<PAGE>
As filed with the Securities and Exchange Commission on July 3, 1996
Registration No. 33-________
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------------------
FORM S-3
Registration Statement
Under
The Securities Act of 1933
---------------------------------
NANTUCKET ISLAND ASSOCIATES LIMITED PARTNERSHIP
(Exact name of registrant as specified in its charter)
---------------------------------
Delaware 04-2948435
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
---------------------------------
One International Place
Boston, Massachusetts 02110
(617) 330-8600
(Address and telephone number of registrant's principal executive offices)
---------------------------------
Richard J. McCready Copy to:
Winthrop Financial Associates Jayshree Parthasarathy, Esq.
One International Place Rosenman & Colin LLP
Boston, Massachusetts 02110 575 Madison Avenue
Telephone: (617) 330-8600 New York, New York 10022
(Name, address and telephone Telephone: (212) 940-8800
number of agent for service)
---------------------------------
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box [ ]
---------------------------------
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [X]
[cover page continued]
<PAGE>
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
====================================================================================================
Proposed Proposed
Title of units Amount to be maximum aggregate maximum aggregate Amount of
to be registered registered price per unit offering price registration fee
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cumulative Preferred
Units representing
Limited Partnership
Interests.... 785 units $13,333.00 $10,466,405 $3,610
====================================================================================================
</TABLE>
---------------------------------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until this Registration Statement shall become
effective on such date as the Securities and Exchange Commission, acting
pursuant to said Section 8(a), may determine.
================================================================================
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
Subject to Completion
dated ____ __, 1996
PROSPECTUS
785 Units representing
Preferred Limited Partnership Interests
NANTUCKET ISLAND ASSOCIATES LIMITED PARTNERSHIP
Nantucket Island Associates Limited Partnership (the "Partnership"), a
Delaware limited partnership, is issuing to holders (the "Unitholders") of
record of its limited partnership interests (the "Units") as of the close of
business on ___________, 1996 one subscription right (each, a "Right") for each
Unit held. Each Right entitles the Unitholder to purchase, at any time prior to
5:00 p.m., New York City time, on ____________, 1996 (as such date may be
extended as herein provided, the "Expiration Date"), at a subscription price of
$13,333 (the "Subscription Price"), one 8% cumulative compounded preferred unit
(a "Preferred Unit") representing a limited partnership interest in the
Partnership. The Rights are evidenced by subscription certificates (the
"Subscription Certificates") which are being mailed to Unitholders herewith. The
Rights are not transferable. Each Unitholder who exercises his Right will be
entitled to exercise an over-subscription privilege (the "Over-Subscription
Privilege") for all or any of the Preferred Units that are not purchased by
other Unitholders. If all Rights are exercised, there will be no
Over-Subscription Privilege. There is no limit on the number of Preferred Units
for which a Unitholder who exercises his Right may seek to subscribe pursuant to
the Over- Subscription Privilege. The available Preferred Units will be
allocated pro rata among those Unitholders who exercise the Over- Subscription
Privilege. See "The Offering."
EXERCISING UNITHOLDERS WILL HAVE NO RIGHT TO RESCIND A PURCHASE AFTER THE
PARTNERSHIP HAS RECEIVED A COMPLETED SUBSCRIPTION CERTIFICATE. ALL EXERCISING
UNITHOLDERS MUST REMIT PAYMENT IN FULL WITH THEIR COMPLETED SUBSCRIPTION
CERTIFICATES FOR ALL PREFERRED UNITS SUBSCRIBED FOR THROUGH THE EXERCISE OF THE
RIGHTS AND THE OVER-SUBSCRIPTION PRIVILEGE.
Zero Main Associates Limited Partnership (the "Guarantor"), an affiliate of
Three Winthrop Properties, Inc. (the "General Partner"), the general partner of
the Partnership, has agreed (i) to exercise its Right as a Unitholder and (ii)
to subscribe for all other Preferred Units offered hereunder through the
Over-Subscription Privilege and, subject to proration as described above, to
purchase such additional Preferred Units (the "Subscription Guaranty").
Accordingly, the Partnership is assured of receiving gross proceeds from this
offering (the "Offering") in an amount equal to approximately $10.5 million. No
fee is being paid to the Guarantor in connection with the Subscription Guaranty.
Each Preferred Unit will entitle the holder thereof to receive from the
available cash flow of the Partnership an amount in cash equal to a cumulative
compounded preferred annual return of 8% on his preferred invested capital of
$13,333. In addition, each Preferred Unit will entitle the holder thereof to
receive an aggregate cumulative cash distribution (prior to any distribution to
Unitholders and to the General Partner on account of the Units and the general
partnership interests held by them) equal to $33,332.50 (250% of such investor's
preferred invested capital) from the net cash proceeds, if any, received by the
Partnership from capital transactions or upon liquidation of the Partnership.
See "Description of Securities." For a discussion of certain tax consequences to
Unitholders who exercise their Rights, see "Certain Income Tax Consequences."
There is no existing market for the Preferred Units and it is anticipated
that a market for the Preferred Units will not develop. The Partnership does not
intend to apply to list the Preferred Units on any securities exchange.
The Offering is subject to withdrawal and cancellation at any time, without
notice.
----------------------------------------------------
PROSPECTIVE PURCHASERS OF THE PREFERRED UNITS SHOULD CONSIDER THE SPECIFIC
INVESTMENT CONSIDERATIONS SET FORTH UNDER "INVESTMENT CONSIDERATIONS" ON
PAGES 10 TO 16.
----------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION NOR HAS THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
---------------------------------------------------
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR
ENDORSED THE MERITS OF THIS OFFERING. ANY REPRESENTATION TO THE
CONTRARY IS UNLAWFUL.
---------------------------------------------------
Subscription Price Proceeds to the
Partnership(1)
Per Unit $13,333.00 $13,333.00
Total $10,466,405.00 $10,466,405.00
---------------------------------------------------
(1) Before deducting expenses payable by the Partnership estimated at $175,000.
No underwriting discount or commission will be paid in connection with the
Offering.
The date of this Prospectus is _________, 1996.
<PAGE>
AVAILABLE INFORMATION
The Partnership is subject to the informational requirements of the
Securities Exchange Act of 1934 (the "Exchange Act") and, in accordance
therewith, files reports and other information with the Securities and Exchange
Commission (the "Commission"). Such reports and other information can be
inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549 and at the Commission's regional offices at 7 World Trade Center,
13th floor, New York, New York 10048 and 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661-2511. Copies of such material can be obtained from the
Public Reference Section of the Commission, 450 Fifth Street, N.W., Washington,
D.C. 20549, at prescribed rates.
The Partnership has filed with the Commission a registration statement on
Form S-3 (herein, together with all amendments and exhibits, referred to as the
"Registration Statement") under the Securities Act of 1933 (the "Securities
Act") with respect to the registration of the securities offered hereby. This
Prospectus does not contain all the information set forth in the Registration
Statement, certain parts of which are omitted in accordance with the rules and
regulations of the Commission. Statements contained herein concerning the
contents of any documents are not necessarily complete and, in each instance,
reference is made to the copy of such document filed as an exhibit to the
Registration Statement. Each such statement is qualified in its entirety by such
reference. The Registration Statement, as well as items of information omitted
from this Prospectus but contained in the Registration Statement and reports and
other information filed by the Partnership, may be inspected without charge at
the public reference facilities referred to above and copies of all or any part
thereof may be obtained from the Commission upon request and payment of the
prescribed fee.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Partnership with the Commission
pursuant to the Exchange Act are incorporated herein by reference:
(a) The Partnership's Annual Report on Form 10-K for the fiscal year ended
December 31, 1995, filed on April 15, 1996 (File No. 0-16865) (the "Form
10-K"); and
(b) The Partnership's Quarterly Report on Form 10-QSB for the fiscal
quarter ended March 31, 1996, filed on May 20, 1996 (File No. 0-16865) (the
"Form 10-Q").
-2-
<PAGE>
All documents filed by the Partnership with the Commission pursuant to
Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date of
this Prospectus and prior to the termination of the offering of the securities
described herein shall be deemed to be incorporated by reference into this
Prospectus and to be a part hereof from the respective dates of the filings of
such documents.
Any statement contained herein or in a document incorporated or deemed to
be incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
or in any subsequently filed document which also is or is deemed to be
incorporated herein by reference modifies or supersedes such statement. Any such
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Prospectus.
The Partnership undertakes to provide, without charge, to each person,
including any beneficial owner, to whom this Prospectus is delivered, upon the
written or oral request of such person, a copy of any and all of the documents
incorporated herein by reference (other than exhibits to such documents unless
such exhibits are specifically incorporated by reference herein). Requests for
such documents should be directed to the Partnership at One International Place,
Boston, Massachusetts 02110, Attention: Carolyn Tiffany. Telephone requests for
such copies should be directed to the Partnership at (617) 330-8600.
-3-
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to the more
detailed information and financial statements appearing elsewhere or
incorporated by reference in this Prospectus.
The Partnership and Purpose of the Offering
Nantucket Island Associates Limited Partnership (the "Partnership"), a
Delaware limited partnership, is the sole general partner of, and owns a 99.99%
general partnership interest in, NIA Operating Associates Limited Partnership
("NIA Operating Associates"). NIA Operating Associates, in turn, owns a 99.99%
general partnership interest in Sherburne Associates ("Sherburne"). Sherburne
beneficially owns and operates a portfolio of properties on Nantucket Island,
including two hotels (The White Elephant and The Harbor House Hotel), 40 rental
units located in the Wharf Cottages, 51 retail buildings, the Nantucket Boat
Basin and employee housing for approximately 150 persons (collectively, the
"Property"). See "The Partnership" and "The Property."
Sherburne has been engaged in a capital improvements program on the
Property, which is being implemented in phases. At the present time, the
Partnership believes that certain capital improvements to the Property, with an
estimated cost of $4.5 million, are required to be completed in the near future.
Neither Sherburne nor the Partnership has sufficient reserves, nor does the
Property generate sufficient cash flow, to fund these capital improvements.
In June 1995, Sherburne completed a restructuring of a mortgage loan (the
"Loan") in the principal amount of approximately $27 million from Bankers Trust
Company of New York. The restructuring extended the term of the Loan through
February 1997 which may be extended, at Sherburne's option, through October
1997. The estimated interest payments on the Loan in fiscal 1996 are
approximately $2.4 million and a principal payment of $600,000 is due in
September 1996. See "Investment Considerations -- Need for Additional Capital"
and "The Offering -- Purpose of the Offering."
Sherburne's debt service coverage ratio in 1995 was .93:1. Debt service
coverage ratio measures, for any period, the ratio of net operating income of an
entity to the aggregate debt payments (including both interest and principal
payments) required to be made by such entity. Three Winthrop Properties, Inc.
(the "General Partner"), the general partner of the Partnership, believes that
Sherburne's debt service coverage ratio is substantially lower than current
underwriting standards
-4-
<PAGE>
imposed by financial institutions. Although the General Partner believes that
Sherburne will be able to meet its debt service obligations prior to maturity of
the Loan, Sherburne may not be able to refinance the Loan prior to or at its
maturity in February 1997 (or, if extended, in October 1997) without the payment
of substantial refinancing fees, a substantial increase in the Partnership's
equity and a substantial reduction in the aggregate outstanding indebtedness of
Sherburne. See "The Partnership" and "Investment Considerations -- Need for
Additional Capital." If Sherburne is unable to obtain adequate refinancing, it
could be forced to sell the Property (or a portion thereof) at disadvantageous
terms and conditions.
Accordingly, the General Partner has determined to increase the
Partnership's equity by means of the offering (the "Offering") being made by
this Prospectus and to utilize the proceeds of the Offering to complete the
capital improvements described above and to reduce the outstanding principal
indebtedness at the time of the refinancing of the Loan. See "Use of Proceeds."
The Offering
The Partnership is issuing to holders (the "Unitholders") of record of its
limited partnership interests (the "Units") as of the close of business on
___________, 1996 one subscription right (each, a "Right") for each Unit held.
Each Right entitles the Unitholder to purchase, at any time prior to 5:00 p.m.,
New York City time, on ____________, 1996 (as such date may be extended by the
General Partner as herein provided, the "Expiration Date"), at a subscription
price of $13,333 (the "Subscription Price"), one 8% cumulative compounded
preferred unit (a "Preferred Unit") representing a limited partnership interest
in the Partnership. The Rights are evidenced by subscription certificates (the
"Subscription Certificates") which are being mailed to Unitholders herewith. The
Rights are not transferable. See "The Offering."
The subscription period shall commence on _____________ __, 1996 and,
unless extended by the General Partner, will terminate at 5:00 p.m. New York
time on the Expiration Date.
Rights may be exercised by completing a Subscription Certificate and
delivering it, together with payment, by means of a check, to the Partnership.
Each Unitholder who exercises the Rights issued to such Unitholder will be
entitled to exercise an over-subscription privilege (the "Over-Subscription
Privilege") for all or any portion of the Preferred Units that were not
purchased by Unitholders to whom Rights were issued. If all the Rights are
-5-
<PAGE>
exercised, there will be no Over-Subscription Privilege. There is no limit on
the number of Preferred Units that a Unitholder who has exercised his Rights may
seek to subscribe for pursuant to the Over-Subscription Privilege. The available
Preferred Units will be allocated pro rata (according to the aggregate number of
Rights exercised) among those Unitholders who exercise the Over-Subscription
Privilege. In the event a Unitholder exercising the Over-Subscription Privilege
is allocated less than the number of Preferred Units for which such Unitholder
subscribed, excess subscription payments will be promptly refunded. See "The
Offering -- Payment for Securities."
Zero Main Associates Limited Partnership (the "Guarantor"), an affiliate of
the General Partner and a Unitholder, has agreed (i) to exercise its Right and
(ii) to subscribe for all other Preferred Units offered hereunder through the
Over-Subscription Privilege and, subject to proration as described above, to
purchase such additional Preferred Units (the "Subscription Guaranty"). If no
Rights are exercised by Unitholders other than the Guarantor, it would purchase
and own all 785 Preferred Units. As a result of the Subscription Guaranty, the
Partnership is assured of receiving gross proceeds from the Offering in an
amount equal to approximately $10.5 million. No fee is being paid to the
Guarantor on account of the Subscription Guaranty.
There is no existing market for the Preferred Units and it is anticipated
that a market for the Preferred Units will not develop. The Partnership does not
intend to apply to list the Preferred Units on any securities exchange.
Each Preferred Unit will entitle the holder thereof to receive from the
available cash flow of the Partnership an amount in cash equal to a cumulative
preferred annual return of 8% on his preferred invested capital of $13,333. In
addition, each Preferred Unit will entitle the holder thereof to receive an
aggregate cumulative cash distribution (prior to any distribution to Unitholders
and to the General Partner on account of the Units and the general partnership
interests held by them) equal to $33,332.50 (or 250% of an investor's preferred
invested capital, on a per Preferred Unit basis) from the net cash proceeds, if
any, received by the Partnership from capital transactions or upon liquidation
of the Partnership. See "Description of Securities."
For a discussion of certain tax consequences to holders who exercise their
Rights, see "Certain Income Tax Consequences."
ALL EXERCISING UNITHOLDERS MUST REMIT PAYMENT IN FULL WITH THEIR COMPLETED
SUBSCRIPTION CERTIFICATES FOR ALL PREFERRED UNITS SUBSCRIBED FOR THROUGH THE
EXERCISE OF THE RIGHTS AND THE OVER-SUBSCRIPTION PRIVILEGE. EXERCISING
UNITHOLDERS WILL HAVE NO
-6-
<PAGE>
RIGHT TO RESCIND A PURCHASE AFTER THE PARTNERSHIP HAS RECEIVED A COMPLETED
SUBSCRIPTION CERTIFICATE.
Investment Considerations
See "Investment Considerations" for information that should be considered
by the Unitholders.
Use of Proceeds
Of the approximately $10.3 million proceeds of the Offering (net of
expenses of approximately $175,000), (i) approximately $4.2 million will be
utilized to pay the costs and expenses of, and to reduce the outstanding
principal amount of the indebtedness of the Partnership at the time of, the
refinancing of the Loan, (ii) approximately $4.5 million will be utilized to
make capital improvements to the Property, (iii) approximately $600,000 will be
used to repay a loan made by the General Partner to the Partnership in May 1996
to fund the payment of real estate taxes and capital improvements and (iv) the
remaining approximately $1 million will be added to the Partnership's working
capital. See "Use of Proceeds."
-7-
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
(in thousands, except per Unit information)
The selected consolidated financial data set forth below with respect to
the fiscal years ended December 31, 1991, 1992, 1993, 1994 and 1995 are derived
from the Partnership's audited consolidated financial statements. The selected
consolidated financial data for the three months ended March 31, 1995 and 1996
are derived from the Partnership's unaudited consolidated financial statements
which in the opinion of management include all normal, recurring adjustments
necessary to state fairly the data included therein in accordance with generally
accepted accounting principles for interim financial information. Interim
results are not necessarily indicative of the results to be expected for the
entire fiscal year. All of the data set forth below should be read in
conjunction with the "Management's Discussion and Analysis of Financial
Condition and Results of Operations" section and the Consolidated Financial
Statements and the notes thereto appearing in the Form 10-K and the Form 10-Q
incorporated herein by reference.
<TABLE>
<CAPTION>
Three Months Ended
Year Ended December 31, March 31,
-------------------------------------------------------- ---------------------
1991 1992 1993 1994 1995 1995 1996
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Consolidated Statement of Operations
Data:
Revenue:
Hotel operations ........................ $ 5,219 $ 5,528 $ 6,110 $ 6,408 $ 7,168 $ 83 $ --
Restaurant operations ................... 2,151 2,332 2,286 2,404 2,406 87 --
Commercial rental operations ............ 2,921 3,108 3,542 3,587 3,502 472 570
Boat basin operations ................... 2,308 2,206 2,426 2,528 2,595 39 37
-------- -------- -------- -------- -------- -------- --------
Total revenue ........................... 12,599 13,174 14,364 14,927 15,671 681 607
Total operating expenses ....................... 13,185 12,760 13,662 14,334 15,615 2,138 2,107
-------- -------- -------- -------- -------- -------- --------
Income (loss) from operations .................. (586) 414 702 593 56 (1,457) (1,500)
Total other income (expense), net .............. (2,380) (3,013) (2,510) (2,434) (2,476) (652) (547)
-------- -------- -------- -------- -------- -------- --------
Net Loss ....................................... $ (2,966) $ (2,599) $ (1,808) $ (1,841) $ (2,420) $ (2,109) $ (2,047)
-------- -------- -------- -------- -------- --------
Net Loss Allocated to General Partner .......... $ (149) $ (130) $ (90) $ (92) $ (121) $ (105) $ (102)
-------- -------- -------- -------- -------- -------- --------
Net Loss Allocated to Limited Partners ......... $ (2,817) $ (2,469) $ (1,718) $ (1,749) $ (2,299) $ (2,004) $ (1,945)
-------- -------- -------- -------- -------- -------- --------
Net Loss Per Unit of Limited Partnership
Interest Outstanding .......................... $ (3,588) $ (3,145) $ (2,188) $ (2,227) $ (2,929) $ (2,553) $ (2,478)
Other Data:
Net Loss ....................................... $ (2,966) $ (2,599) $ (1,808) $ (1,841) $ (2,420) $ (2,109) $ (2,047)
Depreciation and amortization .................. 3,088 2,626 2,680 2,551 2,542 607 639
Total other (income) expense ................... 2,380 3,013 2,510 2,434 2,476 652 547
-------- -------- -------- -------- -------- -------- --------
Net Operating Income ........................... $ 2,502 $ 3,040 $ 3,382 $ 3,144 $ 2,598 $ (850) $ (861)
-------- -------- -------- -------- -------- -------- --------
<CAPTION>
As of December 31, As of March 31,
------------------------------------------------------------ ------------------
1991 1992 1993 1994 1995 1996
-------- -------- -------- -------- -------- --------
Consolidated Balance Sheet Data:
<S> <C> <C> <C> <C> <C> <C>
Total assets ............................... $ 64,217 $ 61,163 $ 58,716 $ 57,377 $ 54,312 $ 53,013
Total liabilities .......................... 30,087 29,631 28,992 29,493 28,849 29,597
Partners' equity (deficit):
Investor limited partners' equity, 785
units authorized, issued and
outstanding ............................. 40,062 41,593 39,876 38,128 35,828 33,883
General partners' deficit ............... (9,931) (10,061) (10,151) (10,244) (10,365) (10,467)
Total partners' equity ..................... 34,131 31,532 29,724 27,884 25,463 23,416
Total liabilities and partners' equity ..... 64,217 61,163 58,716 57,377 54,312 53,013
</TABLE>
-8-
<PAGE>
THE PARTNERSHIP
Nantucket Island Associates Limited Partnership (the "Partnership") is the
sole general partner of, and owns a 99.99% general partnership interest in, NIA
Operating Associates Limited Partnership, a Massachusetts limited partnership
("NIA Operating Associates"). The remaining 0.01% interest in NIA Operating
Associates is owned by Three Winthrop Properties, Inc. (the "General Partner"),
the general partner of the Partnership. NIA Operating Associates, in turn, owns
a 99.99% general partnership interest in Sherburne Associates ("Sherburne"), a
Massachusetts general partnership. As a result, the Partnership owns a 99.98%
beneficial interest in Sherburne. The remaining 0.01% general partnership
interest in Sherburne is owned by the General Partner. Sherburne owns and
operates a portfolio of properties on Nantucket Island, including two hotels
(The White Elephant and The Harbor House Hotel), 40 rental units located in the
Wharf Cottages, 51 retail buildings, the Nantucket Boat Basin and employee
housing for approximately 150 persons (collectively, the "Property"). See "The
Property."
The General Partner controls the activities of the Partnership. The term of
the Partnership will end in the year 2035, although the Partnership may be
terminated earlier pursuant to the provisions of the partnership agreement (the
"Partnership Agreement") of the Partnership.
In June 1995, Sherburne completed a restructuring of a mortgage loan (the
"Loan") in the principal amount of approximately $27 million from the Bankers
Trust Company of New York ("Bankers Trust"). The restructuring extended the term
of the Loan through February 1997, and the term may be further extended, at
Sherburne's option, through October 1997. The estimated interest payments on the
Loan in fiscal 1996 are approximately $2.4 million and a principal payment of
$600,000 is due in September 1996. See "Investment Considerations -- Need for
Additional Capital" and "The Offering -- Purpose of the Offering."
The Partnership is a Delaware limited partnership. The address of its
principal office is c/o Winthrop Financial Associates, A Limited Partnership,
One International Place Boston, Massachusetts 02110, and the Partnership's
telephone number is (617) 330-8600.
-9-
<PAGE>
INVESTMENT CONSIDERATIONS
Effect of Not Exercising Rights. Upon completion of the Offering
contemplated hereby, Unitholders who do not exercise their Rights will own a
smaller proportional interest in the Partnership. Holders of the Preferred Units
will be entitled to receive distributions from the proceeds of any sale of the
Property or upon a liquidation of the Partnership on account of the Preferred
Units in an aggregate amount equal to approximately $26 million prior to any
distribution to the Unitholders on account of the Units. In addition, holders of
the Preferred Units will be entitled to a preference in distributions from cash
flow by the Partnership. See "Description of Securities -- Distributions from
Capital Proceeds" and "Description of Securities -- Liquidation Preferences."
Accordingly, the only way for a Unitholder to protect against substantial
dilution of his investment in his Units is to exercise his Rights.
In view of the priority return on the Preferred Units, Unitholders who do
not exercise their Rights may not receive any further return of or on their
investment in the Units unless there is a material appreciation in the value of
the Property. See "The Property."
Risks Associated with Purchase of Preferred Units. During the year ended
December 31, 1995, the Partnership generated net operating income of
approximately $2.6 million and made debt service payments of approximately $2.9
million. The Partnership would not have been able to pay to the Preferred
Unitholders the entire 8% cumulative preferred annual return to which they would
have been entitled during fiscal 1995 if the Preferred Units had been
outstanding during fiscal 1995. See "Ratio of Earnings to Fixed Charges and
Preferred Unit Distributions." Furthermore, the General Partner believes that
the Partnership will not generate sufficient net operating income in fiscal 1996
to pay such preferred annual return. The Partnership's ability to pay such
preferred annual return and the preferred capital return on the Preferred Units
will be dependent, in large part, on increasing the Partnership's net operating
income, reducing the Partnership's debt service obligations and increasing the
value of the Property.
The General Partner believes that the capital improvements intended to be
made to the Property with the proceeds of the Offering (see "Use of Proceeds")
will, in the aggregate, result in an appreciation in the value of the Property
in excess of the amount actually expended for such improvements. However, there
can be no assurance that the value of the Property will so appreciate or as to
the amount of any such appreciation in value. Accordingly, there can be no
assurance that an investor in the
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<PAGE>
Preferred Units will receive the full preferred annual return and the full
preferred capital return on his investment in the Preferred Units.
In addition, the Preferred Units offered hereby have no preemptive rights
or anti-dilution protection. The Partnership Agreement provides that the General
Partner may, in its sole discretion, determine to sell additional interests in
the Partnership with such rights, powers and duties, including rights, powers
and duties senior to the Preferred Units and the Units.
Operating Deficits. The Partnership has generated net operating income of
approximately $2.6 million, $3.1 million and $3.4 million in the fiscal years
ended December 31, 1995, 1994 and 1993, respectively. The Company's debt service
payments have approximated $2.9 million, $2.7 million and $3.2 million in the
fiscal years ended December 31, 1995, 1994 and 1993, respectively. The
Partnership has experienced a decrease in net cash flow in recent years
primarily due to increased expenses. This decrease in net cash flow has
necessitated greater use of the Partnership's working capital reserves to fund
debt service obligations under the Loan in recent years. See "The Offering --
Purpose of the Offering." There can be no assurance that the cost of operating
the Property and making debt service payments will not exceed the revenues
available from operations in future periods. See "Use of Proceeds" and "The
Offering -- Purpose of the Offering."
Need for Additional Capital. The principal Loan balance of approximately
$27 million is due on February 28, 1997 and a mandatory principal repayment of
$600,000 is due on September 30, 1996 (and, if Sherburne exercises its option to
extend the Loan to October 31, 1997, another mandatory principal repayment of
$600,000 will be due on September 30, 1997). The General Partner believes that
Sherburne's debt service coverage ratio is substantially lower than current
underwriting standards imposed by financial institutions. Although the General
Partner believes that Sherburne will be able to meet its debt service
obligations prior to maturity of the Loan, Sherburne may not be able to
refinance the Loan without the payment of substantial refinancing fees, a
substantial increase in the Partnership's equity and a substantial reduction in
its aggregate outstanding indebtedness. There can be no assurance that Sherburne
will be able to secure any such refinancing or whether any such refinancing will
be on terms as favorable to Sherburne as its current arrangements.
If Sherburne is unable to obtain adequate refinancing, it could be forced
to sell the Property (or a portion thereof) at disadvantageous terms and
conditions. The General Partner
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<PAGE>
believes that, in order to maximize the value of the Property to the Partnership
in connection with a proposed sale, it is necessary to complete the capital
improvements contemplated to be made with the use of the proceeds from the
Offering. See " -- Environmental Risks," " -- Massachusetts Licensing," and " --
Conflicts of Interest" and "Use of Proceeds." High interest rates or a shortage
of mortgage funds might make a sale of the Property difficult or
disadvantageous. Such adverse conditions might also make it necessary for the
Partnership to extend mortgage financing to the purchaser, which would involve
credit risks and would defer the distribution of the entire sales price of the
Property or any remaining portion thereof to Preferred Unitholders and/or
Unitholders pending the complete liquidation of the Partnership.
In addition, Sherburne's ability to sell or refinance the Property and the
terms of such a sale or refinancing will depend upon the value of the Property
at that time, which is subject to general economic conditions and special
factors affecting real estate investments. See "The Property." If Sherburne were
to sell all or a substantial portion of the parcels comprising the Property
within a short period of time, the value of such parcels may be adversely
affected by the quantity of real estate being placed on the market by Sherburne.
If Sherburne is not able to refinance or sell the Property prior to maturity of
the Loan and is unable to meet its obligations thereunder at maturity, the
lender may foreclose its mortgage on the Property.
Removal of General Partner and Redemption of Preferred Units. If at any
time the General Partner is removed as general partner of the Partnership
without its consent, all of the Preferred Units will be redeemed by the
Partnership concurrently with such removal of the General Partner for a price
equal to the liquidation preference of the Preferred Units (such right is not
triggered if the General Partner withdraws voluntarily). Accordingly, the
Offering will impose substantial limitations on the ability of the limited
partners of the Partnership to remove the General Partner without its consent.
Risks of Real Estate Ownership. The Partnership's investment in Sherburne
is subject to the risks inherent in the ownership of retail property, rental
property and hotels. These include the uncertainty that rental income will be
sufficient to cover operating costs and debt service due to inability to attract
or retain retail tenants and vacationers as a result of adverse changes in
general or local economic conditions or characteristics, inadequacies of the
management agent, the possibility of unanticipated Property expenses, and other
factors. Because of the seasonal nature of the Nantucket economy, Sherburne
realizes a substantial portion of its revenues
-12-
<PAGE>
during the summer months. Accordingly, Sherburne's operations may be adversely
affected by temporary changes in weather or travel patterns during such period.
Other risks inherent in an investment in the Partnership include the possibility
of changes in the investment climate for real estate, unavailability of mortgage
funds for refinancing, changes in real estate tax rates and other operating
expenses, and other factors which are beyond the control of the General Partner.
The success of the Partnership is dependent in part on Sherburne's
operation of the White Elephant Hotel and Harbor House Hotel. The economic
success of these hotels will depend upon their levels of occupancy as well as
the level of revenues derived from the operation of the restaurants, lounges and
other function facilities. See "-- Operating Deficits" and "Use of Proceeds."
The demand for particular accommodations and related hotel services on Nantucket
Island varies seasonally and may be affected by local or national economic
recessions and changes in travel patterns caused by weather conditions, energy
shortages, strikes and other factors. Sherburne's hotels may also experience
increases in operating expenses, labor difficulties or supplier problems which
could have a material adverse impact on the operations of such hotels.
Competition. A number of hotels, residential accommodations and retail
facilities on Nantucket Island compete with the Property. The commercial, hotel
and seasonal accommodation markets on Nantucket Island are highly competitive
and the Property competes with many other established properties as well as
other developments which may be constructed. In addition, Nantucket Island
competes with other resort areas. There can be no assurance that the Property
will be able to attract vacationers and attract and retain tenants at occupancy
and rental rates sufficient for successful operations. See " -- Operating
Deficits."
Uninsured Losses. The Property is the subject of insurance coverage
customary for properties of this type. There can be no assurance, however, that
claims for any loss due to fire, natural disaster or other cause will be fully
covered under the comprehensive insurance policies for the Property. Moreover,
there are certain types of losses (generally of an unusual or catastrophic
nature, such as those that result from wars, earthquakes, floods or tornados)
which are either uninsurable or not economically insurable. Should such a
casualty occur, the Partnership would suffer a loss of the capital invested in
the Property as well as anticipated benefits from the Property.
Environmental Risks. The General Partner is aware that petroleum
hydrocarbon products have been discovered on certain
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<PAGE>
portions of the Property. Under applicable Massachusetts law, owners of property
where there has been a release of such substances into the environment are
responsible for the cost to remediate the property.
The entity from whom the Partnership purchased the Property has agreed to
indemnify the Partnership for certain cleanup costs incurred by the Partnership.
All amounts spent by the Partnership for such cleanup operations that are not
covered by the indemnification obligation of the sellers of the Property will
reduce the Partnership's operating reserve.
At the present time, a process to remove petroleum from portions of the
Property is being implemented. Further remedial activities and assessments may
be required by Massachusetts' Department of Environmental Protection. In
addition, Sherburne has provided a nonrecourse indemnification to the title
insurance company which issued a title insurance policy for the Property with
respect to certain environmental costs. There can be no assurance that the
amounts required to further remediate the Property will not have a material
effect on the Partnership or that the indemnification provided by Sherburne to
the title insurance company will not be triggered.
In connection with the capital improvements contemplated with the use of
the proceeds of the Offering, the Partnership will dredge portions of Nantucket
Harbor, subject to receipt of applicable consents from environmental agencies.
Massachusetts Licensing. The Partnership is currently in the process of
complying with certain environmental licensing and permitting requirements
relating to waterfront use in the Commonwealth of Massachusetts. The Partnership
believes that the costs and expenses of complying with such licensing and
permitting requirements will range from approximately $170,000 to approximately
$500,000 for a standard 30-year license term. The Partnership believes that,
upon completion of the Offering, it will have sufficient working capital to fund
such compliance. If the Offering is not consummated and the Partnership is
unable to finance such fees from its cash flow, the cost of complying with such
licensing and permitting requirements could have a material adverse effect on
the Partnership.
Restrictions on Transfer. The transferability of the Preferred Units is
restricted by the Partnership Agreement (including a provision requiring the
consent of the General Partner before any transfer can be made). A Preferred
Unitholder may thus be required to retain his investment for an indefinite
period.
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<PAGE>
Absence of Market. In addition to the restrictions on transfer in the
preceding paragraph, it is not expected that there will be a market for the
resale of Preferred Units in the Partnership; therefore, a Preferred Unitholder
may be unable to sell or otherwise dispose of all or any portion of his
investment. Moreover, in the event a Preferred Unitholder were able to sell some
or all of his Preferred Units, he might receive less than the amount of his
original investment.
Conflicts of Interest. The Partnership is subject to potential conflicts of
interest arising from the other real estate activities of affiliates of the
General Partner. The officers and directors of the General Partner and its
affiliates may be actively engaged in supervising the development, construction,
rehabilitation and operation of other projects which may be in competition with
the Property, including the parcels of land distributed by Sherburne in 1987 to
a partnership consisting of the General Partner and an affiliate thereof. These
additional activities and investments may affect their ability to perform their
respective obligations to the Partnership.
An affiliate of the General Partner is required to pay to Interstate
Hotels, the managing agent for the hotels, a termination fee if its management
agreement in respect of such hotels is terminated in connection with a sale of
either or both such hotels. At the present time, if both hotels were sold, the
termination fee would be approximately $300,000 in the aggregate. The fee
required to be paid is reduced over time and no payment is required to be made
after July 2000. Accordingly, a conflict of interest could arise in connection
with a potential sale of the hotels.
An affiliate of the General Partner manages the retail portion of the
Property and receives property management fees in respect thereof. If the retail
portion of the Property were sold, it would not receive such fees. In addition,
an affiliate of the General Partner receives an asset management fee in respect
of the Property. If the Property as a whole were to be sold, it would no longer
receive such fee. In addition, if the Guarantor were to purchase a substantial
number of the Preferred Units, a conflict of interest could arise if the sale of
the Property or a portion thereof would be advantageous to the holders of the
Preferred Units but not the Unitholders. The General Partner is, however, aware
of its fiduciary obligations to the Partnership and intends to fulfill such
obligations.
Tax Liability May Exceed Cash Distributions. As a partner in the
Partnership, a Preferred Unitholder will be taxable on his annual allocable
share of Partnership taxable income whether or
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<PAGE>
not any cash distributions are made to him and irrespective of the amount of
such distributions, if any. Consequently, it is possible that a Preferred
Unitholder's tax liability with respect to Partnership taxable income allocated
to him may exceed the cash distributed to him in one or more years. See "Certain
Income Tax Consequences."
Liability of Limited Partners. Under Delaware law, a limited partner may be
liable for the debts of a partnership up to the amount of any distribution made
to such limited partner if, at the time of such distribution, all liabilities of
the partnership, other than liabilities to partners on account of their
interests in the partnership, exceed the fair value of the partnership's assets.
Additionally, a limited partner who receives the return, in whole or in part, of
his capital contribution without violation of the partnership agreement or
applicable statute may be liable to the partnership for a period of one year for
any sum, not in excess of such returned capital contribution, necessary to
discharge the partnership's liabilities to all creditors who extended credit or
whose claims arose before such return. If a limited partner receives the return
of any part of his capital contribution in violation of the partnership
agreement or applicable statute, he is liable to the partnership for a period of
six years for the entire amount of the contribution wrongfully returned.
Lack of Management Control. The Preferred Unitholders will have no right or
power to take part in the management or control of the business of the
Partnership, except the right to approve certain extraordinary actions. The
business of the Partnership is managed solely by the General Partner. If a
Preferred Unitholder participates in the control of the business of the
Partnership he may be deemed under applicable laws to be a general partner of
the Partnership, with the resulting loss of his limited liability. If a
Preferred Unitholder were deemed to be liable as a general partner of the
Partnership, he would be generally liable for the Partnership's obligations,
which liability could be satisfied out of his personal assets if the
Partnership's assets were insufficient. Since the Partnership Agreement provides
certain voting rights to the Preferred Unitholders, a creditor of the
Partnership might claim that such rights amount to participation in the
Partnership's business, which claim, if judicially sustained, could result in a
Preferred Unitholder's personal liability.
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<PAGE>
THE OFFERING
PURPOSE OF THE OFFERING
Sherburne has been engaged in a capital improvements program on the
Property, which is being implemented in phases. At the present time, the
Partnership believes that certain capital improvements to the Property,
including improvements to the Nantucket Boat Basin wharf and dock structure and
dredging of the Nantucket Boat Basin, capital improvements to the hotels and
hotel restaurants and repairs to, or rebuilding of, a free standing structure
which suffered significant water damage, are required to be completed in the
near future. The Partnership anticipates that the cost of completing such
capital improvements will be approximately $4.5 million. Neither Sherburne nor
the Partnership has sufficient reserves, nor does the Property generate
sufficient cash flow, to fund these capital improvements.
The General Partner believes that, in order to maximize the value of the
Property, it is necessary to complete the capital improvements contemplated to
be made with the proceeds of the Offering. See "Use of Proceeds." The General
Partner believes that such capital improvements will result in an appreciation
in the value of the Property in excess of the amount actually expended for such
improvements. However, there can be no assurance that the value of the Property
will so appreciate or as to the amount of any such appreciation in value.
Before interest payments on the Loan of approximately $2.6 million, $2.4
million and $3.0 million, the Partnership generated income from operations of
approximately $56,000, $593,000 and $702,000 in each of the years ended December
31, 1995, 1994 and 1993, respectively. The hotels included in the Property did
not generate any income from operations during each of the years in the three
year period ended December 31, 1995 and the Partnership incurred net losses of
approximately $2.4 million, $1.8 million and $1.8 million for the years ended
December 31, 1995, 1994 and 1993, respectively.
The Loan matures on February 28, 1997. Sherburne's debt service coverage
ratio in 1995 was .93:1. Debt service coverage ratio measures, for any period,
the ratio of net operating income of an entity to the aggregate debt payments
required to be made by such entity. The General Partner believes that
Sherburne's debt service coverage ratio is substantially lower than current
underwriting standards imposed by financial institutions. Although the General
Partner believes that Sherburne will be able to meet its debt service
obligations prior to maturity of the
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<PAGE>
Loan, Sherburne may not be able to refinance the Loan without the payment of
substantial refinancing fees, a substantial increase in the Partnership's equity
and a substantial reduction in its aggregate outstanding indebtedness. See "The
Partnership" and "Investment Considerations -- Need for Additional Capital."
Accordingly, the General Partner has determined to increase the
Partnership's equity by means of this Offering and to utilize the proceeds of
the Offering to complete the capital improvements described above and to reduce
the outstanding principal amount of the indebtedness of the Partnership at the
time of the refinancing of the Loan. See "Use of Proceeds."
TERMS OF THE OFFER
The Partnership is issuing to holders (the "Unitholders") of record of its
limited partnership interests (the "Units") as of the close of business on
___________, 1996 (the "Record Date") one subscription right (each, a "Right")
for each Unit held. Each Right entitles the Unitholder to purchase, at any time
prior to 5:00 p.m., New York City time, on ____________, 1996 (as such date may
be extended by the General Partner as herein provided, the "Expiration Date"),
at a subscription price of $13,333 (the "Subscription Price"), one 8% cumulative
compounded preferred unit (a "Preferred Unit") representing a limited
partnership interest in the Partnership. The Rights are evidenced by
subscription certificates (the "Subscription Certificates") which are being
mailed to Unitholders herewith. The Rights are not transferable.
Completed Subscription Certificates may be delivered to the Partnership at
any time commencing on _____________ __, 1996 and terminating at 5:00 p.m. New
York time on the Expiration Date (the "Subscription Period").
Rights may be exercised by completing a Subscription Certificate and
delivering it, together with payment by means of a check, to the Partnership.
See " -- Exercise of Rights" and " -- Subscription Price." All Rights may be
exercised immediately upon receipt and until 5:00 p.m., New York City time, on
the Expiration Date.
The terms of this Offering and the Preferred Units have been determined by
the General Partner. No determination has been or will be made as to, nor has
the Partnership requested any third party to determine and/or deliver an opinion
in respect of, the fairness of the terms of the Preferred Units.
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<PAGE>
SUBSCRIPTION PRICE
The Subscription Price for each Preferred Unit is $13,333.00.
NO MODIFICATION OR REVOCATION
ONCE A HOLDER OF RIGHTS HAS PROPERLY EXERCISED HIS RIGHTS AND THE
OVER-SUBSCRIPTION PRIVILEGE, SUCH EXERCISE MAY NOT BE MODIFIED OR REVOKED.
EXPIRATION OF THE OFFERING
This Offering will expire at 5:00 p.m. New York City time, on the
Expiration Date. The Rights expire on the Expiration Date and thereafter may not
be exercised.
OVER-SUBSCRIPTION PRIVILEGE
If less than all of the Rights are exercised, the Preferred Units not
subscribed for by Unitholders will be offered, by means of an over-subscription
privilege (the "Over-Subscription Privilege"), to Unitholders who exercise their
Rights and who wish to acquire additional Preferred Units. The Over-
Subscription Privilege may be exercised by any Unitholder who has exercised his
Right. Unitholders should indicate, on the Subscription Certificate which they
submit with respect to the exercise of their Rights, how many additional
Preferred Units they are willing to acquire pursuant to the Over-Subscription
Privilege. If all Rights are exercised, the Over-Subscription Privilege may not
be exercised.
Within five (5) business days after the Expiration Date (to allow for
clearance of the checks remitted in payment of the Subscription Price of the
Preferred Units subscribed for by the Unitholders), the Partnership will
allocate the Preferred Units not acquired upon the exercise of Rights on a pro
rata basis among those Unitholders who exercise the Over-Subscription Privilege
(including the Guarantor) according to the aggregate number of additional
Preferred Units sought to be acquired pursuant to the Over-Subscription
Privilege. The percentage of remaining Preferred Units each Unitholder may
acquire may be rounded up or down to result in delivery of whole Preferred
Units. In the event a Unitholder who exercises the Over- Subscription Privilege
is allocated less than the number of Preferred Units that such Unitholder
subscribed for, excess subscription payments will be promptly refunded. See " --
Payment for Securities."
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<PAGE>
SUBSCRIPTION GUARANTY
Zero Main Associates Limited Partnership (the "Guarantor"), which is an
affiliate of the General Partner and a limited partner in the Partnership, has
agreed (i) to exercise its Right and (ii) to subscribe for all other Preferred
Units offered hereunder through the Over-Subscription Privilege and, subject to
proration as described above, to purchase such additional Preferred Units (the
"Subscription Guaranty"). If no Rights are exercised by Unitholders other than
the Guarantor, it would purchase and own all 785 Preferred Units. No fee is
being paid to the Guarantor on account of the Subscription Guaranty. As a result
of the Subscription Guaranty, the Partnership is assured of receiving gross
proceeds from the Offering in an amount equal to approximately $10.5 million.
Apollo Real Estate Investment Fund II, L.P. ("Apollo"), an affiliate of the
General Partner, has agreed to provide the Guarantor with such financing as
shall be necessary to enable the Guarantor to fulfill the Subscription Guaranty.
As a result of the Subscription Guaranty, the Partnership is assured of
receiving gross proceeds of the offering in an amount equal to approximately
$10.5 million. See "Investment Considerations -- Removal of General Partner and
Redemption of Preferred Units" and "Description of Securities -- Redemption."
EXERCISE OF RIGHTS
Rights may be exercised by filling in and signing the reverse side of the
Subscription Certificate which accompanies this Prospectus and mailing it in the
envelope provided, or otherwise delivering the completed and signed Subscription
Certificate to the Partnership, together with payment of the Subscription Price
for the Preferred Units as described in " -- Payment for Securities". Rights may
also be exercised through a Unitholder's broker or dealer, who may charge such
Unitholder a servicing fee.
EXERCISE OF OVER-SUBSCRIPTION PRIVILEGE
Any Unitholder exercising his Rights may participate in the
Over-Subscription Privilege by indicating on his Subscription Certificate the
number of Preferred Units he is willing to acquire pursuant thereto. There is no
limit on the number of Preferred Units that exercising Unitholders may seek to
subscribe for pursuant to the Over-Subscription Privilege. The number of
Preferred Units issued to each Unitholder participating in the Over-Subscription
Privilege will be allocated as described above in " -- Over-Subscription
Privilege."
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<PAGE>
PAYMENT FOR SECURITIES
Payment for Preferred Units that are subscribed for by exercising Rights
and the Over-Subscription Privilege must be made by means of a check, in United
States dollars, made payable to the Partnership, along with a completed and
properly executed Subscription Certificate on or prior to the Expiration Date.
All checks received by the Partnership will be deposited in a segregated
interest-bearing account of the Partnership (the interest from which will belong
to the Partnership) pending proration and distribution of the Preferred Units.
Any excess funds paid by a Unitholder will be promptly returned to such
Unitholder.
If any Unitholder does not make timely and full payment for the Preferred
Units subscribed for by exercise of his Rights and/or the Over-Subscription
Privilege, the Partnership reserves the right to allow the Guarantor to purchase
the Preferred Units subscribed for by such non-paying Unitholder.
THE METHOD OF DELIVERY OF SUBSCRIPTION CERTIFICATES AND PAYMENT OF THE
SUBSCRIPTION PRICE TO THE PARTNERSHIP WILL BE AT THE ELECTION AND RISK OF THE
HOLDERS OF THE RIGHTS. IF SENT BY MAIL, IT IS RECOMMENDED THAT SUCH CERTIFICATES
AND PAYMENTS BE SENT BY REGISTERED MAIL, PROPERLY INSURED, WITH RETURN RECEIPT
REQUESTED, AND THAT A SUFFICIENT NUMBER OF DAYS BE ALLOWED TO ENSURE DELIVERY TO
THE PARTNERSHIP AND CLEARANCE OF PAYMENT PRIOR TO 5:00 P.M., NEW YORK CITY TIME,
ON THE EXPIRATION DATE. BECAUSE UNCERTIFIED PERSONAL CHECKS MAY TAKE AT LEAST
FIVE BUSINESS DAYS TO CLEAR, YOU ARE STRONGLY URGED TO PAY, OR ARRANGE FOR
PAYMENT, BY MEANS OF CERTIFIED OR CASHIER'S CHECK OR MONEY ORDER.
All questions concerning the timeliness, validity, form and eligibility of
any exercise of Rights will be determined by the Partnership, whose
determinations will be final and binding. The Partnership in its sole discretion
may waive any defect or irregularity or permit a defect or irregularity to be
corrected within such time as it may determine or reject the purported exercise
of any Right. Subscriptions will not be deemed to have been received or accepted
until all irregularities have been waived or cured within such time as the
Partnership shall determine in its sole discretion. The Partnership shall not
have any duty to give notification of any defect or irregularity in connection
with the submission of Subscription Certificates or incur any liability for
failure to give such notification.
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<PAGE>
THE PROPERTY
The Property is comprised of commercial properties consisting of retail
stores and apartments (the "Commercial Properties"), the Harbor House Hotel, the
White Elephant Hotel, the Nantucket Boat Basin, the Wharf cottages and certain
other assets. The Partnership acquired the Property as a portfolio for an
aggregate purchase price of approximately $50 million.
In 1993, the Commercial Properties and the Nantucket Boat Basin had an
appraised value of approximately $29 million. Although the General Partner has
not obtained a more recent appraisal, it believes, based upon a discounted cash
flow analysis (the same methodology as that employed in 1993), that the
Commercial Properties have a current value of approximately $23.6 million and
the Nantucket Boat Basin has a current value of approximately $7 million.
The hotels included in the Property did not generate net operating income
in fiscal 1995. Accordingly, the General Partner has been unable to estimate the
value of the hotels utilizing the discounted cash flow method. The Partnership
is currently in the process of obtaining an appraisal of the hotels. Once the
appraisal is completed, the Partnership intends to reexamine the issue of
whether a write-down of the value of the Property would be required in order to
comply with Statement of Financial Accounting Standards ("SFAS") No. 121, which
relates to accounting for the impairment of long-lived assets and for long-lived
assets to be disposed of. The Partnership is required to comply with SFAS 121
for all periods commencing with fiscal 1996. The Partnership is unable, at this
time, to predict either the results of the appraisal or whether a write-down
would be required to be taken; if a write-down is required to be taken, it could
have a material adverse effect on the Partnership's financial statements.
USE OF PROCEEDS
The proceeds from the Offering are estimated to be approximately $10.3
million (net of expenses of approximately $175,000). Of the net proceeds, (i)
approximately $4.2 million will be utilized to pay the costs and expenses of,
and to reduce the outstanding principal balance of the indebtedness of the
Partnership at the time of, the refinancing of the Loan, (ii) approximately $4.5
million will be utilized to make capital improvements to the Property
(approximately $3 million will be utilized to dredge and make improvements to
the subaqueous structure of the wharf at the Nantucket Boat Basin and
approximately $1.5 million will be utilized to make renovations
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<PAGE>
to the hotel and hotel restaurants), (iii) approximately $600,000 million will
be used to repay a loan (the "GP Loan") made by the General Partner to the
Partnership in May 1996 to fund the payment of real estate taxes and capital
improvements and (iv) the remaining approximately $1 million will be added to
the Partnership's working capital. See "The Offering -- Purpose of the
Offering." Pending such application, the net proceeds from the Offering will be
invested in interest-bearing investment grade securities. The GP Loan is a
demand loan which bears interest at the annual rate of one percent over the
prime rate announced from time to time by the Bank of Boston (at June 27, 1996,
such prime rate was 8.25%). Any net proceeds not required to be applied to
capital improvements or to refinance the Loan will be added to the Partnership's
working capital.
RATIO OF EARNINGS TO FIXED CHARGES AND
PREFERRED UNIT DISTRIBUTIONS
The following table sets forth the computation of the ratio of earnings to
fixed charges for the quarters ended March 31, 1996 and 1995 and for each of the
years in the five-year period ended December 31, 1995. The financial information
for purposes of computing the ratio of earnings to fixed charges has been
derived from the unaudited and audited financial statements of the Partnership
incorporated by reference herein.
The following table also sets forth the pro forma computation of the ratio
of earnings to fixed charges and Preferred Unit distributions for the quarter
ended March 31, 1996 and the year ended December 31, 1995. The pro forma ratio
of earnings to fixed charges and Preferred Unit distributions has been prepared
by adjusting the historical financial statements of the Partnership to give
effect to the exercise of the Rights as of the beginning of the period presented
and does not purport to be indicative of the ratio of earnings to fixed charges
and Preferred Unit distributions which might have occurred had the Rights been
exercised at the beginning of such periods or which might be expected to occur
in the future.
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<PAGE>
<TABLE>
<CAPTION>
Period Ending March 31,[1] For the Year Ended December 31,
-------------------------- -----------------------------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Earnings:
Net earnings (loss) ($2,047,249) ($2,108,699) ($2,420,347) ($1,840,545) ($1,807,664) ($2,598,720) ($2,965,570)
Add back fixed charges
charged to earnings 627,946 680,707 2,730,327 2,613,024 3,033,431 3,084,201 3,303,944
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net Earnings before
fixed charges ($1,419,303) ($1,427,992) $ 309,980 $ 772,479 $ 1,225,767 $ 485,481 $ 338,374
----------- ----------- ----------- ----------- ----------- ----------- -----------
Depreciation and
amortization of
acquisition costs 603,927 569,767 2,391,076 2,370,597 2,608,143 2,574,432 2,898,675
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net earnings before
fixed charges,
depreciation, and
amortization of
acquisition costs ($ 815,376) ($ 858,225) $ 2,701,056 $ 3,143,076 $ 3,833,910 $ 3,059,913 $ 3,237,049
----------- ----------- ----------- ----------- ----------- ----------- -----------
Fixed Charges:
Interest expense as
reported $ 592,908 $ 642,964 $ 2,579,356 $ 2,433,024 $ 2,961,142 $ 3,032,328 $ 3,115,074
Amortization of debt
placement costs 35,038 37,743 150,971 180,000 72,289 51,873 188,870
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total fixed charges $ 627,946 $ 680,707 $ 2,730,327 $ 2,613,024 $ 3,033,431 $ 3,084,201 $ 3,303,944
----------- ----------- ----------- ----------- ----------- ----------- -----------
Ratio:
Net earnings before
fixed charges/Fixed
charges[2] (2.3) (2.1) 0.1 0.3 0.4 0.2 0.1
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net Earnings before
fixed charges,
depreciation and
amortization of
acquisition costs/Fixed
charges[3] (1.3) (1.3) 1.0 1.2 1.3 1.0 1.0
----------- ----------- ----------- ----------- ----------- ----------- -----------
Pro forma Ratio of Net
Earnings to Fixed Charges
and Preferred Unit
Distributions:
Fixed charges per above $ 627,946 $ 680,707 $ 2,730,327
Adjustment to give
effect to the net
decrease in interest
expense resulting
from a refinancing[4] (92,575) (98,773) (397,195)
Preferred Unit
distributions[5] 209,328 209,328 837,312
Total fixed charges $ 744,699 $ 791,262 $ 3,170,444
----------- ----------- -----------
Pro forma Ratio:
Net earnings before
fixed charges/Fixed
charges (1.9) (1.8) 0.1
----------- ----------- -----------
Net earnings before
fixed charges,
depreciation and
amortization of
acquisition costs/Fixed
charges (1.1) (1.1) 0.9
----------- ----------- -----------
</TABLE>
- -----------------------------------------
[1] Because of the seasonal nature of the Property, the Partnership requires
working capital reserves to fund operating deficits during the off-season.
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[2] Net earnings before fixed charges were not adequate to cover fixed charges
for each of the five years ended December 31, 1995 by $2,420,347,
$1,840,545, $1,807,664, $2,598,720 and $2,965,570, respectively.
[3] The ratio of net earnings before fixed charges, depreciation and
amortization of acquisition costs/Fixed charges is presented to demonstrate
that on an annual basis earnings, before non-cash charges, were not
adequate to cover fixed charges in each of the years ended December 31,
1995, 1992 and 1991.
[4] Assuming an interest rate consistent with the actual rate incurred and a
principal payment of $4.2 million.
[5] Assuming that $10,466,405 worth of Preferred Units are purchased.
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DESCRIPTION OF SECURITIES
GENERAL
Each Right entitles the Unitholder to purchase one Preferred Unit. The
Preferred Units represent limited partnership interests in the Partnership and
have such rights and designations as are described below. The Preferred Units
will be evidenced by certificates issued by the Partnership.
The Partnership is authorized to issue additional Units or other securities
of the Partnership from time to time to Unitholders or additional investors
without the consent or approval of Unitholders, provided that, prior to any such
issuance, the Partnership offers any such additional Units or other securities
to the Unitholders on a pro rata basis. There is no limit to the number of Units
or additional classes thereof that may be issued. The General Partner has the
power to issue and sell such units of limited partnership interest on such terms
and conditions, and additional limited partners shall have such rights and
obligations with respect to such units, as the General Partner shall determine.
There is no existing market for the Preferred Units. The Partnership does
not intend to list the Preferred Units on any securities exchange and it is not
anticipated that a market for the Preferred Units will develop. In addition, the
transferability of the Preferred Units is restricted by the Partnership
Agreement (including a provision requiring the consent of the General Partner
before any transfer can be made). See "Investment Considerations."
CUMULATIVE COMPOUNDED PREFERRED ANNUAL RETURN
Each Preferred Unit will entitle the holder thereof to receive from the
Cash Flow of the Partnership an amount in cash equal to a cumulative compounded
preferred annual return of 8% on his preferred invested capital of $13,333. The
amount of preferred invested capital on which such return will be calculated
will be reduced from time to time by distributions, if any, of Capital Proceeds
(as defined in the Partnership Agreement). See " -- Distributions from Capital
Proceeds." Cash Flow, as used herein, means Net Income (as defined in the
Partnership Agreement) or Net Loss (as defined in the Partnership Agreement) of
the Partnership plus depreciation and amortization deductions and the amount of
reserve funds no longer required, less the sum of (a) debt amortization, (b)
payments to reasonable reserve accounts established by the General Partner, (c)
capital expenditures to the extent not paid out of reserves, insurance proceeds
or condemnation proceedings, and (d) the annual
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partnership administration and investor service fee. Cash Flow does not include
gains or losses resulting from a capital transaction of the Partnership. The
General Partner has the right at any time to establish reasonable reserves for
the Partnership (or Sherburne) as a deduction from Cash Flow. Cash Flow, if
available, is required to be distributed at least once each year to the
Partners, or more frequently at the option of the General Partner.
Distributions of Cash Flow will be made from the Partnership to the
Preferred Unitholders until such time as the Preferred Unitholders have received
an 8% per annum cumulative compounded return on their preferred invested
capital. Thereafter, in accordance with the provisions of the Partnership
Agreement, Cash Flow will be distributed 99% to the Unitholders and 1% to the
General Partner until such time as the Unitholders have received a 6% per annum
cumulative non-compounded return on their invested capital. Any remaining Cash
Flow will be distributed 95% to the Unitholders and 5% to the General Partner.
The availability of Cash Flow for distribution is dependent upon the
Partnership's earning more than sufficient rental and investment income to pay
all expenses of Sherburne and meet the debt service requirements of the Loan and
of any other borrowings of the Partnership. No assurance can be given that
income from Sherburne in any year will be sufficient to generate Cash Flow for
the Preferred Unitholders or that there will not be cash deficits. Investors
should recognize that because operating expenses and real estate taxes are
subject to increases, and increases in rent levels may be subject to market
limitations, cash distributions to the Partnership from Sherburne in any year
may not be sufficient to generate Cash Flow for distribution to the Preferred
Unitholders.
DISTRIBUTIONS FROM CAPITAL PROCEEDS
In addition to an 8% compounded cumulative preferred return, each Preferred
Unit entitles the holder thereof to receive an aggregate cash distribution
(prior to any distribution to Unitholders and to the General Partner on account
of the Units and the general partnership interests held by them) equal to
$33,332.50 (250% of an investor's original preferred invested capital) from the
net cash proceeds, if any, received by the Partnership from Non-Terminating
Capital Transactions (as defined in the Partnership Agreement) or upon
liquidation of the Partnership. Accordingly, prior to dissolution of the
Partnership, the net cash proceeds, if any, of a Non-Terminating Capital
Transaction that the General Partner determines is available for distribution
shall be distributed and applied generally as follows:
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(a) to discharge, to the extent required by any lender or creditor, debts
and obligations of the Partnership (including loans made by the
General Partner);
(b) (i) to fund reserves for contingent liabilities to the extent deemed
reasonable by the General Partner and the accountants of the
Partnership; (ii) as determined by the General Partner to fund
repairs, capital improvements or the development of portions of the
Property or (iii) to acquire or develop additional parcels of real
property located on Nantucket Island as are deemed consistent by the
General Partner with Sherburne's existing portfolio and the investment
objectives of the Partnership;
(c) to each Preferred Unitholder, an amount equal to a cumulative annual
8% compounded return on his preferred invested capital, as such
capital may be reduced from time to time by any distributions of net
cash proceeds from Non-Terminating Capital Transactions;
(d) to each Preferred Unitholder, an amount equal to $33,332.50 per
Preferred Unit, reduced by any prior distributions to such Preferred
Unitholder pursuant to this clause (d);
(e) to each Unitholder, an amount equal to a cumulative annual 6%
non-compounded return on his invested capital reduced by any prior
distributions to him out of Cash Flow and by any prior distributions
to him hereunder;
(f) to each Unitholder, an amount equal to his invested capital, reduced
by any prior distributions to him hereunder;
(g) to the General Partner, the aggregate amount of its capital
contribution to the Partnership, reduced by any prior distribution to
it hereunder; and
(h) the balance, 75% to the Unitholders and 25% to the General Partner.
LIQUIDATION PREFERENCES
Upon the termination and winding up of the Partnership, the proceeds of any
Terminating Capital Transaction (as defined in the Partnership Agreement) and/or
the remaining assets of the Partnership available for distribution, after
payment of all liabilities of the Partnership (including loans made by the
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General Partner), shall be distributed and applied generally as follows:
(a) to each Preferred Unitholder, an amount equal to a cumulative annual
8% compounded return on his preferred invested capital, after taking
into account any prior distributions to him out of Cash Flow and from
the net proceeds of any and all Non-Terminating Capital Transactions;
(b) to each Preferred Unitholder, an amount equal to $33,332.50 per
Preferred Unit, reduced by any prior distributions to him from the net
proceeds of any Non-Terminating Capital Transactions and pursuant to
this clause (b); and
(c) thereafter, to the Unitholders and the General Partner in accordance
with their respective capital account balances.
No assurance can be given as to the availability or feasibility of a
Non-Terminating or a Terminating Capital Transaction or the amount of net cash
proceeds, if any, therefrom.
Upon receipt by a Preferred Unitholder of an amount equal to the
liquidation preference of a Preferred Unit, he shall have no further rights to
vote or to receive distributions from the Partnership
VOTING RIGHTS
Each Preferred Unit entitles the holder thereof to 1/7 of one vote on all
matters on which a Unitholder has a right to vote. See "Description of
Partnership Agreement -- Voting Rights."
REDEMPTION
If at any time the General Partner is removed without its consent, the
Partnership will be required to redeem all of the Preferred Units at a price
equal to the liquidation preference of the Preferred Units (such right is not
triggered if the General Partner withdraws voluntarily).
Upon payment in full of the liquidation preference of the Preferred Units,
they will be redeemed in full and the holders thereof shall have no further
rights, powers or obligations.
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TRANSFER OF PREFERRED UNITS
The Partnership Agreement provides that no sale or exchange of an interest
in the Partnership may be made if the sale or exchange of the interest, when
added to the total of all other interests sold or exchanged within the period of
12 consecutive months ending with the proposed date of the sale or exchange,
would result in the termination of the Partnership under Section 708 of the
Internal Revenue Code of 1986, as amended (the "Code"). However, the sale or
exchange could be made if there has been compliance with the requirements of the
securities laws and the Partnership Agreement and if, prior to the sale or
exchange, there has been published in the Internal Revenue Bulletin, or the
Partnership has been granted upon application and at the expense of the
Preferred Unitholder desiring to transfer his Preferred Units, a favorable
ruling to the effect that a transfer of the type proposed will not result in
such a termination.
The Partnership Agreement also provides, with certain exceptions, that no
Preferred Unitholder may transfer his interest in the Partnership to a minor or
an incompetent or transfer any interest representing less than one-half of a
Preferred Unit (unless such interest represents the Preferred Unitholder's
entire interest).
No pledge, sale, transfer, exchange, assignment or other disposition of a
Preferred Unitholders's interest in the Partnership may be made except (a) with
the consent of the General Partner (except as otherwise provided in the
Partnership Agreement) and (b) in compliance with applicable regulations of any
governmental agency having jurisdiction over such disposition.
An assignee of a Preferred Unit may be admitted as a substitute Limited
Partner only upon: (a) delivery to the General Partner of a duly endorsed
Certificate and transfer application, (b) the General Partner's consenting to
the transfer, the granting of which consent is in the General Partner's sole
discretion, and (c) the assignee's written acceptance and adoption of all terms
and provisions of the Partnership Agreement. By executing and delivering a
transfer application, the transferee of Preferred Units (i) is an assignee until
admitted to the Partnership as a substituted limited partner, (ii) automatically
requests admission to the Partnership as a substituted limited partner, (iii)
represents that such transferee has the capacity and authority to enter into the
Partnership Agreement and (iv) grants powers of attorney to the General Partner.
On a quarterly basis, the Partnership will, on behalf of transferees who have
submitted transfer applications,
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request the General Partner to admit such transferees as substituted limited
partners in the Partnership. If the General Partner consents to such
substitution, a transferee will be admitted to the Partnership as a substituted
limited partner upon the recordation of such transferee's name in the books and
records of the Partnership. Upon such admission, which is in the sole discretion
of the General Partner, he will be entitled to all of the rights of a limited
partner under the Delaware Act and pursuant to the Partnership Agreement. Except
in the case of an assignment upon death or incapacity, an assignee of a
Preferred Unitholder who does not become a substitute Limited Partner will not
have any right to share in the Net Income, Net Loss, Cash Flow or other
distributions of the Partnership.
REPLACEMENT OF LOST PREFERRED UNIT CERTIFICATES
A Preferred Unitholder or transferee who loses or has his or her
certificate for Preferred Units stolen or destroyed may obtain a replacement
certificate by furnishing an indemnity bond and by satisfying certain other
procedural requirements under the Partnership Agreement.
DESCRIPTION OF PARTNERSHIP AGREEMENT
The following is a summary of certain provisions of the Partnership
Agreement and is qualified in its entirety by reference to the text of the
Partnership Agreement, a copy of which has been filed as an exhibit to the
Registration Statement of which this Prospectus is a part.
RIGHTS AND DUTIES OF THE GENERAL PARTNER
The Partnership Agreement provides that the General Partner has the sole
right to manage the business of the Partnership and that, aside from certain
rights to consent to extraordinary actions, the Unitholders and the Preferred
Unitholders (collectively, the "Limited Partners") shall not, as such,
participate in or have any control over the business of the Partnership (except
as required by law) or have any right or authority to act for or bind the
Partnership. The General Partner is responsible for the proper maintenance and
operation of Sherburne and the Property. The General Partner may not, however,
except as otherwise provided in the Partnership Agreement, take any action
required to be approved or ratified by limited partners under the Revised
Uniform Limited Partnership Act of the State of Delaware (the "Delaware Act")
without the written consent of the Limited Partners.
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<PAGE>
To ensure the orderly and efficient operation of the Partnership, the
General Partner has the exclusive right to admit any person as an additional or
substitute General Partner of the Partnership upon the consent of Limited
Partners holding more than 50% of the voting rights, voting as a single class,
of the limited partnership interests and Preferred Units in the Partnership (the
"Consent of the Limited Partners"). The Subscription Agreement to be executed by
each investor (see Appendix A) gives to the named attorneys the power to consent
to and execute duly adopted amendments to the Partnership Agreement to effect
admission of any additional or substitute General Partner upon receiving the
necessary consent of the Limited Partners. In addition, the General Partner has
the authority, without the Consent of the Limited Partners, to increase,
decrease or refinance the Loan or any other loan entered into by the
Partnership, and to sell, exchange or develop portions of the Property (but not
to sell all or substantially all of the Property in a single or related series
of transactions).
WITHDRAWAL OF THE GENERAL PARTNER
The General Partner may voluntarily retire as the general partner of the
Partnership only if a substitute General Partner remains in the Partnership
after such voluntary withdrawal. A General Partner shall retire automatically
upon any involuntary withdrawal or an event of bankruptcy.
TERMINATION OF THE PARTNERSHIP
The Partnership will continue until December 31, 2035 unless earlier
terminated upon the occurrence of any of the following events:
(i) the retirement of the General Partner, if there is no remaining
General Partner who elects to continue the Partnership and the Limited
Partners do not elect to continue the Partnership;
(ii) the sale or other disposition of all or substantially all of the
assets of the Partnership, provided, however, that under certain
circumstances the Partnership may continue in existence solely for the
purpose of collecting any deferred installment payments of the purchase
price or any other consideration to be received for such assets; or
(iii) the election by the General Partner with the Consent of the
Limited Partners to dissolve the Partnership.
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If, following the retirement of the General Partner, there is no remaining
General Partner of the Partnership or the remaining General Partner does not
elect to continue the Partnership, the Limited Partners may, within 90 days
after such retirement, elect to reconstitute the Partnership and continue the
business of the Partnership by selecting a substitute General Partner by the
unanimous consent of the Limited Partners. If the Limited Partners elect to
reconstitute the Partnership and admit a substitute General Partner, the
relationship of the partners and of any person who has acquired an interest of a
partner in the Partnership shall be governed by the Partnership Agreement.
Upon dissolution of the Partnership, the Partnership's assets will be
liquidated and the proceeds of liquidation will be applied and distributed as
described in "Description of Securities -- Liquidation Preferences."
ALLOCATIONS OF NET INCOME, NET LOSS AND GAIN OR LOSS FROM A
CAPITAL TRANSACTION
While the Preferred Units are outstanding, Net Income from the operations
of the Partnership (including the Partnership's allocable share of net income
from the operations of Sherburne) will be allocated (a) first, to the Preferred
Unitholders, in an amount equal to the excess of the cumulative distributions
made or to be made to them for periods through the close of the year just ended
on account of the preferred annual return (see "Description of Securities --
Cumulative Preferred Annual Return") over the cumulative amounts of Net Income
and Gain from a Capital Transaction (as defined in the Partnership Agreement)
previously allocated to them on account of such distributions (see " Description
of Securities -- Liquidation Preference"), (b) second, to the Preferred
Unitholders, to restore Net Loss previously allocated to them, (c) third, to
Unitholders and to the General Partner, to restore Net Loss previously allocated
to them during the period that the Preferred Units are outstanding on account of
the Units and the general partnership interests held by them, and (d) the
balance, if any, to the Unitholders and to the General Partner on account of the
Units and the general partnership interests held by them, as provided in the
Partnership Agreement.
While the Preferred Units are outstanding, Net Loss from the operations of
the Partnership (including the Partnership's allocable share of net loss from
the operations of Sherburne) will be allocated (a) first, 5% to the General
Partner and 95% to the limited partners (including the Preferred Unitholders),
in proportion to and the extent of the positive balances in their capital
accounts, and (b) the balance, if any, to the Unitholders and to the General
Partner, on account of the Units and the
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general partnership interests held by them, as provided in the
Partnership Agreement.
While the Preferred Units are outstanding, Gain or Loss from a Capital
Transaction (as defined in the Partnership Agreement) generally will be
allocated (a) if any amounts are distributed or to be distributed on account of
such Capital Transaction, first, in such manner as to cause the partners'
respective positive capital account balances to at least equal, or in the case
of a Terminating Capital Transaction, to most nearly equal, the amounts to be
distributed to them pursuant to and in the priority described above in
"Distributions from Capital Proceeds" on account of such Capital Transaction (as
defined in the Partnership Agreement), (b) if no amounts are distributed or to
be distributed on account of such Capital Transaction, in the case of Gain only,
to the Preferred Unitholders, in an amount equal to the excess of the cumulative
distributions previously made to them in excess of $13,333 per Preferred Unit
plus their cumulative preferred annual return over the cumulative amount of Net
Income and Gain from a Capital Transaction previously allocated to them on
account of such excess distributions, and (c) the balance, if any, to the
Unitholders and to the General Partner, on account of the Units and the general
partnership interests held by them, as provided in the Partnership Agreement. In
the event of a Terminating Capital Transaction, the Gain therefrom will be first
allocated to all partners having negative balances in their capital accounts, in
proportion to and to the extent of such negative balances.
ACCOUNTING BOOKS AND RECORDS
Net Income and Net Loss are determined in accordance with the accounting
methods followed by the Partnership for Federal income tax purposes. The
Partnership's fiscal year is the calendar year. The books and records of the
Partnership are maintained at its principal place of business and will be
available for inspection by the Limited Partners and their respective authorized
representatives during business hours.
TAX ELECTIONS
Upon the transfer of the interest of a Limited Partner of the Partnership,
the Partnership, in the General Partner's sole discretion, may elect, pursuant
to Section 754 of the Code, to adjust the basis of the Partnership's property.
See "Federal Income Tax Considerations -- Partnership Tax Elections." All other
elections required or permitted to be made by the Partnership under the Code
shall be made by the General Partner in such manner as will be most advantageous
to the Limited Partners.
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REPORTS TO INVESTORS
The General Partner is required to furnish the Limited Partners with the
following information:
Information Date to be furnished
- ----------- --------------------
Audited financial statements and Within 120 days after each calendar
report of Accountants year end
All necessary tax information required Within 90 days after each calendar
for each Limited Partner to prepare year end
his individual tax return
The financial statements, which will be prepared on an accrual basis, will (a)
contain annual balance sheets, statements of operations, changes in partners'
equity (deficit) and cash flows, (b) be reported on by independent certified
public accountants (the "Accountants") chosen by the General Partner and (c)
contain an opinion by the Accountants as to the accounting methods used in the
preparation of such statements. An annual audit of the financial statements of
the Partnership is conducted by the Accountants. At the present time, the
Accountants are KPMG Peat Marwick LLP.
LIABILITY OF PARTNERS TO THIRD PARTIES
The General Partner is liable for all debts, liabilities and obligations of
the Partnership, except for nonrecourse indebtedness (if any) on the Property,
to the extent not paid by the Partnership. The Delaware Act provides that, so
long as a limited partner does not take part in the management or control of the
Partnership's business, his liability for the debts, liabilities and obligations
of the Partnership will be limited to the amount of his capital contribution and
his share of undistributed net income. A Limited Partner is also liable to the
Partnership for a period of one year for the full amount of any distribution to
him (plus interest) which distribution represents a return of capital and is not
made in violation of the Partnership Agreement or the Delaware Act, to the
extent necessary to discharge the Partnership's liabilities to all creditors who
extended credit to the Partnership or whose claims arose before such
distribution. Such liability will continue for six years from the date of the
distribution if the distribution is made in violation of the Delaware Act or the
Partnership Agreement.
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AMENDMENTS AND POWER OF ATTORNEY
The General Partner may utilize the power of attorney granted to it by each
Limited Partner to execute certain types of amendments to the Partnership
Agreement, including amendments to admit additional Limited Partners, to
transfer the interests of a defaulting Limited Partner, to cure ambiguities or
to satisfy "Blue Sky" regulations. [In addition, the General Partner may, upon
the advice of the Accountants and counsel for the Partnership, amend the
Partnership Agreement to comply with the income tax regulations of Section
704(b) of the Code relating to the allocations of profits and losses among
partners, provided that no amendment shall be made which would have a material
adverse effect on the economic benefits to be received by the Limited Partners
without the Consent of the Limited Partners.] The General Partner may also,
without the Consent of the Limited Partners, amend the Agreement to provide for
a special allocation of depreciation and gain in connection with the admission
of tax-exempt entities as investors in the Partnership.
The Partnership Agreement may not otherwise be modified or amended except
with the Consent of the Limited Partners, provided, that the written consent of
all Limited Partners will be required for any modification or amendment which
would (i) increase the amount of the capital contributions payable by the
Limited Partners, (ii) extend the termination date of the Partnership, (iii)
increase the liability of the Limited Partners, (iv) except in connection with
the offering of additional partnership interests in the Partnership, adversely
affect the rights of the Limited Partners with regard to profits and losses and
distributions or (v) alter the amendment section of the Partnership Agreement.
VOTING RIGHTS
The Partnership Agreement provides that the Consent of the Limited Partners
will be required (i) to remove the General Partner, (ii) to amend the
Partnership Agreement (except as described in the foregoing paragraph) or to
approve or disapprove any material amendments thereto proposed by the General
Partner, (iii) to dissolve the Partnership and (iv) to approve or disapprove the
sale of all or substantially all of the assets of the Partnership in a single or
related series of transactions. These rights may be exercised only if the
exercise thereof will not impair the limited liability of the Limited Partners
and will not adversely affect the classification of the Partnership as a
partnership for Federal income tax purposes. If the Limited Partners remove the
General Partner, the General Partner will nevertheless retain the right to
receive fees otherwise payable under the Partnership Agreement, the right to
allocations of Net
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Income, Net Loss and Cash Flow, and the right to receive proceeds from the sale,
refinancing or other disposition of the Property. Any General Partner of the
Partnership removed by the Limited Partners shall become a limited partner. See
also "Investment Considerations -- Removal of General Partner and Redemption of
Preferred Units" and "Description of Securities -- Redemption."
MANAGEMENT
Generally, the General Partner has full, exclusive and complete
responsibility and discretion in the management or control of the Partnership,
and the Limited Partners have no authority to transact business for, or
participate in the management activities and decisions of, the Partnership. The
General Partner is expressly authorized, without the Consent of the Limited
Partners, to increase, decrease, or refinance the Loan or any other loan entered
into by the Partnership, and to sell, exchange or develop portions of the
Property (but not to sell all or substantially all of the assets in a single or
related series of transactions). The authority of the General Partner is subject
to certain other express restrictions set forth in the Partnership Agreement.
The General Partner is required to devote such time and effort to the
Partnership's business as may be necessary to promote adequately the interests
of the Partnership and the mutual interests of the Partners. The General Partner
is not required to devote full time to Partnership business and is specifically
permitted to engage in other business, including engaging in activities which
compete with the business of the Partnership.
INDEMNIFICATION OF THE GENERAL PARTNER
The Partnership Agreement provides that the Partnership shall indemnify and
hold harmless the General Partner and each person performing services on behalf
of the Partnership who (a) directly or indirectly controls, is controlled by, or
is under common control with, the General Partner, (b) who owns or controls 10%
or more of the outstanding voting interest in the General Partner, and (c) any
officer, director or partner or wholly-owned subsidiary of any entity described
in (a) or (b), against any loss, damage, liability, cost or expense (including
reasonable attorneys' fees) incurred by them in connection with the Partnership,
provided that such loss, damage, liability, cost or expense was not the result
of the negligence or misconduct of any such person. Any such indemnity will be
paid from, and only to the extent of, available Partnership assets and no
partners shall have any personal liability on account thereof. Notwithstanding
this provision, however, neither the General
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Partner nor any other entity or individual entitled to indemnification pursuant
to the Partnership Agreement shall be indemnified for any loss, damage or cost
resulting from the violation of any Federal or state securities laws unless (i)
there has been a successful adjudication on the merits of each count involving
such securities law violations, (ii) such claims have been dismissed with
prejudice on the merits by a court of competent jurisdiction or (iii) a court of
competent jurisdiction approves a settlement of such claims. In any claim for
indemnification for Federal or state securities law violations, the party
seeking indemnification shall place before the court the position of the
Securities and Exchange Commission and the Massachusetts Securities Division
with respect to the issue of indemnification for securities law violations. The
Partnership shall not incur the cost of the portion of any insurance which
insures any party against any liabilities as to which such party is prohibited
from being indemnified under the Partnership Agreement.
ADDITIONAL PARTNERSHIP INTERESTS
The Partnership Agreement provides that the Partnership may, without the
Consent of the Limited Partners, sell additional limited partnership interests
in the Partnership to raise additional equity if at any time the General Partner
determines, in its sole discretion, that additional funds are required. The
Partnership may sell such additional limited partnership interests on such terms
and conditions, and additional limited partners will have such rights and
obligations, as the General Partner shall determine. In the event such interests
are offered, they will be offered to the Unitholders for a 45-day period before
being offered to any other party. In such event, any Unitholder who elects not
to purchase his pro rata share of such interests will suffer dilution of his
interest in the Partnership, which may have adverse tax consequences to such
Unitholder. See "Certain Income Tax Consequences." No fees will be payable to
the General Partner or any of its affiliates from the proceeds of the sale of
such interests, except for customary brokerage commissions on interests sold to
parties who are not partners of the Partnership. The General Partner and its
affiliates may, however, be reimbursed for any reasonable out-of-pocket expenses
incurred in connection with the sale of such additional interests.
MEETINGS
The General Partner may at any time call a meeting of the Limited Partners
or solicit the vote of the Limited Partners without a meeting. The General
Partner is required to call a meeting of the Limited Partners following receipt
of a written
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request therefor signed by Limited Partners holding an aggregate of 10% or more
of the Units in the Partnership held by all Limited Partners. The Partnership
does not intend to hold annual meetings of Limited Partners.
CERTAIN INCOME TAX CONSEQUENCES
The following is a summary of certain federal income tax considerations
that may be relevant to Unitholders who exercise their Rights and is based upon
the Code, judicial decisions, final, temporary and proposed Treasury regulations
("Regulations") and administrative rulings and pronouncements of the Internal
Revenue Service ("IRS"). Although the material federal income tax aspects of
general application regarding the ownership and sale of Preferred Units are
discussed below, no attempt has been made to comment on all federal income tax
matters affecting the Partnership or Preferred Unitholders. Prospective
investors should consult their own tax advisors about the federal, state and
local income tax consequences to them of acquiring Preferred Units.
This summary is based on current legal authority. There is no assurance
that legislative or administrative changes or court decisions may not occur
which would significantly modify the statements and opinions expressed herein,
and any such changes may be retroactive with respect to transactions completed
or investments made prior to the date of such changes. In addition, the General
Partner must make various federal income tax determinations that will impact
Preferred Unitholders, and there is no assurance that the IRS will agree with
the General Partner's determinations. It is therefore possible that the
allocation or treatment of tax items by the General Partner may be modified upon
audit.
LEGAL OPINION
Rosenman & Colin LLP, counsel to the Partnership ("Counsel"), has expressed
its opinion as to the following matters: (i) assuming the Partnership is
classified as a partnership and is not a publicly traded partnership (within the
meaning of Section 7704(b) of the Code) as of the date of this Prospectus, the
Partnership will continue to be treated as a partnership for federal income tax
purposes following the issuance of the Preferred Units and not as a corporation;
(ii) a holder of record of a Preferred Unit generally will be treated as a
partner of the Partnership for federal income tax purposes from the date such
person becomes the record owner of such Preferred Unit; and (iii) it is more
likely than not that the Preferred Units will be classified as partnership
interests for federal
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income tax purposes rather than as debt obligations of the Partnership. Counsel
has based its opinion on applicable legal authority, the facts set forth in this
Prospectus and certain factual representations made by the General Partner, and
its opinion is conditioned on the accuracy of such facts and representations.
Counsel's opinion represents only its best legal judgment, and does not bind the
IRS or the courts. No ruling has been or will be requested from the IRS as to
any tax matters. Thus, no assurance can be provided that the opinions and
statements set forth herein will not be challenged by the IRS or sustained by a
court if litigated. Due to the factual nature of the issue, or uncertainty of
the law, Counsel is not able to opine with respect to certain issues that
involve: (i) whether certain expenses of the Partnership deducted as business
expenses may have to be capitalized for tax purposes; and (ii) whether the
allocations of income and loss of the Partnership, including amounts reported as
income and loss to holders of Preferred Units, will be respected for federal
income tax purposes.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS RELATING TO THE RIGHTS
AND THE PREFERRED UNITS
Effect of Rights Distribution
Neither the Partnership nor the Unitholders will recognize gain or loss
upon the distribution of the Rights.
Unitholder's Basis in Rights
Although not completely certain, the tax basis of Rights received by a
Unitholder from the Partnership likely will be zero and the distribution of
Rights will not change the tax basis of the existing Units. If Rights received
by a Unitholder are not exercised but are allowed to expire, no loss will be
allowed to the Unitholder.
Effect of Exercise of Rights
No gain or loss will be recognized by a Unitholder or the Partnership on
the purchase of Preferred Units through the exercise of Rights. The tax basis of
the Preferred Units purchased thereby will be equal to the sum of the price paid
for the Preferred Units plus the share of the Partnership's nonrecourse
liabilities allocated to the Preferred Units.
Sale of Preferred Units
Gain or loss will be recognized by a Preferred Unitholder upon the sale of
Preferred Units in an amount equal to the difference between the amount realized
on the sale and the tax
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basis of the Preferred Unitholder in the Preferred Units sold. Except to the
extent attributable to unrealized receivables or certain inventory items (as
determined under Section 751 of the Code), such gain or loss will be a capital
gain or loss if the Preferred Units are capital assets in the hands of the
holder thereof and will be a long-term capital gain or loss if the holder's
holding period in the Preferred Units is more than one year. The holding period
of Preferred Units acquired through the exercise of Rights will begin on the
date of exercise.
It is the position of the IRS that a partner has a single aggregate basis
in all of the partner's partnership interests and that, to determine gain or
loss upon a sale or other taxable disposition of a part of such partnership
interests, the portion of the partner's basis allocated to the interests being
sold equals the partner's share of partnership liabilities transferred in the
sale plus the partner's aggregate tax basis (excluding basis attributable to
partnership liabilities) multiplied by the ratio of the fair market value of the
interests sold to the fair market value of all of the partner's partnership
interests. Therefore, Unitholders who exercise their Rights will be required to
determine their tax basis in, and the tax consequences to them of a sale of,
Preferred Units or Units based upon their aggregate tax basis in their
Partnership Interests. See " -- Preferred Unitholder's Basis in His Preferred
Units" and " -- Treatment of Cash Distributions to Preferred Unitholders."
In the case of a corporate Preferred Unitholder, under Section 291(a)(1) of
the Code, a sale or other disposition of its Preferred Units generally will
result in recapture (to the extent of gain) as ordinary income of a portion of
its allocable share of the depreciation claimed with respect to the
Partnership's properties.
The amount realized on the sale or disposition of a Preferred Unit
includes, among other things, an allocable share of the outstanding amount of
the Partnership's nonrecourse indebtedness (including unpaid interest accrued
thereon) to the extent such amount was includable in the basis of such Preferred
Unit. Therefore, it is possible that the gain realized on the sale or
disposition of a Preferred Unit may exceed the cash proceeds of such sale or
disposition and, in some cases, the income taxes payable with respect to such
disposition may exceed such cash proceeds.
Retirement of Preferred Units
A holder of Preferred Units who does not own any other Units may recognize
a taxable gain or loss upon the retirement of the Preferred Units in exchange
for cash. Such gain or loss would
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equal the difference, if any, between the amount of cash paid to the holder and
his tax basis in the Preferred Units. Such gain or loss generally will be
treated as a long-term capital gain or loss provided the holder has held the
Preferred Units for a period of one year or more.
If the holder also owns Units, the holder generally will not recognize gain
or loss upon receipt of a redemption distribution except that gain would be
recognized to the extent the amount of cash paid exceeds the holder's basis in
all of his Units. However, the holder may recognize ordinary income or loss to
the extent redemption proceeds are treated as an exchange for all or part of the
holder's share of the Partnership's unrealized receivables or certain inventory
items under Section 751 of the Code.
Passive Activity Loss Limitation
A Unitholder who is a natural person, trust, estate, a personal service
company or a closely held "C" corporation generally is subject to limitations on
deducting passive activity losses. Most or all of any tax loss allocated to a
Preferred Unitholder or realized upon a sale or retirement of Preferred Units
will be subject to these limitations, and most or all of any taxable income or
gain allocated to a Preferred Unitholder or realized upon a sale or retirement
of Preferred Units will be passive activity income. See " -- Limitations on
Deductibility of Passive Activity Losses."
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS RELATING TO THE
PARTNERSHIP AND PREFERRED UNITHOLDERS
Taxation of the Partnership and the Preferred Unitholders
A partnership itself is not subject to any federal income tax. Assuming it
is classified as a partnership for tax purposes, the Partnership, as a partner
in NIA Operating Associates, is required to report on its information tax return
its distributive share of income, gain, loss, deduction and items of tax
preference, if any, of NIA Operating Associates. Similarly, each Preferred
Unitholder will be required to report on his personal income tax return his
distributive share of Partnership income, gain, loss, deduction and items of tax
preference and will be subject to tax on his distributive share of the
Partnership's taxable income, regardless of whether any portion of that income
is, in fact, distributed to such Preferred Unitholder. Consequently, a Preferred
Unitholder's tax liability with respect to his share of Partnership taxable
income may exceed the cash actually distributed to him in a given taxable year.
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The Partnership must file a federal information tax return on Form 1065.
The Partnership will provide information as to each Preferred Unitholder's
distributive share of the Partnership's income, gain, loss, deduction and items
of tax preference on a Schedule K-1 supplied to such Preferred Unitholder after
the close of the Partnership's fiscal year. In preparing such information, the
General Partner will utilize various accounting and reporting conventions, some
of which are discussed herein, to determine each Preferred Unitholder's
allocable share of income, gain, loss and deduction. There can be no assurance
that the use of such conventions will produce a result that conforms to the
requirements of the Code, Regulations or IRS administrative pronouncements and
there can be no assurance that the IRS will not successfully contend that such
conventions are impermissible. Any such contentions could result in substantial
expenses to the Partnership and the Preferred Unitholders as a result of
contesting such contentions, as well as an increase in tax liability to
Preferred Unitholders as a result of adjustments to their allocable share of the
Partnership's income, gain, loss and deduction. See " -- Tax Returns, Audits,
Interest and Penalties."
Partnership Classification
The availability of most of the tax benefits of the Partnership depends
upon the classification of the Partnership as a partnership for tax purposes. If
the Partnership were treated as an association taxable as a corporation in any
taxable year, the Partnership itself would be subject to corporate income tax,
and its taxable income, gains, losses, deductions and credits (if any) would not
be passed through to its partners. In addition, distributions made to Preferred
Unitholders generally would be treated as taxable dividend income (to the extent
of the Partnership's current and accumulated earnings and profits) and the
balance a non-taxable return of capital to the extent of the partner's basis in
his Preferred Units. Also, the reclassification of the Partnership as an
association taxable as a corporation would be treated as a deemed incorporation
of such entity upon which gain could be recognized, and which could result in
additional corporate tax. Accordingly, treatment of the Partnership as an
association taxable as a corporation would substantially reduce the
Partnership's economic income and cash resources and would also result in a
material reduction of the after-tax return to Preferred Unitholders.
The General Partner and the Partnership believe that the Partnership has
been properly classified as a partnership for federal income tax purposes since
inception. Counsel has advised the Partnership of its opinion that, assuming the
Partnership is classified as a partnership and Partnership interests are not
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publicly traded (see the discussion below) as of the date of this Prospectus,
the Partnership will continue to be treated as a partnership for federal income
tax purposes following the issuance of Preferred Units. In rendering such
opinion, Counsel has relied on representations by the General Partner including
that: (i) the General Partner has and will maintain a minimum level of assets
(apart from its Partnership interests) to satisfy any creditors of the
Partnership; (ii) the General Partner will hold its interest as general partner
in the Partnership for its own account, and will not act under the direction of,
or as agent for, the limited partners; (iii) the General Partner will maintain a
minimum interest of at least one percent in each item of the Partnership's
income, gain, loss, deduction and credit; and (iv) the Partnership will operate
in accordance with the Partnership Agreement and applicable state law.
In 1987, Congress added Section 7704 to the Code to tax most publicly
traded partnerships as corporations. The General Partner has represented that
the Partnership has satisfied and will continue to satisfy applicable safe
harbors for avoiding treatment as a publicly traded partnership. Counsel's
opinion as to partnership classification relies on such representations of the
General Partner. Failure of the Partnership to satisfy applicable safe harbors
for avoiding treatment as a publicly traded partnership may cause the
Partnership to be treated as a publicly traded partnership taxable as a
corporation, with the resultant adverse tax consequences discussed above.
The discussion of federal income tax consequences herein assumes that the
Partnership is treated as a partnership for federal income tax purposes.
Tax Treatment of Preferred Units
The Partnership intends to treat Preferred Units as equity of the
Partnership for federal income tax purposes. The Preferred Units have certain
characteristics in common with debt, such as a fixed return and a right to
payment senior to distributions to holders of Units. The IRS therefore may seek
to recharacterize Preferred Units as debt of the Partnership, rather than
equity. Such a recharacterization could affect, among other things, the
allocations of taxable income and loss to Preferred Unitholders, the amount of
gain or loss recognized by a Preferred Unitholder on the sale of his Preferred
Units, and the tax treatment and/or timing of inclusion of income attributable
to Preferred Units, and would be adverse for Preferred Unitholders. However, the
Preferred Units have many of the significant characteristics of equity and are
intended by the Partnership to be equity of the Partnership. These equity
characteristics include: (i) the Preferred Units are limited partnership
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interests under Delaware law; (ii) payment of the liquidation preference is not
secured or guaranteed and is subject to entrepreneurial risk and the
requirements and limitations of Delaware partnership law; (iii) Preferred Units
will be allocated Partnership losses, if any; (iv) there is no maturity date for
the Preferred Units; and (v) the Partnership intends to treat Preferred Units as
equity for both financial accounting and tax reporting purposes.
Although there is limited authority which deals directly with the issue of
when a partnership interest will be characterized as debt for federal income tax
purposes, Counsel has advised the Partnership that in its opinion, the proposed
tax treatment of Preferred Units as equity for tax purposes more likely than not
is correct and would be sustained if the issue were fully litigated in court.
The following discussion assumes that the Preferred Units will be treated as
partnership interests for federal income tax purposes.
Allocation of Income and Loss
Preferred Unitholders will receive allocations of Partnership income, gain
and loss as described in "Description of Partnership Agreement -- Allocation of
Gains and Losses."
The Partnership Agreement's allocation provisions will be respected for
federal income tax purposes only if they are considered to have "substantial
economic effect" and are not retroactive allocations. If any allocation of an
item fails to satisfy the "substantial economic effect" requirement, the item
will be allocated among the Partners based on their respective "interests in the
Partnership," determined on the basis of all of the relevant facts and
circumstances. Such a determination could result in a reallocation of the
income, gains, losses, deductions or credits allocated under the Partnership
Agreement. Such a reallocation, however, would not alter the distribution of
cash under the Partnership Agreement.
The Partnership has followed the allocations under the Partnership
Agreement in the belief that they generally should be respected under the
standards of Section 704(b) of the Code. Counsel is unable to opine to that
effect, however, because, among other things, the Partnership Agreement has not
been amended to reflect various changes to the Regulations adopted since
formation of the Partnership, such that the Partnership's allocations do not
comply with the technical requirements of the Regulations.
The Partnership currently uses a monthly convention for purposes of
allocating taxable income or loss and other tax-
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related items to each limited partner. The law governing the use of this
convention is uncertain. If the convention were not permitted, the Partnership
might be required to allocate its taxable income or losses among the Limited
Partners in a different manner, in which event the respective tax liabilities of
the Limited Partners might be slightly adjusted.
Preferred Unitholder's Basis In His Preferred Units
A Preferred Unitholder's adjusted basis in his Preferred Units is relevant
in determining the gain or loss on the sale or other disposition of his
Preferred Units and the tax consequences of a distribution from the Partnership.
See " -- Treatment of Gain or Loss on Sale or Disposition of Preferred Units"
and " -- Treatment of Cash Distributions to Preferred Unitholders." In addition,
a limited partner is entitled to deduct on his personal income tax return,
subject to the limitations discussed below, his distributive share of a
partnership's net loss, if any, to the extent of such partner's adjusted basis
in his partnership interest.
A Preferred Unitholder's initial basis in newly issued Preferred Units will
be the subscription price, increased by (i) his share of nonrecourse
indebtedness of the Partnership and (ii) his share of items of Partnership
income and gain, and reduced, but not below zero, by (i) his share of items of
Partnership loss and deduction, and (ii) any cash distributions received by him
from the Partnership. Cash distributions are considered to include, for this
purpose, any reductions in the partner's share of the Partnership's nonrecourse
indebtedness (including a reduction due to amortization thereof). Regulations
under Section 752 of the Code employ an economic risk of loss analysis to
determine (1) whether a partnership liability is recourse or nonrecourse, and
(2) the partners' shares of any recourse liability of the partnership. Under the
regulations, a partnership liability is a recourse liability to the extent that
any partner bears the economic risk of loss for the liability. If no partner
bears the economic risk of loss for a partnership liability, the liability is a
nonrecourse liability of the partnership. A partnership's nonrecourse
liabilities are allocated among the partners first to reflect the partners'
shares of (1) any partnership minimum gain and (2) any tax gain that wold be
allocated to the partners under Section 704(c) of the Code if the partnership
disposed of all partnership property subject to one or more nonrecourse
liabilities of the partnership in full satisfaction of the liabilities and for
no other consideration. The balance of the nonrecourse liabilities are shared by
the partners according to their interests in the partnership profits.
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Treatment of Cash Distributions to Preferred Unitholders
Cash distributions made to Preferred Unitholders will be treated as a
return of capital to the extent such distributions do not exceed the Preferred
Unitholder's basis in his Preferred Units. A return of capital generally does
not result in any recognition of gain or loss for federal income tax purposes
but reduces a Preferred Unitholder's adjusted basis in his Preferred Units.
Distributions of cash, including reductions in a Preferred Unitholder's share of
nonrecourse Partnership liabilities, in excess of a Preferred Unitholder's
adjusted basis in his Preferred Units (together with the Preferred Unitholder's
tax basis in his other Units, if any) immediately prior thereto will result in
the recognition of gain to the extent of such excess. See " -- Preferred
Unitholder's Basis in his Preferred Units" and " -- Sale of Preferred Units."
Dilution of a Preferred Unitholder's Partnership interest in connection with a
future sale of additional limited partnership interests could, under certain
circumstances, create a constructive distribution to Preferred Unitholders that
results in their recognition of gain.
Limitations on Deductibility of Passive Activity Losses
Preferred Unitholders who are individuals, trusts, estates, personal
service companies and certain closely held C corporations are subject to
limitations on deducting losses of the Partnership. In general, Partnership
losses (if any) allocated to a Preferred Unitholder may offset only other
passive activity income of such Preferred Unitholder, including, generally,
subsequent Partnership income (other than income classified as portfolio income,
such as income from investments of reserves) or gain on the sale of Preferred
Units. Disallowed losses from passive activities may be carried forward and
treated as a deduction in the next taxable year, subject to these limitations.
Closely held corporations (a corporation more than 50% of the stock of which is
owned directly or indirectly by not more than five individuals) may not offset
portfolio income (such as interest and dividends) with passive activity losses
but may use passive activity losses to offset active business income. Any
disallowed losses from the Partnership are allowed in full (subject to any other
applicable limitations) when the taxpayer disposes of his entire interest in the
Partnership in a taxable transaction. The deductibility of interest on debt
incurred in passive activities and interest on debt incurred to purchase an
interest in a passive activity is generally subject to these limitations.
Assuming that the Preferred Units are treated as equity for federal income
tax purposes (see "-Tax Treatment of Preferred
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Units"), most or all of the taxable income and gain from the Partnership
allocable to a Preferred Unitholder will constitute income from a passive
activity, against which a Preferred Unitholder who is subject to this limitation
could offset losses (or credits) from other passive sources. Notwithstanding the
foregoing, each Preferred Unitholder should note that, under Section 469(k) of
the Code, Congress granted the Treasury broad discretion to promulgate
regulations which could, among other things, require in the future that net
income or gain allocated on account of a preferred return may not be treated as
passive activity income under certain circumstances.
At Risk Limitations
A Preferred Unitholder subject to the "at risk" rules under Section 465 of
the Code generally may not deduct from taxable income his share of the
Partnership's losses to the extent that such losses exceed the amount the
Unitholder is considered to have "at risk" in the Partnership under Section 465
of the Code at the end of that year. It is not currently contemplated that the
Partnership's operations will result in deductions or losses that would cause
the application of the "at risk" limitation.
Deductibility of Interest Connected with Tax-Exempt Income
Section 265(a)(2) of the Code disallows any deduction for interest paid by
a taxpayer on indebtedness incurred or continued for the purpose of purchasing
or carrying a tax-exempt obligation. The IRS announced in Revenue Procedure
72-18, 1972-1 C.B. 940, that a purpose to carry tax-exempt obligations will be
inferred whenever a taxpayer owns tax-exempt obligations and has outstanding
indebtedness which is neither directly connected with personal expenditures nor
incurred in connection with the active conduct of a trade or business.
Therefore, in the case of a Preferred Unitholder (or a related person) owning
tax-exempt obligations (or stock in a regulated investment company which
distributes exempt interest as "dividends"), the IRS might take the position
that his allocable portion of any interest paid by the Partnership on its
borrowings and any interest paid by the Preferred Unitholder on indebtedness
incurred to purchase an interest in the Partnership should be viewed in whole or
in part as incurred to enable such Preferred Unitholder to continue carrying
such tax-exempt obligations, the effect of which position is that the deduction
of such interest by such Preferred Unitholder should be disallowed in whole or
in part.
Partnership Expenses
The Partnership has incurred or will incur various expenses in connection
with its ongoing administration and with the
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operation of the Property. Payments for services generally are deductible if the
payments are ordinary and necessary expenses, are reasonable in amount and are
for services performed during the taxable year in which paid or accrued.
Payments for services related to the acquisition of an asset having a useful
life in excess of one year generally must be capitalized into the cost basis of
the acquired property. Deductions for interest paid on mortgage loans providing
for payments to the lender that are contingent on the value or results of
operation of the underlying property may be disallowed in whole or in part,
and/or the Partnership's ongoing allocations of income and loss could be
affected, if the lender is considered for tax purposes (by reason of the
contingent payment feature of the mortgage loan) to hold an equity interest in
the property. The IRS may not agree with the Partnership's determinations as to
the deductibility of fees and expenses and might disallow such deductions or
require that certain expenses be capitalized and amortized or depreciated over a
period of years. These issues are essentially questions of fact with respect to
which Counsel cannot opine. If all or a portion of Partnership deductions were
to be disallowed, the Partnership's taxable income would be increased or its
losses would be reduced.
Expenses of issuing and marketing Preferred Units in the Partnership
("syndication expenses") are not allowable deductions to the Partnership or any
Preferred Unitholder. Syndication expenses are defined as expenditures connected
with the issuing and marketing of interests in partnerships. Registration fees,
printing costs, selling and promotional material costs and legal fees for
securities and tax advice pertaining to registration of the Preferred Units with
the Securities and Exchange Commission are syndication expenses and, therefore,
do not qualify for amortization or deduction.
Depreciation and Cost Recovery Deductions
The portion of the Property consisting of real property generally is being
depreciated over a period of 19 years using the straight-line method. Additional
real property purchased or developed by the Partnership generally will be
subject to a 39- year recovery period (27-1/2 years in the case of residential
rental property), and will be recovered using the straight-line method. If the
Partnership terminates for tax purposes (or is found to have terminated after
1986), the Partnership would be required to depreciate all of its real property
under the current depreciation rules, which are less favorable than the rules in
effect when the Property was acquired. Any personal property acquired by the
Partnership generally will be depreciated over a seven-year recovery period
using the double declining balance method (switching to straight-line at a time
to maximize the
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depreciation deductions). If any tax-exempt or foreign persons hold Units, a
portion of the Partnership's depreciation deductions, corresponding to such
persons' percentage interest in the Partnership, may be required to be
depreciated over somewhat longer recovery periods than those otherwise
applicable.
Depreciation Recapture
There is generally no depreciation recapture for real property that is
depreciated pursuant to the straight-line method. If real property is sold or
otherwise disposed of within 12 months after it was acquired, however, all
depreciation claimed will be recaptured as ordinary income on such disposition.
All depreciation deductions attributable to personal property are subject, to
the extent of any gain recognized, to being fully recaptured as ordinary income
on a sale or other disposition of the personal property. See "Treatment of Gain
or Loss on Sale or Disposition of Preferred Units."
Under Section 291(a)(1) of the Code, which applies only to corporate
Preferred Unitholders, 20% of a corporate Preferred Unitholder's share of the
depreciation deductions claimed by the Partnership will be subject to recapture
as ordinary income on such disposition to the extent of the Preferred
Unitholder's share of any gain recognized, even though the Partnership and the
Preferred Unitholder might not otherwise be subject to general depreciation
recapture on such depreciation.
Tax Considerations for Tax-Exempt Entities
Preferred Unitholders which are exempt from federal income tax (including
IRAs and tax-exempt organizations such as trusts that hold assets of employee
benefit or retirement plans) may be subject to federal income tax on their
allocable share of Partnership income to the extent that such income is
"unrelated business taxable income." A Preferred Unitholder that is otherwise
exempt from tax will have unrelated business taxable income with respect to such
Preferred Unitholder's distributive share of Partnership taxable income from the
hotels and the Nantucket Boat Basin, and also will have unrelated business
taxable income with respect to its distributive share of Partnership taxable
income in the proportion that the Partnership's acquisition indebtedness bears
to the Partnership's total adjusted bases for its properties. Acquisition
indebtedness could arise from indebtedness incurred directly by a Preferred
Unitholder in connection with its Preferred Units or from indebtedness incurred
by (or allocable to) the Partnership.
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The receipt of unrelated business taxable income by a tax-exempt entity
generally has no effect on its status or on the exemption from tax of its other
income. However, for certain types of tax-exempt entities, the receipt of any
unrelated business taxable income may have extremely adverse consequences. For
example, the receipt of any taxable income from an unrelated business by a
charitable remainder trust (defined under Section 664 of the Code) during a
taxable year will result in the taxation of all of the trust's income from all
sources during such year.
An entity that is subject to tax on unrelated business taxable income would
be subject to tax only to the extent that the sum of its unrelated business
taxable income, if any, from Preferred Units and all other sources exceeds
$1,000 in any particular year, and would be required to file federal income tax
returns for any taxable year in which it has gross income, included in computing
unrelated business taxable income, in excess of $1,000 (whether or not any tax
is due).
Tax Returns, Audits, Interest and Penalties
The Partnership will supply annual Schedules K-1 to Form 1065 to each
Preferred Unitholder of record as of the last day of each month during the
calendar year after the end of such calendar year. See "Description of
Partnership Agreement -- Books and Reports." The Partnership is not obligated to
provide tax information to persons who are not Preferred Unitholders of record.
Any Preferred Unitholder who sells or exchanges a Preferred Unit will be
required to notify the Partnership of such transaction in writing within 30 days
of the transaction (or, if earlier, by January 25 of the calendar year after the
year in which the transaction occurs). The notification is required to include
(i) the names and addresses of the transferor and the transferee; (ii) the
taxpayer identification number of the transferor and, if known, the transferee;
and (iii) the date of the sale or exchange. Any transferor who fails to notify
the Partnership of a sale or exchange may be subject to a penalty for each such
failure. The Partnership will treat any transferor Preferred Unitholder who
provides all of the information requested of the transferor on the certificate
representing the Preferred Units and in the transfer application as having
satisfied this notification requirement.
The tax treatment of the Partnership's income, gain, loss, deductions or
credit will be determined at the partnership level in a unified partnership
proceeding, rather than in separate proceedings with Preferred Unitholders. With
respect to proposed
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tax deficiency adjustments at the administrative level, in general, each partner
(other than a partner owning less than a 1% profits interest in a partnership
having more than 100 partners) whose name and address is furnished to the IRS (a
"notice partner") will receive notice of the commencement of a partnership level
audit as well as notice of the final partnership administrative adjustment. All
partners have the right to participate at their own expense in the partnership
level audit as well as receive notice of the final partnership administrative
adjustment. In general, each partner is free to negotiate his own settlement of
partnership items with the IRS. If the IRS enters into a settlement agreement
with any partner, it must offer the same settlement terms to the other parties
who request settlement.
A "tax matters partner" must be designated by the partnership who may enter
into a settlement on behalf of, and binding on, partners owning less than a 1%
profits interest in partnerships having more than 100 partners. The Partnership
Agreement designates the General Partner as the tax matters partner. Under the
Code, the tax matters partner may not settle on behalf of partners with less
than a 1% profits interest if (i) an aggregate of 5% or more of such partners
designate with the IRS a notice partner to receive notice from the IRS on behalf
of the group or (ii) such partners notify the IRS that the tax matters partner
may not settle on their behalf. Except for the above-described settlement power
granted the tax matters partner, any settlement entered into by any partner
(including the tax matters partner) is not binding on any partner who does not
wish to be bound thereby. However, the tax matters partner may extend the
statute of limitations for assessment of a deficiency with respect to all
partners. All expenses of the General Partner in performing its duties as tax
matters partner will be paid for by the Partnership.
Because such a proceeding will control the way in which all Preferred
Unitholders treat Partnership items and the allocation thereof, the chances of
an audit occurring are greater than they were before this proceeding was
allowed. Any adverse determination following an audit of the Partnership's
return by a taxing authority would result in an adjustment of the returns of
Preferred Unitholders and, under certain circumstances, they may be precluded
from separately litigating a proposed adjustment to Partnership items. Such an
adjustment could also result in an audit of Preferred Unitholders' own tax
returns and adjustments of non-Partnership, as well as Partnership, income and
loss. Audits of other limited partnerships of which the General Partner or its
affiliates are general partners could result in an audit of the Partnership's
(or a Preferred Unitholder's) return.
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Interest paid on tax deficiencies by non-corporate and certain corporate
Preferred Unitholders would not be deductible by them.
Section 6111 of the Code requires a tax shelter organizer to register a
"tax shelter" with the IRS by the first day on which interests in the tax
shelter are offered for sale. The provision's definition of a "tax shelter"
applies to nearly all real estate partnerships owning leveraged property.
Accordingly, the Partnership is registered as a "tax shelter" even though it did
not expect to generate substantial tax losses that could be used to shelter the
income of Limited Partners that is not derived from the Partnership.
The Partnership will furnish its tax shelter registration number to
Preferred Unitholders, and any Preferred Unitholder claiming any deduction,
credit or other tax benefit from the Partnership must include such number in his
tax return on Form 8271. ISSUANCE OF A REGISTRATION NUMBER DOES NOT INDICATE
THAT THIS INVESTMENT OR THE CLAIMED TAX BENEFITS HAVE BEEN REVIEWED, EXAMINED OR
APPROVED BY THE IRS. Failure by a Preferred Unitholder to furnish such number on
his individual tax return when required to do so could subject him to a penalty.
Section 6662 of the Code imposes a penalty for the substantial
understatement of income tax for any taxable year. The penalty is equal to 20%
of the amount of underpayment of tax attributable to the understatement. An
understatement is defined as the difference between the tax required to be shown
on the return and the amount actually shown. The penalty is only applicable if
the understatement for a taxable year exceeds the greater of (a) 10% of the tax
required to be shown on the return for the taxable year and (b) $5,000 ($10,000
in the case of a corporation other than an S corporation or personal holding
company). Except in the case of items attributable to a "tax shelter," the
amount of understatement is reduced to the extent that the taxpayer had
substantial authority for the position taken in his tax return or disclosed the
facts relevant to the position in his tax return or in a statement attached to
the return. In the case of items attributable to "tax shelters," however, the
taxpayer can reduce the understatement only by showing that there was
substantial authority for the tax treatment and a reasonable belief that the tax
treatment of the item was more likely than not the proper treatment. It is
unclear whether the Partnership would be considered a "tax shelter" for these
purposes.
Tax Elections
Pursuant to Sections 734, 743 and 754 of the Code, a partnership may elect
to have the cost basis of its assets
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<PAGE>
adjusted in the event of certain distributions of partnership property to a
partner or sale by a partner of his interest in the partnership or the death of
a partner. The partnership agreements of the Partnership, NIA Operating
Associates and Sherburne provide that the General Partner may, in its sole
discretion, make such an election. The general effect of making such elections
is that transferees of Preferred Units would be treated, for purposes of
depreciation and taxable gain, as though they had acquired a direct interest in
the assets of Sherburne. The Partnership, NIA Operating Associates and Sherburne
would be treated for such purposes, upon certain distributions to their
respective partners, as though they had newly acquired an interest in their
respective assets and therefore acquired a new cost basis for such assets. The
General Partner currently does not intend to make any such election.
STATE AND LOCAL TAXES
In addition to the federal income tax consequences described above,
prospective investors should consider potential state and local tax consequences
of an investment in Preferred Units, and are urged to consult their individual
tax advisors in this regard. The rules of various states and localities for
computing and/or reporting taxable income differ from (and are less favorable
than) the federal income tax rules.
The Partnership (through other partnerships) owns property in
Massachusetts. Preferred Unitholders will be required to file an annual
Massachusetts tax return. Non-resident Preferred Unitholders will be subject to
Massachusetts taxes on their income from Massachusetts sources, which will
include their distributive share of Partnership taxable income. The amount of
any Massachusetts tax paid by a Preferred Unitholder may be creditable against
taxes payable to his state of residence with respect to the same income,
depending on the tax laws of such state.
Preferred Unitholders should consult with their individual tax advisors
concerning the applicability of state and local taxes to this investment.
* * *
The summary of tax consequences set forth above is for general information
only and does not address the circumstance of any particular Preferred
Unitholder. Preferred Unitholders should consult their own tax advisors as to
the specific tax consequences to them of the ownership and disposition of
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<PAGE>
Preferred Units, including the application of state, local and estate tax laws.
LEGAL MATTERS
Certain legal matters in respect of the securities offered hereby will be
passed upon for the Partnership by Rosenman & Colin LLP, 575 Madison Avenue, New
York, New York 10022.
EXPERTS
The consolidated financial statements of the Partnership as of December 31,
1995 and 1994 and for each of the years in the three-year period ended December
31, 1995 and the financial statement schedule as of December 31, 1995,
incorporated by reference in this Prospectus have been audited by KPMG Peat
Marwick LLP, independent certified public accountants, as indicated in their
report with respect thereto, and are incorporated by reference herein in
reliance upon the authority of said firm as experts in accounting and auditing.
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<PAGE>
================================================================================
No dealer, salesman or other person has been authorized to give any
information or to make any representation not contained in this Prospectus and,
if given or made, such information or representation must not be relied upon as
having been authorized by the Partnership. This Prospectus does not constitute
an offer to sell or a solicitation of an offer to buy any of the securities
offered hereby in any jurisdiction to any person whom it is unlawful to make
such an offer in such jurisdiction. Neither the delivery of this Prospectus nor
any sale made hereunder shall, under any circumstances, create an implication
that there has been no change in the affairs of the Partnership since the date
hereof or that the information contained herein is correct as of any time
subsequent to its date.
----------------------
TABLE OF CONTENTS
Page
----
Available Information ..................................................... 2
Incorporation of Certain
Documents by Reference ................................................... 2
Prospectus Summary ........................................................ 4
The Partnership ........................................................... 9
Investment Considerations ................................................. 10
The Offering .............................................................. 17
The Property .............................................................. 22
Use of Proceeds ........................................................... 22
Ratio of Earnings To Fixed
Charges and Preferred
Unit Distributions ....................................................... 23
Description of Securities ................................................. 26
Description of Partnership
Agreement ................................................................ 31
Certain Income Tax Consequences ........................................... 39
Legal Matters ............................................................. 55
Experts ................................................................... 55
================================================================================
================================================================================
NANTUCKET ISLAND
ASSOCIATES LIMITED
PARTNERSHIP
785 PREFERRED
UNITS
- --------------------------------------------------------------------------------
PROSPECTUS
- --------------------------------------------------------------------------------
____________ ___, 1996
================================================================================
<PAGE>
APPENDIX A
[FORM OF SUBSCRIPTION CERTIFICATE]
SUBSCRIPTION CERTIFICATE NUMBER: ______________________
NUMBER OF RIGHTS: ______________________
NANTUCKET ISLAND ASSOCIATES LIMITED PARTNERSHIP
SUBSCRIPTION RIGHT FOR PREFERRED UNITS
This Subscription Certificate represents the number of Rights set forth
above. Each Right held entitles the registered holder thereof (the "Holder") to
acquire one 8% cumulative compounded preferred unit (the "Preferred Unit")
representing a limited partnership interest in Nantucket Island Associates
Limited Partnership (the "Partnership").
To subscribe for Preferred Units, the Holder must present to the
Partnership, prior to 5:00 p.m., New York City time, on __________, 1996 (the
"Expiration Date") a properly completed and executed Subscription Certificate
and a check drawn on a bank located in the United States and payable to the
Partnership in the amount of the Subscription Price as calculated in Item C of
this Subscription Certificate. Any Holder exercising his Right may also
subscribe for additional Preferred Units, if any, through exercise of the
Over-Subscription Privilege described in the accompanying Prospectus.
No later than _________ business days following the Expiration Date, the
Partnership will send to each Holder exercising his Rights a certificate
representing the Preferred Units purchased pursuant to the exercise of such
Holder's Rights and the exercise of the Over-Subscription Privilege, if any. A
Holder exercising his Rights will have no right to modify or rescind a purchase
after the Partnership has received payment of the Subscription Price by means of
a check.
If a Holder does not make payment of the Subscription Price on or prior to
the Expiration Date, the Partnership reserves the right to treat the Holder as
not having exercised his Rights or exercised the Over-Subscription Privilege and
the Guarantor, thereafter, shall have the right to purchase any and all such
Preferred Units as to which the Holder shall not have made payment of the
Subscription Price.
NANTUCKET ISLAND ASSOCIATES
LIMITED PARTNERSHIP
By: THREE WINTHROP PROPERTIES, INC.,
general partner
By:_________________________
A-1
<PAGE>
Any questions regarding this Subscription Certificate and the Offer made hereby
and in the accompanying Prospectus may be directed to the Partnership at (617)
330-8600.
Expiration Date: _____________________, 1996
PLEASE COMPLETE ALL APPLICABLE INFORMATION
BY MAIL: BY OVERNIGHT COURIER: BY HAND:
- ----------------- ---------------------
- ----------------- ---------------------
- ----------------- ---------------------
- ----------------- ---------------------
- ----------------- ---------------------
TO SUBSCRIBE: I hereby irrevocably subscribe for the dollar amount of Preferred
Units indicated in A and B below upon the terms and conditions specified in the
Prospectus related hereto, receipt of which is acknowledged. I enclose a check
for the Subscription Price for the number of Preferred Units indicated in A
together with the Subscription Price for the number of Preferred Units indicated
in B.
Please check (X) below:
[ ] A. Basic __________ = ___________.000 x $13,333 = $_____________
Subscription (Rights (Preferred Units
Rights Exercised) Requested)
[ ] B. Over- ___________.000 x $13,333 = $_____________
Subscription
Privilege
[ ] C. Amount of Check Enclosed (Total of A and B). = $_____________
MAKE CHECK PAYABLE TO "NANTUCKET ISLAND ASSOCIATES LIMITED PARTNERSHIP"
___________________________ Please provide your Day ( )____________
Signature of Subscriber(s) telephone number Evening ( )____________
IMPORTANT: PREFERRED UNITS WILL ONLY BE ISSUED TO HOLDERS WHO COMPLETE THIS
SUBSCRIPTION CERTIFICATE IN THE NAME OF SUCH HOLDER. SUBSCRIPTION
CERTIFICATES COMPLETED BY ASSIGNEES OF A HOLDER WILL NOT BE ACCEPTED.
A-2
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution
The expenses of issuance and distribution of the securities are to be paid
by the Partnership. The following itemized list is an estimate of the expenses:
SEC Registration Fee.................................... $3,610.00
Legal fees and expenses................................. *
Accounting fees and expenses............................ *
Printing fees and expenses ............................. *
Blue Sky fees and expenses.............................. *
Miscellaneous........................................... *
---------
Total................................................$ *
- -------------------
* To be provided by amendment
Item 15. Indemnification of Directors and Officers
The Partnership has agreed to indemnify and hold harmless the General
Partner and each person performing services on behalf of the Partnership who (a)
directly or indirectly controls, is controlled by, or is under common control
with, the General Partner, (b) who owns or controls 10% or more of the
outstanding voting interest in the General Partner, and (c) any officer,
director or partner or wholly-owned subsidiary of any entity described in (a) or
(b), against any loss, damage, liability, cost or expense (including reasonable
attorneys' fees) incurred by them in connection with the Partnership, provided
that such loss, damage, liability, cost or expense was not the result of the
negligence or misconduct of any such person. Any such indemnity will be paid
from, and only to the extent of, available Partnership assets and no partners
shall have any personal liability on account thereof. Notwithstanding this
provision, however, neither the General Partner nor any other entity or
individual entitled to indemnification pursuant to the Partnership Agreement
shall be indemnified for any loss, damage or cost resulting from the violation
of any Federal or state securities laws unless (i) there has been a successful
adjudication on the merits of each count involving such securities law
violations, (ii) such claims have been dismissed with prejudice on the merits by
a court of competent jurisdiction or (iii) a court of competent jurisdiction
approves a settlement of such claims. In any claim for indemnification for
Federal or state securities law violations, the party seeking indemnification
shall place before the court the position of the Securities and Exchange
Commission and the Massachusetts Securities Division with respect to the issue
of indemnification for securities law violations.
II - 1
<PAGE>
Item 16. Exhibits
The following documents are filed as a part of this Registration Statement:
Exhibit No. Description
4.1* Amended and Restated Partnership Agreement of the
Registrant
5* Opinion of Rosenman & Colin LLP
8* Opinion of Rosenman & Colin LLP as to certain
federal income tax matters
23.1 Consent of KPMG Peat Marwick LLP
23.2* Consent of Rosenman & Colin LLP (included in
Exhibits 5 and 8)
24 Power of Attorney (included on page II-4)
- -----------------------
* To be filed by amendment
Item 17. Undertakings.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(i) to include any prospectus required by Section 10 (a)(3) of the
Securities Act;
(ii) to reflect in the prospectus any facts or events arising after the
effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the Registration Statement;
(iii) to include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or
any material change to such information in the Registration Statement;
(2) That, for the purpose of determining any liability under the Securities
Act, each such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered herein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
(4) That, for purposes of determining any liability under the Securities
Act, each filing of the Registrant's annual report pursuant
II - 2
<PAGE>
to Section 13(a) or Section 15(d) of the Exchange Act that is incorporated by
reference in the Registration Statement shall be deemed to be a new registration
statement relating to the securities offered herein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers, and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act, and will be governed by the final
adjudication of such issue.
II - 3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3, has duly caused this Registration Statement
to be signed on its behalf by the undersigned, thereunto duly authorized, in the
County of New York and State of New York on July 3, 1996.
NANTUCKET ISLAND ASSOCIATES
LIMITED PARTNERSHIP
By: THREE WINTHROP PROPERTIES, INC.,
General Partner
By /s/
--------------------------------
Michael L. Ashner
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that each person whose signature appears
below constitutes and appoints Michael L. Ashner his true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution,
for him and in his name, place and stead, in any and all capacities, to sign any
and all amendments (including post-effective amendments) to this Registration
Statement, and to file the same, with all exhibits thereto, and other documents
in connection therewith, with the Securities and Exchange Commission, granting
unto said attorney-in-fact and agent full power and authority to do and perform
each and every act and thing requisite or necessary to be done in and about the
premises as fully, to all intents and purposes, as he might or could do in
person, hereby ratifying and confirming all that said attorney-in-fact and agent
or his substitute may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ Chief Executive Officer July 3, 1996
- -------------------------- and Director of the
Michael L. Ashner general partner of the
Registrant
/s/ Director of the general July 3, 1996
- -------------------------- partner of the Registrant
Ronald Kravit
/s/ Director of the general July 3, 1996
- -------------------------- partner of the Registrant
W. Edward Scheetz
/s/ Chief Financial Officer July 3, 1996
- -------------------------- of the general partner
Edward V. Williams of the Registrant
II - 4
<PAGE>
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Partners
Nantucket Island Associates Limited Partnership
We consent to the use of our report incorporated herein by reference and to the
reference to our firm under the heading "Experts" in the prospectus.
Boston, Massachusetts
July 3, 1996
II - 5
