SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Date of Report (Date of earliest February 13, 1997
event reported)
Harbourton Financial Services, L.P.
(Exact name of registrant as specified in its charter)
Delaware 1-9742 52-1573349
(State or other (Commission (IRS Employer Identification
jurisdiction of File Number) No.)
incorporation or
organization)
2530 South Parker Road, Suite 500, 80014
Aurora, Colorado
(Address of principal executive (Zip code)
offices)
Registrant's telephone number, (303) 745-3661
including area code:
Item 5. Other Events
As previously reported on February 3, 1997, Harbourton Financial
Services L.P. (the "Registrant") announced that it had entered
into a letter of intent to sell its wholesale loan production
branch operations to CrossLand Mortgage Corp., a subsidiary of
First Security Corporation, and that the Board of Directors of
the Registrant's general partner had determined that it was in
the best interests of the Registrant and its Unitholders to sell
Registrant's remaining assets and to liquidate the Registrant. As
previously reported on February 3, 1997, a notice describing the
proposed liquidation and the reasons therefor was to be mailed to
all Unitholders. Attached as Exhibit (1) to this Current Report
is a copy of the Registrant's notice to Unitholders dated
February 6, 1997, and mailed to the Unitholders February 13,
1997, with respect to the foregoing, which is incorporated herein
in its entirety by reference.
Item 7. Financial Statements and Exhibits
(a) Financial Statements - not applicable
(b) Exhibit
(1) Notice to Unitholders, dated February 6, 1997
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act
of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
HARBOURTON FINANCIAL SERVICES L.P.
By: Harbourton Mortgage Corporation, its
General Partner
Date: February 13, 1997 By: s/ Jack W. Schakett
Jack W. Schakett
Chief Executive Officer
Exhibit 1. Notice to Unitholders
Harbourton Financial Services
L.P.
2530 S. Parker Road
Suite 500
Aurora, Colorado 80014
NOTICE TO UNITHOLDERS
February 6, 1997
To Unitholdlers of
Harbourton Financial Services L.P.
NOTICE IS HEREBY GIVEN that, pursuant to Section 8.10 of
the Amended and Restated Agreement of Limited Partnership of
Harbourton Financial Services L.P. (the "Partnership"), dated as
of September 1, 1988, as amended (the "Partnership Agreement"),
between Harbourton Mortgage Corporation (the "General Partner")
and Harbourton Assignor Corporation, as the Limited Partner, the
Board of Directors of the General Partner has determined that
there is a substantial risk that an Adverse Tax Consequence (as
defined below) will occur within one year and that it is in the
best interests of the Partnership and the holders of beneficial
interests in the Partnership (collectively, "Unitholders") to
sell or otherwise dispose of all of the assets of the Partnership
and to liquidate the Partnership as soon as reasonably
practicable. Pursuant to Section 8.10 of the Partnership
Agreement, in the event that the General Partner reasonably
believes that within one year there is a substantial risk of the
Partnership being treated for federal income tax purposes as a
corporation (an "Adverse Tax Consequence") as a result of, among
other things, a reclassification of the Partnership as a
corporation under the Revenue Act of 1987 (the " 1987 Act") for
its first taxable year beginning after December 31, 1997, the
General Partner may take certain actions, including the
liquidation of the Partnership, upon not less than 30 days' prior
written notice to the Partners and the Unitholders unless, prior
to the taking of such action, the Unitholders shall have voted
against such action by a vote of at least two-thirds of all
Limited Partnership Interests in the Partnership. A copy of
Section 8.10 of the Partnership Agreement is attached hereto as
Annex A. The reasons for the General Partner's determination are
summarized below.
Background
The Partnership is a publicly traded master limited
partnership whose Units are currently traded on The New York
Stock Exchange, Inc. (the "NYSE") under the symbol "HBT." Under
existing tax law, the Partnership is treated as a partnership and
is not separately taxed on its earnings. Rather, income (or
loss) of the Partnership is allocated to the Unitholders pursuant
to the terms of the Partnership Agreement and is included by them
in determining their individual taxable incomes, subject to
certain special rules applicable to publicly traded partnerships.
By contrast, a corporation is subject to tax on its net income
and any dividends or liquidating distributions paid to
stockholders are then subject to a second tax at the stockholder
level. Accordingly, under current tax law, the Partnership
enjoys a tax advantage over a similarly situated entity which is
taxed as a corporation.
The 1987 Act generally requires publicly traded
partnerships to be taxed as corporations. However, under the 1987
Act existing partnerships, such as the Partnership, were allowed
to continue to be treated as partnerships for federal income tax
purposes for all taxable years commencing on or prior to December
31, 1997. Thereafter, the Partnership will be treated as a
corporation for federal income tax purposes unless contrary
legislation is enacted prior to December 1, 1997.
From time to time, legislation has been introduced in
Congress that would have the effect of extending the December 31,
1997 grandfather date or eliminating altogether the relevant
provisions of the 1987 Act. However, to date no such legislation
has passed both houses of Congress and, in the best judgment of
the General Partner, it is doubtful that any such legislation
will be enacted prior to December 31, 1997. Accordingly, the
General Partner believes that there is a substantial risk that an
Adverse Tax Consequence will occur for the Partnership's first
taxable year beginning after December 31, 1997.
Pursuant to Section 8.10 of the Partnership Agreement, the
General Partner has the right to take one of several actions in
the event that it believes there is a substantial risk that an
Adverse Tax Consequence will occur within one year. For
instance, the General Partner has the power to (a) modify,
restructure or reorganize the Partnership as a corporation, a
trust or other type of legal entity, (b) liquidate the
Partnership, (c) halt or limit trading in the Units or cause the
Units to be delisted from the NYSE, or (d) impose restrictions on
the transfer of Units. In addition, the General Partner can
continue the Partnership and allow it to be treated as a
corporation for federal income tax purposes.
Alternatives to the Liquidation
For the reasons described below, the General Partner
believes that the alternatives to liquidation of the Partnership
discussed below are not in the best interests of the Partnership
or the Unitholders.
The General Partner believes that the consolidation taking
place in the mortgage banking industry makes it difficult for the
Partnership to compete effectively with market participants that
are larger and more readily able to recognize substantial
economies of scale in their operations than the Partnership. The
General Partner believes that the loss of partnership tax
treatment will eliminate an offsetting competitive advantage
which the Partnership has. These factors weigh in favor of
liquidating the Partnership rather than attempting to continue
the Partnership's business in its present or some other form.
If the Partnership were taxed as a corporation, whether as
a result of conversion to a corporation or continuance as a
partnership, dividends and liquidating distributions paid to
stockholders or Unitholders might be subject to double taxation
as described above. Moreover, the General Partner believes that
continuing as a partnership if the current tax treatment of the
Partnership is eliminated presents several significant
disadvantages when compared to conversion to a corporation. Under
the terms of the Partnership Agreement, Unitholders have limited
rights to participate in the management of the Partnership. In
addition, the General Partner believes that, due to their
complexity, the public trading markets often discount the value
of limited partnership interests compared to equivalent corporate
securities.
As an alternative to a liquidation, the General Partner
also considered a sale or disposition of the Partnership as a
whole. However, based on its knowledge of the mortgage banking
industry, the General Partner believes it is unlikely that an
acquirer would be willing to acquire the Partnership as a whole
at a price that would be fair to the Unitholders.
The General Partner does not believe that placing
significant limitation on trading in the Units or their free
transferability in order to continue to qualify for taxation as
a partnership would be in the best interests of the Unitholders.
It is unlikely that any available tax savings would offset the
significant diminution in the value of the Units and the
decrease in the Unitholders ability to liquidate their interest
in the Partnership which would result from such action. The
General Partner also does not believe that its current business
can be effectively restructured to qualify for taxation as a
partnership based on the exemption in the 1987 Act relating to
the quantity of its "passive income".
Reasons for the Liquidation
The Board of Directors of the & General Partner (including
the independent directors thereof) has determined that the
liquidation of the Partnership is in the best interests of the
Partnership and the Unitholders. Unlike a sale of the
Partnership as a whole, the General Partner believes that a
liquidation of the Partnership at this time will enable the
Partnership to obtain favorable pricing for its assets by
allowing it to make strategic sales of portions of its business.
If the General Partner were to wait until later in the year to
sell the Partnership's assets, the General Partner believes that
the prices to be received for the Partnership's assets might be
lower as a result of the December 31 deadline. While it is
possible that grandfathering legislation might be enacted during
1997, the General Partner believes that it is imprudent to adopt
a "wait and see" posture, especially in light of past
legislative disappointments. Determining to liquidate now will
minimize the uncertainty regarding the Partnership's future
plans associated with the December 31 deadline and will
facilitate a return of the partners' capital at as early a date
as practicable.
As previously announced, the Partnership's subsidiary,
Harbourton Mortgage Co., L.P. ("Harbourton Mortgage"), recently
entered into a letter of intent to sell its wholesale loan
production branch operations to CrossLand Mortgage Corp.
("CrossLand"), a subsidiary of First Security Corporation, for
approximately $4,000,000 in cash. In addition, under the
proposed sale Harbourton Mortgage will receive an earnout
payment based on the aggregate principal amount of loans
generated from the transferred facilities during the thirteen
months following the closing which exceed an agreed amount. If
CrossLand maintains the same volume of loan originations as
Harbourton Mortgage experienced in 1996, this earnout payment
would total approximately $3,250,000. The proposed purchase
will not include the mortgage loan pipeline being processed by
Harbourton Mortgage at the time of the sale. Pursuant to the
letter of intent, these excluded loans will be processed and
closed for Harbourton Mortgage's account by CrossLand pursuant
to an administrative services agreement between the parties.
The transactions summarized in the letter of intent are
subject to the negotiation and execution of mutually
satisfactory definitive documentation, the receipt of certain
regulatory consents and the satisfaction of other customary
terms and conditions. Harbourton anticipates that the
transactions contemplated by the letter of intent will be
consummated during the first quarter of 1997.
The General Partner believes that the proposed sale of the
wholesale loan production business to CrossLand will facilitate
the sale of the Partnership's other assets, most particularly
its servicing portfolio, its Nebraska servicing operation and
its retail production branches. Although no assurances can be
given, the General Partner believes that all of the
Partnership's assets can be disposed of in an orderly fashion by
the end of 1997. To assist it in selling its servicing
portfolio and its Nebraska servicing operation, the Partnership
has retained Bayview Financial Trading Group, Inc.
Pursuant to the terms of the Partnership Agreement, no
further action will be required by the Unitholders to accomplish
the liquidation. PURSUANT TO THE PARTNERSHIP AGREEMENT, THE
GENERAL PARTNER MAY NOT LIQUIDATE THE PARTNERSHIP IF THE
UNITHOLDERS VOTE AGAINST THE LIQUIDATION BY A VOTE OF AT LEAST
TWO-THIRDS OF THE LIMITED PARTNERSHIP INTERESTS ON OR PRIOR TO
30 DAYS AFTER THE GIVING OF THIS NOTICE. THE GENERAL PARTNER IS
NOT REQUIRED TO AND DOES NOT INTEND TO CALL A MEETING OF
UNITHOLDERS FOR THE PURPOSE OF CONSIDERING AND VOTING UPON THE
PROPOSED LIQUIDATION.
Once the assets of the Partnership have been sold and the
Partnership's creditors have been paid in full, or adequate
provision for such payment has been made, the General Partner
will cause the partnership to pay liquidating distributions to
Unitholders upon the surrender of their Units. While the exact
timing and nature of any liquidating distributions cannot be
precisely determined at this time, the Partnership will not make
any distributions prior to the fourth quarter of 1997. However,
because of the nature of the Partnership's business, it is
possible that Unitholders may receive a portion of their
distributions in the form of an interest in another entity, such
as a liquidating trust. Any such interests will not, in all
likelihood, be transferable by a Unitholder.
Federal Income Tax Consequences of Liquidation
Any taxable gain or loss recognized by the Partnership on
the sale of its assets in connection with the liquidation will
be allocated among the Partners for income tax purposes in
accordance with the Partnership Agreement. Assuming that a
Partner's interest in the Partnership is liquidated entirely for
cash during 1997, then the Partner will realize gain or loss to
the extent that the cash received is greater or less than the
Partner's adjusted income tax basis in his or her partnership
interest, and the Partner will be permitted to claim any losses
from the Partnership which were previously suspended under the
rules regarding losses from passive activities. Special rules
would apply, however, if a Partner did not receive a full
distribution in cash of his or her interest in the Partnership
during the year.
The foregoing is only a brief summary of certain possible
federal income tax consequences of a liquidation to certain
taxpayers and it is not complete and should not be relied upon
by Unitholders. UNITHOLDERS ARE URGED TO CONSULT THEIR OWN
ADVISORS REGARDING THE TAX CONSEQUENCES OF A LIQUIDATION OF THE
PARTNERSHP.
ANNEX A
Section 8.10 of the Partnership Agreement
SECTION 8.10. Responses to Taxation as a Corporation. In
the event that the General Partner reasonably believes that
within one year there is a substantial risk of the Partnership
being treated for federal income tax purposes as a corporation
(an "Adverse Tax Consequence") as a result of, among other
things, (a) the enactment (or imminent enactment) of any
legislation, (b) the publication of any temporary, proposed or
final regulation by the Treasury or any ruling by the Service,
(c) a judicial decision, (d) a reclassification of the
Partnership as a corporation under the Revenue Act of 1987 for
its first taxable year beginning after December 31, 1997, or (e)
other actions or events, the General Partner may, (i) halt or
limit trading in the Units or cause the Units to be delisted
from any national securities exchange on which they may be
traded, (ii) impose restrictions on the transfer of the Units
(by amending this Agreement pursuant to Section 13.01 or
otherwise), (iii) modify, restructure or reorganize the
Partnership or any subsidiary entity of the Partnership as a
corporation (including a REIT), a trust or any other type of
legal entity (the "New Entity"), (iv) liquidate the Partnership
or (v) continue the Partnership and be treated as a corporation
as a result of the reclassification. The General Partner may
also cause the Partnership to distribute its equity interest in
any subsidiary of the Partnership. In any such event the Units
may be converted into equity of a New Entity in the manner
determined by the General Partner in its sole discretion,
provided that each outstanding Unit of the same class or series
is treated equally, and the relative fair market values of the
securities into which Units and the general partnership interest
are converted are in proportion to the amounts the holders
thereof would receive upon liquidation of the Partnership. The
General Partner may not take any such action, unless, at least
30 days prior to the taking of such action the General Partner
shall provide written notice to the Partners and Unitholders in
accordance with Section 15.02 hereof, and prior to the taking of
such action, a Super-Majority Vote of the Unitholders shall not
have voted against the taking of such proposed action. The
respective equity interests received by the holders of Preferred
Units, Subordinated Units and the General Partner will be
entitled to dividends or other distributions on terms that the
General Partner, with the Consent of the Independent Directors,
determines are substantially equivalent to the relative
priorities as to distributions to the holders of Preferred
Units, Subordinated Units, and the General Partner. The General
Partner is not required to choose the least disruptive of the
above actions to the Partnership or Unitholders under the
circumstances.
