<PAGE>
PRELIMINARY COPY - For Information of the Securities and Exchange Commission
Only
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________________________
Amendment No. 1
to
Rule 13e-3 Transaction Statement
(Pursuant to Section 13(e) of the
Securities Exchange Act of 1934)
________________________________
PRUDENTIAL-BACHE/A.G. SPANOS REALTY PARTNERS L.P., I
(Name of the Issuer)
A.G. SPANOS REALTY PARTNERS, L.P.
(Name of Person(s) Filing Statement)
Depository Units of Limited Partnership Interest
(Title of Class of Securities)
N/A
-------------------------------------------
(CUSIP Number of Class of Securities)
Ralph C. Walker, Esq.
Orrick, Herrington & Sutcliffe LLP
400 Sansome Street
San Francisco, CA 94111
(415) 392-1122
(Name, Address and Telephone Number of Person Authorized to Receive Notices and
Communications on Behalf of Person(s) Filing Statement)
This statement is filed in connection with (check the appropriate
box):
a. [X] The filing of solicitation materials or an
information statement subject to Regulation 14A,
Regulation 14C or Rule 13e-3(c) under the
Securities Exchange Act of 1934.
b. [ ] The filing of a registration statement under the
Securities Act of 1933.
c. [ ] A tender offer.
<PAGE>
d. [ ] None of the above.
2
<PAGE>
Check the following box if the soliciting materials or information statement
referred to in checking box (a) are preliminary copies: [X]
Calculation of Filing Fee
- --------------------------------------------------------------------------------
Transaction valuation (1) Amount of filing fee (1)
- --------------------- --------------------
$22,440,000 $4,528
- --------------------------------------------------------------------------------
(1) Pursuant to Section 13(e)(3) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act") and Rule 0-11 thereunder, the transaction valuation
is $22,440,000, the aggregate distribution to be paid to limited partners
pursuant to the sale of substantially all the assets and subsequent liquidation
of Prudential-Bache/A.G Spanos Realty Partners L.P., I (the "Partnership"), the
transaction which is the subject of this Statement. The filing fee is 1/50 of
1% of such transaction valuation. Pursuant to Rule 0-11, this fee constitutes
the filing fee for this transaction for purposes of both this Statement and the
preliminary consent solicitation statement filed pursuant to Rule 14a-6 under
the Exchange Act and incorporated herein.
[X] Check box if any part of the fee is offset as provided by Rule 0-
11(a)(2) and identify the filing with which the offsetting fee was previously
paid. Identify the previous filing by registration statement number, or the
Form or Schedule and the date of its filing.
Amount Previously Paid: $4,528
Form or Registration No.: Preliminary Consent Solicitation Statement
Filing Party: Prudential-Bache/A.G. Spanos Realty Partners
L.P., I
Date Filed: July 25, 1997
3
<PAGE>
This Rule 13e-3 Transaction Statement (the "Statement") relates to (i)
the sale of substantially all of the assets of the Partnership in a public
auction (the "Auction"), (ii) the amendment of the Amended and Restated
Agreement of Limited Partnership of the Partnership to permit an affiliate of
one of the general partners of the Partnership to bid for, and if successful to
purchase, one or more of the Partnership's real properties (the "Amendment") and
(iii) the subsequent complete termination and liquidation of the Partnership
(the "Plan of Liquidation") (collectively, the Auction, the Amendment and the
Plan of Liquidation are referred to herein as the "Plan"). The Plan is being
proposed by A.G. Spanos Realty Partners, L.P. ("Spanos"), one of the general
partners of the Partnership, in connection with, and pursuant to the terms of, a
proposed settlement by Spanos and its affiliates (the "Settlement") of certain
class action litigation (the "Litigation") now pending in the United States
District Court for the Southern District of New York (the "Court"). The
Settlement is set forth in a Stipulation of Settlement with Spanos Defendants
(the "Settlement Agreement"), executed by plaintiffs in the Litigation and by
Spanos and certain of its affiliates (the "Spanos Defendants").
This Statement is being filed by Spanos concurrently with a further
revised Preliminary Consent Solicitation Statement (the "Preliminary Consent
Solicitation Statement") filed pursuant to Regulation 14A under the Exchange
Act, to be used in connection with the solicitation of written consents from the
holders of Depository Units of the Partnership (the "Unitholders").
Subject to the approval of the Unitholders and pursuant to the
Settlement Agreement, the Partnership will engage Ernst & Young LLP, an
independent national public accounting and consulting firm, to conduct the
Auction. In the Settlement Agreement, Spanos has agreed that it or one or more
of its affiliates will submit a preliminary bid for all of the Partnership's
properties in an amount which will provide to the Partnership a gross cash price
in excess of then-existing mortgage debt of at least $22,440,000, and will also
submit individual bids for each of such properties in amounts such that the
aggregate gross cash price in excess of existing mortgage debt for all of the
properties is at least $22,440,000. The expenses of the Plan, which will be
borne by the Partnership, are estimated to be $197,000.
The cross reference sheet which follows is being supplied pursuant to
General Instruction F to Schedule 13E-3 and indicates the location in the
Preliminary Consent Solicitation Statement of the information required to be
included in response to the Items of this Statement. The information in the
Preliminary Consent Solicitation Statement is hereby expressly incorporated
herein by reference. A copy of the Preliminary Consent Solicitation Statement
is attached hereto as Exhibit (d)(3).
4
<PAGE>
CROSS-REFERENCE SHEET
(The information contained in the Preliminary Consent Solicitation Statement is
incorporated herein by reference pursuant to General Instruction F to Schedule
13E-3)
SCHEDULE 13E-3 ITEM CAPTION IN SCHEDULE 13E-3; CAPTION
ITEM NUMBER IN PRELIMINARY CONSENT SOLICITATION STATEMENT
- -------------- -----------------------------------------------
Item 1. Issuer and Class of Security Subject to the Transaction
-------------------------------------------------------
(a) "INTRODUCTION"; "SUMMARY -- The Partnership".
(b) "INTRODUCTION"; "SUMMARY -- Record Date; Units Entitled to
Consent".
(c) "MARKET PRICES OF UNITS AND DISTRIBUTIONS TO UNITHOLDERS --
Market Prices".
(d) "MARKET PRICES OF UNITS AND DISTRIBUTIONS TO UNITHOLDERS --
Distributions to Unitholders".
(e) Not Applicable.
(f) Not Applicable.
Item 2. Identity and Background
-----------------------
(a)-(d) This Statement is being filed by Spanos. Spanos has been a
general partner of the Partnership since 1988, and itself is
a limited partnership formed under the laws of California,
the principal business of which is acting as a general
partner of the Partnership. The principal executive offices
of Spanos are located at 1341 West Robinhood Drive, Suite B-
9, Stockton, CA 95207. The general partners of Spanos are
AGS Financial Corporation, a California corporation, and
A.G. Spanos Realty Capital, Inc., a California corporation.
The principal executive offices of both of such corporations
are located at 1341 West Robinhood Drive, Suite B-9,
Stockton, CA 95207.
(e)-(f) During the last five years, neither Spanos nor either of the
general partners of Spanos (i) has been convicted in a
criminal proceeding (excluding traffic violations or similar
misdemeanors) or (ii) was a party to
5
<PAGE>
a civil proceeding of a judicial or administrative body of
competent jurisdiction and as a result of such proceeding
was or is subject to a judgment, decree or final order
enjoining further violations of, or prohibiting activities
subject to, federal or state securities laws or finding any
violation of such laws.
(g) See response to (a)-(d) above.
Item 3. Past Contacts, Transactions or Negotiations
-------------------------------------------
(a)(1) See the information contained in Note D to the audited
financial statements of the Partnership contained in its
Annual Report on Form 10-K for the year ended December 31,
1996, as amended, attached as Exhibit B to the Preliminary
Consent Solicitation Statement, and the information in Note
C to the unaudited financial statements of the Partnership
contained in its Quarterly Report on Form 10-Q for the
quarter ended September 30, 1997, attached as Exhibit C to
the Preliminary Consent Solicitation Statement.
(2) Not Applicable.
(b) "INTRODUCTION"; "SPECIAL FACTORS --Background of the Plan";
and "-- No Other Offers".
Item 4. Terms of the Transaction
------------------------
(a) "INTRODUCTION"; "SPECIAL FACTORS --Background of the Plan";
"THE PLAN --Description of the Auction"; "-- Amendment to
Partnership Agreement"; and "-- Liquidation".
(b) Not Applicable.
Item 5. Plans or Proposals of the Issuer or Affiliate
---------------------------------------------
(a)-(b) "INTRODUCTION"; "SPECIAL FACTORS"; and "THE PLAN".
(c) Not Applicable.
(d)-(g) "INTRODUCTION"; "SPECIAL FACTORS"; and "THE PLAN".
Item 6. Source and Amounts of Funds or Other Consideration
--------------------------------------------------
6
<PAGE>
(a) "THE PLAN -- Description of the Auction".
(b) "THE PLAN -- Anticipated Results of Auction, Use of Proceeds
and Cash Distributions".
(c)-(d) Not Applicable.
Item 7. Purpose(s), Alternatives, Reasons and Effects
---------------------------------------------
(a) The purpose of the Plan is to effect the termination of the
Partnership and the sale of all of its Properties through a
public Auction, in which an affiliate of Spanos will make
specified Minimum Bids (or "floor bids"), but will not
submit improved bids. This purpose is set forth in detail
in the Preliminary Consent Solicitation Statement under the
captions "INTRODUCTION", "SPECIAL FACTORS -- Background of
the Plan" and "THE PLAN -- Description of the Auction".
(b) Because of the context in which the Plan arose (i.e., the
Litigation and the negotiations regarding the Settlement),
Spanos did not consider any alternative means of
accomplishing such purpose. Hence, this item is not
applicable.
(c) See the description of the history of the negotiations of
the Settlement under "SPECIAL FACTORS -- Background of the
Plan".
(d) "INTRODUCTION"; "SPECIAL FACTORS --Background of the Plan";
"-- Effects of the Plan"; "-- Disadvantages of the Plan"; "-
-Advantages of the Plan"; "-- Failure to Approve the Plan";
"THE PLAN -- Anticipated Results of Auction, Use of Proceeds
and Cash Distributions"; "FEDERAL INCOME TAX CONSEQUENCES OF
THE PLAN"; and "NO APPRAISAL RIGHTS".
Item 8 Fairness of the Transaction
---------------------------
(a) "INTRODUCTION"; "SUMMARY -- The Plan --Recommendation of
Spanos"; "SPECIAL FACTORS -- Background of the Plan"; and
"-- Fairness of the Plan; Recommendation of Spanos". No
director of either of the corporate general partners of
Spanos dissented or abstained from voting with respect to
the Plan.
(b) "INTRODUCTION" and "SPECIAL FACTORS --Background of the
Plan"; "-- Disadvantages of
7
<PAGE>
the Plan"; "-- Advantages of the Plan" and "THE PLAN --
General".
(c) "INTRODUCTION"; "SUMMARY -- Action by Written Consent --
Vote Required"; "SPECIAL FACTORS -- Vote Required to Approve
the Plan"; and "THE PLAN -- General".
(d)-(f) Not Applicable.
Item 9. Reports, Opinions, Appraisals and Certain Negotiations
------------------------------------------------------
(a) "SPECIAL FACTORS -- Background of the Plan"; "-- Fairness of
the Plan; Recommendation of Spanos"; "-- Disadvantages of
the Plan"; and "THE PLAN -- General".
(b)-(c) Not Applicable.
Item 10. Interest in Securities of the Issuer
------------------------------------
(a) "SUMMARY -- Action by Written Consent -- Vote Required";
"Action by Written Consent --Security Ownership and Voting
of the General Partners"; and "VOTING SECURITIES AND
PRINCIPAL HOLDERS THEREOF".
(b) Not applicable.
Item 11. Contracts, Arrangements or Understandings with Respect to
---------------------------------------------------------
the Issuer's Securities
-----------------------
"INTRODUCTION"; "SPECIAL FACTORS --Background of the Plan";
"THE PLAN --Amendment to Partnership Agreement".
Item 12. Present Intention and Recommendation of Certain Persons with
------------------------------------------------------------
Regard to the Transaction
-------------------------
"INTRODUCTION".
(a) "INTRODUCTION"; "SUMMARY -- Security Ownership and Voting of
the General Partners"; and "VOTING SECURITIES AND PRINCIPAL
HOLDERS THEREOF".
(b) "INTRODUCTION"; "SUMMARY -- Recommendation of Spanos";
"SPECIAL FACTORS -- Background of the Plan"; and "--
Fairness of the Plan; Recommendation of Spanos".
8
<PAGE>
Prudential-Bache Properties, Inc., the other general partner
of the Partnership, makes no recommendation with respect to
the Plan. See "INTRODUCTION" and "SUMMARY -- Recommendation
of Spanos".
Item 13. Other Provisions of the Transaction
-----------------------------------
(a) "INTRODUCTION"; "SUMMARY -- No Appraisal Rights"; and "NO
APPRAISAL RIGHTS".
(b)-(c) Not Applicable.
Item 14. Financial Information
---------------------
(a) Audited financial statements of the Partnership for the two
years ended December 31, 1996 contained in its Annual Report
on Form 10-K for the year ended December 31, 1996, as
amended, attached as Exhibit B to the Preliminary Consent
Solicitation Statement, and unaudited financial statements
of the Partnership contained in its Quarterly Report on Form
10-Q for the quarter ended September 30, 1997, attached as
Exhibit C to the Preliminary Consent Solicitation Statement.
(b) "PRO FORMA FINANCIAL INFORMATION".
Item 15. Persons and Assets Employed, Retained or Utilized
-------------------------------------------------
(a) "INTRODUCTION".
(b) "INTRODUCTION".
Item 16. Additional Information
----------------------
Additional information concerning the Plan is set forth in
the Preliminary Consent Solicitation Statement attached
hereto as Exhibit (d)(3).
Item 17. Material to be Filed as Exhibits
--------------------------------
(a) Not Applicable.
(b) Not Applicable.
(c)(1) Stipulation of Settlement with Spanos Defendants.
(d)(1) Letter to Unitholders.
9
<PAGE>
(d)(2) Notice of Consent Solicitation.
(d)(3) Preliminary Statement Furnished in Connection with the
Solicitation of Consents.
(e) Not Applicable.
(f) Not Applicable.
(g) Consent of Bowman & Company, independent auditors.
10
<PAGE>
SIGNATURES
After due inquiry and to the best of their respective knowledge and
belief, the undersigned certify that the information set forth in this Amendment
No. 1 to Statement is true, complete and correct.
Dated: March 17, 1998
The Partnership:
---------------
PRUDENTIAL-BACHE/A.G. SPANOS REALTY PARTNERS L.P., I
By: A.G. SPANOS REALTY PARTNERS, L.P.,
General Partner
By: AGS FINANCIAL CORPORATION,
General Partner
By: /s/ Arthur J. Cole
--------------------------------------
Arthur J. Cole, President
By: A.G. SPANOS REALTY CAPITAL, INC.,
General Partner
By: /s/ Arthur J. Cole
--------------------------------------
Arthur J. Cole, Vice President
Spanos:
------
A.G. SPANOS REALTY PARTNERS, L.P.
By: AGS FINANCIAL CORPORATION,
General Partner
By: /s/ Arthur J. Cole
--------------------------------------
Arthur J. Cole, President
By: A.G. SPANOS REALTY CAPITAL, INC.,
General Partner
By: /s/ Arthur J. Cole
--------------------------------------
Arthur J. Cole, Vice President
11
<PAGE>
SCHEDULE 13E-3 EXHIBIT INDEX
----------------------------
SEQUENTIAL
EXHIBIT DESCRIPTION PAGE NUMBER
- ------- ----------- -----------
(c)(1) Stipulation of Settlement with
Spanos Defendants
(d)(1) Letter to Unitholders
(d)(2) Notice of Consent Solicitation
(d)(3) Preliminary Statement Furnished
in Connection with the Solicitation
of Consents
(g) Consent of Bowman & Company,
Independent Auditors
12
<PAGE>
EXHIBIT (C)(1)
EXECUTION COPY 5/12/97
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
- ------------------------------------x
:
In re: PRUDENTIAL SECURITIES : MDL Docket No. 1005
INCORPORATED LIMITED PARTNERSHIPS : M-21-67 (MP)
LITIGATION :
:
- ------------------------------------x
STIPULATION OF
SETTLEMENT WITH SPANOS DEFENDANTS
---------------------------------
The Spanos Defendants (as defined below) and plaintiffs herein, by and
through their respective attorneys, enter into this Stipulation of Settlement,
subject to the approval of the Court.
DEFINITIONS
-----------
As used herein, the following terms shall have the following meanings:
1. "All Class Members" means each and every member of the Monetary
Class/1/ and each and every member of the Equitable Class, collectively and
individually.
2. "Auction" means the sale at public auction of the Properties of
Prudential-Bache/A.G. Spanos Genesis Income Partners L.P., I ("Spanos Genesis")
and Prudential-Bache/A.G. Spanos Realty Partners L.P., I ("Spanos Realty";
collectively, the "Spanos Public Partnerships") in
- ----------------
/1/ Certain capitalized terms are used herein prior to their definition below.
<PAGE>
2
accordance with the procedures set forth in paragraph 58 herein.
3. "Claims Administrator" means the Garden City Group or such
successor claims administrator as may be selected by Lead Class Counsel.
4. "Class Counsel Co-Chairmen" means Melvyn I. Weiss, Esq. and
Lawrence A. Sucharow, Esq.
5. "Class Representatives" means the persons named as such in the
Preliminary Approval Order.
6. "Consolidated Complaint" means the Consolidated Complaint filed
in the above-captioned action on or about June 8, 1994.
7. "Constituent Action" means any case, action or proceeding
transferred by the Judicial Panel on Multidistrict Litigation to the United
States District Court for the Southern District of New York under M.D.L. Docket
No. 1005, other than (a) Romano (as defined below in paragraph 49) and (b) any
------
other action that by order of the United States District Court for the Southern
District of New York, entered prior to the date of this Settlement Agreement, is
deemed a coordinated, rather than consolidated, action.
8. "Effective Date" means the date when the Order and Final Judgment
has been entered substantially in
<PAGE>
3
the form of Exhibit B hereto and the time for appeal or petition for review of
such Order and Final Judgment has expired, or if any appeal is filed and not
dismissed, the date such Order and Final Judgment is upheld on appeal or review
and the time for any further appeal or petition for review has expired or, in
the event the Court enters an order and final judgment in a form other than that
provided above (an "Alternative Judgment"), and none of the Parties has elected
to terminate this Settlement Agreement in accordance with any provision set
forth herein, the date such Alternative Judgment becomes final and no longer
subject to appeal or review. If no appeal or petition for review is filed with
respect to the Order and Final Judgment or the Alternative Judgment, the
Effective Date shall be 35 days after the date of entry thereof.
9. "Equitable Class" and "Equitable Class Members" means all persons
or entities who, on May 12, 1997, owned units of limited partnership interest
("Units") in either or both of the Spanos Public Partnerships, but not including
PBP, the Spanos General Partners, the Spanos Genesis Special Limited Partners,
or the Spanos Realty Subordinated Limited Partners.
10. "Equitable Class Notice" means the notice of proposed settlement
to be sent to the Equitable Class
<PAGE>
4
Members pursuant to the Preliminary Approval Order. The Equitable Class Notice
shall be substantially in the form of Exhibit 2 to Exhibit A hereto.
11. "Lead Class Counsel" means the Executive Committee of Plaintiffs'
Counsel, as designated by the Court in Order No. 2 herein dated June 27, 1994.
12. "Monetary Class" and "Monetary Class Members" means all persons
or entities who are currently PSI Class Members who invested in one or more of
the Partnerships listed on Schedule A and who do not validly request exclusion
from the Settlement in accordance with the procedures provided by the
Preliminary Approval Order or such other order as may be entered by the Court
certifying a settlement class under F.R.Civ.P. 23.
13. "Monetary Class Notice" means the notice of proposed settlement
to be sent to Monetary Class Members pursuant to the Preliminary Approval Order.
In the event settlements with additional defendants have been or are reached,
the form of Monetary Class Notice may provide joint notice of this Settlement
and such additional settlements. The form of Monetary Class Notice shall be
submitted to the Court for its approval before being sent to Monetary Class
Members.
<PAGE>
5
14. "Monetary Class Period" means the period of time from January 1,
1980 through June 8, 1994, inclusive.
15. "Non-Settling Defendant" means any defendant named in the
Consolidated Complaint or any officer, director, employee, partner or affiliate
of any defendant named in the Consolidated Complaint, but does not include any
person who is a Released Party (as defined herein or in the PSI Settlement
Agreement), a PSI Settling Defendant, or other defendant named in the
Consolidated Complaint who shall be designated as a Released Party in any other
settlement agreement executed by Lead Class Counsel which receives final
approval by the Court in this action.
16. "Order and Final Judgment" means the order and final judgment to
be entered by the Court substantially in the form of Exhibit B hereto.
17. "Parties" means, collectively, the Class Representatives, and the
Spanos Defendants.
18. "Partnerships" means the partnerships and other entities listed
on Schedule A to this Settlement Agreement.
19. "PBP" means Prudential-Bache Properties, Inc. and any predecessor
or successor entity.
20. "PBP Parties" means PBP and its past or present subsidiaries,
parents and affiliates, together with
<PAGE>
6
their respective past or present officers, directors, employees, attorneys,
agents, successors and assigns.
21. "Plan of Allocation" means the allocation method prepared by Lead
Class Counsel and approved by the Court in connection with the PSI Settlement,
as such plan may be amended from time to time with the approval of the Court.
22. "Preliminary Approval Order" means the order to be entered by the
Court preliminarily approving this Settlement substantially in the form of
Exhibit A hereto.
23. "Properties" means the parcels of land, or any interest therein,
together with the apartment buildings and other improvements thereon, or any
interest therein, owned by the Spanos Public Partnerships or either of them.
24. "PSI" means Prudential Securities Incorporated and any
predecessor or successor entity.
25. "PSI Class Members" means all persons and entities who are "Class
Members" as defined in the PSI Settlement Agreement and who have not validly
requested exclusion from the settlement class established pursuant thereto in
accordance with the procedures provided for therein.
26. "PSI Settlement" means the partial settlement effected pursuant
to the PSI Settlement Agreement.
<PAGE>
7
27. "PSI Settlement Agreement" means that certain Stipulation and
Agreement of Partial Compromise and Settlement agreed to by plaintiffs and the
PSI Settling Defendants and approved by the Court in the above-captioned action
on or about November 20, 1995, as it may be amended with Court approval with
prior notice to counsel for the Spanos Defendants.
28. "PSI Settling Defendants" means, collectively, PSI, Prudential
Insurance Company of America, Prudential Securities Group, Inc., Prudential-
Bache Capital Funding, Inc., Prudential-Bache Agriculture Inc., Prudential-Bache
Energy Production, Inc., Prudential-Bache Leasing, Inc., Prudential-Bache
Minerals, Inc., Prudential-Bache Properties, Inc., Prudential Realty
Partnership, Inc., R & D Funding Corp., Graham Resources, Inc., Graham Energy,
LTD., Graham Securities Corp., Graham Royalty, LTD., George Ball, Robert
Sherman, James Darr, William E. Pittman, Jr., James M. Kelso, Brian J. Martin,
Frank W. Giordano, Joseph H. Quinn, Joe W. DeFur, Paul J. Proscia, Anthony J.
Hertl, Frank Saraceno and John J. Graham.
29. "Published Notice" means, if required by the Court, the notice of
the proposed Settlement with the Monetary Class and the Equitable Class to be
published,
<PAGE>
8
pursuant to the Preliminary Approval Order, substantially in the form of
Exhibits 3 and 4 to Exhibit A hereto.
30. "Released Parties" means (i) any and all of the Spanos
Defendants, (ii) spouses of any of the Spanos Defendants; (iii) past or present
subsidiaries, parents, affiliates, successors and assigns of any of the Spanos
Defendants, including, without limitation, the Spanos Partnerships, and (iv)
past or present officers, directors, shareholders, partners, agents, employees,
attorneys, advisors, investment bankers, accountants, representatives, trustees,
beneficiaries, parents, affiliates, subsidiaries, heirs, executors,
administrators, predecessors, successors or assigns of any of the persons or
entities described in clauses (i), (ii) and (iii) of this paragraph 30.
Released Parties does not include any entity or individual named as a defendant
in the Consolidated Complaint who is not a Spanos Defendant as defined herein.
31. "Settled Claims" means any and all claims, rights, causes of
action, losses or liabilities whatsoever, whether based on federal, state,
local, statutory or common law or any other law, rule or regulation, including
both known and unknown claims, that have been, could have been, or in the future
might be asserted in any forum by the Monetary Class Members or any of them, or
the successors and
<PAGE>
9
assigns of any of them, whether directly, indirectly, representatively,
derivatively or in any other capacity, against any of the Released Parties (i)
in connection with or which arise out of or relate in any way to the
allegations, transactions, facts, matters, occurrences, representations or
omissions involved, set forth or referred to in the Consolidated Complaint or
any pleading in any Constituent Action, or (ii) which relate in any way to (A)
the marketing, purchase, sale or holding of Units or other interests in the
Partnerships during the Monetary Class Period, or (B) the construction,
operation, oversight, monitoring or management of, any of the Partnerships or
Properties during the Monetary Class Period, other than any such claims, rights,
causes of action or liabilities described in this paragraph 31(ii)(B) that are
based on actual fraud committed by any of the Spanos Defendants, their officers,
directors or employees.
32. "Settlement" means the settlement provided for in this Settlement
Agreement.
33. "Settlement Agreement" means this Stipulation of Settlement
between plaintiffs herein and the Spanos Defendants, including the exhibits
hereto.
34. "Settlement Fairness Hearing" means the hearing to be requested
by the Class Representatives and the
<PAGE>
10
Spanos Defendants, after appropriate notice to All Class Members and an
opportunity by Monetary Class Members to exclude themselves from participation
in the proposed Settlement, at which the Class Representatives and the Spanos
Defendants will request that the Court approve the fairness, reasonableness and
adequacy of the terms and conditions of the proposed Settlement, enter the Order
and Final Judgment and take other appropriate action.
35. "Settlement Pool" means the settlement pool created pursuant to
paragraph 53.
36. "Spanos Defendants" means Alex G. Spanos, AGS Financial
Corporation, A.G. Spanos Realty Partners, L.P., A.G. Spanos Residential
Partners-86, A.G. Spanos Realty Capital, Inc., A.G. Spanos Realty, Inc., A.G.
Spanos Construction, Inc. and AGS Securities Corporation, together with their
respective officers, directors, employees, parent and subsidiary corporations,
successors, heirs, representatives and executors. Notwithstanding the
foregoing, the term Spanos Defendants does not include any Defendant other than
those listed above.
37. "Spanos General Partners" means A.G. Spanos Realty Partners, L.P.
and A.G. Spanos Residential Partners-86.
<PAGE>
11
38. "Spanos Genesis Special Limited Partners" means the Special
Limited Partners described in paragraph 2.1 of the Prudential-Bache/A.G. Spanos
Genesis Income Partners L.P., I Amended and Restated Agreement of Limited
Partnership, dated as of February 17, 1987 (the "Spanos Genesis Partnership
Agreement"), and their successors and assigns. The term "Limited Partners," as
used in this Settlement Agreement, shall not include the Spanos Genesis Special
Limited Partners.
39. "Spanos Net Settlement Pool" means the Cash Settlement Amount (as
defined in paragraph 53) together with any interest earned thereon, less the
amounts deducted therefrom for Court-approved counsel fees, expenses,
administrative costs, costs of notice (including any costs for identifying,
notifying and communicating with Monetary Class Members) and any applicable
taxes.
40. "Spanos Partnerships" means the Spanos Public Partnerships;
AGS/Rancho Sahara and Marble Creek, Ltd.; AGS/Cobblestone Investors, Ltd.; and
AGS/Country Club Village, Ltd.
41. "Spanos Realty Subordinated Limited Partners" means the
Subordinated Limited Partners described in paragraph 2.1 of the Prudential-
Bache/A.G. Spanos Realty Partners L.P., I Amended and Restated Agreement of
Limited
<PAGE>
12
Partnership, dated as of June 3, 1988 (the "Spanos Realty Partnership
Agreement"), and their successors and assigns. The term "Limited Partners," as
used in this Settlement Agreement, shall not include the Spanos Realty
Subordinated Limited Partners.
42. "Successful Bidder" means a bidder from whom the Agent has
accepted as final a winning bona fide bid in the Auction pursuant to paragraph
58(k) herein (a "Successful Bid").
43. "Units" means limited partnership interests or depositary units
representing assigned attributes of limited partnership interests or any other
indicia of ownership of the Partnerships.
RECITALS
--------
44. WHEREAS, various class actions have been filed alleging, among
other things, violations of federal and state laws in connection with the
original offerings of Units, the sale of Units in the secondary market, the
operation and management of the Partnerships and other acts and practices
relating to the Units or the Partnerships; and
45. WHEREAS, certain such actions have been transferred to the Court
by the Judicial Panel on Multidistrict Litigation as MDL Docket No. 1005 for
consolidated or coordinated pretrial proceedings; and
<PAGE>
13
46. WHEREAS, a Consolidated Complaint has been filed by the
plaintiffs in certain of the class actions which, inter alia, names the Spanos
----- ----
Defendants and others as defendants in this multidistrict litigation proceeding
and alleges, inter alia, that the defendants named therein made various false
----- ----
and misleading material omissions and misrepresentations in prospectuses and
offering materials in the course of marketing and selling the Units and on
customers' statements with respect to the value of the Units, and that such
defendants also made false and misleading oral representations in marketing the
Units in violation of the federal racketeering and securities laws and
applicable state laws, and that such defendants engaged in other allegedly
wrongful acts with respect to the purchase of Units or the operation or
management of the Partnerships; and
47. WHEREAS, plaintiffs moved to deem the complaints in certain
Constituent Actions amended to conform to the allegations in the Consolidated
Complaint and the Court granted plaintiffs' motion to have such complaints
deemed amended; and
48. WHEREAS, based on these and other alleged acts the plaintiffs
seek, on behalf of themselves and the Class Members, monetary damages, including
treble damages,
<PAGE>
14
and/or rescission, whereby they may obtain the right to return their Units for
the amount of their original investments, plus interest, costs and attorneys'
fees, less distributions received to date; and
49. WHEREAS, there is a separate action, entitled Romano v.
---------
Prudential Insurance Company of America, No. 94 Civ. 3527 ("Romano"), which has
- --------------------------------------- ------
been coordinated with the actions covered by the Consolidated Complaint and
which arises out of the same transactions and occurrences alleged in the
Consolidated Complaint but asserts derivative and class claims on behalf of a
class different from the class alleged in the Consolidated Complaint, and the
plaintiffs in Romano are represented by different counsel than the plaintiffs in
------
the Consolidated Complaint;
50. WHEREAS, the Spanos Defendants (a) deny any and all allegations
of wrongdoing, violations of law and breaches of duty and have asserted that the
claims alleged against them in the Consolidated Complaint fail to state a claim
for relief and/or are barred by the applicable statutes of limitation or repose,
as well as other defenses, and (b) have agreed to enter into this Settlement to
avoid the expense, inconvenience and burden of further litigation and to achieve
final release, repose and protection; and
<PAGE>
15
51. WHEREAS, counsel for the Monetary Class and the Equitable Class
have conducted extensive discovery and an extensive investigation into the facts
of these cases, have made a thorough study of the legal principles applicable to
the claims in the actions and have concluded that the Settlement with the Spanos
Defendants provided for herein is fair, reasonable and adequate and is in the
best interests of All Class Members.
TERMS AND CONDITIONS OF THE SPANOS SETTLEMENT
---------------------------------------------
52. It is hereby stipulated and agreed by and between the Class
Representatives (for themselves and on behalf of All Class Members) and the
Spanos Defendants, by their respective attorneys, subject to the approval of the
Court pursuant to F.R.Civ.P. 23(e), in consideration of the benefits inuring to
the Parties and All Class Members and without admission of any liability or
wrongdoing whatsoever by the Spanos Defendants, or any of them, that all Settled
Claims, and the claims of the Equitable Class, shall be compromised, settled,
released, discharged and dismissed on the merits and with prejudice as against
the Spanos Defendants, the other Released Parties and the PBP Parties to the
extent and upon the terms and conditions described herein.
<PAGE>
16
53. Subject to Court approval and the conditions specified herein,
and in exchange for resolving all Settled Claims, the Spanos Defendants shall,
within five (5) business days following the execution of this Settlement
Agreement, pay into the Settlement Pool for the benefit of Monetary Class
Members One Million One Hundred Seventy-Five Thousand Dollars ($1,175,000) (the
"Cash Settlement Amount" or "Cash Payment"), by depositing said amount into an
escrow account with the Court Registry Investment System ("CRIS"), to be
administered by Class Counsel Co-Chairmen or their designees (the "Escrow
Agents") pursuant to the terms of an escrow agreement substantially in the form
annexed hereto as Exhibit C. The Escrow Agents shall hold the Cash Settlement
Amount in escrow pending the Effective Date and, except for taxes payable on the
earnings of the escrow account, which shall be paid by the Escrow Agents when
due, no amount shall be disbursed from the escrow prior to the Effective Date,
except that the Escrow Agents may, with Court approval, after the Spanos
Defendants have had notice and an opportunity to be heard, and if the Notice
Fund (defined below) is insufficient for this purpose, disburse funds necessary
to pay the reasonable costs of notice of this Settlement to the Monetary Class,
including costs of printing, mailing, postage, publication, and costs of
<PAGE>
17
identifying and communicating with Monetary Class Members, or other costs
incurred in connection with the giving of notice of this Settlement to Monetary
Class Members.
54. Within five (5) business days following the execution of this
Settlement Agreement, the Spanos Defendants shall pay the sum of One Hundred
Thousand Dollars ($100,000) into a notice and administration cost fund (the
"Notice Fund") by depositing said amount into an escrow account with a bank
designated by Class Counsel Co-Chairmen, to be administered by Class Counsel Co-
Chairmen or their designees (the "Notice Escrow Agents"). The Notice Escrow
Agents shall hold the Notice Fund in escrow pending the Effective Date and,
except for taxes payable on the earnings of the escrow account and the
reasonable costs of notice of this Settlement to the Monetary Class, including
costs of printing, mailing, postage, publication, and costs of identifying and
communicating with Monetary Class Members, or other costs incurred in connection
with the administration of or giving of notice of this Settlement to Monetary
Class Members, all of which shall be paid by the Notice Escrow Agents when due,
no amount shall be disbursed from the escrow prior to the Effective Date.
55. After the Effective Date, the Spanos Net Settlement Pool shall be
distributed as follows: Twenty-
<PAGE>
18
five per cent (25%) shall be distributed to members of the Monetary Class who
have not opted out, who have submitted valid proofs of claim which have been
accepted by the Claims Administrator, and who invested in the Partnerships, pro-
rata as determined by the ratio that the Monetary Class Members' Weighted
Recognized Loss (as that term is defined in the PSI Settlement Agreement and
Plan of Allocation) on the Partnerships bears to the total Weighted Recognized
Loss (as that term is defined in the PSI Settlement Agreement and the Plan of
Allocation) on the Partnerships of all Monetary Class Members who have not opted
out and who have filed valid proofs of claim which have been accepted by the
Claims Administrator and who invested in the Partnerships. Seventy-five per
cent (75%) shall be distributed to members of the Monetary Class who have not
opted out, who have filed valid proofs of claim which have been accepted by the
Claims Administrator, and who invested in the Spanos Partnerships, pro-rata as
determined by the ratio that the Monetary Class Member's Weighted Recognized
Loss (as that term is defined in the PSI Settlement Agreement and Plan of
Allocation) on the Spanos Partnerships bears to the total Weighted Recognized
Loss (as that term is defined in the PSI Settlement Agreement and Plan of
Allocation) on the Spanos Partnerships of all members of the Monetary Class who
have
<PAGE>
19
not opted out and who have filed valid proofs of claim which have been accepted
by the Claims Administrator and who invested in the Spanos Partnerships. Lead
Class Counsel shall, if necessary, prepare and submit to the Court for its
approval an amendment of the Plan of Allocation, which shall set forth the basis
upon which approved claims shall be paid from the Spanos Net Settlement Pool.
56. The equitable relief provided to the Equitable Class as part of
this Settlement shall consist of the Auction, as described in paragraphs 2 and
58 hereof, together with the subsequent termination and dissolution of the
Spanos Public Partnerships and the distribution of the Auction proceeds and
other assets of the Spanos Public Partnerships to, inter alia, the Equitable
----- ----
Class.
57.
a. Commencing as promptly as practicable after entry of the
Preliminary Approval Order, the Spanos General Partners shall use their best
efforts to solicit the consent of the Limited Partners of the Spanos Public
Partnerships for the Auction and the subsequent termination and dissolution of
the Spanos Public Partnerships (the "Proxy Solicitation"). The Proxy
Solicitation shall be conducted by or under the direction of the Spanos General
Partners and shall be subject to, and conducted in
<PAGE>
20
conformity with, all applicable rules, regulations and other requirements
imposed by the United States Securities and Exchange Commission ("SEC"). The
Spanos General Partners shall enclose the Equitable Class Notice together with
the documents sent in connection with the Proxy Solicitation.
b. In the event that the requisite consent of the Limited
Partners for the Auction and subsequent termination and dissolution of the
Spanos Public Partnerships is not obtained by 5:00 p.m. Eastern time on the
third business day before the Settlement Fairness Hearing, the Spanos General
Partners shall bear the costs of the Proxy Solicitation, including preparation,
printing and distribution costs. Otherwise, the Spanos General Partners shall
advance the costs of the Proxy Solicitation but shall be entitled to
reimbursement from the Spanos Public Partnerships in accordance with paragraph
59(d) hereof.
58. The Auction shall be conducted as follows:
a. Since the Spanos General Partners or their affiliates may
bid in the Auction, they shall have no involvement in conducting the Auction
except as set forth in this Settlement Agreement. The Auction shall be
conducted by Ernst & Young LLP through the E&Y Kenneth Laventhal Real Estate
Group or, in the event the E&Y Kenneth Laventhal Real Estate Group refuses or is
unable to perform in accordance
<PAGE>
21
with this Settlement Agreement, by another person or entity mutually acceptable
to Lead Class Counsel, PBP and the Spanos General Partners (the "Agent"). As
promptly as practicable after the entry of the Preliminary Approval Order, PBP
shall cause the Spanos Public Partnerships to enter into a contract with the
Agent to conduct the Auction pursuant to the provisions of this paragraph 58.
b. PBP shall cause the Spanos Public Partnerships to retain
independent real estate counsel, acceptable to Lead Class Counsel, to advise the
Spanos Public Partnerships regarding the Auction.
c. The Spanos Defendants agree that they will make available
for sale in the Auction all apartment buildings and other improvements owned by
them or their affiliates and located upon the parcels of land owned by Spanos
Genesis, so that each such parcel of land, together with the buildings and other
improvements thereon, may and shall be bid upon and purchased as a single
Property in the Auction. The proceeds from the sale of any such Property shall
be allocated as set forth on page 55 of the Spanos Genesis Prospectus dated
February 24, 1987. The allocation formula shall be set forth in the proxy
materials to be disseminated by the Spanos General Partners in connection with
the Proxy Solicitation.
<PAGE>
22
d. As promptly as practicable after the entry of the
Preliminary Approval Order:
(1) The Agent shall prepare a confidentiality agreement
acceptable to PBP and Lead Class Counsel.
(2) The Agent shall select and PBP shall cause the Spanos
Public Partnerships to contract with a reputable environmental firm, acceptable
to PBP and Lead Class Counsel, to perform Phase I and, if necessary, Phase II
environmental assessments of each of the properties to be auctioned (the
"Properties"). If the environmental reports indicate any contamination, the
Agent shall so inform both PBP and the Spanos General Partners.
(3) PBP shall cause the Spanos Public Partnerships to
contract with Eckland Consultants Inc. (or, in the event Eckland Consultants
Inc. refuses or is unable to perform in accordance with this Settlement
Agreement, with another person or entity mutually acceptable to Lead Class
Counsel, PBP and the Spanos General Partners) to perform a physical inspection
of the Properties and prepare an engineering report detailing any material
structural or operational defects. Such report shall not require analysis of
construction drawings or invasion of any walls, ceilings or floors.
<PAGE>
23
(4) The Agent shall select and PBP shall cause the Spanos
Public Partnerships to contract with First American Title Company (or, in the
event First American Title Company refuses or is unable to perform in accordance
with this Settlement Agreement, with another person or entity mutually
acceptable to Lead Class Counsel, PBP and the Spanos General Partners) to
perform title searches and issue preliminary title commitments.
(5) The Agent shall select and PBP shall cause the Spanos
Public Partnerships to contract with one or more qualified termite inspection
companies, acceptable to PBP and Lead Class Counsel, to perform termite
inspections at each Property.
e. The Agent shall assemble a bid package (the "Bid Package")
and provide it, as promptly as practicable following the entry of the
Preliminary Approval Order, to all persons, partnerships, trusts or other
entities identified by the Agent, PBP or the Spanos General Partners which the
Agent believes to have the financial ability and legal capacity to prepare and
submit a bona fide bid in the Auction and to undertake and perform all
obligations arising upon acceptance of any bid they may submit, providing that
each bidder must first execute the confidentiality agreement described in
subparagraph 58(d)(1)
<PAGE>
24
above. The Bid Package shall include bidding instructions, a bid form, a copy
of a basic sales contract that the Successful Bidder(s) will be asked to
execute, substantially in the form of Exhibit D hereto (the "Basic Sales
Contract"), and due diligence materials, including:
(1) Descriptions and photographs of the Properties;
(2) Such environmental, engineering and termite reports as
may have been obtained for the Properties;
(3) Detailed operating statements for each Property for the
last three full calendar years;
(4) Audited consolidated operating statements for each of
the Spanos Public Partnerships for the past three full calendar years (or the
most recent available drafts if audits have not been completed for the most
recent year);
(5) The rent rolls of the Properties;
(6) Copies of the forms of the lease agreements and
schedules of current lease rates and lease expirations for each Property;
(7) Descriptions of all capital type improvements of all
assets reflected in the operating statements for the last three full calendar
years;
<PAGE>
25
(8) Schedules of required and planned capital improvements,
renovations and repairs;
(9) Summaries of all mortgages encumbering the Properties,
including specific explanations of all prepayment and assumption terms and
conditions for each mortgage;
(10) Such Property-level budgets as may exist for each
Property, together with all Property-level contracts not cancelable on 30 days'
notice; and
(11) Such other materials as the Agent may reasonably
determine to be useful and appropriate in soliciting bids, including, in the
Agent's discretion, materials suggested for inclusion by PBP, Lead Class Counsel
and the Spanos General Partners.
f. The Bid Packages shall instruct the bidders that bids must
be submitted on the bid form included in the Bid Package, and may be submitted
in either or both of the following manners:
(1) for all of the Properties of either of the Spanos
Public Partnerships (the "Overall Bids"); or
(2) for any one or more of the Properties of either of the
Spanos Public Partnerships (the "Individual Bids"). An Individual Bid may cover
(a) one or more Properties of Spanos Genesis, or (b) one or more
<PAGE>
26
Properties of Spanos Realty, but a single Individual Bid may not cover
Properties of both Spanos Public Partnerships. For example, a single Individual
Bid may cover three Properties of Spanos Genesis, but may not cover two
Properties of Spanos Genesis and one Property of Spanos Realty.
g. Where one of the Spanos Public Partnerships owns both a
parcel of land and the buildings or other improvements thereon, the land and the
improvements shall together constitute one Property. Where Spanos Genesis owns
the land and the Spanos Defendants or their affiliates have made the buildings
and other improvements thereon available for sale in the Auction in accordance
with subparagraph 58(c) above, each such parcel of land, together with the
buildings and other improvements thereon, shall together constitute one
Property. All bids for more than one Property of Spanos Genesis must separately
state the price allocated to each Property. Bids must be all cash or, in the
alternative, cash in addition to assumption of the mortgage(s) on the closing
date (providing said mortgage(s) are assumable), with the bidder(s) paying all
assumption and other fees occasioned by the assumption of the mortgage(s). In
the event of all-cash bids, the bidder(s) must pay any mortgage prepayment
penalties and fees connected with
<PAGE>
27
reconveyancing. The Bid Packages and bid forms shall instruct the bidders that
evidence of financing must be provided, that the Properties will be sold "as is"
at closing, that no representations and warranties, other than as to authority,
will survive the closing, and that any changes requested by a bidder to the
Basic Sales Contract (which must be described in the bid) may result in that bid
being viewed less favorably than an otherwise similar bid by a bidder willing to
execute the Basic Sales Contract.
h. The Agent shall select a date on which the Agent shall begin
accepting Bids on the Properties (the "Bid Opening Date"), which shall not be
earlier than the Effective Date. The Agent shall provide bidders with not less
than 30 days and not more than 45 days thereafter (the "Initial Bid Period")
within which to conduct further due diligence and submit all preliminary written
bids. The Spanos General Partners agree to assist in accommodating all
reasonable due diligence requests, which may include:
(1) Review of the books and records of the Spanos Public
Partnerships, and of the individual Properties, including rent rolls and
operating statements for the past three calendar years, operating budgets for
the current calendar year, and such other documentation as is
<PAGE>
28
reasonably necessary to verify the income and expenses of the Properties;
(2) Interviews of the management of the Spanos Public
Partnerships and of the individual Properties, including property managers,
superintendents and leasing agents; and
(3) On-site inspections of the Properties, subject to
reasonable notice to the Agent and, at the Agent's discretion, accompanied by a
representative of the Agent.
i. On the Bid Opening Date, one or more of the Spanos
Defendants, or one or more affiliates thereof, shall submit preliminary written
Overall Bids which will produce a gross cash price to Spanos Genesis of not less
than Twenty Million Five Hundred Sixty Thousand Dollars ($20,560,000) in excess
of all existing mortgages, and a gross cash price to Spanos Realty of not less
than Twenty-Two Million Four Hundred Forty Thousand Dollars ($22,440,000) in
excess of all existing mortgages, for an aggregate gross cash price to the
Spanos Public Partnerships of not less than Forty-Three Million Dollars
($43,000,000) in excess of all existing mortgages to the Spanos Public
Partnerships. In addition, the Spanos Defendants or their affiliates shall
submit preliminary written Individual Bids
<PAGE>
29
for each Property in amounts such that the aggregate gross cash price to Spanos
Genesis of the Individual Bids for the Properties of Spanos Genesis is not less
than Twenty Million Five Hundred Sixty Thousand Dollars ($20,560,000) in excess
of all existing mortgages and the aggregate gross cash price to Spanos Realty of
the Individual Bids for the Properties of Spanos Realty is not less than Twenty-
Two Million Four Hundred Forty Thousand Dollars ($22,440,000) in excess of all
existing mortgages.
j. At the close of the Initial Bid Period, the Agent shall
review the results of the preliminary bids with PBP and Lead Class Counsel,
together with the evidence of financing provided, and shall provide pricing
guidance and encourage the bidders (including the Spanos Defendants or their
affiliates who have submitted preliminary written bids) to increase their bids
by the Rebid Deadline, which shall be a date, determined by the Agent and
acceptable to PBP and Lead Class Counsel, which is not more than 30 days after
the close of the Initial Bid Period. In the event that the Spanos Defendants or
their affiliates choose not to increase their preliminary written bids, as
described in subparagraph 58(i) above, those preliminary written bids must
remain open through the closing of the sales of the Properties and shall be
considered final bids. In the event
<PAGE>
30
that the Spanos Defendants or their affiliates choose to submit one or more
increased bids, such increased bids must remain open through the closing of the
sales of the Properties and shall be considered final bids. If the Spanos
Defendants or their affiliates are selected as the Successful Bidder(s), they
shall execute the Basic Sales Contract, with respect to each of their Successful
Bids, without changes.
k. At the Rebid Deadline, the Agent shall review all final bids
with PBP and Lead Class Counsel, who shall jointly determine the Successful
Bids. The Successful Bid(s) with respect to each of the Spanos Public
Partnerships shall be the bid(s) which, in the judgment of PBP and Lead Class
Counsel, will produce the highest gross cash price to each in excess of existing
mortgages. In no event shall PBP and Lead Class Counsel select, as the
Successful Bids, bids which produce a gross cash price to Spanos Genesis or
Spanos Realty, in excess of existing mortgages, which is less than the gross
cash price in excess of existing mortgages produced by the final bids submitted
by the Spanos Defendants or their affiliates.
l. The Agent shall immediately notify the Successful
Bidders and enter into contract negotiations (if necessary) until the contracts
are acceptable to the
<PAGE>
31
Successful Bidder(s), PBP and Lead Class Counsel. In the event that a bidder
fails or refuses for any reason to execute a sales contract at the price and on
the terms selected as its Successful Bid, or to close the sale thereafter, PBP
and Lead Class Counsel shall substitute as the Successful Bid(s) for the
Property or Properties in question the bid(s) producing the next highest gross
cash price for said Property or Properties in excess of existing mortgages. All
final contracts shall contain a clause whereby Spanos Genesis or Spanos Realty,
as the case may be, shall be entitled to terminate the contract without further
obligation if as a result of any adjustments or reductions the gross cash price
to the selling partnership, in excess of existing mortgages, falls below the
gross cash price, in excess of existing mortgages, that would be produced by the
final bid(s) submitted by the Spanos Defendants or their affiliates.
59. Upon the closing of the sales resulting from the Auction, the
proceeds of the Auction shall be received by the respective Spanos Public
Partnership and PBP shall cause such proceeds to be invested in money market or
similar conservative and temporary investments.
a. Within ten (10) business days after the closing of the last
Property sale, PBP and the Spanos
<PAGE>
32
General Partners shall cause the respective Spanos Public Partnerships:
(1) to pay all costs associated with the Auction and Proxy
Solicitation for which bills have been received;
(2) to estimate and reserve all costs associated with the
Auction and Proxy Solicitation for which bills have not yet been received;
(3) to provide a further contingency reserve for potential
unforeseen costs in an amount not to exceed One Million Dollars ($1,000,000) for
each Spanos Public Partnership and for a period not to exceed one year.
b. Within ten (10) business days after the payments and
reserves specified in subparagraph (a) have been made, PBP and the Spanos
General Partners shall cause the respective Spanos Public Partnerships to
distribute:
(1) first, to Class Counsel Co-Chairmen on behalf of Lead
Class Counsel and as attorneys for the Equitable Class, such amount as has been
awarded by the Court pursuant to paragraph 78 hereof;
(2) next, to the General Partners, Limited Partners and
Spanos Genesis Special Limited Partners or Spanos Realty Subordinated Limited
Partners (as the case may be), the remaining assets of the Spanos Public
<PAGE>
33
Partnerships, in accordance with the provisions of the Spanos Genesis
Partnership Agreement or the Spanos Realty Partnership Agreement (as the case
may be), including paragraph 19.2 of the respective partnership agreements.
c. If at the time of the distribution to Lead Class Counsel, as
contemplated in subparagraph (b)(1) above, Lead Class Counsel has not obtained a
final award of attorneys' fees from the Court with respect to the Equitable
Class, then PBP and the Spanos General Partners shall deduct, pro rata from the
proceeds received by Spanos Genesis and Spanos Realty, respectively, for the
sale of the Properties, an amount equal to the aggregate amount of the fees and
reimbursement of expenses applied for by Lead Class Counsel in connection with
the settlement with the Equitable Class pursuant to paragraph 78 hereof, and
shall place such aggregate amount in an interest bearing escrow account (the
"Fee Escrow") at a bank to be designated by Class Counsel Co-Chairmen or their
designee, to be administered jointly by Class Counsel Co-Chairmen and the Spanos
General Partners. Within five (5) business days following the date on which the
order awarding fees and reimbursing expenses to plaintiffs' counsel with respect
to the settlement with the Equitable Class becomes final, the amount of fees and
reimbursement of expenses awarded by the Court shall be paid
<PAGE>
34
to Class Counsel Co-Chairmen. Any monies remaining in the Fee Escrow after
payment of the amounts awarded by the Court shall be returned to the Spanos
Public Partnerships and shall thereafter be distributed in accordance with
paragraph 59(e) below.
d. To the extent that any costs associated with the Auction or
the Proxy Solicitation are not individually charged or allocated to a specific
Spanos Public Partnership, and unless a more equitable method of allocation can
be determined jointly by Lead Class Counsel, PBP and the Spanos General
Partners, such unallocated costs shall be apportioned between Spanos Genesis and
Spanos Realty in proportion to the gross cash amount in excess of all existing
mortgages paid to each of them as a result of the Auction.
e. Upon completion of the distributions provided for in
subparagraph (b) above, PBP and the Spanos Genesis Partnership shall proceed
with the orderly dissolution, termination and winding up of the Spanos Public
Partnerships, including distribution of all reserved funds, in accordance with
paragraph 19.2 and all other relevant provisions of the Spanos Genesis
Partnership or the Spanos Realty Partnership Agreement (as the case may be) and
Delaware law.
<PAGE>
35
60. The Spanos Defendants, at their sole discretion, shall have the
right, but not the obligation, to terminate this Settlement if:
a. Requests for exclusion from the Monetary Class are validly
filed by persons otherwise entitled to be Monetary Class Members, who purchased
Units having an aggregate original purchase price equal to or greater than the
dollar amount specified in a certain letter of the same date as this Settlement
Agreement, signed by counsel for the Spanos Defendants and delivered to Class
Counsel Co-Chairmen contemporaneously with the execution of this Settlement
Agreement. Lead Class Counsel shall provide counsel for the Spanos Defendants
with an accurate list, at least seven (7) business days prior to the Settlement
Fairness Hearing, of the persons that have requested exclusion from the Class.
The Spanos Defendants shall exercise their rights under this subparagraph (a),
if at all, by 5:00 p.m. Eastern time on the third business day prior to the
Settlement Fairness Hearing.
b. The Court fails or declines to enter the Preliminary
Approval Order, substantially in the form of Exhibit A hereto, on or before
June 11, 1997. The Spanos Defendants shall exercise their rights under this
subparagraph (b), if at all, on or before June 12, 1997.
<PAGE>
36
c. The Court fails or declines to enter the Order and Final
Judgment, substantially in the form of Exhibit B hereto, within 180 days after
the date of the Settlement Fairness Hearing. The Spanos Defendants shall
exercise their rights under this subparagraph (c), if at all, within the shorter
time period of (i) 200 days after the date of the Settlement Fairness Hearing,
if the Court has not yet ruled on the request to enter the Order and Final
Judgment, or (ii) ten (10) business days after the Court enters a decision on
the record declining to enter the Order and Final Judgment.
d. The Court enters an Alternative Judgment. The Spanos
Defendants shall exercise their rights under this subparagraph (d), if at all,
within five (5) business days after receipt of notice of entry of the
Alternative Judgment. In the event that the Spanos Defendants timely exercise
their rights under this subparagraph (d), Lead Class Counsel and the Spanos
Defendants shall jointly apply to the Court for an order vacating the
Alternative Judgment.
e. The Romano action (as defined in paragraph 49 above) is not
------
dismissed with prejudice with respect to the Spanos Defendants and their
affiliates named as defendants in Romano. The Spanos Defendants shall
------
<PAGE>
37
exercise their rights under this subparagraph (e), if at all, by 5:00 p.m.
Eastern time on the third business day prior to the Settlement Fairness Hearing.
61. Any of the Spanos Defendants or Class Representatives, at their
sole discretion, shall have the right to terminate this Settlement if the
requisite consent of the Limited Partners of both Spanos Genesis and Spanos
Realty is not obtained for the Auction and the subsequent termination and
dissolution of Spanos Genesis and Spanos Realty. The parties shall exercise
their rights under this paragraph 61, if at all, by 5:00 p.m. Eastern time on
the third business day prior to the Settlement Fairness Hearing.
GENERAL SETTLEMENT TERMS
------------------------
62. The Order and Final Judgment shall provide for the release of
the Spanos Defendants and the other Released Parties from all Settled Claims by
the Monetary Class Members, and shall provide for the release of the Spanos
Defendants, other Released Parties and the PBP Parties by the Equitable Class
Members to the extent set forth in paragraph 63 herein. Neither Monetary Class
Members nor Equitable Class Members will be required to sign a separate release.
Monetary Class Members will not be required to execute any Proof of Claim
separate from that submitted in connection with the PSI Settlement. If final
<PAGE>
38
approval of the Settlement is obtained, Lead Class Counsel, with the assistance
of the Claims Administrator, shall oversee the distribution of the Spanos Net
Settlement Pool to Monetary Class Members in accordance with this Settlement
Agreement and the Plan of Allocation previously filed in this action.
63. The Order and Final Judgment shall provide the following release
and bar order in favor of the Spanos Defendants, other Released Parties and the
PBP Parties:
Each Equitable Class Member hereby remises, releases and forever
discharges each of the Released Parties of and from, and hereby shall
be forever barred, restrained and enjoined from commencing or
prosecuting any claim, action or proceeding based upon or concerning
the same or similar allegations made in the Consolidated Complaint
that seeks equitable relief different from that provided in the
Settlement Agreement as approved by the Order and Final Judgment.
Each Equitable Class Member hereby further remises, releases and
forever discharges each of the Released Parties, together with the PBP
Parties, of and from, and hereby shall be forever barred, restrained
and enjoined from commencing or
<PAGE>
39
prosecuting any and all claims, rights, causes of action, losses or
liabilities whatsoever, whether based on federal, state, local,
statutory or common law or any other rule or regulation, including
both known and unknown claims, that have been, could have been, or in
the future might be asserted in any forum by the Equitable Class
Members or any of them, or the successors and assigns of any of them,
whether directly, indirectly, representatively, derivatively or in any
other capacity, against any of the Released Parties or the PBP
Parties, arising out of or relating to the terms of the Settlement
with the Equitable Class and any action taken in conformity therewith,
including, without limitation, the Proxy Solicitation, and, if the
requisite consents are obtained, the Auction and the subsequent
termination and dissolution of the Spanos Public Partnerships, that
each such Equitable Class Member has, may have or in the future may
have from the beginning of the world up through the date the
dissolution and termination of the Spanos Public Partnerships is
completed; provided, however, that the release and bar order provided
<PAGE>
40
in this sentence shall extend only to acts and omissions that are
consistent with the terms and conditions of the Order and Final
Judgment (including, without limitation, such terms and conditions of
this Settlement as receive Court approval) and provided further that
nothing herein shall prevent the Equitable Class Members, or any of
them, from asserting claims, rights or causes of action for violations
of or to enforce this Settlement Agreement.
64. The Class Representatives, for themselves and the Monetary Class
Members, hereby covenant and agree not to sue any of the Released Parties on and
hereby remise, release and forever discharge each of the Released Parties of and
from the Settled Claims. The Class Representatives, for themselves and the
Monetary Class Members, further covenant and agree that the Order and Final
Judgment shall expressly and forever bar, restrain and enjoin the Monetary Class
Members from commencing or prosecuting any claim, action, arbitration or
proceeding respecting the Settled Claims against the Released Parties.
65. The Class Representatives, for themselves and the Monetary Class
Members, agree that they will not settle their claims against any Non-Settling
Defendant unless such
<PAGE>
41
settlement contains a provision whereby such Non-Settling Defendant shall,
contemporaneously with the settlement with the Class Representatives, exchange
reciprocal releases with the Spanos Defendants and the Released Parties for all
claims by way of contribution or indemnification which relate to or arise out of
the Settled Claims. The Spanos Defendants and the Released Parties each further
agree, without any further consideration, to execute and exchange reciprocal
releases with the PSI Settling Defendants and any Non-Settling Defendants with
whom the Class Representatives have settled or ultimately settle, for all claims
which relate to or arise out of the Settled Claims, except claims relating to
normal and ordinary business relationships (including claims for payments due to
any Spanos Defendants or the PSI Settling Defendants by reason of their status
as investors or partners in any of the Partnerships). Lead Class Counsel hereby
covenant and agree to request, pursuant to paragraph 31 of the PSI Settlement
Agreement, that the PSI Settling Defendants exchange reciprocal releases with
the Spanos Defendants as set forth therein.
66. The Class Representatives, the Monetary Class and each of the
Monetary Class Members shall take the following steps to discharge and release
any liability on the part of the Released Parties for (i) contribution or
<PAGE>
42
(ii) indemnification under any pre-existing written contract calling for any
Released Party to indemnify other parties to such contract for liability based
on the acts of such Released Party ("Spanos Act Indemnification"): The Class
Representatives, the Monetary Class and each of the Monetary Class Members shall
reduce any judgment with respect to Settled Claims which they obtain against any
other person or entity by the amount, percentage or share of such judgment
determined by final non-appealable order to be attributable to the conduct of
the Released Parties so as to discharge and release under applicable law any
claims for contribution or for Spanos Act Indemnification against the Released
Parties arising from or related to such Settled Claims. It is a condition to
the Settlement that the Order and Final Judgment shall contain a provision
giving effect to the matters set forth in this paragraph and that the Court will
have exclusive jurisdiction to hear any dispute with respect to any such matter.
67. The parties shall use their best efforts to assure that the Order
and Final Judgment provides (i) that each of the Non-Settling Defendants and the
PSI Settling Defendants who may assert a claim against any of the Released
Parties based upon, relating to, or arising out of the Settled Claims, shall be
permanently barred, enjoined
<PAGE>
43
and restrained from commencing, prosecuting, or asserting any claim or claims
with respect to such matters for contribution or for Spanos Act Indemnification
against the Released Parties, or any of them, as claims, cross-claims,
counterclaims, or third party claims in this action or in any other court,
arbitration proceeding, administrative agency or forum, or in any other manner,
including but not limited to offset; (ii) that all such claims shall be
extinguished, discharged, satisfied, barred and rendered unenforceable; and
(iii) that the Court shall have exclusive jurisdiction over any such claim that
may be asserted.
68. If the Settlement is terminated in accordance with this
Settlement Agreement, the Settlement Pool, together with any interest earned
thereon, less such costs and expenses of notice and administration and taxes as
may have been actually incurred prior to the date of termination shall be
returned to the Spanos Defendants. In no event, however, shall any disbursements
except for taxes be made from the Settlement Pool after the termination of this
Settlement absent a Court order entered after notice to the Spanos Defendants
and an opportunity for the Spanos Defendants to be heard.
69. This Settlement Agreement and any document which is executed
pursuant hereto (other than reciprocal
<PAGE>
44
releases, if any, executed pursuant to paragraph 65 of this Settlement
Agreement) is not intended to be and shall not be construed as a release or
dismissal by the Class Representatives, the Monetary Class, any Monetary Class
Member, the Equitable Class, any Equitable Class Member or the Released Parties
of any claims or rights against any Non-Settling Defendant or any other person
not a Party to this Settlement Agreement (except the Released Parties and, to
the extent provided in paragraph 63, the PBP Parties). The Class
Representatives, the Released Parties, the Monetary Class, the Equitable Class
and the respective members thereof and the Spanos Defendants expressly reserve
all of their rights and claims against any and all Non-Settling Defendants and
any and all other persons that are not Parties to this Settlement Agreement or
Released Parties or (to the extent provided in paragraph 63) PBP Parties.
70. Whether or not approved or consummated, neither this Settlement
Agreement, nor any negotiations or proceedings related hereto, nor any of the
documents or statements referred to herein, shall be:
a. Construed as or deemed in any judicial, administrative,
arbitration or other type of proceeding, to be evidence of a presumption,
concession, or an admission by any of the Released Parties of the truth of any
fact alleged
<PAGE>
45
or of the validity of any claim asserted in the Consolidated Complaint or
otherwise against the Released Parties, or of any liability, fault or wrongdoing
of the Released Parties; or
b. Offered or received in evidence in any judicial,
administrative, arbitration or other type of proceedings for any purpose
whatsoever, including, but not limited to, as a presumption, concession or an
admission of any liability, wrongdoing, fault, misrepresentation or omission in
any statement, document, report, or financial statement heretofore or hereafter
issued, filed, approved or made by any of the Released Parties or otherwise
referred to for any other reason, other than for the purpose of and in such
proceeding as may be necessary for construing, terminating or enforcing this
Settlement Agreement; or
c. Construed as a concession or an admission that the Class
Representatives or the Monetary Class or the Equitable Class have suffered any
damage or are entitled to any other remedy; or
d. Construed as or received in evidence as an admission,
concession or presumption against the Class Representatives, the Monetary Class
or the Equitable Class or any of them that any of their claims are without merit
or that damages recoverable under the Consolidated Complaint do
<PAGE>
46
not exceed the amounts provided for in this Settlement Agreement.
CLASS CERTIFICATION, CLASS
NOTICE AND SETTLEMENT FAIRNESS HEARING
--------------------------------------
71. Pursuant to Rule 23 of the Federal Rules of Civil Procedure, at a
mutually agreeable time after this Settlement Agreement has been executed, Lead
Class Counsel and counsel for the Spanos Defendants shall jointly submit this
Settlement Agreement to the Court for approval and shall move for entry by the
Court of the Preliminary Approval Order.
72. The Spanos Defendants consent to the certification of the
Monetary Class under Rule 23(a) and (b)(3) of the Federal Rules of Civil
Procedure for settlement purposes only and agree to support Lead Class Counsel's
motion to certify the Monetary Class for the purposes of the Settlement. In the
event that the Settlement is not consummated for any reason, this consent to
certification of the Monetary Class shall be null and void ab initio and not
-- ------
relied upon by any person for any purpose.
73. The Spanos Defendants consent to the certification of the
Equitable Class under Rule 23(a), (b)(1) and (b)(2) of the Federal Rules of
Civil Procedure for settlement purposes only and agree to support Lead Class
<PAGE>
47
Counsel's motion to certify the Equitable Class for the purposes of the
Settlement. In the event that the Settlement is not consummated for any reason,
this consent to certification of the Equitable Class shall be null and void ab
--
initio and not relied upon by any person for any purpose.
- ------
74. The Monetary Class and the Equitable Class shall be notified
pursuant to F.R.Civ.P. 23(c)(3) of the proposed Settlement by, respectively, the
Monetary Class Notice and Equitable Class Notice (which will be accompanied by
the applicable proxy materials), which Monetary Class Notice and Equitable Class
Notice shall be sent to Monetary Class Members and Equitable Class Members,
respectively, in a manner consistent with the Preliminary Approval Order.
75. Monetary Class Members shall have such time as the Court shall
order to request exclusion from participation in the Settlement by opting-out of
the Monetary Class. Persons or entities who exclude themselves from the
Monetary Class in accordance with the provisions of the Preliminary Approval
Order and Monetary Class Notice will preserve their individual litigation claims
for money damages, if any, and will not participate in any monetary settlement
benefits under this Settlement Agreement. There shall be no exclusion requests
permitted with respect to the
<PAGE>
48
Equitable Class, and a member of both the Monetary Class and the Equitable Class
who opts out of the Monetary Class shall, nevertheless, remain a member of the
Equitable Class and be bound by the terms of the Settlement applicable to
Equitable Class Members.
76. The Class Representatives and the Spanos Defendants shall request
the Court to conduct a Settlement Fairness Hearing approximately two weeks after
the anticipated receipt of the requisite consents in response to the Proxy
Solicitation, or at such other time as the Parties may jointly agree. All
Monetary Class Members and Equitable Class Members shall be given the
opportunity to enter an appearance at the Settlement Fairness Hearing
individually or through counsel. The procedures by which Monetary Class Members
and Equitable Class Members may participate at the Settlement Fairness Hearing
shall be described in the Monetary Class Notice and the Equitable Class Notice.
If this Settlement Agreement (including any modification hereto made with the
written consent of Lead Class Counsel and counsel for the Spanos Defendants as
provided for herein) is thereafter approved by the Court following such hearing,
the Court shall be asked to enter the Order and Final Judgment.
ATTORNEYS' FEES AND EXPENSES
----------------------------
<PAGE>
49
77. Lead Class Counsel have stated their intention to apply to the
Court one or more times for an award of attorneys' fees and reimbursement of
litigation expenses and reasonable costs with respect to their work on behalf of
and the benefits conferred upon the Monetary Class, including additional
attorneys' fees incurred in the administration of the Settlement, and for
interest on such sums at the same rate as earned by the Settlement Pool. Any
such fees and expenses, together with interest thereon, as may be awarded by the
Court and, subject to any reserve directed by the Court, shall be paid solely
out of the Settlement Pool within five business days after the later of (i) the
Effective Date or (ii) if an appeal is taken from such fee order, when the award
by the Court of fees and expenses pursuant to this paragraph is affirmed on
appeal or when any such appeal is dismissed or when by lapse of time the award
is no longer subject to appeal. Except as provided for in this Settlement
Agreement, neither the Spanos Defendants nor any of the Released Parties will
bear any expenses, costs, damages or fees incurred by any Monetary Class Members
or Equitable Class Members or by any of their attorneys, experts, advisors,
agents or representatives. Lead Class Counsel agree to serve counsel for the
Spanos Defendants with a copy of all applications
<PAGE>
50
they make for fees and expenses under this Stipulation at least five days prior
to the date such application will be heard.
78. In addition to the attorneys' fees applications described in
paragraph 77 above, Lead Class Counsel may apply to the Court for an award of
attorneys' fees and reimbursement of litigation expenses and reasonable costs
with respect to their work on behalf of and the benefits conferred upon the
Equitable Class. Lead Class Counsel agree that their application for an award
under this paragraph shall not exceed the sum of Five Hundred Thousand Dollars
($500,000) plus eight percent (8%) of the amount that would otherwise (i.e., in
the absence of any fee award) be distributed to the Limited Partners of Spanos
Genesis and Spanos Realty from the proceeds of the sales of the Properties. The
first Five Hundred Thousand Dollars ($500,000) of any such award shall be paid
by the Spanos Defendants to Class Counsel Co-Chairmen on behalf of Lead Class
Counsel within five (5) business days after the Court's award has become final.
The balance of such award shall be paid solely by the Spanos Public Partnerships
pursuant to paragraph 59(b)(1) and 59(c) hereof, pro rata in accordance with the
proceeds of the Auction to the Spanos Public Partnerships or as the Court shall
otherwise direct.
<PAGE>
51
MISCELLANEOUS
-------------
79. The parties shall request that the Court retain exclusive
jurisdiction over the interpretation, administration, effectuation and
enforcement of the Settlement and over the Parties, All Class Members, the PSI
Settling Defendants, the PBP Parties and the Non-Settling Defendants in
connection therewith, and with respect to such other matters as may properly
come before it. The Parties, the PBP Parties and All Class Members waive any
objection which each may have or hereafter may have to the venue of any such
suit, action or proceeding and irrevocably consent to the jurisdiction of the
Court in any such suit, action or proceeding.
80. Any order, proceeding, dispute or appeal which solely affects the
allowance or disallowance by the Court of any application(s) for attorneys'
fees, costs, expenses (including the fees and costs of experts), and interest,
and does not in any way otherwise affect the Order and Final Judgment, shall not
operate to terminate or cancel this Settlement Agreement.
81. The Spanos Defendants agree to reasonably cooperate in the Class
Representatives' continued prosecution of the litigation against the Non-
Settling Defendants, including the discovery of documents and the
<PAGE>
52
interview or deposition of witnesses under the Spanos Defendants' control, and
to be subject to discovery requests as if they were still parties herein.
82. The Spanos Defendants will provide Lead Class Counsel or the
Claims Administrator, on request, with all information reasonably available to
them concerning the identities and last known addresses of all members of the
Monetary Class and the Equitable Class; the transactions of Monetary Class
Members during the Settlement Class Period; the distributions made to the
members of the Monetary Class by the Spanos Partnerships; and the eligibility of
any claimant to participate in the distribution of any portion of the Settlement
Pool or the Auction proceeds. Such information will be provided without charge.
83. If a case under Title 11 of the United States Code (Bankruptcy),
or any other bankruptcy, insolvency or similar proceeding is commenced with
respect to any Spanos Defendant who has actually made a payment to the
Settlement Pool in satisfaction of the Cash Settlement Amount and in the event
of the entry of a final order of a court of competent jurisdiction determining
the transfer of such money to the Settlement Pool or any portion thereof to be a
preference, fraudulent transfer or other voidable transaction and the Settlement
Pool or any portion thereof
<PAGE>
53
is required to be returned, and such amount is not promptly repaid to the
Settlement Pool, then, at the election of Lead Class Counsel (who may also elect
to seek to enforce this Settlement and the payment of the balance of the Cash
Settlement Amount from other Spanos Defendants), the Parties shall jointly move
the Court to vacate and set aside the releases given by the Monetary Class
Members and judgment with respect to them entered in favor of the Spanos
Defendants pursuant to this Settlement Agreement, which releases and judgment
shall be null and void, and the Parties shall be restored to their respective
positions in the litigation as of the date a day prior to the date of this
Settlement Agreement and any portion of the Cash Payment remaining in the
possession of Lead Class Counsel shall be returned to the Spanos Defendants
and/or any bankruptcy trustee, receiver or similar official (as applicable).
Lead Class Counsel shall elect to vacate this Settlement by sending written
notice of such election to counsel for the Spanos Defendants within sixty (60)
days of the entry of any such final order. Notwithstanding any of the
foregoing, if one or more of the Spanos Defendants was a Successful Bidder in
the Auction and the only claim by the bankruptcy trustee, receiver or other
similar official relates to the payment by such Spanos Defendant for one or
<PAGE>
54
more of the Properties, the Class Counsel Co-Chairmen may, at their option,
declare the Spanos Defendant to be disqualified as the Successful Bidder, and
direct the Agent to accept the bid of the next highest bidder for the Property
or Properties, and, in such event, elect to proceed with the Settlement.
84. The parties intend this Settlement to be a final and complete
resolution of all disputes asserted or which could be asserted by Monetary Class
Members against the Released Parties with respect to the Settled Claims and by
Equitable Class Members to the extent provided in paragraph 63 above.
Accordingly, the Spanos Defendants agree not to assert in any public forum that
litigation was brought in bad faith or without a reasonable basis. The Parties
agree that the amount to be paid to the Settlement Pool and the other terms of
the Settlement were negotiated at arm's length in good faith by the Parties and
reflect a settlement that was reached voluntarily after consultation with
experienced legal counsel.
85. Subject to the termination provisions hereof, this Settlement
Agreement shall be binding upon and inure to the benefit of the Parties, All
Class Members, the Released Parties and their respective heirs, successors and
assigns.
<PAGE>
55
86. Without further order of the Court, the Parties may agree to
reasonable extensions of time to carry out any of the provisions of this
Settlement Agreement.
87. This Settlement Agreement constitutes the entire agreement of the
Parties with regard to the subject matter hereof and all prior agreements and
negotiations relative to such subject matter. Except for those provisions in
this Settlement Agreement that expressly provide for waiver of any term or
condition by less than all Parties, this Settlement Agreement may not be amended
or any of its provisions waived except by a writing executed by or on behalf of
all Parties affected thereby.
88. None of the Parties shall be considered to be the draftsperson of
this Settlement Agreement for the purpose of any statute, case law or rule of
interpretation or construction resolving ambiguities against the draftsperson
thereof.
89. This Settlement Agreement may be executed in counterparts, each
of which, when so executed and delivered, shall be an original. The executed
signature page(s) from each actual counterpart may be joined together and
attached to one such original which shall then constitute one and the same
instrument.
<PAGE>
56
90. This Settlement Agreement shall be governed by the law of the
State of New York without regard to the choice of law rules of such state.
91. The Parties and their attorneys agree to cooperate to effect
promptly the consummation of this Settlement Agreement and the Settlement
provided for herein.
92. The waiver by any Party of any breach of this Settlement
Agreement shall not be deemed or construed as a waiver of any other breach,
whether prior, subsequent, or contemporaneous, of this Settlement Agreement.
93. Upon termination of this Settlement Agreement, all promises,
agreements and stipulations contained herein shall be null and void ab initio
-- ------
and of no further force or effect and shall not be used for any purpose in these
proceedings (including, without limitation, any Constituent Action) or in any
other action or proceeding, except for the provisions of paragraph 70 of this
Settlement Agreement, which shall not be terminated.
94. The obligations of the Parties under this Settlement Agreement
shall be in full settlement, compromise, release and discharge by Monetary Class
Members of the Settled Claims against the Released Parties, and, to the extent
provided for herein, by Equitable Class Members of their claims against the
Released Parties and the PBP
<PAGE>
57
Parties. The Released Parties shall have no other or further liability or
obligation to Monetary Class Members with respect to the Settled Claims except
to fulfill the obligations created hereunder.
IN WITNESS WHEREOF, the Parties hereto have caused this Settlement
Agreement to be executed by their respective counsel on May 12, 1997.
GOODKIND LABATON RUDOFF
& SUCHAROW LLP
By: __________________________________
Lawrence A. Sucharow (LS 1726)
Joel H. Bernstein (JB 0763)
Joseph Sternberg (JS 4780)
Diane Zilka (DZ 9452)
100 Park Avenue
New York, New York 10017-5563
Telephone: (212) 907-0700
- and -
<PAGE>
58
MILBERG WEISS BERSHAD HYNES
& LERACH LLP
By: ___________________________________
Melvyn I. Weiss (MW 1392)
Sharon Levine Mirsky (SM 4505)
George A. Bauer III (GB 2919)
One Pennsylvania Plaza
New York, New York 10119
Telephone: (212) 594-5300
Class Counsel Co-Chairmen and on
behalf of the Executive Committee
of Plaintiffs' Counsel
FINKELSTEIN, THOMPSON & LOUGHRAN
Burton H. Finkelstein (BF 9519)
-------------------------------
Douglas G. Thompson Jr (DT 1567)
William P. Butterfield (WB 2939)
1055 Thomas Jefferson Street, N.W.
Suite 601
Washington, D.C. 20007
Telephone: (212) 337-8000
BONNETT, FAIRBOURN, FRIEDMAN,
HIENTON, MINER & FRY, P.C.
H. Sullivan "Van" Bunch (HB 0314)
4014 North Central, Suite 1100
Phoenix, AZ 85012
Telephone: (602) 274-1100
CHIMICLES JACOBSEN & TIKELLIS
Nicholas E. Chimicles (NC 8871)
Denise Davis Schwartzman (DS 0651)
One Haverford Center
361 West Lancaster Avenue
P.O. Box 100
Haverford, PA 19041-0100
Telephone: (610) 642-8500
DUKER, BARRETT & GRAVANTE
William F. Duker (WD 2554)
1585 Broadway
New York, New York 10036
Telephone: (212) 969-5600
- and -
<PAGE>
59
KRISLOV & ASSOCIATES LTD.
Clinton Krislov (CK 6519)
222 North LaSalle Street
Suite 810
Chicago, IL 60601
Telephone: (312) 606-0500
Executive Committee of
Plaintiffs' Counsel
FREEMAN, BROWN, SPERRY & D'AIUTO
By: _________________________________
Maxwell M. Freeman
1818 Grand Canal Blvd.
Stockton, California 95207
Telephone: (209) 474-1818
- and -
ORRICK HERRINGTON & SUTCLIFFE LLP
By: ___________________________________
Barbara Moses (BM 2952)
John F. Olsen (JO 8553)
666 Fifth Avenue
New York, New York 10103
Telephone: (212) 506-5000
Attorneys for the Spanos
Defendants
<PAGE>
60
ACKNOWLEDGEMENT AND AGREEMENT TO BE BOUND
-----------------------------------------
Prudential-Bache Properties, Inc. ("PBP"), on behalf of itself, its
predecessors, successors, officers, directors, employees, agents, attorneys,
parents, subsidiaries, affiliates and assigns, by and through its undersigned
attorneys, and in consideration for the releases set forth in the foregoing
Stipulation of Settlement with Spanos Defendants (the "Stipulation") hereby
acknowledges and agrees, subject to the approval of the Court, to be bound by
all provisions of the Stipulation that require action or forebearance or
evidence any agreement on the part of PBP, and agrees to perform all acts
required of it in such Stipulation or necessary in order to effectuate such
Stipulation as though PBP was a party to such Stipulation, including, without
limitation, the provisions set forth in paragraphs 58 and 59 thereof.
PBP has entered into this Acknowledgement and Agreement to be Bound
only after first obtaining all of the legal and professional advice that it
deemed necessary and appropriate.
<PAGE>
61
IN WITNESS WHEREOF, PBP has caused this Acknowledgement and Agreement
to be Bound to be executed by its counsel on May 12, 1997.
CAHILL GORDON & REINDEL
(a partnership including a
Professional Corporation)
By: ___________________________
Thomas J. Kavaler (TK 8517)
Mathias E. Mone (MM 5881)
Leonard A. Spivak (LS 6632)
80 Pine Street
New York, New York 10005
(212) 701-3000
Attorneys for Prudential-Bache
Properties, Inc.
<PAGE>
PRUDENTIAL-BACHE/A.G. SPANOS REALTY PARTNERS L.P., I
ONE SEAPORT PLAZA
NEW YORK, NEW YORK 10292
MARCH __, 1998
Dear Unitholders:
As you know, the Partnership was formed in 1988 to acquire, operate
and then ultimately dispose of a portfolio of eight apartment properties located
in five states. It was originally anticipated that the Partnership would
operate for seven to ten years and then sell the properties, although there is
no mandatory time frame in which the property sales must occur.
The Partnership is now in its tenth year of operations, and for some
time now, A.G. Spanos Realty Partners, L.P. ("Spanos") and Prudential-Bache
Properties, Inc. ("P-B Properties"), the General Partners of the Partnership,
have been considering when and how to effect the disposition of the properties
in the best interests of the Partnership. In addition, Spanos and certain of
its affiliates have been involved in discussions to resolve the claims against
them in certain class action litigation currently pending in federal district
court. Although the Partnership is not named as a defendant in this litigation,
it is included among numerous limited partnerships which are at issue in the
litigation. These discussions have culminated in a proposed settlement by
Spanos
<PAGE>
and its affiliates (the "Settlement") of the class action litigation, providing
for an integrated plan of action (the "Plan") to sell the eight properties and
distribute the net sale proceeds in liquidation of the Partnership. The United
States District Court for the Southern District of New York (the "Court") has
preliminarily approved the Settlement. Accompanying this letter is a copy of
the Notice to Equitable Class of Pendency of Class Action, Proposed Partial
Settlement of Class Action by the Spanos Defendants, Requirement for Majority
Consent to the Auction of the Properties of Certain Partnerships as Part of the
Spanos Settlement, Settlement Fairness Hearing, Right to Appeal at Hearing and
Right to Object to the Settlement (the "Class Notice"). Unitholders should
review carefully the Class Notice, in conjunction with this letter and the
enclosed Notice of Consent Solicitation and Statement Furnished in Connection
with the Solicitation of Consents (the "Solicitation Statement"). A copy of the
agreement regarding the Settlement will be sent without charge to any Unitholder
who so requests.
------------------------
IMPLEMENTATION OF CERTAIN ELEMENTS OF THE PLAN REQUIRES THE CONSENT OF
HOLDERS OF A MAJORITY OF THE UNITS, AND YOUR APPROVAL IS VERY IMPORTANT. Please
return your Consent card as soon as possible, because a failure to return a
Consent card has the same effect as a "No" vote.
------------------------
<PAGE>
Under the Plan, the properties will be sold at a public auction (the
"Auction") to be conducted by Ernst & Young LLP, an independent national public
accounting and consulting firm, through its E&Y Kenneth Leventhal Real Estate
Group ("Leventhal"). Pursuant to the demands of the plaintiffs in the
negotiations, under the proposed Settlement Spanos has agreed that it or one of
its affiliates will open the Auction by submitting an initial minimum bid so as
to guarantee the Partnership a gross aggregate sales price for all the
properties of at least $22,440,000 in excess of the mortgage debt outstanding.
Leventhal will then seek to obtain competing bids from other qualified bidders.
After an initial bidding period, Leventhal will review the bids received with P-
B Properties and the lead lawyers representing the plaintiffs in the class
action ("Lead Class Counsel"). (Since an affiliate of Spanos will be a bidder,
Spanos will not take any part in reviewing the bids or selecting the winner.)
Leventhal will thereafter re-solicit higher bids from the bidders, other than
Spanos or its affiliate. Following the re-bid period, Leventhal will report the
final bid results to P-B Properties and Lead Class Counsel, who will jointly
determine the successful bid or bids. Leventhal and P-B Properties will then
work toward consummating the sales with the successful bidder or bidders.
If the Plan is approved, it is anticipated that the property sales
will be consummated by mid-1998. As soon thereafter as practicable, the
Partnership will pay cash
3
<PAGE>
distributions to the Partners from the net sales proceeds after payment of all
expenses and liabilities of the Partnership and certain attorneys' fees, and the
establishment of a reserve account to cover unexpected claims. Any amount
remaining in the reserve account will be distributed to the Partners within
twelve months from the date of the final property closing, whereupon the
Partnership will be dissolved. Overall, the Plan is anticipated to result in
minimum liquidating distributions of approximately $13,520,000, or approximately
$43.00 per Unit, and would produce higher distributions if the Auction results
in sale prices higher than the Spanos initial minimum bid. For further
information, see the discussion under "THE PLAN -- Anticipated Results of
Auction, Use of Proceeds and Cash Distributions" in the enclosed Solicitation
Statement.
Spanos believes that the sale of the properties at this time would be
in the best interests of the Unitholders and recommends that you complete and
return the Consent card. Spanos bases its recommendation on, among other
things, the following factors:
. The Plan permits the properties to be sold within the originally
anticipated seven-to ten-year holding period and under market conditions which,
considering current mortgage interest rates and the availability of investor
capital, Spanos believes are favorable for the sale of multi-family properties.
4
<PAGE>
. The properties generally have shown a trend of improved
occupancies, revenues and net operating income over the past few years, which
Spanos believes enhances their salability.
. The court-approved Auction process provides a mechanism which
Spanos believes will enable the Partnership to sell the properties for the best
aggregate sale price obtainable at the date of sale under current market
conditions. Spanos has guaranteed that the Auction will generate an aggregate
gross sales price of at least $22,440,000 in excess of the Partnership's
aggregate mortgage balance, which after payment of expenses and certain
attorneys' fees will be distributed to the Unitholders, Subordinated Limited
Partners and General Partners as provided in the Partnership Agreement.
. By selling the properties now, the Partnership will eliminate the
risks inherent in the ownership of real property, including, among other things,
the decline in value that can occur as a result of rising interest rates,
increasing real estate investor expectations and changing competition factors in
local rental markets.
. The sale of the properties will provide liquidity to the
Unitholders. At present, there is no established public trading market for the
Partnership's Units, and liquidity has been limited to sporadic sales which
occur within an informal secondary market and two recent tender offers, each for
a limited number of Units, as described in the enclosed Solicitation Statement.
5
<PAGE>
. Spanos believes that older apartment buildings, even though well
maintained, can over time suffer a competitive disadvantage in attracting and
retaining tenants, as compared to new apartments with more modern amenities in
newer, attractive neighborhoods. For example, the two-bedroom, one-bath
configurations of many of the apartments in the properties is not as attractive
to prospective tenants as two-bedroom, two-bath configurations often found in
newer competing projects. The properties, therefore, may not be able to sustain
current revenue levels. Further, new apartment project construction has
commenced recently in several of the properties' market areas, as a result of
recent price increases for apartment projects and readily available financing
for such construction.
. In the opinion of Spanos, the properties are presently in good
repair, and it is advantageous to sell them before further aging and wear in the
ordinary course of business occurs, thereby requiring substantial cash
expenditures for costly repairs and refurbishments.
. The Partnership's liquidation will eliminate the annual Schedule
K-1 income tax reporting for the Partnership, which is often burdensome to
Unitholders.
Among the disadvantages which would result to Unitholders from the
approval of the Plan are the following:
. The Partnership will not benefit from possible future
improvements in economic and market conditions, which
6
<PAGE>
possibly could produce increased cash flow and enhance the sales price of the
properties.
. It is not anticipated that, upon receipt of the final liquidating
distributions, the Unitholders will have received aggregate distributions from
the Partnership which will equal the amounts originally invested in the
Partnership.
. No current independent appraisals of the Partnership's properties
have been obtained.
. No independent opinion or evaluation of the fairness of the Plan
has been obtained from any third party.
It should be noted that sale of the properties will eliminate any
future liability of the General Partners for Partnership liabilities and risks
to the Partnership which could arise from continued operation of the
Partnership. Moreover, the Plan is part of a Settlement by Spanos and its
affiliates of certain class action litigation brought against the General
Partners and others. P-B Properties previously settled the claims against it
and its affiliates. The current Settlement has been preliminarily approved by
the Court, and the Plan will not be implemented unless the Court issues a final
order finding that the Settlement is fair, reasonable, adequate and in the best
interests of the Unitholders. Neither of the General Partners will receive any
fees in connection with the sale of the properties or the termination and
liquidation of the Partnership. However, as provided in the Partnership
Agreement, the General Partners will be entitled to receive distributions of
7
<PAGE>
approximately $75,000 each, and the Subordinated Limited Partners, who are
affiliates of Spanos, will receive distributions of approximately $8,878,000.
The sale of the properties will result in elimination of the management fees and
special distributions which the General Partners presently receive.
The Plan will result in the sale of all of the properties within a 12-
month period and the subsequent termination and liquidation of the Partnership,
which is an action that must be approved by the Unitholders. Furthermore, since
it is possible that an affiliate of Spanos will be the successful bidder for one
or more of the properties in the Auction, the Plan requires an amendment to the
Partnership Agreement to permit such an affiliate to purchase the properties
from the Partnership. Accordingly, Spanos is soliciting the written consent of
each Unitholder to these elements of the Plan, which are more fully described in
the enclosed Solicitation Statement. Under the Partnership Agreement and
Delaware law, Unitholders do not have rights of appraisal or similar rights if
the Plan is approved.
P-B Properties, having previously settled the claims against it, is
not a party to the Settlement of the litigation described above, but it has
acknowledged the Settlement and agreed to be bound by certain provisions of the
Settlement which require that P-B Properties take, or forebear from taking,
certain actions in connection with the Plan. HOWEVER, P-B
8
<PAGE>
PROPERTIES IS MAKING NO RECOMMENDATION TO UNITHOLDERS AS TO WHETHER THEY SHOULD
APPROVE OR DISAPPROVE THE PLAN. THE ENCLOSED SOLICITATION STATEMENT IS BEING
FURNISHED TO YOU SOLELY BY SPANOS.
YOU ARE URGED TO READ CAREFULLY THE SOLICITATION STATEMENT IN ITS
ENTIRETY FOR A COMPLETE DESCRIPTION OF THE PLAN. If you have any questions,
please feel free to contact Robert Felton of Spanos at 1-800-985-6090.
Very truly yours,
A. G. SPANOS REALTY
PARTNERS, L.P.
General Partner
By AGS Financial Corporation,
General Partner
By: ____________________________________
Arthur J. Cole
President
By A.G. Spanos Realty Capital,
Inc., General Partner
By: ____________________________________
Arthur J. Cole
Vice President
9
<PAGE>
PRUDENTIAL-BACHE/A.G. SPANOS REALTY PARTNERS L.P., I
ONE SEAPORT PLAZA
NEW YORK, NEW YORK 10292
NOTICE OF CONSENT SOLICITATION
To the Unitholders of Prudential-Bache/A.G. Spanos Realty Partners L.P., I:
NOTICE IS HEREBY GIVEN to the holders (the "Unitholders") of the units
of limited partnership interest (the "Units") in Prudential-Bache/A.G. Spanos
Realty Partners L.P., I, a Delaware limited partnership (the "Partnership"),
that A.G. Spanos Realty Partners, L.P. ("Spanos") is soliciting written consents
(the "Consents") to approve a plan of action (the "Plan") which includes (i) the
sale of substantially all of the assets of the Partnership in a public auction,
(ii) the amendment of the Amended and Restated Agreement of Limited Partnership
of the Partnership to permit an affiliate of Spanos to bid for, and if
successful to purchase, one or more of the Partnership's real properties and
(iii) the complete termination and liquidation of the Partnership, resulting in
cash distributions to the Unitholders, Subordinated Limited Partners and General
Partners, all as more fully described in the accompanying Solicitation
Statement. Although the Plan is a single proposal which must be approved by
Unitholders holding a majority of the Units, Unitholders may indicate approval,
disapproval or abstention with respect to each of the three elements of the
Plan. However, the
<PAGE>
Plan will not be implemented unless Unitholders holding a majority of the Units
approve all three elements.
Only Unitholders of record at the close of business on March 1, 1998
are entitled to notice of the solicitation of Consents and to give their consent
to the Plan. In order to be valid, all Consents must be received before the
earlier of (a) the date upon which Spanos has received Consents from Unitholders
owning a majority of the outstanding Units or (b) 10:00 a.m. California time on
April 30, 1998 (unless such date or time is extended, in the sole discretion of
Spanos, by notice to all Unitholders). The approval will be obtained through
the solicitation of written Consents, and no meeting of Unitholders will be
held. Skinner & Co. has been retained as a soliciting agent, to assist Spanos
in soliciting Consents. A Consent may be revoked by written notice of
revocation or by a later dated action containing different instructions received
by Skinner & Co. at any time on or before the expiration of the time by which
the Consent card must be received.
2
<PAGE>
YOUR APPROVAL IS IMPORTANT. PLEASE READ THE SOLICITATION STATEMENT
CAREFULLY AND THEN COMPLETE, SIGN AND DATE THE ENCLOSED CONSENT CARD AND RETURN
IT IN THE SELF-ADDRESSED PREPAID ENVELOPE. Any Consent card which is signed and
does not specifically disapprove the Plan will be treated as approving the Plan.
Your prompt response will be appreciated.
Dated: March __, 1998 A.G. SPANOS REALTY PARTNERS,
L.P., General Partner
By AGS Financial Corporation,
General Partner
By _____________________________________
Arthur J. Cole
President
By A.G. Spanos Realty Capital,
Inc., General Partner
By _____________________________________
Arthur J. Cole
Vice President
3
<PAGE>
PRUDENTIAL-BACHE/A.G. SPANOS REALTY PARTNERS L.P., I
ONE SEAPORT PLAZA
NEW YORK, NEW YORK 10292
STATEMENT FURNISHED IN CONNECTION WITH THE
SOLICITATION OF CONSENTS
INTRODUCTION
- ------------
This Statement Furnished in Connection with the Solicitation of
Consents ("Solicitation Statement") is furnished to the holders ("Unitholders")
of units of limited partnership interest (the "Units") in Prudential-Bache/A.G.
Spanos Realty Partners L.P., I, a Delaware limited partnership (the
"Partnership"), in connection with the solicitation of written consents
("Consents") by A.G. Spanos Realty Partners, L.P. ("Spanos"), one of the general
partners of the Partnership, to approve (i) the auction and sale of
substantially all of the assets of the Partnership (the "Auction") pursuant to
paragraphs 15.4.19 and 19.1.4 of the Amended and Restated Agreement of Limited
Partnership of the Partnership (the "Partnership Agreement"), (ii) an amendment
to the Partnership Agreement to permit an affiliate of Spanos to bid for and, if
the successful bidder, to purchase one or more of the Partnership's real
properties (the "Amendment") and (iii) the subsequent termination and
liquidation of the Partnership pursuant to paragraph 19.2 of the Partnership
Agreement (the "Plan of Liquidation"), as more fully described under "THE PLAN."
Approval by Unitholders of each of the Auction, the Amendment and the Plan of
Liquidation (collectively, the "Plan") is required to implement the Plan. If
<PAGE>
approved and consummated, the Plan will result in the sale of substantially all
of the Partnership's assets, the termination of the Partnership's business and
the distribution of the net sales proceeds and any other remaining Partnership
assets to the Unitholders, Subordinated Limited Partners and General Partners of
the Partnership, after payment of all liabilities and expenses and certain
attorneys' fees. Under the Partnership Agreement and Delaware law, Unitholders
do not have appraisal or similar rights if the Plan is approved. See "NO
APPRAISAL RIGHTS."
The Plan is being proposed by Spanos in connection with, and pursuant
to the terms of, a proposed settlement by Spanos and its affiliates (the
"Settlement") of certain class action litigation (the "Litigation") now pending
in the United States District Court for the Southern District of New York (the
"Court"). The Settlement is set forth in a Stipulation of Settlement with
Spanos Defendants (the "Settlement Agreement"), executed by plaintiffs in the
Litigation and by Spanos and certain of its affiliates (the "Spanos
Defendants")./1/ The Court has preliminarily approved the Settlement. After
approval by the Unitholders of the Plan, but prior to implementation thereof,
the Court must enter an order finding that the Settlement is fair,
- -------------------
/1/ The Spanos Defendants are: Alex G. Spanos, AGS Financial Corporation, A.
G. Spanos Realty Partners, L.P., A. G. Spanos Residential Partners-86, A. G.
Spanos Realty Capital, Inc., A. G. Spanos Realty, Inc., A. G. Spanos
Construction, Inc. and AGS Securities Corporation, together with their
respective officers, directors, employees, parent and subsidiary corporations,
successors, heirs, representatives and executors.
2
<PAGE>
reasonable, adequate and in the best interests of the Unitholders, and such
order must have become final and nonappealable. See "SPECIAL FACTORS --
Background of the Plan" and "CERTAIN PENDING LITIGATION."
Prudential-Bache Properties, Inc. ("P-B Properties"), the co-general
partner of the Partnership, has previously settled with the plaintiffs in the
Litigation and is not a party to the Settlement Agreement. P-B Properties has
advised Spanos that, in view of the unique circumstances under which the Plan
arose, including the fact that P-B Properties and its affiliates have settled
with the plaintiff class in the litigation and did not take part in the
negotiations for the Settlement by Spanos and its affiliates with the Court-
approved counsel and representatives of the plaintiff class, it makes no
recommendation as to whether Unitholders should approve or disapprove the Plan.
However, because the Settlement Agreement contemplates certain action by P-B
Properties in connection with the Auction and the Liquidation, P-B Properties
has executed a separate agreement with the plaintiffs and the Spanos Defendants
whereunder it has acknowledged the Settlement and agreed, subject to final
approval of the Settlement by the Court, to be bound by all of the provisions of
the Settlement Agreement which require that P-B Properties take, or forebear
from taking, certain actions in connection with the Plan (see "THE PLAN--
Description of the Auction"). This Solicitation Statement has been prepared and
is being furnished solely by Spanos.
3
<PAGE>
Neither Spanos nor P-B Properties (collectively, the "General
Partners") intends to call a meeting of the Unitholders in connection with this
solicitation of Consents. Approval or disapproval by a Unitholder of the Plan
is to be indicated by marking and signing the enclosed form of Unitholder
consent (a "Consent") and returning it to Skinner & Co., which has been engaged
by Spanos on behalf of the Partnership to act as soliciting agent (the
"Soliciting Agent"), in the enclosed self-addressed envelope, which requires no
postage if mailed in the United States. The enclosed form of Consent permits a
Unitholder to indicate approval, disapproval or abstention with respect to each
element of the Plan. However, the Plan will not be implemented unless
Unitholders holding a majority of the outstanding Units approve all three
elements. Moreover, implementation of the Plan is subject to the issuance by
the Court of a final, nonappealable order and judgment approving the Settlement.
Consents of the Unitholders to the Plan will be solicited until the
earlier of: (a) receipt of Consents from Unitholders owning a majority of the
outstanding Units or (b) April 30, 1998 (subject to extension to a date not
later than July 31, 1998, in Spanos' sole discretion, by notice to all
Unitholders).
The close of business on March 1, 1998 (the "Record Date") has been
fixed by Spanos for determining the Unitholders entitled to notice of the
solicitation of Consents and to consent
4
<PAGE>
to the Plan. On the Record Date, there were 316,828 outstanding Units entitled
to vote on the Plan held by approximately 5,000 Unitholders. This Solicitation
Statement and the enclosed form of Consent are first being mailed to Unitholders
on or about March __, 1998.
Pursuant to the Court's preliminary approval order, Unitholders are
enjoined from selling or otherwise transferring their Units without Court
approval, unless both the Unitholder and his or her buyer or transferee agree in
writing to be bound by the Settlement Agreement if finally approved by the
Court. Accordingly, no transfer of Units will be accepted by the General
Partners unless accompanied by such an agreement signed by both the transferring
Unitholder and the transferee and otherwise meeting the requirements of the
Partnership Agreement. Unitholders will be notified as soon as possible as to
the results of this solicitation.
Pursuant to the Partnership Agreement, the consent of Unitholders
holding a majority of the outstanding Units is required to approve the sale of
properties representing 66 2/3% or more of the aggregate net book value of the
Partnership's assets within a 12-month period and the termination of the
Partnership. Under Delaware law and the Partnership Agreement, any matter upon
which the Unitholders are entitled to act may be submitted for a vote by written
consent without a meeting. Any Consent given pursuant to this solicitation may
be revoked by the person giving it at any time before the earlier of (a) the
date
5
<PAGE>
upon which Spanos has received Consents from Unitholders owning a majority of
the outstanding Units or (b) 10:00 a.m. California time on April 30, 1998
(unless such date or time is extended), by sending a written notice of
revocation or a later dated Consent containing different instructions to the
Soliciting Agent before such date. Any written notice of revocation or
subsequent Consent should be sent to the Soliciting Agent, Skinner & Co., at 660
Market Street, Suite 204, San Francisco, CA 94104 (Telephone 415-981-0970).
In addition to solicitation by use of the mails, officers, directors
and employees of Spanos and its affiliates may solicit Consents in person or by
telephone, facsimile or other means of communication. Such directors, officers
and employees will not receive additional compensation for such services but may
be reimbursed for reasonable out-of-pocket expenses in connection with such
solicitation. In addition, Skinner & Co. has been retained as Soliciting Agent
to assist Spanos in the solicitation of Consents for a base fee of $1,750, plus
additional fees for time spent by Skinner personnel in communication with
Unitholders and tabulations of Consents, as well as reimbursement of expenses
such as postage, copying, courier and messenger services and telephone and
facsimile costs. The estimated aggregate of Skinner's fees is $6,750, and its
expenses are estimated at approximately $5,000. Arrangements have been made
with custodians, nominees and fiduciaries for the forwarding of Consent
solicitation materials to beneficial owners
6
<PAGE>
of Units held of record by such custodians, nominees and fiduciaries, and the
Partnership will reimburse such custodians, nominees and fiduciaries for
reasonable expenses incurred in connection therewith. All costs and expenses of
this solicitation of Consents, including the costs of preparing and mailing this
Solicitation Statement, will be advanced by Spanos or its affiliates, subject to
reimbursement from the Partnership unless the consent of Unitholders holding a
majority of the outstanding Units is not obtained on or before 5:00 p.m.
California time on the third business day before the hearing at which the
parties to the Settlement Agreement will request the Court to enter its order
and judgment finally approving the Settlement. That hearing is currently
expected to take place in May, 1998. The aggregate expenses to be incurred
relating to this solicitation are estimated to be approximately $197,000.
Spanos recommends that Unitholders consent to the Plan. See "SPECIAL
FACTORS -- Fairness of the Plan; Recommendation of Spanos."
THE TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE FAIRNESS OR MERITS OF
SUCH TRANSACTION NOR UPON THE ACCURACY OR ADEQUACY OF THE INFORMATION CONTAINED
IN THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
7
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Section Page
- ------- ----
<S> <C>
INTRODUCTION............................................................ 1
SUMMARY................................................................. 10
SPECIAL FACTORS......................................................... 16
Background of the Plan............................................. 16
Effects of the Plan................................................ 21
Fairness of the Plan; Recommendation of Spanos..................... 22
Disadvantages of the Plan.......................................... 25
Advantages of the Plan............................................. 25
Vote Required to Approve the Plan.................................. 28
No Other Offers.................................................... 28
Failure to Approve the Plan........................................ 29
THE PLAN................................................................ 32
General............................................................ 32
Description of the Auction......................................... 34
Description of Properties.......................................... 42
Anticipated Results of Auction, Use of Proceeds and
Cash Distributions................................................ 45
Amendment to Partnership Agreement................................. 47
Liquidation........................................................ 48
Distributions and Fees............................................. 49
PRO FORMA FINANCIAL INFORMATION......................................... 53
FINANCIAL INFORMATION REGARDING GENERAL PARTNERS........................ 53
MARKET PRICES OF UNITS AND DISTRIBUTIONS TO UNITHOLDERS................. 55
Market Prices...................................................... 55
Distributions to Unitholders....................................... 57
FEDERAL INCOME TAX CONSEQUENCES OF THE PLAN............................. 59
General............................................................ 59
Partnership Taxation............................................... 60
Sale of Properties................................................. 60
Tax Allocations and Distributions.................................. 63
Capital Gains Tax.................................................. 67
Passive Loss Limitation............................................ 68
Final Partnership Returns and Future Tax Issues.................... 69
Certain State Income Tax Considerations............................ 70
NO APPRAISAL RIGHTS..................................................... 71
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF......................... 71
CERTAIN PENDING LITIGATION.............................................. 72
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
Section Page
- ------- ----
<S> <C>
AVAILABLE INFORMATION................................................... 77
INDEX TO FINANCIAL STATEMENTS........................................... F-1
EXHIBIT A: Proposed Amendment to Amended and Restated Agreement
of Limited Partnership of Prudential-
Bache/A.G. Spanos Realty Partners L.P., I................ A-1
EXHIBIT B: Annual Report of Partnership on SEC Form 10-K
for the year ended December 31, 1996, as amended......... B-1
EXHIBIT C: Quarterly Report of Partnership on SEC Form
10-Q for the quarter ended September 30, 1997............ C-1
</TABLE>
9
<PAGE>
SUMMARY
The following is a summary of certain information contained elsewhere in this
Solicitation Statement. This Summary does not purport to be complete and is
qualified in its entirety by the more detailed information contained in this
Solicitation Statement and the exhibits hereto. Unless otherwise specifically
provided, terms used in this Summary have the respective meanings ascribed to
them elsewhere in this Solicitation Statement or, if not defined herein, in the
Partnership Agreement. Unitholders are urged to read this Solicitation
Statement and the exhibits in their entirety.
THE PARTNERSHIP
- ---------------
Prudential-Bache/A.G.
Spanos Realty
Partners L.P., I............... The Partnership is a Delaware limited
partnership which owns eight real properties
(the "Properties") consisting of eight garden
apartment complexes with a total of 2,017
apartment units in five states. P-B
Properties and Spanos are the General Partners
of the Partnership. The offices of the
Partnership are located at One Seaport Plaza,
New York, New York 10292 and its telephone
number is (212) 214-1016.
ACTION BY WRITTEN CONSENT
- -------------------------
Purpose of the Solicitation.... Consents are being solicited by Spanos to
approve (i) the sale of the Properties, which
comprise substantially all of the assets of
the Partnership, and which will be sold at
public auction (the "Auction"); (ii) amendment
of the Partnership Agreement to permit an
affiliate of Spanos to bid for, and if the
successful bidder to purchase, one or more of
the Properties from the Partnership (the
"Amendment"); and (iii) the subsequent
termination and liquidation of the Partnership
and the distribution to the Unitholders,
Subordinated Limited
10
<PAGE>
Partners and the General Partners of the net
sales proceeds and other cash held by the
Partnership at the time of distribution, other
than certain amounts set aside to provide for
the payment of all expenses and other
liabilities of the Partnership and payment of
certain attorneys' fees in the Litigation (the
"Plan of Liquidation").
Record Date; Units Entitled
to Consent..................... Unitholders of record at the close of business
on March 1, 1998 are entitled to vote by
written Consent. At such date, there were
outstanding 316,828 Units, each of which will
entitle the record owner thereof to one
vote.
Vote Required.................. The Plan will not be implemented unless
written Consents approving each element of the
Plan are received from Unitholders of record
holding a majority of all outstanding Units.
See "VOTING SECURITIES AND PRINCIPAL HOLDERS
THEREOF" for information regarding Unit
ownership by Prudential Securities
Incorporated ("Prudential Securities"), an
affiliate of P-B Properties.
Termination of Consent
Solicitation................... Consents must be received by the earlier of
(a) the date on which Spanos has received
Consents from Unitholders owning a majority of
the outstanding Units or (b) 10:00 a.m.
California time on April 30, 1998 (unless such
date or time is extended, in the sole
discretion of Spanos, by notice to all
Unitholders, to permit further solicitation of
Consents if majority approval has not been
obtained).
11
<PAGE>
THE PLAN
- --------
General........................ The Plan is a single proposal consisting of
the Auction, the Amendment and the Plan of
Liquidation.
Background of the Plan......... See "SPECIAL FACTORS -- Background of the
Plan."
Recommendation of Spanos....... Spanos recommends the approval of the Plan.
Spanos has been advised by P-B Properties that
it is making no recommendation regarding the
Plan, because the Plan was developed in the
course of negotiations (in which P-B
Properties did not participate) for the
settlement of class action litigation (to
which P-B Properties is no longer a party,
having entered into a separate settlement with
the plaintiff class), which negotiations were
undertaken with Spanos and its affiliates by
Lead Class Counsel approved by the Court on
behalf of the plaintiff class, the
representatives of which were also approved by
the Court. See "SPECIAL FACTORS -- Fairness
of the Plan; Recommendation of Spanos."
Security Ownership and Voting
of the General Partners........ As of the Record Date, neither of the General
Partners, nor any executive officer or
director of a General Partner, owned directly
or beneficially any Units. Prudential
Securities beneficially owned approximately
1.5% of the outstanding Units as of the Record
Date. Prudential Securities intends to vote
its Units to consent or withhold consent to
the Plan in the same proportions as do the
other Unitholders.
12
<PAGE>
Consummation of the
Plan of Sale................... The Auction will be held as promptly as
practicable after obtaining the requisite
approval of the Unitholders to the Plan and
after the Court has entered a final
nonappealable order and judgment approving the
Settlement. It is anticipated that property
sales pursuant to the Auction will be
consummated by mid-1998.
No Appraisal Rights............ Unitholders have no appraisal rights in
connection with the Plan. See "NO APPRAISAL
RIGHTS."
Federal Income
Tax Consequences............... The Partnership will have taxable gain or loss
upon its sale of each Property. Such gain or
loss will be allocated to the Unitholders in
accordance with the Partnership Agreement, and
generally will constitute Section 1231 gain or
Section 1231 loss. Any Section 1231 gains
would be eligible for a reduced tax rate. See
"FEDERAL INCOME TAX CONSEQUENCES OF THE PLAN
-- Capital Gains Tax." For most tax-exempt
Unitholders, only a portion of the gain from
the sale of the Properties would be treated as
unrelated business income. See "FEDERAL
INCOME TAX CONSEQUENCES OF THE PLAN -- Sale of
Properties."
Distributions to a Unitholder generally will
not be taxable to the extent the distributions
do not exceed the Unitholder's adjusted tax
basis in the Units. The tax basis in the
Units will be reduced by the distributions,
and those in excess of the tax basis generally
will be treated as capital gain, which will be
long-term if the applicable Units have been
held for more than one year. Unitholders who
have remaining tax basis in their Units after
termination of the Partnership generally will
have
13
<PAGE>
a capital loss. See "FEDERAL INCOME TAX
---
CONSEQUENCES OF THE PLAN -- Tax Allocations
and Distributions."
Final Distributions and
Liquidation.................... As promptly as practicable following the sale
of the last Property, after payment or
reserving for payment of all costs of the
Auction and this Consent solicitation, the
General Partners will determine the amount of
funds which they believe will be sufficient to
provide for the Partnership's remaining
expenses and liabilities, including the costs
of liquidation of the Partnership and any
contingent liabilities. Such liabilities
would include potential liabilities under
contracts of sale of the Properties. The
Settlement Agreement provides that the amount
of the contingency reserve shall not exceed
$1,000,000, and that such reserve will be held
for a period of one year or less. The
Settlement Agreement further provides that
Lead Class Counsel representing the
Unitholders may apply to the Court for an
award of attorneys' fees payable out of the
amount of property sales proceeds which would
otherwise be distributable to the Unitholders.
After establishment of the contingency reserve
and payment of the Court-approved attorneys'
fees, the balance of the Partnership's funds
will be distributed to the Unitholders,
Subordinated Limited Partners and General
Partners in accordance with the Partnership
Agreement. Once all known liabilities have
been satisfied, the Partnership will
distribute its remaining net assets and
terminate. Any remainder of the $1,000,000
reserve will be distributed to the Unitholders
in accordance with the
14
<PAGE>
Partnership Agreement, and the General
Partners will remain obligated with respect to
any unsatisfied obligations of the
Partnership.
15
<PAGE>
SPECIAL FACTORS
Before consenting to the Plan, Unitholders should carefully consider
certain factors regarding the Plan:
Background of the Plan
- ----------------------
The Partnership was formed in June 1988 with the primary purpose of
acquiring from affiliates of Spanos, investing in, holding, managing, selling,
disposing of and otherwise acting with respect to multifamily residential rental
properties. The Partnership's investment objectives at formation were to
preserve and protect Partnership capital by investing in properties in diverse
locations, to provide partially tax-sheltered cash distributions from operations
and to provide long-term capital appreciation. Between November of 1988 and
December of 1989, the Partnership purchased from affiliates of Spanos eight
garden apartment complexes (the "Properties") with a total of 2,017 apartment
units in five states for an aggregate purchase price of $107,500,000. See
"Description of Properties" below.
Although the Partnership Agreement provides that the term of the
Partnership will, unless previously terminated, continue until December 31,
2030, the prospectus of the Partnership for its original public offering of
Units stated that the Partnership anticipated that it would dispose of its
Properties within seven to 10 years after acquisition.
Spanos and P-B Properties have, in the ordinary course of
administration of the Partnership's affairs, been considering when and how to
effect the disposition of the Properties in the
16
<PAGE>
best interests of the Partnership. Affiliates of Spanos which have acted as
general partners of real estate limited partnerships have periodically evaluated
the desirability of sale of individual properties held by those partnerships,
after the minimum anticipated holding periods had ended. Similarly, Spanos has
from time to time evaluated the Properties and those of Prudential-Bache/A.G.
Spanos Genesis Income Partners L.P., I (the "Genesis Partnership"), a public
Delaware limited partnership of which P-B Properties and A.G. Spanos Residential
Partners-86, A California Limited Partnership, an affiliate of Spanos ("Spanos
Genesis") are the general partners. While the Partnership has sold no
properties since its inception, the Genesis Partnership has sold four properties
since its inception in 1987. The ability to sell properties generally has been
enhanced by improvements in the national real estate investment market. Pension
funds, real estate investment trusts ("REITs") and other institutional buyers
are now actively seeking new investment properties, as compared to the early
1990's, when these same institutional buyers were fewer and less active. The
emergence of securitized mortgage financing and lower mortgage interest rates
have also contributed to an improved market for real estate such as the
Properties, as entrepreneurial buyers who require debt financing to purchase
properties are able to borrow funds at attractive rates.
More specifically, with respect to the Partnership's Properties,
improvements in the real estate capital markets and
17
<PAGE>
in the operating performance of the Properties have enhanced the prospects for
selling these Properties at attractive prices. During the early 1990's, the
Partnership's Properties experienced devaluation due to a nationwide slump in
real estate values. Moreover, the Partnership suspended cash distributions to
its Partners in 1992, because cash flow after debt service would not support
such distributions. As a result of improved net operating income and general
improvement in the real estate capital markets in these areas, Spanos believes
that the Properties are now readily salable. The Partnership resumed payment of
cash distributions to Unitholders in 1996.
Although future economic conditions are difficult to predict, Spanos
believes that it is unlikely that continuing to hold the Properties would
significantly enhance the Partnership's ultimate realization on sale of the
Properties, or that the relative economic benefits of continued ownership would
justify the risks of such continued ownership.
The sale of all or substantially all of the assets of the Partnership
in a single sale or in multiple sales in the same 12-month period requires the
approval of Unitholders holding a majority of the Units. The Partnership
Agreement defines "Substantially All of the Assets" to mean Properties
representing 66-2/3% or more of the net book value of all Partnership assets as
of the end of the most recently completed calendar quarter. Neither the
Partnership Agreement nor Delaware law requires that Unitholders vote on the
sale of each Property or on the actual
18
<PAGE>
terms of specific sales. Advance approval of the Plan will allow the General
Partners to consummate a sale or sales of the Properties upon completion of the
Auction, without risking loss of the buyer or buyers due to delays in obtaining
the necessary consents of Unitholders.
The Plan is being proposed by Spanos in connection with the Settlement
of the Litigation. The Litigation was commenced as a class action against P-B
Properties and its affiliates, and was expanded to include Spanos and its
affiliates in 1993. See "CERTAIN PENDING LITIGATION." In early 1994, counsel
for Spanos and its affiliates met with the lead lawyers representing the
plaintiffs in the litigation ("Lead Class Counsel") to explore the prospects for
settlement of the Litigation as to Spanos and its affiliates. From the
beginning of the settlement negotiations, Lead Class Counsel and the
representatives of the class of plaintiffs (the "Class Representatives")
demanded the sale of the properties of the Partnership and the Genesis
Partnership and liquidation of such partnerships, and that Spanos or its
affiliates provide "floor bids," to ensure a bargained-for specified minimum
amount of proceeds to be distributed to Unitholders. Lead Class Counsel, Spanos
and Spanos Genesis agreed that the expense of appraisals of each of the
properties was not warranted, because a public auction after dissemination of
full information to prospective bidders, together with a guaranteed minimum bid,
would provide a superior measure of the values of the various properties than
would opinions of non-
19
<PAGE>
bidding appraisers. In the initial meeting, Lead Class Counsel, Spanos and its
affiliates began negotiations concerning the amount of a floor bid for the
properties of both the Partnership and the Genesis Partnership. Spanos
initially offered a floor bid for all of the properties aggregating $31,900,000
over the existing mortgage debt on the properties. Lead Class Counsel
thereafter engaged a financial and evaluation consultant who requested
additional information regarding the Properties, which was provided by Spanos
and reviewed by the consultant. In determining the amount of its proposed floor
bid, Spanos did not undertake a formal valuation of the properties, but rather
relied on its own familiarity with the properties and its expertise generally
with respect to multi-family residential properties, and took into account the
market conditions for such properties and the desirability of settling the
Litigation.
Throughout 1994, negotiations continued with Lead Class Counsel and
its consultant, primarily relating to the floor bids. In addition, Spanos'
counsel met twice with members of the executive committee formed by counsel to
plaintiffs in the Litigation, Lead Class Counsel and its consultant, and in late
1994 Spanos agreed to negotiate further its floor bids. Ultimately, Spanos
agreed to increase its minimum bid for the properties of both partnerships to
$41,000,000 over existing mortgage debt. However, no agreement regarding a
settlement was reached, and negotiations continued during 1995. In June of
1995, Spanos increased its aggregate floor bid offer to
20
<PAGE>
$41,360,000, but still no definitive agreement was reached. Throughout the
remainder of 1995 and 1996, settlement negotiations were carried on, and various
proposed forms of a settlement agreement were exchanged between the parties. In
May, 1997, after further negotiations, Spanos increased its aggregate floor bid
offer to $43,000,000, allocated $22,440,000 to the Partnership and $20,560,000
to the Genesis Partnership, in each case over existing mortgage debt. Lead
Class Counsel, its consultant and the executive committee of plaintiffs' counsel
agreed to this offered amount, and on May 12, 1997, the Settlement Agreement was
executed. The increases in the amount of floor bid which Spanos offered
resulted from the negotiation process, although the fact that the markets for
the properties had improved further also influenced its decisions.
On May 20, 1997, the Court entered its preliminary order which, among
other things, approved the appointment of representatives of the plaintiff
class, approved the appointment of Lead Class Counsel, preliminarily approved
the Settlement and approved the form of Notice to the Unitholders which
accompanies this Solicitation Statement.
If the Plan is approved by the Unitholders, and if the Court enters a
final nonappealable order and judgment approving the Settlement, the Auction
will take place as promptly as is practicable, consistent with meeting the terms
of the Plan, as described under "THE PLAN -- Description of the Auction."
21
<PAGE>
Effects of the Plan
- -------------------
If the Plan is approved and implemented as proposed, the effects of
the Plan will be the sale of substantially all of the Partnership's assets, the
termination of the Partnership's business, the winding up of the Partnership's
affairs and the distribution to the General Partners, the Subordinated Limited
Partners and the Unitholders of the net proceeds of the Auction and the
Partnership's other assets, after payment of liabilities, liquidation expenses
and certain attorneys' fees. Spanos estimates that, assuming the Properties are
sold for the amount of its Minimum Overall Bid (as defined under "THE PLAN --
Description of the Auction"), the Unitholders will receive an initial cash
distribution of approximately $39.51 per Unit upon completion of the Sale of the
Properties, and may receive a distribution of up to an additional $3.16
approximately one year later. See "THE PLAN -- Anticipated Results of Auction,
Use of Proceeds and Cash Distributions." The amount distributed to each
Unitholder generally will not be taxable to the extent the distributions do not
exceed the Unitholder's adjusted tax basis in the Units. See "FEDERAL INCOME
TAX CONSEQUENCES OF THE PLAN -- Tax Allocations and Distributions."
Fairness of the Plan; Recommendation of Spanos
- ----------------------------------------------
Spanos reasonably believes that the Plan is fair to the Unitholders
and recommends approval of the Plan. No appraisals of the Properties were
obtained, and no independent evaluation of the fairness of the Plan to
Unitholders has been made. However,
22
<PAGE>
the Settlement has been preliminarily approved by the Court, and the Plan will
not be implemented unless the Court, after approval of the Plan by the
Unitholders, issues an order finding that the Settlement is fair, reasonable,
adequate and in the best interests of the Unitholders. Further, the auction
process is designed to secure the highest prices available for the Properties on
the date of the Auction.
In reaching its conclusion to recommend approval of the Plan, Spanos
considered the following factors:
(1) the fact that the Properties have now been held for their
originally anticipated holding periods, which militates in favor of a sale of
the Properties at this time;
(2) increased availability of investor capital and the increased
purchasing activity and favorable interest rate environment, which also
militates in favor of sale;
(3) improved occupancies and revenues in recent years, which enhance
the prospects for realization of an adequate sale price for the Properties;
(4) the potential for future operating performance increases and a
possible increase in the value of the Properties, which might militate in favor
of holding the Properties, but which also might enhance their salability;
(5) the satisfactory physical condition of the Properties and the
need for expenditures for repairs, replacements and improvements to be incurred
in the future, which militates in favor of a sale now;
23
<PAGE>
(6) the presence of competition and the possibility of increased
future competition, which suggest that a sale now may be advisable;
(7) the relative illiquidity of the Units, which militates in favor
of sale;
(8) the historic levels of cash distributions to the Unitholders, the
suspension of cash distributions in 1992 and the resumption of distributions in
1996 at a significantly lower level, which suggest that Unitholders would
benefit from recovering their investment now; and
(9) the potential for an increase in the amounts of distributions,
which might militate in favor of holding the Properties, if such future
distributions would represent a rate of return equivalent to that available in
other investments.
In addition, Spanos took into account the pendency of the Litigation,
including (i) the extensive negotiations with Lead Class Counsel leading to the
Settlement Agreement and the Court's approval of the Settlement; (ii) the fact
that included in the relief sought by the plaintiffs is rescission of the
original issuance of the Units; (iii) the costs expended to date and expected to
be expended by Spanos and its affiliates in continuing defense against such
Litigation; and (iv) the effects of participation in the defense of such
Litigation upon certain of the key personnel of Spanos, each of which was
considered from Spanos' standpoint to weigh in favor of offering a floor bid
and
24
<PAGE>
selling the Properties to settle the Litigation. See "CERTAIN PENDING
LITIGATION."
Spanos does not believe that it is feasible to attempt to quantify any
of the foregoing factors, nor did Spanos accord any particular weight to any of
those factors, although it believes that the fact that the Properties have now
been held for their originally anticipated holding periods and the fact that the
representatives of the class action plaintiffs, which include all of the
Unitholders, demanded sale of the Properties weighed more heavily in favor of
the Plan than did other factors. After reviewing all of the above, Spanos
concluded that these factors weighed in favor of agreeing to the floor bids and
selling the Properties now, rather than sometime in the future, because it
believes that the risks of continuing to own the Properties outweigh the
benefits of continued ownership.
Disadvantages of the Plan
- -------------------------
The primary disadvantage of disposing of the Properties at this time
is that the Partnership will not benefit from possible further improvements in
economic and market conditions which might produce increased cash flow and
possibly enhance the sales prices of the Properties. Further, it is not
anticipated that the Unitholders will receive aggregate distributions from the
Partnership, including distributions from sales of the Properties and any
remaining contingency reserve, which will equal the amounts originally invested
in the Partnership. In
25
<PAGE>
addition, no current independent appraisals of the Properties were obtained,
because Spanos believes that a public auction after dissemination of full
information to prospective bidders, together with its affiliate's minimum bids,
will provide a superior measure of the values of the Properties than would
opinions of non-bidding appraisers. No independent opinion or evaluation of the
fairness of the Plan to Unitholders has been made. However, the Plan will not
be implemented unless the Court issues an order finding that the Settlement is
fair, reasonable, adequate and in the best interests of the Unitholders.
Advantages of the Plan
- ----------------------
In addition to the factors regarding the Settlement discussed under
"Background of Sale of Properties" above, Spanos based its recommendation on the
following factors:
(i) SPANOS' BELIEF THAT THE CURRENT LEVEL OF MORTGAGE INTEREST RATES
AND INCREASED AVAILABILITY OF INVESTOR CAPITAL ARE FAVORABLE FOR THE SALE OF THE
PROPERTIES. In particular, Spanos has considered as favorable factors the
availability of potential purchasers with sufficient equity to purchase
properties; the availability of financing for the acquisition of real estate
from the capital markets and traditional lending sources; and continued
favorable interest rates which make it less expensive for potential purchasers
to borrow funds.
(ii) GENERAL IMPROVEMENT IN THE OCCUPANCIES, REVENUES AND NET
OPERATING INCOME OF THE PARTNERSHIP'S PROPERTIES, which Spanos believes enhances
their salability.
26
<PAGE>
(iii) REALIZATION OF HIGHEST OBTAINABLE PRICES THROUGH THE AUCTION.
The Court-approved Auction process provides a mechanism which Spanos believes
will enable the Partnership to sell the Properties for the best aggregate sale
price obtainable at the time of sale, under current market conditions.
Moreover, the guaranteed minimum bids from an affiliate of Spanos provide
assurance that the Properties will be sold at prices exceeding existing mortgage
debt and sufficient to assure at least $22,440,000 of gross sale proceeds.
(iv) RISKS OF CONTINUED OWNERSHIP. Retaining the Properties will
continue to subject the Partnership to the risks inherent in the ownership of
rental property, such as fluctuations in occupancy rates, operating expenses and
rental rates (which in turn may be affected by general and local economic
conditions), the supply and demand for apartment properties of the type owned by
the Partnership, increased competition (particularly from newer apartment
projects with more desirable configurations and greater amenities) and federal
and local laws and regulations affecting the ownership and operation of real
estate.
(v) LIQUIDITY. The sales will provide liquidity to the
Unitholders. At present, there is no established public trading market for the
Partnership's Units, and liquidity has been limited to sporadic sales which
occur within an informal secondary market, and two recent tender offers, each
for a
27
<PAGE>
limited number of Units. See "MARKET PRICES OF UNITS AND DISTRIBUTIONS TO
UNITHOLDERS -- Market Prices."
(vi) INCREASED COMPETITION. Spanos believes that older apartment
buildings such as those on the Properties, even though well maintained and in
good condition, can over time suffer a competitive disadvantage in attracting
and retaining tenants, as compared to new apartments with more modern amenities
in newer, attractive neighborhoods. Further, the two-bedroom, one-bath
configurations of many of the apartments in the Properties are not as attractive
for prospective tenants as two-bedroom, two-bath configurations often found in
newer competing projects. In addition, new apartment construction has commenced
recently in several of the Properties' market areas, as a result of recent price
increases for apartment projects and readily available financing for such
construction. The Properties, therefore, may not be able to sustain current
levels of revenue.
(vii) THE CONDITION OF THE PROPERTIES. The Partnership has
maintained the Properties in good condition during the past few years. Spanos
believes that it would be advantageous to sell the Properties now before further
aging and wear in the ordinary course occurs, thereby requiring substantially
increased expenditures for repairs and refurbishment.
(viii) THE PARTNERSHIP'S ORIGINAL OBJECTIVES AND POLICIES. Sales of
the Properties at this time are compatible with the Partnership's originally
anticipated holding periods.
28
<PAGE>
(ix) ELIMINATION OF SCHEDULE K-1 REPORTS. The Partnership's
liquidation will eliminate the requirement for annual Schedule K-1 income tax
reporting for the Partnership, which Spanos believes is often burdensome for
Unitholders.
Vote Required to Approve the Plan
- ---------------------------------
Implementation of the Plan requires that Spanos receive Consents
approving each element of the Plan from Unitholders of record holding a majority
of all outstanding Units.
No Other Offers
- ---------------
During the 18 months preceding the date of this Solicitation
Statement, neither Spanos nor the Partnership has received any firm offers from
unaffiliated persons for the merger or consolidation of the Partnership with
another entity or the sale of all or any substantial part of its assets to any
third party, nor is Spanos aware of any firm offer for Units which would enable
the holder of such Units to exercise control over the Partnership. [However,
immediately prior to execution of the Settlement Agreement, Spanos received from
an unaffiliated entity a tentative offer for the purchase of all of the
Properties of the Partnership for a price which would have yielded less net
proceeds to the Partnership than would result from Spanos' Minimum Overall Bid.
Because of the lower price offered, the lack of assurance that such a sale would
result in termination of the Litigation and the fact that negotiations for the
definitive Settlement Agreement were substantially complete, Spanos determined
that it was in the best interests of the Partnership
29
<PAGE>
to proceed with the Settlement Agreement, and Spanos so advised the entity
making the tentative offer, and suggested that it submit a bid for the
Properties in the Auction.] Moreover, certain limited tender offers for Units
have been made during such period. See "MARKET PRICES OF UNITS AND
DISTRIBUTIONS TO UNITHOLDERS"
Failure to Approve the Plan
- ---------------------------
If the Unitholders fail to approve the Plan, the Partnership will
continue to own the Properties. In such event, Spanos expects that the
Partnership will operate the Properties for an indefinite period, which over
time would likely entail substantial expenditures for repairs and refurbishment.
Consistent with the Partnership Agreement, the General Partners may receive or
solicit offers for the sale of one or more of the Properties as opportunities
arise. In any such sale, the Partnership would benefit from any increase in
value of the affected property over the value at the time of the Auction, and
would suffer a detriment to the extent of decrease in such value. Failure by
the Unitholders to approve the Plan will not affect their rights under the
Partnership Agreement.
30
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA
- ----------------------------------
The following table sets forth selected financial data of the
Partnership for each of the five years in the period ended December 31, 1996 and
for each of the nine-month periods ended September 30, 1997 and September 30,
1996, respectively. This data should be read in conjunction with the financial
statements, related notes and other financial information included in the
Partnership's Annual Report on Form 10-K for the year ended December 31, 1996,
as amended, a copy of which is attached hereto as Exhibit B and in the
Partnership's Quarterly Report on Form 10-Q for the quarter ended September 30,
1997, a copy of which is attached hereto as Exhibit C.
<TABLE>
<CAPTION>
For Nine Months Ended For Year Ended December 31,
(In thousands, except per September 30, ----------------------------------------------------
Unit and per Subordinated ----------------------
Interest amounts) 1997 1996 1996 1995 1994 1993 1992
- ------------------------------ ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING RESULTS
Total Revenues $12,038 $11,921 $15,931 $15,362 $14,500 $13,424 $12,910
Interest Expense 3,820 3,893 5,177 6,015 6,381 6,835 6,516
Net Loss (136) (323) (402) (1,752) (2,713) (3,673) (3,585)
Net Loss to (3) (6) (8) (35) (54) (73) (72)
General Partners
Net Loss per -0- -0- -0- -0- -0- -0- -0-
Subordinated Interest
Net Loss per Unit (0.42) (1.00) (1.24) (5.42) (8.39) (11.36) (11.09)
Cash Distributions per -0- -0- -0- -0- -0- -0- 31.22
Subordinated Interest
Cash Distributions per 3.66 3.66 4.88 -0- -0- -0- 38.00
Unit
<CAPTION>
At September 30, At December 31,
---------------- ----------------
1997 1996 1996 1995 1994 1993 1992
------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
FINANCIAL POSITION
Total Assets $80,220 $83,028 $82,001 $84,564 $87,946 $91,804 $95,451
Mortgage Loans Payable 64,477 65,592 65,322 66,362 67,215 68,581 69,232
Unitholders' Equity 5,637 7,394 6,929 8,869 10,586 13,245 16,845
Subordinated Limited 8,878 8,878 8,878 8,878 8,878 8,850 8,700
Partners' Equity
General Partners' Deficit (1,334) (1,298A) (1,307) (1,268) (1,233) (1,179) (1,105)
Total Partners' Equity 13,181 14,974 14,500 16,479 18,231 20,916 24,440
</TABLE>
31
<PAGE>
THE PLAN
GENERAL
The Plan was developed by Spanos in connection with the Settlement of
the Litigation and is being proposed by Spanos for consent by Unitholders to
each element of the Plan -- the Auction, the Amendment and the Plan of
Liquidation. See "INTRODUCTION" and "SPECIAL FACTORS -- Background of the
Plan."
The principal advantages of the Plan are:
. Sale of the Properties in a favorable market for multi-family
properties.
. Enhanced salability due to recent improved operations of the
Properties.
. Sale of the Properties in a public auction, with substantial
information available to bidders.
. Providing liquidity to the Unitholders.
. Sale while the Properties are in good repair, avoiding substantial
expenditures for repairs and refurbishments.
. Guaranteed minimum bids from an affiliate of Spanos.
. Sale of the Properties within the originally anticipated holding
period.
. Elimination of Schedule K-1 tax reports.
See "SPECIAL FACTORS -- Advantages of Plan."
The principal disadvantages of the Plan are:
32
<PAGE>
. Unitholders will not benefit from possible improvements in economic
and market conditions affecting the Properties.
. Unitholders will not likely recover their original investments.
. No current independent appraisals of the Properties have been
obtained.
. No independent opinion or evaluation of the fairness of the Plan to
Unitholders has been obtained.
See "SPECIAL FACTORS -- Disadvantages of Plan."
Spanos recommends that the Unitholders approve the Plan, including
approval of the Auction, which will result in the sale of all of the
Partnership's Properties, followed by the termination and liquidation of the
Partnership. If the Plan is approved, and the Court enters a final
nonappealable order and judgment approving the Settlement, the Properties will
be sold in the Auction on the terms set forth below and in accordance with the
terms of the Partnership Agreement as amended by the Amendment. See
"Description of the Auction" below.
Approval of the Plan will not automatically result in the sale of the
Properties. Spanos and its affiliates have the right, but not the obligation,
to terminate the Settlement on the occurrence of certain conditions, including
the failure by the Court to enter a final order and judgment approving the
Settlement, or the entering by the Court of an order and judgment which varies
from that contemplated by the parties to the
33
<PAGE>
Settlement Agreement, or the failure of a majority of the Unitholders to approve
the Plan. The only other conditions which would permit Spanos and its
affiliates to terminate the Settlement have been satisfied by the date of this
Solicitation Statement. Termination of the Settlement would have the effects
described under "SPECIAL FACTORS -- Failure to Approve the Plan," and the
Litigation would continue.
The Court must enter an order and judgment approving the fairness of
the Settlement, and the order and judgment must become final and no longer
subject to appeal or review, before the Plan may be effected.
Description of the Auction
- --------------------------
The Auction will be conducted as follows:
a. Conduct of the Auction. The Settlement Agreement covers both the
----------------------
Partnership and the Genesis Partnership, and provides for a combined
simultaneous Auction of the properties of both partnerships (the "Auction
Properties"). Since one or more affiliates of Spanos and Spanos Genesis
(collectively, the "Spanos General Partners") will initially bid in the Auction,
the Settlement Agreement provides that the Spanos General Partners shall have no
involvement in conducting the Auction, except that they may identify potential
bidders to be invited to participate in the Auction, have agreed to assist in
accommodating due diligence information requests from potential bidders and have
agreed to submit certain minimum bids, as hereafter described.
34
<PAGE>
The Partnership and the Genesis Partnership have engaged Ernst & Young
LLP, an independent national public accounting and consulting firm, through its
E&Y Kenneth Leventhal Real Estate Group (the "Agent") to conduct the Auction.
P-B Properties will also cause the Partnership and the Genesis Partnership: (i)
to retain independent real estate counsel to advise them regarding the Auction;
(ii) to engage Eckland Consultants Inc., a national architectural, engineering
and environmental consulting firm ("Eckland Consultants"), to perform a physical
inspection of the Auction Properties and prepare an engineering report setting
forth any material structural or operational defects and to provide a Phase I
report (and if necessary a Phase II report) on the environmental condition of
each of the Auction Properties; (iii) to contract with First American Title
Insurance Company to perform title searches and issue preliminary title
commitments; and (iv) to contract with one or more qualified termite inspection
companies, selected by the Agent and acceptable to P-B Properties and Lead Class
Counsel, to perform termite inspections at each Auction Property. The fees and
expenses of the Agent, the independent real estate counsel, Eckland Consultants,
the title company and the termite inspection companies will be borne by the
Partnership and the Genesis Partnership. Where necessary, these fees and
expenses will be allocated between the Partnership and the Genesis Partnership
in proportion to the gross sales price, in excess of existing mortgages,
realized by each as a result of the Auction.
35
<PAGE>
The Agent will prepare packages of information (the "Bid Packages")
for distribution to potential bidders regarding the Auction, the Auction
Properties, the Partnership and the Genesis Partnership, including bidding
instructions, a bid form, a basic sales contract and various due diligence
materials for each of the Auction Properties, including the following:
(i) the reports of Eckland Consultants;
(ii) the preliminary title commitment;
(iii) the termite inspection report;
(iv) detailed operating statements for the last three full calendar
years;
(v) the rent roll;
(vi) copies of leases and schedules of current lease rates and
expirations;
(vii) descriptions of all capital improvements of all assets
reflected in the operating statement of the Auction Property;
(viii) schedules of required and planned capital improvements,
renovations and repairs;
(ix) a summary of any mortgage debt on the Auction Property,
including explanations of prepayment and assumption fee
provisions; and
(x) a property-level budget, together with all property-level
contracts not cancelable on 30 days' notice.
36
<PAGE>
The Bid Packages will also include audited consolidated operating statements for
the Partnership and the Genesis Partnership for the last three full calendar
years, as well as any other information which the Agent may deem useful and
appropriate in soliciting bids.
In the Settlement Agreement, the Spanos General Partners have agreed
to assist in accommodating all reasonable due diligence requests from potential
bidders, including providing (i) access to the books and records of the
Partnership, the Genesis Partnership and the individual Auction Properties
(including the rent rolls, operating statements and budgets included in the Bid
Packages, and such other information as is reasonably necessary to verify the
income and expenses of the Properties), (ii) opportunities for interviews with
management personnel of Spanos and Spanos Genesis, including property managers,
superintendents and leasing agents and (iii) on-site inspections of the Auction
Properties.
To receive a Bid Package, a potential bidder must execute a
confidentiality agreement and demonstrate to the Agent's satisfaction that it
has the financial ability and legal capacity to prepare and submit a bona fide
bid and to undertake and perform all obligations arising upon acceptance of its
bid.
After distribution of the Bid Packages, the Agent will solicit bids
from qualified bidders (i.e., persons or entities which the Agent believes to
have the financial ability and legal capacity to prepare and submit a bona fide
bid in the Auction and
37
<PAGE>
to undertake and perform all obligations arising upon acceptance of any bid they
may submit) and will conduct the Auction.
In the Auction, the Agent will neither favor nor disfavor the
affiliate or affiliates of the Spanos General Partners which submit the minimum
required bids described below.
The Agent will establish an "Initial Bid Period," within which bidders
may conduct further due diligence and submit preliminary written bids. A bidder
may either bid for all of the Auction Properties of either the Partnership or
the Genesis Partnership (an "Overall Bid") or for any one or more of the Auction
Properties of either the Partnership or the Genesis Partnership (an "Individual
Bid"). A bid may be either an all cash bid or a combined bid of cash plus
assumption of related mortgage debt (if assumable), with the bidder being
responsible for any assumption fees or similar costs. A bidder of all cash will
be responsible for any mortgage prepayment penalties and reconveyance costs, and
must provide evidence of financial ability to support the bid. At the close of
the Initial Bid Period, the Agent will review the bids received with P-B
Properties and Lead Class Counsel, and thereafter will encourage bids higher
than the previous high bid from bidders (other than the Spanos affiliate) who
have previously bid on a Property or Properties, for a period of no more than 30
days from the close of the Initial Bid Period. The Agent will then determine
the total of the highest of the Individual Bids submitted for each of the
Auction Properties, and the highest Overall Bid for all of
38
<PAGE>
the Auction Properties, of each of the Partnership and the Genesis Partnership.
The Agent will report the final bid results to P-B Properties and to Lead Class
Counsel. P-B Properties and Lead Class Counsel will then jointly determine the
"Successful Bids" (i.e., either the Overall Bid or the aggregate Individual
Bids which will, in the judgment of P-B Properties and Lead Class Counsel,
produce the highest gross cash price in excess of existing mortgage debt to each
of such partnerships).
Upon determination of the Successful Bids, the Agent will immediately
notify the makers of those bids (the "Successful Bidders") and seek to obtain
their signatures on the basic sales contract included in the Bid Package.
b. Execution of Sales Contracts. The bid form will ask the
----------------------------
Successful Bidders to execute the basic sales contract immediately and promptly
to deposit the full purchase price into an escrow. However, the Agent will be
authorized to negotiate with each of the Successful Bidders as to the definitive
form of the sales contract, subject to approval by P-B Properties and Lead Class
Counsel. If any Successful Bidder fails or refuses to execute a sales contract
at the price and on the terms included in the Successful Bid (with such
modifications as may be approved as aforesaid), the Agent may, with the
concurrence of P-B Properties and Lead Class Counsel, substitute as the
Successful Bid for the Auction Property or Auction Properties in question the
bid or bids producing the next highest gross cash price in
39
<PAGE>
excess of existing mortgage debt to the Partnership or the Genesis Partnership,
as the case may be.
c. Minimum Spanos Bid; No Other Bids or Purchases By Spanos. Under
--------------------------------------------------------
the Settlement Agreement, Spanos has agreed that one or more of its affiliates
(the "Spanos Bidder") will, at the outset of the Initial Bid Period, submit a
preliminary written Overall Bid which will provide to the Partnership a gross
cash price in excess of then-existing mortgage debt of at least $22,440,000 (the
"Minimum Overall Bid"). In addition, Spanos has agreed that the Spanos Bidder
will submit preliminary written Individual Bids for each of the Properties in
amounts such that the aggregate gross cash price in excess of existing mortgage
debt for all of the Properties is at least $22,440,000.
The following table sets forth the amount of each preliminary
Individual Bid which Spanos currently intends that the Spanos Bidder will
submit:
<TABLE>
<CAPTION>
Excess of Bid
Individual Price Over
Property Bid Price Mortgage Debt (1) Mortgage Debt
- --------- ----------- ----------------- -------------
<S> <C> <C> <C>
Silver Springs $ 7,103,000 $ 5,398,000 $ 1,705,000
Rancho del Sol 15,405,000 11,130,000 4,275,000
Sandpebble 9,643,000 5,528,000 4,115,000
Regency Square 9,922,000 8,047,000 1,875,000
Cameron Creek 8,417,000 6,427,000 1,990,000
Harbor Pointe 14,221,000 12,931,000 1,290,000
Pointe West 4,534,000 3,064,000 1,470,000
Bernardo Crest 17,235,000 11,515,000 5,720,000
----------- ----------- -----------
Total $86,480,000 $64,040,000 $22,440,000
----------- ----------- -----------
</TABLE>
- ----------------
(1) Principal amount of mortgage debt outstanding as of December 31, 1997.
40
<PAGE>
If the Spanos Bidder's guaranteed Minimum Overall Bid is the
Successful Bid for the Properties, Spanos estimates that the ultimate aggregate
distributions to Unitholders upon consummation of the Liquidation will be
approximately $43.00 per Unit. See "Anticipated Results of Auction, Use of
Proceeds and Cash Distributions" below.
Under the Settlement Agreement, the Spanos Bidder may submit an
improved Individual Bid for one or more of the Properties during the re-bid
period, and, may also improve any Overall Bid previously submitted. However,
certain Unitholders who were informed regarding the proposed conduct of the
Auction informally expressed concern that the ability of the Spanos Bidder to
submit improved Individual and Overall Bids could chill the interests of
potential third-party bidders in the Auction. Accordingly, Spanos has
determined that, after submission of the required Minimum Overall Bid and
required initial Individual Bids, neither the Spanos Bidder nor Spanos nor any
other affiliate of Spanos will submit improved bids during the re-bid period.
Therefore, if any third-party bidder submits an Overall Bid which exceeds the
Minimum Overall Bid of the Spanos Bidder, then the Spanos Bidder will not be the
Successful Bidder. Moreover, as to each Property, if any third-party bidder
submits an Individual Bid which exceeds the Spanos Bidder's initial Individual
Bid, then the Spanos Bidder will not be the Successful Bidder as to such
Property. Each of the bids submitted by the Spanos Bidder will be considered a
final bid and will remain open
41
<PAGE>
through the end of the re-bid period. If the Spanos Bidder is the Successful
Bidder with respect to one or more of the Properties, it will be required to
execute the basic sales contract without change. It is presently anticipated
that the Spanos Bidder will be A.G. Spanos Construction, Inc., which will
utilize its existing cash reserves and presently available bank lines of credit
to fund the purchase price of any Property as to which it is the Successful
Bidder.
d. Consummation of Sales of Properties. The bid form and the form of
-----------------------------------
basic sales contract will provide that the sale of a Property will be
consummated as soon as practicable after execution of the contract. At the
closing of the sale of each Property, the escrow agent for such property will be
directed to disburse the net sale proceeds to the Partnership.
For a general discussion of the tax consequences from the sale of the
Properties, see "FEDERAL INCOME TAX CONSEQUENCES OF THE PLAN."
Description of Properties
- -------------------------
All of the Properties are garden apartment complexes, two of which are
located in Tempe, Arizona (a suburb of Phoenix), two in suburbs of Atlanta,
Georgia and one each in San Diego, California, Las Vegas, Nevada, Sparks, Nevada
(near Reno) and a suburb of Denver, Colorado.
The following table sets forth certain information regarding the
Properties as of January 1, 1998:
42
<PAGE>
<TABLE>
<CAPTION>
1997
Average
No. Annual
of Land Occupancy Date of Purchase Mortgage Mortgage
Property Location Units (Acres) Rate Purchase Price/*/ Debt Maturity
- -------- --------- ----- ------- ---------- --------- --------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Silver Springs Tempe, AZ 198 9.3 93.8% 11/88 $ 8,692,200 $ 5,398,000 12/2000
Rancho del Sol Las Vegas, NV 376 16.0 93.7% 12/88 20,078,400 11,130,000 10/2019
Sandpebble Sparks, NV 236 11.5 95.3% 12/88 9,828,000 5,528,000 6/98
Regency Square Chamblee, GA 276 9.2 92.3% 1/89 14,955,000 8,047,000 2/2001
Cameron Creek Tempe, AZ 211 8.7 94.5% 3/89 9,959,400 6,427,000 10/2019
Harbor Pointe Dunwoody, GA 366 45.9 93.5% 6/89 20,203,000 12,931,000 10/2019
Pointe West Aurora, CO 138 5.3 95.4% 9/89 5,100,000 3,064,000 3/2016
Bernardo Crest San Diego, CA 216 16.6 96.4% 12/89 18,684,000 11,515,000 8/2019
----- ----- ------------ -----------
2,017 122.5 $107,500,000* $64,040,000
<CAPTION>
Mortgage Monthly Est.
Interest Debt Balloon
Property Rate Service Payment
- -------- -------- -------- --------
<S> <C> <C> <C>
Silver Springs 6.5% $ 38,006 $ 5,030,000
Rancho del Sol 8.11% 92,172 --
Sandpebble 8.28% 48,828 5,474,000
Regency Square 8.00% 61,269 7,732,000
Cameron Creek 8.11% 52,480 --
Harbor Pointe 7.75% 102,635 --
Pointe West 7.61% 25,971 --
Bernardo Crest 8.12% 94,221 --
-------- -----------
$515,582 $18,236,000
</TABLE>
______________________________
/*/ The purchase price per Property shown in the above table is the price
originally paid to an affiliate of Spanos for such Property, and does not
include acquisition fees aggregating $2,800,000 paid to an affiliate of Spanos
and acquisition expenses of approximately $200,000. In addition, affiliates of
Spanos paid to the Partnership an aggregate of $5,037,000 in cash flow guaranty
payments with respect to such Properties, which payments were treated as
reductions to the purchase prices per Property set forth above.
43
<PAGE>
Anticipated Results of Auction, Use of Proceeds and Cash Distributions
- ----------------------------------------------------------------------
The following table sets forth the anticipated application of the
proceeds from the Auction, as well as information regarding the estimated loss
to be realized per Unit upon sale of the Properties and termination of the
Partnership. The amount available for distribution to Unitholders shown below
assumes that: (i) the Spanos Bidder's guaranteed Minimum Overall Bid is the
Successful Bid for both the Partnership and the Genesis Partnership, and all of
the Auction Properties are purchased by the Spanos Bidder; and (ii) the costs of
the Auction and the solicitation of Consents are allocated between the
Partnership and the Genesis Partnership in proportion to the amounts of the
Spanos Bidder's respective guaranteed Minimum Overall Bids. The amount
available for distribution to Unitholders would increase if the aggregate sales
price of the Properties exceeds the Spanos Bidder's guarantee by more than the
increased expenses of the Auction which will result from multiple purchasers of
the Properties.
44
<PAGE>
<TABLE>
<S> <C>
Application of Proceeds:
Auction Sale Price (Net of Mortgage Debt) $22,440,000
Less: Auction Expenses 695,000/1/
Consent Solicitation Expenses 197,000/1/
-----------
Net Sale Price $21,548,000
Plus: Other Partnership Assets 2,100,000/2/
-----------
(Net of Liabilities)
$23,648,000
===========
Less: Liquidation Expenses (est.) 100,000
Attorneys' Fees 1,000,000/3/
-----------
Net Distributable Amount $22,548,000
===========
Distributions to Unitholders 13,520,000/4/
Distributions to Subordinated Limited Partners 8,878,000/5/
Distributions to General Partners 150,000/6/
-----------
Total Distributions $22,548,000
===========
Distribution to Unitholders Per Unit
($250 of Original Capital Contribution):
Prior Cash Distributions Per Unit $ 154.71/7/
Distributions Per Unit from Auction Proceeds 42.67/4/8/
Loss Per Unit $ 52.62/7/8/
</TABLE>
- ------------------
/1/ Auction expenses and Consent solicitation expenses are estimated amounts,
and are allocated between the Partnership and the Genesis Partnership as
indicated in (iii) above. Expenses of the Auction will increase if there are
multiple purchasers of the Properties (i.e., if the Spanos Bidder is not the
sole Successful Bidder), but any such increase is not expected to be material.
/2/ Estimated based upon assets and liabilities as of December 31, 1997.
45
<PAGE>
/3/ Pursuant to the Settlement Agreement and subject to the approval of the
Court, the Partnership will pay to Lead Class Counsel, on behalf of the
Unitholders, an amount not to exceed 8% of the amount otherwise distributable to
the Unitholders from the Auction Proceeds.
/4/ Of this amount, the General Partners initially will withhold $1,000,000
($3.16 per Unit) for a period of up to one year as a reserve against further
unforeseen contingent obligations of the Partnership, including any liabilities
which may arise under the sales contracts for the Properties.
/5/ The Subordinated Limited Partner Interests were issued to affiliates of
Spanos in consideration of a cash capital contribution of $5,544,000 and in
consideration of certain cash flow guaranty payments made by such affiliates to
the Partnership during the period from inception through June 30, 1992.
/6/ The Partnership Agreement provides that liquidating distributions are to be
paid to the Unitholders, Subordinated Limited Partners and General Partners in
accordance with their positive capital account balances, after allocating the
net income or loss from the terminating transaction. Based upon the foregoing
assumptions, it is estimated that approximately $950,000 of the net income
resulting from the Auction will be allocated to the General Partners, which
would bring their capital accounts (currently a deficit of approximately
$800,000) to a positive balance of approximately $150,000. (See "Distributions
and Fees" below.)
/7/ Assumes Unitholder held Units since first closing of Partnership's offering
in 1988.
/8/ Assumes contingency reserve is not utilized and is ultimately distributed
to Unitholders. In addition, Unitholders who are not tax-exempt investors have
received tax benefits from their investment in the Units, and many Unitholders
will receive additional amounts under both the Settlement Agreement and the PSI
Settlement Agreement described hereinafter under "CERTAIN PENDING LITIGATION."
Amendment to Partnership Agreement
- ----------------------------------
Pursuant to Section 15.4.20 of the Partnership Agreement, the General
Partners and their affiliates may not purchase real property from the
Partnership, other than in connection with joint ventures with the Partnership.
In order
46
<PAGE>
for an affiliate of Spanos to be able to bid for and, if successful, to purchase
any or all of the Properties, the Partnership Agreement must be amended, which
requires the approval of Unitholders holding a majority of the outstanding
Units. The Amendment will permit such a purchase of the Properties, as set
forth in Exhibit A hereto.
Liquidation
- -----------
Pursuant to the Settlement Agreement, within ten business days
following the closing of the sale of the last Property, the General Partners
will cause the Partnership (i) to pay all costs associated with the Auction,
including the solicitation of Consents from Unitholders and the preparation and
mailing of the notices required by the Settlement Agreement and the Court to be
sent to Unitholders for which bills have been received; (ii) to estimate and
reserve for all such costs associated with the Auction for which bills have not
yet been received; and (iii) to provide a further contingency reserve for
potential unforeseen costs and liabilities in an amount not to exceed
$1,000,000, such reserve to be maintained for a period not to exceed one year
from the closing of the sale of the final Property. The General Partners will
then cause the Partnership to distribute the balance of the cash from the sales
first, on behalf of the Unitholders, as attorneys' fees to Lead Class Counsel,
in such amount as has been awarded by the Court, which for the Unitholders will
not exceed eight percent (8%) of the amount otherwise distributable to the
Unitholders from the sales,
47
<PAGE>
and then to the Unitholders, Subordinated Limited Partners and General Partners
as provided in the Partnership Agreement. The remaining assets of the
Partnership, and any remainder of the contingency reserve, will be distributed
to the Unitholders within one year after the closing of the sale of the last
Property. If any costs associated with the Auction are not individually charged
or allocated to the Partnership or the Genesis Partnership, the costs are to be
allocated between the Partnership and the Genesis Partnership based on the gross
cash amount in excess of existing mortgage debt paid to either of them as a
result of the Auction, unless a more equitable method of allocation is agreed
upon by P-B Properties, Lead Class Counsel and the Spanos General Partners.
Even if all liabilities of the Partnership have not been satisfied after one
year, the remainder of the contingency reserve will be distributed to the
Unitholders, and the General Partners will remain obligated for such
liabilities.
Section 19.1 of the Partnership Agreement provides that the
Partnership will terminate and be dissolved upon the disposition of all of the
assets of the Partnership and the receipt of the final cash payment of the
purchase price of all such assets.
Distributions and Fees
- ----------------------
The sale of all of the Partnership's Properties in the Auction will
constitute a "Terminating Sale or Disposition," as defined below. Pursuant to
Section 11.8 of the Partnership
48
<PAGE>
Agreement, a Terminating Sale or Disposition invokes allocation and distribution
requirements which differ in certain respects from those that would ordinarily
result from sale or refinancing of one or more of the Partnership's Properties.
Section 11.8 and Section 11.4.4 of the Partnership Agreement provide that any
Net Income resulting from a Terminating Sale or Disposition will be allocated
first to Unitholders, Subordinated Limited Partners and General Partners who
have negative capital account balances. As of the date of this Solicitation
Statement, only the General Partners had negative capital account balances,
which at December 31, 1997 aggregated approximately $400,000 for each of the
General Partners, and so an aggregate of approximately $800,000 of the Net
Income resulting from the Auction will be allocated to the General Partners'
capital accounts, bringing those accounts to a zero balance. The remaining Net
Income will next be allocated 2% to the General Partners and 98% to the
Unitholders and Subordinated Limited Partners until their capital account
balances equal their Adjusted Contributions (i.e., the original capital
contribution of $250 per Unit less any prior distributions of cash from sale or
refinancing of Properties or from working capital reserves). Since the capital
account balances of the Subordinated Limited Partners currently equal their
Adjusted Contributions, the General Partners will be allocated approximately
$75,000 each and all of the remaining Net Income will be allocated to the
Unitholders. Spanos does not anticipate that the Net Income of the Partnership
for the year
49
<PAGE>
1998 (assuming all of the Properties are sold in 1998) will be sufficient to
restore the Unitholders' capital account balances to the level of their Adjusted
Contributions.
As set forth under "Anticipated Results of Auction, Use of Proceeds
and Cash Distributions" above, and based on the assumptions therein stated,
Spanos estimates that upon completion of the Liquidation, the General Partners
will have received cash distributions aggregating approximately $150,000, the
Subordinated Limited Partners (who are affiliates of Spanos) will have received
cash distributions of $8,878,000 and the Unitholders will have received
approximately $13,520,000 of cash distributions, in each case in addition to
those previously received.
A "Terminating Sale or Distribution" is defined in the Partnership
Agreement to be the earlier to occur of (i) the sale or disposition of the
Partnership's last three Properties commencing with the first such sale or (ii)
the sale or disposition of a Property which causes the aggregate acquisition
cost of all Properties which have been sold or disposed of to exceed 66 2/3% of
the aggregate original acquisition cost of all Properties. Because all of the
Properties will be sold in the Auction as part of a single plan of disposition,
each sale will be treated as a Terminating Sale or Disposition, regardless of
the closing dates of sales of the individual Properties.
Neither of the General Partners will receive any fees in connection
with the sale of the Properties or the liquidation
50
<PAGE>
and dissolution of the Partnership. However, as provided in the Partnership
Agreement, the General Partners will be entitled to receive cash distributions
of approximately $75,000 each. Upon sale of the Properties, the management fees
and special distributions which the General Partners presently receive will be
eliminated. Furthermore, Spanos has guaranteed that the Auction will generate
gross proceeds of at least $22,440 in excess of the aggregate outstanding
principal balance of all existing mortgage debt on the Properties, the net
amount of which (after payment of expenses of the Auction, certain plaintiffs'
attorneys' fees and the expenses of liquidation of the Partnership and
establishment of a contingency reserve) will be available for distribution to
the Unitholders, Subordinated Limited Partners and General Partners as provided
in the Partnership Agreement. Sales of the Properties and liquidation of the
Partnership will also eliminate any liability of the General Partners for future
Partnership obligations and risk to the Partnership which might arise from
continued operation of the Partnership.
51
<PAGE>
PRO FORMA FINANCIAL INFORMATION
On a pro forma basis, if the Plan had been consummated on September
30, 1997 under the assumptions described above under "THE PLAN -- Anticipated
Results of Auction, Use of Proceeds and Cash Distributions," the Partnership's
Balance Sheet as of September 30, 1997 would have reflected cash of
approximately $22,548,000, limited partners' equity of approximately
$13,520,000, subordinated limited partners' equity of approximately $8,878,000
and general partners' equity of approximately $150,000, and the Partnership's
income statement for the quarter ended September 30, 1997 would have reflected a
nonrecurring gain of approximately $9,367,000.
FINANCIAL INFORMATION REGARDING GENERAL PARTNERS
See the Index to Financial Statements for information regarding the
audited balance sheet of the Spanos General Partner as of its most recent fiscal
year-end, and the audited balance sheets of the general partners of the Spanos
General Partner as of their respective most recent fiscal year-ends. The Spanos
General Partner has no reason to believe that P-B Properties does not have the
financial ability to meet its obligation to make an additional capital
contribution to the Partnership with respect to its capital account deficiency,
pursuant to the Partnership Agreement. Moreover, as set forth under "THE PLAN -
- -Distributions and Fees," allocation of the net income which will be produced by
sale of the Properties pursuant to the Minimum
52
<PAGE>
Overall Bid will result in elimination of the capital account deficiency of P-B
Properties and any obligation of P-B Properties to make an additional capital
contribution.
53
<PAGE>
MARKET PRICES OF UNITS AND DISTRIBUTIONS TO UNITHOLDERS
Market Prices
- -------------
The Units of the Partnership are not listed on any national securities
exchange or quoted on the NASDAQ System, and there is no established public
trading market for the Units. Secondary market activity for the Units has been
limited and sporadic. However, as a service to its clients, Prudential
Securities has facilitated sales to purchasers in a limited secondary market for
the Units. Limited information available to Spanos from secondary market
sources indicates that bid prices in the limited secondary market have ranged
from a low of approximately $26.00 per Unit to a high of approximately $55.00
per Unit during the period from the first quarter of 1996 through November of
1997. Such bid prices may not reflect actual transactions, and the proceeds to
a seller of Units would be reduced by sales commissions, which may be
substantial, and transfer fees payable to the Partnership.
Prudential Securities was the principal distributor of the Units in
the Partnership's public offering, and continues to provide certain investor
services on a contractual basis, including processing of all transfers of Units,
subject to the approval of the General Partners. Prudential Securities has
advised Spanos that the transfer records for the Partnership reflect the
following aggregate numbers of Units transferred in the past five years:
54
<PAGE>
<TABLE>
<CAPTION>
No. of Units
Year Transferred
---- ------------
<S> <C>
1993 38,843
1994 37,409
1995 36,516
1996 51,174
1997 40,690
</TABLE>
Generally, no information regarding the prices at which Units were sold is
available from the Partnership's transfer records, and the transfers reflected
in the above table include non-sale transactions.
Spanos believes that the limited amount of information available
regarding transfers of Units and bid prices does not reflect sufficient market
activity to be representative of the market value of the Units, and such
information should not be relied upon as being indicative of the ability of
Unitholders to sell their Units in secondary market transactions or as to the
prices at which such Units may be sold. Therefore, the information presented
should not be relied upon by Unitholders in determining whether or not to
consent to the Plan.
On November 5, 1996, Prescott Associates, L.L.C., an entity not
affiliated with either of the General Partners, commenced a limited tender offer
for up to 14,260 Units (4.5% of the outstanding Units) at a cash price of $35.00
per Unit, less the transfer fee of $75.00 payable to the Partnership and less
any cash distributions exceeding $1.22 per Unit made by the Partnership to any
tendering Unitholder after the date of the offer. The tender offer was
scheduled to expire on December 6,
55
<PAGE>
1996, and to the knowledge of the General Partners was not extended. Based upon
the Partnership's records, it appears that a total of 13,002 Units were
purchased in this tender offer.
In November, 1997, Hungry Bear Fund 96, LLC, an entity not affiliated
with either of the General Partners, commenced a limited tender offer for up to
500 units (.15% of the outstanding Units) at a cash price of $42.75 per Unit,
less the transfer fee of $75.00 payable to the Partnership and less any cash
distributions made by the Partnership after October 1, 1997 to any tendering
Unitholder. The tender offer was scheduled to expire on December 15, 1997, and
to the knowledge of the General Partners was not extended. Based upon the
Partnership's records, it appears to date that a total of 144 Units were
purchased in this tender offer.
Distributions to Unitholders
- ----------------------------
From the inception of the Partnership through the second quarter of
1992, the Partnership made quarterly cash distributions to the Unitholders.
Such distributions were made from operating cash flow, from proceeds of
refinancing of Properties and from funds received under a cash flow guaranty
made by affiliates of Spanos at the inception of the Partnership, which expired
in 1992. Due to insufficient cash flow, the Partnership suspended cash
distributions in 1992, and did not resume such distributions until 1996. Spanos
believes that cash distributions in respect of 1997 will equal those for 1996.
The
56
<PAGE>
following table sets forth the amounts of such distributions per Unit.
<TABLE>
<CAPTION>
Distribution
Period per $250 Unit*
------ --------------
<S> <C>
1988** $ 1.95
1989 35.00
1990 35.00
1991 35.00
1992 38.00
1993 -0-
1994 -0-
1995 -0-
1996 4.88
1997 4.88
-------
$154.71
-------
</TABLE>
- ------------------------
* Includes distribution of refinancing proceeds of $17.50 in 1989, $18.72 in
1990, $20.04 in 1991 and $31.22 in 1992, respectively.
** Assumes Unitholder held Units since first closing of Partnership's offering
in 1988.
During the same period, the Partnership made cash distributions to the
Subordinated Limited Partners averaging $57.62 per $250 Unit, which
distributions were made from refinancing proceeds. Pursuant to the Partnership
Agreement, the Partnership has made or accrued special distributions to P-B
Properties aggregating $1,861,586 for the period 1988-1997, which distributions
were made from operating cash flow and were treated for financial reporting and
tax purposes as operating expenses.
In addition to distributions from the Partnership, most Unitholders
will be entitled to receive payments with respect to their Units pursuant to the
PSI Settlement Agreement described below under "CERTAIN PENDING LITIGATION."
57
<PAGE>
FEDERAL INCOME TAX
CONSEQUENCES OF THE PLAN
General
- -------
Approval of the Plan has certain tax implications to the Unitholders
that should be considered. The following discussion summarizes the material
federal income tax consequences arising from the Partnership's proposed sale of
the Properties and provides a general overview of certain state income tax
considerations. This summary is based upon the Internal Revenue Code of 1986,
as amended (the "Code"), Treasury Regulations, court decisions and published
positions of the Internal Revenue Service (the "IRS"), as currently in effect.
There can be no assurance that the IRS will agree with the conclusions stated
herein or that future legislative or administrative changes or court decisions
will not significantly modify the federal or state income tax laws regarding the
matters described herein, potentially with retroactive effect. This summary is
addressed only to Unitholders who are United States persons within the meaning
of Section 7701(a)(30) of the Code, deals only with Units that are held as
capital assets within the meaning of Section 1221 of the Code and is not
intended to be and should not be considered as an opinion respecting the federal
or state income tax consequences of the Plan. In addition, this summary does
not address the tax consequences that may be relevant to Unitholders in special
tax situations (including, for example, life insurance companies, dealers in
securities or
58
<PAGE>
currency, banks or other financial institutions, or Units held as a hedge or as
part of a hedging, straddle or conversion transaction). ACCORDINGLY,
UNITHOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS CONCERNING THE APPLICATION OF
UNITED STATES FEDERAL INCOME TAX LAWS, AS WELL AS THE LAWS OF ANY STATE, LOCAL
OR FOREIGN TAXING JURISDICTION, TO THEIR PARTICULAR SITUATIONS.
Certain United States federal income tax consequences associated with
an investment in the Units were discussed in the Prospectus, dated October 18,
1988, covering the original public offering of the Units. This summary does not
update that discussion; rather it discusses only the federal income tax aspects
directly relevant to the Plan.
Partnership Taxation
- --------------------
This summary assumes, and Spanos believes, that the Partnership has
been and will continue to be properly classified as a partnership for federal
income tax purposes. An entity that is classified as a partnership is not
subject to federal income tax. Instead, each partner in the partnership is
required to take into account in computing his or her income tax liability the
partner's allocable share of the partnership's items of income, gain, loss,
deduction and credit.
Sale of Properties
- ------------------
The Partnership will have taxable gain or loss upon its sale of each
Property, measured by the difference between the amount realized on the sale
(generally, cash or other consideration received reduced by the expenses of
sale) and the
59
<PAGE>
Partnership's adjusted basis in such Property. The "adjusted basis" of a
Property generally is its cost plus the amount of any capital expenditures (such
as improvements) minus the amount of depreciation and amortization.
Assuming (i) the Spanos guaranteed Minimum Overall Bid is the
Successful Bid for the Properties, (ii) the selling expenses (including Lead
Class Counsel's legal fees) are $1,695,000 and (iii) the sales are consummated
in 1998, Spanos estimates that the total gain resulting from the sale of the
Properties would be approximately $8 million. The amount of gain realized on
the sale of the Properties will depend upon the actual sales prices and the
actual selling expenses and legal fees incurred in connection with the sale of
the Properties.
Any such gain or loss generally will constitute Section 1231 gain or
Section 1231 loss (i.e., gains or losses from disposition of real property or
----
depreciable personal property used in a trade or business and held for more than
one year, other than property held for sale to customers in the ordinary course
of business). A Unitholder's share of the gains or losses from the sales of the
Properties would be combined with any other Section 1231 gains or Section 1231
losses of the Unitholder for that year. Net Section 1231 gains or net Section
1231 losses generally would be treated as long-term capital gain or ordinary
loss, as the case may be. However, a Unitholder's net Section 1231 gains would
be treated as ordinary income rather than capital gain to the extent of his or
her net Section 1231 losses,
60
<PAGE>
if any, incurred in the five preceding years. Furthermore, in the event that a
Property is sold at a gain, the depreciation expense may be recaptured as
ordinary income under Section 1245 or Section 1250 of the Code to the extent of
the realized gain. In general, under Section 1250, if real property is
depreciated on an accelerated basis rather than on a straight-line basis, then
the lesser of (i) any gain realized on disposition of the property or (ii) the
excess of accelerated depreciation over straight-line depreciation as of the
date of sale will be treated as ordinary income in the year the property is
sold. The Partnership does not expect to have any gain from the sale of the
Properties subject to recapture under Section 1250 of the Code. Spanos
estimates that approximately $850,000 of the gain would be subject to recapture
as ordinary income under Section 1245 of the Code if the Properties are sold for
the Minimum Overall Bid. Unitholders classified as corporations for federal
income tax purposes may be required, under Section 291(a) of the Code, to treat
20% of the gain from the sale of a Property attributable to depreciation expense
not subject to recapture under Section 1250 as ordinary income instead of
Section 1231 gain. The total amount of gain subject to Section 291(a) ordinary
income treatment for a corporate Unitholder is estimated to be approximately
$1.7 million (approximately $5 per Unit).
Under Section 702(a)(3) of the Code, a partnership is required to
state separately, and the partners are required to account separately for, their
distributive share of all gains and
61
<PAGE>
losses of their partnership. Accordingly, each Unitholder's allocable share of
the gains or losses from the sale of the Properties (including each Unitholder's
allocable share of Section 291(a) gain, Section 1245 gain, Section 1231 gain or
Section 1231 loss) will be separately stated and reflected on the applicable
Schedule K-1 forms provided to the Unitholders by the Partnership.
For most tax-exempt Unitholders, only a portion of the gain from the
sale of the Properties would be treated as unrelated business income. Under
Section 514(a) of the Code, gain from the sale of "debt-financed property" is
treated as unrelated business income generally in an amount equal to a ratio
determined by comparing the property's debt to its basis. If the Properties are
sold for the estimated total gain of approximately $8 million, Spanos estimates
that the portion of the gain that will be treated as unrelated business income
is $6.9 million (or $19 per Unit). Additional unrelated business income may
result to a tax-exempt Unitholder which borrowed funds to purchase its Units.
Tax-exempt Unitholders should consult their own tax advisors regarding the
unrelated trade or business income that may result from the sale of the
Properties.
Tax Allocations and Distributions
- ---------------------------------
Gain (or loss) from the sale of the Properties will be allocated to
the Partners in accordance with the Partnership Agreement. Allocations of a
partnership's items of income, gain, loss, deduction and credit will be
respected for federal income
62
<PAGE>
tax purposes if they have substantial economic effect or are otherwise made in
accordance with the partners' economic interests in the partnership. This
summary assumes, and Spanos believes, that the allocations of Partnership items
of income, gain, loss, deduction and credit to the Unitholders have substantial
economic effect or are otherwise in accordance with the Unitholders' economic
interests in the Partnership.
In general, under the Partnership Agreement, any Net Income in
connection with a Terminating Sale or Disposition will be allocated among the
Partners (prior to making distributions of sale proceeds) first to restore the
General Partners' negative capital account balances and then 98% to Unitholders
and 2% to the General Partners. If the Net Income of the Partnership for the
year 1998 is not sufficient to restore the Unitholders' capital account balances
to the level of their Adjusted Contributions, then the Partnership Agreement
provides that the Units held by earlier-admitted Unitholders are to be allocated
more of the gain from the sale of the Properties in order to equalize their per-
Unit capital accounts with those of the later-admitted Unitholders. See "THE
---
PLAN -- Distributions and Fees." If the Properties are sold for the Minimum
Overall Bid, Spanos estimates that a Unit acquired on the earliest closing date
will be allocated approximately $29 of the gain, and a Unit acquired on the last
closing date will be allocated approximately $10 of the gain. Approximately $3
of such gain would be characterized as Section 1245 income with the balance
characterized as Section
63
<PAGE>
1231 gain. To the extent that the actual gain on the Properties is more than
that estimated above, the per-Unit allocation of such gain would be
correspondingly higher. Any allocation of gain (or loss) from the sale of
Properties will increase (or decrease) a Unitholder's basis in the Units.
In general, under the Partnership Agreement, loss from the sale of a
Property must be allocated 2% to the General Partners and 98% to the
Unitholders. However, in such circumstances a special allocation of gross
rental income (depending upon the ultimate sales proceeds) would be made to P-B
Properties to reduce its negative capital account by a comparable amount, and an
equal amount of loss will be allocated among the Unitholders. Allocation of
loss will reduce a Unitholder's basis in the Units. However, no loss can be
utilized currently to the extent the loss exceeds the Unitholder's basis in the
Units.
Distributions to a Unitholder will generally not be taxable to the
extent the distributions do not exceed the Unitholder's adjusted tax basis in
the Units. For purposes of determining tax basis in a Unitholder's Units, any
payment received by the Unitholder from the settlement fund established pursuant
to the PSI Settlement Agreement (see "CERTAIN PENDING LITIGATION"), or from any
other settlements related to the Units, should be applied to reduce such
Unitholder's adjusted tax basis. The tax basis in the Units will also be
reduced by the distributions. To the extent any settlement payment and the
distributions exceed the adjusted tax basis, such excess will
64
<PAGE>
generally be treated as capital gain, which will be long-term if the applicable
Units have been held for more than one year. Unitholders who have remaining tax
basis in their Units after termination of the Partnership will generally have a
capital loss. Such capital loss can be used to offset any net Section 1231
gains that have not been otherwise characterized as ordinary income, but only if
such capital loss occurs in the same year as the net Section 1231 gain. Net
capital losses of taxpayers other than corporations may not be carried back to
earlier years.
It is not expected that the Partnership will terminate for federal
income tax purposes in the year in which the Properties are sold, because a
reserve for potential unforeseen costs and liabilities will be established and
maintained for a period not to exceed one year from the closing of the sale of
the final Property. Accordingly, a Unitholder will likely be allocated gain
from the sale of the Properties in a different year than termination of the
Partnership, which may result in a capital loss to a Unitholder which cannot be
used to offset the gain from the sale of the Properties.
Based on the estimated gain of $8 million, Spanos estimates that after
payment of the selling expenses incurred in connection with the sale of the
Properties and other expenses and liabilities of the Partnership and certain
attorneys' fees, the amount available for distribution to Unitholders would be
approximately $43.00 per Unit.
65
<PAGE>
Capital Gains Tax
- -----------------
With respect to individuals, trusts, and estates, the Taxpayer Relief
Act of 1997 ("TRA") generally reduces the maximum tax rate on net capital gains
on capital assets held for more than 18 months to 20% and provides a maximum tax
rate on net capital gains derived from capital assets held for more than one
year and for not more than 18 months ("mid-term gains") of 28%. TRA does not
affect the taxation of capital gains realized by corporations. Substantially
all of the Partnership's assets have been held for longer than 18 months.
Accordingly, a substantial portion of any Section 1231 gains of the Partnership
realized on the sale of assets and allocable to Unitholders who are individuals,
trusts and estates may be taxed at a maximum federal income tax rate of 20% (if
such gains are not recharacterized as ordinary income as described above under
"Sale of Properties," or are not subject to the special tax rate described in
the next paragraph).
Under TRA, individuals, trusts and estates are taxed on unrecaptured
Section 1250 gain at a maximum federal income tax rate of 25%. Unrecaptured
Section 1250 gain generally equals the excess of (i) the lesser of the gain
realized on disposition of depreciable real property or depreciation allowed or
allowable on the property through the date of disposition, over (ii) the amount
of depreciation recapture realized upon the disposition (as described above
under "Sale of Properties"). Spanos believes that substantially all of the gain
realized upon the sale of the
66
<PAGE>
Partnership's assets pursuant to the transactions described herein will be
unrecaptured Section 1250 gain.
Net capital losses of such a Unitholder can be utilized to offset
ordinary income limited to the sum of net capital gains from other sources
recognized by the Unitholder during the tax year, plus $3,000 ($1,500 in the
case of a married individual filing a separate return). The excess amount of
such net capital loss may be carried forward and utilized in subsequent years
subject to the same limitations but may not be carried back to a prior year.
Unitholders classified as corporations are taxed on capital gains at
the same rates as ordinary income. A corporate Unitholder can deduct capital
losses only to the extent of capital gains, with any unused capital losses
generally being carried back three years and forward five years.
Passive Loss Limitation
- -----------------------
Unitholders that are individuals, trusts, estates, closely held
corporations or personal service corporations are subject to the passive
activity loss limitations rules. A Unitholder's allocable share of Partnership
income or loss is treated as derived from a passive activity, except to the
extent of the Partnership's portfolio income, which includes interest, dividends
and gains from the sale of property held for investment purposes. A
Unitholder's allocable share of any Partnership gain realized on the sale of its
Properties (other than gain from the sale of portfolio investments) will be
characterized as passive
67
<PAGE>
activity income that may be offset by passive activity losses from other passive
activity investments. If all of the Properties are sold, a Unitholder's
allocable share of any Partnership loss realized on such sale, or any loss
realized by the Unitholder upon liquidation of his or her Units, will not be
subject to the passive activity loss limitations. In addition, upon the
complete disposition of a Unitholder's entire interest in the Partnership, any
suspended passive activity losses of the Unitholder with respect to his or her
investment in the Partnership could be used to reduce other income of the
Unitholder.
Final Partnership Returns and Future Tax Issues
- -----------------------------------------------
Following the termination of the Partnership, the General Partners, on
behalf of the Partnership, will file a final tax return for the Partnership, and
on a timely basis will provide Schedule K-1 forms to all Unitholders setting
forth their allocable shares of the Partnership's items of income, gain, loss,
deduction and credit. P-B Properties will also have full responsibility and
authority for any other tax-related matter arising after the termination of the
Partnership, including acting as the "tax matters partner" representing the
Partnership in any federal or other audit of returns of the Partnership for its
final year or any prior year.
Unitholders should understand that while the Partnership will be
terminated, such termination will not eliminate the possibility that the IRS
could challenge the tax
68
<PAGE>
treatment of the Partnership's activities for the year of termination or any
prior year for which the statute of limitations for making adjustments has not
elapsed. If any adjustments are made to the Partnership's income tax returns,
P-B Properties will so notify the Unitholders. Any tax audit or adjustments
could result in assessment of additional tax liabilities upon the Unitholders
which would be payable from their own funds and would not be reimbursable by the
General Partners or the Partnership.
Certain State Income Tax Considerations
- ---------------------------------------
Because each state's tax law varies, it is impossible to predict the
tax consequences to the Unitholders in all the states in which they are already
subject to tax. Accordingly, the following is a general summary of certain
common (but not necessarily uniform) principles of state income taxation. State
tax consequences to each Unitholder will depend upon the provisions of the state
tax laws to which the Unitholder is subject. The Partnership will generally be
treated as engaged in business in each of the states in which the Properties are
located, and the Unitholders will generally be treated as doing business in such
state and therefore subject to tax in such state. Most states modify or adjust
the taxpayer's federal taxable income to arrive at the amount of income
potentially subject to state tax. Resident individuals generally pay state tax
on 100 percent of such state-modified income, while corporations and other
taxpayers generally pay state tax only on
69
<PAGE>
that portion of state-modified income assigned to the taxing state under the
state's own apportionment and allocation rules.
NO APPRAISAL RIGHTS
If Unitholders owning a majority of the Units on the Record Date vote
in favor of the Plan, such approval will bind all Unitholders. The Partnership
Agreement and the Delaware Revised Uniform Limited Partnership Act, under which
the Partnership is governed, do not give rights of appraisal or similar rights
to Unitholders who dissent from the vote of the majority in approving or
disapproving the Plan. Accordingly, dissenting Unitholders do not have the
right to have their Units appraised or to have the value of their Units paid to
them if they disapprove of the action of a majority in interest of the
Unitholders.
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF
On the Record Date, there were 316,828 Units issued and outstanding
and entitled to vote on matters upon which Unitholders may vote or consent.
According to publicly available information, and to the best knowledge of
Spanos, as of the Record Date, no person or entity owned more than 5% of the
outstanding Units. As of the Record Date, neither of the General Partners nor
any officer or director thereof, nor any officer or director of either of the
general partners of Spanos, owned any Units. Prudential Securities beneficially
owned 4,663 Units as of the Record Date and has advised Spanos that it intends
to vote
70
<PAGE>
such Units to consent or withhold consent to the Plan in the same proportions as
do the other Unitholders.
CERTAIN PENDING LITIGATION
There is currently pending in the United States District Court for the
Southern District of New York (the "Court") a class action entitled In re
Prudential Securities Incorporated Limited Partnerships Litigation, MDL Docket
No. 1005, M-21-67 (MP). The consolidated action had its genesis in several
different class actions filed in various courts, all of which were transferred
to a single judge and consolidated for pretrial proceedings under the
aforementioned caption./*/ On June 8, 1994, plaintiffs in the consolidated
action filed a Consolidated Complaint that superseded the individual complaints
previously filed in various courts and that was purportedly brought on behalf of
a class of approximately 350,000 investors who had purchased units in
approximately 700 limited partnerships sponsored or co-sponsored by P-B
Properties or its affiliates (collectively the "Prudential Organization"). The
Consolidated Complaint named as defendants, among others, Prudential
- ---------------------------
/*/ The various consolidated cases are: Bottner v. A.G. Spanos Residential
------- -----------------------
Partners - 86, et al., 93 Civ. 7708 (S.D.N.Y.); Kahn v. Prudential-Bache
- -------------------- ---- ----------------
Properties, Inc., et al., 93 Civ. 5976 (S.D.N.Y.); Dumbroff, et al. v. Avron B.
- ----------------------- --------------- --------
Fogelman, et al., 93 Civ. 6261 (S.D.N.Y.); Gorman v. Almahurst, Inc., et al., 93
- --------------- ------ ----------------------
Civ. 8805 (S.D.N.Y.); Kinnes, et al. v. Prudential Securities Group, Inc., et
------------- -------------------------------------
al., 93 Civ. 654 (D. Ariz.); Massad, et al. v. Prudential Insurance Co., et al.,
- -- ------------- -------------------------------
93 Civ. 5095 (D.N.J.); Levine, et al. v. Prudential-Bache Properties Inc., et
------------- ------------------------------------
al., 92 Civ. 52 (N.D. Ill.); Connelly, et al. v. Prudential-Bache Securities,
- -- --------------- ----------------------------
Inc., et al., CIV 93-713 TUC ACM (D. Ariz.).
- -----------
71
<PAGE>
Securities, P-B Properties, certain of the affiliates and present and former
officers and employees of the aforementioned, and the co-general partners of
other partnerships sponsored or co-sponsored by the Prudential Organization,
including Spanos. The Partnership is not named as a defendant in the
Consolidated Complaint, but the Partnership is listed as being among the limited
partnerships at issue in the case.
The Consolidated Complaint alleges violations of the federal and New
Jersey Racketeer Influenced and Corrupt Organizations Act ("RICO") statutes,
fraud, negligent misrepresentation, breach of fiduciary duties, breach of third-
party beneficiary contracts and breach of implied covenants in connection with
the marketing and sales of limited partnership interests. Plaintiffs request
relief in the nature of rescission of the purchase of securities and recovery of
all consideration and expenses in connection therewith, as well as compensation
for lost use of money invested less cash distributions; compensatory damages;
consequential damages; treble damages for defendants' alleged RICO violations
(both federal and New Jersey); general damages for all injuries allegedly
resulting from negligence, fraud, breaches of contract, and breaches of duty in
an amount to be determined at trial; disgorgement and restitution of all
earnings, profits, benefits, and compensation received by defendants as a result
of their allegedly unlawful acts; and costs and disbursements of the action. On
August 9, 1995, P-B Properties, Prudential Securities and other Prudential
72
<PAGE>
Organization defendants (collectively the "PSI Settling Defendants") entered
into a Stipulation and Agreement of Partial Compromise and Settlement (the "PSI
Settlement Agreement") with plaintiffs in the consolidated action. The Court
preliminarily approved the PSI Settlement Agreement by order dated August 29,
1995 and, following a hearing held November 17, 1995, found that the PSI
Settlement Agreement was fair, reasonable, adequate and in the best interests of
the plaintiff class. The court gave final approval to the settlement, certified
a class of purchasers of interests in specific limited partnerships, including
the Partnership, released all settled claims by members of the class against the
PSI Settling Defendants and permanently barred and enjoined class members from
instituting, commencing or prosecuting any settled claim against the released
parties. Pursuant to the PSI Settlement Agreement, PSI and its affiliates have
paid a total of $110,000,000 into a settlement fund for future distributions to
members of the plaintiff class, including Unitholders who purchased their Units
prior to June 8, 1994. The consolidated action remained pending against Spanos
and certain of its affiliates, as well as other co-general partners of other
partnerships, including Spanos Genesis. The Partnership is not named a
defendant in the Consolidated Complaint and the action is not expected to have a
material effect on the Partnership's financial condition; accordingly, no
provision for any loss that may result upon resolution of the Consolidated
Complaint has been made in the financial statements of the Partnership.
73
<PAGE>
On May 12, 1997, Spanos and those of its affiliates named as
defendants in the consolidated action entered into the Settlement Agreement with
the plaintiffs therein. P-B Properties is not a party to the Settlement
Agreement, but has acknowledged the Settlement and agreed to be bound by certain
provisions of the Settlement Agreement which require that P-B Properties take,
or forebear from taking, certain actions in connection with the Plan. The
Settlement Agreement requires, among other things, that Spanos use its best
efforts to solicit the consent of the Unitholders of the Partnership for the
Auction and the subsequent termination and dissolution of the Partnership. In
addition to the provisions for the Auction, the minimum Spanos bids and the
contingency reserve, the Settlement Agreement provides that Spanos and its
affiliates will pay (i) $1,175,000 into a settlement fund, to be distributed to
members of the plaintiff class, including Unitholders who purchased their Units
prior to June 8, 1994, (ii) $100,000 for the costs of providing notice to the
members of the plaintiff class and (iii) $500,000 to Lead Class Counsel. On May
20, 1997, the Court preliminarily certified two settlement classes and
preliminarily approved the Settlement. For a more detailed description of the
Settlement and the rights of Unitholders in connection therewith, refer to the
NOTICE TO EQUITABLE CLASS OF PENDENCY OF CLASS ACTION, PROPOSED PARTIAL
SETTLEMENT OF CLASS ACTION BY THE SPANOS DEFENDANTS, REQUIREMENT FOR MAJORITY
CONSENT TO THE AUCTION OF THE PROPERTIES OF CERTAIN PARTNERSHIPS AS PART OF THE
SPANOS
74
<PAGE>
SETTLEMENT, SETTLEMENT FAIRNESS HEARING, RIGHT TO APPEAR AT HEARING AND RIGHT TO
OBJECT TO THE SETTLEMENT, which accompanies this Solicitation Statement.
On or about April 15, 1994, a multiparty petition entitled Schreiber,
et al. v. Prudential Securities, Inc., et al. (Cause No. 94-17696) was filed in
the 189th Judicial District Court of Harris County, Texas, purportedly on behalf
of investors in the Partnership against the Partnership, the General Partners,
Prudential Securities, The Prudential Insurance Company of America and a number
of other defendants. The Petition alleges common law fraud, fraud in the
inducement and negligent misrepresentation in connection with the offering of
limited partnership interests and negligence, breach of fiduciary duty, civil
conspiracy, and violations of the federal Securities Act of 1933 (sections 11
and 12) and of the Texas Securities and Deceptive Trade Practices statutes. The
suit seeks, among other things, compensatory and punitive damages, costs and
attorneys' fees. Most of the plaintiffs have released their claims against the
defendants in exchange for monetary payments by Prudential Securities. It is
expected that the remaining claims will be resolved by Prudential Securities at
no cost to the Partnership. Accordingly, no provision for any loss that may
result upon resolution of this matter has been made in the financial statements
of the Partnership.
75
<PAGE>
AVAILABLE INFORMATION
This Solicitation Statement does not purport to be a complete
description of all agreements and matters relating to the condition of the
Partnership, its Properties and the transactions described herein. Attached to
this Solicitation Statement as Exhibits B and C, respectively, and incorporated
by reference into this Solicitation Statement are the Partnership's Annual
Report on SEC Form 10-K for the year ended December 31, 1996, as amended, and
its Quarterly Report on SEC Form 10-Q for the quarter ended September 30, 1997,
which provide additional information regarding the Partnership. With respect to
statements contained in this Solicitation Statement as to the content of any
contract or other document filed as an exhibit to either the Form 10-K or the
Form 10-Q, each such statement is qualified in all respects by reference to such
report and the schedules thereto, which may be obtained without charge upon
written request to the Partnership. To make such a request, a Unitholder must
write to P-B Properties, One Seaport Plaza, New York, New York 10292.
All documents filed by the Partnership with the Securities and
Exchange Commission after the date of this Solicitation Statement, but before
the Partnership takes action pursuant to this Consent, shall be deemed to be
incorporated by reference into this Solicitation Statement. Copies of these
documents will be available without charge upon request to P-B Properties, One
Seaport Plaza, New York, New York 10292. Any
76
<PAGE>
statement contained in a document incorporated or deemed to be incorporated by
reference in this Solicitation Statement shall be deemed to be modified or
superseded for purposes of this Solicitation Statement to the extent that a
statement contained in this Solicitation Statement (or in any other subsequently
filed document that also is or is deemed to be incorporated by reference in this
Solicitation Statement) modifies or supersedes such statement. Any statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part of this Solicitation Statement.
77
<PAGE>
INDEX TO FINANCIAL STATEMENTS
-----------------------------
<TABLE>
<S> <C>
A.G. Spanos Realty Partners, L.P.
- ---------------------------------
Independent Auditors' Report........................ F-2
Balance Sheet as of September 30, 1997.............. F-3
Notes to Balance Sheet.............................. F-4
AGS Financial Corporation
- -------------------------
Independent Auditors' Report........................ F-6
Consolidated Balance Sheet as of August 31, 1997.... F-7
Notes to Consolidated Balance Sheet................. F-9
A.G. Spanos Realty Capital, Inc.
- --------------------------------
Independent Auditors' Report........................ F-13
Balance Sheet as of September 30, 1997.............. F-14
Notes to Balance Sheet.............................. F-15
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
----------------------------
To the Partners
A.G. SPANOS REALTY PARTNERS, L.P.
Stockton, California
We have audited the accompanying balance sheet of A.G. SPANOS REALTY PARTNERS,
L.P., a California limited partnership, as of September 30, 1997. This
financial statement is the responsibility of the Company's management. Our
responsibility is to express an opinion on this financial statement based on our
audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audits to obtain reasonable
assurance about whether the balance sheet is free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the balance sheet. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall balance sheet presentation. We believe that our audit
of the balance sheet provides a reasonable basis for our opinion.
In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of A.G. SPANOS REALTY PARTNERS, L.P.
as of September 30, 1997, in conformity with generally accepted accounting
principles.
Bowman & Company, LLP
Stockton, California
January 8, 1998
F-2
<PAGE>
A.G. SPANOS REALTY PARTNERS, L.P.
BALANCE SHEET
SEPTEMBER 30, 1997
<TABLE>
<S> <C>
ASSETS
Accounts receivable $ 79,547
Advances to General Partner 498,029
---------
$ 577,576
=========
LIABILITIES AND PARTNERS' DEFICIT
Accounts payable $ 89,991
Distributions and recognized losses in excess of investment
in Prudential-Bache/A.G. Spanos Realty Partners, L.P., I 666,934
---------
Liabilities 756,925
---------
General Partners' deficit (3,594)
Limited Partners' deficit (175,755)
---------
Partners' deficit (179,349)
---------
$ 577,576
=========
</TABLE>
See Notes to Balance Sheet
F-3
<PAGE>
A.G. SPANOS REALTY PARTNERS, L.P.
NOTES TO BALANCE SHEET
1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Nature of business
------------------
A.G. Spanos Realty Partners, L.P. (A California Limited Partnership) (the
"Partnership"), was organized under the laws of the State of California on
June 1, 1988 and will continue until December 31, 2035, unless previously
terminated in accordance with the provisions of the Limited Partnership
Agreement.
AGS Financial Corporation ("AGS") and A.G. Spanos Realty Capital, Inc.
("Realty Capital") are the general partners of the Partnership, and Mr.
A.G. Spanos, Mr. Dean A. Spanos, Mr. Michael A. Spanos, Mr. Barry L. Ruhl,
Mrs. Dea Spanos Berberian and the Spanos Grandchildren's Trust are the
limited partners of the Partnership. On June 1, 1988, the general
partners contributed $10 each for their interest and the limited partners
contributed $980 for their interests in the Partnership.
The Partnership was organized for the purpose of sponsoring limited
partnerships which in turn are to be organized to engage in the ownership,
financing, management and operation of apartments and other real estate
activities.
Investment in Partnership
-------------------------
The Partnership reflects its investment in Prudential-Bache/A.G. Spanos
Realty Partners L.P., I using the equity method of accounting, whereby the
Partnership's cash investment is reduced by partnership distributions to
the Partnership and by the Partnership's proportionate share of the net
loss of the partnership. Since distributions and allocated losses exceed
the Partnership's investment, the balance has been classified as a
liability.
Use of Estimates
----------------
The preparation of the balance sheet in conformity with generally accepted
accounting principles requires management to make estimates and
assumptions that affect the reporting amounts of assets, liabilities and
disclosures of contingent assets and liabilities at the date of the
balance sheet. Actual results could differ from those estimates.
F-4
<PAGE>
NOTES TO BALANCE SHEETS
2. COMMITMENTS AND CONTINGENT LIABILITIES
Lawsuits
--------
The Partnership has been named as a defendant in a "consolidated"
complaint that supersedes separate class action complaints that were filed
during the 1993 calendar year. The plaintiffs seek unspecified damages
for economic injury suffered by them for their investment in Prudential-
Bache/A.G. Spanos Realty Partners L.P., I. Among other things, the
plaintiffs allege that the Company earned excess fees for the syndication
of the entity.
During the year ended September 30, 1994, the Partnership was named as a
defendant in two separate lawsuits. Both lawsuits contend that they were
induced to purchase units in limited partnerships by fraudulent
misrepresentations. One lawsuit settled with no liability to the
Partnership during the year.
During the year ended September 30, 1995, the Partnership was named as a
defendant in a lawsuit. The lawsuit contended that the plaintiff
purchased units of limited partnership because of misrepresentations by
the Partnership. On May 12, 1997, the Partnership and certain of its
affiliates entered into a Stipulation of Settlement with legal counsel
representing the plaintiff class in the consolidated actions. The
settlement contemplates, among other things, the sale of all of the
properties of Prudential-Bache/A.G. Spanos Realty Partners L.P., I at
public auction and the subsequent liquidation and dissolution of
Prudential-Bache/A.G. Spanos Realty Partners L.P., I. The settlement
agreement was preliminarily approved by the Court on August 28, 1997.
Pursuant to the settlement, detailed information about the proposed
auction sale and other terms of the settlement will be sent to the
Unitholders of Prudential-Bache/A.G. Spanos Realty Partners L.P., I with
proxy solicitation materials seeking the Unitholders' consent to the
auction sale. The settlement agreement contains numerous conditions and
must be finally approved by the Court at a fairness hearing at which the
Unitholders and other interested parties will have an opportunity to be
heard. There can be no assurance that the conditions to implementation of
the settlement will be satisfied.
The Partnership believes it has meritorious defenses in all pending cases
and that adverse decisions in any or all of these cases would be covered
by indemnification agreements from co-defendants, or by insurance, and
would not have a material effect on the financial condition of the
Partnership. It is impossible at this point to evaluate the likely
outcome and estimate any amount or range of potential losses.
Accordingly, the Partnership has not accrued a contingent loss on the
balance sheet.
F-5
<PAGE>
INDEPENDENT AUDITORS' REPORT
----------------------------
To the Board of Directors
AGS FINANCIAL CORPORATION
Stockton, California
We have audited the accompanying balance sheet of AGS FINANCIAL CORPORATION AND
SUBSIDIARIES, as of August 31, 1997. This financial statement is the
responsibility of the Company's management. Our responsibility is to express an
opinion on this financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audits to obtain reasonable
assurance about whether the balance sheet is free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the balance sheet. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall balance sheet presentation. We believe that our audit
of the balance sheet provides a reasonable basis for our opinion.
In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of AGS FINANCIAL CORPORATION AND
SUBSIDIARIES as of August 31, 1997, in conformity with generally accepted
accounting principles.
Bowman & Company, LLP
Stockton, California
October 21, 1997
F-6
<PAGE>
AGS FINANCIAL CORPORATION
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
AUGUST 31, 1997
<TABLE>
<CAPTION>
ASSETS
<S> <C>
CASH $1,309,581
----------
RECEIVABLES
Fees receivable $ 950,229
Accrued interest receivable 622,597
Advances to sponsored partnerships 241,272
Other receivables 91,539
Notes receivable from sponsored partnerships 1,057,878
Receivable from affiliated partnership 3,518,395
----------
$6,481,910
----------
INVESTMENT IN PARTNERSHIPS $ 30,814
----------
FURNITURE AND EQUIPMENT
Office furniture and equipment $ 247,092
Less accumulated depreciation and amortization 246,340
----------
$ 752
----------
$7,823,057
==========
</TABLE>
See Notes to Consolidated Balance Sheet.
F-7
<PAGE>
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C>
LIABILITIES
Accounts payable and accrued expenses $ 404,381
Deferred income taxes 1,250,661
Advances from affiliated company 46,611
Recognized losses in excess of investment 270,982
in partnerships
Payable to affiliated company 3,678,141
----------
$5,650,776
----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Common stock, stated value $1 per share
authorized 100,000 shares, issued 10,000 shares $ 10,000
Retained earnings 2,162,281
----------
$2,172,281
----------
$7,823,057
==========
</TABLE>
F-8
<PAGE>
AGS FINANCIAL CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED BALANCE SHEET
NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Nature of business
------------------
AGS Financial Corporation syndicates and functions as general partner
in real estate limited partnerships. One of the Company's wholly-
owned subsidiaries, AGS Securities Corporation, is inactive. The two
other wholly-owned subsidiaries, Residential Portfolio Depository
Corp. and AGS Depository Corp., are assignor limited partners in
public syndications.
The Company earns fees for services that it renders to the
partnerships, which are generally located in the Western and Sunbelt
states. In addition, the Company may advance funds to the
partnerships. The Company's receivables consist primarily of these
fees and advances. Such receivables are not secured. However, the
Company generally has priority on the proceeds from the sale of the
real estate when such sales occur. This priority is subordinated only
to the mortgage debt secured by such property
A summary of the Company's significant accounting policies follows:
Principles of consolidation
---------------------------
The consolidated financial statements include the accounts of the
Company and its subsidiaries. All material intercompany accounts and
transactions are eliminated in consolidation.
Use of Estimates
----------------
The preparation of the balance sheet in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reporting amounts of assets,
liabilities and disclosures of contingent assets and liabilities at
the date of the balance sheet. Actual results could differ from those
estimates.
Investments in partnerships
---------------------------
The Company's general partner investment in these entities is
reflected using the equity method of accounting, whereby the Company's
cash investment is reduced by partnership distributions to the Company
and by the Company's proportionate share of net losses of the
partnerships. In the partnerships where allocated losses exceed the
Company's investment, the balance has been classified as a liability.
Furniture and equipment
-----------------------
Furniture and equipment are stated at cost and are depreciated using
either the straight-line method or double declining balance method
over five years.
F-9
<PAGE>
NOTES TO CONSOLIDATED BALANCE SHEET
NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONT.)
Income Taxes
------------
The Company and its subsidiaries file consolidated federal and state
income tax returns. To the extent that undistributed earnings of the
subsidiaries are expected to be indefinitely invested in the
subsidiaries' business, no provisions is made for income taxes which
would be payable if these earnings were paid as dividends to the parent
company.
Deferred taxes are provided on temporary differences between the
recognition of revenues and expenses for tax and accounting purposes
using the tax rates at which the differences are expected to reverse in
accordance with the Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes."
The major sources of deferred income taxes are the use of accelerated
depreciation in the partnerships, cash basis reporting by the Company for
tax purposes, and the treatment of partnership fees as guaranteed
payments for tax purposes.
Cash
----
For purposes of reporting the statements of cash flows, the Company
includes all cash accounts which are not subject to withdrawal
restrictions or penalties, and all highly liquid debt instruments
purchased with a maturity of three months or less as cash on the
accompanying balance sheet.
Frequently, the Company had cash amounts deposited in a financial
institution in excess of federally insured limits. As of August 31, 1997
there was $1,094,053 deposited in excess of federally insured limits.
NOTE 2. RELATED PARTY TRANSACTIONS
Company-sponsored limited partnerships
--------------------------------------
As managing general partner or pursuant to agreements with each of the
limited partnerships, the Company performs certain services for which
it receives compensation. Fees receivable from partnerships for
services performed were $950,229 at August 31,1997. The Company also
makes short-term advances to the partnerships which are reimbursed as
cash flow permits. Advances were $43,762 at August 31, 1997.
Purchase and management of real estate projects
-----------------------------------------------
All but one of the company-sponsored limited partnerships have
purchased real estate projects from entities owned by several of the
shareholders of the Company. A corporation owned by several
shareholders provides property management services to all of the real
estate partnerships organized by the Company.
F-10
<PAGE>
NOTES TO CONSOLIDATED BALANCE SHEET
NOTE 2. RELATED PARTY TRANSACTIONS (CONT.)
Notes receivable from affiliated partnerships
---------------------------------------------
The Company has made loans to company-sponsored limited partnerships in
order to allow the partnerships to meet their cash needs. In addition,
the Company has taken back notes for unreimbursed offering and
organization costs incurred during the formation of several partnerships.
Notes receivable from partnerships were $1,057,878 at August 31, 1997.
Interest of $622,384 has accrued on these notes at August 31, 1997.
Advances from affiliated company
--------------------------------
The Company owes affiliates $46,611 at August 31, 1997, for working
capital advances by the affiliates. The advances are payable on demand.
Accrued interest owed to affiliates of $12,346 at August 31, 1997, has
been included in accounts payable and accrued expenses.
NOTE 3. COMMITMENTS AND CONTINGENT LIABILITIES
Company-sponsored limited partnerships
--------------------------------------
As general partner for various limited partnerships, the Company may
be subject to liabilities of the partnerships if the partnerships'
assets should become insufficient to meet their obligations. In the
opinion of management, the future revenues and the value of the
underlying assets of each of these partnerships will be sufficient to
meet partnership obligations.
As general partner, the Company has a fiduciary responsibility to
oversee the management of company-sponsored limited partnerships. The
assets and liabilities of such partnerships are included in the
individual partnership financial statements and not on the accounts of
the Company.
Lawsuits
--------
AGS Financial Corporation has been named as a defendant in a
"consolidated" complaint that supersedes separate class action
complaints that were filed during the 1993 calendar year. The
plaintiffs seek unspecified damages for economic injury suffered by
them for their investment in Prudential/Bache/A.G. Spanos Realty
Partners L.P., I. Among other things, the plaintiffs allege that the
Company earned excess fees for the syndication of the entity.
During the year ended August 31,1994, the Company was named as a
defendant in two separate lawsuits. Both lawsuits contend that they
were induced to purchase units in limited partnerships by fraudulent
misrepresentations. One lawsuit settled with no liability to the
Company during the year.
F-11
<PAGE>
NOTES TO CONSOLIDATED BALANCE SHEET
NOTE 3. COMMITMENTS AND CONTINGENT LIABILITIES (CONT.)
During the year ended August 31, 1995, the Company was named as a
defendant in a lawsuit. The lawsuit contended that the plaintiff
purchased units in limited partnerships because of misrepresentations
by the Company. On May 12, 1997, the Company and certain of its
affiliates entered into a Stipulation of Settlement with legal counsel
representing the plaintiff class in the consolidated actions. The
settlement contemplates, among other things, the sale of all of the
properties of Prudential-Bache/A.G. Spanos Realty Partners L.P., I at
public auction and the subsequent liquidation and dissolution of
Prudential-Bache/A.G. Spanos Realty Partners L.P., I. The settlement
agreement was preliminarily approved by the Court on August 28, 1997.
Pursuant to the settlement, detailed information about the proposed
auction sale and other terms of the settlement will be sent to the
Unitholders of Prudential-Bache/A.G. Spanos Realty Partners L.P., I
with proxy solicitation materials seeking the Unitholders' consent to
the auction sale. The settlement agreement contains numerous
conditions and must be finally approved by the Court at a fairness
hearing at which the Unitholders and other interested parties will
have an opportunity to be heard. There can be no assurance that the
conditions to implementation of the settlement will be satisfied.
The Company believes it has meritorious defenses in all pending cases
and that adverse decisions in any or all of these cases would be
covered by indemnification agreements from co-defendants, or by
insurance, and would not have a material effect on the financial
condition of the Company. It is impossible at this point to evaluate
the likely outcome and estimate any amount or range of potential
losses. Accordingly, the Company has not accrued a contingent loss on
the financial statements.
NOTE 4. SUBSEQUENT EVENTS
During the months of September, October and November, 1997, the real
property of the several partnership investments were sold. These sales
generated gains for the Company. Payments of the receivables due from
these partnerships are expected to be made to the Company.
NOTE 5. EXCHANGE OBLIGATION
On October 31, 1996, a partnership affiliated with the Company deeded
property in anticipation of a deferred tax free exchange. The Company
sold the property on October 31, 1996. The Company entered into an
agreement to build a replacement property for the affiliated
partnership and deeded the property to the affiliated partnership on
April 29, 1997, subject to a construction loan which had a balance at
August 31, 1997 of $8,173,053.
At August 31, 1997, the Company had cash in the amount of $159,746 and
accounts receivable of $3,518,395 from the October 31, 1996 sale and
exchange and had an account payable to an affiliated corporation in
the amount of $3,678,141. These amounts are reflected on the
accompanying balance sheet.
F-12
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
A.G. SPANOS REALTY CAPITAL, INC.
Stockton, California
We have audited the accompanying balance sheet of A.G. SPANOS REALTY CAPITAL,
INC., a California corporation, as of September 30, 1997. This financial
statement is the responsibility of the Company's management. Our responsibility
is to express an opinion on this financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the balance sheet is free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the balance sheet. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall balance sheet presentation. We believe that our audit
of the balance sheet provides a reasonable basis for our opinion.
In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of A.G. SPANOS REALTY CAPITAL, INC. as
of September 30, 1997, in conformity with generally accepted accounting
principles.
A.G. SPANOS REALTY CAPITAL, INC. is a wholly-owned subsidiary of A.G. Spanos
Construction, Inc., and this balance sheet is included in the consolidated
financial statements of A.G. Spanos Construction, Inc., the primary reporting
entity.
BOWMAN & COMPANY, LLP
Stockton, California
January 8, 1998
F-13
<PAGE>
A.G. SPANOS REALTY CAPITAL, INC.
BALANCE SHEET
SEPTEMBER 30, 1997
<TABLE>
<S> <C>
ASSETS
Cash $ 59,798
Certificate of Deposit 100,000
-----------
$ 159,798
===========
LIABILITIES AND STOCKHOLDER'S EQUITY
Distributions and recognized losses in excess of investment in
Prudential-Bache/A.G. Spanos Realty Partners, L.P., I $ 1,912
-----------
Common stock, stated value $10 per share 100,000
10,000 shares authorized and issued 3,068,280
Additional paid-in capital (3,068,280)
Note receivable - shareholder 57,886
-----------
Retained earnings 157,886
-----------
$ 159,798
===========
</TABLE>
See Notes to Balance Sheet.
F-14
<PAGE>
A.G. SPANOS REALTY CAPITAL, INC.
NOTES TO BALANCE SHEET
NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Nature of Business
------------------
A.G. Spanos Realty Capital, Inc. (the "Company") is a California
corporation formed in 1988. It serves as co-general partner with AGS
Financial Corporation in A.G. Spanos Realty Partners, L.P. A.G. Spanos
Realty Capital, Inc. expects to organize additional partnerships that
will invest in properties in various locations. The sole shareholder,
A.G. Spanos Construction, Inc., has contributed $3,068,280 to the
capital of A.G. Spanos Realty Capital, Inc. by an unsecured, negotiable
demand promissory note.
Investment in Partnership
-------------------------
The Company reflects its investment in A.G. Spanos Realty Partners,
L.P. using the equity method of accounting, whereby the Company's cash
investment is reduced by partnership distributions to the Company and
by the Company's proportionate share of the net loss of the
partnership. Since distributions and allocated losses exceed the
Company's investment, the balance has been classified as a liability.
Use of Estimates
----------------
The preparation of the balance sheet in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reporting amounts of assets,
liabilities and disclosures of contingent assets and liabilities at the
date of the balance sheet. Actual results could differ from those
estimates.
NOTE 2. NOTE RECEIVABLE FROM SHAREHOLDER
The note receivable from A.G. Spanos Construction, Inc. (shareholder)
satisfies the shareholder's obligation under the capitalization
agreement between A.G. Spanos Realty Partners, L.P., A California
Limited Partnership, and A.G. Spanos Realty Capital, Inc. The
capitalization agreement provides that the initial capitalization shall
be provided by the shareholder in the amount of $100,000 in cash plus
an unsecured demand promissory note in the amount of $1,400,000.
Because the note is given as evidence of the obligation to provide
additional capital when required under terms of the capitalization
agreement and does not constitute current paid-in capital, it is not
reflected as paid-in capital or common stock subscribed.
The capitalization agreement further provides that the note receivable
shall be increased from time to time so that the total value of the
note and the $100,000 cash paid in for stock issued shall be the larger
of $1,500,000 or four percent of the gross amount of proceeds of the
offering for limited partnership interests in Prudential-Bache/A.G.
Spanos Realty Partners, L.P., I, a Delaware limited partnership. The
maximum required capital will be $3,168,280.
F-15
<PAGE>
NOTES TO BALANCE SHEETS
NOTE 3. COMMITMENTS AND CONTINGENT LIABILITIES
A.G. Spanos Realty Capital, Inc. has been named as a defendant in a
"consolidated" complaint that supersedes separate class action
complaints that were filed during the 1993 calendar year. The
plaintiffs seek unspecified damages for economic injury suffered by
them for their investment in Prudential-Bache/A.G. Spanos Realty
Partners L.P., I. Among other things, the plaintiffs allege that the
Company earned excess fees for the syndication of the entity.
During the year ended September 30, 1994, the Company was named as a
defendant in two separate lawsuits. Both lawsuits contend that
investors were induced to purchase units in limited partnerships by
fraudulent misrepresentations. One lawsuit settled with no liability
to the Company during the year.
During the year ended September 30, 1995, the Company was named as a
defendant in a lawsuit. The lawsuit contended that the plaintiff
purchased units in limited partnerships because of misrepresentations
by the Company. On May 12, 1997, the Company and certain of its
affiliates entered into a Stipulation of Settlement with legal counsel
representing the plaintiff class in the consolidated actions. The
settlement contemplates, among other things, the sale of all of the
properties of Prudential-Bache/A.G. Spanos Realty Partners L.P., I at
public auction and the subsequent liquidation and dissolution of
Prudential-Bache/A.G. Spanos Realty Partners L.P., I. The settlement
agreement was preliminarily approved by the Court on August 28, 1997.
Pursuant to the settlement, detailed information about the proposed
auction sale and other terms of the settlement will be sent to the
Unitholders of Prudential-Bache/A.G. Spanos Realty Partners L.P., I
with proxy solicitation materials seeking the Unitholders' consent to
the auction sale. The settlement agreement contains numerous
conditions and must be finally approved by the Court at a fairness
hearing at which the Unitholders and other interested parties will have
an opportunity to be heard. There can be no assurance that the
conditions to implementation of the settlement will be satisfied.
The Company believes it has meritorious defenses in all pending cases
and that adverse decisions in any or all of these cases would be
covered by indemnification agreements from co-defendants, or by
insurance, and would not have a material effect on the financial
condition of the Company. It is not possible, at this point, to
evaluate the likely outcome and estimate any amount or range of
potential losses. Accordingly, the Company has not accrued a contingent
loss on the balance sheet.
F-16
<PAGE>
[LETTERHEAD OF BOWMAN & COMPANY, LLP]
Exhibit (g)
CONSENT OF INDEPENDENT AUDITORS
As independent certified public accountants, we hereby consent to the
inclusion in the consent solicitation material filed as an exhibit to this Rule
13e-3 Transaction Statement of our report dated January 8, 1998 on the balance
sheet of A.G. Spanos Realty Partners, L.P. as of September 30, 1997; of our
report dated October 21, 1997 on the balance sheet of AGS Financial Corporation
as of August 31, 1997; and of our report dated January 8, 1998 on the balance
sheet of A.G. Spanos Realty Capital, Inc., as of September 30, 1997; and to all
references to our firm included in this Transaction Statement.
/s/ Bowman & Company, LLP
BOWMAN & COMPANY, LLP
Stockton, California
March 18, 1998
