorized in writing by the Indemnifying Parties, (ii) the
Indemnified Parties have reasonably concluded (based on advice of counsel)
that there may be legal defenses available to them that are different from or
in addition to those available to the Indemnifying Parties, (iii) a conflict
or potential conflict exists (based on advice of counsel to the Indemnified
Parties) between the Indemnified Parties and the Indemnifying Parties (in
which case the Indemnifying Parties will not have the right to direct the
defense of such action on behalf of the Indemnified Parties) or (iv) the
Indemnifying Parties have not in fact employed counsel to assume the defense
of such action within a reasonable time after receiving notice of the
commencement of the action, in each of which cases the reasonable fees,
<PAGE> -12-
disbursements and other charges of counsel will be at the expense of the
Indemnifying Parties.
(iii) It is understood that the Indemnifying Parties shall
not, in connection with any proceeding or related proceedings in the same
jurisdiction, be liable for the reasonable fees, disbursements and other
charges of more than one separate firm admitted to practice in such
jurisdiction at any one time for all such Indemnified Parties unless (a) the
employment of more than one counsel has been authorized in writing by the
Indemnifying Parties, (b) any of the Indemnified Parties have reasonably
concluded (based on advice of counsel) that there may be legal defenses
available to them that are different from or in addition to those available to
other Indemnified Parties or (c) a conflict or potential conflict exists
(based on advice of counsel to the Indemnified Parties) between any of the
Indemnified Parties and the other Indemnified Parties, in each case of which
the Indemnifying Parties shall be obligated to pay the reasonable fees and
expenses of such additional counsel or counsels.
(iv) The Indemnifying Parties will not be liable for any
settlement of any action or claim effected without their written consent
(which consent shall not be unreasonably withheld).
(b) The provisions of this Section 5.6 are intended to be for the
benefit of, and shall be enforceable by, each Indemnified Party, his or her
heirs and personal representatives and shall be binding on all successors and
assigns of the Partnerships and the Company.
ARTICLE VI
Conditions Precedent
SECTION 6.1 Conditions to Each Party's Obligation to Effect the
Merger. The respective obligation of each party to effect the Merger and to
consummate the other transactions contemplated by this Agreement to occur on
the Closing Date is subject to the satisfaction or waiver on or prior to the
Effective Time of the following conditions:
(a) Approval of Unitholders of Prep Fund 1 and Prep Fund 2. The
approval of Unitholders representing a majority in interest of the Prep Fund 1
Units and Unitholders representing a majority in interest of the Prep Fund 2
BUCs.
(b) Listing of Common Stock. The NYSE or another National
Exchange shall have approved for listing the Common Stock to be issued in the
Merger and such approval shall remain in effect at the Effective Time.
(c) Absence of Certain Conditions. The absence at the Effective
Time of (a) any suspension of trading of, or limitation on prices for,
securities generally on the NYSE, (b) a declaration of a banking moratorium by
federal or state authorities or any suspension of payments by banks in the
United States (whether mandatory or not) or of the extension of credit by
lending institutions in the United States, or (c) in the case of any of the
foregoing existing on the date of the Consent Solicitation
Statement/Prospectus, any material acceleration or worsening thereof.
(d) Registration Statement. The Registration Statement shall have
become effective under the Securities Act and shall not be the subject of any
stop order or proceedings by the SEC seeking a stop order.
(e) No Injunctions or Restraints. No temporary restraining order,
preliminary or permanent injunction or other order issued by any court of
competent jurisdiction or other legal restraint or prohibition preventing the
consummation of the Merger or any of the other transactions contemplated by
this Agreement shall be in effect.
(f) Opinion Related to Partnership Status of the Partnership.
The Partnerships shall have received an opinion dated as of the Closing Date
of Rogers & Wells, subject to certificates, letters and assumptions,
reasonably satisfactory to the Partnerships that each Partnership was
organized and has operated in conformity with the requirements for
qualification as a partnership within the meaning of the Code since 1986 in
the case of Prep Fund 1, 1987 in the case of Prep Fund 2 and 1988 in the case
of Pension Fund, and not as a corporation or an association taxable as a
corporation.
<PAGE> -13-
(g) Opinion Related to REIT Status of the Company. The
Partnerships shall have received an opinion dated as of the Closing Date of
Rogers & Wells, subject to certificates, letters and assumptions, reasonably
satisfactory to the Partnerships that following the Merger (after giving
effect thereto), the Company's proposed method of operation will enable it to
meet the requirements for qualification and taxation as a REIT under the Code.
(h) The Investment Company Act Opinion. The Partnerships shall
have received an opinion dated as of the Closing Date of Rogers & Wells,
subject to certificates, letters and assumptions, reasonably satisfactory to
the Partnerships, to the effect that neither the Company nor any of its
Subsidiaries is an "investment company" or an entity "controlled" by an
"investment company" as such terms are defined in the Investment Company Act
of 1940, as amended.
(i) Consents and Approvals. The receipt of all necessary consents
and approvals on or before (and remaining in effect at) the Effective Time.
(j) Absence of Material Adverse Effects. The absence of any event
or any matter brought to the attention of the General Partners that, in the
sole judgment of the General Partners, materially affects, whether adversely
or otherwise, the Partnerships, the Company or the Merger.
SECTION 6.2 Conditions to Obligations of the Partnerships. The
obligations of each of the Partnerships to effect the Merger and to consummate
the other transactions contemplated in this Agreement to occur on the Closing
Date are further subject to the following conditions, any one or more of which
may be waived by such Partnership:
(a) Representations and Warranties. The representations and
warranties of the other Partnerships (without giving effect to any
"materiality" qualification or limitation) set forth in this Agreement shall
be true and correct as of the Closing Date, as though made on and as of the
Closing Date, except to the extent the representation or warranty is expressly
limited by its terms to another date, and the other Partnerships shall have
received a certificate (which certificate may be qualified by knowledge to the
same extent as such representations and warranties are so qualified) signed on
behalf of such Partnership by the General Partner of such entity to such
effect. This condition shall be deemed satisfied notwithstanding any failure
of a representation or warranty of such Partnership to be true and correct as
of the Closing Date (without giving effect to any materiality qualification)
if the aggregate amount of Economic Losses (as defined below) that would
reasonably be expected to arise as a result of the failures of such
representations and warranties to be true and correct as of the Closing Date
does not exceed the greater of $1,000,000 or 5% of the Net Asset Value of such
Partnership (such amount to be calculated by counting in all cases from the
first dollar of such Economic Losses without giving effect to the $1,000,000
or 5% of the Net Asset Value limitation set forth in Section 3.1(e)).
"Economic Losses," as used in this Section 6.2, shall mean any and all net
damage, net loss (including diminution in the value of properties or assets
which diminution, with regard to permanent cash flow losses from any property
or assets that produces cash flow, shall be measured by multiplying the annual
net cash flow produced by such property or asset over the 12-month period
preceding the date of the applicable loss by a factor of 10), net liability or
expense suffered by such Partnership, but shall not include any claims,
damages, loss, expense or other liability resulting from any class action or
Unitholders' or partners' derivative lawsuits relating to the Transactions
against such Partnership, if any, filed subsequent to the date of this
Agreement or any amounts paid or expenses incurred by such Partnership in
obtaining non- governmental third party consents, as contemplated by Section
5.2.
(b) Performance of Obligations of the Other Partnerships. The
other Partnerships 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, and each Partnership shall have received a certificate
signed on behalf of each of the other Partnerships by the General Partner of
each of the other Partnerships to such effect.
(c) Material Adverse Change. Since the date of this Agreement,
there has been no material adverse change in the business, results of
operations or financial condition of any of the other Partnerships, that have
resulted or would result, individually or in the aggregate, in Economic Losses
of the greater of $1,000,000 or 5% of the Net Asset Value of such to any of
the Partnerships or the Company. Each Partnership shall have received a
<PAGE> -14-
certificate of the General Partner of each of the other Partnerships to the
effect that there has been no such material adverse change.
(d) Consents. All consents and waivers from third parties
necessary in connection with the consummation of the Merger and the other
transactions contemplated by this Agreement shall have been received, other
than such consents and waivers from third parties, which, if not obtained,
would not result, individually or in the aggregate, in Economic Losses of the
greater of $1,000,000 or 5% of the Net Asset Value of the Partnerships or the
Company.
SECTION 6.3 Conditions to Obligations of Pension Fund. The
obligation of Pension Fund to effect the Merger and to consummate the other
Transactions contemplated to occur on the Closing Date is further subject to
the approval of the Merger by a majority in interest of Unitholders holding
the outstanding Pension BUCs.
ARTICLE VII
General Partner Actions
SECTION 7.1 General Partner Actions. Notwithstanding Section 5.3 or
any other provision of this Agreement to the contrary, to the extent required
by the fiduciary obligations of the General Partner of any Partnership, as
determined in good faith based on the advice of outside counsel, such General
Partner may:
(a) disclose to its Unitholders any information required to be
disclosed under applicable law;
(b) in response to an unsolicited request therefor, participate in
discussions or negotiations with, or furnish information with respect to
itself pursuant to a customary confidentiality agreement (as determined by its
outside counsel) to, any person in connection with a Competing Transaction
proposed by such person; and
(c) approve or recommend (and in connection therewith withdraw or
modify its approval or recommendation of the Merger or this Agreement) a
Superior Competing Transaction (as defined below) or enter into an agreement
with respect to such Superior Competing Transaction (for purposes of this
Agreement, "Superior Competing Transaction" means a bona fide proposal of a
Competing Transaction made by a third party which the applicable General
Partner determines in good faith (based on the advice of its investment
banking firm) to be more favorable to its Unitholders than the Merger), as the
case may be.
ARTICLE VIII
Termination, Amendment and Waiver
SECTION 8.1 Termination. This Agreement may be terminated at any
time prior to the Effective Date whether before or after Unitholder Approvals
are obtained:
(a) by mutual written consent of the Partnerships duly authorized
by their respective General Partners and approved by the Special Committee;
(b) by any Partnership, upon a breach of any representation or
warranty on the part of Pension Fund 1 or Pension Fund 2 or the breach in any
material respect of any covenant or agreement of Pension Fund 1 or Pension
Fund 2 set forth in this Agreement; or (ii) by any Partnership (but such
termination shall only be with regard to the obligations of Pension Fund
hereunder), upon a breach of any representation or warranty on the part of
Pension Fund or the breach in any material respects of any covenant or
agreement of Pension Fund set forth in this Agreement; provided, however, that
the right to cause a termination of this Agreement or to cause the termination
of the obligations of Pension Fund under this Section 8.1(b) shall not be
available to any party that has breached its representations or warranties or
has breached in any material respects any of its covenants or agreements
hereunder;
(c) by any Partnership, if the Merger shall not have been
consummated before June 30, 1998;
<PAGE> -15-
(d) by any of the Partnerships, if the approval of a majority in
interest of the holders of outstanding Prep Fund 1 Units or a majority in
interest of the holders of Prep Fund 2 BUCs shall not have been obtained on or
prior to June 30, 1998;
(e) by any of the Partnerships (but such termination shall only be
with regard to the obligations of Pension Fund hereunder), if the approval of
a majority in interest of the holders of Pension Fund shall not have been
obtained on or prior to June 30, 1998;
(f) by any Partnership, if prior to the approval of the
Unitholders of such Partnership the General Partner of Prep Fund 1 or Prep
Fund 2 (or the Special Committee acting with respect to such Partnership)
shall have, in compliance with the provisions of this Agreement, changed its
recommendation with respect to or withdrawn or modified its approval of the
Merger or this Agreement; or
(g) by any Partnership (but such termination shall only be with
regard to the obligations of Pension Fund hereunder), if the General Partner
of Pension Fund (or the Special Committee acting with respect to Pension Fund)
shall have, in compliance with the provisions of this Agreement, changed its
recommendation with respect to or withdrawn or modified its approval of the
Merger or this Agreement.
SECTION 8.2 Expenses.
(a) Except as otherwise specified in this Section 8.2 or agreed in
writing by the parties, all costs and expenses incurred in connection with
this Agreement, the Merger and the other transactions contemplated hereby
shall be paid by the Partnerships (pro rata in accordance with their aggregate
Net Asset Values from cash on hand) whether or not the Merger is consummated.
If, however, the Merger is consummated, the Company will be allocated the
entire amount of the expenses referred to in this paragraph (a).
(b) Notwithstanding the foregoing, each Partnership agrees that,
if this Agreement shall be terminated pursuant to Section 8.1(d) or (f) (or
the obligations of Pension Fund shall have been terminated pursuant to Section
8.1(e) or (g)) and such Partnership (each such Partnership being referred to
herein as the "Competing Transaction Partnership") shall have, on or prior to
the date of such termination, received a proposal constituting a Competing
Transaction that has not been offered on substantially equivalent terms (as
determined in good faith by the Special Committee) to any of the other
Partnerships (each such other Partnership being referred to herein as an
"Excluded Partnership"), then the Competing Transaction Partnerships agree to
reimburse each Excluded Partnership for such Excluded Partnership's share of
the out-of-pocket expenses incurred in connection with this Agreement and the
other transactions contemplated hereby (including, without limitation, all
attorneys', accountants' and investment banking fees and expenses), plus any
expenses incurred in enforcing the provisions of this Section 8.2.
SECTION 8.3 Effect of Termination. In the event of termination of
this Agreement by any Partnership as provided in Section 8.1, this Agreement
shall forthwith become void and have no effect, without any liability or
obligation on the part of any Partnership, other than Section 8.2, this
Section 8.3 and Article IX and except to the extent that such termination
results from a willful breach by a party of any of its representations,
warranties, covenants or agreements set forth in this Agreement.
SECTION 8.4 Amendment. This Agreement may be amended by the parties
in writing by appropriate instrument executed at any time before or after any
Unitholder Approvals are obtained and prior to the Effective Date; provided,
however, that, after Unitholder Approvals are obtained, no such amendment,
modification or supplement shall alter the amount or change the form of the
consideration to be delivered to such Unitholders or alter or change any of
the terms or conditions of this Agreement if such alteration or change would
adversely affect such Unitholders.
SECTION 8.5 Extension; Waiver. At any time prior to the Effective
Time, each of the Partnerships or the Company may (a) extend the time for the
performance of any of the obligations or other acts of another party, (b)
waive any inaccuracies in the representations and warranties of another party
contained in this Agreement or in any document delivered pursuant to this
Agreement or (c) subject to the proviso of Section 8.4, waive compliance with
any of the agreements or conditions of another party contained in this
<PAGE> -16-
Agreement. 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.
ARTICLE IX
General Provisions
SECTION 9.1 Nonsurvival of Representations and Warranties. None of
the representations and warranties in this Agreement or in any instrument
delivered pursuant to this Agreement shall survive the Effective Time. This
Section 9.1 shall not limit any covenant or agreement of the parties which by
its terms contemplates performance after the Effective Time.
SECTION 9.2 Notices. All notices, requests, claims, demands and
other communications under this Agreement shall be in writing and shall be
deemed given if delivered personally, sent by overnight courier (providing
proof 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 the Partnerships or any of the General Partners, to
1004 Farnam Street
Omaha, Nebraska 68102
Attn: Maurice E. Cox, Jr.
Fax: (402) 345-8966
with a copy to:
Rogers & Wells
200 Park Avenue
New York, New York 10166
Attn: Alan L. Gosule, Esq.
Jay L. Bernstein, Esq.
Fax: (212) 878-8375
(b) if to the Company or Partnership Merger Sub, to
399 Park Avenue
19th Floor
New York, New York 10022
Attn: Stewart Zimmerman
Fax: (212) 935-8760
with a copy to:
Rogers & Wells
200 Park Avenue
New York, NY 10166
Attn: Alan L. Gosule, Esq.
Jay L. Bernstein, Esq.
Fax: (212) 878-8375
SECTION 9.3 Interpretation. When a reference is made in this
Agreement to a Section, such reference shall be to a Section of this Agreement
unless otherwise indicated. The table of contents and headings contained in
this Agreement are for reference purposes only and shall not affect in any way
the meaning or interpretation of this Agreement. Whenever the words
"include," "includes" or "including" are used in this Agreement, they shall be
deemed to be followed by the words "without limitation."
SECTION 9.4 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 9.5 Entire Agreement; No Third-Party Beneficiaries.
This Agreement and the other agreements entered into in connection with the
Transactions (a) constitute the entire agreement and supersedes all prior
agreements and understandings, both written and oral, between the parties with
respect to the subject matter of this Agreement and, (b) except for the
<PAGE> -17-
provisions of Article II and Section 5.6, are not intended to confer upon any
person other than the parties hereto any rights or remedies.
SECTION 9.6 Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF DELAWARE, REGARDLESS OF
THE LAWS THAT MIGHT OTHERWISE GOVERN UNDER APPLICABLE PRINCIPLES OF CONFLICT
OF LAWS THEREOF.
SECTION 9.7 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 will be binding upon, inure to the
benefit of, and be enforceable by, the parties and their respective successors
and assigns.
SECTION 9.8 Enforcement. The parties agree that irreparable damage
would occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms or were otherwise breached.
It is accordingly agreed that the parties shall be entitled to an injunction
or injunctions to prevent breaches of this Agreement and to enforce
specifically the terms and provisions of this Agreement in any court of the
United States located in the State of Delaware or in any Delaware state court,
this being in addition to any other remedy to which they are entitled at law
or in equity. In addition, each of the parties hereto (a) consents to submit
itself (without making such submission exclusive) to the personal jurisdiction
of any federal court located in the State of Delaware or any Delaware state
court in the event any dispute arises out of this Agreement or any of the
Transactions contemplated by this Agreement and (b) agrees that it will not
attempt to deny or defeat such personal jurisdiction by motion or other
request for leave from any such court.
ARTICLE X
Certain Definitions
SECTION 10.1 Certain Definitions. For purposes of this Agreement:
"Affiliate" of any person means another person that directly or
indirectly, through one or more intermediaries, controls, is controlled by, or
is under common control with, such first person.
"Exchange Units" means the Units (except for those Pension BUCs held by
Unitholders electing the Retention Option) of those Partnerships participating
in the Merger.
"Net Asset Value" means the net asset value of the Partnerships
calculated by the General Partners for purposes of allocating the shares of
Common Stock to be issued in the Merger.
"Pension BUCs" means Beneficial Unit Certificates representing assigned
limited partnership interests in Pension Fund.
"Person" means an individual, corporation, partnership, limited liability
company, joint venture, association, trust, unincorporated organization or
other entity.
"Prep Fund 1 Units" means Exchangeable Units representing assigned
limited partnership interests in Prep Fund 1.
"Prep Fund 2 BUCs" means Beneficial Unit Certificates representing
assigned limited partnership interests in Prep Fund 2.
"Subsidiary" of any person means any corporation, partnership, limited
liability company, joint venture or other legal entity of which such person
(either directly or through or together with another Subsidiary of such
person) owns 50% or more of the voting stock or other equity interests of such
corporation, partnership, limited liability company, joint venture or other
legal entity.
"Unitholders" means the holders of Units.
"Units" means Prep Fund 1 Units, Prep Fund 2 BUCs and Pension BUCs.
<PAGE> -18-
IN WITNESS WHEREOF, Prep Fund 1, Prep Fund 2, Pension Fund, the Company
and Partnership Merger Sub have caused this Agreement to be signed by their
respective officers thereunto duly authorized, all as of the date first
written above.
AMERICA FIRST PARTICIPATING/PREFERRED
EQUITY MORTGAGE FUND LIMITED
PARTNERSHIP
By: AMERICA FIRST CAPITAL ASSOCIATES
LIMITED PARTNERSHIP THREE,
its general partner
By: AMERICA FIRST COMPANIES L.L.C.,
its general partner
By: /s/ Michael Thesing
--------------------------------
Name: Michael Thesing
Title: Vice President
AMERICA FIRST PREP FUND 2 LIMITED
PARTNERSHIP
By: AMERICA FIRST CAPITAL ASSOCIATES
LIMITED PARTNERSHIP SIX,
its general partner
By: AMERICA FIRST COMPANIES L.L.C.,
its general partner
By: /s/ Michael Thesing
--------------------------------
Name: Michael Thesing
Title: Vice President
<PAGE> -19-
AMERICA FIRST PREP FUND 2 PENSION
SERIES LIMITED PARTNERSHIP
By: AMERICA FIRST CAPITAL ASSOCIATES
LIMITED PARTNERSHIP SIX,
its general partner
By: AMERICA FIRST COMPANIES L.L.C.,
its general partner
By: /s/ Michael Thesing
--------------------------------
Name: Michael Thesing
Title: Vice President
AMERICA FIRST MORTGAGE INVESTMENTS, INC.
By: /s/ Stewart Zimmerman
----------------------------------------
Name: Stewart Zimmerman
Title: President
AF MERGER, L.P.
By: AMERICA FIRST MORTGAGE INVESTMENTS, INC.,
its general partner
By: /s/ Stewart Zimmerman
------------------------------------
Name: Stewart Zimmerman
Title: President
<PAGE> -20-
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