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SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE
SECURITIES EXCHANGE ACT OF 1934
Filed by Registrant: [X]
Filed by a Party other than the Registrant: [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Materials Pursuant to ss.240.14a-11(c) or ss.240.14a-12
NATIONAL REALTY, L.P.
--------------------------------------------
(Name of Registrant as Specified in Its Charter)
NATIONAL REALTY, L.P.
--------------------------------------------
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing is calculated and state how it was determined):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
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NATIONAL REALTY, L.P.
A DELAWARE LIMITED PARTNERSHIP
10670 NORTH CENTRAL EXPRESSWAY
SUITE 300
DALLAS, TEXAS 75231
NOTICE OF SPECIAL MEETING OF UNITHOLDERS
TO BE HELD ON DECEMBER 17, 1998
To the Unitholders of National Realty, L.P.:
We have scheduled a special meeting of the holders of units of limited
partner interest of National Realty, L.P. The special meeting will be held at
3:00 p.m., Dallas time, on Thursday, December 17, 1998, at 10670 North Central
Expressway, Suite 600, Dallas, Texas 75231. We are asking you to elect NRLP
Management Corp., a Nevada corporation, as general partner of National Realty,
L.P. and to amend the partnership agreements governing National Realty, L.P. and
National Operating L.P. to facilitate the withdrawal of Syntek Asset Management,
L.P. as the general partner of both such partnerships. Each of these matters is
discussed in detail in this Proxy Statement.
Syntek Asset Management, L.P. is making this solicitation, as general
partner of and on behalf of National Realty, L.P., and National Realty, L.P.
will bear the costs associated with this solicitation.
NRLP Management Corp. cannot become the successor general partner of
National Realty, L.P. unless the limited partners approve it by a vote of the
holders of a majority of the outstanding limited partner units. We believe that
the proposals are in the best interests of the partnership and the unitholders,
and the proposals should be approved by the unitholders. The record date for
unitholders to vote at the special meeting is November 12, 1998.
This Proxy Statement is first being mailed to unitholders on or about
November 16, 1998. It provides you with detailed information about the proposed
successor general partner and the proposed amendments to the partnership
agreements of National Realty, L.P. and National Operating, L.P. We encourage
you to read this entire document carefully.
Regardless of whether you plan to be present at the special meeting,
please promptly date, mark, sign and mail the enclosed proxy card to American
Stock Transfer and Trust Company in the envelope provided. You may revoke your
proxy at any time up to and including the date of the special meeting by either
(i) giving written notice of such revocation to American Stock Transfer and
Trust Company, 40 Wall Street, 46th Floor, New York, New York 10005, (ii)
executing and delivering a proxy bearing a later date or (iii) attending and
voting at the special meeting. YOUR VOTE IS IMPORTANT, REGARDLESS OF THE NUMBER
OF UNITS YOU OWN.
Dated: November 16, 1998
BY ORDER OF THE GENERAL PARTNER
SYNTEK ASSET MANAGEMENT, L.P.
By: SYNTEK ASSET MANAGEMENT, INC.,
MANAGING GENERAL PARTNER
By: /s/ RANDALL M. PAULSON
-----------------------------------
Randall M. Paulson, President
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IMPORTANT
WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING, PLEASE MARK,
DATE, SIGN AND RETURN THE ENCLOSED PROXY SO THAT YOUR UNITS MAY BE VOTED AT THE
SPECIAL MEETING. THE ENCLOSED ENVELOPE REQUIRES NO POSTAGE IF MAILED IN THE
UNITED STATES.
If your units are held in the name of a brokerage firm, nominee or
other institution, only it can vote your units. Please contact promptly the
person responsible for your account and give instructions for your units to be
voted. Brokers will not have discretionary authority to vote a limited partner's
units. Accordingly, each limited partner must return a proxy card for such
limited partner's votes to be counted. Broker non-votes will not be counted.
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PRELIMINARY PROXY STATEMENT
DRAFT DATE: OCTOBER 29, 1998
NATIONAL REALTY, L.P.
10670 NORTH CENTRAL EXPRESSWAY
SUITE 300
DALLAS, TEXAS 75231
(214) 692-4700
=================================
PROXY STATEMENT
=================================
FOR THE SPECIAL MEETING OF UNITHOLDERS
TO BE HELD ON DECEMBER 17, 1998
This Proxy Statement is furnished to you by Syntek Asset Management,
L.P., as general partner of, and on behalf of, National Realty, L.P., a Delaware
limited partnership. We are soliciting proxies to be used at a special meeting
of the holders of units of limited partner interest of National Realty, L.P. We
are the current general partner of National Realty, L.P. and the current general
partner of National Operating, L.P., a Delaware limited partnership.
Additionally, National Realty, L.P. is the sole limited partner of the National
Operating, L.P., and both partnerships operate as a single economic unit.
This Proxy Statement is first being mailed to unitholders on or about
November 16, 1998. It provides you with detailed information about the proposed
successor general partner of National Realty, L.P. and National Operating, L.P.
and the proposed amendments to the partnership agreements of both partnerships.
We encourage you to read this entire document carefully.
The special meeting will be held at 3:00 p.m., Dallas time, on December
17, 1998, at 10670 North Central Expressway, Suite 600, Dallas, Texas 75231. At
the special meeting, you will be asked to consider and vote on the following
matters, as more fully described in this Proxy Statement:
(1) To elect NRLP Management Corp., a Nevada corporation, as
successor general partner of National Realty, L.P. to replace us as the general
partner. Upon the election of NRLP Management Corp., we will withdraw as general
partner.
(2) To amend the partnership agreement of National Realty, L.P. to
facilitate our withdrawal as the general partner.
(3) To amend the partnership agreement of National Operating, L.P. to
facilitate our withdrawal as the general partner.
(4) To consummate the transaction of such other business as may
properly come before the special meeting or any adjournments thereof.
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TABLE OF CONTENTS
<TABLE>
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Page
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SUMMARY .........................................................................................................4
The Special Meeting......................................................................................4
The Agreement for Cash Distribution and Election of Successor General Partner............................4
Proposal I: Election of NRLP Management Corp. as Successor General Partner..............................5
Proposal II: Proposed Amendment to National Realty, L.P.'s
Partnership Agreement.............................................................................6
Proposal III: Proposed Amendment to National Operating, L.P.'s
Partnership Agreement.............................................................................6
Recommendation...........................................................................................6
The Moorman Settlement Agreement.........................................................................6
Tax Consequences.........................................................................................7
INTRODUCTION......................................................................................................8
THE SPECIAL MEETING...............................................................................................9
Unitholders; Entitlement to Vote.........................................................................9
Voting of Proxies........................................................................................9
Revocation of Proxies....................................................................................9
Solicitation of Proxies..................................................................................9
Quorum ...............................................................................................10
Vote Required...........................................................................................10
Security Ownership of Certain Beneficial Owners and Management..........................................11
THE AGREEMENT FOR CASH DISTRIBUTION AND
ELECTION OF SUCCESSOR GENERAL PARTNER...................................................................13
Court Approval..........................................................................................13
Withdrawal of SAMLP.....................................................................................13
Resolution of Net Exit Fee Owed to SAMLP................................................................14
Terms of SAMLP's Assignment of the General Partnership Interest to
NRLP Management Corp.............................................................................14
Indemnification and Releases............................................................................15
Disapproval of the Proposals............................................................................16
PROPOSAL I: ELECTION OF NRLP MANAGEMENT CORP.
AS SUCCESSOR GENERAL PARTNER............................................................................17
General ...............................................................................................17
NRLP Management Corp....................................................................................17
Vote Required for Approval..............................................................................19
PROPOSAL II: PROPOSED AMENDMENT TO THE PARTNERSHIP AGREEMENT....................................................21
</TABLE>
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<TABLE>
<S> <C>
PROPOSAL III: PROPOSED AMENDMENT TO
THE OPERATING PARTNERSHIP AGREEMENT.....................................................................22
THE MOORMAN SETTLEMENT AGREEMENT.................................................................................23
COMPENSATION AND FEES TO THE GENERAL PARTNER.....................................................................28
General ...............................................................................................28
Property Management Fees................................................................................28
Leasing Commissions.....................................................................................28
Reimbursement of Administrative Expenses................................................................29
General Partner Compensation............................................................................29
Real Estate Brokerage Commissions.......................................................................29
Incentive Disposition Fee...............................................................................29
Acquisition Fees........................................................................................29
Fees for Additional Services............................................................................30
Summary of Fees.........................................................................................30
Executive Compensation..................................................................................30
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS...................................................................32
Certain Business Relationships..........................................................................32
Related Party Transactions..............................................................................33
Indebtedness of Management..............................................................................33
INTERESTS OF CERTAIN PERSONS.....................................................................................35
MANAGEMENT.......................................................................................................36
Management and Operation................................................................................36
Section 16(a) Beneficial Ownership Reporting Compliance.................................................38
AVAILABLE INFORMATION............................................................................................41
APPENDIX I - GLOSSARY OF DEFINED TERMS..........................................................................I-1
APPENDIX II - NOTICE OF HEARING TO CONSIDER APPROVAL OF AMENDED
AGREEMENT FOR CASH DISTRIBUTION AND ELECTION OF SUCCESSOR GENERAL
PARTNER, AND FOR TERMINATION OF THE 1996 MOORMAN SETTLEMENT
AGREEMENT......................................................................................................II-1
</TABLE>
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SUMMARY
The following is a summary of certain information contained elsewhere
in this Proxy Statement. Because this is a summary, it does not contain all the
information that may be important to you. You should read the entire Proxy
Statement, including exhibits and appendices, carefully before you decide to
vote. A glossary of defined terms used in this Proxy Statement is attached
hereto as Appendix I.
THE SPECIAL MEETING
The special meeting will be held at 3:00 p.m. Dallas time, on December
17, 1998 at 10670 North Central Expressway, Suite 600, Dallas, Texas 75231. At
the special meeting, including any adjournments thereof, you will be asked to
consider and vote on (1) the election of NRLP Management Corp. as successor
general partner to replace Syntek Asset Management, L.P. ("SAMLP"), the current
general partner of National Realty, L.P., (2) the amendment to the partnership
agreement of National Realty, L.P., (3) the amendment to the partnership
agreement of National Operating, L.P. and (4) the transaction of such other
business as may properly come before the special meeting or any adjournments
thereof. See "The Special Meeting".
All persons holding units as of the close of business on November 12,
1998, are entitled to notice of and to vote at the special meeting. You are
entitled to one vote for each unit of limited partner interest you held on such
date. The presence, either in person or by properly executed proxies, of
unitholders who hold more than 50% of all issued and outstanding units is
necessary to constitute a quorum at the special meeting. See "The Special
Meeting -- Quorum".
Pursuant to the terms of National Realty, L.P.'s partnership agreement,
holders of a majority of all issued and outstanding units must approve each
proposal. Additionally, with respect to the election of a successor general
partner, all units of National Realty, L.P. held by SAMLP or any affiliate of
SAMLP shall be voted pro rata (without regard to abstentions) to the votes cast
by the limited partners of National Realty, L.P. who are not affiliates of
SAMLP. As of October 16, 1998, there were 6,321,622 total issued and outstanding
units, of which 3,877,844 were owned by affiliates of SAMLP. See "The Special
Meeting -- Vote Required".
THE AGREEMENT FOR CASH DISTRIBUTION AND ELECTION OF SUCCESSOR GENERAL PARTNER
SAMLP, American Realty Trust, Inc., National Realty, L.P. and the
National Realty, L.P. Oversight Committee entered into the Agreement for Cash
Distribution and Election of Successor General Partner (the "Cash Distribution
Agreement"), dated as of July 15, 1998, as amended by orders of the Superior
Court of the State of California for the County of San Mateo, dated August 4,
1998 and September 1, 1998. The Cash Distribution Agreement provides for, among
other things, (i) the distribution of $11.4 million in cash to members of the
class of plaintiffs in the Moorman, et al. v. Southmark Corporation, et al.
class action lawsuit, (ii) the nomination of an affiliate of SAMLP, as successor
general partner of National Realty, L.P. and (iii) the resolution of all related
matters under the settlement agreement, dated as of May 9, 1990 in the Moorman
litigation. See "The Agreement for Cash Distribution and Election of Successor
General Partner".
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The Cash Distribution Agreement was submitted to the supervising judge
for final approval, and on October 23, 1998 he gave his approval of such
agreement and the consummation of the terms of the settlement agreement related
to the Moorman litigation. See "The Agreement for Cash Distribution and Election
of Successor General Partner -- Court Approval". The Notice of Hearing to
Consider Approval of Amended Agreement for Cash Distribution and Election of
Successor General Partner, and for Termination of the 1996 Moorman Settlement
Agreement, as approved by court order and as previously distributed to you is
attached hereto as Appendix II for informational purposes only. The class notice
and Cash Distribution Agreement have already been approved, and, accordingly,
you will not be voting on such matters.
Pursuant to the Cash Distribution Agreement, we have agreed to waive
all of our rights to the payment of any exit fee which would otherwise be
required to be paid to us by National Realty, L.P. upon our ceasing to serve as
general partner pursuant to the settlement agreement relating to the Moorman
litigation. The fee being waived was calculated by us to be approximately $49.6
million, as of December 31, 1997, prior to any setoff for amounts owed by us to
National Realty, L.P. The waiver of this fee does not, however, waive any rights
of a successor general partner to receive such fees in the future pursuant to
the partnership agreement. The National Realty, L.P. Oversight Committee has
previously informed the partnership that it calculated the amount of such exit
fee to be substantially less than the amount calculated by us. See "The
Agreement for Cash Distribution and Election of Successor General Partner --
Resolution of Net Exit Fee Owed to SAMLP" and "The Moorman Settlement
Agreement".
The Cash Distribution Agreement also provides that upon the assignment
of all of our rights under National Realty, L.P.'s partnership agreement to NRLP
Management Corp., as the successor general partner, NRLP Management Corp. shall
assume all of our obligations under the promissory note given to National
Realty, L.P. by us as partial consideration for our general partnership interest
in National Realty, L.P. As of September 30, 1998, the note had a principal
balance of approximately [$4.2] million plus accrued interest of approximately
[$8.1] million. Additionally, NRLP Management Corp. will be required to assume
all of our obligations under the promissory note given to National Realty, L.P.
by us for repayment of all amounts distributed to the Class Members under the
Cash Distribution Agreement. The actual amount of the note will be determined as
of the election of the successor general partner. We estimate that the note will
have a principal balance of approximately [$12.2 million]. Additionally,
American Realty Trust, Inc., which is the corporate parent of NRLP Management
Corp., will guarantee the payment of such note by NRLP Management Corp. and any
successor general partner. See "The Agreement for Cash Distribution and Election
of Successor General Partner -- Terms of SAMLP's Assignment of the General
Partnership Interest to NRLP Management Corp."
PROPOSAL I: ELECTION OF NRLP MANAGEMENT CORP. AS SUCCESSOR GENERAL PARTNER
Pursuant to the Cash Distribution Agreement, we are submitting to you
for your consideration and approval a proposal to elect NRLP Management Corp. as
successor general partner of National Realty, L.P. See "Proposal I: Election of
NRLP Management Corp. as Successor General Partner". NRLP Management Corp. is a
Nevada corporation that is affiliated with SAMLP and is wholly-owned by American
Realty Trust, Inc.
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The Board of Directors of NRLP Management Corp. consists of three
members, Randall M. Paulson, Randall K. Gonzalez, and Collene Currie. The
executive officers of NRLP Management Corp. are Randall M. Paulson, President,
Karl L. Blaha, Executive Vice President - Commercial Asset Management, Bruce A.
Endendyk, Executive Vice President, Thomas A. Holland, Executive Vice President
and Chief Financial Officer and Steven K. Johnson, Executive Vice President -
Residential Asset Management.
PROPOSAL II: PROPOSED AMENDMENT TO NATIONAL REALTY, L.P.'S PARTNERSHIP AGREEMENT
To facilitate our withdrawal as the general partner of National Realty,
L.P., we are submitting to you for your consideration and approval an amendment
to the partnership agreement of National Realty, L.P. Under the existing
partnership agreement, withdrawal of the general partner is permitted subject to
180 days' notice. The proposed amendment, if approved, will permit us to
withdraw as general partner of National Realty, L.P. effective as of the date
NRLP Management Corp. is duly elected as successor general partner, without
regard to the current 180 day notice period. See "Proposal II: Proposed
Amendment to the Partnership Agreement" and Exhibit A to this Proxy Statement.
PROPOSAL III: PROPOSED AMENDMENT TO NATIONAL OPERATING, L.P.'S PARTNERSHIP
AGREEMENT
To facilitate our withdrawal as the general partner of National
Operating, L.P., we are submitting to you for your consideration and approval an
amendment to the partnership agreement of National Operating, L.P. Under the
existing partnership agreement, withdrawal of the general partner is permitted
subject to 180 days' notice. The proposed amendment, if approved, will permit us
to withdraw as general partner of National Operating, L.P. effective as of the
date NRLP Management Corp. is duly elected as successor general partner, without
regard to the current 180 day notice period. See "Proposal III: Proposed
Amendment to the Operating Partnership Agreement" and Exhibit B to this Proxy
Statement.
RECOMMENDATION
We believe that the proposals are in the best interests of National
Realty, L.P. and the unitholders, and that you should approve each of the
proposals.
THE MOORMAN SETTLEMENT AGREEMENT
National Realty, L.P. is a party to the settlement agreement, dated as
of May 9, 1990, between a class of plaintiffs including Joseph B. Moorman and
others, and a group of defendants including National Realty, L.P., SAMLP, Robert
A. McNeil, Gene E. Phillips, William S. Friedman and Shearson Lehman Hutton,
Inc., successor-in-interest to defendant E.F. Hutton & Company, Inc., relating
to the action entitled Moorman, et al. v. Southmark Corporation, et al., which
was granted final court approval on June 29, 1990. See "The Moorman Settlement
Agreement".
The settlement agreement in the Moorman litigation required the
creation of the National Realty, L.P. Oversight Committee to oversee the
implementation of the settlement of the litigation.
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The settlement agreement set out certain targets for the market price of the
units beginning May 9, 1991 and for each May 9 thereafter until May 9, 1995 and
requires that we resign as general partner of National Realty, L.P. and as
general partner of National Operating, L.P. (which holds record title to
National Realty, L.P.'s properties and other assets) if any two consecutive
targets were not met or if the fifth target was not met. The target prices for
May 9, 1991 and May 9, 1992 were not met, and on July 7, 1992, we notified the
National Realty, L.P. Oversight Committee that the second anniversary target
price had not been met. Pursuant to the terms of the settlement agreement, we
are required to resign as general partner of both National Realty, L.P. and
National Operating, L.P., effective as of the date a successor general partner
is duly elected and admitted to the partnerships in accordance with terms of the
partnership agreements. The settlement agreement provides for severe
restrictions on our authority as general partner of National Realty, L.P. for
the period beginning on the date our required resignation was triggered (July 7,
1992) until the date of election and admission of a successor general partner.
The election of a successor general partner will terminate the settlement
agreement. See "The Moorman Settlement Agreement".
TAX CONSEQUENCES
Andrews & Kurth L.L.P. will deliver an opinion of counsel to the effect
that our withdrawal from National Realty, L.P. and the election of NRLP
Management Corp. as successor general partner will not result in (i) the loss of
limited liability of any unitholder under the partnership agreement of National
Realty, L.P. or (ii) the loss of limited liability of National Realty, L.P. as
the sole limited partner of National Operating, L.P. or (iii) the treatment of
National Realty, L.P. as an association taxable as a corporation for federal
income tax purposes.
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INTRODUCTION
This Proxy Statement is being furnished to the unitholders of National
Realty, L.P. (the "Partnership") in connection with the solicitation of proxies
by SAMLP for the Partnership's special meeting to be held at 3:00 p.m., Dallas
time, on December 17, 1998 at 10670 North Central Expressway, Suite 600, Dallas,
Texas 75231, and any adjournment or adjournments thereof. The first purpose of
the special meeting is to consider and vote upon a proposal to elect NRLP
Management Corp. as the successor general partner of the Partnership ("Proposal
I"). The second purpose of the special meeting is to consider and vote upon a
proposal to amend the First Amended and Restated Agreement of Limited
Partnership of the Partnership (the "Partnership Agreement") ("Proposal II").
The third purpose of the special meeting is to consider and vote upon a proposal
to amend the Second Restated and Amended Agreement of Limited Partnership of
National Operating, L.P. (the "Operating Partnership Agreement") ("Proposal
III"). The fourth purpose of the special meeting is to vote on any other matter
that is properly presented for action at the special meeting. SAMLP does not
propose to present any other matters and is not aware of any matters that any
person or entity proposes to present for action at the special meeting.
SAMLP BELIEVES THAT THE PROPOSALS ARE IN THE BEST INTERESTS OF
THE PARTNERSHIP AND ITS UNITHOLDERS AND RECOMMENDS THAT YOU VOTE
"FOR" APPROVAL OF EACH OF THE PROPOSALS.
NEITHER THE NATIONAL REALTY, L.P. OVERSIGHT COMMITTEE NOR
NRLP MANAGEMENT CORP.:
(1) MAKES ANY REPRESENTATION REGARDING THE INFORMATION
SET FORTH IN THIS PROXY STATEMENT;
(2) PARTICIPATED IN THE PREPARATION OF THIS PROXY STATEMENT,
OTHER THAN SUPPLYING INFORMATION TO SAMLP, IN WRITING,
SPECIFICALLY FOR USE IN THIS PROXY STATEMENT; OR
(3) ASSUME ANY LEGAL RESPONSIBILITY FOR THE INFORMATION
CONTAINED IN THIS PROXY STATEMENT.
The principal offices of the Partnership are located at 10670 North
Central Expressway, Suite 300, Dallas, Texas 75231, telephone (214) 692-4700.
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THE SPECIAL MEETING
UNITHOLDERS; ENTITLEMENT TO VOTE
Only unitholders of record at the close of business on November 12,
1998 (the "Record Date") are entitled to notice of and to vote at the special
meeting and at any adjournment or adjournments thereof. SAMLP has fixed the
Record Date as permitted by the Partnership Agreement and the applicable
provisions of the Securities Exchange Act of 1934, as amended (the "Exchange
Act") and the rules and regulations promulgated thereunder. At the close of
business on the Record Date there were [6,321,622] total issued and outstanding
units held by [5,250] unitholders of record; [61.3%] of such units were held by
affiliates of SAMLP. Each unitholder is entitled to one vote for each unit held
on the Record Date.
VOTING OF PROXIES
When a proxy card is returned, properly signed and dated, the units
represented thereby will be voted in accordance with the instructions noted
thereon. If a unitholder does not attend the special meeting and does not return
the signed proxy card, such units will not be voted. Unitholders are urged to
mark the boxes on the proxy card to indicate how the units represented by the
proxy card are to be voted. If a unitholder returns a signed proxy card but does
not indicate how the units represented by the proxy card are to be voted, such
units will be voted "FOR" the election of NRLP Management Corp. as successor
general partner of the Partnership, "FOR" the approval of the amendment to the
Partnership Agreement and "FOR" the approval of the amendment to the Operating
Partnership Agreement. The proxy card also confers discretionary authority on
the individuals appointed by SAMLP and named on the proxy card to vote the units
represented thereby on any other matter that is properly presented for action at
the special meeting. As of the date of this Proxy Statement, SAMLP does not
propose to present any other matter and is not aware of any matter that any
person or entity proposes to present for action at the special meeting.
REVOCATION OF PROXIES
Any unitholder who executes and delivers the enclosed proxy card may
revoke the authority granted thereunder at any time prior to its use by giving
written notice of such revocation to American Stock Transfer and Trust Company,
40 Wall Street, 46th Floor, New York, New York 10005, or by executing and
delivering a proxy bearing a later date. A unitholder may also revoke a proxy by
attending and voting at the special meeting. The mere presence at the special
meeting of the person who has given a proxy will not revoke such proxy. Brokers
who hold units as nominees will not have discretionary authorization to vote
such units on any of the matters to be voted on at the special meeting in the
absence of instructions from the beneficial owners.
SOLICITATION OF PROXIES
This Proxy Statement is furnished to unitholders on behalf of SAMLP to
solicit proxies to vote units for the approval of each of the three proposals.
The cost of soliciting proxies will be borne by the Partnership. SAMLP and
persons affiliated with SAMLP may, without additional
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<PAGE> 13
compensation, solicit proxies by mail, in person or by telecommunication. The
Partnership has retained Shareholder Communications Corporation ("SCC") to
assist in the solicitation of proxies. An agreement with SCC provides that it
will distribute materials relating to the solicitation of proxies, contact
limited partners to confirm receipt of materials and answer questions relating
thereto. SCC will be paid a base fee of $2,000 plus out-of-pocket expenses and
will be indemnified against certain liability incurred as a result of the
provision of such services.
QUORUM
In accordance with the Partnership Agreement, the presence, either in
person or by properly executed proxies, of unitholders who hold more than 50% of
the total issued and outstanding units as of the Record Date is necessary to
constitute a quorum at the special meeting. Affiliates of SAMLP hold [61.3%] of
all issued and outstanding units. Accordingly, the quorum requirements will be
satisfied with the presence, either in person or by properly executed proxies,
of such affiliates of SAMLP.
VOTE REQUIRED
Unitholders are entitled to one vote at the special meeting for each
unit held of record by them on the Record Date. Pursuant to the Partnership
Agreement, each proposal requires approval by the holders of a majority of the
total issued and outstanding units. As of the Record Date, affiliates of SAMLP
beneficially owned an aggregate of [3,877,844] units, or approximately [61.3%]
of the total issued and outstanding units. In the absence of the Settlement
Agreement and Cash Distribution Agreement, the affiliates of SAMLP would be able
to vote all of their [61.3%] of the total outstanding units in favor of Proposal
I, and NRLP Management Corp. would be elected as successor general partner.
However, with respect to the election of a successor general partner (Proposal
I), the Settlement Agreement and the Cash Distribution Agreement contain a
provision requiring the units held by SAMLP's affiliates to be voted pro rata
(without regard to abstentions) to the votes cast by the limited partners who
are not affiliates of SAMLP. Brokers' non-votes (i.e., non-votes required to be
cast by brokers where the beneficial owner has not instructed the broker on how
to vote) will not be counted for voting purposes. The effect of the pro rata
voting provisions and treatment of abstentions and broker non-votes is to give
control of the election of the successor general partner to the limited partners
who are not affiliates of SAMLP, who choose to vote. At a minimum, a majority of
the limited partners who are not affiliates of SAMLP, who vote, must vote in
favor of the successor general partner for the successor general partner to win
the election. If only a small number of limited partners who are not affiliates
of SAMLP vote in the election, the effect of the pro rata voting rules will be
to require a very high percentage of non-affiliates who vote, to vote in favor
of Proposal I in order for Proposal I to be approved. The pro rata voting
requirements set forth in the Cash Distribution Agreement and the Moorman
Settlement Agreement do not require pro rata voting by SAMLP's affiliates with
respect to the amendments to the Partnership Agreement and the Operating
Partnership Agreement (Proposals II and III).
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<PAGE> 14
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
For purposes of this Proxy Statement a "beneficial owner" means any
person who, directly or indirectly, through any contract, arrangement,
understanding, relationship, or otherwise has or shares:
(i) Voting power which includes the power to vote, or to direct the
voting of, units; and/or
(ii) Investment power which includes the power to dispose, or to
direct the disposition, of units.
Security Ownership of Certain Beneficial Owners. The following table
sets forth the ownership of units, both beneficially and of record, for the
persons known by SAMLP to be beneficial owners of more than 5% of the units, as
of the close of business on October 16, 1998.
<TABLE>
<CAPTION>
Name and Address Amount and Nature of Percent
of Beneficial Owner Beneficial Ownership of Class (1)
- ------------------- -------------------- ------------
<S> <C> <C>
American Realty Trust, Inc.(2) 3,441,169 54.4%
10670 N. Central Expressway
Suite 300
Dallas, Texas 75231
Basic Capital Management, Inc.(3) 436,675 6.9%
10670 N. Central Expressway
Suite 300
Dallas, Texas 75231
</TABLE>
(1) Percentage is based upon 6,321,622 total issued and outstanding units
as of October 16, 1998.
(2) Includes 3,349,535 units owned by ART Holdings, Inc. ("AHI"), which is
a wholly-owned subsidiary of American Realty Trust, Inc. ("ART") and
91,634 units owned by ART.
(3) Includes 290,275 units owned by BCM Holdings, Inc. ("BHI") and 146,400
units owned by --- Basic Capital Management, Inc. ("BCM").
Security Ownership of Current Management. The following table sets
forth the ownership of units, both beneficially and of record, both individually
and in the aggregate, by SAMLP, the general partners of SAMLP, and the executive
officers and director of Syntek Asset Management, Inc. ("SAMI") (the managing
general partner of SAMLP), as of the close of business on October 16, 1998.
-11-
<PAGE> 15
<TABLE>
<CAPTION>
Amount and Nature of Percent
Name of Beneficial Owner Beneficial Ownership of Class (1)
- ------------------------ -------------------- ------------
<S> <C> <C>
SAMLP, the general partners of SAMLP 3,877,844(2) 61.3%
and the executive officers and director
of SAMI as a group (5 individuals)
</TABLE>
- --------------------
(1) Percentages are based upon 6,321,622 total issued and outstanding units
as of October 16, 1998.
(2) Includes 3,349,535 units owned by AHI; 91,634 units owned by ART;
290,275 units owned by BHI; and 146,400 units owned by BCM, of which
the general partners of SAMLP and executive officers of SAMI, ART and
BHI may be deemed to be the beneficial owners by virtue of their
positions as general partners of SAMLP and executive officers of SAMI,
AHI, ART and BHI. SAMLP's general partners and the executive officers
of SAMI, AHI, ART and BHI disclaim beneficial ownership of such units.
INSPECTOR OF ELECTIONS
American Stock Transfer and Trust Company will act as the independent
trust company appointed by the Partnership to count and tabulate the votes of
the limited partners.
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<PAGE> 16
THE AGREEMENT FOR CASH DISTRIBUTION AND
ELECTION OF SUCCESSOR GENERAL PARTNER
On July 15, 1998, SAMLP, ART, the Partnership and the National Realty,
L.P. Oversight Committee (the "Oversight Committee") executed the Agreement for
Cash Distribution and Election of Successor General, which provides for, among
other things, (i) the distribution of $11.4 million in cash to the members of
the class of plaintiffs in the Moorman litigation (the "Class Members"), (ii)
the nomination of an affiliate of SAMLP, as successor general partner of the
Partnership and (iii) the resolution of all related matters under the settlement
agreement dated as of May 9, 1990, between a class of plaintiffs including
Joseph P. Moorman and others, and a group of defendants including the
Partnership, SAMLP, Robert A. McNeil, Gene E. Phillips, William S. Friedman and
Shearson Lehman Hutton, Inc., successor-in-interest to defendant E.F. Hutton &
Company, Inc., relating to the action entitled Moorman, et al. v. Southmark
Corporation, et al. the ("Moorman Settlement Agreement").
COURT APPROVAL
In July 1998, the Oversight Committee and SAMLP moved the court for
preliminary approval of the Cash Distribution Agreement. The court granted
tentative approval on August 4, 1998. On September 1, 1998, the court approved
the form of notice to be distributed to the Class Members. On September 9, 1998,
the notice was mailed to the Class Members. Upon receipt of comments and
objections from the Class Members and submission to the court of such comments
and objections, the court held a final hearing on October 16, 1998. On October
23, 1998, the court granted final approval by issuing a court order approving
the terms and conditions set forth in the Cash Distribution Agreement.
WITHDRAWAL OF SAMLP
Under the Partnership Agreement, withdrawal of the general partner is
permitted subject to 180 days' notice and receipt of an opinion of counsel that
the general partner's withdrawal from the Partnership will not result in (i) the
loss of limited liability of any unitholder, (ii) the loss of limited liability
of the Partnership as the sole limited partner of the Operating Partnership
("Operating Partnership") or (iii) the treatment of the Partnership as an
association taxable as a corporation for federal income tax purposes. The
proposed Amendment to the Partnership Agreement, if approved, will permit SAMLP
to withdraw as general partner of the Partnership effective as of the date NRLP
Management Corp. is duly elected as successor general partner, without regard to
the current 180 day notice period and will comply with the terms of the Cash
Distribution Agreement. See "Proposal II: Proposed Amendment to the Partnership
Agreement". The receipt of a favorable opinion of counsel is nonetheless
required regarding the limited liability of unitholders and the Partnership's
status as a partnership for federal income tax purposes, and such opinion will
be obtained from Andrews & Kurth L.L.P.
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<PAGE> 17
RESOLUTION OF NET EXIT FEE OWED TO SAMLP
Under the current Partnership Agreement, the withdrawal of the general
partner requires the Partnership to acquire the general partner's redeemable
general partner interest at its then fair value and to pay certain fees and
other compensation. Under the Moorman Settlement Agreement, the purchase price
for SAMLP's redeemable general partner interest would be calculated, as of the
time it withdraws as general partner, under the Partnership's governing
documents and as modified by the Moorman Settlement Agreement. SAMLP has
calculated the fair value of the redeemable general partner interest in the
Partnership and such fees and other compensation at December 31, 1997 to be
$49.6 million, and believes that there has been no material change in such value
since such date. The Partnership would be entitled to offset any such payment
against the then outstanding principal balance of the note receivable ($4.2
million at September 30, 1998) plus all accrued but unpaid interest ($8.1
million at September 30, 1998) on the note receivable from SAMLP for its capital
contribution to the Partnership. The Oversight Committee previously has informed
the Partnership that it calculated the amount of such redeemable general partner
interest, fees and other compensation, without giving effect to the note
receivable and unpaid interest offset described above, to be substantially less
than the amount calculated by the SAMLP. Pursuant to the terms of the Cash
Distribution Agreement, SAMLP has agreed to assign all of its rights as general
partner to NRLP Management Corp., including the right to receive the payment of
the redeemable general partner interest in consideration for the assumption by
NRLP Management Corp. of the note due from SAMLP to the Partnership.
The Cash Distribution Agreement requires that the partnership
agreements of both National Realty, L.P. and National Operating, L.P. be amended
to (i) prohibit any payment by the respective partnership to a general partner
for the repurchase of its general partner interest upon the voluntary
resignation or removal of such general partner and (ii) limit the fees which may
be paid to any parties who serve as general partner if prior general partners
have already received such fees. The terms of the respective partnership
agreements permit amendments without any consent or approval on the part of the
limited partners if such amendments add to the obligations of the general
partner or surrender any right or power granted to the general partner.
Accordingly, if NRLP Management Corp. is elected as the successor general
partner of the Partnership, immediately prior to withdrawing as general partner,
SAMLP will effect an amendment to the partnership agreement of National Realty,
L.P. and an amendment to the partnership agreement of National Operating, L.P.,
in each case to satisfy the requirements of the Cash Distribution Agreement.
TERMS OF SAMLP'S ASSIGNMENT OF THE GENERAL PARTNERSHIP INTEREST TO NRLP
MANAGEMENT CORP.
If Proposal I is approved in accordance with the terms and conditions
of this Proxy Statement, SAMLP shall assign to NRLP Management Corp. and NRLP
Management Corp. shall assume all of SAMLP's rights under the Partnership
Agreement and the Operating Partnership Agreement. As consideration for such
general partner interests, NRLP Management Corp. shall assume all of SAMLP's
obligations under the promissory note given to the Partnership by SAMLP as
partial consideration for SAMLP's general partnership interest in the
Partnership. As of September 30, 1998, the note had a principal balance of
approximately $4.2 million plus accrued
-14-
<PAGE> 18
interest of approximately $8.1 million. Additionally, NRLP Management Corp. will
assume a note payable to the Partnership from SAMLP for the total amount of cash
distributed by the Partnership under the Cash Distribution Agreement. Such note
will have a term of ten years, bear interest at LIBOR plus 2% and be guaranteed
by ART. The actual amount of the note will be determined as of the election of
the successor general partner. We estimate that the note will have a principal
balance of approximately [$12.2 million].
INDEMNIFICATION AND RELEASES
In accordance with the Cash Distribution Agreement, the Partnership
shall enter into separate, but identical, indemnification agreements with each
member of the Oversight Committee. Such indemnification agreements shall
indemnify the members of the Oversight Committee, their agents and attorneys
(each, an "Indemnified Person") and shall contain the following indemnification
provisions:
As of the Effective Date, the Partnership shall indemnify and
hold harmless the Member, the Member's heirs and assigns, and
the Members' attorneys and agents (collectively, the
"Indemnitees"), from and against any and all loss, liability,
claim, damage, demand or expense whatsoever, as incurred,
which results from, arises out of, or relates (no matter how
slightly) in any way to the [Oversight] Committee's
activities, or the Member's service as a[n Oversight]
Committee member, including, but not limited to, claims based
on the Indemnitees' actions, omissions, or conduct (whether
negligent (gross or otherwise and whether active or passive),
intentional or otherwise), whether arising before or after
the Effective Date. The Member's attorneys and agents
include, but are not limited to, [McDonough, Holland & Allen,
a Professional Corporation, Ken Mason, Kirk & Company and
Fotenos & Suttle, P.C.]. This provision is intended to
provide the broadest indemnity possible under any applicable
law, including under Section 17-108 of the Delaware Revised
Uniform Limited Partnership Act ("DRULPA"), or any successor
act extending to any and all acts for which such indemnity is
not prohibited by applicable law.
Such indemnification agreement shall provide for the fullest indemnity possible
and the advancement of expenses.
In accordance with the Cash Distribution Agreement, pursuant to
separate but identical releases, each of the Partnership, SAMLP, SAMI, ART, BCM,
BCM Holdings, Inc., ART Holdings, Inc., Gene E. Phillips, William S. Friedman
and any other person or person listed or required to be listed on the Schedule
13D filings made by ART related to ownership in the Partnership, will release
the members of the Oversight Committee from any claims known or unknown,
effective as of the date of the termination of the Moorman Settlement Agreement.
Additionally, the court, in its final approval order of the Cash Distribution
Agreement entered orders to the following effect:
(i) [T]hat the [Oversight] Committee and each of its members,
jointly and severally, be, and they are hereby, released,
discharged and immunized, effective upon the date of
termination of the [p]lan in accordance with the terms and
provisions of Section
-15-
<PAGE> 19
7.1(iii) of the [Moorman] Settlement Agreement and Section
11(a) of the Cash Distribution Agreement from any and all
claims which might be asserted against them or any of them by
the Class Members for any and all acts or conduct undertaken
by the [Oversight] Committee and/or its members within the
course and scope of their duties as such.
(ii) [T]hat [SAMLP] and [the Partnership], and each of them, and
[SAMLP]'s partners and affiliates, jointly and severally, be,
and they are hereby, released, discharged and immunized,
effective upon the date of termination of the [p]lan in
accordance with the terms and provisions of Section 7.1(iii)
of the [Moorman] Settlement Agreement and Section 11(a) of the
Cash Distribution Agreement, from any and all claims which
might be asserted against them or any of them by the Class
Members for any and all acts or conduct undertaken by them or
any of them within the course and scope of [SAMLP]'s or [the
Partnership]'s duties under the [Moorman] Settlement
Agreement.
DISAPPROVAL OF PROPOSAL I
If Proposal I is not approved by the holders of a majority of the total
issued and outstanding units, the Cash Distribution Agreement provides that
SAMLP will be required to nominate a non-affiliate to be the candidate as
successor general partner and submit such candidate to a vote of the unitholders
by filing another proxy statement or consent solicitation under the provisions
of Section 14 of the Exchange Act. In such event, SAMLP will remain the general
partner of the Partnership and the Operating Partnership until such
non-affiliate candidate is duly elected. Pursuant to the Cash Distribution
Agreement, SAMLP and its affiliates will be required to vote all of their units
in favor of the election of such non-affiliate.
APPROVAL OF PROPOSALS II AND III
The affiliates of SAMLP, which will vote for Proposal II and Proposal
III, own approximately [61.3%] of the total issued and outstanding units.
Therefore both such proposals will obtain the required approval.
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<PAGE> 20
PROPOSAL I: ELECTION OF NRLP MANAGEMENT CORP.
AS SUCCESSOR GENERAL PARTNER
GENERAL
Pursuant to the terms and conditions set forth in the Cash Distribution
Agreement, SAMLP hereby nominates NRLP Management Corp. as the successor general
partner of the Partnership. SAMLP notified the Oversight Committee that NRLP
Management Corp. is an affiliate of SAMLP. NRLP Management Corp. is a
wholly-owned subsidiary of ART, which owned approximately 54.4% of the total
issued and outstanding units as of [October ___], 1998.
The Cash Distribution Agreement provides that unitholders shall
consider and vote upon this proposal to elect NRLP Management Corp. as the
successor general partner and that, upon the election of NRLP Management Corp.
as the successor general partner, SAMLP will withdraw as general partner of the
Partnership immediately.
NRLP MANAGEMENT CORP.
NRLP Management Corp. is a Nevada corporation formed on January 8,
1998, for the sole purpose of serving as successor general partner of the
Partnership and the Operating Partnership. NRLP Management Corp. maintains its
principal office at 10670 North Central Expressway, Suite 600, Dallas, Texas
75231. The sole shareholder of NRLP Management Corp. is ART.
NRLP Management Corp. currently has three directors. Pursuant to the
Bylaws of NRLP Management Corp., the number of directors shall never be less
than one or more than five. The directors of NRLP Management Corp. in the future
will be elected by the shareholders of NRLP Management Corp. at the annual
meeting of the shareholders. Each director of NRLP Management Corp. named below
will serve until the 1999 annual meeting of the shareholders of NRLP Management
Corp. and until his respective successor shall have been elected or appointed.
The principal occupations and relevant affiliations of the directors
and executive officers of NRLP Management Corp., during the past five years or
more, are as follows:
RANDALL M. PAULSON: Age 52, Director and President (since January 1998).
President and Director (since August 1995) and Executive Vice President
(January 1995 to August 1995) of SAMI; President (since August 1995 and
Executive Vice President (January 1995 to August 1995) of Continental
Mortgage and Equity Trust ("CMET"), Income Opportunity Realty
Investors, Inc. ("IORI") and Transcontinental Realty Investors, Inc.
("TCI") and (October 1994 to August 1995) of BCM; Executive Vice
President (since January 1995) of ART; Vice President (1993 to 1994) of
GSSW, LP, a joint venture of Great Southern Life and Southwestern Life;
Vice President (1990 to 1993) of Property Company of America Realty,
Inc.; and President (1990) of Paulson Realty Group.
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<PAGE> 21
COLLENE CURRIE: Age 50, Director (since April 1998).
Vice President and Senior Relationship Manager (since February 1996) of
NationsBank Private Client Group of Dallas; Director of Marketing and
Communications (October 1993 to January 1996) of the Dallas Opera; and
Business Transformation Consultant (August 1998 to October 1993) of
IBM.
RANDALL K. GONZALEZ: Age 36, Director (since April 1998).
Chief Executive Officer and President (since October 1989) of TMC
Realty Advisors, Inc. (retail and multi-family development, investment
and property management services); shopping center developer (1987 to
October 1989) with Dunning Development Co.; real estate broker (1983 to
1987) with Hammond-Williams (oil and gas, real estate and restaurant
investment and management); Director (1989 to 1993) of IORI and TCI;
Trustee (1989 to 1993) of CMET; and Director (since ______) of AGE
Refinery, Inc.
BRUCE A. ENDENDYK: Age 50, Executive Vice President (since January 1998).
Executive Vice President (since January 1995) of SAMI; Executive Vice
President (since January 1995) of Carmel Realty, Inc. ("Carmel
Realty"); Executive Vice President (since January 1995) of BCM, ART,
CMET, IORI and TCI; Management Consultant (November 1990 to December
1994); Executive Vice President (January 1989 to November 1990) of
Southmark Corporation ("Southmark"); and President and Chief Executive
Officer (March 1988 to January 1989) of Southmark Equities Corporation.
THOMAS A. HOLLAND: Age 56, Executive Vice President and Chief Financial Officer
(since January 1998).
Executive Vice President and Chief Financial Officer (since August
1995) and Senior Vice President and Chief Accounting Officer (July 1990
to August 1995) of SAMI; Executive Vice President and Chief Financial
Officer (since August 1995), Secretary (since February 1997) and Senior
Vice President (July 1990 to August 1995) of CMET, IORI and TCI;
Executive Vice President and Chief Financial Officer (since August
1995) and Senior Vice President and Chief Accounting Officer (July 1990
to August 1995) of BCM and ART; and Senior Vice President and Chief
Accounting Officer (July 1990 to February 1994) of National Income
Realty Trust ("NIRT") and Vinland Property Trust ("VPT").
KARL L. BLAHA: Age 51, Executive Vice President - Commercial Asset Management
(since January 1998).
Executive Vice President and Director of Commercial Management (April
1992 to August 1995) of BCM, CMET, IORI, TCI and SAMI; President (since
October 1993) and Executive Vice President and Director of Commercial
Management (April 1992 to October 1993) of ART; Executive Vice
President (since October 1992 of Carmel Realty); Executive Vice
-18-
<PAGE> 22
President and Director of Commercial Management (April 1992 to February
1994) of NIRT and VPT; Partner - Director of National Real Estate
Operations of First Winthrop Corporation (August 1988 to March 1992);
and Corporate Vice President of Southmark (April 1984 to August 1988).
STEVEN K. JOHNSON: Age 41, Executive Vice President - Residential Asset
Management (since August 1998).
Executive Vice President - Residential Asset Management (since August
1998) and Vice President (August 1990 to August 1991) of BCM, SAMI,
ART, CMET, IORI and TCI; Chief Operating Officer (January 1993 to
August 1998) of Garden Capital, Inc.; Executive Vice President
(December 1994 to August 1998) of Garden Capital Management, Inc.; Vice
President (August 1991 to January 1993) of SHL Properties Realty
Advisors, Inc. and SHL Acquisition Corporation II and III; and Vice
President (August 1990 to August 1991) of NIRT and VPT.
The Board of Directors has held one meeting since the formation of NRLP
Management Corp., and all directors attended that meeting. All directors are
paid an annual retainer of $5,000. There are no committees of the Board of NRLP
Management Corp. However, the Board intends to establish an audit committee upon
the election of NRLP Management Corp. as the successor general partner.
If elected as successor general partner of the Partnership, NRLP
Management Corp. shall be responsible for management and operations of the
Partnership including, but not limited to all decisions with respect to the
acquisition, disposition, improvement, financing or refinancing of Partnership
property. The election of NRLP Management Corp. is not expected to result in any
significant changes in the operation or management of the Partnership.
VOTE REQUIRED FOR APPROVAL
The election of NRLP Management Corp. as successor general partner of
the Partnership requires a majority vote of the holders of the total issued and
outstanding units. As required by the Cash Distribution Agreement and Settlement
Agreement, SAMLP and its affiliates will vote their units pro rata (without
regard to abstentions) in accordance with the votes cast by the unitholders who
are not affiliates of SAMLP.
SAMLP BELIEVES THAT PROPOSAL I IS IN THE BEST INTERESTS OF THE
PARTNERSHIP AND ITS UNITHOLDERS AND RECOMMENDS THAT YOU VOTE "FOR" APPROVAL OF
PROPOSAL I.
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<PAGE> 23
PROPOSAL II: PROPOSED AMENDMENT TO THE PARTNERSHIP AGREEMENT
SAMLP submits to the unitholders for their consideration and approval
the proposed amendment to the Partnership Agreement to facilitate the withdrawal
of SAMLP as the general partner of the Partnership. The following summary is
qualified in its entirety by reference to the full text of the proposed Second
Amendment to the First Amended and Restated Agreement of Limited Partnership of
the Partnership, which is attached as Exhibit A to this Proxy Statement, as well
as to the text of the Partnership Agreement, as currently in effect.
The proposed amendment to the Partnership Agreement revises Paragraph
17.2.2 to facilitate (i) the withdrawal of SAMLP as the general partner of the
Partnership and (ii) the election and admission of NRLP Management Corp. as the
successor general partner of the Partnership. Paragraph 17.2.2 of the
Partnership Agreement currently provides that SAMLP must give 180 days' prior
written notice before withdrawing as general partner. The proposed amendment,
however, provides that SAMLP would be permitted to withdraw immediately upon the
election and admission to the Partnership of the successor general partner,
without compliance with the notice provisions of the current Paragraph 17.2.2.
Pursuant to the Partnership Agreement, approval of Proposal II, the
proposed amendment to the Partnership Agreement requires the affirmative vote of
the holders of a majority of the total issued and outstanding units. SAMLP and
its affiliates intend to vote for Proposal II.
SAMLP BELIEVES THAT PROPOSAL II IS IN THE BEST INTERESTS OF THE
PARTNERSHIP AND ITS UNITHOLDERS AND RECOMMENDS THAT YOU VOTE
"FOR" APPROVAL OF PROPOSAL II.
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<PAGE> 24
PROPOSAL III: PROPOSED AMENDMENT TO
THE OPERATING PARTNERSHIP AGREEMENT
SAMLP submits to the unitholders for their consideration and approval
the proposed amendment to the Operating Partnership Agreement to facilitate the
withdrawal of SAMLP as the general partner of the Operating Partnership. The
following summary is qualified in its entirety by reference to the full text of
the proposed First Amendment to the Second Amended and Restated Agreement of
Limited Partnership of the Operating Partnership, which is attached as Exhibit B
to this Proxy Statement, as well as to the text of the Operating Partnership
Agreement, as currently in effect.
The proposed amendment to the Operating Partnership Agreement revises
Paragraph 17.2.2 to facilitate the withdrawal of SAMLP as the general partner of
the Operating Partnership and the election and admission of NRLP Management
Corp. as the successor general partner of the Operating Partnership. Paragraph
17.2.2 of the Operating Partnership Agreement currently provides that SAMLP must
give 180 days' prior written notice before withdrawing as general partner of the
Operating Partnership. The proposed amendment, however, provides that SAMLP
would be permitted to withdraw immediately upon the election and admission to
the Operating Partnership of the successor general partner, without compliance
with the notice provisions of the current Paragraph 17.2.2.
Paragraph 16.2.9 of the Partnership Agreement requires the affirmative
vote of the holders of a majority of the total issued and outstanding units to
approve any amendment or action relating to the Operating Partnership which, if
such amendment or action were proposed for the Partnership, would require
approval of such unitholders. Pursuant to the Section 16.2.1 of the Operating
Partnership Agreement, approval of the proposed amendment requires the
affirmative vote of the holders of a majority of the limited partners of the
Operating Partnership. Because the Partnership is the sole limited partner of
the Operating Partnership, approval by the holders of a majority of the total
issued and outstanding units will satisfy the requirements of both the
Partnership Agreement and the Operating Partnership Agreement for the approval
of Proposal III. SAMLP and its affiliates intended to vote for Proposal III.
SAMLP BELIEVES THAT PROPOSAL III IS IN THE BEST INTERESTS OF THE
PARTNERSHIP AND ITS UNITHOLDERS AND RECOMMENDS THAT YOU VOTE "FOR" APPROVAL OF
PROPOSAL III.
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<PAGE> 25
THE MOORMAN SETTLEMENT AGREEMENT
The Partnership is a party to the Moorman Settlement Agreement, dated
as of May 9, 1990, between a class of plaintiffs including Joseph B. Moorman and
others, and a group of defendants including the Partnership, SAMLP, Robert A.
McNeil, Messrs Phillips and Friedman, and Shearson Lehman Hutton, Inc.
(successor-in-interest to defendant E. F. Hutton & Company Inc.), relating to
the action entitled Moorman, et al. v. Southmark Corporation, et al. This action
was filed on September 2, 1987, in the Superior Court of the State of
California, County of San Mateo. The Class Members are those persons, who, as of
September 17, 1987 were limited partners of one or more of McNeil Real Estate
Fund VI, Ltd., McNeil Real Estate Fund VII, Ltd. and McNeil Real Estate Fund
VIII, Ltd. (each a California limited partnership that was merged into the
Partnership by means of an exchange transaction), exclusive of (i) the
defendants in the action and certain affiliates of such defendants and (ii)
those persons who elected to be excluded from the plaintiff class.
On May 9, 1990, the Partnership agreed to settle the Moorman litigation
by entering into the Moorman Settlement Agreement. The plaintiffs' motion for
class certification, which had been stayed pending settlement negotiations
between the plaintiffs and all of the defendants except Southmark and its
Affiliates, was granted, for purposes of settlement only, on May 16, 1990. On
June 29, 1990, after a hearing as to its fairness, reasonableness and adequacy,
the Moorman Settlement Agreement was granted final court approval.
By agreeing to settle the Moorman litigation, the Partnership, SAMLP,
and Messrs. Phillips and Friedman did not and do not admit any liability
whatsoever.
The terms of the Moorman Settlement Agreement are complex, and the
following summary is qualified in its entirety by reference to the text thereof,
which is included as Exhibit 5.1 to the Partnership's Report on Form 10-Q for
the quarter ended March 31, 1990 as filed with the SEC. The Moorman Settlement
Agreement consists of, among other things, the following: (1) the appointment
and operation of the Oversight Committee to oversee the implementation of the
Moorman Settlement Agreement, (2) the appointment and operation of an audit
committee having a majority of members unaffiliated with Messrs. Phillips and
Friedman or SAMLP, (3) the establishment of specified annually increasing
targets described below for each May 9 beginning with May 9, 1991 and ending May
9, 1995 (each May 9, an "Anniversary Date"), relating to the market price of the
units as decreased for certain distributions to unitholders, (4) an agreement by
SAMLP not to seek reimbursement of greater than $500,000 per year for Messrs.
Phillips' and Friedman's salaries for serving as general partners of SAMLP (Mr.
Friedman resigned as general partner of SAMLP effective March 4, 1994), and a
deferral of such payments until such time as a target may be met, and, upon
SAMLP's resignation as general partner, a waiver of any compensation so
deferred, (5) a deferral until such time as a target may be met of certain
future annual general partner compensation payable, pursuant to the
Partnership's governing documents, to SAMLP or its affiliates, and, upon SAMLP's
resignation as general partner, a waiver of any compensation so deferred, (6)
the required distribution to unitholders of all of the Partnership's operating
cash flow in excess of certain renovation costs, unless the Oversight Committee
approves alternative uses for such operating cash flow, (7) the issuance of
warrants to purchase an aggregate of up to 2,019,579 units (the "Warrants") to
class members of the Moorman litigation, (8) the contribution by certain
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<PAGE> 26
co-defendants of cash and notes payable to the Partnership aggregating $5.5
million (including $2.5 million to be contributed by SAMLP and its general
partners over a four-year period), (9) the amendment of the Partnership
Agreement to reduce the vote required to remove the general partner from a
two-thirds vote to a majority vote of the total issued and outstanding units,
(10) the Partnership's redemption of its unit purchase rights and an agreement
not to adopt a similar rights plan without Oversight Committee approval and (11)
the Partnership's payment of certain settlement costs, including plaintiffs'
attorneys' fees in the amount of approximately $3.4 million.
The Moorman Settlement Agreement will remain in effect until certain
events have occurred, including the resignation of SAMLP as general partner of
the Partnership and the election of a successor general partner. The Warrants
were exercisable for five years from the date of issuance and expired on
February 14, 1997. Prior to their expiration, a total of 1,631 Warrants were
exercised for the purchase of 1,226 units.
SAMLP, on behalf of itself and its general partners, has made the
payments of $2.5 million (including accrued interest) to the Partnership, as
required by the Moorman Settlement Agreement.
The Moorman Settlement Agreement provides that, if targets are not met
for any two successive years or if the fifth target is not met, SAMLP will be
required to resign as general partner of the Partnership effective at the time a
successor general partner is duly elected and admitted to the Partnership. Upon
the later to occur of (i) the distribution of cash described in the Cash
Distribution Agreement and (ii) the withdrawal of SAMLP as the general partner
of the Partnership and the due election and taking office of a successor general
partner, the Moorman Settlement Agreement will terminate.
The targets for the first and second Anniversary Dates were not met.
Because the targets were not met for two successive years, the Moorman
Settlement Agreement requires that SAMLP resign as general partner of the
Partnership, effective upon the election and qualification of its successor. On
July 8, 1992, SAMLP notified the Oversight Committee of the failure to meet the
target for two successive years. Withdrawal of SAMLP as general partner of the
Partnership pursuant to the Moorman Settlement Agreement requires unitholders to
elect a successor general partner by majority vote in accordance with the
Partnership Agreement. Upon the withdrawal or removal of the general partner
without the selection of a successor general partner, the Partnership would be
dissolved.
The Moorman Settlement Agreement also provides that between the date of
the certification causing SAMLP's resignation as general partner of the
Partnership (July 8, 1992) and the date a successor general partner takes
office, the resigning general partner shall limit its activities, as general
partner, to the conduct of the business of the Partnership in the ordinary
course, shall not, without consent of the Oversight Committee, purchase or sell
any real estate or other assets of the Partnership not in progress on said date,
shall cooperate in the election of a successor general partner and shall
cooperate with its successor to facilitate a change in the office of general
partner of the Partnership. The resigning general partner will continue to
receive fees, expenses and distributions, if any, while the solicitation is
prepared.
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Under the current Partnership Agreement, the withdrawal of the general
partner requires the Partnership to acquire the general partner's redeemable
general partner interest at its then fair value and to pay certain fees and
other compensation. Under the Moorman Settlement Agreement, the purchase price
for SAMLP's redeemable general partner interest would be calculated, as of the
time it withdraws as general partner, under the Partnership's governing
documents. SAMI has calculated the fair value of the redeemable general partner
interest in the Partnership and such fees and other compensation at December 31,
1997 to be approximately $49.6 million, and believes that there has been no
material change in such value since such date. The Partnership would be entitled
to offset against any such payment the then outstanding principal balance of the
note receivable ($4.2 million at September 30, 1998) plus all accrued but unpaid
interest ($8.1 million at September 30, 1998) on the note receivable from SAMLP
for its capital contribution to the partnership. The waiver of this fee does
not, however, waive any rights of a successor general partner to receive such
fees in the future pursuant to the partnership agreement. The Oversight
Committee previously has informed the Partnership that it calculated the amount
of such redeemable general partner interest, fees and other compensation,
without giving effect to the note receivable and unpaid interest offset
described above, to be substantially less than the amount calculated by the
SAMI. Pursuant to the terms of the Cash Distribution Agreement, SAMLP has agreed
to assign all of its rights as general partner of the Partnership to NRLP
Management Corp., including the right to receive all payments of fees under the
Partnership Agreement, in consideration for the assumption by NRLP Management
Corp. of the note receivable due from SAMLP. SAMLP has agreed to waive all of
its rights to the payment of the redeemable general partner interest.
Any dispute between the general partner of the Partnership and the
Oversight Committee concerning the operation of the Moorman Settlement Agreement
is to be resolved by the supervising judge appointed pursuant to the Moorman
Settlement Agreement to supervise its implementation.
In an effort to resolve the outstanding issues under the Moorman
Settlement Agreement, in February 1996, the Oversight Committee and the
Partnership entered into an Amended and Restated Implementation Agreement, which
the supervising judge ultimately declined to approve because it did not provide
benefits to the Class Members. See Appendix II, Section II.B. for additional
discussion of the Amended and Restated Implementation Agreement. Thereafter, the
parties entered into the Cash Distribution Agreement.
The Cash Distribution Agreement was submitted to the supervising judge
on July 23, 1998. On August 4, 1998, the supervising judge entered an order
granting preliminary approval of the Cash Distribution Agreement and directed
that a notice be prepared to be mailed to the Class Members describing the Cash
Distribution Agreement. In addition, the supervising judge scheduled October 16,
1998 as the date for the final hearing on any objections to the Cash
Distribution Agreement.
Pursuant to the order entered on August 4, 1998, $11.4 million was
deposited by the Partnership into an escrow account on November ___, 1998
following the final approval by the supervising judge of the Cash Distribution
Agreement. The actual distribution of the cash to the Class Members will occur
immediately following the election and taking office of the successor general
partner. The distribution of the cash shall be made to the Class Members pro
rata based upon
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the number of units originally issued to each Class Member upon the formation of
the Partnership in 1987. The distribution of cash will be under the control of
an independent settlement administrator.
Upon final approval of the supervising judge, the proposal to elect the
successor general partner will be submitted to the unitholders of the
Partnership for a vote. All units of the Partnership owned by SAMLP or its
affiliates (approximately 61.3% of the outstanding units of the Partnership as
of October 16, 1998) will be voted pro rata with the votes of the other limited
partners.
Upon approval by the unitholders of the Partnership, SAMLP shall
withdraw as general partner and NRLP Management Corp. shall take office. If the
required approvals are obtained, it is anticipated that NRLP Management Corp.
will take office during the fourth quarter of 1998. Upon the election and taking
office of NRLP Management Corp. and the distribution of the cash to the Class
Members, the Moorman Settlement Agreement and the Oversight Committee shall be
terminated.
Under the Cash Distribution Agreement, SAMLP has agreed to waive its
rights under the Moorman Settlement Agreement to receive any payment from the
Partnership of an exit fee which would otherwise be required to be paid by the
Partnership pursuant to the Moorman Settlement Agreement. As of December 31,
1997, this fee was calculated by the managing general partner of SAMLP to be
$49.6 million. The Oversight Committee has calculated the amount of the exit fee
to be substantially less than the amount calculated by the managing general
partner of SAMLP. In addition, pursuant to the Cash Distribution Agreement, the
Partnership Agreement will be amended to provide that:
(1) The successor general partner's interest in the partnerships
may not be repurchased by either the Partnership or the Operating Partnership
upon the "voluntary" resignation or removal of the successor general partner.
The term "voluntary" includes:
(a) The merger of the Partnership into another entity in
which ART, or ART's affiliates, are the beneficial owners of more than
10% of such entity prior to such merger or 25% or more of the entity
immediately after the merger; and
(b) The vote of the limited partners to remove the
successor general partner, if,
(i) the general partner is an affiliate of SAMLP or
ART; and
(ii) SAMLP and ART control the vote on the removal
of the general partner.
(2) The successor general partner's interest in the partnerships
may be repurchased by the applicable entity upon such general partner's
involuntarily ceasing to be general partner (e.g., by court order, by removal by
the limited partners other than as described in (1)(b) above, or by a merger
that is not a "voluntary" merger).
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<PAGE> 29
(3) If the successor general partner's interest is repurchased, the
fair market value purchase price of such interest will be determined under
Section 17.10 of the Partnership Agreement, which section is not being amended.
The Partnership will be entitled to offset both the note to the Partnership from
SAMLP for its capital contribution to the Partnership (principal and accrued
interest assumed by the successor general partner) and the note to the
Partnership from SAMLP for the repayment of the total amount of cash distributed
by the Partnership under the Cash Distribution Agreement. Any remaining positive
balance will be paid by the Partnership pursuant to an unsecured fully
amortizing 36 month promissory note bearing interest at 10% per year. Any
deficit will be required to be repaid by the successor general partner, or by
ART pursuant to its guaranty.
(4) A successor general partner that succeeds to the office of
general partner after one or more prior general partners have had their
interest(s) repurchased will be entitled to have its interest repurchased, but
will also be required to set off any amounts paid to any prior general partners.
(5) No general partner shall be entitled to receive a fee if a
prior general partner already received such a fee or had its interest purchased
based on the inclusion of such fee. In such case, the general partner shall only
be entitled to fees based on the amount of increase over the amount of fees that
were already paid to the prior general partner.
Conforming amendments to the Operating Partnership Agreement shall also be made.
Under the Cash Distribution Agreement, NRLP Management Corp., as
successor general partner, will assume all of the rights and liabilities of
SAMLP, including (i) the right to receive the exit fee described above, (ii)
liability for the note to the Partnership from SAMLP for its capital
contribution to the Partnership and (iii) liability for a note due from SAMLP to
the Partnership which note will require the repayment of the total amount of
cash distributed by the Partnership under the Cash Distribution Agreement. The
note related to repayment of the cash distributed pursuant to the Cash
Distribution Agreement will require repayment over a ten-year period, bear
interest equal to LIBOR plus 2% per annum and be guaranteed by ART.
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<PAGE> 30
COMPENSATION AND FEES TO THE GENERAL PARTNER
If the unitholders approve each of the proposals, SAMLP will be
replaced by NRLP Management Corp. as the general partner of the Partnership.
NRLP Management Corp., as the successor general partner, shall be entitled to
receive all forms of compensation currently allowed to be paid to the general
partner under the Partnership Agreement except that no general partner,
including NRLP Management Corp. will be entitled to a fee if a prior general
partner received such fee or had its general partner interest repurchased based
on the inclusion of such fee.
SAMLP and certain affiliates of SAMLP currently perform a variety of
services for the Partnership, and it is expected that NRLP Management Corp. and
certain affiliates of NRLP Management Corp. will continue to perform such
services. While it is not possible to forecast the level or nature of such
services or the charges that may be payable therefor, the following discussion
of certain past and present services and payments is provided.
GENERAL
Mr. Phillips is a general partner of SAMLP. Mr. Phillips served as a
director, Chairman of the Board and Chief Executive Officer of SAMI until May
15, 1996. Mr. Phillips and the executive officers of SAMI also serve as officers
or directors of various other real estate entities. These entities may have the
same objectives and may be engaged in activities similar to those of the
Partnership.
PROPERTY MANAGEMENT FEES
As compensation for providing property management services to the
Partnership's properties, as provided in the Partnership Agreement, the general
partner or an affiliate of the general partner is to receive a reasonable
property management fee. Currently, Carmel Realty Services, Ltd. ("Carmel
Ltd."), an affiliate of SAMLP, provides such property management services for a
fee of 5% of the monthly gross rents collected on the properties under its
management. Carmel, Ltd. subcontracts with other entities for the property-level
management services to the Partnership at various rates. The general partner of
Carmel, Ltd. is BCM, the corporate parent of SAMI. The limited partners of
Carmel, Ltd. are (i) First Equity Properties, Inc. ("First Equity"), which is
50% owned by BCM, (ii) Mr. Phillips, and (iii) a trust for the benefit of the
children of Mr. Phillips. Carmel, Ltd. subcontracts the property-level
management and leasing of twelve of the Partnership's commercial properties to
Carmel Realty, a company owned by First Equity. Carmel Realty is entitled to
receive property and construction management fees and leasing commissions in
accordance with the terms of its property-level management agreement with
Carmel, Ltd.
LEASING COMMISSIONS
As compensation for providing leasing and rent-up services for a
Partnership property, as provided in the Partnership Agreement, the general
partner or an affiliate of the general partner shall be paid a reasonable
leasing commission.
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<PAGE> 31
REIMBURSEMENT OF ADMINISTRATIVE EXPENSES
To the extent that officers or employees of the general partner or any
of their affiliates participate in the operation or administration of the
Partnership, the general partner and its affiliates are to be reimbursed under
the Partnership Agreement for salaries, travel, rent, depreciation, utilities
and general overhead items incurred and properly allocable to such services. BCM
currently performs certain administrative and other functions, including
accounting services, mortgage servicing and portfolio review and analysis for
the Partnership on a cost reimbursement basis.
GENERAL PARTNER COMPENSATION
As base compensation for providing administrative and management
services under the Partnership Agreement, the general partner is entitled to
receive from the Partnership, an annual partner management fee equal to 10% of
distributions made in each calendar year of Cash from Operations (as defined in
the Partnership Agreement) for the calendar year, payable within 90 days after
the end of that calendar year. As additional incentive compensation, the general
partner is entitled to receive in each calendar year an amount equal to 1% of
the Average Unit Market Price (as defined in the Partnership Agreement) for that
calendar year; provided that no incentive compensation is payable unless
distributions of Cash from Operations exceed 6% of the Exchange Value (as
defined in the Partnership Agreement) of the original assets. Pursuant to the
Settlement Agreement, SAMLP has waived its base compensation during the pendency
of the Moorman Settlement Agreement.
REAL ESTATE BROKERAGE COMMISSIONS
The general partner or an affiliate of the general partner may,
pursuant to the Partnership Agreement, charge a reasonable real estate
commission, payable at the time the Partnership acquires title to, or beneficial
ownership in, an acquired property. Upon the sale of any property by the
Partnership, the general partner or an affiliate of the general partner may,
pursuant to the Partnership Agreement, charge a reasonable real estate brokerage
commission, payable at the time the Partnership transfers title to the property.
In each case, such commissions are payable only if the general partner or such
affiliate actually performed brokerage services.
INCENTIVE DISPOSITION FEE
Under the Partnership Agreement, the general partner or an affiliate of
the general partner is paid a fee equal to 10% of the amount, if any, by which
the Gross Sales Price (as defined in the Partnership Agreement) of any property
sold by the Partnership exceeds 110% of the Adjusted Cost (as defined in the
Partnership Agreement) of such property.
ACQUISITION FEES
As compensation under the Partnership Agreement for services rendered
in structuring and negotiating the acquisition by the Partnership of any
property, other than an Initial Property (as defined in the Partnership
Agreement), the general partner or an affiliate of the general partner is
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<PAGE> 32
paid a fee in an amount equal to 1% of the Original Cost (as defined in the
Partnership Agreement) of such property.
FEES FOR ADDITIONAL SERVICES
Under the Partnership Agreement, the general partner or an affiliate of
the general partner may provide services other than those set out above for the
Partnership in return for reasonable compensation.
SUMMARY OF FEES
Total fees and cost reimbursements paid to SAMLP and its affiliates in each of
1997, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
(in thousands)
<S> <C> <C> <C>
Property and construction
management fees* ............... $ 826 $ 744 $ 700
Loan placement fees ............... 332 89 423
Real estate commissions ........... 414 -- 576
Leasing commissions ............... 96 67 73
Reimbursement of administrative
expenses .......................... 3,659 2,610 3,232
------ ------ ------
$5,327 $3,510 $5,004
====== ====== ======
</TABLE>
- ----------------------
* Net of property management fees paid to subcontractors, other than Carmel
Realty.
EXECUTIVE COMPENSATION
Neither the Partnership nor the Operating Partnership has any
employees, payroll or benefit plans and neither pays any salary or other cash
compensation directly to any person other than (i) $50,000 per year to each
member of the Oversight Committee plus $48,000 per year to an analyst engaged by
the Oversight Committee, (ii) $4,000 per year to each member of the Audit
Committee of the Partnership and (iii) the fee and expense reimbursements
described above, paid in accordance with the Partnership Agreement to the
general partner or its affiliates for services provided to the Partnership.
SAMI has no employees, payroll or benefit plans and pays no
compensation to its officers or directors.
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<PAGE> 33
The Moorman Settlement Agreement provides that effective May 1, 1990,
the Partnership's future reimbursement of any salaries which may be paid to
Messrs. Phillips and Friedman shall be limited to an aggregate of $500,000 per
year, for any such reimbursement of salaries to be deferred until such time as a
target may be met and, if SAMLP resigns as general partner during the pendency
of the Moorman Settlement Agreement, for the waiver of any reimbursement of
salary so deferred. Accordingly, no reimbursement for the salaries of Messrs.
Phillips and Friedman was charged to or paid by the Partnership in the period
January 1, 1991 through December 31, 1997. Mr. Friedman resigned as a general
partner of SAMLP on March 4, 1994.
Mr. Phillips may indirectly benefit from other payments made by the
Partnership to certain related parties.
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<PAGE> 34
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
CERTAIN BUSINESS RELATIONSHIPS
The Partnership is the sole limited partner of the Operating
Partnership and owns 99% of the beneficial interest in the Operating
Partnership. SAMLP is the general partner of, and owner of 1% beneficial
interest in, each of the Partnership and the Operating Partnership. Southmark
Asset Management, Inc., a wholly-owned subsidiary of Southmark, was the managing
general partner of SAMLP until January 17, 1989, when it transferred its 96%
limited partnership interest to ART, a real estate investment company of which
Messrs. Phillips and Friedman served as officers and directors until November
16, 1992 and December 31, 1992, respectively. As a result, Messrs. Phillips and
Friedman became the sole general partners of SAMLP, and each owned 2% of the
beneficial interest in SAMLP.
On July 18, 1989, Messrs. Phillips and Friedman each assigned .05% of
their general partner interest in SAMLP to SAMI, a company of which Mr. Phillips
served as a director, Chairman of the Board and Chief Executive Officer until
May 15, 1996, and of which BCM is the sole shareholder. On March 4, 1994, Mr.
Friedman resigned as a general partner of SAMLP. As a result, Mr. Phillips and
SAMI are the general partners of SAMLP, with 1.95% and .10%, respectively, of
the beneficial interest in SAMLP. Mr. Friedman's 1.95% interest in SAMLP is now
a limited partner interest. SAMI was appointed managing general partner of SAMLP
on June 18, 1990. Bruce A. Endendyk, Executive Vice President of SAMI, was
Executive Vice President from January 1989 to November 1990 of Southmark and
President and Chief Executive Officer of Southmark Equities Corporation from
March 1988 to January 1989. Thomas A. Holland, Executive Vice President and
Chief Financial Officer of SAMI, was Vice President and Controller of Southmark
from December 1986 to June 1990. Karl L. Blaha, Executive Vice President of
SAMI, was Corporate Vice President from August 1988 to March 1992 of Southmark
and President of Southmark Commercial Management from March 1986 to August 1988.
Since February 1, 1990, affiliates of the general partner have provided
property management services to the Partnership. Currently, Carmel, Ltd.
provides property management services for a fee of 5% of the monthly gross rents
collected on the properties under its management. Carmel, Ltd. subcontracts with
other entities for the property-level management services to the Partnership at
various rates. The general partner of Carmel, Ltd. is BCM. The limited partners
of Carmel, Ltd. are (i) First Equity, which is 50% owned by BCM, (ii) Mr.
Phillips, and (iii) a trust for the benefit of Mr. Phillips' children. BCM is a
company which is owned by a trust for the benefit of the children of Mr.
Phillips. BCM performs certain administrative and other functions for the
Partnership.
Messrs. Paulson, Holland, Endendyk, Johnson and Blaha serve as
executive officers of BCM. Mr. Phillips served as a director until December 1989
and Chief Executive Officer until September 1, 1992, of BCM. Messrs. Paulson,
Holland, Endendyk, Johnson and Blaha serve as executive officers of CMET, IORI,
TCI and ART. BCM serves as advisor to CMET, IORI, TCI and ART.
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<PAGE> 35
Certain members of the Oversight Committee have provided professional
services to the Partnership. Also, see Exhibit C attached to Appendix II,
summarizing the disputes and settlement of claims between SAMLP and Invenex.
RELATED PARTY TRANSACTIONS
The Partnership has engaged in business transactions with certain
related parties and may continue to do so, subject to unanimous approval of the
Oversight Committee during the term of the Moorman Settlement Agreement. The
Partnership believes that all of the related party transactions were at least as
advantageous to the Partnership as could have been obtained from unrelated third
parties.
The Partnership has paid and pays cost reimbursements, property
management fees or other cash compensation to the general partner and its
affiliates and other related parties. See "Compensation and Fees to the General
Partner". BCM, an affiliate of the general partner, performs certain
administrative functions of the Partnership on a cost reimbursement basis. The
Fairness Committee has approved the formula for computing the Partnership's
proportionate share of certain of BCM's reimbursable costs. Since February 1,
1990, affiliates of the general partner have provided property management
services to the Partnership. Carmel, Ltd. subcontracts with other entities for
the property-level management services to the Partnership. Carmel, Ltd.
subcontracts the property-level management and leasing of twelve of the
Partnership's commercial properties to Carmel Realty, which is a company owned
by First Equity. Carmel Realty is entitled to receive property and construction
management fees and leasing commissions in accordance with the terms of its
property-level management agreement with Carmel, Ltd. Carmel, Ltd. and Carmel
Realty also perform similar services for ART, CMET, IORI and TCI.
The Partnership's Fairness Committee periodically reviewed certain
transactions between the Partnership and its affiliates. The Fairness Committee
approved the terms of the Partnership's contracts and terms for services and
reimbursements with affiliates. Messrs. Schrag and Davis, the members of the
Fairness Committee, resigned from the committee in February and August 1995,
respectively.
The Partnership's Oversight Committee must approve certain types of
transactions between the Partnership and SAMLP or its affiliates pursuant to the
Moorman Settlement Agreement.
INDEBTEDNESS OF MANAGEMENT
In return for its 1% interest in the Partnership, the general partner
was required to make aggregate capital contributions to the Partnership in an
amount equal to 1.01% of the total initial capital contributions to the
Partnership. SAMLP contributed $500,000 cash with the remaining portion
evidenced by a promissory note in the principal amount of $4.2 million, bearing
interest at the rate of 10% per annum compounded semi-annually and payable on
the earlier of September 18, 2007, liquidation of the Partnership or a
termination of SAMLP's interest in the Partnership. As of September 30, 1998, no
payments had been received on such note. At September 30, 1998, accrued
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<PAGE> 36
and unpaid interest on the note totaled $8.1 million. Upon approval of Proposal
I, NRLP Management Corp. will assume all of SAMLP's obligations under such note.
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INTERESTS OF CERTAIN PERSONS
Since February 1, 1990, affiliates of the general partner have provided
property management services to the Partnership. Currently, Carmel, Ltd.
provides such property management services. Carmel, Ltd. subcontracts with other
entities for the property-level management services to the Partnership. The
general partner of Carmel, Ltd. is BCM. The limited partners of Carmel, Ltd. are
(i) First Equity, which is 50% owned by BCM, (ii) Mr. Phillips, and (iii) a
trust for the benefit of the children of Mr. Phillips. Carmel, Ltd. subcontracts
the property-level management and leasing of twelve of the Partnership's
commercial properties to Carmel Realty, which is a company owned by First
Equity. Carmel Realty is entitled to receive property and construction
management fees and leasing commissions in accordance with the terms of its
property-level management agreement with Carmel, Ltd.
BCM performs administrative functions such as accounting services,
mortgage servicing and portfolio review and analysis for the Partnership on a
cost reimbursement basis. Affiliates of BCM also perform loan placement
services, leasing services and real estate brokerage, and other services for the
Partnership for fees and commissions.
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<PAGE> 38
MANAGEMENT
MANAGEMENT AND OPERATION
As a partnership, the Partnership has no officers or directors. The
general partner of the Partnership is SAMLP, whose general partners are Mr.
Phillips and SAMI. SAMI serves as managing general partner. Mr. Phillips is
associated with a number of entities which have business objectives that are
similar in certain respects to those of the Partnership. See "Certain Business
Relationships and Related Transactions". SAMI, as the managing general partner
of SAMLP, manages the day-to-day affairs of the Partnership which include all
decisions with respect to the acquisition, disposition, improvement, financing
or refinancing of the Properties, subject to the limitations of the Moorman
Settlement Agreement. In addition, SAMI's corporate parent, BCM performs certain
administrative functions and other services for the Partnership for cost
reimbursements and fees. The individual general partner of SAMLP and the
executive officers and sole director of SAMI are listed below, together with
their ages, terms of service, their principal occupations, business experience
and directorships with other companies during the last five years or more.
GENE E. PHILLIPS: Age 61, General Partner (since 1987) of SAMLP; Chairman of the
Board, Director and Chief Executive Officer (March 1989 to May 1996) of SAMI.
Director and Secretary (since 1982), Chief Executive Officer (since
September 1992, President (since July 1994) and the sole shareholder of
Syntek West, Inc.; Chairman of the Board (since 1978) and President
(since July 1994) of Restaurant Properties, Inc., formerly Hungry Bull,
Inc.; Limited Partner (since January 1991) of Carmel, Ltd; Chief
Executive Officer (February 1989 to September 1992) and Chairman of the
Board (February 1989 to December 1989) of BCM; Director and President
(November 1989 to September 1992) of Carmel Realty Services, Inc.);
Chairman of the Board (1984 to November 1992), Director (1981 to
November 1992), Chief Executive Officer (1982 to July 1991) and
President (February 1989 to July 1991) of ART; and Trustee or Director
(January 1989 to December 1992) of TCI, VPT, NIRT, CMET and IORI.
RANDALL M. PAULSON: Age 52, President and Director (since August 1995) and
Executive Vice President (January 1995 to August 1995) of SAMI.
Director of NRLP Management Corp. (since January 1998), President
(since August 1995 and Executive Vice President (January 1995 to August
1995) of CMET, IORI and TCI and (October 1994 to August 1995) of BCM;
Executive Vice President (since January 1995) of ART; Vice President
(1993 to 1994) of GSSW, LP, a joint venture of Great Southern Life and
Southwestern Life; Vice President (1990 to 1993) of Property Company of
America Realty, Inc.; and President (1990) of Paulson Realty Group.
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<PAGE> 39
KARL L. BLAHA: Age 51, Executive Vice President - Commercial Asset Management
(since July 1997) of SAMI.
Executive Vice President - Commercial Asset Management (since July
1997), Executive Vice President and Director of Commercial Management
(April 1992 to August 1995) of BCM, CMET, IORI and TCI; Director (since
June 1996), President (since October 1993) and Executive Vice President
and Director of Commercial Management (April 1992 to October 1993) of
ART; Executive Vice President (October 1992 to July 1997) of Carmel
Realty, a company owned by First Equity, a company 50% owned by BCM;
Director and President (since 1996) of First Equity; Executive Vice
President and Director of Commercial Management (April 1992 to February
1994) of NIRT and VPT; Partner - Director of National Real Estate
Operations of First Winthrop Corporation (August 1988 to March 1992);
and Corporate Vice President of Southmark (April 1984 to August 1988).
BRUCE A. ENDENDYK: Age 50, Executive Vice President (since January 1995) of
SAMI.
President (since January 1995) of Carmel Realty; Executive Vice
President (since January 1995) of BCM, ART, CMET, IORI and TCI;
Management Consultant (November 1990 to December 1994); Executive Vice
President (January 1989 to November 1990) of Southmark; and President
and Chief Executive Officer (March 1988 to January 1989) of Southmark
Equities Corporation.
THOMAS A. HOLLAND: Age 56, Executive Vice President and Chief Financial Officer
(since August 1995) and Senior Vice President and Chief Accounting Officer (July
1990 to August 1995) of SAMI.
Executive Vice President and Chief Financial Officer (since August
1995) and Senior Vice President and Chief Accounting Officer (July 1990
to August 1995) of SAMI; Executive Vice President and Chief Financial
Officer (since August 1995), Secretary (since February 1997) and Senior
Vice President (July 1990 to August 1995) of CMET, IORI and TCI;
Executive Vice President and Chief Financial Officer (since August
1995) and Senior Vice President and Chief Accounting Officer (July 1990
to August 1995) of BCM and ART; and Senior Vice President and Chief
Accounting Officer (July 1990 to February 1994) of NIRT and VPT.
STEVEN K. JOHNSON: Age 41, Executive Vice President - Residential Asset
Management (since August 1998).
Executive Vice President - Residential Asset Management (since August
1998) and Vice President (August 1990 to August 1991) of BCM, SAMI,
ART, CMET, IORI and TCI; Chief Operating Officer (January 1993 to
August 1998) of Garden Capital, Inc.; Executive Vice President
(December 1994 to August 1998) of Garden Capital Management, Inc.; Vice
President (August 1991 to January 1993) of SHL Properties Realty
Advisors, Inc. and SHL Acquisition Corporation II and III; and Vice
President (August 1990 to August 1991) of NIRT and VPT.
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Administrative Agent. BCM, of which Mr. Phillips served as Chief
Executive Officer until September 1, 1992, and of which Mr. Paulson serves as
President, performs certain administrative functions such as accounting
services, mortgage servicing and real estate portfolio review and analysis for
the Partnership on a cost reimbursement basis.
Affiliates of BCM perform property management, loan placement, leasing
and real estate brokerage and acquisition services, and may perform other
services, for the Partnership for fees and commissions. BCM's principal business
activity is the providing of advisory services for real estate companies. The
directors and principal officers of BCM are set forth below:
MICKEY N. PHILLIPS: Director
RYAN T. PHILLIPS: Director
RANDALL M. PAULSON: President
KARL L. BLAHA: Executive Vice President - Commercial Asset
Management
BRUCE A. ENDENDYK: Executive Vice President
THOMAS A. HOLLAND: Executive Vice President and Chief Financial
Officer
STEVEN K. JOHNSON: Executive Vice President - Residential Asset
Management
A. CAL ROSSI, JR. Executive Vice President
COOPER B. STUART: Executive Vice President
CLIFFORD C. TOWNS, JR.: Executive Vice President - Finance
DAN S. ALLRED: Senior Vice President - Land Development
ROBERT A. WALDMAN: Senior Vice President, Secretary and General
Counsel
DREW D. POTERA: Vice President, Treasurer and Securities
Manager
Mickey N. Phillips is Gene E. Phillips' brother and Ryan T. Phillips is Gene E.
Phillips' son.
Oversight Committee. As more fully described under "The Moorman
Settlement Agreement", the Partnership is a party to the Moorman Settlement
Agreement that, among other
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<PAGE> 41
things, established an Oversight Committee which will exist only until
termination of the Moorman Settlement Agreement.
Unanimous consent of the Oversight Committee is required, during the
term of the Moorman Settlement Agreement, for the Partnership to adopt a new
unit purchase rights plan, or for SAMLP, on behalf of the Partnership, to enter
into or modify any transaction (other than certain transactions expressly
permitted by the Partnership Agreement) with an affiliate of the Partnership,
SAMLP, or Messrs. Phillips or Friedman. Majority consent of the Oversight
Committee is required, during the term of the Moorman Settlement Agreement for
SAMLP, on behalf of the Partnership, to purchase securities of other issuers
other than certain money market instruments and mortgages in the ordinary course
of the Partnership's business, or to enter any new line of business.
Pursuant to the Moorman Settlement Agreement, the Partnership pays each
member of the Oversight Committee $50,000 per year. SAMLP believes the
Partnership's obligation to pay such compensation ceased May 9, 1995. However,
the supervising judge entered an order on May 19, 1995, providing that the
obligation to pay such compensation shall continue until the Moorman Settlement
Agreement has been terminated and the Oversight Committee has been dissolved.
The Partnership also pays the salary of an Oversight Committee employee, and
reimburses certain of the Oversight Committee's expenses including legal fees.
Fairness Committee. The Partnership's Fairness Committee periodically
reviewed certain transactions between the Partnership and its affiliates. The
Partnership Agreement requires Fairness Committee approval of the interest rate
to be paid on loans from the general partner or its affiliates, the terms of any
property sales to or purchases from the general partner or its affiliates, the
purchase of securities from the general partner or its affiliates and, upon any
withdrawal of the general partner, the purchase price of the general partner's
interest in the Partnership and in the fees and other compensation to be paid
under the Partnership Agreement.
The Partnership Agreement provides that the Fairness Committee shall
consist of two or more natural persons, none of whom shall be affiliates of the
general partner except as directors of the managing general partner.
The Fairness Committee consisted of two members until February 1995,
when Raymond V. J. Schrag resigned. The remaining member of the Fairness
Committee, Willie K. Davis, resigned in August 1995.
Audit Committee. The Partnership's Audit Committee, which reviews
certain matters relating to the Partnership's auditors and annual and quarterly
financial statements, was established effective August 3, 1990, pursuant to the
Moorman Settlement Agreement. The chairman and only member of the Audit
Committee is Harry J. Reidler, an attorney in private practice in Englewood, New
Jersey. The Audit Committee held two meetings during 1997.
Mr. Reidler has performed legal services for the Partnership.
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<PAGE> 42
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Under the securities laws of the United States, the directors and
executive officers of the general partner and any persons holding more than 10%
of the units are required to report their ownership of the units and any changes
in that ownership to the SEC. Specific due dates for these reports have been
established and the Partnership is required to report any failure to file by
these dates during 1997. All of these filing requirements were satisfied by the
directors and executive officers of the general partner and 10% holders. In
making these statements, the Partnership has relied on the written
representation of the directors and executive officers of the managing general
partner of the general partner and its 10% holders and copies of the reports
that they have filed with the SEC. See "Interests of Certain Persons" and
"Compensation and Fees to the General Partner".
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<PAGE> 43
AVAILABLE INFORMATION
The Partnership files annual, quarterly and current reports, proxy
statements and other information with the SEC relating to its business,
financial statements and other matters. You may read and copy any such reports,
statements and other information filed by the Partnership at the SEC's public
reference room in Washington, D.C. You can request copies of these documents,
upon payment of a copying fee, by writing to the SEC. Please call the SEC at
1-800-SEC-0330 for further information on the operation of the public reference
rooms. Our SEC filings are also available to the public on the SEC's Internet
site (http://www.sec.gov). The Partnership units are listed on the American
Stock Exchange and such material can also be inspected at the AMEX Information
Center at 86 Trinity Place, New York, New York 10006-1881.
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<PAGE> 44
EXHIBIT A
SECOND AMENDMENT TO
FIRST AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
OF
NATIONAL REALTY, L.P.
A DELAWARE LIMITED PARTNERSHIP
==============================================
This Second Amendment (the "Second Amendment") to First Amended and
Restated Agreement of Limited Partnership of NATIONAL REALTY, L.P. (the
"Partnership"), is made and entered into as of the _____ day of __________,
1998, by Syntek Asset Management, L.P., a Delaware Limited Partnership, as
General Partner (the "General Partner").
WHEREAS, the General Partner, National Realty Assignor, Inc., as the
Organizational Limited Partner, for all limited partners of the Partnership
(the "Limited Partners") entered into the First Amended and Restated Agreement
of Limited Partnership of National Operating, L.P., (the "Partnership
Agreement"), dated as of January 29, 1987, and the General Partner, together
with a former general partner, amended the Partnership Agreement by executing
the Certificate of Amendment of Limited Partnership Agreement of National
Realty, L.P. (the "First Amendment"), dated as of May 14, 1990;
WHEREAS, Paragraph 16.2.1 of the Partnership Agreement permits the
amendment of the Partnership Agreement upon approval of a majority of the
Limited Partners;
WHEREAS, the Limited Partners evidencing ____% of the total
outstanding limited partnership interests in the Partnership have approved this
Second Amendment at a special meeting held on ________________;
WHEREAS, pursuant to Paragraph 20.1.6, the Limited Partners have
granted the General Partner a special power of attorney to execute certain
documents on their behalf after the necessary vote, consent or approval;
WHEREAS, the General Partner, being the sole general partner of the
Partnership, and ____% of the Limited Partners, (thereby satisfying the
requirements of Paragraph 16.2.1), desire to further amend the Partnership
Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements hereinafter set forth, the parties hereto agree as
follows:
Section 1. In the first sentence of Paragraph 17.2.2, the words
"upon 180 days' notice" are hereby deleted.
<PAGE> 45
Section 2. To the extent of any inconsistencies between the
terms of this Second Amendment and the terms of the Partnership Agreement, the
terms of this Second Amendment shall control.
Section 3. The Partnership Agreement, as modified herein,
remains in full force and effect as the agreement of the parties.
Section 4. This Second Amendment may be executed in any number
of counterparts, and each counterpart hereof shall be deemed to be an original
instrument, but all counterparts hereof taken together shall constitute but a
single instrument.
IN WITNESS WHEREOF, this Second Amendment has been duly executed by
the parties hereto as of the date first written above.
GENERAL PARTNER
SYNTEK ASSET MANAGEMENT, L.P.
A Delaware Limited Partnership
By: SYNTEK ASSET MANAGEMENT, INC., its
general partner
By:
---------------------------
Name:
-------------------------
Title:
------------------------
LIMITED PARTNERS
SYNTEK ASSET MANAGEMENT, L.P.
A Delaware Limited Partnership, for
all Limited Partners now and hereafter
admitted as limited partners of the
Partnership, pursuant to the power of
attorney included in the Partnership
Agreement
By: SYNTEK ASSET MANAGEMENT, INC., its
general partner
By:
---------------------------
Name:
-------------------------
Title:
------------------------
<PAGE> 46
EXHIBIT B
SECOND AMENDMENT TO
SECOND RESTATED AND AMENDED
AGREEMENT OF LIMITED PARTNERSHIP
OF
NATIONAL OPERATING, L.P.
A DELAWARE LIMITED PARTNERSHIP
=================================================
This Second Amendment (the "Second Amendment") to Second Restated and
Amended Agreement of Limited Partnership of NATIONAL OPERATING, L.P. (the
"Partnership"), is made and entered into as of the _____ day of __________,
1998, by Syntek Asset Management, L.P., a Delaware Limited Partnership, as the
General Partner (the "General Partner"), and National Realty, L.P., a Delaware
Limited Partnership, as the Limited Partner (the "Limited Partner").
WHEREAS, the General Partner and the Limited Partner entered into the
Second Restated and Amended Agreement of Limited Partnership of National
Operating, L.P., (the "Partnership Agreement"), dated as of July 29, 1987, and
the General Partner, together with a former general partner, amended the
Partnership Agreement by executing the Certificate of Amendment of Limited
Partnership Agreement of National Operating, L.P. (the "First Amendment"),
dated as of May 14, 1990;
WHEREAS, Paragraph 16.2.1 of the Partnership Agreement permits the
amendment of the Partnership Agreement upon approval of a majority of the
Limited Partners;
WHEREAS, the General Partner, being the sole general partner of the
Partnership, and the Limited Partner, being the sole limited partner of the
Partnership (thereby satisfying the requirements of Paragraph 16.2.1), desire
to further amend the Partnership Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements hereinafter set forth, the parties hereto agree as
follows:
Section 1. In the first sentence of Paragraph 17.2.2, the words "upon
180 days' notice" are hereby deleted.
Section 2. To the extent of any inconsistencies between the terms of
this Second Amendment and the terms of the Partnership Agreement, the terms of
this Second Amendment shall control.
Section 3. The Partnership Agreement, as modified herein, remains in
full force and effect as the agreement of the parties.
<PAGE> 47
Section 4. This Second Amendment may be executed in any number of
counterparts, and each counterpart hereof shall be deemed to be an original
instrument, but all counterparts hereof taken together shall constitute but a
single instrument.
IN WITNESS WHEREOF, this Second Amendment has been duly executed by
the parties hereto as of the date first written above.
GENERAL PARTNER
SYNTEK ASSET MANAGEMENT, L.P.
A Delaware Limited Partnership
By:
--------------------------------
Name:
-------------------------------
Title:
------------------------------
LIMITED PARTNER
NATIONAL REALTY, L.P.
A Delaware Limited Partnership
By:
--------------------------------
Name:
-------------------------------
Title:
------------------------------
<PAGE> 48
APPENDIX I
GLOSSARY OF DEFINED TERMS
AHI: ART Holdings, Inc.
Anniversary Date: Each May 9 beginning with May 9, 1991 and ending May
9, 1995.
ART: American Realty Trust, Inc., a Georgia corporation.
BCM: Basic Capital Management, Inc., a Nevada corporation.
BHI: BCM Holdings, Inc.
Carmel Ltd.: Carmel Realty Services, Ltd.
Carmel Realty: Carmel Realty, Inc.
Cash Distribution Agreement: The Agreement for Cash Distribution and
Election of Successor General Partner, dated as of July 15, 1998, by and among
SAMLP, American Realty Trust, Inc., the Partnership and the Oversight Committee,
as amended by orders of the Superior Court of the State of California for the
County of Mateo, dated August 4, 1998 and September 1, 1998.
Class Members: The members of the class of plaintiffs in the Moorman
litigation.
CMET: Continental Mortgage and Equity Trust.
Exchange Act: Securities Exchange Act of 1934.
First Equity: First Equity Properties, Inc.
Indemnified Person: Each of the members of the Oversight Committee,
their agents, advisors, attorneys and affiliates.
Invenex: Invenex, a California corporation, formerly known as
Partnership Securities Exchange, Inc.
IORI: Income Opportunity Realty Investors, Inc., a Nevada corporation.
Moorman Settlement Agreement: The settlement agreement, dated as of May
9, 1990, between a class of plaintiffs including Joseph B. Moorman and others,
and a group of defendants including the Partnership, SAMLP, Robert A. McNeil,
Messrs. Phillips and Friedman and Shearson
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<PAGE> 49
Lehman Hutton, Inc., successor-in-interest to defendant E.F. Hutton & Company,
Inc., relating to the action entitled Moorman, et al. v. Southmark Corporation,
et al.
NIRT: National Income Realty Trust.
Operating Partnership: National Operating, L.P., a Delaware limited
partnership.
Operating Partnership Agreement: The Second Restated and Amended
Agreement of Limited Partnership of National Operating, L.P.
Partnership: National Realty, L.P., a Delaware limited partnership.
Partnership Agreement: The First Amended and Restated Agreement of
Limited Partnership of National Realty, L.P.
Proposal I: The election of NRLP Management Corp. as successor general
partner to replace SAMLP, the current general partner of National Realty, L.P.
Proposal II: The amendment of the partnership agreement of National
Realty, L.P. to facilitate the withdrawal of SAMLP as general partner.
Proposal III: The amendment of National Operating, L.P. to facilitate
the withdrawal of SAMLP as general partner.
Record Date: November 12, 1998.
SAMI: Syntek Asset Management, Inc., a Texas corporation and a general
partner of SAMLP.
SAMLP: Syntek Asset Management, L.P., a Delaware limited partnership.
SAMLP Affiliate Group: All units held by SAMLP or any affiliate of
SAMLP.
SEC: The Securities and Exchange Commission.
Southmark: Southmark Corporation.
TCI: Transcontinental Realty Investors, Inc.
VPT: Vinland Property Trust.
Warrants: Warrants to purchase an aggregate of up to 2,019,579 units of
limited partnership interest in the Partnership.
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<PAGE> 50
APPENDIX II
IN THE
SUPERIOR COURT OF THE STATE OF CALIFORNIA
IN AND FOR THE COUNTY OF SAN MATEO
<TABLE>
<S> <C>
JOSEPH B. MOORMAN, et al., Case No. 322135
Plaintiffs, CLASS ACTION
vs. NOTICE OF HEARING TO CONSIDER APPROVAL OF AMENDED
AGREEMENT FOR CASH DISTRIBUTION AND ELECTION OF
SOUTHMARK CORPORATION, SUCCESSOR GENERAL PARTNER, AND FOR TERMINATION OF THE
NATIONAL REALTY, L.P., et al., 1990 MOORMAN SETTLEMENT AGREEMENT
Defendants.
</TABLE>
TO: 1. ALL MOORMAN CLASS MEMBERS (LIMITED PARTNERS AND FORMER LIMITED PARTNERS
OF NATIONAL REALTY, L.P., WHO HAD BEEN LIMITED PARTNERS OF MCNEIL REAL
ESTATE FUND VI, LTD., MCNEIL REAL ESTATE FUND VII, LTD., AND/OR MCNEIL
REAL ESTATE FUND VIII, LTD.); AND
2. ALL PRESENT LIMITED PARTNERS OF NATIONAL REALTY, L.P.
THIS NOTICE IS TO INFORM YOU OF THE EXISTENCE, AND OF YOUR RIGHT TO OBJECT TO
COURT APPROVAL, OF AN AMENDED CASH DISTRIBUTION AGREEMENT.
PLEASE READ THIS NOTICE VERY CAREFULLY AND IN ITS ENTIRETY. YOUR RIGHTS MAY BE
AFFECTED BY LEGAL PROCEEDINGS RELATED TO THE SETTLEMENT AGREEMENT AND THE
AMENDED CASH DISTRIBUTION AGREEMENT.
<PAGE> 51
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C> <C> <C>
I. SUMMARY OF THE CONTENTS OF THIS NOTICE................................ 1
II. BACKGROUND............................................................ 2
A. The Settlement Agreement......................................... 2
B. The Implementation Agreement..................................... 3
C. The Resolution Agreement......................................... 3
D. The Amended Cash Distribution Agreement.......................... 3
E. Purpose of Notice................................................ 4
F. Timing and Election of Successor General Partners................ 4
III. THE AMENDED CASH DISTRIBUTION AGREEMENT............................... 5
A. Establishment of $11,400,000 Cash Distribution Fund.............. 5
B. Payment of Total Cash Distribution Fund Proceeds to Class
Members.......................................................... 5
(1) Timing...................................................... 5
(2) Identification of Class Members............................. 5
C. Reimbursement of Amounts and Fees................................ 6
D. Election of Successor General Partner............................ 6
E. General Partner Transition....................................... 7
F. Waiver of "Exit Fee"............................................. 7
G. Amendments to Partnership Agreements............................. 7
H. Indemnity Agreements............................................. 8
I. Releases......................................................... 8
(1) Releases Set Forth in Cash Distribution Agreement........... 8
(2) Committee Petition for Release from Class Members........... 8
(3) SAMLP Petition for Release from Class Members............... 8
J. Termination of the Settlement Agreement.......................... 9
K. Miscellaneous Provisions......................................... 9
IV. PROCEDURES TO BE FOLLOWED FOR THE APPROVAL OF THE AMENDED CASH
DISTRIBUTION AGREEMENT, AND FOR THE DISTRIBUTION OF PROCEEDS TO THE
CLASS MEMBERS......................................................... 9
A. The Final Hearing................................................ 9
B. Class Members' Participation in the Final Hearing................ 10
C. Examination of Papers and Inquiries.............................. 11
D. Notice to Brokers and Other Nominees............................. 11
V. SUMMARY OF DISPUTES CONCERNING THE IMPLEMENTATION OF THE MOORMAN
SETTLEMENT AGREEMENT.................................................. 11
A. Disputes Between the Committee, National Realty and SAMLP; Claims
of Class Members................................................. 11
(1) Disputes Purportedly Resolved By the Implementation
Agreement................................................... 11
(a) "Exit Fee" Dispute...................................... 12
(b) Southmark Settlement.................................... 12
(c) Garden Capital Note..................................... 12
(2) Disputes After the Rejection of the Implementation
Agreement................................................... 12
(3) Survivability of Certain Claims of Class Members............ 12
B. Joseph B. Moorman's Petition for Appointment of a Receiver of
National Realty and for Discharge of the Oversight Committee..... 13
C. Robert A. McNeil's Petition to be Appointed as Receiver of
National Realty.................................................. 14
D. Claims of Certain Individual Class Members....................... 14
E. Position of Non-Class Member Limited Partner..................... 14
</TABLE>
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<PAGE> 52
<TABLE>
<CAPTION>
PAGE
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<S> <C> <C> <C> <C>
VI. WHY SAMLP AND NATIONAL REALTY ENTERED INTO THE AMENDED CASH
DISTRIBUTION AGREEMENT................................................ 15
VII. WHY CLASS COUNSEL SUPPORTS THE AMENDED CASH DISTRIBUTION AGREEMENT....
15
VIII. WHY THE COMMITTEE ENTERED INTO THE AMENDED CASH DISTRIBUTION
AGREEMENT............................................................. 15
IX. TAX EFFECT............................................................ 16
A. Taxation of Escrowed Funds....................................... 16
B. Taxation of Distributions to Class Members....................... 16
X. GLOSSARY.............................................................. 16
EXHIBIT A CASH DISTRIBUTION AGREEMENT
EXHIBIT B AUGUST 4 ORDER
EXHIBIT C SUMMARY OF DISPUTES AND SETTLEMENT OF CLAIMS BETWEEN SAMLP AND
INVENEX
</TABLE>
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<PAGE> 53
I. SUMMARY OF THE CONTENTS OF THIS NOTICE
(See Section X for a Glossary of Defined Terms)
Purpose of This Notice..... To describe, for the members of the Moorman Class
and the Limited Partners of National Realty the
final proposed resolution of the Moorman Settlement
Agreement and the termination of the plan
established thereunder, pursuant to the Amended
Cash Distribution Agreement.
Amended Cash Distribution
Agreement................ The Cash Distribution Agreement is attached to this
Notice as EXHIBIT A. It was modified by the Court's
Order, which is attached to this Notice as EXHIBIT
B. As so amended, it is referred to herein as "the
Amended Cash Distribution Agreement." See Glossary.
The terms of the Amended Cash Distribution
Agreement are described in Section III below. The
primary terms of the Amended Cash Distribution
Agreement are (i) the payment by National Realty of
$11,400,000 in cash, plus interest, to the Class
Members; (ii) payment of Court approved attorneys'
fees and costs by National Realty; (iii)
reimbursement of the amounts paid in (i) and (ii)
above by the Successor General Partner, with a
guaranty from American Realty Trust, Inc. ("ART");
(iv) waiver by SAMLP, on behalf of itself and not
any Successor General Partner, of the right to
receive an "exit fee"; and (v) amendments to
National Realty's and National Operating, L.P.'s
Partnership Agreements. See Section III of this
Notice.
Allocation of the
$11,400,000 plus
Interest................. The $11,400,000 Cash Payment, plus interest, will
be allocated to Class Members on a pro rata basis
based on the number of Units of National Realty
issued to them by National Realty (as a percent of
the number of Units issued by National Realty to
all Class Members upon National Realty's
organization in 1987). See August 4 Order attached
as EXHIBIT B to this Notice, and Section III.A. of
this Notice.
Date of Final Hearing...... October 16, 1998, at 10:00 a.m. in a courtroom to
be designated, at the San Mateo County Superior
Court, 401 Marshall Street, Redwood City,
California 94063.
Who Must Attend the Final
Hearing.................. Class Members and Limited Partners of National
Realty need not attend the Final Hearing. If the
Amended Cash Distribution Agreement is approved by
the Court and becomes final, all Class Members will
be entitled to the benefits of, and will be bound
by, that final approved Order and any judgment
entered thereon.
How Class Members and
Limited Partners May
Comment Upon the Amended
Cash Distribution
Agreement................ Class Members and Limited Partners who wish to
comment upon the Amended Cash Distribution
Agreement may do so by writing to the Clerk of the
San Mateo County Superior Court on or before
September 30, 1998, and by sending a copy of his or
her comments to counsel. See Section IV of this
Notice.
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<PAGE> 54
SAMLP's Resignation as
General Partner of National
Realty................... If the Amended Cash Distribution Agreement is
approved, then SAMLP will nominate an affiliate to
serve as Successor General Partner of National
Realty. No exit fee or other form of compensation
will be payable to SAMLP upon its resignation. See
Section III of this Notice. The election of an
affiliate of SAMLP to serve as Successor General
Partner of National Realty is not expected to have
any material effect upon the current policies of
SAMLP with respect to the management of National
Realty. If SAMLP's affiliate is not elected, SAMLP
is required to nominate a non-affiliate. See
Sections II.F. and III of this Notice.
Tax Treatment.............. The $11,400,000 Cash Payment will be made to an
escrow account, which will constitute a Qualified
Settlement Fund ("QSF") and will be taxed as a
separate entity. Distributions from the QSF will
likely be treated as income to the Class Members at
such time as the distributions are received by the
Class Members. See Section IX for a fuller
discussion of the tax effects.
Costs Paid by the QSF...... The QSF will be required to pay the costs of the
independent Settlement Administrator. See Section
III.B(2). In addition, the QSF will be required to
pay taxes on the interest income earned on the
$11,400,000 after deducting the costs of the
Settlement Administrator and other permitted
expenses. See Section IX.
Estimated Date of Cash
Payments................. Assuming Court approval on October 16, 1998 and no
objections by the Committee to SAMLP's nominee as
Successor General Partner, the distributions to
Class Members should be made early in the first
quarter of 1999 if an affiliate nominee is elected
and late in the first quarter of 1999 if a
non-affiliate nominee is elected. See Section II.F.
of this Notice.
II. BACKGROUND
A. THE SETTLEMENT AGREEMENT
National Realty, L.P. ("National Realty") was formed by a "roll-up" of 35
limited partnerships in 1987. A lawsuit was brought challenging the roll-up.
That lawsuit subsequently became known as the "Moorman Class Action." In May
1990, the San Mateo County Superior Court (the "Court"), certified the Moorman
Class Action as a class action for settlement purposes, for and on behalf of the
Moorman Class. In June 1990, after a hearing by the Court, the Court approved
the Settlement Agreement in the Moorman Class Action.
The Settlement Agreement included Unit price objectives to be met by
National Realty under the management of its General Partner, Syntek Asset
Management, L.P. ("SAMLP" or "Syntek"). The Unit price targets could have been
met either by increases in the price of the outstanding Units of National Realty
(which are traded on the American Stock Exchange -- "AMEX") or by distributions
to the Limited Partners of National Realty, or by a combination thereof. If the
Unit price targets for two years in a row were not met, then, under the
Settlement Agreement, SAMLP was to resign, and a Successor General Partner was
to be elected by the Limited Partners of National Realty. The Settlement
Agreement also provided for the establishment of an Oversight Committee (the
"Committee") to supervise the administration of the Settlement Agreement.
The Unit price targets were not met for the two years ended June 1992.
SAMLP tendered its resignation as General Partner of National Realty, to be
effective upon the election of its successor.
The election of a successor to SAMLP as General Partner of National Realty
was delayed to permit the successful refinancing of mortgage indebtedness
encumbering 52 apartment complexes owned by National
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<PAGE> 55
Realty through the organization of a real estate mortgage investment conduit,
and by extensive negotiations between the Committee and SAMLP to arrive at a
consensus candidate to serve as successor to SAMLP as General Partner.
The plaintiffs were represented by the following attorneys at the time of
the Settlement Agreement:
James F. Fotenos
James H. Niven of Niven & Smith
Charles G. Miller of Bartko, Welsh, Tarrant & Miller
Mr. Fotenos became the Committee's counsel at the time of its formation. On
September 19, 1994, the Committee engaged McDonough, Holland & Allen, A
Professional Corporation, Sacramento, California, as co-counsel. On March 15,
1995, Mr. Fotenos resigned as counsel to the Committee.
B. THE IMPLEMENTATION AGREEMENT
In February 1996, the Committee and SAMLP completed their negotiations
regarding a consensus candidate and entered into an Amended and Restated
Implementation Agreement ("Implementation Agreement"). As thereafter modified
and amended, the Implementation Agreement was described, in April 1997, in a
notice to the Moorman Class Members and the Limited Partners of National Realty.
By the terms of the Implementation Agreement, the Committee and SAMLP agreed
upon (i) the nomination of a corporation organized by William H. Elliott to
serve as successor to SAMLP as General Partner of National Realty, (ii) the
amount of an "exit fee" payable to SAMLP upon its resignation as General Partner
of National Realty, (iii) the resolution of certain disputes that had arisen
between the Committee and SAMLP, and (iv) related matters.
After a hearing on the question of whether or not to finally approve the
Implementation Agreement, the Court, by decision dated September 8, 1997,
declined to approve the Implementation Agreement because it did not provide
benefits to the holders of the Warrants that had been issued as part of the 1990
Settlement Agreement. According to SAMLP, most of those Warrantholders were, by
then, no longer Limited Partners of National Realty. By their terms, the
Warrants expired in February 1997.
C. THE RESOLUTION AGREEMENT
Subsequently, in an effort to address the concerns expressed by the Court
in declining to approve the Implementation Agreement, National Realty, SAMLP,
Invenex (a company affiliated with Ronald T. Baker, a member of the Committee),
the Committee, Moorman, and James F. Fotenos, Esq. (acting as counsel
representing the Class Members -- "Class Counsel") entered into a "Resolution
Agreement," dated as of December 15, 1997, which was amended on May 19, 1998.
In response to the proposed Cash Distribution Agreement discussed below,
Invenex withdrew its motion seeking approval of the Resolution Agreement at a
hearing on July 31, 1998.
D. THE AMENDED CASH DISTRIBUTION AGREEMENT
Thereafter, in light of what they perceived to be (i) unnecessary risks and
complexities in the Resolution Agreement, and (ii) the availability of more
favorable provisions benefiting the Class Members, National Realty, SAMLP and
the Committee entered into an Agreement for Cash Distribution and Election of
Successor General Partner ("Cash Distribution Agreement"), dated as of July 15,
1998. American Realty Trust, Inc. ("ART") is also a party to the Cash
Distribution Agreement. The Cash Distribution Agreement was amended, in part, by
paragraph 2 of the Court's Order dated August 4, 1998 (the "August 4 Order").
Copies of the Cash Distribution Agreement and of the August 4 Order are attached
to this Notice as EXHIBITS A and B, respectively. The primary purposes of the
Amended Cash Distribution Agreement are as follows:
(1) To provide cash benefits to the Class Members (all of whom,
through the Settlement Agreement, were issued Warrants);
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<PAGE> 56
(2) To resolve all disputes that have arisen between the Committee and
SAMLP with respect to SAMLP's and National Realty's implementation of the
Settlement Agreement;
(3) To terminate the supervisory regime established over the
management of National Realty by the Settlement Agreement; and
(4) To provide benefits to the Limited Partners of National Realty by:
(a) Having the Successor General Partner repay to National Realty
the amount of the cash distribution to Class Members and certain other
costs; and
(b) Causing SAMLP to amend National Realty's and National Operating
L.P.'s Partnership Agreements to limit certain fees that may be paid to
any General Partner and prohibit payment of an "exit fee" to any General
Partner upon the "voluntary" resignation or removal of such General
Partner. See Section III of this Notice for a full description of the
terms of the Amended Cash Distribution Agreement.
E. PURPOSE OF NOTICE
The purpose of this Notice is to describe the Amended Cash Distribution
Agreement, its effects on the rights of the Class Members and the Limited
Partners, and the procedures to be followed by the Court in considering it for
final approval. At a hearing to be held by the Court on October 16, 1998 (the
"Final Hearing"), the Court will determine whether or not it should:
(1) Approve the Amended Cash Distribution Agreement;
(2) Find that the Amended Cash Distribution Agreement, and the
settlement of the matters referred to therein, are fair, reasonable,
adequate, and not inconsistent with the Settlement Agreement; and
(3) Award any attorneys' fees and/or costs to be paid by National
Realty.
F. TIMING AND ELECTION OF SUCCESSOR GENERAL PARTNERS
If the Court approves the Amended Cash Distribution Agreement, SAMLP will
be required to prepare, or to cause National Realty to prepare, a proxy
statement, under Regulation 14A and Schedule 14A of the Securities Exchange Act
of 1934, in order to solicit the votes of the Limited Partners of National
Realty who are not affiliates of SAMLP (the "Non-Affiliated Limited Partners"),
in favor of SAMLP's affiliate nominee as Successor General Partner. The effect
of the pro rata voting provisions of the Settlement Agreement and the Amended
Cash Distribution Agreement is to require at least a majority of the voting
Non-Affiliated Limited Partners to vote for SAMLP's affiliate candidate as
Successor General Partner in order for such affiliate to be elected. (See
Section III.D. for a fuller explanation of the pro rata voting provisions.)
SAMLP estimates that the vote of the Non-Affiliated Limited Partners should
occur approximately 9 weeks from the Court's approval of the Amended Cash
Distribution Agreement. Accordingly, if the Court approved the Amended Cash
Distribution Agreement on October 16, 1998, the vote on the affiliate nominee as
Successor General Partner should occur, approximately, at the beginning of the
first quarter of 1999. If SAMLP's affiliate nominee is not elected, SAMLP would
be required to prepare and file either an information statement or proxy
statement in order to effect the election of SAMLP's non-affiliate candidate.
Assuming that SAMLP's affiliate candidate failed to be elected early in the
first quarter of 1999, provided that the Committee does not object to SAMLP's
non-affiliate nominee, SAMLP estimates that the election of the non-affiliate
nominee as Successor General Partner would occur approximately 8 weeks later,
around the end of the first quarter of 1999.
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III. THE AMENDED CASH DISTRIBUTION AGREEMENT
The Cash Distribution Agreement, to which National Realty and ART are also
parties, was negotiated primarily by the Committee and SAMLP to:
(1) Address concerns expressed by the Court in its decision of
September 8, 1997 declining to approve the Implementation Agreement;
(2) Resolve all outstanding issues under the Settlement Agreement;
(3) Provide for termination of the "Plan" established under the
Settlement Agreement; and
(4) Eliminate, to the extent reasonably possible, the risks and
complexities inherent in the Resolution Agreement previously presented to
the Court.
A joint motion by the Committee and SAMLP for tentative and preliminary
approval of the Cash Distribution Agreement was heard by the Court on July 31,
1998. Tentative and preliminary approval was granted by the August 4 Order. The
terms of the Amended Cash Distribution Agreement are described below:
A. ESTABLISHMENT OF $11,400,000 CASH DISTRIBUTION FUND
Within five (5) business days of the Court's Order approving the final
Amended Cash Distribution Agreement, Syntek is to cause National Realty to
deposit $11,400,000 in cash into an escrow account (the "Escrowed Funds").
National Realty is required to pay interest on the $11,400,000 from the date of
the Court's order granting final approval of the Amended Cash Distribution
Agreement. National Realty's obligation to pay interest is absolute and is not
tied to the interest rate earned on the Escrowed Funds. If the Escrowed Funds
earn more than the required interest rate, the excess amount shall be refunded
to National Realty. The interest rate will be equal to 90 day LIBOR (the "LIBOR
Rates") plus 2% per annum, based on such LIBOR Rates in effect at the time of
such order, and then every 90 days thereafter.
The $11,400,000 plus the net-after-tax interest earned, minus the expenses
of the QSF (See Section III.B(2) below), is referred to herein as the "Total
Cash Distribution". The Total Cash Distribution will be distributed to each
Class Member in the ratio that the Units of National Realty originally issued by
National Realty to that Class Member bore to the Units issued by National Realty
to all Class Members upon National Realty's organization in 1987. Any fees
awarded by the Court will be paid by National Realty and will not reduce the
amount of the Total Cash Distribution.
The Total Cash Distribution could have instead been distributed to Class
Members based on the number of expired Warrants held by such Class Members, or
upon some other basis. However, at the July 31, 1998 hearing, the Court decided
that it was most equitable to make the allocation based on the methodology
discussed herein.
B. PAYMENT OF TOTAL CASH DISTRIBUTION FUND PROCEEDS TO CLASS MEMBERS
(1) Timing:
It is presently estimated that, if the Court approves the Amended Cash
Distribution Agreement at the Final Hearing, the proceeds of the Total Cash
Distribution will be paid to the Class Members in the first quarter of 1999. See
Section II.F. above.
(2) Identification of Class Members:
If the Amended Cash Distribution Agreement is approved, the Court will
appoint an independent administrator ("Settlement Administrator"), after such
person's identity and powers have been agreed upon by SAMLP, the Committee and
Class Counsel. The Settlement Administrator will attempt to locate all Class
Members. If the Settlement Administrator is unable to locate any Class Members
within six months from the distribution of the Escrowed Funds, the Settlement
Administrator will be required to petition the Court regarding the proper
disposition of the remaining funds pursuant to Section 384 of the California
Code of Civil Procedure. See August 4 Order and Order approving the Notice.
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In order to assist the Settlement Administrator in identifying Class
Members and determining the amount of cash each Class Member will receive, SAMLP
has engaged Invenex, pursuant to an agreement entered into as of August 19, 1998
in which Invenex, for a fee of $45,000 payable by SAMLP (without reimbursement
from National Realty) to Invenex in three equal installments between August 19,
1998 and October 1, 1998, will prepare (i) a compilation listing the identity
and address of all Class Members, (ii) the number of units each Class Member
received as a result of the roll up of the McNeil partnerships into National
Realty, and (iii) the Class Members' social security numbers. Invenex is
required to provide this list in typewritten form, as well as upon magnetically
recordable media (i.e., computer diskette) suitable for utilization by SAMLP or
the Settlement Administrator for the mailing of the cash payments to Class
Members pursuant to the Amended Cash Distribution Agreement. Invenex is required
to deliver a final copy of the mailing list and percentage calculation, as well
as the diskette(s), to SAMLP no later than the close of business on Friday,
October 9, 1998. Other than the $45,000 fee above to be paid by SAMLP to
Invenex, the QSF shall pay all of the fees and costs of the Settlement
Administrator and the administration of the QSF. See Section IX. See, also,
Exhibit C, which contains a summary of disputes and settlement of claims between
SAMLP and Invenex.
C. REIMBURSEMENT AMOUNTS AND FEES
The Successor General Partner will be required to repay to National Realty
the $11,400,000 contributed to the QSF, plus the agreed-upon interest, plus the
amount of any fees awarded by the Court, plus interest on both of those amounts,
from the date of the Total Cash Distribution. The repayment obligation will be
in the form of a promissory note (the "Repayment Note"). The Repayment Note will
be guaranteed by ART. The Repayment Note will have the following terms:
<TABLE>
<S> <C>
Interest Rate: Floating 90 Day LIBOR plus 2% per year
Due Date: 10 years from payment of Total Cash Distribution
Mandatory Principal Payments: First, Second and Third Anniversary -- $500,000
Fourth, Fifth and Sixth Anniversary -- $750,000
Seventh, Eighth and Ninth Anniversary -- $1,000,000
Tenth Anniversary -- Balance Due
Interest Payments: On each annual anniversary date and at maturity.
Automatic Acceleration Events: Uncured Payment Default;
Resignation or removal of General Partner;
Merger of National Realty into another entity; or
Liquidation of National Realty.
</TABLE>
D. ELECTION OF SUCCESSOR GENERAL PARTNER
SAMLP is required initially to nominate an affiliate as Successor General
Partner. The Committee has the right to object to that nominee for reasons other
than that person's status as an affiliate of SAMLP. The timing and election of
the affiliate Successor General Partner is discussed above in Section II.F. If
SAMLP's affiliate is not elected as Successor General Partner, SAMLP is then
required to nominate a non-affiliate as Successor General Partner. The Committee
has the right to object to such nominee. The timing and election of the
non-affiliate Successor General Partner is also discussed above in Section II.F.
Except for the Committee's right to object, the Committee will not oppose the
election of the affiliate nominee for Successor General Partner nor will the
Committee propose any candidate to run against SAMLP's affiliate nominee.
In order to elect its affiliate as Successor General Partner, the nominee
will need to receive a majority of the votes of National Realty's limited
partners. The pro rata voting requirements of Section 6.4 of the Settlement
Agreement require all Units held by SAMLP or SAMLP's affiliates to be voted pro
rata (without regard to abstentions) to the votes cast by the Non-Affiliated
Limited Partners. Examples of the pro rata voting rules are set forth in Section
6.4(a) of the Settlement Agreement.
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E. GENERAL PARTNER TRANSITION
The Successor General Partner will be required to assume all of SAMLP's
obligations as General Partner under the Partnership Agreement, including
payment of SAMLP's promissory note given to National Realty as partial
consideration for SAMLP's general partnership interest ("SAMLP Capital
Contribution Note"). The SAMLP Capital Contribution Note had a principal balance
as of June 30, 1998 of $4,175,593, and accrued and unpaid interest of
approximately $7.8 million. The principal amount of the SAMLP Capital
Contribution Note is due on September 18, 2007, or if sooner, the first to occur
of (i) a liquidation of National Realty or (ii) termination of the interest of
the General Partner in National Realty. See Section 5.1.2. of National Realty's
Partnership Agreement.
SAMLP will also assign to the Successor General Partner SAMLP's combined
1.99% general partner interest in National Realty and National Operating, L.P.,
as well as any other rights of SAMLP under both Partnership Agreements. The
Successor General Partner shall also be required to repay the Repayment Note.
See Section III.C. above. Accordingly, the Successor General Partner will be
assuming obligations of at least $23.3 million.
F. WAIVER OF "EXIT FEE"
Upon the election of the Successor General Partner, SAMLP, on behalf of
itself and not any Successor General Partner, will waive all of its rights to
the payment of any "exit fee."
Under Section 5 of the Amended Cash Distribution Agreement, SAMLP is
waiving on its behalf, and on behalf of its successors, its rights to any fee
required to be paid by National Realty pursuant to Section 6.5 of the Settlement
Agreement. The amendment to National Realty's Partnership Agreement provides
that SAMLP shall not have its interest in National Realty repurchased when it
ceases to be General Partner. However, the amendment to National Realty's
Partnership Agreement contemplates that a Successor General Partner to SAMLP
shall be entitled to have its interest in National Realty repurchased upon
certain events. See Section III.G. of this Notice. The effect of Section 5 of
the Amended Cash Distribution Agreement and the amendment to National Realty's
Partnership Agreement is (i) to prevent SAMLP or its nominee as Successor
General Partner from triggering an immediate "exit fee" payment and (ii) to
prevent SAMLP's nominee from using a subsequent affiliated-party transaction to
trigger an early payment of the "exit fee."
G. AMENDMENTS TO PARTNERSHIP AGREEMENTS
Prior to the election of the Successor General Partner, SAMLP is to have
caused amendments to National Realty's and National Operating, L.P.'s
Partnership Agreements to have become effective. The form of the amendment to
National Realty's Partnership Agreement is attached as Exhibit A to the Cash
Distribution Agreement which is attached as EXHIBIT A to this Notice. A
conforming amendment to National Operating, L.P.'s Partnership Agreement shall
also be made. The principal terms of these amendments are set forth below:
(1) The Successor General Partner's interest in the partnerships may
not be repurchased by either National Realty or National Operating, L.P.
upon the "voluntary" resignation or removal of the Successor General
Partner. The term "voluntary" includes:
(a) The merger of National Realty into another entity in which ART,
or ART's affiliates, are the beneficial owners of more than 10% of such
entity prior to such merger or 25% or more of the entity immediately
after the merger; and
(b) The vote of the Limited Partners to remove the Successor
General Partner, if,
(i) the General Partner is an affiliate of SAMLP or ART; and
(ii) SAMLP and ART control the vote on the removal of the
General Partner.
(2) The Successor General Partner's interest in the partnerships may
be repurchased by the applicable entity upon such General Partner
involuntarily ceasing to be General Partner (e.g., by court
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order, by removal by the Limited Partners other than as described in
Section III.G.(1)(b) above, or by a merger that is not a "voluntary"
merger).
(3) If the Successor General Partner's interest is repurchased, the
fair market value purchase price of such interest will be determined under
Section 17.10 of National Realty's Partnership Agreement, which Section is
not being amended. National Realty will be entitled to offset both the
SAMLP Capital Contribution Note (principal and accrued interest assumed by
the Successor General Partner) and the Repayment Note. Any remaining
positive balance will be paid by National Realty pursuant to an unsecured
fully amortizing 36 month promissory note bearing interest at 10% per year.
Any deficit will be required to be repaid by the Successor General Partner,
or by ART pursuant to its guaranty.
(4) A Successor General Partner that succeeds to the office of General
Partner after one or more prior General Partners have had their interest(s)
repurchased will be entitled to have its interest repurchased, but will
also be required to set off any amounts paid to any prior General Partners.
See the example set forth in the form of the amendment to National Realty's
Partnership Agreement (Exhibit A to the Cash Distribution Agreement,
attached as EXHIBIT A to this Notice).
(5) No General Partner shall be entitled to receive a fee if a prior
General Partner already received such a fee or had its interest purchased
based on the inclusion of such fee. In such case, the General Partner shall
only be entitled to fees based on the amount of increase over the amount of
fees that were already paid to the prior General Partner. See the example
set forth in the form of the amendment to National Realty's Partnership
Agreement.
H. INDEMNITY AGREEMENTS
National Realty will be required to enter into separate, but identical,
indemnification agreements with each member of the Committee (the
"Indemnification Agreements"). The Indemnification Agreements will indemnify the
members of the Committee and the Committee's agents and attorneys and will
contain terms similar but not limited to those contained in Section 21 of the
National Realty Partnership Agreement, including, but not limited to, the
fullest indemnity possible and the advancement of expenses.
I. RELEASES
(1) Releases Set Forth in Cash Distribution Agreement
Pursuant to separate but identical releases, SAMLP, the ART Group (as
defined in the Cash Distribution Agreement), National Realty, Gene Phillips and
Bill Friedman will release the members of the Committee from any claims known or
unknown, effective as of the date of the termination of the Settlement
Agreement.
(2) Committee Petition for Release from Class Members
Additionally, it is the intention of the Committee to petition the Court,
at the Final Hearing, to include in its final approval order or judgment a
release of the members of the Committee from any claims by the Class Members
against one or more members of the Committee for any act or conduct undertaken
by the members of the Committee within the course and scope of their duties as
members of the Committee. Class Counsel has advised the Committee that he will
raise no objection to this request. See Section V.A.(3) below for a discussion
of the survivability of certain claims of the Class Members.
(3) SAMLP Petition for Release from Class Members
Moreover, it is the intention of Syntek to petition the Court, at the Final
Hearing, to include in its final approval order or judgment a release of Syntek
and National Realty from any claims by the Class Members against Syntek and
National Realty, or any of Syntek's partners or affiliates, for any act or
conduct undertaken by Syntek or National Realty, or any of Syntek's partners or
affiliates, within the course and scope of Syntek's or National Realty's duties
under the Settlement Agreement. Class Counsel has advised Syntek that he will
raise no objection to this request.
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J. TERMINATION OF THE SETTLEMENT AGREEMENT
The distribution of cash to Class Members will be deemed to occur at the
time the initial distributions from the QSF to Class Members are made, rather
than at the time of any subsequent disposition of funds that may occur after the
Settlement Administrator has completed his search for missing Class Members.
Upon the later to occur of (i) the distribution of the cash to the Class Members
or (ii) the taking of office of the Successor General Partner, the Settlement
Agreement and the Settlement Plan thereunder shall terminate.
K. MISCELLANEOUS PROVISIONS
The Amended Cash Distribution Agreement contains additional provisions,
including dispute resolution provisions, specification of additional agreements
and documents to be drafted, certain representations and warranties,
definitions, and standard miscellaneous clauses. The summary set forth above is
not intended to be complete. Please read the Amended Cash Distribution Agreement
in its entirety. See EXHIBITS A and B.
IV. PROCEDURES TO BE FOLLOWED FOR THE APPROVAL OF THE AMENDED CASH DISTRIBUTION
AGREEMENT, AND FOR THE DISTRIBUTION OF PROCEEDS TO THE CLASS MEMBERS
A. THE FINAL HEARING
At a hearing held on July 31, 1998, the Court preliminarily approved the
Amended Cash Distribution Agreement, contingent upon the preparation of an
acceptable Class Notice. The Court subsequently approved the form of this
Notice. The Court has set the date for Final Hearing on the Amended Cash
Distribution Agreement for October 16, 1998, at 10:00 a.m., in a courtroom to be
designated by the Court, at the San Mateo County Courthouse, 401 Marshall
Street, Redwood City, California 94063.
At the Final Hearing, the Court, after hearing from all interested persons
and parties, will determine:
(1) Whether the Amended Cash Distribution Agreement, and the
settlement of the matters referred to therein, are fair, reasonable,
adequate, and not inconsistent with the Settlement Agreement;
(2) If so, to what extent any application for attorneys' fees,
incentive fees and/or costs should be approved by the Court; and
(3) Whether the Amended Cash Distribution Agreement should be finally
approved and confirmed by the Court. The hearing may be adjourned from time
to time by the Court during the hearing or during any adjourned session
thereof without further notice.
It is anticipated that Moorman's separate counsel, Berman, DeValerio, Pease
& Tabacco, will apply for an award of attorneys' fees and costs in an amount not
to exceed $725,000 as compensation for services rendered on a contingent fee
basis which, Moorman will claim, directly benefited the Moorman Class. In
addition, it is anticipated that Moorman will request that the Court grant to
him an incentive award of $50,000 to be paid from that fee/cost award to his
counsel.
Counsel for Robert A. McNeil ("McNeil"), Crosby, Heafey, Roach & May
Professional Corporation, has advised that McNeil and his counsel will apply for
an award of attorneys' fees and costs. Counsel has indicated that McNeil will
not seek compensation for himself, but that the application will be limited to
actual fees and costs of outside counsel and in-house and outside experts,
incurred in connection with the Moorman Class settlement process, including
those activities described in Section V.C., below, which McNeil asserts directly
and indirectly benefited the Moorman Class. Counsel has indicated that the
aggregate amount of the claim will not exceed $590,000.
James F. Fotenos, Class Counsel, pursuant to Court order, has been paid by
National Realty at his hourly rates for work performed in connection with the
Resolution Agreement. Mr. Fotenos has advised the parties and the Court that he
will not seek any further award of attorneys' fees and costs in connection with
the Amended Cash Distribution Agreement or the payment by National Realty of
$11,400,000 to be made thereunder.
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B. CLASS MEMBERS' PARTICIPATION IN THE FINAL HEARING
If you are a Class Member, you will receive the benefits of, and be bound
by, the terms of the Amended Cash Distribution Agreement and any final judgment
entered thereon by the Court.
You may, if you wish, object to the Amended Cash Distribution Agreement or
to any application for awards of attorneys' fees, incentive fees and/or costs
and expenses. If your objection is rejected by the Court, however, you will be
bound by the Amended Cash Distribution Agreement and any final judgment entered
thereon just as if you had not objected.
You may, as a Class Member, enter an appearance through counsel of your own
choosing and at your own expense to object to or comment upon the Amended Cash
Distribution Agreement or fee requests. Otherwise, your interests as a Class
Member will be represented by Class Counsel, James F. Fotenos, Esq., whose
address and telephone number are listed below.
Any Class Member may appear at the Final Hearing to show cause why the
Amended Cash Distribution Agreement should not be approved, why the claims
asserted by the Committee, McNeil, and Moorman against National Realty, SAMLP
and their Affiliates should not be denied and/or dismissed with prejudice, and
to pursue objections to any award(s) of attorneys' fees, incentive fees and/or
costs; provided, however, that no such person will be heard unless his or her
objection or opposition, and the basis therefor, is made in writing, together
with copies of all other papers and briefs to be submitted by him or her to the
Court at the Final Hearing, and filed with the Clerk of the Court, located at
401 Marshall Street, Redwood City, California 94063 (Case No. 322135), by no
later than September 30, 1998, and showing due proof of delivery or mailing to
the following parties and counsel:
<TABLE>
<S> <C>
Upon Syntek: Robert A. Waldman, Esq.
c/o Basic Capital Management, Inc.
10670 North Central Expressway, Suite 600
Dallas, Texas 75231
With a copy to: Michael T. Williams, Esq.
Heller, Ehrman, White & McAuliffe
601 So. Figueroa Street, 40th Floor
Los Angeles, California 90017
Upon Class Counsel: James F. Fotenos, Esq.
Fotenos & Suttle, P.C.
50 California Street, Suite 700
San Francisco, California 94111
Upon the Committee: Kenneth R. Kelly, Chair
National Realty, L.P. Oversight Committee
2533 Allen Drive
Auburn, California 95602
With a copy to: Julie E. Green, Esq.
McDonough, Holland & Allen
A Professional Corporation
555 Capitol Mall, Ninth Floor
Sacramento, California 95814
</TABLE>
A Class Member who does not make his or her objection in the manner provided
above will be deemed to have waived all objections and opposition to the
fairness, reasonableness and adequacy of the Amended Cash Distribution
Agreement, or to any application for award of attorneys' fees and/or costs.
The Court also desires to hear from Limited Partners who are not Class
Members. Accordingly, Limited Partners of National Realty who are not also Class
Members may also comment and appear in the same manner described above for Class
Members.
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C. EXAMINATION OF PAPERS AND INQUIRIES
This Notice is qualified in its entirety by the Amended Cash Distribution
Agreement. A complete copy of the Settlement Agreement can be obtained by
calling National Realty, L.P., Investor Relations, at (214) 692-4800, or by
writing to National Realty, L.P., Investor Relations, at 10670 N. Central
Expressway, Suite 300, Dallas, Texas 75231. The official records in this case
may be reviewed during regular business hours at the office of the Clerk of the
Court, at 401 Marshall Street, Redwood City, California 94063.
Inquiries regarding the Amended Cash Distribution Agreement or the matters
discussed herein should be addressed to Class Counsel, as follows:
<TABLE>
<S> <C>
Class Counsel: James F. Fotenos, Esq.
Fotenos & Suttle, P.C.
50 California Street, Suite 700
San Francisco, California 94111
Tel: (415) 781-0250
Fax: (415) 398-1869
</TABLE>
PLEASE DO NOT CALL OR WRITE THE JUDGE IN THIS CASE.
D. NOTICE TO BROKERS AND OTHER NOMINEES
Brokerage firms and other persons who act as nominees for Class Members are
requested, within five (5) calendar days of receipt of this Notice, to:
(1) Forward copies of this Notice to each such beneficial owner and
provide National Realty with written confirmation that this Notice has been
so forwarded; and
(2) Provide National Realty, 10670 North Central Expressway, Suite
600, Dallas, Texas 75231 (Attention: Investor Services), with the names and
addresses of such beneficial owners, if they have not already done so.
Additional copies of this Notice may be obtained from National Realty for
forwarding to such beneficial owners.
V. SUMMARY OF DISPUTES CONCERNING THE IMPLEMENTATION OF THE MOORMAN SETTLEMENT
AGREEMENT
The Moorman Settlement Agreement was entered into by Moorman and the other
representative plaintiffs in the Moorman Class Action, and certain defendants in
the action, including SAMLP and National Realty, as of May 9, 1990. The
Settlement Agreement was approved by the Court on June 29, 1990. In the seven
years between its approval and June 27, 1997, when the Court heard the motion of
the Oversight Committee and SAMLP to approve the Implementation Agreement,
various disputes arose under the Settlement Agreement. The following is a brief
summary of those disputes, and how they will be affected by the Amended Cash
Distribution Agreement.
A. DISPUTES BETWEEN THE COMMITTEE, NATIONAL REALTY AND SAMLP; CLAIMS OF CLASS
MEMBERS
(1) Disputes Purportedly Resolved By the Implementation Agreement
In negotiating the Implementation Agreement that was submitted to the Court
in June 1997, the Committee and SAMLP, as General Partner of National Realty,
resolved various disputes that had arisen between them.
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<PAGE> 64
(a) "Exit Fee" Dispute
The first dispute (the "exit fee" dispute) involved the question of how
much SAMLP was entitled to be paid upon its resignation as General Partner of
National Realty and the election of a Successor General Partner under the terms
of the Moorman Settlement Agreement and the National Realty Partnership
Agreement. SAMLP claimed entitlement to $32,750,000.
(b) Southmark Settlement
A second dispute involved the Committee's claim that, in December 1991,
SAMLP had caused National Realty to contribute $1,700,000 toward a settlement
(the "Southmark Settlement") among National Realty, Southmark Corporation, ART,
Syntek West, Inc. (an affiliate of SAMLP), Gene E. Phillips, and William S.
Friedman. The Committee claimed that National Realty's contribution of
$1,700,000 toward the Southmark Settlement was made without the consent of the
Committee, contrary to the provisions of the Moorman Settlement Agreement, and,
in any event, that it was a waste of assets in that it was not required by the
Southmark Settlement.
(c) Garden Capital Note
A third dispute existed between the Committee and SAMLP and National Realty
concerning National Realty's issuance of a note payable to Garden Capital, L.P.,
an affiliate of National Realty, in the amount of $900,000, to extinguish a
promissory note originally issued by National Realty to Southmark Corporation.
The Committee claimed that the issuance of that $900,000 promissory note to
Garden Capital constituted an affiliated-party transaction that should have
been, but was not, approved by the Committee.
In entering into the Implementation Agreement, the Committee, SAMLP, and
National Realty resolved all of their disputes under the Moorman Settlement
Agreement through their agreement that the amount of the exit fee payable by
National Realty to SAMLP upon SAMLP's resignation and the election of a
Successor General Partner would be $12,471,500, payable pursuant to an
interest-bearing promissory note over three years. For a fuller description of
the disputes between the Committee and SAMLP and National Realty, see the Notice
of Implementation Agreement, dated April 7, 1997, at pp. 4-6, which was
transmitted to each of the Moorman Class Members.
(2) Disputes After the Rejection of the Implementation Agreement
Subsequent to the Court's rejection of the Implementation Agreement, the
Committee has ascertained that it may have at least two other potential claims
against SAMLP for breach of the Settlement Agreement. First, SAMLP has caused
National Realty to directly make certain loans secured by interests in
unimproved real property, without the Committee's consent. The Committee has
asserted that the making of such direct loans by SAMLP constituted a new line of
business, and that SAMLP had no authority to make such loans without the
Committee's consent, in light of the provisions of Section 5.4(a)(iv) of the
Settlement Agreement. Second, the Warrants provided for in Article II of the
Settlement Agreement were never listed for trading on the AMEX, as provided in
Section 2.3(a) of the Settlement Agreement. SAMLP asserts that it did attempt in
good faith to list the Warrants, and that the Warrants did not qualify for such
listing under the rules of the AMEX.
SAMLP has contested the Committee's claims and assertions with respect to
each of the disputes or potential disputes between the Committee and SAMLP.
By entering into the Amended Cash Distribution Agreement, the Committee,
SAMLP and National Realty will resolve any and all disputes or claims between
themselves under the Settlement Agreement.
(3) Survivability of Certain Claims of Class Members
The existing Amended Cash Distribution Agreement does not purport to bar
all possible claims of Class Members. Because the Amended Cash Distribution
Agreement is between the Committee, SAMLP and National Realty, it does not bar
any potential claims of Class Members against the Committee, nor does it bar
potential claims of Class Members against SAMLP or any of its Affiliates for
acts or conduct outside the Settlement Agreement.
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<PAGE> 65
It is the intention of the Committee to petition the Court, at the Final
Hearing, to include in its final order or judgment a release of the members of
the Committee from any claim by the Class Members against one or more members of
the Committee for any act or conduct undertaken by the members of the Committee
within the course and scope of their duties as members of the Committee. Class
Counsel has advised the Committee that he will raise no objection to this
request. If the Court were to grant the petition, the effect would be to release
the members of the Committee from any claims that the Class Members might have
against them for any such acts or conduct. Such a release, if approved and
ordered, would be effective as of the date of the termination of the Settlement
Agreement.
Further, it is the intention of Syntek to petition the Court, at the Final
Hearing, to include in its final order or judgment a release of Syntek, National
Realty and Syntek's partners and affiliates from any claim by the Class Members
against Syntek and National Realty for any act or conduct undertaken by Syntek
or National Realty within the course and scope of Syntek's or National Realty's
duties under the Settlement Agreement. Class Counsel has advised Syntek that he
will raise no objection to this request. If the Court were to grant the
petition, the effect would be to release Syntek and National Realty from any and
all claims that the Class Members might have against Syntek or National Realty
for any such acts or conduct. Such a release, if approved and ordered, would be
effective as of the date of the termination of the Settlement Agreement.
The Amended Cash Distribution Agreement bars potential claims against SAMLP
and its Affiliates for acts or conduct in alleged breach of the Settlement
Agreement by reason of the termination of the "Plan" under the Settlement
Agreement. The viability of any claim by Class Members against SAMLP and/or its
Affiliates, whether otherwise related or unrelated to the Settlement Agreement,
will depend upon the particular allegations that might be made in connection
with any such claim, and cannot be determined in advance.
B. JOSEPH B. MOORMAN'S PETITION FOR APPOINTMENT OF A RECEIVER OF NATIONAL
REALTY AND FOR DISCHARGE OF THE OVERSIGHT COMMITTEE
On September 3, 1996, Moorman, one of the representative plaintiffs in the
Moorman Class Action, represented by separate counsel and not by Class Counsel,
filed a motion for (i) an order compelling enforcement of the Settlement
Agreement, (ii) the appointment of a receiver to manage National Realty in the
place and stead of SAMLP, and (iii) for collateral relief. Moorman claimed that
National Realty and SAMLP had failed to sell properties for the benefit of the
Class Members as, allegedly, required by the Settlement Agreement. Moorman also
sought orders enjoining ART, an affiliate of SAMLP and the largest Unitholder of
National Realty, from voting the Units ART had acquired in National Realty since
August 1991, and requiring ART to disgorge the "price enhancement" of the Units
of National Realty acquired by ART above the amounts paid for them by ART since
August 1991.
On December 31, 1996, the Court ruled that Moorman had no standing to seek
the appointment of a receiver at that time and that, in light of the fact that
the Committee, SAMLP and National Realty had entered into the Implementation
Agreement, any ruling on the merits of Moorman's motion would be premature.
On February 24, 1997, Moorman renewed his motion, adding requests (i) that
the Court discharge the Oversight Committee, and (ii) that the Court vacate its
prior order tentatively approving the Implementation Agreement. On April 10,
1997, the Court ruled that Moorman lacked standing in his individual capacity to
seek to disband the Committee and to vacate the Implementation Agreement, but
that Moorman was not precluded from raising his claims as objections to the
Implementation Agreement at the hearing to be held thereon in June 1997.
Moorman, through his separate counsel, opposed the Implementation Agreement on
the ground, among others, that it provided no benefits to the holders of
National Realty's Warrants.
After the Court declined to approve the Implementation Agreement, Moorman
joined with Invenex, SAMLP, the Committee and National Realty in entering into
the Resolution Agreement. By Invenex's withdrawal of its motion for approval of
the Resolution Agreement at the Court's hearing on July 31, 1998, that Agreement
has become moot. By indicating, at the July 31 hearing, his support of the
Amended Cash
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Distribution Agreement, Moorman has effectively withdrawn his motions for
appointment of a receiver for National Realty and for collateral relief,
provided the Amended Cash Distribution Agreement is approved at the Final
Hearing and is implemented.
C. ROBERT A. MCNEIL'S PETITION TO BE APPOINTED AS RECEIVER OF NATIONAL REALTY
McNeil was one of the defendants in the Moorman Class Action. He was a
party to the Moorman Settlement Agreement and served as one of the three members
of the Committee from its formation in July 1990 until he resigned from the
Committee in June 1992.
In January 1997, McNeil filed a motion with the Court to (i) disband the
Oversight Committee, (ii) be installed as receiver of National Realty, and (iii)
vacate the Court's earlier order tentatively approving the Implementation
Agreement. McNeil claimed that SAMLP had thwarted the terms and objectives of
the Moorman Settlement Agreement and had delayed the implementation of the Plan
established by the Settlement Agreement, enabling SAMLP's affiliates to acquire
ownership and voting control of a majority of the outstanding Units of National
Realty. McNeil also attacked the Implementation Agreement as inadequate,
because, among other things, it provided no benefit to the holders of National
Realty's Warrants, and as containing terms beyond the power of the Committee to
negotiate.
By Order dated April 3, 1997, the Court denied McNeil's motion on the
ground that he lacked standing to bring it at that time. The Court held,
however, that McNeil was not precluded from raising his claims in connection
with the Court's consideration of the Implementation Agreement. McNeil opposed
the Implementation Agreement at the hearing held thereon in June 1997.
After the Court declined to approve the Implementation Agreement, McNeil
renewed his motions to be installed as a receiver of National Realty and for
disbanding of the Oversight Committee. The Court heard McNeil's motions on
December 4, 1997, and June 8, 1998. Further hearing on those motions has been
continued to the Final Hearing, pending the Court's final consideration of the
Amended Cash Distribution Agreement. At those hearings, McNeil also opposed the
Resolution Agreement (both original and as amended) as providing insufficient
benefits to the Class Members.
McNeil is not a party to the Amended Cash Distribution Agreement and he is
not a Moorman Class Member. Accordingly, he will not be entitled to the benefits
of the Amended Cash Distribution Agreement nor will he be bound by the releases
granted therein. If the Court finally approves the Amended Cash Distribution
Agreement and denies McNeil's motion to be installed as a receiver, McNeil may
have a right to appeal to, or to file a petition for a prerogative writ of
mandate or prohibition with, the California Court of Appeal, First Appellate
District, in San Francisco, California.
D. CLAIMS OF CERTAIN INDIVIDUAL CLASS MEMBERS
Twenty-two (22) Class Members (the "Individual Class Members") filed a
request to appear through separate counsel on May 15, 1998. At the July 31
hearing, such separate counsel for the Individual Class Members attended, but
did not state whether or not such Individual Class Members would support or
oppose approval of the Amended Cash Distribution Agreement.
E. POSITION OF NON-CLASS MEMBER LIMITED PARTNER
In addition, a non-attorney representative of a Limited Partner that is not
a Class Member also attended the July 31 hearing, but did not state whether his
client would support or oppose approval of the Amended Cash Distribution
Agreement.
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VI. WHY SAMLP AND NATIONAL REALTY ENTERED INTO THE AMENDED CASH
DISTRIBUTION AGREEMENT
For the three years ended December 31, 1997, the average direct expenses
paid by National Realty under the Moorman Settlement Agreement for the
administration of the Settlement Agreement averaged almost $600,000 per year.
These expenses consisted of the salaries of the three members of the Committee
and the fees of the Committee's financial analyst and the Committee's counsel.
In addition, National Realty has incurred significant indirect expenses in
administering the Settlement Agreement, including the costs of its staff and
accounting personnel. The management of the General Partner has spent a
substantial number of hours over the past three years in the administration of
the Settlement Agreement.
When it is finally approved and implemented, the Amended Cash Distribution
Agreement will eliminate the costs and expenses of compliance with the Moorman
Settlement Agreement and will free up time of the management and administrative
personnel assisting in the General Partner's management of National Realty to
assist the Successor General Partner in administering and maximizing the value
of National Realty for the benefit of its Limited Partners.
VII. WHY CLASS COUNSEL SUPPORTS THE AMENDED CASH DISTRIBUTION AGREEMENT
Class Counsel opposed the Implementation Agreement primarily because it did
not provide any benefits to the majority of the Class Members. Class Counsel
supports the Amended Cash Distribution Agreement because it addresses this
concern by providing substantial and certain benefits to the Class Members.
In supporting the Amended Cash Distribution Agreement, Class Counsel also
considered the claims that have been advanced by those who have asserted that
SAMLP has not complied with the Moorman Settlement Agreement. Class Counsel has
concluded that the substantial and certain benefits provided by the Amended Cash
Distribution Agreement are preferable to the uncertain benefits for the Class
Members from the pursuit of any of these claims.
VIII. WHY THE COMMITTEE ENTERED INTO THE AMENDED CASH DISTRIBUTION
AGREEMENT
The Committee entered into the Amended Cash Distribution Agreement for the
same reasons that Class Counsel supports it. In addition, however, the Committee
entered into the Amended Cash Distribution Agreement because the Committee
believed that the Amended Cash Distribution Agreement is structured to provide
benefits to the Non-Affiliated Unitholders of National Realty who are not also
Class Members. The benefits to such persons, in the Committee's view, are as
follows:
(1) The Successor General Partner is required to repay to National
Realty, pursuant to a promissory note, the $11,400,000 plus interest, as
well as any award of fees by the Court.
(2) The repayment of that note will be guaranteed by ART.
(3) National Realty's and National Operating, L.P.'s Partnership
Agreements will be amended to:
(a) prohibit a Successor General Partner from having its interest
repurchased upon a voluntary resignation or removal; and
(b) avoid fees being paid twice.
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IX. TAX EFFECT
THE DISCUSSION BELOW DOES NOT CONSTITUTE A REPRESENTATION BY ANY PERSON
REGARDING THE ACTUAL TAX TREATMENT OF THE QSF OR THE DISTRIBUTIONS TO CLASS
MEMBERS.
A. TAXATION OF ESCROWED FUNDS
The Escrowed Funds will constitute a "Qualified Settlement Fund" (the
"QSF") for tax purposes. See Treasury Regulation section 1.468B-1, et seq. For
administrative and procedural purposes the QSF will be treated as a corporation
and will be subject to tax on its modified gross income at the maximum
applicable rate for trusts and estates. It is anticipated that the QSF's gross
income will consist solely of interest income on the investment of the
$11,400,000 in cash.
The maximum applicable federal tax rate for trusts and estates currently is
39.6%. The QSF will also be subject to California taxation at the rate of 9.3%,
for an estimated combined effective tax rate of 45%.
The $11,400,000 in cash contributed by National Realty to the QSF is not
taxable income to the QSF. The QSF will have an initial tax basis equal to the
$11,400,000 contributed by National Realty.
A QSF is only entitled to certain deductions. The QSF will be entitled to
deduct the costs of the Settlement Administrator as well as any other
administrative costs and incidental expenses incurred in connection with the
operation of the QSF. See Section III.B(2). Because the QSF is treated as a
separate entity for tax purposes, the income of the QSF cannot be offset by
losses or deductions accrued by National Realty.
Since it is anticipated that the QSF will have modified gross income based
on interest earned on the Escrowed Funds, after deducting its allowable
expenses, the administrator of the QSF will retain sufficient funds in the
escrow to pay the taxes of the QSF.
B. TAXATION OF DISTRIBUTIONS TO CLASS MEMBERS
Distributions from the QSF likely will be treated as income to the Class
Members at such time as those distributions are received by the Class Members.
The determination of the character of the recovery will be made by the QSF
Administrator based upon applicable tax law. California, pursuant to Revenue and
Taxation Code Section 17551, has adopted the provisions of Internal Revenue Code
("IRC") Section 468B. Each Class Member should seek the advice of such Class
Member's tax advisor to determine the federal and state tax consequences of any
distribution from the QSF. The QSF may be required to send each Class Member an
Internal Revenue Service Form 1099, which will reflect the receipt of the
recovery.
X. GLOSSARY
The following is a glossary of certain key terms used in this Notice,
which, as used herein, have the meanings assigned below, unless the context
requires otherwise:
"Amended Cash Distribution Agreement" means the Cash Distribution
Agreement as amended by Paragraph 2 of the August 4 Order.
"ART" means American Realty Trust, Inc., a Georgia corporation.
"August 4 Order" means the Court's order of August 4, 1998.
"Cash Distribution Agreement" means the Agreement for Cash
Distribution and Election of Successor General Partner, dated as of July
15, 1998, among SAMLP, National Realty, ART and the Committee.
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"Class Counsel" means and refers to James F. Fotenos, Esq., of Fotenos
& Suttle, P.C., San Francisco, California.
"Court" means the Superior Court, State of California, County of San
Mateo.
"Escrowed Funds" means the $11,400,000 in cash deposited into an
escrow account as described in Section III.A. of this Notice.
"Exit Fee" is a short-hand term that has been used by the directly
involved parties and their counsel to describe the aggregate of payments
that would go to a departing general partner under the original terms of
National Realty's Partnership Agreement, as slightly modified by the
Settlement Agreement.
"Final Hearing" means the hearing on final approval of the Amended
Cash Distribution Agreement, which the Court has scheduled for October 16,
1998.
"Implementation Agreement" means the Amended and Restated
Implementation Agreement, dated as of February 20, 1996, as further
amended, by and among SAMLP, National Realty, the Committee, William H.
Elliott, and NRGP, Inc.
"LIBOR" means the London InterBank Offered Rate.
"McNeil" means Robert A. McNeil.
"Moorman" means Joseph B. Moorman.
"Moorman Class" refers to all persons who, as of September 17, 1987,
were limited partners of McNeil Real Estate Fund VI, Ltd., McNeil Real
Estate Fund VII, Ltd., and/or McNeil Real Estate Fund VIII, Ltd., excluding
therefrom the defendants named in the Moorman Class Action, their
Affiliates (as defined in the Settlement Agreement), legal representatives,
and members of the immediate family of each of the named individual
defendants in the Moorman Class Action, and excluding therefrom each of the
plaintiffs and their Affiliates in the action brought by Liquidity Fund, et
al., against Southmark Corporation, et al., in the San Mateo County
Superior Court on or about August 3, 1988 (Action No. 322435).
"Moorman Class Action" means the action entitled Joseph B. Moorman, et
al., v. Southmark Corporation, et al., Case No. CV 322135, filed in the San
Mateo County Superior Court on September 2, 1987, as amended from time to
time thereafter.
"Moorman Class Members" or "Class Members" means and refers to the
members of the Moorman Class who became, upon National Realty's
organization in 1987, Limited Partners of National Realty, and who did not
elect, pursuant to the terms of the Moorman Settlement Agreement, to opt
out of the Moorman Class.
"Moorman Settlement Agreement" or "Settlement Agreement" means the
Settlement Agreement dated as of May 9, 1990, in the Moorman Class Action,
by and among plaintiffs and defendants National Realty, National Operating,
L.P., McNeil, SAMLP, Gene E. Phillips, William S. Friedman, and Shearson
Lehman Hutton, Inc., successor-in-interest to defendant E. F. Hutton &
Company, Inc.
"National Operating, L.P." means National Operating, L.P., a Delaware
limited partnership, of which National Realty owns a 99% limited partner
interest and SAMLP owns a 1% General Partner interest.
"National Realty" means National Realty, L.P., a Delaware limited
partnership.
"Non-Affiliated Limited Partners" means the Limited Partners of
National Realty who are not affiliates of SAMLP, or of SAMLP's affiliates.
"Oversight Committee" or "Committee" means the National Realty
Oversight Committee established under the Settlement Agreement.
"QSF" means a Qualified Settlement Fund as defined in Treasury
Regulation Section 1.468B-1.
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"Repayment Note" means the promissory note referred to in Section
III.C. of this Notice.
"Resolution Agreement" means and refers to the Amendment and
Restatement of Agreement for Establishment of Class Distribution Fund and
Election of Successor General Partner, dated as of December 15, 1997, by
and among SAMLP, National Realty, the Oversight Committee, Moorman, Class
Counsel and Invenex, as amended on May 19, 1998.
"SAMLP" or "Syntek" means Syntek Asset Management, L.P., a Delaware
limited partnership.
"Settlement Administrator" means the independent administrator to be
appointed by the Court, as referred to in Section III.B.(2) of this Notice.
"Total Cash Distribution" means $11,400,000 in cash, plus
net-after-tax interest earned at the 90 Day LIBOR Rate, plus 2% per year,
from the date of the Court's order granting final approval of the Amended
Cash Distribution Agreement minus the expenses of the QSF. This definition
has been modified from the definition in the Cash Distribution Agreement by
the Court's Order approving the Notice.
"Units" means the outstanding units of limited partnership interests
issued by National Realty.
"Warrants" means the warrants to purchase 2,019,579 Units (after
adjusting for splits) issued by National Realty to Class Members pursuant
to a Prospectus dated February 7, 1992 with an exercise price of $16.00 per
Unit (post split), which warrants expired on February 14, 1997, if not
exercised.
DATED: September 1, 1998
BY ORDER OF THE COURT:
/s/ PEGGY THOMPSON
------------------------------------
Clerk of the Superior Court
PLEASE DO NOT CONTACT THE COURT WITH QUESTIONS ABOUT THIS NOTICE. QUESTIONS
ABOUT THIS NOTICE SHALL BE MADE TO CLASS COUNSEL, IDENTIFIED AT PAGE 11 OF THIS
NOTICE.
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EXHIBIT A
CASH DISTRIBUTION AGREEMENT
<PAGE> 72
AGREEMENT FOR CASH DISTRIBUTION
AND ELECTION OF SUCCESSOR GENERAL PARTNER
This Agreement for Cash Distribution and Election of Successor General
Partner ("Agreement"), dated as of July 15, 1998, is made by and among Syntek
Asset Management, L.P. ("Syntek"), the General Partner of National Realty, L.P.
(the "Partnership"), American Realty Trust, Inc. ("ART"), the Partnership and
the National Realty, L.P. Oversight Committee (the "Committee").
RECITALS
A. Pursuant to a Settlement Agreement, dated as of May 9, 1990, the
plaintiffs, Joseph B. Moorman, et al., and defendants, the Partnership, National
Operating, L.P., Syntek, Gene E. Phillips, William S. Friedman, Robert A.
McNeil, and Shearson Lehman Hutton, Inc., successor-in-interest to defendant
E.F. Hutton & Company, Inc. agreed to settle a class action litigation matter
filed in the Superior Court (the "Court") of the State of California in and for
the County of San Mateo, Case No. 322135, captioned as Moorman, et al., v.
Southmark Corporation, et al.
B. In furtherance of the provisions set forth in the Settlement Agreement,
the parties to this Agreement desire to proceed with the election of a Successor
General Partner to Syntek, as general partner of the Partnership, on the terms
and conditions set forth in this Agreement.
C. The parties have agreed that if Syntek nominates an affiliate of Syntek
("Syntek Affiliate") on the terms and conditions set forth in this Agreement,
the parties to the Agreement (i) will not oppose the election of the Syntek
Affiliate and (ii) will not propose, or otherwise assist, a candidate to run
against the Syntek Affiliate.
D. The Partnership has agreed to contribute, on the terms and conditions
set forth in this Agreement, $11,400,000 in cash for distribution to the former
holders of the Partnership's Warrants ("Former Warrantholders"). In addition,
the Partnership has agreed to pay certain expenses related to this Agreement, as
described herein.
E. The parties to this Agreement now desire to set forth their intentions
and agreements with respect to the terms and conditions relating to the election
of the Syntek Affiliate (or non-affiliate) as the successor general partner to
Syntek (the "Successor General Partner") and the distribution by the Partnership
of the cash to the Former Warrantholders.
NOW, THEREFORE, in consideration of the premises and mutual covenants and
obligations contained herein and other good and valuable consideration, the
receipt and adequacy of which are hereby acknowledged, the parties to this
Agreement hereby agree as follows:
AGREEMENT
1. Nomination of Successor General Partner.
A. Upon the Court's final approval of this Agreement, Syntek shall
provide to the Committee the name of its nominee for Successor General
Partner. Syntek shall also state that such nominee is an Affiliate and
shall provide (i) the information required by Item 404 of Regulation S-K of
the Securities and Exchange Commission ("SEC"), as set forth in Section
6.3(b) of the Settlement Agreement and (ii) such other information as
reasonably necessary to enable the Committee to determine that it has no
objections to such nominee's holding the office of general partner for
reason other than such nominee's affiliate status. If the Committee makes
such an objection, the Committee shall be entitled to petition the
Supervising Judge. If the Supervising Judge finds that the Committee's
objections have merit, Syntek shall nominate a different nominee (as its
Affiliate nominee for Successor General Partner).
B. Subject to the Committee's right in Section 1A above, Syntek, for
and on behalf of the Partnership, shall promptly prepare and file with the
SEC a proxy statement under Regulation 14A and Schedule 14A of the
Securities Exchange Act of 1934, as amended (the "1934 Act").
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C. The Committee, and the Committee's attorneys and agents, shall be
entitled to review and comment upon all documents submitted to the SEC or
any other regulatory agencies. However, the proxy statement shall specify
that the Committee:
i. Makes no representation regarding the information set forth in
the proxy statement;
ii. Has not participated in the preparation of the proxy statement;
and
iii. Assumes no legal responsibility for the information contained
in the proxy statement.
The Committee shall not have any prior approval rights regarding
Syntek's decision to file any documents with the SEC or any other
regulatory agency. However, the Committee shall be entitled to petition the
Supervising Judge to prevent Syntek from making any filing with the SEC, or
other applicable regulatory agency. The Supervising Judge shall be required
to order Syntek not to make such filing if the Supervising Judge finds that
(i) the Committee's objections are material to the solicitation of the
unitholders or (ii) the Committee has not had adequate time to review the
documents to be filed.
D. If Syntek's Affiliate nominee as Successor General Partner fails to
be elected (due to the pro rata voting provisions in Section 3 below),
Syntek shall promptly nominate a non-affiliate to be the candidate as
Successor General Partner. Syntek shall provide the Committee with the
information required by Section 6.3(b) of the Settlement Agreement, so that
the Committee can determine whether the Committee believes the nominee is a
non-affiliate of Syntek. Syntek shall also provide the Committee with such
other information as reasonably necessary to enable the Committee to
determine that it has no objections to such nominee's holding the office of
general partner. If the Committee makes such an objection, the Committee
shall be entitled to petition the Supervising Judge. If the Supervising
Judge finds that the Committee's objections have merit, Syntek shall
nominate a different non-affiliate nominee. Syntek shall cause its
Affiliates, including the ART Group (as defined in Section 15), to vote all
of their units in favor of the election of the non-affiliate as Successor
General Partner. If Syntek's Affiliates control enough votes to ensure the
election of the non-affiliate as Successor General Partner, in lieu of
filing a proxy statement with the SEC, Syntek may prepare and file with the
SEC an information statement under Regulation 14C and Schedule 14C of the
1934 Act. All of the terms and conditions set forth above related to the
proxy statement shall apply equally to the information statement.
2. Non-Opposition to Syntek Affiliate. Other than as expressly provided by
this Agreement, the Committee shall not oppose the election of the Syntek
Affiliate nor will the Committee propose any candidate to run against the Syntek
Affiliate.
3. Pro Rata Voting Requirement. In connection with the vote on the Syntek
Affiliate, all Units of the Partnership held by Syntek, or any affiliate of
Syntek, shall be voted pro rata (without regard to abstentions) to the votes
cast by the limited partners of the Partnership who are not affiliates of
Syntek, in accordance with Section 6.4 of the Settlement Agreement.
4. Transfer of General Partner Interests/Assumption of General Partner
Obligations and Note. Upon the election and taking of office by the Successor
General Partner, Syntek shall assign to the Successor General Partner all of
Syntek's rights as general partner under the Agreement of Limited Partnership of
the Partnership (the "Partnership Agreement"). At the same time, the Successor
General Partner shall assume all of Syntek's obligations as general partner
under the Partnership Agreement and shall assume all of Syntek's obligations
under the promissory note given to the Partnership by Syntek as partial
consideration for Syntek's general partnership interest in the Partnership
("Syntek's Capital Contribution Note"). As of June 30, 1998, Syntek's Capital
Contribution Note had a principal balance of $4,175,593 plus accrued interest of
approximately $7.8 million. The Successor General Partner shall also be subject
to the requirement to repay to the Partnership the amount of the Total Cash
Distributions and Fees as set forth in Section 10 of this Agreement and shall
assume the note obligations as set forth under Section 10 below.
5. Waiver of Exit Fee. Upon the election and taking of office of the
Successor General Partner, Syntek shall, on its own behalf and its successors,
waive all of its rights to the payment of any fee which may be required to be
paid by the Partnership pursuant to Section 6.5 of the Settlement Agreement.
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6. Amendment to Partnership Agreement. Prior to the election of the
Successor General Partner, Syntek shall have caused an amendment to the
Partnership Agreement in the form attached hereto as Exhibit A to become
effective and shall have caused a similar amendment to the partnership agreement
of National Operating, L.P. to become effective. Such amendment shall prohibit
any payment by the Partnership to the Successor General Partner for the
repurchase of the Successor General Partner's interest in the Partnership under
Article 9 and Paragraphs 17.9 and 17.10 of the Partnership Agreement upon the
voluntary resignation of the Successor General Partner. Such amendment shall
also limit the amount which may be paid by the Partnership under the Partnership
Agreement to any parties who may serve as general partner of the Partnership at
any time after the Successor General Partner ceases to serve as general partner
and has had its interest repurchased. (See paragraphs 9.17 and 17.9.6 of the
amendment to the Partnership Agreement attached hereto as Exhibit A and the
examples to paragraphs 9.17 and 17.9).
7. Resolution of Disputes. This Agreement resolves any and all disputes or
claims arising under the Settlement Agreement among the parties to this
Agreement. As consideration for the waiver by Syntek of any fees owed under
Section 5 above, and its performance of this Agreement, Syntek shall have no
obligation to pay any sums to the Partnership, the Former Warrantholders or the
Class Members.
8. Cash Distribution. Immediately prior to the taking of office by the
Successor General Partner, the Partnership shall contribute $11,400,000 in cash
(plus interest from the date of the Court's Order granting final approval of
this Agreement), pursuant to the Court order referred to in this paragraph 8 for
distribution to the Former Warrantholders (the "Total Cash Distribution"). The
interest shall be equal to 90 day LIBOR (the "LIBOR Rates") plus 2% per annum,
based on such LIBOR Rates in effect at the time of the Court's Order, and then
every 90 days thereafter. The Total Cash Distribution shall be distributed to
the Former Warrantholders on a pro rata basis based on the number of Warrants
held by the Former Warrantholders on the date the Warrants expired on the terms
approved by the Court pursuant to an order of the Court.
9. No Additional Fees from Total Cash Distribution. The Total Cash
Distribution shall not be subject to any set-off. Any fees awarded by the Court
directly or indirectly related to this Agreement shall be paid by the
Partnership (the "Fees").
10. Repayment of Total Cash Distribution. The Successor General Partner
shall be required to repay the amount of the Total Cash Distribution (plus the
amount of any Fees) plus interest (on the amount of the outstanding unpaid
principal balance of the Total Cash Distribution and the Fees) from the date of
the Total Cash Distribution to the Former Warrantholders. The interest shall be
equal to the LIBOR Rate plus 2% per annum, based on such LIBOR Rate in effect at
the time of the Total Cash Distribution, and then every 90 days thereafter. Such
repayment shall be made by the Successor General Partner's assumption of a
promissory note from Syntek payable to the Partnership ("Syntek Cash
Distribution Repayment Note") with the following terms:
(i) Due date of 10 years from payment of the Total Cash Distribution;
(ii) Mandatory principal payments as follows:
(a) First, Second and third anniversary -- $500,000;
(b) Fourth, fifth and sixth anniversary -- $750,000;
(c) Seventh, eighth and ninth anniversary -- $1,000,000; and
(d) Tenth anniversary -- balance due.
(iii) Automatic acceleration upon the following events:
(a) Resignation or removal of the general partner;
(b) Merger of the Partnership into another entity; and
(c) Liquidation of the Partnership.
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Any repayments shall be credited first to accrued and unpaid interest, and
then to reduce the principal balance of the unpaid Total Cash Distribution and
Fees amount. If the total amount required to be repaid by the Successor General
Partner has not been repaid upon the Successor General Partner ceasing to be
general partner for any reason, including upon (i) the resignation or removal of
the Successor General Partner, (ii) the merger of the Partnership into another
entity, or (iii) the liquidation of the Partnership, the Successor General
Partner shall be required to repay such outstanding amounts. In the case of such
a merger or liquidation, the amounts owed by the Successor General Partner shall
be repaid prior to the closing of the merger and prior to the final distribution
of liquidation proceeds to the partners of the Partnership. ART shall guarantee
the full repayment of all amounts owed by the Successor General Partner pursuant
to this Section 10. The Partnership shall not be entitled to release ART from
its guaranty, unless ART provides for the full satisfaction of the underlying
obligation through payment.
11. Termination of the Settlement Agreement. (a) Upon the later to occur of
(i) the distribution of the cash to the Former Warrantholders as contemplated by
Section 8 hereof, after approval by the Court, and (ii) the selection and taking
of office of the Successor General Partner of the Partnership on the terms and
conditions set forth in this Agreement, the Settlement Agreement and the
Settlement Plan thereunder shall terminate.
(b) The Partnership shall enter into separate, but identical,
indemnification agreements with each member of the Committee ("Indemnification
Agreements"). The Indemnification Agreements shall be drafted to be as favorable
as possible to the members of the Committee and shall indemnify the members of
the Committee, the Committee's agents and attorneys. The Indemnification
Agreements shall contain terms similar but not limited to those contained in
Section 21 of the Partnership Agreement, including, but not limited to, the
fullest indemnity possible and the advancement of expenses.
(c) Pursuant to separate but identical releases, Syntek, the ART Group, the
Partnership, Gene Phillips and Bill Friedman shall release the members of the
Committee from any claims known or unknown, effective the date of the
termination of the Settlement Agreement.
12. Binding Agreement: Supervising Judge's Powers. The parties intend for
this Agreement to be binding upon the parties upon the terms and conditions set
forth herein. However, the Parties acknowledge that the parties and certain
other persons are also parties to an Amendment and Restatement of Agreement for
Establishment of Class Distribution Fund and Election of Successor General
Partner, dated as of May 19, 1998 (the "Resolution Agreement"). The parties
intend for the Court to grant final approval to either this Agreement or the
Resolution Agreement. If the Court grants final approval to the Resolution
Agreement, this Agreement shall be void. This Agreement shall not be binding on
any party hereto until it is executed by at least two of the members of the
Oversight Committee and by each other party hereto. If any dispute under this
Agreement arises among the Parties, the dispute shall be resolved by the
Supervising Judge. The Supervising Judge's decision shall be final and binding
upon the parties.
13. Additional Agreements. The following documents (and all other necessary
documents) shall be prepared:
A. The Proxy Statement/Consent Solicitation;
B. The Assignment of Interests to Successor General Partner;
C. The Assumption of Syntek's Capital Contribution Note by Successor
General Partner;
D. The Assumption of the Syntek Cash Distribution Repayment Note;
E. Notice of Hearing to Class Members, Former Warrantholders and
current limited partners;
F. Amendment to the Partnership Agreement (Exhibit A) and the
amendment to the partnership agreement of National Operating, L.P.;
G. The Committee Indemnification Agreements;
H. The releases related to the Committee;
4
<PAGE> 76
I. The Syntek Cash Distribution Repayment Note; and
J. The ART guaranty of the payment of the Syntek Cash Distribution
Note.
14. Representations and Warranties. Syntek, for and on behalf of the
Partnership, and ART each hereby represent and warrant to the other parties
hereto that:
A. The execution, delivery, and performance of this Agreement has been
duly executed and delivered by Syntek, the Partnership and ART and
constitutes the legal and valid binding obligation of Syntek, the
Partnership and ART, enforceable against Syntek, the Partnership and ART in
accordance with its terms, except as such enforcement may be subject to
bankruptcy, insolvency, reorganization, or other similar laws now or
hereinafter in effect, and subject to the equitable powers of the Court
which has jurisdiction over the underlying litigation.
B. Neither Syntek, the Partnership, ART, nor the ART Group, or any of
their affiliates were the beneficial owners of any of the Warrants as of
the expiration date of the Warrants, and neither Syntek, the Partnership,
ART, nor the ART Group has any right to receive any proceeds from the Total
Cash Distribution.
15. Definitions. All terms not defined herein shall have the meaning set
forth in the Partnership Agreement or Moorman Settlement Agreement, as
applicable, except that the ART Group shall mean (i) Syntek, (ii) Syntek Asset
Management, Inc., a Texas corporation, (iii) ART, (iv) Basic Capital Management,
Inc., (v) BCM Holdings, Inc., (vi) ART Holdings, Inc., (vii) Messrs. Phillips
and Friedman, and (viii) any other person or persons listed, or required to be
listed, on the Schedule 13D filings made by ART related to ownership in the
Partnership.
16. Authorization. The signatories of this Agreement represent and warrant
that their respective execution, delivery, and performance of this Agreement has
been duly authorized.
17. Miscellaneous.
A. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of California applicable to contracts
between California residents entered into and to be performed entirely
within the State of California, without regard to the principles of
conflict of laws, provided, however, the internal governance of the Amended
and Restated Partnership Agreement and other Partnership documents shall be
governed by the laws of Delaware.
B. Successors and Assigns. Except as expressly set forth herein, no
part of this Agreement or any rights, duties, or obligations described
herein shall be assigned or delegated without the express written consent
of the parties hereto. Except as otherwise provided herein, the provisions
hereof shall inure to the benefit of, and be binding upon, the successors
and assigns of the parties hereto.
C. Entire Agreement: No Oral Agreements. This Agreement, including the
documents referred to herein, constitutes the full and entire understanding
and agreement among the parties with regard to the subject hereof.
D. Notices. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally or mailed by
registered or certified mail or commercial overnight courier (e.g., Federal
Express, etc.), return receipt or confirmation of delivery required, or by
facsimile transmission with voice confirmation of receipt, to the parties
at the following addresses (or at such other address for a party as shall
be specified by like notice):
i. Syntek:
c/o Syntek Asset Management, Inc.
10670 North Central Expressway, Suite 600
Dallas, Texas 75231
Attention: Chief Executive Officer
Facsimile: (214) 373-0740
5
<PAGE> 77
with a copy to:
Basic Capital Management, Inc.
10670 North Central Expressway, Suite 600
Dallas, Texas 75231
Attention: Chief Executive Officer
Facsimile: (214) 373-0740
ii. ART:
c/o American Realty Trust, Inc.
10670 North Central Expressway, Suite 600
Dallas, Texas 75231
Attention: Chief Executive Officer
Facsimile: (214) 373-0740
with a copy to:
Basic Capital Management, Inc.
10670 North Central Expressway, Suite 600
Dallas, Texas 75231
Attention: Chief Executive Officer
Facsimile: (214) 373-0740
iii. Partnership:
c/o Syntek (listed above)
iv. Committee:
Kenneth R. Kelly, Chair
2533 Allen Drive
Auburn, California 95603
Facsimile: (530) 878-9339
with a copy to:
McDonough, Holland and Allen
A Professional Corporation
555 Capitol Mall, 9th Floor
Sacramento, California 95814
Attention: Julie Green
Facsimile: (916) 444-8334
E. Cooperation. All parties agree to execute and deliver such other
documents, certificates, agreements, and other writings and to take such
other actions as may be necessary or desirable in order to expeditiously
consummate or implement the transactions contemplated by this Agreement.
F. Interpretation. The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
G. Delays or Omissions. No delay or omission to exercise any right,
power, or remedy accruing to any party to this Agreement, upon any breach
or default of another party under this Agreement, shall impair any such
right, power or remedy of such party nor shall it be construed to be a
waiver of any such breach or default, or any acquiescence therein. Any
waiver, permit, consent or approval of any kind or character on the part of
any party of any breach or default under this Agreement, or any waiver on
the part of any party of any provisions or conditions of this Agreement,
must be in writing and shall be effective only to the extent specifically
set forth in such writing. All remedies, either under this Agreement, or by
law or otherwise afforded to any party, shall be cumulative and not
alternative (except as expressly set forth).
6
<PAGE> 78
H. Counterparts. This Agreement may be executed in counterparts, each
of which shall be enforceable against the party actually executing such
counterpart, and all of which together shall constitute one instrument.
I. Severability. In case any provision of this Agreement shall be
invalid, illegal, or unenforceable, the validity, legality and
enforceability of the remaining provisions shall not in any way be affected
or impaired thereby.
J. Ambiguities. The provisions of this Agreement shall be interpreted
without regard to the drafting source and as if all parties drafted this
Agreement in a reasonable manner to effect the purposes of the parties.
[The rest of this page left intentionally blank.]
7
<PAGE> 79
Syntek, American Realty Trust, Inc., the Partnership and the Committee
indicate their agreement to be bound by the terms of this Agreement by this
signature of their authorized representatives below.
<TABLE>
<S> <C>
NATIONAL REALTY, L.P., a Delaware limited partnership THE NATIONAL REALTY, L.P.
OVERSIGHT COMMITTEE
By Syntek Asset Management, L.P., a Delaware Limited By /s/ KENNETH R. KELLY
Partnership, as General Partner --------------------------------------------------
Kenneth R. Kelly,
Committee Chair
By Syntek Asset Management, Inc., a Texas
Corporation, as Managing General Partner By /s/ JOSEPH S. RADOVSKY
--------------------------------------------------
By /s/ RANDALL M. PAULSON Joseph S. Radovsky,
------------------------------------- Committee Member
Randall M. Paulson,
President AMERICAN REALTY TRUST, INC., a
Georgia Corporation
By /s/ KARL L. BLAHA
And /s/ GENE E. PHILLIPS --------------------------------------------------
------------------------------------ Karl L. Blaha, President
Gene E. Phillips
By SYNTEK ASSET MANAGEMENT, L.P., a
Delaware Limited Partnership
By SYNTEK ASSET MANAGEMENT,
INC., a Texas Corporation, as Managing
General Partner
By /s/ RANDALL M. PAULSON
------------------------------------
Randall M. Paulson, President
/s/ GENE E. PHILLIPS
------------------------------------
Gene E. Phillips
</TABLE>
8
<PAGE> 80
EXHIBIT A
CERTIFICATE OF AMENDMENT
OF
LIMITED PARTNERSHIP AGREEMENT
OF
NATIONAL REALTY, L.P.,
A DELAWARE LIMITED PARTNERSHIP
SYNTEK ASSET MANAGEMENT, L.P., a Delaware limited partnership (hereinafter
"Syntek"), the sole general partner of NATIONAL REALTY, L.P., a Delaware limited
partnership (hereinafter the "Partnership"), pursuant to the authority granted
to Syntek by Paragraph 15.2.19(i) of the Limited Partnership Agreement, dated as
of January 29, 1987, as amended as of May 14, 1990 (hereinafter the "Partnership
Agreement"), hereby amends the Partnership Agreement in the following respects:
(i) A new definition to Paragraph 2 is added to read as follows:
"ART Group" means (a) Syntek, (b) Syntek Asset Management, Inc., a
Texas corporation, (c) American Realty Trust, Inc., a Georgia
corporation, (d) Basic Capital Management, Inc., a Nevada corporation,
(e) BCM Holdings, Inc., a Nevada corporation, (f) ART Holdings, Inc., a
Nevada corporation, (g) Gene E. Phillips, (h) William S. Friedman and
(i) any other person or persons listed, or required to be listed, on
Schedule 13D filings made by American Realty Trust, Inc. related to
ownership in the Partnership.
(ii) A new Paragraph 9.17 shall be added to the Partnership Agreement
to read as follows:
9.17 ADJUSTMENT IN FEE CALCULATIONS FOR FEES PAID TO PRIOR GENERAL
PARTNERS. Notwithstanding anything else in this Paragraph 9 or this
Agreement, no General Partner shall be entitled to a fee if a prior
General Partner already received such fee or had its general partner
interest under Paragraphs 17.9 and 17.10 repurchased based on the
inclusion of such fee. In such case, the General Partner shall only be
entitled to fees based on the amount of the increase over the amount for
which fees were already paid to the prior General Partner. For purposes
of determining the amount owed under Paragraph 17.10 of this Agreement,
prior to the set-off required by Paragraph 17.9.6 of this Agreement,
this Paragraph 9.17 shall be ignored. An example of this Paragraph 9.17
is set forth below:
A prior General Partner is involuntarily removed as General
Partner. Upon such removal, such General Partner's interest is
purchased by the Partnership for $25,000,000 under the calculations
made in Paragraph 17.10. The components included in such calculation
were as follows:
<TABLE>
<S> <C>
Paragraph 9.4 fees.......................................... $ 7,000,000
Paragraph 9.8.1 fees........................................ 12,000,000
Repurchase of 1.99% interest in the Partnership and National
Operating, L.P. .......................................... 6,000,000
-----------
Total............................................. $25,000,000
===========
</TABLE>
Provided that the successor General Partner upon taking office
has purchased its 1.99% interest in the Partnership and National
Operating, L.P. from the Partnership and National Operating, L.P.,
then, the successor General Partner shall not receive any fees under
either Paragraphs 9.4 and 9.8.1 until the Partnership's activities
have resulted (through actual sales or actual distributions and not
through deemed sales or deemed distributions) in $19,000,000 of fees
that would have been paid to the General Partner under Paragraphs 9.4
and 9.8.1, but for this Paragraph 9.17. Once the $19,000,000
threshold (the "Threshold Amount") has been met, the successor
General Partner shall be entitled to receive fees under Paragraphs
9.4 and 9.8.1 on
<PAGE> 81
a current basis based on actual sales and actual distributions for
amounts above the Threshold Amount.
Assume further that at the time of the General Partner's removal
above, the General Partner owed the Partnership $30,000,000, such
that at the time of removal, the General Partner was required to
repay the Partnership $5,000,000 ($25,000,000 owed by the Partnership
to the General Partner under Paragraph 17.10 minus $30,000,000 owed
by the General Partner to the Partnership). The fact that the General
Partner owed the Partnership $5,000,000 shall not reduce the
Threshold Amount.
(iii) Paragraph 17.9 of the Partnership Agreement shall be amended in
its entirety to read as follows:
17.9 PURCHASE OF GENERAL PARTNER'S INTEREST
17.9.1 Upon Syntek's ceasing to be General Partner, Syntek shall
not have its interest in the Partnership repurchased.
17.9.2 If, after Syntek ceases to be General Partner, a General
Partner of the Partnership voluntarily ceases to be General Partner
(e.g., by resignation or through the merger of the Partnership into
another entity in which the ART Group, or the ART Group's affiliates,
are the beneficial owners, as defined in Rule 13d-3 of the Securities
Exchange Act of 1934, of more than 10% of such entity prior to such
merger or 25% or more of the entity immediately after such merger
["Voluntary Merger"]), such General Partner shall not have its interest
in the Partnership repurchased.
17.9.3 If, after Syntek ceases to be General Partner, a General
Partner of the Partnership involuntarily ceases to be General Partner
(e.g., by court order, by removal by the limited partners or by merger,
other than a Voluntary Merger), such General Partner shall have its
interest in the Partnership repurchased. In such a case, such General
Partner's interest in (i) the Partnership, as set forth in Paragraph 11
of this Agreement; and (ii) the fees and other compensation to be paid
under Paragraph 9 of this Agreement, shall both be purchased by the
Partnership for a purchase price equal to the aggregate fair market
value of such General Partner's interest in such items determined
according to the provisions of Paragraph 17.10 of this Agreement. The
purchase price of such interest, after the offsets required by Paragraph
17.9.5 (the "Net Amount"), shall be paid by the Partnership to such
General Partner in the form of an unsecured promissory note in the
principal amount of the Net Amount, with interest at 10 percent per
annum payable monthly and principal and interest amortized over a period
of 36 months in equal consecutive installments.
17.9.4 For the purposes of this Paragraph 17.9, if the General
Partner is an affiliate of Syntek or the ART Group and Syntek or the ART
Group control the vote on the removal of the General Partner, the
removal of the General Partner by the limited partners of the
Partnership shall be considered "voluntary" rather than "involuntary"
and therefore, upon such removal, such affiliate General Partner shall
not have its interest in the Partnership repurchased.
17.9.5 Nothing in this Paragraph 17.9 shall remove the General
Partner's obligations, either under (i) Paragraph 5.1.2 of this
Agreement or (ii) to repay any other loans to the Partnership,
including, but not limited to the promissory note to be assumed by the
successor General Partner to Syntek related to repayment of the amounts
set forth in paragraph 10 of that Agreement for Cash Distribution and
Election of Successor General Partner, dated as of July 15, 1998, among
Syntek, the Partnership and the National Realty L.P. Oversight Committee
(finally approved by the Court on , 1998).
17.9.6 A successor General Partner that succeeds to the office of
General Partner after one or more prior General Partner(s) have had such
General Partner(s)' interest in the Partnership purchased under this
Paragraph 17.9, shall be entitled to have such successor General
Partner's interest purchased on the terms set forth in Paragraphs 17.9.1
through 17.9.5 above; however, the
2
<PAGE> 82
amount owed to any successor General Partner shall be set-off by any
amounts paid by the Partnership to any prior General Partner(s). An
example is set forth below:
A prior General Partner unaffiliated with Syntek or the ART Group
is removed by the limited partners. Upon such removal, such General
Partner's interest is purchased by the Partnership for $25,000,000 under
the calculations made in Paragraph 17.10. However, the General Partner
owed the Partnership $13,000,000 pursuant to Paragraph 5.1.2 of this
Agreement and $12,000,000 pursuant to the amounts set forth in Paragraph
17.9.5(ii) above, for a total of $25,000,000. Accordingly, upon such
removal, such amounts were netted, resulting in neither a payment from
the Partnership nor the General Partner. Two years later, a new General
Partner is involuntarily removed and under the new calculations in
Paragraph 17.10, the payment for the purchase of the new General
Partner's interest is calculated to be $30,000,000, prior to the set-off
in Paragraph 17.9.6. Therefore, upon the new General Partner
involuntarily ceasing to be the General Partner, the new General
Partner's interest shall be repurchased by the Partnership for a payment
of $5,000,000 ($30,000,000 Paragraph 17.10 calculation minus a
$25,000,000 set off for the amounts previously paid to the prior General
Partner) minus the amount of any outstanding loans from the Partnership
to the General Partner.
[The rest of this page left intentionally blank.]
3
<PAGE> 83
IN WITNESS WHEREOF, Syntek has executed this Certificate of Amendment of
Limited Partnership Agreement as of the day of , 199 .
SYNTEK ASSET MANAGEMENT, L.P., a
Delaware limited partnership
By SYNTEK ASSET MANAGEMENT, INC.,
a Texas corporation, as managing
general partner
By
-----------------------------------
Randall M. Paulson, President
By
------------------------------------
Gene E. Phillips, General Partner
STATE OF TEXAS
COUNTY OF DALLAS
On this day of , in the year 199 , before me
, a Notary Public in and for the State of Texas,
personally appeared Randall M. Paulson, personally known to me, or proved to me
on the basis of satisfactory evidence, to be the person whose name is subscribed
to the within instrument on behalf of Syntek Asset Management, L.P., and
acknowledged to me that said partnership executed it.
------------------------------------
Notary Public, State of Texas
My Commission Expires:
- ------------------------------------------------------
STATE OF TEXAS
COUNTY OF DALLAS
On this day of , in the year 199 , before me
, a Notary Public in and for the State of Texas,
personally appeared Gene E. Phillips, personally known to me, or proved to me on
the basis of satisfactory evidence, to be the person whose name is subscribed to
the within instrument on behalf of Syntek Asset Management, L.P., and
acknowledged to me that said partnership executed it.
------------------------------------
Notary Public, State of Texas
My Commission Expires:
- ------------------------------------------------------
4
<PAGE> 84
EXHIBIT B
AUGUST 4 ORDER
<PAGE> 85
HONORABLE THOMAS M. JENKINS, Judge Retired
Supervising Judge
SUPERIOR COURT OF THE STATE OF CALIFORNIA
FOR THE COUNTY OF SAN MATEO
<TABLE>
<C> <S>
JOSEPH B. MOORMAN, et al., No. 322135
Plaintiffs, CLASS ACTION
vs. ORDER GRANTING PRELIMINARY APPROVAL OF AGREEMENT FOR
CASH DISTRIBUTION AND ELECTION OF SUCCESSOR GENERAL
SOUTHMARK CORPORATION, PARTNER, CONTINGENT UPON SUBMISSION OF ACCEPTABLE FORM
NATIONAL REALTY, L.P., et al., OF CLASS NOTICE
Defendants.
</TABLE>
The Court having heretofore entered orders and a judgment in the
above-captioned action:
(a) Adjudging that the action be maintained as a class action for
purposes of settlement;
(b) Certifying a plaintiff class ("Class");
(c) Approving that certain Settlement Agreement dated as of May 9,
1990 ("Settlement Agreement"), as fair, reasonable, adequate and in the
best interests of the Class Members as defined in the Settlement Agreement;
(d) Determining that the release given by the members of the Class
("Class Members"), through their attorney James F. Fotenos, Esq., as Class
Counsel ("Class Counsel"), to defendants National Realty, L.P. ("National
Realty"), National Operating, L.P., Robert A. McNeil ("McNeil"), Syntek
Asset Management, L.P. ("Syntek"), Gene E. Phillips ("Phillips"), William
S. Friedman, and Shearson Lehman Hutton, Inc., successor-in-interest to E.
F. Hutton & Company, Inc. (hereinafter all collectively referred to as the
"Settling Defendants") was valid and binding;
(e) Dismissing the above-captioned action, with prejudice, as to the
Settling Defendants;
(f) Directing the Settling Defendants to implement the terms of the
Settlement Agreement, including the establishment of, and appointment of
members to, an Oversight Committee for such purpose;
(g) Retaining jurisdiction over the named plaintiffs and the Settling
Defendants for the purpose of deciding all matters relating to the
enforcement and/or administration of the Settlement Agreement, including
the appointment of a Supervising Judge to supervise the implementation of
the Settlement Agreement; and
(h) Declining, on the ground that it did not adequately provide for
the interests of the National Realty Warrantholders as of the date the
Warrants expired in February 1997 ("Former Warrantholders"), to approve a
previously submitted Amended and Restated Implementation Agreement
("Implementation Agreement") jointly submitted to it by Syntek and the
National Realty, L.P. Oversight Committee ("Committee");
And McNeil having heretofore filed a motion for appointment of a Receiver
("McNeil Motion");
And individual named plaintiff Joseph B. Moorman ("Moorman") having
heretofore filed motions (i) for appointment of a Receiver, and (ii) to compel
enforcement of the Settlement Agreement and to obtain collateral relief against
American Realty Trust ("ART");
<PAGE> 86
And Syntek and Invenex having heretofore moved the Court for preliminary
approval of an Amended and Restated Agreement for Establishment of Class
Distribution Fund and Election of a Successor General Partner ("Class
Distribution Fund Agreement Motion"), and Class Counsel, Moorman and the
Committee having joined therein;
And Invenex having subsequently withdrawn its Class Distribution Fund
Agreement Motion, and Syntek having concurred in that withdrawal at the hearing
thereon;
And the Committee, pursuant to alternative cross-motion, having heretofore
moved the Court for preliminary approval of an Agreement for Cash Distribution
and Election of a Successor General Partner, contingent upon submission of an
acceptable class notice ("Cash Distribution Agreement Motion"), and Syntek,
Class Counsel and Moorman having supported the motion at the hearing thereon;
And the Court having read, heard and considered various presentations and
arguments by the interested parties, and good cause appearing therefor,
IT IS HEREBY ORDERED THAT:
1. Except as hereinafter set forth, each of the findings, matters,
orders and directives described and set forth in each of the above-referenced
orders is confirmed and sustained.
2. The Court finds that the Cash Distribution Agreement is not
inconsistent with the Settlement Agreement, and said Cash Distribution
Agreement, as hereinafter augmented and modified in this Paragraph 2 of this
Order ("Amended Cash Distribution Agreement"), is hereby tentatively approved:
- Syntek shall deposit the sum of $11,400,000 into an interest-bearing
escrow account ("escrow account") within five (5) business days of its
receipt of the Court's Order approving the final Amended Cash
Distribution Agreement. Those funds may thereafter be removed
therefrom only by an independent administrator of the escrow account
("Settlement Administrator"), whose identity and powers shall be
agreed upon by Syntek, the Committee and Class Counsel and approved by
the Court, and upon or pursuant to subsequent Order of this Court.
Syntek shall augment that sum and provide for the full amount of
interest to be earned thereon, at the rate established pursuant to
Section 8 of the Cash Distribution Agreement, by making further
payment of such sum not otherwise earned as interest by the escrow
account as may be necessary to establish the full amount of interest
provided for in said Section 8, to the Settlement Administrator,
immediately prior to distribution of funds from the escrow account.
- The escrow account, all efforts to locate and communicate with the
members of the Class (other than through the Class Notice and National
Realty's proxy solicitation, or as otherwise permitted by this Order),
and the distribution of funds from the escrow account, shall be
managed and administered by the Settlement Administrator.
- The funds to be distributed from the escrow account by the Settlement
Administrator shall be allocated to the Class Members on a pro rata
basis based on the number of Units issued to them by National Realty
(as a percent of the number of Units issued by National Realty to all
Class Members upon National Realty's organization in 1987). To this
extent, the last sentence of Section 8 of the Cash Distribution
Agreement is vacated and amended. No person shall have any claim
against the Settlement Administrator, or against any party to this
action, or against the Committee, or against any of their attorneys or
representatives, based on the allocation or distribution of the escrow
account funds made by the Settlement Administrator acting in good
faith reliance upon the provisions of the Amended Cash Distribution
Agreement or upon any order of the Court.
3. Any party, person or entity intending to seek from the Court an
award of attorneys' fees and/or costs is directed to advise Counsel for the
Committee, not later than 5:00 p.m. on August 7, 1998, of the maximum
amount which said party, person or entity intends to seek. Counsel for the
Committee is directed to prepare, to submit to the Court, and to serve upon
all other interested parties, a proposed form of Notice of Cash
Distribution Agreement ("Notice" or "Class Notice") by August 17, 1998.
2
<PAGE> 87
4. Any interested party may have to and including August 24, 1998,
within which to submit to the Court, and to serve upon all other interested
parties, any written comments upon, objections to, or proposals for
modification of, said Notice. The Committee may have to [SIC] including
August 28, 1998, within which to submit to the Court, and to serve upon all
other interested parties, a revised form of Notice and/or a written
response to the Notice.
5. The Court will consider the proposed form of Notice, and any
written comments, objections or proposals relating thereto, and any written
reply thereto, without further hearing, unless the Court otherwise orders.
If the Court determines that the proposed form of Notice is adequate and
appropriate, the Court will order and direct that dissemination of said
Notice to the Class Members and the Limited Partners of National Realty
("the Notice Order"), and their responses thereto, and subsequent hearing
thereon, be accomplished as follows:
a. Syntek shall cause National Realty, at the expense of National
Realty, to mail or cause the Notice to be mailed by first-class mail,
postage prepaid, to all Class Members and Limited Partners of National
Realty ("Limited Partners") identified in the records of Syntek, at
their last known addresses within five (5) business days from the date
of Syntek's receipt of the Notice Order. Not later than ten (10)
business days after the mailing of the Notice, Syntek shall file with
the Court, and serve upon Class Counsel and upon counsel for the
Committee, a declaration of service showing compliance with the
requirements of this paragraph. In addition, National Realty shall
supply copies of the Settlement Agreement, and of the Cash Distribution
Agreement if it is not made an exhibit to the Notice, and of this Order,
to any recipient of the Notice who so requests, within five (5) days of
the making of such request, and shall inform Class Counsel and counsel
for the Committee, in writing, of each such request and compliance.
b. The Class Members and Limited Partners shall have a period of
twenty (20) calendar days from the mailing of the Notice (the "Response
Deadline") within which to submit to the Court and to serve Syntek,
Class Counsel and the Committee with copies of their responses,
objections or other comments upon or with regard to the matters
contained in the Notice, and upon or with regard to the Amended Cash
Distribution Agreement and any attorneys' fees requests. Any and all
documents served upon Syntek, Class Counsel and the Committee pursuant
to this paragraph shall be mailed, first-class mail, postage prepaid,
addressed as follows:
<TABLE>
<S> <C>
Upon Syntek: Robert A. Waldman, Esq.
c/o Basic Capital Management, Inc.
10670 North Central Expressway, Suite 600
Dallas, Texas 75231
With a copy to: Michael T. Williams, Esq.
Heller, Ehrman, White & McAuliffe, LLP
601 So. Figueroa Street, 40th Floor
Los Angeles, California 90017
Upon Class Counsel: James F. Fotenos, Esq.
Fotenos & Suttle, P.C.
50 California Street, Suite 700
San Francisco, California 94111
Upon the Committee: Kenneth R. Kelly, Chair
National Realty, L.P. Oversight Committee
2533 Allen Drive
Auburn, California 95602
</TABLE>
3
<PAGE> 88
<TABLE>
<S> <C>
With a copy to: Julie E. Green, Esq.
McDonough, Holland & Allen
A Professional Corporation
555 Capitol Mall, Ninth Floor
Sacramento, California 95814
</TABLE>
Any Class Member who does not respond, object or otherwise submit and
serve comments on the Amended Cash Distribution Agreement or any
applications for awards of attorneys' fees or costs by the Response
Deadline and in the manner provided hereinabove shall be deemed to have
waived any objection thereto and shall forever be foreclosed from
objecting to the fairness, reasonableness or adequacy of the Amended
Cash Distribution Agreement, or to any judgment that may be entered, or
to any award of attorneys' fees and costs, or otherwise to the
settlement of the matters referenced in the Amended Cash Distribution
Agreement.
c. The Committee, Class Counsel and/or Syntek may have a period of
time of ten (10) calendar days from the Response Deadline within which
to submit to the Court and to serve any such responding Class Member or
Limited Partner with copies of any replies to such responses, objections
or other comments which they, or either of them, may wish to submit.
d. The Court shall further consider the Amended Cash Distribution
Agreement, and any responses, objections or other comments upon or with
regard thereto, and any replies thereto, at a hearing ("Final Cash
Distribution Agreement Hearing") to be held on October 16, 1998, at the
hour of 10:00 a.m., in a Courtroom of this Court to be assigned at that
time, for the purpose of determining (a) whether the Amended Cash
Distribution Agreement, and the settlement of the matters referred to
therein, are fair, reasonable, adequate, and not inconsistent with the
Settlement Agreement, (b) whether, and if so to what extent, any
application for attorneys' fees and/or costs should be approved by the
Court, and (c) whether the Amended Cash Distribution Agreement should be
finally approved and confirmed by the Court. Any application for an
award of attorneys' fees and/or costs shall be served on the parties and
their counsel, as identified above in Paragraph 5-b of this Order, and
filed with the Court, on or before ten (10) calendar days prior to the
Final Cash Distribution Agreement Hearing. The Final Cash Distribution
Agreement Hearing may be adjourned or continued from time to time
thereafter without further notice to the Class Members or Limited
Partners.
e. Any Class Member not otherwise precluded from doing so by reason
of noncompliance with the provisions of paragraph 5-b of this Order, and
any Limited Partner, may appear at the Final Cash Distribution Agreement
Hearing to show cause why the Amended Cash Distribution Agreement and
the settlement of the matters referenced therein should not be finally
approved as fair, reasonable and adequate, and as not inconsistent with
the Settlement Agreement, and as to whether any or all of the
applications for awards of attorneys' fees and/or costs should or should
not be granted, in whole or in part.
6. In the event that, despite the exercise of reasonable efforts, the
Settlement Administrator is unable to locate one or more Class Members who
have moved since their last known addresses were established in the records
of National Realty ("Missing Class Member"), then, no later [SIC] twelve
(12) months from the date of distribution of the escrow funds, the
Settlement Administrator shall petition the Court for instructions on the
proper distribution of that portion of the escrow funds allocable to those
Missing Class Members pursuant to the provisions of Section 384 of the
California Code of Civil Procedure ("CCP"). The Settlement Administrator
shall notice a hearing on that petition on not less than twenty (20)
calendar days' notice to Syntek, Class Counsel and the Committee, and their
respective counsel. The Settlement Administrator may include with any such
petition the views of the Settlement Administrator as to the proper
allocation of that portion of the escrow funds allocable to the Missing
Class Members. Notwithstanding any contrary provision of CCP Section 384,
however, no party to this action, nor the Committee, nor the Settlement
Administrator, nor any of their respective representatives,
4
<PAGE> 89
shall have any responsibility for the payment of interest on the escrow
funds attributable to Missing Class Members, after distribution of escrow
funds to Class Members who have been identified and located, beyond
whatever interest is actually earned (minus taxes paid or payable thereon)
on the escrow funds.
7. In the event that the proposed settlement described in the Amended
Cash Distribution Agreement and in the Class Notice is disapproved by this
Court, or the Amended Cash Distribution Agreement does not become effective
pursuant to the provisions thereof, then the parties to this proceeding
shall be restored, to the extent possible, to their respective positions as
of December 14, 1997, and neither the Amended Cash Distribution Agreement,
nor the settlement negotiations or proceedings relating thereto, nor any
related document, may be used in this action by any party for any purpose
whatsoever.
8. Hearing on the McNeil motion is continued to the date, time and
place hereinabove scheduled for the Final Cash Distribution Agreement
Hearing.
DATED: August 4, 1998
/s/ THOMAS M. JENKINS
------------------------------------
Honorable Thomas M. Jenkins
Supervising Judge
Judge of the Superior Court, Retired
5
<PAGE> 90
EXHIBIT C
SUMMARY OF DISPUTES AND SETTLEMENT OF CLAIMS
BETWEEN SAMLP AND INVENEX
Set forth below is a summary provided by SAMLP:(1)
Pursuant to the Resolution Agreement, Invenex performed extensive due
diligence analysis of several income-producing properties that were to be
contributed to a class entity (the "Due Diligence Materials"), and was also
to provide management services, for a fee, in operating and managing the
class entity for the benefit of the Class Members. For the reasons set
forth in the Notice, National Realty, SAMLP and the Committee entered into
the alternative Cash Distribution Agreement, which was preliminarily
approved by the Court on August 4, 1998. Because SAMLP and National Realty
entered into the alternative Cash Distribution Agreement, Invenex withdrew
its support for the Resolution Agreement, did not turn over any of the Due
Diligence Materials to SAMLP, and believed that it had claims against SAMLP
and National Realty for breach of the implied covenant of good faith and
fair dealing and was entitled to a "break-up fee" for the lost opportunity
costs it will suffer as a result of National Realty and SAMLP entering into
the Cash Distribution Agreement as opposed to going forward with the
Resolution Agreement. In order to resolve any and all potential disputes
between National Realty, SAMLP and Invenex, by agreement between Invenex
and SAMLP, the parties compromised any and all obligations that existed
between them in exchange for the payment by SAMLP to Invenex of the sum of
$480,000, payable in four equal monthly payments of $120,000 each, to be
paid on November 1, 1998, December 1, 1998, January 1, 1999 and February 1,
1999. Before the first installment payment is made, Invenex will turn over
to SAMLP all of the Due Diligence Materials. Upon execution of the
settlement agreement and the first payment being made thereunder, Invenex
and SAMLP agree that all obligations and claims Invenex may have against
SAMLP, National Realty or any other SAMLP affiliate will be released. SAMLP
does not have a right to receive reimbursement from National Realty for any
portion of the $480,000 payment.
- ---------------
(1) The Committee has not received a copy of the settlement agreement referred
to in EXHIBIT C and makes no representation regarding the accuracy of the
information supplied by SAMLP. The Committee has not approved or disapproved
the $480,000 payment, because the Committee does not believe that it has any
consent rights with respect to a payment by SAMLP, out of SAMLP's own
assets, to Invenex.
<PAGE> 91
[Form of Proxy Card]
This Proxy is Solicited by and on Behalf of
SYNTEK ASSET MANAGEMENT, L.P.,
the General Partner of
NATIONAL REALTY, L.P.
Proxy for Special Meeting of Unitholders to be held December 17, 1998
The undersigned, a unitholder of National Realty, L.P., a Delaware
limited partnership, hereby appoints Randall M. Paulson and Robert A. Waldman,
as Proxies, each with the power of substitution to vote the units of the limited
partner interest of National Realty, L.P. which the undersigned would be
entitled to vote if personally present at the special meeting of unitholders of
National Realty, L.P. to be held at 10670 North Central Expressway, Suite 600,
Dallas, Texas 75231 on December 17, 1998 at 3:00 p.m., Dallas time and at any
adjournment thereof.
- -------------------------------------------------------------------------------
Proposal I: Election of NRLP Management Corp. as Successor General Partner
of National Realty, L.P. to replace Syntek Asset Management,
L.P., which upon the election of NRLP Management Corp. will
withdraw as general partner of National Realty, L.P.:
FOR [ ] AGAINST [ ] ABSTAIN [ ]
- -------------------------------------------------------------------------------
Proposal II: Approval of the Third Amendment to the First Amended and
Restated Partnership Agreement of National Realty, L.P.:
FOR [ ] AGAINST [ ] ABSTAIN [ ]
- -------------------------------------------------------------------------------
Proposal III: Approval of the Third Amendment to the Second Restated and
Amended Agreement of Limited Partnership of National
Operating, L.P.:
FOR [ ] AGAINST [ ] ABSTAIN [ ]
- -------------------------------------------------------------------------------
In the discretion of such Proxies, upon such other business as may properly come
before the special meeting or any adjournments thereof.
<PAGE> 92
SAMLP BELIEVES THAT PROPOSALS I, II AND III ARE IN THE BEST INTERESTS
OF THE PARTNERSHIP AND ITS UNITHOLDERS AND RECOMMENDS THAT YOU VOTE "FOR"
APPROVAL OF PROPOSALS I, II AND III.
Proxy Number Number of Units
Dated: , 1998
--------------------------
--------------------------------
--------------------------------
(Signature of Unitholder(s))
(NOTE: Please sign exactly as your
names appear on the label. If more
than one name appears, all persons
so designated should sign. When
signing in a representative
capacity, please give your full
title.)
[ ] I plan to attend the meeting.
Please return promptly in the enclosed envelope,
which requires no postage if mailed in the U.S.A.
DO NOT FOLD, STAPLE OR MUTILATE
If you have any questions concerning the completion of this Proxy Card,
please call (214) 692-4800 for assistance.
