SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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SCHEDULE 14D-1
Tender Offer Statement Pursuant to Section 14(d)(1)
of the Securities Exchange Act of 1934
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FREEDOM TAX CREDIT PLUS L.P.
(Name of Subject Company)
LEHIGH TAX CREDIT PARTNERS L.L.C.
(Bidder)
BENEFICIAL ASSIGNMENT CERTIFICATES
(Title of Class of Securities)
35644P 10 2
(CUSIP Number of Class of Securities)
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J. Michael Fried
c/o Related Capital Company
625 Madison Avenue
New York, NY 10022
(212) 421-5333
Copy to:
Peter M. Fass
Battle Fowler LLP
75 East 55th Street
New York, NY 10022
(212) 856-7000
(Name, Address and Telephone Numbers of
Person Authorized to Receive Notices and
Communications on Behalf of Bidder)
Calculation of Filing Fee
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Transaction Amount of
Valuation* Filing Fee
---------------- --------------
$9,658,720 $1,931.75
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*For purposes of calculating the filing fee only. This amount assumes the
purchase of 18,224 Beneficial Assignment Certificates (representing assignments
of limited partnership interests) ("BACs") of the subject company for $530 per
BAC in cash.
{ }
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 date of its filing.
Amount Previously Paid: N/A Filing Party: N/A
Form or Registration No.: N/A Date Filed: N/A
(Continued on following pages)
(Page 1 of 8 pages)
<PAGE>
CUSIP No.: 35644P 10 2 14D-1 Page 2 of 8
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1. Name of Reporting Person
S.S. or I.R.S. Identification No. of Above Person
LEHIGH TAX CREDIT PARTNERS L.L.C.
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2. Check the Appropriate Box if a Member of a Group (See Instructions)
(a) { }
(b) {X}
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3. SEC Use Only
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4. Sources of Funds (See Instructions)
AF; BK
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5. Check Box if Disclosure of Legal Proceedings is Required Pursuant to
Items 2(e) or 2(f)
| |
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6. Citizenship or Place of Organization
Delaware
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7. Aggregate Amount Beneficially Owned by Each Reporting Person
189 Beneficial Assignment Certificates (representing assignments of limited
partnership interests)
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8. Check Box if the Aggregate Amount in Row (7) Excludes Certain Shares
(See Instructions)
| |
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9. Percent of Class Represented by Amount in Row (7)
Less than 1%
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10. Type of Reporting Person (See Instructions)
OO
<PAGE>
CUSIP No.: 35644P 10 2 14D-1 Page 3 of 8
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1. Name of Reporting Person
S.S. or I.R.S. Identification No. of Above Person
LEHIGH TAX CREDIT PARTNERS, INC.
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2. Check the Appropriate Box if a Member of a Group (See Instructions)
(a) { }
(b) {X}
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3. SEC Use Only
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4. Sources of Funds (See Instructions)
AF; BK
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5. Check Box if Disclosure of Legal Proceedings is Required Pursuant to Items
2(e) or 2(f)
| |
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6. Citizenship or Place of Organization
Delaware
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7. Aggregate Amount Beneficially Owned by Each Reporting Person
189 Beneficial Assignment Certificates (representing assignments of limited
partnership interests)
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8. Check Box if the Aggregate Amount in Row (7) Excludes Certain Shares (See
Instructions)
| |
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9. Percent of Class Represented by Amount in Row (7)
Less than 1%
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10. Type of Reporting Person (See Instructions)
CO
<PAGE>
Item 1. Security and Subject Company.
(a) The name of the subject company is Freedom Tax Credit Plus L.P., a
Delaware limited partnership (the "Partnership"), which has its principal
executive offices at 625 Madison Avenue, New York, New York 10022.
(b) This Schedule 14D-1 relates to the offer by Lehigh Tax Credit
Partners L.L.C., a Delaware limited liability company ("the Purchaser"), to
purchase up to 18,224 issued and outstanding Beneficial Assignment Certificates
("BACs") representing assignments of limited partnership interests in the
Partnership ("Limited Partnership Interests") at $530 per BAC, net to the seller
in cash (the "Purchase Price"), without interest thereon, upon the terms and
subject to the conditions set forth in the Offer to Purchase dated August 27,
1997 (the "Offer to Purchase") and the related Letter of Transmittal, copies of
which are attached hereto as Exhibits (a)(1) and (a)(2), respectively. The
Purchase Price will be automatically reduced by $14 per BAC for each month (or
part of a month) between October 31, 1997 and the date of transfer for BACs
transferred after October 31, 1997. Information concerning the number of
outstanding BACs is set forth in the Introduction to the Offer to Purchase and
is incorporated herein by reference.
(c) The information set forth in Section 13 ("Purchase Price
Considerations") of the Offer to Purchase is incorporated herein by reference.
Item 2. Identity and Background.
(a)-(d) The information set forth in Section 10 ("Certain Information
Concerning the Purchaser") and Schedule I to the Offer to Purchase is
incorporated herein by reference.
(e) and (f) During the last five years, neither the Purchaser nor, to
the best of its knowledge, any of the persons listed in Schedule I or referred
to in Section 10 ("Certain Information Concerning the Purchaser") of the Offer
to Purchase (i) have been convicted in a criminal proceeding (excluding traffic
violations or similar misdemeanors) or (ii) were a party to a civil proceeding
of a judicial or administrative body of competent jurisdiction and as a result
of such proceeding were or are subject to a judgment, decree or final order
enjoining future violations of, or prohibiting activities subject to, Federal or
state securities laws or finding any violation of such laws.
(g) The information set forth in Schedule I to the Offer to Purchase
is incorporated herein by reference.
Item 3. Past Contacts, Transactions or Negotiations With the Subject Company.
(a) The Purchaser is an affiliate of Related Freedom Associates L.P.,
a general partner of the Partnership. Accordingly, the information contained in
Section 9 ("Certain Information Concerning the Partnership") of the Offer to
Purchase, including the terms of the Partnership's amended and restated
agreement of limited partnership (the "Partnership Agreement"), is incorporated
herein by reference. Additionally, the information set forth in Section 10
("Certain Information Concerning the Purchaser") and Schedule I to the Offer to
Purchase is incorporated herein by reference.
(b) The information set forth in Section 11 ("Background of the
Offer") of the Offer to Purchase is incorporated herein by reference.
4
<PAGE>
Item 4. Source and Amount of Funds or Other Consideration.
(a)-(c) The information set forth in Section 12 ("Source of Funds") of
the Offer to Purchase is incorporated herein by reference.
Item 5. Purpose of the Tender Offer and Plans or Proposals of the Bidder.
(a)-(b) The information set forth in Section 8 ("Purpose of the Offer;
Future Plans") of the Offer to Purchase is incorporated herein by reference.
(c)-(e) Not applicable.
(f)-(g) The information set forth in Section 7 ("Effects of the
Offer") of the Offer to Purchase is incorporated herein by reference.
Item 6. Interest in Securities of the Subject Company.
(a)-(b) The information set forth in the Introduction and Section 10
("Certain Information Concerning the Purchaser") of the Offer to Purchase is
incorporated herein by reference.
Item 7. Contracts, Arrangements, Understandings or Relationships with Respect
to the Subject Company's Securities.
The information set forth in Section 10 ("Certain Information
Concerning the Purchaser") and Section 11 ("Background of the Offer") of the
Offer to Purchase is incorporated herein by reference.
Item 8. Persons Retained, Employed or to be Compensated.
The information set forth in Section 16 ("Certain Fees and Expenses")
of the Offer to Purchase is incorporated herein by reference.
Item 9. Financial Statements of Certain Bidders.
Not applicable.
Item 10. Additional Information.
(a) None.
(b)-(d) The information set forth in Section 15 ("Certain Legal
Matters") of the Offer to Purchase is incorporated herein by reference.
(e) None.
(f) The information set forth in the Offer to Purchase and the related
Letter of Transmittal is incorporated herein in its entirety by reference.
5
<PAGE>
Item 11. Material to be Filed as Exhibits.
(a)(1) Offer to Purchase, dated August 27, 1997.
(a)(2) Letter of Transmittal.
(a)(3) Cover Letter, dated August 27, 1997, from Lehigh Tax Credit
Partners L.L.C. to the holders of BACs.
(a)(4) Form of Notice to Brokers, dated August 27, 1997.
(b)(1) Promissory Note, dated August 26, 1997.
(c)(1) Letter Agreement, dated August 26, 1997, among Freedom Tax
Credit Plus L.P., Lehigh Tax Credit Partners L.L.C. and Related
Freedom Associates L.P. (the "Standstill Agreement").
(c)(2) Letter Agreement, dated April 23, 1997, between Lehigh Tax
Credit Partners L.L.C. and Everest Properties (the "Everest
Agreement").
(c)(3) Valuation opinion, dated June 30, 1997, delivered to Freedom
Tax Credit Plus L.P. by Valuation Research Corporation.
(c)(4) Letter agreement of Freedom Tax Credit Plus L.P. and Valuation
Research Corporation, dated June 30, 1997, consenting to use of
valuation opinion by Lehigh Tax Credit Partners L.L.C.
(c)(5) Consent to use name of Valuation Research Corporation, dated
June 30, 1997.
(d) None.
(e) Not applicable.
(f) None.
6
<PAGE>
SIGNATURES
After due inquiry and to the best of my knowledge and belief, I certify
that the information set forth in this statement is true, complete and correct.
Dated: August 27, 1997
LEHIGH TAX CREDIT PARTNERS L.L.C.
By: Lehigh Tax Credit Partners, Inc., its managing
member
By: /s/ Alan P. Hirmes
----------------------------------------
Name: Alan P. Hirmes
Title: Vice President
LEHIGH TAX CREDIT PARTNERS, INC.
By: /s/ Alan P. Hirmes
----------------------------------------
Name: Alan P. Hirmes
Title: Vice President
7
<PAGE>
EXHIBIT INDEX
EXHIBIT
NO. TITLE
- ------- ------
(a)(1) Offer to Purchase, dated August 27, 1997.
(a)(2) Letter of Transmittal.
(a)(3) Cover Letter, dated August 27, 1997, from Lehigh Tax Credit Partners
L.L.C. to the holders of BACs.
(a)(4) Form of Notice to Brokers, dated August 27, 1997.
(b)(1) Promissory Note, dated August 26, 1997.
(c)(1) Letter Agreement, dated August 26, 1997, among Freedom Tax Credit
Plus L.P., Lehigh Tax Credit Partners L.L.C. and Related Freedom
Associates L.P. (the "Standstill Agreement").
(c)(2) Letter Agreement, dated April 23, 1997, between Lehigh Tax Credit
Partners L.L.C. and Everest Properties (the "Everest Agreement").
(c)(3) Valuation opinion, dated June 30, 1997, delivered to Freedom Tax
Credit Plus L.P. by Valuation Research Corporation.
(c)(4) Letter Agreement of Freedom Tax Credit Plus L.P. and Valuation
Research Corporation, dated June 30, 1997, consenting to use of
valuation opinion by Lehigh Tax Credit Partners L.L.C.
(c)(5) Consent to use name of Valuation Research Corporation, dated June 30,
1997.
8
OFFER TO PURCHASE
UP TO 18,224
BENEFICIAL ASSIGNMENT CERTIFICATES
in
FREEDOM TAX CREDIT PLUS L.P.
for
$530 NET PER BAC IN CASH
by
LEHIGH TAX CREDIT PARTNERS L.L.C.
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THE OFFER, WITHDRAWAL RIGHTS AND PRORATION PERIOD WILL EXPIRE AT 12:00 MIDNIGHT,
NEW YORK CITY TIME ON, SEPTEMBER 25, 1997, UNLESS EXTENDED.
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Lehigh Tax Credit Partners L.L.C., a Delaware limited liability company
("the Purchaser") and an affiliate of a general partner of the Partnership (as
defined below), hereby offers to purchase up to 18,224 of the issued and
outstanding Beneficial Assignment Certificates ("BACs") representing
assignments of limited partnership interests ("Limited Partnership Interests")
in Freedom Tax Credit Plus L.P., a Delaware limited partnership (the
"Partnership"), at a purchase price of $530 per BAC, net to the seller in cash
(the "Purchase Price"), without interest thereon, upon the terms and subject to
the conditions set forth in this Offer to Purchase (the "Offer to Purchase")
and in the related Letter of Transmittal, as each may be supplemented, modified
or amended from time to time (which together constitute the "Offer"). The
Purchase Price will be automatically reduced by $14 per BAC for each month (or
part of a month) between October 31, 1997 and the date of transfer for BACs
transferred after October 31, 1997. BACs HOLDERS WHO TENDER THEIR BACs WILL NOT
BE OBLIGATED TO PAY ANY COMMISSIONS OR PARTNERSHIP TRANSFER FEES, WHICH
COMMISSIONS AND FEES WILL BE BORNE BY THE PURCHASER. The 18,224 BACs sought
pursuant to the Offer represent, to the best knowledge of the Purchaser,
approximately 25% of the BACs outstanding as of the date of this Offer.
-------------------------
THE PURCHASER AND RELATED FREEDOM ASSOCIATES L.P., A GENERAL PARTNER OF THE
PARTNERSHIP, ARE AFFILIATED.
-------------------------
THE OFFER IS NOT CONDITIONED UPON ANY MINIMUM NUMBER OF BACs BEING
TENDERED. SEE SECTION 14 ("CONDITIONS OF THE OFFER").
-------------------------
IN ORDER TO COMPLY WITH CERTAIN RESTRICTIONS SET FORTH IN THE PARTNERSHIP'S
AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP, TENDERS OF LESS THAN
ALL BACs OWNED BY A BACs HOLDER THAT WOULD RESULT IN A BACs HOLDER HOLDING
LESS THAN 5 BACs WILL NOT BE ACCEPTED.
-------------------------
Before tendering, BACs holders are urged to consider the following factors:
[bullet] BACs holders who have a present or future need for the tax credits
and/or tax losses from the BACs may prefer to retain their BACs and
not tender them pursuant to the Offer, or any other tender offer.
[bullet] Although the Purchaser cannot predict the future value of the
Partnership's assets on a per BAC basis, the net after-tax benefit
that would be realized from retaining ownership of BACs together with
any cash distributions from operations and any net proceeds from a
future sale of the properties owned by the Partnership (the
"Properties") could be greater than or less than the Purchase Price.
See Section 13 ("Purchase Price Considerations").
[bullet] If the Purchaser is successful in acquiring a significant number of
BACs pursuant to the Offer, the Purchaser could, subject to the
Standstill Agreement (as defined in the Glossary), be in a position to
significantly influence all Partnership decisions on which BACs
holders may vote, including decisions regarding removal of any General
Partner, certain amendments to the Partnership Agreement (as defined
in the Glossary) and dissolution of the Partnership.
[bullet] The Purchaser believes that the projected aggregate per BAC benefit of
the Offer, together with the benefits already received by a BACs
holder, compares favorably with the potential benefits the Purchaser
believes a BACs holder will receive if he or she remains in the
Partnership, together with the benefits already received by a BACs
holder. See Section 13 ("Purchase Price Considerations").
<PAGE>
IMPORTANT
Any (i) BACs holder, (ii) beneficial owner, in the case of BACs owned by
Individual Retirement Accounts or Keogh Plans (a "Beneficial Owner"), or (iii)
person who has purchased BACs but has not yet been reflected on the
Partnership's books as a transferee of such BACs (an "Assignee"), desiring to
tender any or all of such person's BACs should either (1) complete and sign the
Letter of Transmittal, or a facsimile copy thereof, in accordance with the
instructions in the Letter of Transmittal and mail or deliver the Letter of
Transmittal, or a facsimile copy thereof, and any other required documents to
The Herman Group, Inc. (the "Information Agent/Depositary"), at the address or
facsimile number set forth below, or (2) request his or her broker, dealer,
commercial bank, trust company or other nominee to effect the transaction for
him or her. Unless the context requires otherwise, references to BACs holders
in this Offer to Purchase shall be deemed to also refer to Beneficial Owners
and Assignees. Questions or requests for assistance may be directed to the
Information Agent/Depositary at the address and telephone number set forth
below. Requests for additional copies of this Offer to Purchase, the Letter of
Transmittal and other related documents may be directed to the Information
Agent/Depositary.
NO PERSON HAS BEEN AUTHORIZED TO MAKE ANY RECOMMENDATION OR ANY
REPRESENTATION ON BEHALF OF THE PURCHASER OR TO PROVIDE ANY INFORMATION OTHER
THAN AS CONTAINED HEREIN OR IN THE LETTER OF TRANSMITTAL. NO SUCH
RECOMMENDATION, INFORMATION OR REPRESENTATION MAY BE RELIED UPON AS HAVING BEEN
AUTHORIZED.
EACH BACs HOLDER IS URGED TO READ CAREFULLY THE ENTIRE OFFER TO PURCHASE,
THE LETTER OF TRANSMITTAL AND RELATED DOCUMENTS.
For Additional Information Call:
The Herman Group, Inc.
2121 San Jacinto Street
26th Floor
Dallas, Texas 75201
Telephone: (800) 555-2649
Facsimile: (214) 999-9323
ii
<PAGE>
TABLE OF CONTENTS
Page
-----
INTRODUCTION .............................................................. 1
THE TENDER OFFER .......................................................... 4
1. Terms of the Offer ......................................... 4
2. Proration; Acceptance for Payment and Payment for BACs ..... 5
3. Procedures for Tendering BACs .............................. 6
4. Withdrawal Rights .......................................... 7
5. Extension of Tender Period; Termination; Amendment ......... 8
6. Certain Federal Income Tax Consequences .................... 9
7. Effects of the Offer ....................................... 11
8. Purpose of the Offer; Future Plans ......................... 12
9. Certain Information Concerning the Partnership ............. 13
10. Certain Information Concerning the Purchaser ............... 20
11. Background Of The Offer .................................... 20
12. Source Of Funds ............................................ 21
13. Purchase Price Considerations .............................. 22
14. Conditions of the Offer .................................... 23
15. Certain Legal Matters ...................................... 25
16. Certain Fees and Expenses .................................. 26
17. Miscellaneous .............................................. 26
Appendix A. Glossary ................................................... A-1
Schedule I. Information with respect to the executive officers
and directors of Lehigh Tax Credit Partners, Inc. .......... S-1
Schedule II. Local Partnership schedule ................................. S-2
Schedule III. Certain information concerning the Properties .............. S-5
iii
<PAGE>
To the Holders of Beneficial Assignment Certificates of Freedom Tax Credit Plus
L.P.:
INTRODUCTION
Lehigh Tax Credit Partners L.L.C., a Delaware limited liability company
("the Purchaser") and an affiliate of a general partner of the Partnership (as
defined below), hereby offers to purchase up to 18,224 of the issued and
outstanding Beneficial Assignment Certificates ("BACs") representing limited
partnership interests in Freedom Tax Credit Plus L.P., a Delaware limited
partnership (the "Partnership"), at a purchase price of $530 per BAC, net to
the seller in cash (the "Purchase Price"), without interest, upon the terms and
subject to the conditions set forth in this Offer to Purchase (the "Offer to
Purchase") and in the related Letter of Transmittal, as each may be
supplemented, modified or amended from time to time (which together constitute
the "Offer"). The Purchase Price will be automatically reduced by $14 per BAC
for each month (or part of a month) between October 31, 1997 and the date of
transfer for BACs transferred after October 31, 1997. BACs holders who tender
their BACs will not be obligated to pay any commissions or Partnership transfer
fees, which commissions and fees will be borne by the Purchaser. The 18,224
BACs sought pursuant to the Offer represent, to the best knowledge of the
Purchaser, approximately 25% of the BACs issued and outstanding as of the date
of this Offer.
The Purchaser is affiliated with Related Freedom Associates L.P. ("RFA"),
one of the general partners of the Partnership (the "General Partners"). In
order to comply with certain restrictions set forth in the Partnership's
Amended and Restated Agreement of Limited Partnership (the "Partnership
Agreement"), tenders of less than all BACs owned by a BACs holder that would
result in a BACs holder holding less than 5 BACs will not be accepted.
The Purchaser is making this Offer because it believes that the BACs
represent an attractive investment at the price offered based upon, in part,
the expected remaining Tax Credits and tax losses. There can be no assurance,
however, that the Purchaser's judgment is correct, and, as a result, ownership
of BACs (either by the Purchaser or BACs holders who retain their BACs) will
remain a speculative investment. The Purchaser is acquiring the BACs for
investment purposes and does not intend to make any effort to change current
management or the operations of the Partnership. Because the Purchaser is
affiliated with RFA, one of the General Partners, the Purchaser's acquisition
of BACs may have the effect of making any future change of current management
more difficult. The Purchaser has no current plans for any extraordinary
transaction involving the Partnership.
Factors to be considered by BACs holders. In considering the Offer, BACs
holders are urged to consider the following factors:
[bullet] BACs holders who have a present or future need for the Tax Credits
and/or tax losses from the BACs may prefer to retain their BACs and
not tender them pursuant to the Offer, or any other tender offer.
[bullet] Although the Purchaser cannot predict the future value of the
Partnership's assets on a per BAC basis, the net after-tax benefit
that would be realized from retaining ownership of the BACs together
with any cash distributions from operations and any net proceeds
from a future sale of the properties owned by the Partnership (the
"Properties") could be greater than or less than the Purchase Price.
See Section 13 ("Purchase Price Considerations").
[bullet] There may be a conflict between the desire of the Purchaser to
acquire the BACs at a low price and the desire of the BACs holders
to sell their BACs at a high price. Therefore, BACs holders might
receive greater value if they hold their BACs, rather than tender,
continue to be allocated Tax Credits and tax losses, and receive any
distributions from operations and any proceeds, if any, from the
liquidation of the Partnership. Alternatively, BACs holders may
prefer to receive the Purchase Price now rather than wait to be
allocated future Tax Credits and tax losses and uncertain future
cash distributions. The return to BACs holders could be higher or
lower than the Purchase Price for persons who retain their BACs.
[bullet] BACs holders should note that the most recent trading activity in
the BACs occurred in March 1997. The weighted average selling price
for BACs reported in the limited and sporadic secondary market
during the two-month period ended March 31, 1997 was $570.74. See
Section 13 ("Purchase Price Considerations"). Such secondary market
selling prices, however, do not take into account commissions
charged by secondary market makers effectuating such sales which the
Purchaser believes, based on a typical 5 BAC sales transaction,
range from 5% to 8.75% of the sales price (which would result in a
reduction of
<PAGE>
the net proceeds to the seller of approximately $28.50 to
approximately $50 per BAC). Additionally, because the BACs are less
valuable with the passage of time since fewer Tax Credits remain,
the Purchaser believes the price per BAC should be reduced by at
least $12 for each passing month, or a total of approximately $60
per BAC from March 31, 1997 to August 31, 1997. Therefore, the
Purchaser believes the value of BACs in September (when the Offer
expires), based upon the most recently reported secondary market
sales, net of sales commissions, would be approximately $461 to $482
per BAC. The Purchase Price represents a premium to this range of
values.
[bullet] The Offer is being made in order to acquire BACs for investment
purposes. The Purchaser intends to sell membership interests in the
Purchaser to third parties (especially corporations) with a need for
the Tax Credits and/or tax losses attributable to the tendered BACs.
The aggregate sales price of the Purchaser's membership interests to
third parties will be equal to the aggregate purchase price for the
tendered BACs and all other securities tendered to the Purchaser
pursuant to other tender offers, plus the Purchaser's expenses in
conducting and consummating the Offer, its other tender offers, and
financing the purchase of the tendered securities (including,
without limitation, the BACs). Neither the Purchaser nor its current
members will derive a profit from the sale of the Purchaser's
membership interests.
Affiliates of the Purchaser, however, expect to arrange the sale of
membership interests of the Purchaser to third parties upon
conclusion of the Offer and to perform certain services for the
Purchaser during the period in which the Purchaser owns the tendered
BACs. In connection with such sales and in consideration for
structuring this transaction and the services to be performed, it is
expected that those affiliates will earn fees. These fees will be,
in part, dependent on the amount third parties are willing to pay
for membership interests and the amount of membership interests
sold. There can be no assurance, however, that any membership
interests in the Purchaser will be sold or at what price.
[bullet] If the Purchaser is successful in acquiring a significant number of
BACs pursuant to the Offer, the Purchaser could, subject to the
Standstill Agreement (as defined in the Glossary), be in a position
to significantly influence all Partnership decisions on which BACs
holders may vote. Additionally, because the Purchaser is affiliated
with a General Partner, the Purchaser's acquisition of BACs may have
the effect of making any future change of the Partnership's current
management more difficult. If the maximum number of BACs sought by
the Purchaser is tendered and accepted for payment pursuant to the
Offer, the Purchaser will own approximately 25% of the outstanding
BACs. After August 26, 2007 (the "Standstill Expiration Date"), the
ownership of tendered BACs by the Purchaser could effectively (i)
prevent non-tendering BACs holders from taking actions they desire
but that the Purchaser opposes and (ii) enable the Purchaser to take
actions desired by it but opposed by certain non-tendering BACs
holders. Under the Partnership Agreement, Limited Partners and BACs
holders holding more than 50% of aggregate Limited Partnership
Interests and BACs representing Limited Partnership Interests are
entitled, either directly or through the Assignor Limited Partner,
as the case may be, to take action with respect to a variety of
matters, including: approving the dissolution of the Partnership;
approving the removal of any General Partner and proposing and
approving a replacement therefor; approving or disapproving the sale
of all or substantially all of the assets of the Partnership; and
most types of amendments to the Partnership Agreement. Although the
Purchaser does not have any current intentions with regard to any of
these matters, it will, following the Standstill Expiration Date,
vote the BACs acquired pursuant to the Offer in its interest, which
may, or may not, be in the best interest of non-tendering BACs
holders. Until the Standstill Expiration Date, the Purchaser has
agreed to vote its BACs in the same manner as the majority of all
voting BACs holders; provided, however, the Purchaser shall be
entitled to vote its BACs as it determines with regard to any
proposal (i) to remove RFA as a general partner of the Partnership
or (ii) concerning the reduction of any fees, profits, distributions
or allocations for the benefit of RFA or its affiliates.
[bullet] Most of the properties owned by the Local Partnerships in which the
Partnership has an interest began to qualify for Housing Tax Credits
in 1991 and 1992. Housing Tax Credits are generally available for 10
years. The amount of the Housing Tax Credits claimed by the
Partnership was $11,208,966 for the 1996 calendar year, $11,208,869
for the 1995 calendar year, and $11,208,869 for the 1994 calendar
year. Although there can be no assurance as to whether Housing Tax
Credits will continue to be available, the Purchaser estimates that
a total of approximately $635 of Housing Tax Credits per BAC will be
available during the period beginning August 1, 1997 and ending
December 31, 2002. In addition, although there
2
<PAGE>
can be no assurance as to whether tax losses will continue to be
available, in calendar year 1996 each BAC was allocated
approximately $70 of tax losses and the Purchaser estimates that
each BAC will be allocated (a) approximately $70 of tax losses per
year through December 31, 2008, and (b) approximately $258 of
taxable income upon a liquidation of the Partnership, assuming no
cash distributions are made. Actual future tax benefits may differ
significantly from the foregoing estimates. Tax losses are less
valuable than tax credits because tax losses can reduce income
(thereby resulting in a savings equal to the product of the tax loss
and the taxpayer's applicable tax rate) and require a reduction in
tax basis (which may cause taxable income to be recognized in
subsequent years), whereas tax credits result in a dollar-for-dollar
reduction in tax liability. BACs holders should consider whether the
benefits of the Offer, including the Purchase Price, are more
valuable to them than the present value of anticipated future tax
benefits. See Section 13 ("Purchase Price Considerations").
BACs holders may no longer wish to continue with their investment in the
Partnership for a number of reasons, including:
[bullet] Although there are some limited resale mechanisms available to the
BACs holders wishing to sell their BACs, there is no formal or
organized trading market for the BACs. The Partnership's Form 10-K
for the fiscal year ended March 31, 1996 (the "Form 10-K") states:
"Neither the BACs nor the Limited Partnership Interests are traded
on any established market. The Partnership does not intend to
include the BACs for quotation on NASDAQ or for listing on any
national or regional stock exchange or any other established
securities market." Accordingly, BACs holders who desire resale
liquidity may wish to consider the Offer. The Offer affords a
significant number of BACs holders with an opportunity to dispose of
their BACs for cash, which alternative otherwise might not be
available to them. The Purchase Price is not intended to represent
either the fair market value of a BAC or the fair market value of
the Tax Credits and tax losses attributable to each BAC and the
Partnership's assets on a per BAC basis.
[bullet] The Offer will provide BACs holders with an immediate opportunity to
liquidate their investment in the Partnership without the usual
transaction costs associated with market sales or partnership
transfer fees.
[bullet] The Purchaser believes that the projected aggregate per BAC benefit
from the Offer, together with the benefits received since 1990,
total approximately $1,831. Such benefits include $530 (the Purchase
Price) plus $932 (representing the Tax Credits allocated through
August 31, 1997) plus approximately $156 (representing the tax
savings, assuming a tax rate of 20% for capital gain and 36% for
ordinary income, attributable to the use of the loss of $436 the
Purchaser believes an individual BACs holder will realize if all of
his BACs are sold in the Offer and the individual has not previously
used such losses to offset passive income) plus approximately $213
(representing the assumed return on the reinvestment of the Purchase
Price at 5% for approximately 10.5 years, discounted at a rate of
9%). See Section 13 ("Purchase Price Considerations"). The Purchaser
believes that such aggregate projected benefit compares favorably
with the potential benefits to a BACs holder who remains in the
Partnership (together with the benefits received since 1990),
continuing to receive Tax Credits, and assuming a return of the
present value of the original investment of $1,000 as, and if, the
Partnership's 42 properties are sold for amounts in excess of the
then existing indebtedness and other liabilities. The aggregate of
such potential benefits (including Tax Credits allocated through
August 31, 1997) is estimated by the Purchaser to be approximately
$1,821. BACs HOLDERS SHOULD CONSULT WITH THEIR RESPECTIVE TAX AND
OTHER ADVISORS REGARDING THE CONSEQUENCES OF THE LEHIGH OFFER TO
THEM.
[bullet] The Offer may be attractive for BACs holders whose circumstances
have changed such that anticipated future allocation of Tax Credits
and tax losses may no longer be beneficial to them.
[bullet] Acceptance of the Offer will eliminate any future risk to the
selling BACs holder of recapture of the Tax Credits received, since
such risk will be borne by the Purchaser. The Purchaser believes,
however, that any risk of such recapture is minimal.
[bullet] General disenchantment with real estate investments and with
long-term investments in limited partnerships because of, among
other things, their illiquidity.
[bullet] The Offer may be attractive to certain BACs holders who wish in the
future to avoid the continued additional expense, delay and
complication in filing income tax returns which result from the
ownership of BACs.
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[bullet] The Offer provides BACs holders with the opportunity to liquidate
their BACs and to reinvest the proceeds in other investments should
they desire to do so.
[bullet] The Purchaser believes that the BACs represent an attractive
investment at the Purchase Price based upon, in part, the expected
remaining Tax Credits and tax losses. There can be no assurance,
however, that this judgment is correct. Therefore, ownership of BACs
will remain a speculative investment.
Following the completion of the Offer and subject to the terms of the
Standstill Agreement, the Purchaser and its affiliates may acquire additional
BACs. Any such acquisitions may be made through private purchases, through one
or more future tender offers or by any other means deemed advisable, and may be
at prices higher or lower than the price to be paid for the BACs purchased
pursuant to the Offer. See Section 8 ("Purpose of the Offer; Future Plans").
The Offer is not conditioned upon any minimum number of BACs being
tendered. If, as of the Expiration Date, more than 18,224 BACs are validly
tendered and not properly withdrawn, the Purchaser will only accept for
purchase on a pro rata basis 18,224 BACs, subject to the terms and conditions
herein. See Section 14 ("Conditions of the Offer").
BACs holders are urged to consider carefully all of the information
contained herein before accepting the Offer.
The Purchaser expressly reserves the right, in its sole discretion and for
any reason, to terminate the Offer at any time and to waive any or all of the
conditions of the Offer, although the Purchaser does not presently intend to
waive any such conditions. See Section 7 ("Effects of the Offer"). In order to
comply with certain restrictions set forth in the Partnership Agreement,
tenders of less than all BACs owned by a BACs holder that would result in a
BACs holder holding less than 5 BACs will not be accepted.
According to the Form 10-K, there were 72,896 BACs issued and outstanding,
which represent 72,896 Limited Partnership Interests issued to the Assignor
Limited Partner. The 10-K reports that as of May 1, 1997 the Partnership had
4,736 registered holders of the issued and outstanding BACs. The Purchaser owns
189 BACs.
Except as otherwise indicated, information contained in this Offer to
Purchase is based upon documents and reports publicly filed by the Partnership
with the Commission. Although the Purchaser has no information that any
statements contained in this Offer to Purchase are untrue, the Purchaser does
not take responsibility for the accuracy or completeness of any information
contained in this Offer to Purchase which is derived from such public
documents, or for any failure by the Partnership to disclose events which may
have occurred and may affect the significance or accuracy of any such
information but which are unknown to the Purchaser.
Each BACs holder must make his or her own decision whether to accept the
Offer based on his or her particular circumstances. BACs holders should consult
with their respective advisors about the financial, tax, legal and other
implications to them of accepting the Offer. BACs holders are urged to read
this Offer to Purchase, the related Letter of Transmittal and the other
accompanying materials carefully before deciding whether to tender their BACs.
THE TENDER OFFER
1. Terms of the Offer.
Upon the terms of the Offer (including the terms and conditions of any
extension or amendment of the Offer), the Purchaser will accept for payment and
pay for up to 18,224 BACs that are validly tendered on or prior to the
Expiration Date (as hereinafter defined) and not withdrawn in accordance with
Section 4 ("Withdrawal Rights"). The term "Expiration Date" shall mean 12:00
midnight, New York City time, on September 25, 1997, unless the Purchaser, in
its sole discretion, shall have extended the period of time during which the
Offer is open, in which event the term "Expiration Date" shall refer to the
latest time and date at which the Offer, as so extended by the Purchaser, will
expire.
IF, PRIOR TO THE EXPIRATION DATE, THE PURCHASER SHALL INCREASE THE
PURCHASE PRICE OFFERED TO BACs HOLDERS, SUCH INCREASED PURCHASE PRICE SHALL BE
PAID FOR ALL
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BACs ACCEPTED FOR PAYMENT PURSUANT TO THE OFFER, WHETHER OR NOT SUCH BACs WERE
TENDERED PRIOR TO THE INCREASE OF THE PURCHASE PRICE.
The Offer is conditioned on satisfaction of certain conditions. See
Section 14 ("Conditions of the Offer"). The Purchaser reserves the right (but
shall not be obligated), in its sole discretion, to waive any or all of such
conditions. If, on or prior to the Expiration Date, any or all of such
conditions have not been satisfied or waived, the Purchaser may (i) decline to
purchase any of the BACs tendered, terminate the Offer and return all tendered
BACs to tendering BACs holders, (ii) waive all the then unsatisfied conditions
and, subject to complying with applicable rules and regulations of the
Commission, purchase all BACs validly tendered, (iii) extend the Offer and,
subject to the right of BACs holders to withdraw BACs until the Expiration
Date, retain the BACs that have been tendered during the period or periods for
which the Offer is extended, or (iv) amend the Offer.
At the request of the Purchaser, and pursuant to Rule 14d-5 of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), this Offer to
Purchase, the related Letter of Transmittal and, if required, any other
relevant materials are being mailed, at the Purchaser's expense, by the
Partnership to BACs holders, Beneficial Owners and Assignees who hold BACs, to
the extent their names and addresses are reflected on the books and records of
the Partnership.
2. Proration; Acceptance for Payment and Payment for BACs.
If more than 18,224 BACs are validly tendered on or prior to the
Expiration Date and not properly withdrawn on or prior to the Expiration Date,
the Purchaser will only accept for payment, upon the terms and subject to the
conditions of the Offer, and pay for an aggregate of 18,224 BACs so tendered,
pro rata according to the number of BACs validly tendered and not properly
withdrawn on or prior to the Expiration Date, with appropriate adjustments to
avoid purchases that would violate the transfer restrictions in Section 7.1 of
the Partnership Agreement (the "Transfer Restrictions"). If the number of BACs
validly tendered and not properly withdrawn on or prior to the Expiration Date
is less than or equal to 18,224 BACs, the Purchaser will purchase all BACs so
tendered and not properly withdrawn, upon the terms and subject to the
conditions of the Offer.
If proration of tendered BACs is required, and because of the difficulty
of determining the proration results, the Purchaser may not be able to announce
the final results of such proration until at least approximately seven business
days after the Expiration Date. Subject to the Purchaser's obligation under
Rule 14e-1(c) under the Exchange Act, to pay BACs holders the Purchase Price in
respect of BACs tendered or return those BACs promptly after the termination or
withdrawal of the Offer, the Purchaser does not intend to pay for any BACs
accepted for payment pursuant to the Offer until the final proration results
are known.
Upon the terms and subject to the conditions of the Offer (including, if
the Offer is extended or amended, the terms and conditions of any such
extension or amendment), the Purchaser will purchase, by accepting for payment,
and will pay for, all BACs validly tendered and not withdrawn in accordance
with Section 4 on or prior to the Expiration Date as promptly as practicable
following the Expiration Date. In addition, subject to applicable rules of the
Commission, the Purchaser expressly reserves the right to delay acceptance for
payment of, or payment for, BACs pending receipt of any regulatory or
governmental approvals specified in Section 15 ("Certain Legal Matters") or
pending receipt of any additional documentation required by the Letter of
Transmittal. In all cases, payment for BACs accepted for payment pursuant to
the Offer will be made only after timely receipt by the Information
Agent/Depositary of (a) the Letter of Transmittal properly completed and duly
executed and (b) any other documents required by the Letter of Transmittal.
For purposes of the Offer, the Purchaser shall be deemed to have accepted
for payment tendered BACs when, as and if the Purchaser gives oral or written
notice to the Information Agent/Depositary of the Purchaser's acceptance for
payment of such BACs pursuant to the Offer. No tender of BACs will be deemed to
have been validly made until all defects and irregularities with respect to
such tender have been cured or waived. Upon the terms and subject to the
conditions of the Offer, payment for BACs tendered and accepted for payment
pursuant to the Offer will in all cases be made by deposit of the Purchase
Price with the Information Agent/Depositary, which will act as agent for the
tendering BACs holders for the purpose of receiving payment from the Purchaser
and transmitting payment to tendering BACs holders.
The Purchase Price will be automatically reduced by $14 per BAC for each
month (or part of a month) between October 31, 1997 and the date of transfer
for BACs transferred after October 31, 1997. Under no circumstances will the
Purchaser pay interest on the Purchase Price for BACs.
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If any tendered BACs are not purchased pursuant to the Offer for any
reason, the Letter of Transmittal with respect to such BACs will be destroyed
by the Information Agent/Depositary. If, for any reason whatsoever, acceptance
for payment of or payment for any BACs tendered pursuant to the Offer is
delayed or the Purchaser is unable to accept for payment, purchase or pay for
BACs tendered pursuant to the Offer, then, without prejudice to the Purchaser's
rights under Section 14 ("Conditions of the Offer"), the Information
Agent/Depositary may, nevertheless, on behalf of the Purchaser and subject to
Rule 14e-1(c) under the Exchange Act, retain tendered BACs, and such BACs may
not be withdrawn except to the extent that the tendering BACs holder is
entitled to withdrawal rights as described in Section 4 ("Withdrawal Rights").
3. Procedures for Tendering BACs.
Valid Tender. For BACs to be validly tendered pursuant to the Offer, a
Letter of Transmittal or facsimile thereof properly completed and duly
executed, together with any other documents required by the Letter of
Transmittal, must be received by the Information Agent/Depositary at its
address or facsimile number on the back cover page of the Offer to Purchase on
or prior to the Expiration Date. If tendering by facsimile, a BACs holder
should subsequently send original copies of the Letter of Transmittal and any
other documents required by the Letter of Transmittal to the Information
Agent/Depositary at its address on the back cover of the Offer to Purchase. In
order to comply with certain restrictions set forth in the Partnership
Agreement, tenders of less than all BACs owned by a BACs holder that would
result in a BACs holder holding less than 5 BACs will not be accepted. See
Instructions to the Letter of Transmittal.
In order for a tendering BACs holder to participate in the Offer, BACs
must be validly tendered and not withdrawn on or prior to the Expiration Date,
which is 12:00 midnight, New York City time, on September 25, 1997, unless
extended.
The method of delivery of the Letter of Transmittal and all other required
documents is at the option and risk of the tendering BACs holder and delivery
will be deemed made only when actually received by the Information
Agent/Depositary. If delivery is by mail, registered mail with return receipt
requested is recommended. In all cases, sufficient time should be allowed to
ensure timely delivery.
Backup Federal Income Tax Withholding. To prevent the possible application
of backup federal income tax withholding with respect to payment of the
Purchase Price pursuant to the Offer, a tendering BACs holder must execute the
Letter of Transmittal, thereby certifying such BACs holder's correct taxpayer
identification number or social security number.
FIRPTA Withholding. To prevent the withholding of federal income tax in an
amount equal to 10% of the sum of the Purchase Price plus the amount of
Partnership liabilities allocable to each BAC purchased, each BACs holder must
execute the Letter of Transmittal, thereby certifying such BACs holder's
taxpayer identification number and address and that the BACs holder is not a
foreign person.
Appointment as Proxy; Power of Attorney. By executing and delivering the
Letter of Transmittal, a tendering BACs holder irrevocably appoints the
Purchaser and the designees of the Purchaser and each of them as such BACs
holder's proxies, in the manner set forth in the Letter of Transmittal, each
with full power of substitution, to the full extent of such BACs holder's
rights with respect to the BACs tendered by such BACs holder and accepted for
payment by the Purchaser (and with respect to any and all other BACs or other
securities issued or issuable in respect of such BACs on or after the date
hereof). All such proxies shall be considered irrevocable and coupled with an
interest in the tendered BACs. Such appointment will be effective when, and
only to the extent that, the Purchaser accepts such BACs for payment. Upon such
acceptance for payment, all prior proxies given by such BACs holder with
respect to such BACs (and such other BACs and securities) will be revoked
without further action, and no subsequent proxies may be given nor any
subsequent written consents executed (and, if given or executed, will not be
deemed effective). The Purchaser and its designees will, with respect to the
BACs (and such other BACs and securities) for which such appointment is
effective, be empowered to exercise all voting and other rights of such BACs
holder as it in its sole discretion may deem proper pursuant to the Partnership
Agreement or otherwise. The Purchaser may assign such proxy and/or power of
attorney to any person with or without assigning the related BACs with respect
to which such proxy and/or power of attorney was granted. The Purchaser
reserves the right to require that, in order for BACs to be deemed validly
tendered, immediately upon the Purchaser's payment for such BACs, the Purchaser
must be able to exercise full voting rights with respect to such BACs and other
securities.
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In addition, pursuant to such appointment as attorneys-in-fact, the
Purchaser and its designees each will have the power, among other things, (i)
to seek to transfer ownership of such BACs on the books and records of the
Partnership maintained by the Assignor Limited Partner (and execute and deliver
any accompanying evidences of transfer and authenticity any of them may deem
necessary or appropriate in connection therewith, including, without
limitation, any documents or instruments required to be executed under the
Partnership Agreement or a "Transferor's (Seller's) Application for Transfer"
created by the NASD, if required), (ii) upon receipt by the Information Agent/
Depositary (as the tendering BACs holder's agent) of the Purchase Price, to be
allocated all Tax Credits and tax losses and to receive any and all
distributions made by the Partnership after the Expiration Date, and to receive
all benefits and otherwise exercise all rights of beneficial ownership of such
BACs in accordance with the terms of the Offer, (iii) to execute and deliver to
the Partnership, the General Partners and/or the Assignor Limited Partner (as
the case may be) a change of address form instructing the Partnership to send
any and all future distributions to which the Purchaser is entitled pursuant to
the terms of the Offer in respect of tendered BACs to the address specified in
such form, and (iv) to endorse any check payable to or upon the order of such
BACs holder representing a distribution, if any, to which the Purchaser is
entitled pursuant to the terms of the Offer, in each case on behalf of the
tendering BACs holder.
Assignment of Entire Interest in the Partnership. By executing and
delivering the Letter of Transmittal, a tendering BACs holder irrevocably
assigns to the Purchaser and its assigns all of the, direct and indirect,
right, title and interest of such BACs holder in the Partnership with respect
to the BACs tendered and purchased pursuant to the Offer, including, without
limitation, such BACs holder's right, title and interest in and to any and all
Tax Credits and tax losses and any and all distributions made by the
Partnership after the Expiration Date in respect of the BACs tendered by such
BACs holder and accepted for payment by the Purchaser, regardless of the fact
that the record date for any such distribution may be a date prior to the
Expiration Date. Upon the Purchaser's acceptance of, and payment for, tendered
BACs, a tendering BACs holder will no longer be entitled to any benefits as a
BACs holder, regardless of whether such BACs holder retains a Beneficial
Assignment Certificate. The Purchaser reserves the right to transfer or assign,
in whole or from time to time in part, to any third party, the right to
purchase BACs tendered pursuant to the Offer, together with its rights under
the Letter of Transmittal, but any such transfer or assignment will not relieve
the assigning party of its obligations under the Offer or prejudice the rights
of tendering BACs holders to receive payment for BACs validly tendered and
accepted for payment pursuant to the Offer.
Determination of Validity. All questions as to the form of documents and
validity, eligibility (including time of receipt) and acceptance for payment of
any tender of BACs will be determined by the Purchaser, in its sole discretion,
whose determination shall be final and binding on all parties. The Purchaser
reserves the absolute right to reject any or all tenders determined by it not
to be in proper form, or the acceptance of or payment for which may, in the
opinion of the Purchaser's counsel, be unlawful. The Purchaser also reserves
the absolute right to waive any of the conditions of the Offer or any defect or
irregularity in any tender of BACs of any particular BACs holder whether or not
similar defects or irregularities are waived in the case of other BACs holders.
Assignee Status. Assignees must provide documentation to the Information
Agent/Depositary which demonstrates, to the satisfaction of the Purchaser, such
person's status as an assignee of a BAC.
The Purchaser's interpretation of the terms and conditions of the Offer
(including the Letter of Transmittal and the instructions thereto) will be
final and binding. No tender of BACs will be deemed to have been validly made
until all defects and irregularities with respect to such tender have been
cured or waived. None of the Purchaser, any of its affiliates or assigns, if
any, the Information Agent/Depositary or any other person will be under any
duty to give any notification of any defects or irregularities in tenders or
incur any liability for failure to give any such notification.
The Purchaser's acceptance for payment of BACs tendered pursuant to the
procedures described above will constitute a binding agreement between the
tendering BACs holder and the Purchaser upon the terms and subject to the
conditions of the Offer.
4. Withdrawal Rights.
Tenders of BACs made pursuant to the Offer are irrevocable, except that
BACs tendered pursuant to the Offer may be withdrawn at any time prior to the
Expiration Date and, unless theretofore accepted for payment as provided in
this Offer to Purchase, may also be withdrawn at any time after October 26,
1997.
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For a withdrawal to be effective, a written or facsimile transmission
notice of withdrawal must be timely received by the Information
Agent/Depositary at the address set forth on the back cover of this Offer to
Purchase. Any such notice of withdrawal must specify the name(s) of the
person(s) who tendered the BACs to be withdrawn, the number of BACs to be
withdrawn and the name(s) of the registered holder(s) of the BACs, if different
from that of the person(s) who tendered such BACs. Such notice of withdrawal
must also be signed by the same person(s) who signed the Letter of Transmittal
in the same manner as the Letter of Transmittal was signed (including , if
applicable, medallion signature guarantees). If the BACs are held in the name
of two or more persons, all such persons must sign the notice of withdrawal.
Any BACs properly withdrawn will be deemed not validly tendered for purposes of
the Offer, but may be re-tendered at any subsequent time prior to the
Expiration Date by following the procedures described in Section 3 ("Procedures
for Tendering BACs").
If, for any reason whatsoever, acceptance for payment of any BACs tendered
pursuant to the Offer is delayed, or the Purchaser is unable to accept for
payment or pay for BACs tendered pursuant to the Offer, then, without prejudice
to the Purchaser's rights set forth herein, the Information Agent/Depositary
may, nevertheless, on behalf of the Purchaser, retain tendered BACs and such
BACs may not be withdrawn except to the extent that the tendering BACs holder
is entitled to and duly exercises withdrawal rights as described herein. The
reservation by the Purchaser of the right to delay the acceptance or purchase
of or payment for BACs is subject to the provisions of Rule 14e-1(c) under the
Exchange Act, which requires the Purchaser to pay the consideration offered or
return BACs tendered by or on behalf of BACs holders promptly after the
termination or withdrawal of the Offer.
All questions as to the form and validity (including time of receipt) of
notices of withdrawal will be determined by the Purchaser, in its sole
discretion, whose determination shall be final and binding. None of the
Purchaser, any of its affiliates or assigns, if any, the Information
Agent/Depositary or any other person will be under any duty to give any
notification of any defects or irregularities in any notice of withdrawal or
incur any liability for failure to give any such notification.
5. Extension of Tender Period; Termination; Amendment.
The Purchaser reserves the right, in its sole discretion and regardless of
whether any of the conditions set forth in Section 14 ("Conditions of the
Offer") shall have been satisfied, at any time and from time to time, (i) to
extend the period of time during which the Offer is open and thereby delay
acceptance for payment of, and the payment for, any BACs, (ii) to terminate the
Offer and not accept for payment any BACs not already accepted for payment or
paid for, and (iii) to amend the Offer in any respect by giving oral or written
notice of such amendment to the Information Agent/Depositary.
If the Purchaser increases or decreases either the number of the BACs
being sought or the consideration to be paid for any BACs pursuant to the Offer
and the Offer is scheduled to expire at any time before the expiration of a
period of 10 business days from, and including, the date that notice of such
increase or decrease is first published, sent or given in the manner specified
below, the Offer will be extended until, at a minimum, the expiration of such
period of 10 business days. If the Purchaser makes a material change in the
terms of the Offer (other than a change in price or percentage of securities
sought) or in the information concerning the Offer, or waives a material
condition of the Offer, the Purchaser will extend the Offer, if required by
applicable law, for a period sufficient to allow BACs holders to consider the
amended terms of the Offer.
The Purchaser also reserves the right, in its sole discretion, if any of
the conditions specified under Section 14 ("Conditions of the Offer") shall not
have been satisfied and so long as BACs have not theretofore been accepted for
payment, to delay (except as otherwise required by applicable law) acceptance
for payment of or payment for BACs or to terminate the Offer and not accept for
payment or pay for BACs.
If the Purchaser extends the period of time during which the Offer is
open, delays acceptance for payment of or payment for BACs or is unable to
accept for payment or pay for BACs pursuant to the Offer for any reason, then,
without prejudice to the Purchaser's rights under the Offer, the Information
Agent/Depositary may, on behalf of the Purchaser, retain all BACs tendered, and
such BACs may not be withdrawn except as otherwise provided under Section 4
("Withdrawal Rights"). The reservation by the Purchaser of the right to delay
acceptance for payment of or payment for BACs is subject to applicable law,
which requires that the Purchaser pay the consideration offered or return the
BACs deposited by or on behalf of BACs holders promptly after the termination
or withdrawal of the Offer.
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Any extension, termination or amendment of the Offer will be followed as
promptly as practicable by a public announcement thereof. Without limiting the
manner in which the Purchaser may choose to make any public announcement, the
Purchaser will have no obligation (except as otherwise required by applicable
law) to publish, advertise or otherwise communicate any such public
announcement other than by making a release to the Dow Jones News Service. In
the case of an extension of the Offer, the Purchaser will make a public
announcement of such extension no later than 9:00 a.m., New York City time, on
the next business day after the previously scheduled Expiration Date.
6. Certain Federal Income Tax Consequences.
The following summary is a general discussion of certain federal income
tax consequences of a sale of BACs pursuant to the Offer assuming that the
Partnership is a partnership for federal income tax purposes and that it is not
a "publicly traded partnership" as defined in Section 7704 of the Internal
Revenue Code of 1986, as amended (the "Code"). This summary is based on the
Code, applicable Treasury Regulations thereunder, administrative rulings,
practice and procedures and judicial authority as of the date of the Offer. All
of the foregoing are subject to change, and any such change could affect the
continuing accuracy of this summary. This summary does not discuss all aspects
of federal income taxation that may be relevant to a particular BACs holder in
light of such BACs holder's specific circumstances or to certain types of BACs
holders subject to special treatment under the federal income tax laws (for
example, foreign persons (if any), dealers in securities, banks, insurance
companies and tax-exempt entities), nor does it discuss any aspect of state,
local, foreign or other tax laws. Sales of BACs pursuant to the Offer will be
taxable transactions for federal income tax purposes, and may also be taxable
transactions under applicable state, local, foreign and other tax laws. EACH
BACs HOLDER SHOULD CONSULT HIS OR HER TAX ADVISOR AS TO THE PARTICULAR TAX
CONSEQUENCES TO SUCH BACs HOLDER OF SELLING BACs PURSUANT TO THE OFFER,
INCLUDING, WITHOUT LIMITATION, FEDERAL, STATE AND LOCAL TAX CONSEQUENCES.
Consequences to Tendering BACs holder. A BACs holder will recognize gain
or loss on a sale of BACs pursuant to the Offer equal to the difference between
(i) the BACs holder's "amount realized" on the sale and (ii) the BACs holder's
adjusted tax basis in the BACs sold. The "amount realized" with respect to a
BAC sold pursuant to the Offer will be a sum equal to the amount of cash
received by the BACs holder for the BAC plus the amount of Partnership
liabilities allocable to the BAC (as determined under Code Section 752). The
amount of a BACs holder's adjusted tax basis in BACs sold pursuant to the Offer
will vary depending upon the BACs holder's particular circumstances, and will
be affected by allocations of Partnership income, gain or loss, and any
historic tax credits to a BACs holder with respect to such BACs. In this
regard, tendering BACs holders will be allocated a pro rata share of the
Partnership's taxable income or loss with respect to BACs sold pursuant to the
Offer through the effective date of the sale.
Tendering BACs holders who have not utilized passive losses: A BACs holder
who sells his or her BACs pursuant to this Offer will receive $530 of proceeds
per BAC that may result in a tax loss of approximately $13 per BAC, which loss
could be available to reduce income from other sources. In addition, if an
individual sells all of his or her BACs, unused passive losses of up to
approximately $425 per BAC may be available to offset other income of such BACs
holder. Tendering BACs holders who have utilized passive losses: An individual
BACs holder who sells his or her BACs pursuant to this Offer, who acquired BACs
pursuant to the original offering of BACs by the Partnership and who has
utilized all of his passive losses is expected to recognize a tax loss of
approximately $13 per BAC.
In general, the character (as capital or ordinary) of BACs holder's gain
or loss on a sale of a BAC pursuant to the Offer will be determined by
allocating the BACs holder's amount realized on the sale and his adjusted tax
basis in the BACs sold between "Section 751 items," which are "inventory items
of the partnership" and "unrealized receivables" (including depreciation
recapture) as defined in Code Section 751, and non-Section 751 items. The
difference between the portion of the BACs holder's amount realized that is
allocable to Section 751 items and the portion of the BACs holder's adjusted
tax basis in the BACs sold that is so allocable will be treated as ordinary
income or loss, and the difference between the BACs holder's remaining amount
realized and adjusted tax basis will be treated as capital gain or loss
assuming the BACs were held by the BACs holder as a capital asset. The
Purchaser believes that substantially all of any tax loss realized on a sale of
BACs pursuant to the Offer will be treated as a capital loss under these rules,
although it is possible, because a BACs holder's adjusted tax basis in the BACs
sold will be allocated to Section 751 items based on the Partnership's tax
basis in these items, that
9
<PAGE>
a BACs holder may recognize ordinary income with respect to the portion of the
BACs holder's amount realized on the sale of a BAC that is attributable to
Section 751 items while recognizing a capital loss with respect to the balance
of the selling price.
A BACs holder's capital gain (if any) or loss on a sale of BACs pursuant
to the Offer will be treated as long-term capital gain or loss if the BACs
holder's holding period for the BACs exceeds eighteen months. Under current
law, long-term capital gains of individuals and other non-corporate taxpayers
are taxed at a maximum marginal federal income tax rate of 20% with respect to
assets held more than 18 months (a maximum federal income tax rate of 28%
applies to gains with respect to assets held more than one year but less than
18 months), whereas the maximum marginal federal income tax rate for other
income of such persons is 39.6%. Capital losses are deductible only to the
extent of capital gains, except that non-corporate taxpayers may deduct up to
$3,000 of capital losses in excess of the amount of their capital gains against
ordinary income. Excess capital losses generally can be carried forward to
succeeding years (a corporation's carryforward period is five years and a
non-corporate taxpayer can carry forward such losses indefinitely); in
addition, corporations, but not non-corporate taxpayers, are allowed to carry
back excess capital losses to the three preceding taxable years.
Under Code Section 469, a non-corporate taxpayer or personal service
corporation can deduct passive activity losses in any year only to the extent
of such person's passive activity income for such year, and closely held
corporations may not offset such losses against so-called "portfolio" income.
If a BACs holder is subject to these restrictions and has unused tax losses
from prior years, such tax losses will generally become available upon a sale
of BACs, provided the BACs holder sells all his BACs. If a BACs holder is
unable to sell all his BACs, the deductibility of such losses would continue to
be subject to the passive activity loss limitation until the BACs holder sells
his remaining BACs. See Section 7 ("Effects of the Offer").
In certain cases, the transfer of an interest in a partnership from which
tax credits were allocated can result in a recapture of the tax credits to the
seller (i.e., the seller would be required to pay an additional amount of tax
equal to the credit "recaptured"). A disposition by a BACs holder of his entire
interest in the Partnership within five years from the date property for which
the Historic Tax Credit was claimed was placed in service will trigger a
recapture of a portion of the Historic Tax Credits previously claimed by the
BACs holder. The Purchaser anticipates that no Historic Tax Credits will be
recaptured with respect to BACs acquired in the original offering. The transfer
of an interest in an entity that has generated Housing Tax Credits generally
results in a recapture of a portion of the Housing Tax Credits. However, an
exception to this rule is provided for partnerships with 35 or more partners,
such as the Partnership. In order for this rule to be applicable, within a
12-month period at least 50% (in value) of the ownership of the Partnership
must remain unchanged. The Purchaser anticipates that, as a result of this
rule, the sale of BACs will not cause a recapture of Housing Tax Credits.
A BACs holder (other than corporations and certain foreign individuals)
who tenders BACs may be subject to 31% backup withholding unless the BACs
holder provides a taxpayer identification number ("TIN") and certifies that the
TIN is correct or properly certifies that he is awaiting a TIN. A BACs holder
may avoid backup withholding by properly completing and signing the Letter of
Transmittal. If a BACs holder does not properly complete and sign the Letter of
Transmittal, thereby failing to make the requisite certifications, the
Purchaser will withhold 31% from payments to such BACs holder.
Gain realized by a foreign BACs holder on a sale of a BAC pursuant to the
Offer will be subject to federal income tax. Under Section 1445 of the Code,
the transferee of a partnership interest held by a foreign person is generally
required to deduct and withhold a tax equal to 10% of the amount realized on
the disposition. The Purchaser will withhold 10% of the amount realized by a
tendering BACs holder from the Purchase Price payable to such BACs holder
unless the BACs holder properly completes and signs the Letter of Transmittal
certifying the BACs holder's TIN, that such BACs holder is not a foreign person
and the BACs holder's address. Amounts withheld would be creditable against a
foreign BACs holder's federal income tax liability and, if in excess thereof, a
refund could be obtained from the Internal Revenue Service by filing a U.S.
income tax return.
Consequences to a Non-Tendering BACs holder. The Purchaser does not
anticipate that a BACs holder who does not tender his or her BACs will realize
any material tax consequences as a result of the election not to tender. The
Purchaser has retained two independent law firms which will deliver opinion
letters that consummation of the Offer will not result in the Partnership being
treated as a publicly-traded partnership for federal income tax purposes. There
can be no assurance, however, that the Internal Revenue Service (the "IRS")
will agree with the conclusions
10
<PAGE>
reached in such opinions. There is no precedent governing whether the Offer
will cause the Partnership to be treated as a publicly-traded partnership for
federal income tax purposes. If the IRS successfully asserted that the
Partnership should be treated as a publicly-traded partnership, investors who
are subject to the passive activity loss rules would not be able to use tax
losses derived from the Partnership to offset income from sources other than
the Partnership prior to the investor's disposition of his entire interest in
the Partnership.
7. Effects of the Offer.
Certain Restrictions on Transfer of Interests. The Partnership Agreement
restricts transfers of BACs if, among other things, such transfer would cause a
termination of the Partnership for federal income tax purposes (which
termination would occur when BACs that represent 50% or more of the total
Partnership capital and profits are transferred within a twelve-month period).
Consequently, sales of BACs in the secondary market and in private transactions
during the twelve-month period following completion of the Offer may be
restricted, and requests for transfers of BACs during such twelve-month period
may not be recognized. The Purchaser does not intend to purchase BACs to the
extent such purchase would violate the transfer restrictions set forth in the
Partnership Agreement. Based on information provided by the Partnership, for
the period from July 1, 1996 to July 1, 1997, approximately 1,812 BACs
(representing approximately 2.5% of the outstanding BACs) were transferred.
Therefore, the Purchaser does not believe the number of BACs sought in the
Offer will violate the Transfer Restrictions.
Effect on Trading Market; Registration Under Section 12(g) of the Exchange
Act. If a substantial number of BACs are purchased pursuant to the Offer, the
result will be a reduction in the number of BACs holders. In the case of
certain kinds of equity securities like the BACs, a reduction in the number of
securityholders might be expected to result in a reduction in the liquidity and
volume of activity in the trading market for the security. The Form 10-K
states: "Neither the BACs nor the Limited Partnership Interests are traded on
any established trading market. The Partnership does not intend to include the
BACs for quotation on NASDAQ or for listing on any national or regional stock
exchange or any other established securities market." Therefore, the Purchaser
does not believe a reduction in the number of BACs holders will materially
further restrict the BACs holders' ability to find purchasers for their BACs
through secondary market transactions.
Partnership Profiles, Inc., which publishes the Partnership Spectrum,
tracks recent trades in certain limited partnership interests. The most recent
issue of the Partnership Spectrum (March/April 1997) in which trades in the
BACs were reported indicates that 82 BACs traded in the period from February 1,
1997 through March 31, 1997 at per BAC prices between $564 and $575, exclusive
of commissions and transfer costs, with a weighted average of $570.74 per BAC.
The BACs currently are registered under Section 12(g) of the Exchange Act,
which means, among other things, that the Partnership is required to file
periodic reports with the Commission and to comply with the Commission's proxy
rules. The Purchaser does not expect or intend that consummation of the Offer
will cause the BACs to cease to be registered under Section 12(g) of the
Exchange Act. If the BACs were to be held by fewer than 300 persons, the
Partnership could apply to de-register the BACs under the Exchange Act. Because
the BACs are widely held, however, the Purchaser expects that even if it
purchases the maximum number of BACs in the Offer, the BACs will continue to be
held of record by substantially more than 300 persons.
Influence over All BACs Holder Voting Decisions by Purchaser. Pursuant to
the Partnership Agreement, the Purchaser, through the Assignor Limited Partner,
will have the right to vote each BAC purchased by it pursuant to the Offer. If
the Purchaser is successful in acquiring a significant number of BACs pursuant
to the Offer, the Purchaser could, subject to the Standstill Agreement, be in a
position to significantly influence all Partnership decisions on which BACs
holders, through the Assignor Limited Partner, and Limited Partners,
collectively, may vote. If the maximum number of BACs sought by the Purchaser
is tendered and accepted for payment pursuant to the Offer, the Purchaser will
own approximately 25% of the outstanding BACs. After the Standstill Expiration
Date, the ownership of tendered BACs by the Purchaser could effectively (i)
prevent non-tendering BACs holders from taking actions they desire but that the
Purchaser opposes and (ii) enable the Purchaser to take actions desired by it
but opposed by non-tendering BACs holders. Generally, under the Partnership
Agreement, holders of more than 50% of the Limited Partnership Interests and
BACs (which represent Limited Partnership Interests) are entitled, directly or
through the Assignor Limited Partner, as the case may be, to take action with
respect to a variety of matters, including: approving the removal of any
General Partner and proposing and approving a replacement therefor; approving
the dissolution of the Partnership; approving or disapproving the sale of all
or substantially all of
11
<PAGE>
the assets of the Partnership; and most types of amendments to the Partnership
Agreement. No such votes have, however, ever been taken and the General Partner
affiliated with the Purchaser has indicated that none are presently scheduled
or expected. Although the Purchaser does not have any current plans or
intentions with regard to any of these matters, it will, following the
Standstill Expiration Date, vote the BACs acquired pursuant to the Offer in its
interest, which may, or may not, be in the best interest of non-tendering BACs
holders. Until the Standstill Expiration Date, the Purchaser has agreed to vote
its BACs in the same manner as a majority of all voting BACs holders; provided,
however, the Purchaser shall be entitled to vote its BACs as it determines with
regard to any proposal (i) to remove RFA as a general partner of the
Partnership or (ii) concerning the reduction of any fees, profits,
distributions or allocations for the benefit of RFA or its affiliates.
It is likely that the Purchaser, which is affiliated with RFA (a General
Partner), will vote all of its BACs to continue RFA as a general partner of the
Partnership and in a manner that is otherwise consistent with the decisions and
recommendations of RFA, including as they relate to matters involving
transactions between the Partnership and affiliates of the Purchaser.
Therefore, the Purchaser's acquisition of BACs may have the effect of making
any future change of the Partnership's policies and/or current management more
difficult.
8. Purpose of the Offer; Future Plans.
Purpose of the Offer. The purpose of the Offer is to enable the Purchaser
to acquire a significant interest in the Partnership for investment purposes
based on its expectation that the Partnership will continue to generate Tax
Credits and tax losses attributable to the BACs. The Purchaser intends to sell
membership interests in the Purchaser to third parties with a need for Tax
Credits and/or tax losses. The aggregate sales price of the Purchaser's
membership interests to third parties will be equal to the aggregate purchase
price for the tendered BACs and all other securities tendered to the Purchaser
pursuant to other tender offers, plus the Purchaser's expenses in conducting
and consummating the Offer, its other tender offers, and financing the purchase
of the tendered securities (including, without limitation, the BACs). Neither
the Purchaser nor its current members will derive a profit from the sale of the
Purchaser's membership interests.
Another purpose of the Offer is to allow BACs holders who have a current
or anticipated need or desire for liquidity to sell their BACs. An additional
purpose of the Offer is to establish a standard against which any subsequent
tender offers for BACs can be judged.
The Purchaser does not currently intend to make any effort to change
current management or the operation of the Partnership nor does it have any
current plans or intentions for any extraordinary transaction involving the
Partnership. However, the Purchaser's plans with respect to its investment in
the BACs could change at any time in the future. If such plans with respect to
the Partnership change in the future, the ability of the Purchaser to influence
actions on which BACs holders (through the Assignor Limited Partner) have a
right to vote will depend on the BACs holders' response to the Offer (i.e., the
number of BACs tendered). If the Purchaser acquires only a small number of BACs
pursuant to the Offer, it will not be in a position to influence matters over
which BACs holders have a right to vote. Conversely, if the maximum number of
BACs sought are tendered and accepted for payment pursuant to the Offer, the
Purchaser will own approximately 25% of the issued and outstanding BACs and, as
a result, will, subject to the Standstill Agreement, be in a position to exert
significant influence over matters on which BACs holders (through the Assignor
Limited Partner) have a right to vote. The purchase of the BACs will allow the
Purchaser to benefit from any of the following: (a) any and all Tax Credits and
tax losses attributable to such BACs; (b) any cash distributions from
Partnership operations in the ordinary course of business; (c) distributions,
if any, of net proceeds from the sale of any Properties after the Partnership
has satisfied its liabilities; and (d) any distributions of net proceeds from
the dissolution of the Partnership.
Future Plans. Following the completion of the Offer and subject to the
terms of the Standstill Agreement, the Purchaser and its affiliates may acquire
additional BACs. Any such acquisition may be made through private purchases,
through one or more future tender offers or by any other means deemed
advisable, and may be at prices higher or lower than the price to be paid for
the BACs purchased pursuant to the Offer. Additionally, the Purchaser intends
to sell membership interests in the Purchaser to third parties with a need for
Tax Credits and/or tax losses. The aggregate sales price of the Purchaser's
membership interests to third parties will be equal to the aggregate purchase
price for the tendered BACs and all other securities tendered to the Purchaser
pursuant to other tender offers, plus the Purchaser's expenses in conducting
and consummating the Offer, its other tender offers, and financing the purchase
of the tendered securities (including, without limitation, the BACs). Neither
the Purchaser nor
12
<PAGE>
its current members will derive a profit from the sale of the Purchaser's
membership interests. Affiliates of the Purchaser expect to arrange the sale of
membership interests of the Purchaser to third parties upon conclusion of the
Offer in order to earn fees for structuring this transaction, arranging the
sale and performing certain services for the Purchaser during the period in
which the Purchaser owns the tendered BACs. These fees will be, in part,
dependent on the amount third parties are willing to pay for membership
interests in excess of the Purchase Price per BAC and the amount of membership
interests sold. There can be no assurance, however, that any membership
interests in the Purchaser will be sold or at what price.
Pursuant to the Standstill Agreement (a copy of which has been filed as
Exhibit (c)(1) to the Purchaser's Tender Offer Statement on Schedule 14D-1
filed with the Commission on August 27, 1997), the Purchaser agreed that, prior
to the Standstill Expiration Date, it will not and it will cause certain
affiliates not to (i) acquire, attempt to acquire or make a proposal to
acquire, directly or indirectly, more than 45% (including BACs acquired through
all other means) of the outstanding BACs, (ii) seek to propose to enter into,
directly or indirectly, any merger, consolidation, business combination, sale
or acquisition of assets, liquidation, dissolution or other similar transaction
involving the Partnership, (iii) make, or in any way participate, directly or
indirectly, in any "solicitation" of "proxies" or "consents" (as such terms are
used in the proxy rules of the Securities and Exchange Commission) to vote any
voting securities of the Partnership, (iv) form, join or otherwise participate
in a "group" (within the meaning of Section 13(d)(3) of the Exchange Act) with
respect to any voting securities of the Partnership, except that those
affiliates bound by the Standstill Agreement will not be deemed to have
violated it and formed a "group" solely by acting in accordance with the
Standstill Agreement, (v) disclose in writing to any third party any intention,
plan or arrangement inconsistent with the terms of the Standstill Agreement, or
(vi) loan money to, advise, assist or encourage any person in connection with
any action inconsistent with the terms of the Standstill Agreement. In
addition, the Purchaser has agreed that until the Standstill Expiration Date it
will not sell any BACs acquired by it unless the buyer of such BACs agrees to
be bound by the Standstill Agreement; provided, however, the Purchaser may make
transfers in the secondary market to any purchaser which represents that
following such sale it will not own three (3%) percent or more of the BACs
outstanding. By the terms of the Standstill Agreement, the Purchaser has also
agreed to vote its BACs in the same manner as a majority of all voting BACs
holders; provided, however, the Purchaser is entitled to vote its BACs as it
determines with regard to any proposal (i) to remove RFA as a general partner
of the Partnership or (ii) concerning the reduction of any fees, profits,
distributions or allocations for the benefit of RFA or its affiliates.
9. Certain Information Concerning the Partnership.
Information included herein concerning the Partnership is derived from the
Partnership and its publicly-filed reports. Additional financial and other
information concerning the Partnership is contained in the Partnership's Annual
Reports on Form 10-K, Quarterly Reports on Form 10-Q and other filings with the
Commission. Such reports and other documents may be examined and copies may be
obtained from the public reference facilities maintained at the principal
offices of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at
the regional offices of the Commission located at 7 World Trade Center, Suite
1300, New York, New York 10048 and 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661, and at the Commission's World Wide Web site at
http://www.sec.gov. Copies should be available by mail upon payment of the
Commission's customary charges by writing to the Commission's principal offices
at 450 Fifth Street, N.W., Washington, D.C. 20549. The Purchaser disclaims any
responsibility for the information included in such reports and extracted in
this Offer to Purchase.
The Partnership's Assets and Business
The Partnership is a limited partnership formed in 1989, under the laws of
the State of Delaware. Its principal executive offices are located at 625
Madison Avenue, New York, New York 10022. Its telephone number is (212)
421-5333. The Partnership's fiscal year ends March 31st.
The Partnership was formed to invest, as a limited partner, in other
limited partnerships (referred to herein as "Local Partnerships" or "Subsidiary
Partnerships") each of which owns one or more leveraged low-income multifamily
residential complexes ("Apartment Complexes") that are eligible for the
low-income housing tax credit ("Housing Tax Credit") enacted in the Tax Reform
Act of 1986, some of which are eligible for the historic rehabilitation tax
credit ("Historic Rehabilitation Tax Credit"). Some of the Apartment Complexes
benefit from one or more other forms of federal or state housing assistance.
The Partnership's investment in each Local Partnership represents from 98% to
99% of the partnership interests in the Local Partnership. According to the
Form 10-Q,
13
<PAGE>
as of June 30, 1997, the Partnership had acquired an interest in 42 Local
Partnerships. The Partnership does not anticipate making any additional
investments.
Freedom SLP L.P. ("Freedom SLP") is the special limited partner in all 42
Local Partnerships and is an affiliate of each General Partner of the
Partnership. Freedom SLP has certain rights and obligations in its role as
special limited partner which permit Freedom SLP to execute control over the
management and policies of the Local Partnerships.
According to the Form 10-K, the stated investment objectives of the
Partnership are to:
1. Entitle qualified BACs holders to Housing Tax Credits over the Credit
Period (as defined below) with respect to each Apartment Complex;
2. Preserve and protect the Partnership's capital;
3. Participate in any capital appreciation in value of the Apartment
Complexes and provide distributions of sale or refinancing proceeds upon the
disposition of the Apartment Complexes; and
4. Allocate passive losses to individual BACs holders to offset passive
income that they may realize from rental real estate investments and other
passive activities, and allocate passive losses to corporate BACs holders to
offset business income.
According to the Form 10-K, one of the Partnership's objectives is to
entitle qualified BACs holders to Housing Tax Credits over the period of the
Partnership's entitlement to claim such Tax Credits (for each Apartment
Complex, generally ten years from the date of investment or, if later, the date
the Apartment Complex is placed in service; referred to herein as the "Credit
Period"). Each of the Local Partnerships in which the Partnership has acquired
an interest has been allocated by the relevant state credit agency the
authority to recognize Housing Tax Credits during the Credit Period provided
that the Local Partnership satisfies the rent restriction, minimum set-aside
and other requirements for recognition of the Housing Tax Credits at all times
during such period. Once a Local Partnership has become eligible to recognize
Housing Tax Credits, it may lose such eligibility and suffer an event of
"recapture" if its property fails to remain in compliance with the Housing Tax
Credit requirements. According to the Form 10-K, none of the Local Partnerships
in which the Partnership has acquired an interest has suffered an event of
recapture.
According to the Form 10-K, the Partnership continues to meet its primary
objective of generating Housing Tax Credits. Housing Tax Credits are generated
by an Apartment Complex over a ten-year period commencing as each Apartment
Complex is leased to qualified tenants. According to the Form 10-K, during the
years ended March 31, 1997, 1996 and 1995, the Housing Tax Credits received by
the Partnership totaled $11,208,966, $11,208,869, and $11,208,869,
respectively. According to the Form 10-K there were no Historic Tax Credits
received in the years ended March 31, 1997, 1996 and 1995.
According to the Form 10-K, as of March 31, 1997, there can be no
assurance that the Partnership will achieve its investment objectives as
described above.
According to the Form 10-K, the Partnership holds a 99%, 98.99% and 98%
limited partnership interest in nine, 10 and 23 Local Partnerships,
respectively. Attached to this Offer to Purchase as Schedule II is a schedule
of these Local Partnerships (the "Local Partnership Schedule"), including
certain information concerning their respective Apartment Complexes. Attached
to this Offer to Purchase as Schedule III is additional information concerning
these Local Partnerships and their Apartment Complexes, including information
relating to mortgage encumbrances and accumulated depreciation. The information
set forth in Schedules II and III repeats information set forth in the Form
10-K.
According to the Form 10-K, the General Partners have generally required
in connection with investments in development-stage Apartment Complexes that
the general partners of the Local Partnerships (the "Local General Partners")
provide completion guarantees and/or undertake to repurchase the Partnership's
interest in the Local Partnership if construction or rehabilitation is not
completed substantially on time or on budget ("Development Deficit
Guarantees"). The Development Deficit Guarantees have expired since the
properties are no longer under construction and are in the operating stage. The
Development Deficit Guarantees have generally also required the Local General
Partner to provide any funds necessary to cover net operating deficits of the
Local Partnership until such time as the Apartment Complex has achieved
break-even operations. In addition, the General Partners have generally
14
<PAGE>
required that the Local General Partners undertake an obligation to fund
operating deficits of the Local Partnership (up to a stated maximum amount)
during a limited period of time (typically three to five years) following the
achievement of break-even operations ("Operating Deficit Guarantees"). Under
the terms of the Development and Operating Deficit Guarantees, amounts funded
will be treated as operating loans which will not bear interest and which will
be repaid only out of 50% of available cash flow or out of available net sale
or refinancing proceeds. In cases where the General Partners deem it
appropriate, the obligations of a Local General Partner under the Development
Deficit and/or Operating Deficit Guarantees are secured by letters of credit
and/or cash escrow deposits. See "Liquidity and Capital Resources" below.
According to the Form 10-K, all leases at the Properties are generally for
periods not exceeding one to two years and no tenant occupies more than 10% of
the rentable square footage.
Rent from commercial tenants (to which average rental per square foot
applies) comprise less than 5% of the rental revenues of the Partnership. Rents
for the residential units are determined annually by HUD and reflect increases
in consumer price indexes in various geographic areas.
According to the Form 10-K, management of the Partnership continuously
reviews the physical state of the properties and budgets improvements when
required, which are generally funded from cash flow from operations or release
of replacement reserve escrows. No improvements are expected to require
additional financing.
According to the Form 10-K, management of the Partnership continuously
reviews the insurance coverage of the properties and believes such coverage is
adequate.
Real estate taxes are calculated using rates and assessed valuations
determined by the township or city in which the property is located. Such taxes
have approximated 1% of the aggregate cost of the Apartment Complexes.
Selected Financial Data. Set forth below is a summary of certain financial
data for the Partnership which has been excerpted from the Form 10-K and the
Form 10-Q. More comprehensive financial and other information is included in
such reports and other documents filed by the Partnership with the Commission,
and the following summary is qualified in its entirety by reference to such
reports and other documents and all the financial information and related notes
contained therein.
15
<PAGE>
Statements of Operations
For the Three Months Ended June 30, 1997 and 1996
<TABLE>
<CAPTION>
Three Months Ended June 30,
--------------------------------
1997 1996
---------------- -------------
<S> <C> <C>
Revenue:
Rental income ............................................. $ 3,047,493 $ 2,946,970
Other ..................................................... 313,940 307,231
------------ ------------
Total Revenue ........................................... 3,361,433 3,254,201
------------ ------------
Expenses:
General and administrative ................................ 567,896 554,777
General and administrative-related parties ................ 380,479 241,668
Operating and other ....................................... 338,643 331,502
Repairs and maintenance ................................... 453,658 471,133
Real estate taxes ......................................... 232,552 229,863
Insurance ................................................. 112,913 121,944
Financial, principally interest ........................... 1,229,866 1,223,024
Depreciation and amortization ............................. 1,335,262 1,367,659
------------ ------------
Total Expenses .......................................... 4,651,269 4,541,570
------------ ------------
Loss before minority interest ............................... (1,289,836) (1,287,369)
Minority interest in loss of subsidiary partnerships ........ 14,498 15,458
------------ ------------
Loss before extraordinary item ..............................
Net loss .................................................... $ (1,275,338) $ (1,271,911)
============ ============
Net loss--limited partners .................................. $ (1,262,585) $ (1,259,192)
============ ============
Number of BACs outstanding .................................. 72,896 72,896
============ ============
Net loss per BAC ............................................ $ (17.32) $ (17.27)
============ ============
</TABLE>
16
<PAGE>
Summary Selected Financial Data
<TABLE>
<CAPTION>
For the Years Ended March 31,
------------------------------------------------------------------------------------
OPERATIONS 1997 1996 1995 1994 1993
- ---------------------------------- ---------------- ---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C>
Revenues ......................... $ 13,270,634 $ 12,999,861 $ 12,714,134 $ 12,743,936 $ 10,324,655
Expenses ......................... 18,666,634 18,120,329 17,520,409 17,309,022 16,114,022
------------ ------------ ------------ ------------ ------------
Loss before minority interest .... (5,396,000) (5,120,468) (4,806,275) (4,565,086) (5,789,367)
Minority interest ................ 59,470 58,131 50,461 56,776 15,292
------------ ------------ ------------ ------------ ------------
Loss before extraordinary item (5,336,530) (5,062,337) (4,755,814) (4,508,310) (5,774,075)
Extraordinary item--forgiveness
of indebtedness ................. 87,262 0 0 0 0
------------ ------------ ------------ ------------ ------------
Net loss ......................... $ (5,249,268) $ (5,062,337) $ (4,755,814) $ (4,508,310) $ (5,774,075)
============ ============ ============ ============ ============
Per BAC:
Loss before extraordinary
item .......................... $ (72.48) $ (68.75) $ (64.59) $ (61.23) $ (78.01)
Extraordinary item ............. 1.19 0.00 0.00 0.00 0.00
------------ ------------ ------------ ------------ ------------
Net loss ....................... $ (71.29) $ (68.75) $ (64.59) $ (61.23) $ (78.01)
============ ============ ============ ============ ============
March 31,
-----------------------------------------------------------------------------------
FINANCIAL POSITION 1997 1996 1995 1994 1993
- --------------------------------- ------------- ------------ ------------ ------------ ------------
Total assets ..................... $122,394,464 $127,623,516 $133,237,559 $138,872,814 $147,981,833
============ ============ ============ ============ ============
Mortgage notes payable ........... 71,673,532 72,249,613 73,019,371 73,518,550 74,330,267
============ ============ ============ ============ ============
Construction notes payable ....... 0 0 0 0 298,963
============ ============ ============ ============ ============
Total liabilities ................ $ 79,120,739 $ 79,110,848 $ 79,311,502 $ 79,988,589 $ 84,723,765
============ ============ ============ ============ ============
Total partners' capital .......... $ 35,327,274 $ 40,582,160 $ 45,631,256 $ 50,389,210 $ 54,897,520
============ ============ ============ ============ ============
</TABLE>
According to the Form 10-K, during the year ended March 31, 1993, the
Partnership was in the property acquisition stage, with approximately
$15,000,000 expended for construction in progress and property and equipment.
In addition, the Subsidiary Partnerships borrowed approximately $45,000,000
during the year ended March 31, 1993. From March 31, 1992 to March 31, 1993,
the majority of the construction notes were converted to mortgage notes. During
the years ended March 31, 1993 through March 31, 1997, total assets decreased
primarily due to depreciation, partially offset by new additions to property
and equipment. Mortgage notes payable decreased primarily due to principal
repayments of mortgages.
Cash Distribution
According to the Form 10-K, the Partnership has made no distributions to
the BACs holders as of March 31, 1997.
Liquidity and Capital Resources
According to the Form 10-Q, the Partnership's primary source of funds
includes (i) the proceeds of its public offering that terminated during August
1991, (ii) working capital reserves and interest earned thereon and (iii)
distributions received from the Local Partnerships.
According to the Form 10-Q, cash and cash equivalents of the Partnership
and its 42 consolidated Subsidiary Partnerships decreased approximately
$672,000 during the three months ended June 30, 1997 primarily as a result of
cash used in operating activities of $421,000; improvements to property and
equipment of $64,000; an increase in marketable securities of $40,000; and
repayments of mortgage loans of $137,000. Included in the adjustments to
reconcile the net loss to cash used in operating activities is depreciation and
amortization of $1,335,000.
According to the Form 10-Q, the Partnership has working capital reserves
of approximately $560,000 as of June 30, 1997.
17
<PAGE>
According to the Form 10-K, the Partnership has negotiated Operating
Deficit Guaranty Agreements with all Local Partnerships, pursuant to which the
Local General Partners have agreed to fund operating deficits for a specified
period of time, commencing on the break-even date. According to the Form 10-K,
the aggregate of the Operating Deficit Guarantees was approximately $9,500,000
of which approximately $8,400,000 had expired as of March 31, 1997. As of March
31, 1997, 1996, and 1995, approximately $494,000, $494,000, and $384,000,
respectively, had been funded by the Local General Partners to meet such
obligations.
According to the Form 10-Q, distributions received from the Local
Partnerships were $3,000 and $113,000 during the three months ended June 30,
1997 and 1996, respectively. Management of the Partnership does not expect that
the cash distributions from the Local Partnerships will reach a level
sufficient to permit cash distributions to BACs holders. These distributions,
as well as the working capital reserves referred to above, will be used to meet
the operating expenses of the Partnership.
Results of Operations of a Certain Local Partnership
Eagle Ridge Limited Partnership
According to the Form10-K, Eagle Ridge Limited Partnership ("Eagle Ridge")
has entered into a Forbearance Agreement with Wisconsin Housing and Economic
Development Authority ("WHEDA") as a result of Eagle Ridge's failure to pay all
the required installment payments under the mortgage note. Under the terms of
the agreement, WHEDA has agreed to temporarily forego the enforcement of its
rights and remedies against Eagle Ridge through December 31, 1998 and to
continue to extend Eagle Ridge financing provided that Eagle Ridge complies
with certain conditions. The conditions of the agreement consist of, but are
not limited to: (1) monthly payments of escrow and reserve deposits, (2)
monthly payments of principal and interest limited to the lower of 100% of net
operating income ("NOI") or 5% of the regularly scheduled monthly note payment
(base payment), (3) 75% of the monthly NOI in excess of the base payment for
principal and interest and (4) the remaining 25% of NOI in excess of the base
payment is to be paid as an incentive management to the management agent.
According to the Form 10-K, the Partnership's investment in Eagle Ridge at
March 31, 1997 and 1996 was approximately $278,000 and $414,000, respectively,
and the minority interest balance was approximately $163,000 and $92,000,
respectively. The Partnership's share of Eagle Ridge's net loss amounted to
approximately $137,000, $174,000 and $155,000 for the years ended March 31,
1997, 1996 and 1995, respectively.
Other
According to the Form 10-K, the Partnership's investment as a limited
partner in the Local Partnerships is subject to the risks incident to the
management and ownership of improved real estate. The Partnership's investments
also could be adversely affected by poor economic conditions generally, which
could increase vacancy levels, rental payment defaults and operating expenses,
any or all of which could threaten the financial viability of one or more of
the Local Partnerships.
According to the Form 10-K, there also are substantial risks associated
with the operation of Apartment Complexes receiving government assistance.
These risks stem from governmental regulations concerning tenant eligibility,
which may make it more difficult to rent apartments in the complexes;
difficulties in obtaining government approval for rent increases; limitations
on the percentage of income which low- and moderate-income tenants may pay as
rent; the possibility that Congress may not appropriate funds to enable HUD to
make the rental assistance payments it has contracted to make; and that when
the rental assistance contracts expire there may not be market demand for
apartments at full market rents in a Local Partnership's Apartment Complex.
According to the Form 10-K, the Local Partnerships are impacted by
inflation in several ways. Inflation allows for increases in rental rates
generally to reflect the impact of higher operating and replacement costs.
Inflation also affects the Local Partnerships adversely by increasing operating
costs, such as fuel, utilities and labor. However, continued inflation may
result in appreciated values of the Local Partnerships' Apartment Complexes
over a period of time as rental revenues and replacement costs continue to
increase.
The Partnership Agreement
The General Partners of the Partnership are RFA and Freedom GP Inc.
("Freedom GP"). The General Partners and their affiliates have received or will
receive certain types of compensation, fees or other distributions in con-
18
<PAGE>
nection with the operations of the Partnership. The arrangements for payment of
compensation and fees set forth in the Partnership Agreement were not
determined in arm's-length negotiations with the Partnership.
Pursuant to the Partnership Agreement, the General Partners are entitled
to a fee (the "Partnership Management Fee") for their services in connection
with the administration of the affairs of the Partnership (including, without
limitation, coordination of communications between the Partnership and BACs
holders and with the Local Partnerships). The Partnership Management Fee is
payable annually and is determined by the General Partners based on their
review of the Partnership's investments, up to a maximum of 0.5% of the
Partnership's Invested Assets (as defined below); provided, however, the
Partnership Management Fee is a minimum of $2,500 per $1 million of Invested
Assets up to Invested Assets of $20 million and $5,000 per $1 million of
Invested Assets above $20 million to $100 million. "Invested Assets" means the
purchase price paid upon the acquisition by the Partnership of properties and
interests in Local Partnerships, including (i) the total of all fees and
commissions paid in connection with the selection or purchase by the
Partnership or Local Partnerships of properties or interests in Local
Partnerships, and (ii) the amount of all liens and mortgages on properties
acquired by the Partnership. For the three months ended June 30, 1997 and the
three years ended March 31, 1997, 1996 and 1995, the General Partners earned
aggregate Partnership Management Fees of $169,000, $676,000, $400,000 and
$241,163, respectively.
According to the Partnership Agreement, the General Partners are also
entitled to receive a disposition fee (the "Disposition Fee") for services
rendered in connection with the sale of a property or the sale of the
Partnership's interest in a Local Partnership. Payment of such fee shall be
subordinated to the return to Limited Partners and BACs holders of their
capital contribution and other items as set forth in the Partnership Agreement.
Each Disposition Fee is equal to the lesser of one-half the competitive real
estate commission or 3% of the sale price in respect of any such sale
(including the principal amount of any mortgage loans and any related seller
financing with respect to a property to which such sale is subject). In no
event, however, shall the Disposition Fee and all other fees payable to the
General Partners and any of their affiliates and any unrelated parties arising
out of any given sale exceed in the aggregate the lesser of the competitive
rate or 6% of the gross proceeds from such sale. For the three months ended
June 30, 1997 and the three years ended March 31, 1997, 1996 and 1995, the
General Partners did not earn any Disposition Fee.
Freedom GP and Related Freedom Associates Inc., a general partner of RFA,
serve as the co-general partners of Freedom SLP. Freedom SLP, as special
limited partner of the Local Partnerships, earned a fee (the "Local
Administrative Fee") of $17,000, $67,503, $65,683 and $66,150 from the Local
Partnerships for the three months ended June 30, 1997 and the three years ended
March 31, 1997, 1996 and 1995, respectively. Freedom SLP is entitled to receive
up to $2,500 per year as a Local Administrative Fee from each Local Partnership
of which it is a special limited partner, but the sum of the aggregate Local
Administrative Fee and the Partnership Management Fee for any year shall not
exceed 0.5% of Invested Assets.
RFA and Freedom GP, as General Partners, and their respective officers and
directors, are each entitled to indemnification under certain circumstances
from the Partnership pursuant to provisions of the Partnership Agreement.
Generally, the General Partners are also entitled to reimbursement of
expenditures made on behalf of the Partnership. An affiliate of the General
Partners performs asset monitoring services for the Partnership. These services
include site visits and evaluations of the Local Partnerships' performance. For
the three months ended June 30, 1997 and the three years ended March 31, 1997,
1996 and 1995, the Partnership incurred, in the aggregate, $57,563, $143,694,
$125,835 and $127,756, respectively, to the General Partners and their
affiliates as reimbursement of expenditures and asset monitoring made on behalf
of the Partnership.
In addition, under the terms of the Partnership Agreement, upon the
removal of the General Partners by the Limited Partners or upon the occurrence
of a "Removal Event", as defined below, the General Partners may be entitled to
receive a fee, which will be payable with interest over a five-year period and
may be secured by the assets of the Partnership. The amount of such fee shall
be the fair market value of the removed General Partner's interest, which
amount could be substantial. The Partnership Agreement deems a "Removal Event"
to have occurred if the business of the Partnership is continued after the
bankruptcy, death, adjudication of incompetence or removal of a General Partner
(subject to certain exceptions pursuant to the Partnership Agreement). A
majority in interest of the Limited Partners may approve the removal of any
General Partner without the concurrence of any General Partner at a meeting of
the Partnership.
19
<PAGE>
10. Certain Information Concerning the Purchaser.
The Purchaser was organized for the purpose of acquiring the BACs pursuant
to the Offer. The principal executive office of the Purchaser is at 625 Madison
Avenue, New York, New York 10022. The managing member of the Purchaser (the
"Managing Member") is Lehigh Tax Credit Partners, Inc., a Delaware corporation.
Since its inception, the directors of the Managing Member have been J. Michael
Fried, Stuart J. Boesky and Alan P. Hirmes. The business address for each of
Messrs. Fried, Boesky and Hirmes is 625 Madison Avenue, New York, New York
10022.
For certain information concerning the executive officers and directors of
the Managing Member, see Schedule I to this Offer to Purchase. The persons set
forth on Schedule I, who effectively control the Purchaser, are also officers
of RFA, one of the two General Partners of the Partnership. Therefore, the
Purchaser and RFA, subject to its fiduciary duties, may have a conflict of
interest with respect to certain matters involving BACs holders, Limited
Partners and/or the Partnership. This potential conflict of interest, however,
may be mitigated because Section 5.1 of the Partnership Agreement provides that
all decisions with respect to the management of the Partnership and its affairs
shall be made only with the consent of both of the General Partners. As a
result, RFA does not unilaterally control the Partnership.
Except as otherwise set forth in this Offer to Purchase or Schedule I
hereto, (1) neither the Purchaser, the Managing Member and, to the best of the
Purchaser's knowledge, the persons listed on Schedule I, nor any affiliate of
the foregoing beneficially owns or has a right to acquire any BACs, (2) neither
the Purchaser, the Managing Member and, to the best of the Purchaser's
knowledge, the persons listed on Schedule I, nor any affiliate thereof or
director, executive officer or subsidiary of the Managing Member has effected
any transaction in the BACs within the past 60 days, (3) neither the Purchaser,
the Managing Member and, to the best of the Purchaser's knowledge, any of the
persons listed on Schedule I, nor any director or executive officer of the
Managing Member has any contract, arrangement, understanding or relationship
with any other person with respect to any securities of the Partnership,
including, but not limited to, contracts, arrangements, understandings or
relationships concerning the transfer or voting thereof, joint ventures, loan
or option arrangements, puts or calls, guarantees of loans, guarantees against
loss or the giving or withholding of proxies, (4) there have been no
transactions or business relationships which would be required to be disclosed
under the rules and regulations of the Commission between any of the Purchaser,
the Managing Member, or, to the best of the Purchaser's knowledge, the persons
listed on Schedule I, on the one hand, and the Partnership or its affiliates,
on the other hand, and (5) there have been no contracts, negotiations or
transactions between the Purchaser, the Managing Member or, to the best of the
Purchaser's knowledge, the persons listed on Schedule I, on the one hand, and
the Partnership or its affiliates, on the other hand, concerning a merger,
consolidation or acquisition, tender offer or other acquisition of securities,
an election of directors or a sale or other transfer of a material amount of
assets.
The Purchaser owns 189 BACs, which represents less than 1% of the number
of BACs outstanding as reported in the Form 10-K (the most recently available
filing containing such information). The Purchaser effected three secondary
market transactions, each effective as of March 1, 1997, to acquire a total of
169 BACs at a price per BAC of approximately $546.20, not including
commissions. Also, effective as of March 1, 1997, the Purchaser effected a
private transaction and acquired an additional 20 BACs at a price per BAC of
$588. The Purchaser was referred to that selling BACs holder by its affiliate,
Related Capital Company, which received a telephone call from such party
requesting information with respect to persons that may be interested in
purchasing BACs. The Purchaser did not solicit the selling BACs holders.
11. Background Of The Offer.
The purpose of the Offer is to enable the Purchaser to acquire a
significant interest in the Partnership for investment purposes based on its
expectation that the Partnership will continue generate Tax Credits and tax
losses attributable to the BACs. The Purchaser intends to sell membership
interests in the Purchaser to third parties with a need for Tax Credits and/or
tax losses. The aggregate sales price of the Purchaser's membership interests
to third parties will be equal to the aggregate Purchase Price for the tendered
BACs plus the Purchaser's expenses in conducting and consummating the Offer and
financing the purchase of the tendered BACs. Neither the Purchaser nor its
current members will derive a profit from the sale of the Purchaser's
membership interests.
The Purchaser has commenced other tender offers for the securities of
affiliated partnerships and expects to commence additional tender offers in the
future. In connection with a tender offer commenced on April 10, 1997
20
<PAGE>
by the Purchaser and the settlement of matters relating to such tender offer,
the Purchaser entered into an agreement with Everest Properties, Inc.
("Everest"), dated April 23, 1997 (the "Everest Agreement", a copy of which has
been filed as Exhibit (c)(2) to the Purchaser's Tender Offer Statement on
Schedule 14D-1 filed with the Commission on August 27, 1997). Pursuant to the
Everest Agreement, the Purchaser granted to Everest, among other things, an
option to purchase up to 25% of the BACs tendered in the Offer on the same
terms and conditions as the Purchaser's purchase of BACs (the "Everest
Option"). In consideration of the foregoing, Everest agreed, among other
things, that neither it nor any of its affiliates will, directly or indirectly:
(i) in any manner, including, without limitation, by tender offer (whether or
not pursuant to a filing made with the Commission), acquire, attempt to acquire
or make a proposal to acquire, directly or indirectly, any securities of the
Partnership, except for (a) the BACs it acquires pursuant to the Everest Option
and (b) purchases of de minimis amounts of securities in the secondary market
at the prevailing secondary market price (it being understood that the
purchaser of such de minimis amounts of securities shall be bound by the terms
and conditions of the Everest Agreement); (ii) seek or propose to enter into,
directly or indirectly, any merger, consolidation, business combination, sale
or acquisition of assets, liquidation, dissolution or other similar transaction
involving the Partnership; (iii) make, or in any way participate, directly or
indirectly, in any "solicitation" of "proxies" or "consents" (as such terms are
used in the proxy rules of the Commission) to vote, or seek to advise or
influence any person with respect to the voting of, any voting securities of
the Partnership; (iv) form, join or otherwise participate in a "group" (within
the meaning of Section 13(d)(3) of the Exchange Act) with respect to any voting
securities of the Partnership; (v) disclose in writing to any third party any
intention, plan or arrangement inconsistent with the terms of the Everest
Agreement; or (vi) loan money to, advise, assist or encourage any person in
connection with any action inconsistent with the terms of the Everest
Agreement. The foregoing restrictions shall continue in full force and effect
forever, in perpetuity, with respect to the securities of the Partnership
unless the Purchaser fails to perform its obligations under the Everest
Agreement. The foregoing description of the Everest Agreement is subject to and
qualified in its entirety by reference to such agreement, which agreement is
incorporated herein by reference.
The Purchaser and RFA are effectively controlled by the same persons.
Therefore, the Purchaser and RFA, subject to its fiduciary duties, may have a
conflict of interest with respect to certain matters involving BACs holders,
Limited Partners and/or the Partnership. In June 1997 and July 1997,
representatives of the Purchaser had discussions with representatives of
Freedom GP, the general partner of the Partnership which is not affiliated with
the Purchaser, in order to discuss the Offer. These discussions resulted in the
Purchaser entering into the Standstill Agreement.
The Partnership expressed concern that consummation of the Offer would
cause it to be classified as a "publicly-traded partnership" (a "PTP") for
federal income tax purposes and, therefore, suffer adverse tax consequences. To
address this concern, the Purchaser agreed to retain two independent law firms
to deliver legal opinions to the Partnership that consummation of the Offer
will not result in it being treated as a PTP.
The Purchaser requested that the Partnership mail this Offer to Purchase,
the related Letter of Transmittal and other relevant material. On August 27,
1997, the Purchaser was notified that such materials were mailed at the
Purchaser's expense and the Offer was commenced.
12. Source Of Funds.
The Purchaser expects that approximately $9,659,000 (exclusive of fees and
expenses) would be required to purchase all of the BACs sought pursuant to the
Offer, if tendered. Other than BACs purchased by Everest pursuant to the
Everest Option, if any, the Purchaser presently contemplates that it will
borrow all of such funds from one of its members pursuant to a promissory note
dated as of August 26, 1997 (a copy of which has been filed as Exhibit (b)(1)
to the Purchaser's Tender Offer Statement on Schedule 14D-1 filed on August 27,
1997), containing substantially the same terms and conditions that such member
borrows such funds under an existing credit facility it has available to it
with BankBoston, National Association (formerly known as The First National
Bank of Boston ("BankBoston")) and Fleet National Bank (the "Lenders").
Alternatively, if the Purchaser has completed its contemplated sale of
membership interests to third parties with a need for the Tax Credits and/or
tax losses attributable to the BACs, the Purchaser may obtain the funds
required to purchase the BACs pursuant to the Offer from capital contributions
from its members.
The existing credit agreement is among the Lenders and RCC Credit
Facility, L.L.C., Related Capital Company and The Related Companies, L.P. The
stated interest rate is the "Base Rate" (as publicly announced by BankBoston,
21
<PAGE>
from time to time) plus 0.5%, which is presently equal to 9.0% per annum, or,
at the election of RCC Credit Facility, L.L.C., the "Euro Loan Rate" plus
2.375%. All of the BACs tendered pursuant to the Offer and all of the
Purchaser's membership interests will be pledged to the Lenders to secure the
loan. Additionally, Related Capital Company will guarantee all amounts borrowed
under such credit facility.
The Purchaser expects to repay all amounts borrowed from its member by
selling additional membership interests to persons or entities that have a need
for the Tax Credits and/or tax losses from the BACs. No plans or arrangements
have been made with regard to the payment of periodic interest required by the
terms of the loan. However, it is expected that if interest payments are due
and payable, the Purchaser may borrow those funds from its affiliate(s).
If Everest exercises the Everest Option for 25% of all of the BACs sought
pursuant to the Offer and 18,224 BACs are tendered and accepted for payment,
the Purchaser expects that approximately $2,415,000 (exclusive of fees and
expenses) of the aggregate purchase price would be paid by Everest. Everest has
informed the Purchaser that Everest will obtain all of such funds from
investment funds Everest has raised from investors.
13. Purchase Price Considerations
The Purchaser has set the Purchase Price at $530 net per BAC (subject to
adjustment as set forth in this Offer to Purchase). When determining the
Purchase Price, the Purchaser considered (i) the estimated expected remaining
present value of the BACs, as estimated by Valuation Research Corporation (see
below in this Section 13), and (ii) the potential benefits to a non-tendering
BACs holder, in order to provide comparable potential benefits to a tendering
BACs holder.
If you tender your BACs pursuant to the Offer, the Purchaser believes your
aggregate benefits will total $1,831:
Purchase Price: $ 530
Tax Credits Received through August 31, 1997: 932
Tax Savings: 156
Interest to Be Earned on Investing Purchase Price: 213
-------
$1,831
=======
If you retain your BACs, the Purchaser believes your aggregate benefits
will total $1,821:
Tax Credits Received through August 31, 1997: $ 932
Present Value of Expected Remaining Tax Credits: 516
Present Value of Original Investment, if returned: 373
-------
$1,821
=======
The Purchaser believes that the projected aggregate per BAC benefit from
the Offer, together with the benefits received since 1990, total approximately
$1,831. Such benefits include $530 (the Purchase Price) plus $932 (representing
the Tax Credits allocated through August 31, 1997) plus approximately $156
(representing the tax savings, assuming a tax rate of 20% for capital gain and
36% for ordinary income, attributable to the use of the loss of $438 the
Purchaser believes an individual BACs holder will realize if all of his BACs
are sold in the Offer) plus approximately $213 (representing the assumed return
on the reinvestment of the Purchase Price at 5% for approximately 10.5 years,
discounted at a rate of 9%). The projected benefit of $1,831 assumes the BACs
holder acquired the BACs pursuant to the original offering and such BACs holder
did not utilize any passive losses. The projected benefit may be more or less
depending on, among other things, a tendering BACs holder's tax rate and the
return a tendering BACs holder may earn upon investing the Purchase Price.
The Purchaser believes that such aggregate projected benefit compares
favorably with the potential benefits to a BACs holder who remains in the
Partnership (together with the benefits received since 1990), continuing to
receive Tax Credits, and assuming a return of the present value of the original
investment of $1,000 as, and if, the Partnership's 42 properties are sold for
amounts in excess of the then existing indebtedness and other liabilities. The
aggregate of such potential benefits is estimated by the Purchaser to be
approximately $1,821, which include $932 (the Tax Credits allocated through
August 31, 1997) plus $516 (the present value at 6% of the remaining Tax
Credits to be allocated over the remaining compliance period) plus
approximately $373 (the present value at 5%
22
<PAGE>
of a BACs holder's original $1,000 investment, returned ratably over the 4
years following the end of the compliance period and assuming a discount rate
of 9%). There can, however, be no assurance that these benefits will be
realized. Neither the General Partners nor the Purchaser are making any
representation, and there can be no assurance, that any or all of the
properties of the Partnership will be sold and, if sold, will result in
distributable cash sufficient to return any of a BACs holder's original
investment.
The Form 10-K states that: "Neither the BACs nor the Limited Partnership
Interests are traded on any established trading market. The Partnership does
not intend to include the BACs for quotation on NASDAQ or for listing on any
national or regional stock exchange or any other established securities
market." At present, privately negotiated sales and sales through
intermediaries (e.g., through the trading system operated by Chicago
Partnership Board, Inc., which publishes sales by holders of BACs) are the only
means available to BACs holders to liquidate an investment in BACs (other than
the Offer) because the BACs are not listed or traded on any exchange or quoted
on any NASDAQ list or system. According to Partnership Spectrum, an independent
third-party industry publication, for the two months ended March 31, 1997, a
total of 82 BACs traded at per BAC prices between $564 and $575 with a weighted
average of $570.74 per BAC. Set forth below is a schedule of the trading
activity of BACs during the year ended March 31, 1997, in two-month intervals,
as reported by The Partnership Spectrum:
Trading Activity for Year Ended March 31, 1997
- ---------------------------------------------------------------------------
Period Low/High No. of BACs Traded
- ------------------------------------ -------------- -------------------
April 1, 1996--May 31, 1996 $540/$592 55
June 1, 1996--July 31, 1996 $500/$530 18
August 1, 1996--September 30, 1996 $535/$550 75
October 1, 1996--November 30, 1996 $450/$550 110
December 1, 1996--January 31, 1997 $500/$623.95 514
February 1, 1997--March 31, 1997 $564/$575 82
BACs holders are advised, however, that such gross sales prices reported by The
Partnership Spectrum do not necessarily reflect the net sales proceeds received
by sellers of BACs, which typically are reduced by commissions and other
secondary market transaction costs to amounts less than the reported prices.
In May 1997, at the request of the General Partners, the Purchaser
retained Valuation Research Corporation to independently determine the value of
the BACs for the Partnership. On June 30, 1997, Valuation Research Corporation
delivered its valuation opinion (a copy of which has been filed as Exhibit
(c)(3) to the Purchaser's Tender Offer Statement on Schedule 14D-1 filed with
the Commission on August 27, 1997). Subject to the terms, conditions and
assumptions set forth therein and based upon various valuation methods,
Valuation Research Corporation concluded that the estimated "Fair Value" (as
defined below) of the BACs, effective as of May 31, 1997, is between $528.84
and $576.88 per BAC. However, BACs holders should note that the BACs become
less valuable with the passage of time because fewer Tax Credits remain.
Therefore, the Purchaser believes that the Fair Value of each BAC should be
reduced by at least $12 for each passing month. For purposes of the valuation
opinion, "Fair Value" is defined as "the amount for which a BAC would change
hands between a willing buyer and a willing seller neither under compulsion to
act, with equity to both, each having reasonable knowledge of all relevant
facts, and within a commercially reasonable period of time." It is important to
note, however, that the value of each BAC to a tendering BACs holder depends on
such BACs holder's tax status. Therefore, this valuation may not necessarily
represent the per BAC value to each BACs holder.
The Purchase Price represents the price at which the Purchaser is willing
to purchase BACs. Other measures of the value of the BACs may be relevant to
BACs holders. BACs holders are urged to consider carefully all of the
information contained herein and should consult with their respective tax and
other advisors regarding the terms of the Offer before deciding whether to
tender BACs.
14. Conditions of the Offer.
Notwithstanding any other provisions of the Offer and in addition to (and
not in limitation of) the Purchaser's rights to extend and amend the Offer at
any time in its sole discretion, the Purchaser shall not be required to accept
for payment, subject to Rule 14e-1(c) under the Exchange Act, any tendered BACs
and may terminate the Offer as to any BACs not then paid for if, prior to the
Expiration Date, (i) the Purchaser shall not have confirmed to its reasonable
satisfaction that, upon purchase of the BACs pursuant to the Offer, the
Purchaser will have full rights
23
<PAGE>
to ownership as to all such BACs and the Purchaser will become the transferee
of the purchased BACs for all purposes under the Partnership Agreement, (ii)
the Purchaser shall not have confirmed to its reasonable satisfaction that,
upon the purchase of the BACs pursuant to the Offer, the Transfer Restrictions
will have been satisfied, or (iii) all authorizations, consents, orders or
approvals of, or declarations or filings with, or expirations of waiting
periods imposed by, any court, administrative agency or commission or other
governmental authority or instrumentality, domestic or foreign, necessary for
the consummation of the transactions contemplated by the Offer shall not have
been filed, occurred or been obtained. Furthermore, notwithstanding any other
term of the Offer, the Purchaser will not be required to accept for payment and
may terminate or amend the Offer as to such BACs if, at any time on or after
the date of the Offer and before the Expiration Date, any of the following
conditions exist:
(a) there shall have occurred (i) any general suspension of trading in, or
limitation on prices for, securities on any national securities exchange or the
over-the-counter market in the United States, (ii) a declaration of a banking
moratorium or any suspension of payments in respect of banks in the United
States (whether or not mandatory), (iii) the commencement or escalation of a
war, armed hostilities or other national or international crisis involving the
United States, (iv) any limitation (whether or not mandatory) imposed by any
governmental authority on, or any other event that might have material adverse
significance with respect to, the nature or extension of credit by banks or
other lending institutions in the United States, or (v) in the case of any of
the foregoing, a material acceleration or worsening thereof; or
(b) any material adverse change (or any condition, event or development
involving a prospective material adverse change) shall have occurred or be
likely to occur in the business, prospects, financial condition, results of
operations, properties, assets, liabilities, capitalization, partners' equity,
licenses, franchises or businesses of the Partnership and its subsidiaries
taken as a whole; or
(c) there shall have been threatened, instituted or pending any action,
proceeding, application, audit, claim or counterclaim by any government or
governmental authority or agency, domestic or foreign, or by or before any
court or governmental, regulatory or administrative agency, authority or
tribunal, domestic, foreign or supranational, which (i) challenges the
acquisition by the Purchaser of the BACs or seeks to obtain any material
damages as a result thereof, (ii) makes or seeks to make illegal, the
acceptance for payment, purchase or payment for any BACs or the consummation of
the Offer, (iii) imposes or seeks to impose limitations on the ability of the
Purchaser or any affiliate of the Purchaser to acquire or hold or to exercise
full rights of ownership of the BACs, including, but not limited to, the right
to vote (through the Assignor Limited Partner) any BACs purchased by them on
all matters with respect to which BACs holders have the right to direct the
Assignor Limited Partner on the manner in which it will vote on matters
presented to the Limited Partners and BACs holders, (iv) may result in a
material diminution in the benefits expected to be derived by the Purchaser or
any of their affiliates as a result of the Offer, (v) requires divestiture by
the Purchaser of any BACs, (vi) might materially adversely affect the business,
properties, assets, liabilities, financial condition, operations, results of
operations or prospects of the Partnership or the Purchaser, or (vii)
challenges or adversely affects the Offer; or
(d) there shall be any action taken, or any statute, rule, regulation,
order or injunction shall have been enacted, promulgated, entered, enforced or
deemed applicable to the Offer, or any other action shall have been taken, by
any government, governmental authority or court, domestic or foreign, other
than the routine application to the Offer of waiting periods that has resulted,
or in the reasonable good faith judgment of the Purchaser could be expected to
result, in any of the consequences referred to in clauses (i) through (vii) of
paragraph (c) above; or
(e) the Partnership or any of its subsidiaries shall have authorized,
recommended, proposed or announced an agreement or intention to enter into an
agreement, with respect to any merger, consolidation, liquidation or business
combination, any acquisition or disposition of a material amount of assets or
securities, or any comparable event, not in the ordinary course of business
consistent with past practices; or
(f) the failure to occur of any necessary approval or authorization by any
federal or state authorities necessary to the consummation of the purchase of
all or any part of the BACs to be acquired hereby, which in the reasonable
judgment of the Purchaser in any such case, and regardless of the circumstances
(including any action of the Purchaser) giving rise thereto, makes it
inadvisable to proceed with such purchase or payment; or
(g) the Purchaser shall become aware that any material right of the
Partnership or any of its subsidiaries under any governmental license, permit
or authorization relating to any environmental law or regulation is reasonably
likely to be impaired or otherwise adversely affected as a result of, or in
connection with, the Offer; or
24
<PAGE>
(h) the Partnership or any of its General Partners shall have amended, or
proposed or authorized any amendment to, the Partnership Agreement or the
Purchaser shall have become aware that the Partnership or any of its General
Partners have proposed any such amendment.
The foregoing conditions are for the sole benefit of the Purchaser and its
affiliates and may be asserted by the Purchaser regardless of the circumstances
(including, without limitation, any action or inaction by the Purchaser or any
of its affiliates) giving rise to such condition, or may be waived by the
Purchaser, in whole or in part, from time to time in its sole discretion. The
failure by the Purchaser at any time to exercise the foregoing rights will not
be deemed a waiver of such rights, which will be deemed to be ongoing and may
be asserted at any time and from time to time. Any determination by the
Purchaser concerning the events described in this Section 14 will be final and
binding upon all parties.
15. Certain Legal Matters.
Except as set forth in this Offer to Purchase, based on its review of
publicly available filings by the Partnership with the Commission and other
publicly available information regarding the Partnership, the Purchaser is not
aware of any licenses or regulatory permits that would be material to the
business of the Partnership, taken as a whole, and that might be adversely
affected by the Purchaser's acquisition of BACs as contemplated herein, or any
filings, approvals or other actions by or with any domestic or foreign
governmental authority or administrative or regulatory agency that would be
required prior to the acquisition of BACs by the Purchaser pursuant to the
Offer as contemplated herein, other than the filing of a Tender Offer Statement
on Schedule 14D-1 (which has been filed) and any required amendments thereto.
Should any such approval or other action be required, there can be no assurance
that any such additional approval or action, if needed, would be obtained
without substantial conditions or that adverse consequences might not result to
the Partnership's business, or that certain parts of the Partnership's or the
Purchaser's businesses might not have to be disposed of or held separate or
other substantial conditions complied with in order to obtain such approval or
action in the event that such approvals were not obtained or such actions were
not taken.
Appraisal Rights. BACs holders will not have appraisal rights as a result
of the Offer.
State Anti-takeover Laws. A number of states have adopted anti-takeover
laws which purport, to varying degrees, to be applicable to attempts to acquire
securities of corporations or other entities which are incorporated or
organized in such states or which have substantial assets, securityholders,
principal executive offices or principal places of business therein. Although
the Purchaser has not attempted to comply with any state anti-takeover statutes
in connection with the Offer, the Purchaser reserves the right to challenge the
validity or applicability of any state law allegedly applicable to the Offer
and nothing in this Offer to Purchase nor any action taken in connection
therewith is intended as a waiver of such right. If any state anti-takeover
statute is applicable to the Offer, the Purchaser might be unable to accept for
payment or purchase BACs tendered pursuant to the Offer or be delayed in
continuing or consummating the Offer. In such case, the Purchaser may not be
obliged to accept for purchase or pay for any BACs tendered.
ERISA. By executing and returning the Letter of Transmittal, a BACs holder
will be representing that either (a) the BACs holder is not a plan subject to
Title I of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), or Section 4975 of the Code, or an entity deemed to hold "plan
assets" within the meaning of 29.C.F.R. ss.2510.3-101 of any such plan; or (b)
the tender and acceptance of BACs pursuant to the Offer will not result in a
nonexempt prohibited transaction under Section 406 of ERISA or Section 4975 of
the Code.
Margin Requirements. The BACs are not "margin securities" under the
regulations of the Board of Governors of the Federal Reserve System and,
accordingly, those regulations generally are not applicable to the Offer.
Antitrust. Under the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended (the "HSR Act"), and the rules and regulations that have been
promulgated thereunder by the Federal Trade Commission (the "FTC"), certain
acquisition transactions may not be consummated until certain information and
documentary material has been furnished for review by the Antitrust Division of
the Department of Justice and the FTC and certain waiting period requirements
have been satisfied. The Purchaser does not believe any filing is required
under the HSR Act with respect to its acquisition of BACs contemplated by the
Offer.
25
<PAGE>
16. Certain Fees and Expenses.
Except as set forth in this Section 16, the Purchaser will not pay any
fees or commissions to any broker, dealer or other person for soliciting
tenders of BACs pursuant to the Offer. The Purchaser has retained The Herman
Group, Inc. to act as Information Agent/Depositary in connection with the
Offer. The Purchaser will pay to the Information Agent/Depositary reasonable
and customary compensation for its services, plus reimbursement for certain
reasonable out-of-pocket expenses, and has agreed to indemnify the Information
Agent/Depositary against certain liabilities and expenses in connection
therewith, including certain liabilities under the federal securities laws. The
Purchaser will also pay all costs and expenses of printing and mailing the
Offer and its legal fees and expenses.
17. Miscellaneous.
The Offer is being made to all BACs holders, Beneficial Owners and
Assignees, all to the extent their names and addresses are reflected on the
books and records of the Partnership. The Purchaser is not aware of any state
in which the making of the Offer is prohibited by administrative or judicial
action pursuant to a state statute. If the Purchaser becomes aware of any state
where the making of the Offer is so prohibited, the Purchaser will make a good
faith effort to comply with any such statute or seek to have such statute
declared inapplicable to the Offer. If, after such good faith effort, the
Purchaser cannot comply with any applicable statute, the Offer will not be made
to (nor will tenders be accepted from or on behalf of) BACs holders in such
state.
Pursuant to Rule 14d-3 of the General Rules and Regulations under the
Exchange Act, the Purchaser has filed with the Commission a Tender Offer
Statement on Schedule 14D-1, together with exhibits, furnishing certain
additional information with respect to the Offer. Such statement and any
amendments thereto, including exhibits, may be inspected and copies may be
obtained at the same places and in the same manner as set forth with respect to
information concerning the Partnership in Section 9 ("Certain Information
Concerning the Partnership") (except that they will not be available at the
regional offices of the Commission).
No person has been authorized to give any information or make any
representation on behalf of the Purchaser not contained herein or in the Letter
of Transmittal and, if given or made, such information or representation must
not be relied upon as having been authorized.
Lehigh Tax Credit Partners L.L.C.
August 27, 1997
26
<PAGE>
APPENDIX A
GLOSSARY OF DEFINED TERMS
"Assignee" means a person or entity who has purchased BACs but is not
recognized on the books and records of the Partnership maintained by the
Assignor Limited Partner as a registered holder of such BACs.
"Assignor Limited Partner" means Freedom Assignor Inc., a Delaware
corporation, or any successor to it which holds Limited Partnership Interests
on behalf of BACs holders.
"BACs" means the beneficial assignment certificates executed by the
Assignor Limited Partner and delivered to a purchaser of BACs in evidence of
the assignment by the Assignor Limited Partner to such BACs holder of all of
the economic and virtually all of the other rights, benefits and privileges of
the ownership of a portion of the Partnership interest of the Assignor Limited
Partner.
"BACs holder" means a holder of BACs and who is reflected as an assignee
of record of BACs on the books and records of the Partnership maintained by the
Assignor Limited Partner.
"Beneficial Owner" means a BACs holder in the case of BACs owned by
Individual Retirement Accounts or Keogh plans.
"business day" means any day other than a Saturday, Sunday or federal
holiday and consists of the time period from 12:01 a.m. through 12:00 midnight,
New York City time, and any time period of business days will be computed in
accordance with Rule 14d-1(c)(6) under the Exchange Act.
"Code" means the Internal Revenue Code of 1986, as amended.
"Commission" means the Securities and Exchange Commission.
"Credit Period" has the meaning set forth in Section 9.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, and
the rules and regulations promulgated thereunder.
"Everest" means Everest Properties, Inc.
"Expiration Date" has the meaning set forth in Section 1.
"Form 10-K" means the Partnership's Form 10-K for the fiscal year ended
March 31, 1997.
"Form 10-Q" means the Partnership's Form 10-Q for the quarter ended June
30, 1997.
"Freedom GP" means Freedom GP Inc., a Delaware corporation and a general
partner of the Partnership.
"Freedom SLP" means Freedom SLP L.P., a Delaware limited partnership and
an affiliate of each General Partner.
"FTC" means the Federal Trade Commission.
"General Partners" means Related Freedom Associates L.P., a Delaware
limited partnership, and Freedom GP Inc., a Delaware corporation.
"Historic Tax Credits" means any historic rehabilitation credits to tax
allowed to the Partnership and its partners under Section 47 of the Code.
"Housing Tax Credits" means any low-income housing credits to tax allowed
to the Partnership and its partners under Section 42 of the Code.
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended.
"Information Agent/Depositary" means The Herman Group, Inc.
"IRA" means an individual retirement account.
A-1
<PAGE>
"Limited Partner" means the Assignor Limited Partner, the Original Limited
Partner or any other person or entity who is admitted as a Substituted Limited
Partner, at the time of reference thereto, in such person's or entity's
capacity as a limited partner of the Partnership.
"Limited Partnership Interest" means the ownership interest of a Limited
Partner, including its interest in distributions, including liquidating
distributions, and profits and losses of the Partnership and all of its other
rights, duties and obligations under the Partnership Agreement.
"Managing Member" means Lehigh Tax Credit Partners, Inc., a Delaware
corporation and the managing member of the Purchaser.
"NASD" means the National Association of Securities Dealers, Inc.
"Offer" has the meaning set forth in the Introduction.
"Offer to Purchase" means this Offer to Purchase dated August 27, 1997.
"Partnership" means Freedom Tax Credit Plus L.P., a Delaware limited
partnership.
"Partnership Agreement" means the Amended and Restated Agreement of
Limited Partnership of the Partnership, dated as of July 31, 1990, by and among
Shearson Freedom GP Inc., a Delaware corporation, and Related Freedom
Associates L.P., a Delaware limited partnership, as General Partners, Freedom
SLP L.P., a Delaware limited partnership, as Original Limited Partner of the
Partnership and as Special Limited Partner of Local Partnerships, Freedom
Assignor Inc., a Delaware corporation, as Assignor Limited Partner, and those
persons or entities admitted to the Partnership from time to time as Limited
Partners.
"Purchase Price" has the meaning set forth in the Introduction.
"Purchaser" means Lehigh Tax Credit Partners L.L.C., a Delaware limited
liability company and an affiliate of RFA.
"RFA" means Related Freedom Associates L.P., a Delaware limited
partnership and a general partner of the Partnership. RFA is affiliated with
the Purchaser.
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder.
"Standstill Agreement" means the letter agreement, dated August 26, 1997,
among the Partnership, the Purchaser and RFA.
"Standstill Expiration Date" means August 26, 2007.
"Substituted Limited Partner" means any person or entity admitted to the
Partnership as a Limited Partner pursuant to the provisions of Section 7.2D of
the Partnership Agreement.
"Tax Credits" means Historic Rehabilitation Tax Credits and Housing Tax
Credits.
"TIN" means taxpayer identification number.
"Transfer Restrictions" has the meaning set forth in Section 2.
"UBTI" means unrelated business taxable income.
"Unit" means a unit of limited partner interest in the Partnership,
representing a cash contribution of $1,000 to the capital of the Partnership.
A-2
<PAGE>
SCHEDULE I
EXECUTIVE OFFICERS AND DIRECTORS OF LEHIGH TAX CREDIT PARTNERS, INC.
Set forth below is the name, current business address, present principal
occupation, and employment history for at least the past five years of each
executive officer and director of Lehigh Tax Credit Partners, Inc. (the
"Managing Member" of the Purchaser). Each person listed below is a citizen of
the United States.
J. Michael Fried is a director and executive officer of the Managing
Member. Mr. Fried is also the President and a Director of Related Freedom
Associates Inc., a general partner of RFA. Additionally, Mr. Fried is the sole
stockholder of one of the general partners of Related Capital Company ("Related
Capital"), a New York general partnership that has, directly or indirectly,
sponsored 22 public and 238 private real estate investment programs that have
raised in excess of $2.8 billion from more than 106,000 investors. In that
capacity, he is generally responsible for all of syndication, finance,
acquisition and investor reporting activities of Related Capital and its
affiliates. Mr. Fried practiced corporate law in New York City with the law
firm of Proskauer Rose Goetz & Mendelsohn from 1974 until he joined Related in
1979. Mr. Fried graduated from Brooklyn Law School with a Juris Doctor Degree,
magna cum laude; from Long Island University Graduate School with a Master of
Science degree in Psychology; and from Michigan State University with a
Bachelor of Arts degree in History. Mr. Fried's business address is 625 Madison
Avenue, New York, New York 10022.
Stuart J. Boesky is a director and executive officer of the Managing
Member. Mr. Boesky is also a Senior Vice President of Related Freedom
Associates Inc., a general partner of RFA. Mr. Boesky practiced real estate and
tax law in New York City with the law firm of Shipley & Rothstein from 1984
until February 1986 when he joined Related Capital. From 1983 to 1984 Mr.
Boesky practiced law with the Boston law firm of Kaye, Fialkow, Richmond &
Rothstein and from 1978 to 1980 was a consultant specializing in real estate at
the accounting firm of Laventhol & Horwath. Mr. Boesky is the sole stockholder
of one of the general partners of Related Capital. Mr. Boesky graduated from
Michigan State University with a Bachelor of Arts degree and from Wayne State
School of Law with a Juris Doctor degree. He then received a Master of Laws
degree in Taxation from Boston University School of Law. Mr. Boesky's business
address is 625 Madison Avenue, New York, New York 10022.
Alan P. Hirmes is a director and executive officer of the Managing Member.
Mr. Hirmes is also a Senior Vice President of Related Freedom Associates Inc.,
a general partner of RFA. Additionally, Mr. Hirmes has been a Certified Public
Accountant in New York since 1978. Prior to joining Related Capital in October
1983, Mr. Hirmes was employed by Wiener & Co., certified public accountants.
Mr. Hirmes is also the sole stockholder of one of the general partners of
Related Capital. Mr. Hirmes graduated from Hofstra University with a Bachelor
of Arts degree. Mr. Hirmes' business address is 625 Madison Avenue, New York,
New York 10022.
S-1
<PAGE>
SCHEDULE II
Local Partnership Schedule
<TABLE>
<CAPTION>
% of Units Occupied at May 1
--------------------------------------------
Name and Location (Number of Units) Date Acquired 1997 1996 1995 1994 1993
- ------------------------------------- ---------------- ------ ------ ------ ------ --------
<S> <C> <C> <C> <C> <C> <C>
Parkside Townhomes September 1990 91% 98% 100% 100% 100%
York, PA (53)
Twin Trees October 1990 100% 100% 100% 100% 100%
Layton, UT (43)
Bennion (Mulberry) October 1990 99% 100% 100% 99% 98%
Taylorsville, UT (80)
Hunters Chase October 1990 97% 97% 83% 92% 98%
Madison, AL (91)
Wilshire Park October 1990 92% 92% 89% 86% 97%
Huntsville, AL (65)
Bethel Park October 1990 95% 93% 96% 96% 99%
Bethel, OH (84)
Zebulon Park October 1990 88% 97% 92% 94% 92%
Owensville, OH (66)
Tivoli Place October 1990 97% 100% 100% 100% 98%
Murphreesboro, TN (61)
Northwood (Hartwood) October 1990 100% 100% 99% 97% 100%
Jacksonville, FL (110)
Oxford Trace October 1990 100% 100% 100% 93% 93%
Aiken, SC (29)
Ivanhoe Apts. January 1991 84% 100% 100% 100% 100%
Salt Lake City, UT (19)
Washington Brooklyn January 1991 92% 96% 100% 100% 100%
Brooklyn, NY (24)
Manhattan B (C.H. Development) January 1991 100% 100% 97% 100% 100%
New York, NY (35)
Davidson Court March 1991 97% 97% 92% 87% 100%
Staten Island, NY (38)
Magnolia Mews March 1991 98% 100% 100% 100% 100%
Philadelphia, PA (63)
Oaks Village March 1991 95% 100% 95% 100% 100%
Whiteville, NC (40)
Greenfield Village March 1991 98% 100% 98% 95% 95%
Dunn, NC (40)
Morris Avenue (CLM Equities) April 1991 100% 100% 100% 100% 100%
Bronx, NY (58)
Victoria Manor April 1991 91% 97% 97% 98% 100%
Riverside, CA (112)
</TABLE>
S-2
<PAGE>
SCHEDULE II (continued)
Local Partnership Schedule
<TABLE>
<CAPTION>
% of Units Occupied at May 1
--------------------------------------------
Name and Location (Number of Units) Date Acquired 1997 1996 1995 1994 1993
- ------------------------------------- ---------------- ------ ------ ------ ------ --------
<S> <C> <C> <C> <C> <C> <C>
Ogontz Hall April 1991 90% 87% 97% 100% 98%
Philadelphia, PA (35)
Eagle Ridge May 1991 72% 91% 94% 96% 96%
Stoughton, WI (54)
Nelson Anderson June 1991 99% 93% 98% 100% 100%
Bronx, NY (20)
Abraham Lincoln Apts. September 1991 100% 97% 100% 97% 100%
Irondequoit, NY (69)
Wilson Street Apts. (Middletown) September 1991 96% 100% 96% 98% 100%
Middletown, PA (44)
Lauderdale Lakes October 1991 98% 100% 99% 100% 99%
Lauderdale Lakes, FL (172)
Flipper Temple October 1991 100% 100% 100% 99% 100%
Atlanta, GA (163)
220 Cooper Street December 1991 77% 97% 100% 97% 100%
Camden, NJ (29)
Pecan Creek December 1991 100% 98% 98% 97% 100%
Tulsa, OK (47)
Vendome December 1991 100% 96% 100% 100% 100%
Brooklyn, NY (24)
Rainer Villas December 1991 100% 100% 100% 100% 96%
New Augusta, MS (20)
Pine Shadow Apts. December 1991 100% 100% 100% 100% 100%
Waveland, MS (48)
Windsor Place December 1991 100% 100% 100% 100% 100%
Wedowee, AL (24)
Brookwood Apts. December 1991 100% 100% 100% 100% 100%
Foley, AL (38)
Heflin Hills Apts. December 1991 100% 100% 100% 100% 100%
Heflin, AL (24)
Shadowood Apts. December 1991 92% 92% 100% 88% 83%
Stevenson, AL (24)
Brittany Apts. December 1991 100% 100% 100% 100% 100%
DeKalb, MS (25)
Hidden Valley Apts. December 1991 95% 100% 100% 100% 100%
Brewton, AL (40)
Westbrook Square December 1991 88% 100% 97% 81% 100%
Carthage, MS (32)
</TABLE>
S-3
<PAGE>
SCHEDULE II (continued)
Local Partnership Schedule
<TABLE>
<CAPTION>
% of Units Occupied at May 1
------------------------------------------------
Name and Location (Number of Units) Date Acquired 1997 1996 1995 1994 1993
- ------------------------------------- --------------- ------ ------ --------- ------ ---------
<S> <C> <C> <C> <C> <C> <C>
Royal Pines Apts. (Warsaw Elderly) December 1991 100% 100% 100% 100% 100%
Warsaw, KY (36)
West Hill Square December 1991 100% 100% 96% 100% 96%
Gordo, AL (24)
Elmwood Manor December 1991 100% 100% 100% 100% 100%
Picayune, MS (24)
Harmony Gate Apts. March 1992 94% 96% 94% 98% 100%
Los Angeles, CA (70)
</TABLE>
S-4
<PAGE>
SCHEDULE III
Certain Information Concerning the Properties
As of March 31, 1997
<TABLE>
<CAPTION>
Initial Cost to
Partnership
------------------------- Purchase
Costs Price
Buildings Capitalized Adjustments(B)
and Subsequent Buildings and
Name and Location Encumbrances Land Improvements to Acquisition Improvements
- --------------------- -------------- ---------- -------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C>
Parkside Townhouses $1,756,783 $263,231 $4,439,564 $ 51,289 $ 0
York, PA
Twin Trees 1,217,863 112,401 2,668,179 91,005 (47,642)
Layton, UT
Bennion (Mulberry) 2,319,143 258,000 4,934,447 378,312 (22,842)
Taylorsville, UT
Hunters Chase 2,670,220 411,100 5,616,330 110,593 (713,028)
Madison, AL
Bethel Park 2,044,686 141,320 5,365,882 127,816 (846,229)
Bethel, OH
Zebulon Park 1,719,211 165,000 4,187,880 125,797 (542,936)
Owensville, OH
Tivoli Place 1,638,704 267,500 4,146,759 100,926 (207,625)
Murphreesboro, TN
Northwood 2,959,582 494,900 6,630,321 144,415 (294,886)
Jacksonville, FL
Oxford Trace 765,355 162,000 1,725,512 60,716 (161,049)
Aiken, SC
Wilshire 1,830,895 178,497 4,014,281 101,352 (432,405)
Huntsville, AL
Ivanhoe 579,295 41,000 1,136,915 33,554 0
Salt Lake City, UT
Washington Avenue 0 42,485 2,843,351 63,404 0
Brooklyn, NY
C.H. Development 1,791,820 3 3,294,688 46,902 0
(Manhattan B)
New York, NY
Davidson Court 0 96,892 773,052 37,064 0
Staten Island, NY
Magnolia Mews 1,814,910 200,000 668,007 2,272,681 0
Philadelphia, PA
Oaks Village 1,477,112 63,548 1,799,849 61,915 0
Whiteville, NC
Greenfield Village 1,487,507 78,296 1,806,126 41,934 0
Dunn, NC
Morris Avenue 2,654,821 2 4,767,049 35,554 0
(CLM Equities)
Bronx, NY
<CAPTION>
Gross Amount at which Carried at Close
of Period Life on which
--------------------------------------- Depreciation in
Latest Income
Year of Statements is
Buildings and Accumulated Construction/ Date Computed
Name and Location Land Improvements Total(A) Depreciation Renovation Acquired (C) (D)
- --------------------- ---------- --------------- ------------ -------------- --------------- ------------ ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
Parkside Townhouses $265,796 $4,488,288 $4,754,084 $1,022,289 1989 Sept. 1990 27.5 years
York, PA
Twin Trees 115,125 2,708,818 2,823,943 739,955 1989 Oct. 1990 27.5 years
Layton, UT
Bennion (Mulberry) 260,565 5,287,352 5,547,917 1,446,566 1989 Oct. 1990 27.5 years
Taylorsville, UT
Hunters Chase 413,665 5,011,330 5,424,995 1,530,414 1989 Oct. 1990 27.5 years
Madison, AL
Bethel Park 143,885 4,644,904 4,788,789 1,433,022 1989 Oct. 1990 27.5 years
Bethel, OH
Zebulon Park 167,565 3,768,176 3,935,741 1,101,137 1989 Oct. 1990 27.5 years
Owensville, OH
Tivoli Place 270,065 4,037,495 4,307,560 1,144,324 1989 Oct. 1990 27.5 years
Murphreesboro, TN
Northwood 497,465 6,477,285 6,974,750 1,860,513 1989 Oct. 1990 27.5 years
Jacksonville, FL
Oxford Trace 164,564 1,622,615 1,787,179 464,337 1989 Oct. 1990 27.5 years
Aiken, SC
Wilshire 181,060 3,680,665 3,861,725 1,095,732 1989 Oct. 1990 27.5 years
Huntsville, AL
Ivanhoe 42,677 1,168,792 1,211,469 277,388 1991 Jan. 1991 27.5 years
Salt Lake City, UT
Washington Avenue 44,162 2,905,078 2,949,240 547,396 1991 Jan. 1991 27.5 years
Brooklyn, NY
C.H. Development 1,680 3,339,913 3,341,593 722,156 1991 Jan. 1991 27.5 years
(Manhattan B)
New York, NY
Davidson Court 98,569 808,439 907,008 173,550 1991 Mar. 1991 27.5 years
Staten Island, NY
Magnolia Mews 201,677 2,939,011 3,140,688 536,633 1991 Mar. 1991 27.5 years
Philadelphia, PA
Oaks Village 65,225 1,860,087 1,925,312 439,747 1991 Mar. 1991 27.5 years
Whiteville, NC
Greenfield Village 79,973 1,846,383 1,926,356 437,668 1991 Mar. 1991 27.5 years
Dunn, NC
Morris Avenue 1,679 4,800,926 4,802,605 909,824 1991 Apr. 1991 27.5 years
(CLM Equities)
Bronx, NY
</TABLE>
S-5
<PAGE>
SCHEDULE III (continued)
Certain Information Concerning the Properties
As of March 31, 1997
<TABLE>
<CAPTION>
Initial Cost to
Partnership
------------------------ Purchase
Costs Price
Buildings Capitalized Adjustments(B)
and Subsequent Buildings and
Name and Location Encumbrances Land Improvements to Acquisition Improvements
- ---------------------- -------------- --------- -------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C>
Victoria Manor 2,704,846 615,000 5,340,962 (153,198) 0
Riverside, CA
Ogontz Hall 2,007,018 0 328,846 3,296,947 0
Philadelphia, PA
Eagle Ridge 1,604,985 321,594 2,627,385 (37,722) 0
Stoughton, WI
Nelson Anderson 3,886,670 2 6,524,096 33,554 0
Bronx, NY
Conifer Irondequoit 3,000,833 20,000 5,407,108 15,784 0
(Abraham Lincoln)
Irondequoit, NY
Wilson Street Apts. 1,673,496 38,449 0 3,374,421 0
(Middletown)
Middletown, PA
Lauderdale Lakes 5,184,690 873,973 3,976,744 5,208,145 0
Lauderdale Lakes, FL
Flipper Temple 2,624,186 70,519 4,907,110 621,279 0
Atlanta, GA
220 Cooper Street 999,685 41,000 0 3,656,586 0
Camden, NJ
Vendome 2,697,689 12,000 4,867,584 220,536 0
Brooklyn, NY
Pecan Creek 1,016,900 50,000 1,484,923 20,196 0
Tulsa, OK
New Augusta Ltd.
(Rainer Villas)
New Augusta, AL 679,505 15,000 939,681 43,395 0
Pine Shadow Apts. 1,642,057 74,550 2,117,989 97,808 0
Waveland, MS
Windsor Place Apts. 767,877 40,000 904,888 10,804 0
Wedowee, AL
Brookwood Apts. 1,274,574 68,675 1,517,190 49,179 0
Foley, AL
Heflin Hills Apts. 745,991 50,000 841,300 7,422 0
Heflin, AL
Shadowood Apts. 750,915 27,000 898,800 3,227 0
Stevenson, AL
<CAPTION>
Gross Amount at which Carried at Close
of Period Life on which
-------------------------------------- Depreciation in
Latest Income
Year of Statements is
Buildings and Accumulated Construction/ Date Computed
Name and Location Land Improvements Total(A) Depreciation Renovation Acquired (C) (D)
- ---------------------- --------- --------------- ------------ -------------- --------------- ------------ ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
Victoria Manor 616,677 5,186,087 5,802,764 1,067,349 1991 Apr. 1991 27.5 years
Riverside, CA
Ogontz Hall 1,677 3,624,116 3,625,793 647,394 1990 Apr. 1991 27.5 years
Philadelphia, PA
Eagle Ridge 323,271 2,587,986 2,911,257 744,442 1991 May 1991 27.5 years
Stoughton, WI
Nelson Anderson 1,679 6,555,973 6,557,652 1,260,138 1991 June 1991 27.5 years
Bronx, NY
Conifer Irondequoit 21,677 5,421,215 5,442,892 1,122,565 1991 Sept. 1991 27.5 years
(Abraham Lincoln)
Irondequoit, NY
Wilson Street Apts. 40,126 3,372,744 3,412,870 558,783 1991 Sept. 1991 27.5 years
(Middletown)
Middletown, PA
Lauderdale Lakes 875,668 9,183,194 10,058,862 1,180,876 1991 Oct. 1991 40 years
Lauderdale Lakes, FL
Flipper Temple 72,196 5,526,712 5,598,908 1,143,085 1991 Oct. 1991 27.5 years
Atlanta, GA
220 Cooper Street 42,677 3,654,909 3,697,586 680,728 1991 Dec. 1991 27.5 years
Camden, NJ
Vendome 13,677 5,086,443 5,100,120 1,237,923 1991 Dec. 1991 20 years
Brooklyn, NY
Pecan Creek 50,161 1,504,958 1,555,119 243,461 1991 Dec. 1991 27.5 years
Tulsa, OK
New Augusta Ltd.
(Rainer Villas)
New Augusta, AL 15,161 982,915 998,076 135,190 1991 Dec. 1991 27.5 years
Pine Shadow Apts. 74,711 2,215,636 2,290,347 381,585 1991 Dec. 1991 27.5 years
Waveland, MS
Windsor Place Apts. 40,161 915,531 955,692 129,443 1991 Dec. 1991 27.5 years
Wedowee, AL
Brookwood Apts. 68,836 1,566,208 1,635,044 225,868 1991 Dec. 1991 27.5 years
Foley, AL
Heflin Hills Apts. 50,161 848,561 898,722 130,431 1991 Dec. 1991 27.5 years
Heflin, AL
Shadowood Apts. 27,161 901,866 929,027 134,967 1991 Dec. 1991 27.5 years
Stevenson, AL
</TABLE>
S-6
<PAGE>
SCHEDULE III (continued)
Certain Information Concerning the Properties
As of March 31, 1997
<TABLE>
<CAPTION>
Initial Cost to Partnership
--------------------------- Purchase
Costs Price
Buildings Capitalized Adjustments(B)
and Subsequent Buildings and
Name and Location Encumbrances Land Improvements to Acquisition Improvements
- ----------------------------- -------------- ------------ -------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C>
Brittany Associates 690,416 20,000 843,592 6,827 0
Dekalb, MS
Hidden Valley Apts. 1,288,706 68,000 1,637,840 11,576 0
Brewton, AL
Westbrook Square L.P. 1,031,963 40,000 1,254,957 10,097 0
Carthage, MS
Warsaw Elderly Housing Ltd. 1,145,135 98,819 1,333,606 4,924 0
Warsaw, KY
West Hill Square Apts. Ltd. 774,005 60,000 954,020 7,369 0
Gordo, AL
Elmwood Assoc. 712,398 81,500 829,183 7,812 0
Picayune, MS
Harmony Gate Assoc. $ 4,041,035 0 9,757,807 27,490 0
Los Angeles, CA
------------ ----------- ------------- ------------ -------------
$71,673,532 $5,662,256 $120,113,803 $20,429,687 $ (3,268,642)
============ =========== ============= ============ =============
<CAPTION>
Gross Amount at which Carried at Close of
Period
-------------------------------------------
Year of
Buildings and Accumulated Construction/ Date
Name and Location Land Improvements Total(A) Depreciation Renovation Acquired
- ----------------------------- ------------ --------------- -------------- -------------- --------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Brittany Associates 20,161 850,258 870,419 132,442 1990 Dec. 1991
Dekalb, MS
Hidden Valley Apts. 68,161 1,649,255 1,717,416 237,866 1991 Dec. 1991
Brewton, AL
Westbrook Square L.P. 40,161 1,264,893 1,305,054 192,759 1990 Dec. 1991
Carthage, MS
Warsaw Elderly Housing Ltd. 98,980 1,338,369 1,437,349 181,283 1991 Dec. 1991
Warsaw, KY
West Hill Square Apts. Ltd. 60,161 961,228 1,021,389 144,940 1991 Dec. 1991
Gordo, AL
Elmwood Assoc. 81,661 836,834 918,495 111,052 1991 Dec. 1991
Picayune, MS
Harmony Gate Assoc. $ 161 9,785,136 9,785,297 1,632,947 1992 Jan. 1992
Los Angeles, CA
----------- ------------- ------------- ------------
$5,720,520 $137,216,584 $142,937,104 $29,490,168
=========== ============= ============= ============
<CAPTION>
Life on which
Depreciation in
Latest Income
Statements is
Computed
Name and Location (C) (D)
- ----------------------------- ----------------
<S> <C>
Brittany Associates 27.5 years
Dekalb, MS
Hidden Valley Apts. 27.5 years
Brewton, AL
Westbrook Square L.P. 27.5 years
Carthage, MS
Warsaw Elderly Housing Ltd. 27.5 years
Warsaw, KY
West Hill Square Apts. Ltd. 27.5 years
Gordo, AL
Elmwood Assoc. 27.5 years
Picayune, MS
Harmony Gate Assoc. 27.5 years
Los Angeles, CA
</TABLE>
(A) Aggregate cost for federal income tax purposes: $145,300,494
(B) Rental guarantees and development deficit guarantees for GAAP purposes
are treated as a reduction of the asset.
(C) Furniture and fixtures, included with buildings and improvements, are
depreciated primarily by the straight line method over the estimated
useful lives ranging from 5 to 7 years.
(D) Since all properties were acquired as operating properties,
depreciation is computed using primarily the straight line method over
the estimated useful lives determined by the Partnership from date of
acquisition.
S-7
<PAGE>
SCHEDULE III (continued)
Certain Information Concerning the Properties
As of March 31, 1997
<TABLE>
<CAPTION>
Cost of Property and Equipment Accumulated Depreciation
------------------------------------------------ --------------------------------------------
Year Ended March 31,
-----------------------------------------------------------------------------------------------
1997 1996 1995 1997 1996 1995
-------------- -------------- -------------- ------------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balance at beginning of year $142,502,912 $142,286,691 $142,182,937 $24,353,844 $19,106,631 $13,815,092
Additions during year:
Improvements 434,192 216,221 103,754
Depreciation expense 5,136,374 5,247,213 5,291,539
------------- ------------- ------------- ------------ ------------ ------------
Balance at end of year $142,937,104 $142,502,912 $142,286,691 $29,490,168 $24,353,844 $19,106,631
============= ============= ============= ============ ============ ============
</TABLE>
At the time the local partnerships were acquired by Freedom Tax Credit Plus
L.P., the entire purchase price paid by Freedom Tax Credit Plus L.P. was pushed
down to the local partnerships as property and equipment with an offsetting
credit to capital. Since the projects were in the construction phase at the
time of acquisition, the capital accounts were insignificant at the time of
purchase. Therefore, there are no material differences between the original
cost basis for tax and GAAP.
S-8
<PAGE>
Facsimile copies of the Letter of Transmittal, properly completed and duly
executed, will be accepted. Questions and requests for assistance may be
directed to the Information Agent/Depositary at the address and telephone
number listed below. Additional copies of this Offer to Purchase, the Letter of
Transmittal and other tender offer materials may be obtained from the
Information Agent/Depositary as set forth below, and will be furnished promptly
at the Purchaser's expense. The Letter of Transmittal and any other required
documents should be sent or delivered by each BACs holder to the Information
Agent/Depositary at its address or facsimile number set forth below. If
tendering by facsimile, a BACs holder should subsequently send original copies
of the Letter of Transmittal and any other required documents to the
Information Agent/Depositary at its address set forth below. To be effective, a
duly completed and signed Letter of Transmittal or facsimile thereof must be
received by the Information Agent/ Depositary at the address or facsimile
number set forth below before 12:00 midnight, New York City Time, on Thursday,
September 25, 1997.
By Mail/Hand or Overnight Delivery;
The Herman Group, Inc.
2121 San Jacinto Street
26th Floor
Dallas, Texas 75201
By Facsimile: (214) 999-9323
For Additional Information Call:
The Herman Group, Inc.
(800) 555-2649
LETTER OF TRANSMITTAL
TO
TENDER BENEFICIAL ASSIGNMENT CERTIFICATES
IN
FREEDOM TAX CREDIT PLUS L.P.
PURSUANT TO THE OFFER TO PURCHASE DATED AUGUST 27, 1997
BY
LEHIGH TAX CREDIT PARTNERS L.L.C.
Taxpayer Identification Number:
Purchase(3) Total Purchase(3)
Number of Number of(1)(2) Price Price if all
BACs Owned BACs Tendered Per BAC BACs Tendered
------------ --------------- ------------- ------------------
$530
(1) If no indication is marked in the Number of BACs
Tendered column, all BACs issued to you will be deemed to
have been tendered.
(2) Tenders of less than all BACs owned by a BACs holder that
would result in such BACs holder holding less than 5 BACs
will not be accepted.
(3) The Purchase Price will be automatically reduced by $14
per BAC for each month (or part of a month) between October
31, 1997 and the date of transfer for BACs transferred after
October 31, 1997.
Please indicate changes or corrections to the information printed above.
================================================================================
THE OFFER, PRORATION PERIOD AND WITHDRAWAL RIGHTS WILL EXPIRE AT MIDNIGHT, NEW
YORK CITY TIME, ON THE EXPIRATION DATE (AS SUCH TERM IS DEFINED IN THE OFFER TO
PURCHASE, AS DEFINED BELOW) UNLESS SUCH OFFER IS EXTENDED.
The undersigned hereby tender(s) to Lehigh Tax Credit Partners L.L.C., a
Delaware limited liability company (the "Purchaser"), the number of Beneficial
Assignment Certificates ("BACs") representing assignments of limited
partnership interests in Freedom Tax Credit Plus L.P., a Delaware limited
partnership (the "Partnership"), specified above, pursuant to the Purchaser's
offer to purchase up to 18,224 of the issued and outstanding BACs at a purchase
price of $530 per BAC, net to the seller in cash (the "Purchase Price"),
without interest thereon, upon the terms and subject to the conditions set
forth in the Offer to Purchase dated August 27, 1997 (the "Offer to Purchase")
and this Letter of Transmittal (the "Letter of Transmittal", which, together
with the Offer to Purchase and any supplements, modifications or amendments
thereto, constitute the "Offer"), all as more fully described in the Offer to
Purchase. The Purchase Price will be automatically reduced by $14 per BAC for
each month (or part of a month) between October 31, 1997 and the date of
transfer for BACs transferred after October 31, 1997. BACs HOLDERS WHO TENDER
THEIR BACS WILL NOT BE OBLIGATED TO PAY ANY COMMISSIONS OR PARTNERSHIP TRANSFER
FEES, WHICH COMMISSIONS AND FEES WILL BE BORNE BY THE PURCHASER. Receipt of the
Offer to Purchase is hereby acknowledged. Capitalized terms used but not
defined herein have the respective meanings ascribed to them in the Offer to
Purchase.
By executing and delivering this Letter of Transmittal, a tendering BACs
holder irrevocably appoints the Purchaser and the designees of the Purchaser
and each of them as such BACs holder's attorneys-in-fact and proxies, each with
full power of substitution, to the full extent of such BACs holder's rights
with respect to the BACs tendered by such BACs holder and accepted for payment
by the Purchaser (and with respect to any and all other BACs or other
securities issued or issuable in respect of such BACs on or after the date
hereof). Such appointment and such proxies shall be considered irrevocable and
coupled with an interest in the tendered BACs. Such appointment will be
effective when, and only to the extent that, the Purchaser accepts such BACs
for payment. Upon such acceptance for payment, all prior grants and proxies
given by such BACs holder with respect to such BACs (and such other BACs and
securities) will be revoked without further action, and no subsequent grants
and/or proxies may be given nor any subsequent written consents executed (and,
if given or executed, will not be deemed effective). The Purchaser and its
designees will, with respect to the BACs (and such other BACs and securities)
for which such appointment is effective, be empowered to exercise all voting
and other rights of such BACs holder as it in its sole discretion may deem
proper pursuant to the Partnership Agreement or otherwise. Pursuant to such
appointment as attorneys-in-fact, the Purchaser and its designees each will
have the power, among other things, (i) to seek to transfer ownership of such
BACs on the books and records of the Partnership maintained by the Assignor
Limited Partner (and execute and deliver any accompanying evidences of transfer
and authenticity any of them may deem necessary or appropriate in connection
therewith, including, without limitation, any documents or instruments required
to be executed under the Partnership Agreement or a "Transferor's
(Continued on Back)
YOU MUST READ CAREFULLY BOTH SIDES OF THIS LETTER OF TRANSMITTAL
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
SIGNATURE BOX
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Please sign exactly as your name is printed (or corrected) above. For joint X ----------------------------------------
owners, each joint owner must sign. The signatory hereto hereby certifies under (Signature of Owner) (Date)
penalties of perjury that: (i) the Taxpayer Identification Number ("TIN"; i.e., the
signatory's social security number) printed or corrected above is the correct TIN
of the BACs holder; (ii) the BACs holder is not subject to backup withholding
either because the BACs holder (a) is exempt from backup withholding, (b) has
not been notified by the Internal Revenue Service that the BACs holder is subject X ----------------------------------------
to backup withholding as a result of a failure to report all interest or dividends, (Signature of Co-Owner, if any) (Date)
or (c) has been notified by the IRS that such BACs holder is no longer subject to
backup withholding; and (iii) if an individual, is a U.S. citizen or a resident alien ------------------------------------------
for purposes of U.S. income taxation, and if other than an individual, is not a (Title)
foreign corporation, foreign partnership, foreign trust or foreign estate (as those
terms are defined in the Code and Income Tax Regulations). The undersigned Telephone (Day) ( )
hereby represents and warrants for the benefit of the Partnership and the ----------------------
Purchaser that the undersigned owns (or beneficially owns) the BACs tendered
hereby and has full power and authority to validly tender, sell, assign, transfer, Telephone (Eve) ( )
convey and deliver the BACs tendered hereby and that when the same are ----------------------
accepted for payment by the Purchaser, the Purchaser will acquire good,
marketable and unencumbered title thereto, free and clear of all liens, restrictions,
charges, encumbrances, conditional sales agreements or other obligations relating
to the sale or transfer thereof, such BACs will not be subject to any adverse
claims, the transfer and assignment contemplated herein are in compliance with
all applicable laws and regulations, and that upon such transfer and assignment
the undersigned will not own less than 5 BACs. All authority herein conferred or
agreed to be conferred shall survive the death or incapacity of the undersigned If signing as a fiduciary, additional
and any obligations of the undersigned shall be binding upon the heirs, personal documentation will be required to
representatives, successors and assigns of the undersigned. Except as stated in evidence proper authority. Please
Section 4 ("Withdrawal Rights") of the Offer to Purchase, this tender is call The Herman Group, Inc. at
irrevocable. (800) 555-2649.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
(Seller's) Application for Transfer" created by the NASD, if required), (ii)
upon receipt by the Information Agent/Depositary (as the tendering BACs
holder's agent) of the Purchase Price, to be allocated all Tax Credits and tax
losses and to receive any and all distributions made by the Partnership after
the Expiration Date, and to receive all benefits and otherwise exercise all
rights of beneficial ownership of such BACs in accordance with the terms of the
Offer, (iii) to execute and deliver to the Partnership, the General Partners
and/or the Assignor Limited Partner (as the case may be) a change of address
form instructing the Partnership to send any and all future distributions to
which the Purchaser is entitled pursuant to the terms of the Offer in respect
of tendered BACs to the address specified in such form, and (iv) to endorse any
check payable to or upon the order of such BACs holder representing a
distribution, if any, to which the Purchaser is entitled pursuant to the terms
of the Offer, in each case on behalf of the tendering BACs holder. This power
of attorney shall not be affected by the subsequent mental disability of the
BACs holder, and the Purchaser shall not be required to post bond in any nature
in connection with this power of attorney. The Purchaser may assign such power
of attorney and/or proxy to any person with or without assigning the related
BACs with respect to which such power of attorney and/or proxy was granted. The
Purchaser reserves the right to require that, in order for BACs to be deemed
validly tendered, immediately upon the Purchaser's payment for such BACs, the
Purchaser must be able to exercise full voting rights with respect to such BACs
and other securities, including voting at any meeting of BACs holders.
By executing and delivering this Letter of Transmittal, a tendering BACs
holder irrevocably assigns to the Purchaser and its assigns all of the, direct
and indirect, right, title and interest of such BACs holder in the Partnership
with respect to the BACs tendered and purchased pursuant to the Offer,
including, without limitation, such BACs holder's right, title and interest in
and to any and all Tax Credits and tax losses and any and all distributions
made by the Partnership after the Expiration Date in respect of the BACs
tendered by such BACs holder and accepted for payment by the Purchaser,
regardless of the fact that the record date for any such distribution may be a
date prior to the Expiration Date. The Purchaser reserves the right to transfer
or assign, in whole or from time to time in part, to any third party, the right
to purchase BACs tendered pursuant to the Offer, together with its rights under
the Letter of Transmittal, but any such transfer or assignment will not relieve
the assigning party of its obligations under the Offer or prejudice the rights
of tendering BACs holders to receive payment for BACs validly tendered and
accepted for payment pursuant to the Offer.
A tendering BACs holder recognizes that, if proration is required pursuant
to the terms of the Offer, the Purchaser will accept for payment from among
those BACs validly tendered on or prior to the Expiration Date and not properly
withdrawn, the maximum number of BACs permitted pursuant to the Offer on a pro
rata basis, with adjustments to avoid purchases which would violate the terms
of the Offer, based upon the number of BACs validly tendered prior to the
Expiration Date and not properly withdrawn.
A tendering BACs holder understands that a tender of BACs to the Purchaser
will constitute a binding agreement between a tendering BACs holder and the
Purchaser upon the terms and subject to the conditions of the Offer. A
tendering BACs holder recognizes that under certain circumstances set forth in
Section 2 ("Proration; Acceptance for Payment and Payment for BACs") and
Section 14 ("Conditions of the Offer") of the Offer to Purchase, the Purchaser
may not be required to accept for payment any of the BACs tendered hereby. In
such event, a tendering BACs holder understands that any Letter of Transmittal
for BACs not accepted for payment will be destroyed by the Purchaser. Except as
stated in Section 4 ("Withdrawal Rights") of the Offer to Purchase, this tender
is irrevocable, provided BACs tendered pursuant to the Offer may be withdrawn
at any time prior to the Expiration Date. A tendering BACs holder acknowledges
that (i) upon acceptance of, and payment for, tendered BACs, a tendering BACs
holder shall no longer be entitled to any benefits as a BACs holder and (ii)
notwithstanding that a tendering BACs holder may retain a Beneficial Assignment
Certificate, such certificate shall not entitle a tendering BACs holder or any
purported transferees (other than the Purchaser) to any benefits as a BACs
holder.
================================================================================
INSTRUCTIONS FOR COMPLETING LETTER OF TRANSMITTAL
Forming Part of the Terms and Conditions of the Offer
================================================================================
FOR ASSISTANCE IN COMPLETING THE LETTER OF TRANSMITTAL, CALL:
THE HERMAN GROUP, INC. AT (800) 555-2649
================================================================================
Delivery of Letter of Transmittal. For convenience in responding to the Offer,
a self-addressed, postage-paid envelope had been enclosed with the Offer to
Purchase. However, to ensure receipt of the Letter of Transmittal, it is
suggested that you use an overnight courier or, if the Letter of Transmittal is
to be delivered by United States mail, that you use certified or registered
mail, return receipt requested.
To be effective, a duly completed and signed Letter of Transmittal must be
received by the Information Agent/Depositary at the address (or facsimile
number) set forth below before the Expiration Date, as such term is defined in
the Offer to Purchase, unless extended. Letters of Transmittal which have been
duly executed, but where no indication is marked in the "Number of BACs
Tendered" column, shall be deemed to have tendered all BACs pursuant to the
Offer. Tenders of less than all BACs owned by a BACs holder that would result
in such BACs holder holding less than 5 BACs will not be accepted.
By Mail/Hand or Overnight Delivery: THE HERMAN GROUP, INC.
2121 San Jacinto Street, 26th Floor
Dallas, Texas 75201
By Facsimile (see note below): (214) 999-9323
For Additional Information Call: THE HERMAN GROUP, INC.
(800) 555-2649
THE METHOD OF DELIVERY OF THE LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED
DOCUMENTS IS AT THE OPTION AND SOLE RISK OF THE TENDERING BACS HOLDER, AND THE
DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE INFORMATION
AGENT/DEPOSITARY. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE
TIMELY DELIVERY. IF TENDERING BY FACSIMILE, PLEASE TRANSMIT BOTH THE FRONT AND
BACK OF THIS LETTER OF TRANSMITTAL TO THE INFORMATION AGENT/ DEPOSITARY AT THE
FACSIMILE NUMBER LISTED ABOVE PRIOR TO THE EXPIRATION OF THE OFFER AND THEN
MAIL THE ORIGINAL COPIES OF SUCH PAGES TO THE INFORMATION AGENT/DEPOSITARY AT
THE ADDRESS LISTED ABOVE.
All tendering holders of BACs, by execution of this Letter of Transmittal or
facsimile hereof, waive any right to receive any notice of the acceptance of
their BACs for payment.
Validity of Letter of Transmittal. All questions as to the validity, form,
eligibility (including time of receipt) and acceptance of a Letter of
Transmittal will be determined by the Purchaser and such determination will be
final and binding. The Purchaser's interpretation of the terms and conditions
of the Offer (including these instructions for the Letter of Transmittal) also
will be final and binding. The Purchaser will have the right to waive any
irregularities or conditions as to the manner of tendering. Any irregularities
in connection with tenders must be cured within such time as the Purchaser
shall determine unless waived by them.
The Letter of Transmittal will not be valid unless and until any irregularities
have been cured or waived. Neither the Purchaser nor the Information
Agent/Depositary is under any duty to give notification of defects in a Letter
of Transmittal and will incur no liability for failure to give such
notification.
Questions and requests for assistance may be directed to the Information
Agent/Depositary at its address and telephone number listed below. Additional
copies of the Offer to Purchase, the Letter of Transmittal and other tender
offer materials may be obtained from the Information Agent/Depositary as set
forth below, and will be furnished promptly at the Purchaser's expense. You may
also contact your broker, dealer, commercial bank, trust company or other
nominee for assistance concerning the Offer.
The Information Agent/Depositary for the Offer is:
THE HERMAN GROUP, INC.
2121 San Jacinto Street
26th Floor
Dallas, Texas 75201
Facsimile No. (214) 999-9323
or
Call Toll-Free (800) 555-2649
LEHIGH TAX CREDIT PARTNERS L.L.C.
625 Madison Avenue
New York, New York 10022
August 27, 1997
$530 PER BAC OFFER TO PURCHASE
To BACs holders in Freedom Tax Credit Plus L.P.:
Lehigh Tax Credit Partners L.L.C., a Delaware limited liability company
(the "Purchaser"), is offering to purchase up to 18,224 of the outstanding
Beneficial Assignment Certificates ("BACs") representing assignments of limited
partnership interests of Freedom Tax Credit Plus L.P. (the "Partnership") for a
cash purchase price of $530 per BAC, net to the seller in cash (the "Purchase
Price"), upon the terms and subject to the conditions in the attached Offer to
Purchase, dated August 27, 1997, and the related Letter of Transmittal (which
together constitute the "Offer"). The Purchase Price will be automatically
reduced by $14 per BAC for each month (or part of a month) between October 31,
1997 and the date of transfer for BACs transferred after October 31, 1997. THE
PURCHASER AND RELATED FREEDOM ASSOCIATES L.P., A GENERAL PARTNER OF THE
PARTNERSHIP, ARE AFFILIATED.
Unless extended by the Purchaser, the Offer will expire at midnight, New
York City time, on September 25, 1997. The Offer is not conditioned upon any
minimum number of BACs being tendered; however, tenders of less than all BACs
owned by a BACs holder that would result in a BACs holder holding less than 5
BACs will not be accepted.
The materials included in this package include important information
concerning the Purchaser, the terms and conditions to the Offer, tax
implications and instructions for tendering your BACs. It is important that you
take some time to read carefully the enclosed Offer to Purchase, the Letter of
Transmittal and other accompanying materials in order to evaluate the Offer
being made by the Purchaser.
The Offer is being made to provide BACs holders that have a current or
anticipated need or desire for liquidity with an opportunity to sell their
BACs. Such BACs holders may feel that their circumstances have changed such
that anticipated future allocation of tax credits and tax losses will no longer
be beneficial to them.
The Purchaser believes that the projected aggregate per BAC benefit from
the Offer, together with the benefits received since 1990, total approximately
$1,831. Such benefits include $530 (the Purchase Price) plus $932 (representing
the Tax Credits allocated through August 31, 1997) plus approximately $156
(representing the tax savings attributable to the use of the loss of $438,
assuming a tax rate of 20% for capital gain and 36% for ordinary income) plus
approximately $213 (representing the assumed return on the reinvestment of the
Purchase Price at 5% for approximately 10.5 years, discounted at a rate of 9%).
The projected benefit of $1,831 assumes the BACs holder acquired the BACs
pursuant to the original offering and such BACs holder did not utilize any
passive losses. The projected benefit may be more or less depending on, among
other things, a tendering BACs holder's tax rate and the return a tendering
BACs holder may earn upon investing the Purchase Price.
The Purchaser believes that such aggregate projected benefit compares
favorably with the potential benefits to a BACs holder who remains in the
Partnership (together with the benefits received since 1990), continuing to
receive Tax Credits, and assuming a return of the present value of the original
investment of $1,000 as, and if, the Partnership's 42 properties are sold for
amounts in excess of the then existing indebtedness and other liabilities. The
aggregate of such potential benefits is estimated by the Purchaser to be
approximately $1,821, which include $932 (the Tax Credits allocated through
August 31, 1997) plus $516 (the present value at 6% of the remaining Tax
Credits to be allocated over the remaining compliance period) plus
approximately $373 (the present value at 5% of a BACs holder's original $1,000
investment, returned ratably over the 4 years following the end of the
compliance period and assuming a discount rate of 9%). There can, however, be
no assurance that these benefits will be realized. Neither the General Partners
of the Partnership nor the Purchaser are making any representation, and there
can be no assurance that any or all of the properties of the Partnership will
be sold and, if sold, will result in distributable cash sufficient to return
any of a BACs holder's original investment.
<PAGE>
Possible tax consequences to tendering BACs holders:
Tendering BACs holders who have not utilized passive losses: A BACs holder
who sells his or her BACs pursuant to this Offer will receive $530 of
proceeds per BAC that may result in a tax loss of approximately $13 per
BAC, which loss could be available to reduce income from other sources. In
addition, if an individual sells all of his or her BACs, unused passive
losses of up to approximately $425 per BAC may be available to offset other
income of such BACs holder.
Tendering BACs holders who have utilized passive losses: An individual
BACs holder who sells his or her BACs pursuant to this Offer, who acquired
BACs pursuant to the original offering of BACs by the Partnership and who
has utilized all of his passive losses is expected to recognize a tax loss
of approximately $13 per BAC.
You must decide whether to tender your BACs based on your own particular
circumstances. YOU SHOULD CONSULT WITH YOUR ADVISORS ABOUT THE FINANCIAL, TAX,
LEGAL AND OTHER IMPLICATIONS TO YOU OF ACCEPTING THE OFFER.
If you desire additional information regarding the Offer or need
assistance in tendering your BACs, please do not hesitate to call The Herman
Group, Inc., which is acting as Information Agent/Depositary for the Offer, at
(800) 555-2649. Informed and courteous agents are available to assist you.
THE HERMAN GROUP, INC.
2121 San Jacinto Street, 26th Floor
Dallas, Texas 75201
Facsimile No. (214) 999-9323
For information call 1-800-555-2649
LEHIGH TAX CREDIT PARTNERS L.L.C.
LEHIGH TAX CREDIT PARTNERS L.L.C.
625 MADISON AVENUE
NEW YORK, NY 10022
August 27, 1997
RE: Freedom Tax Credit Plus L.P.
Dear American Express Financial Advisor:
Today, a tender offer (the "Offer") for your client's BACs/limited partnership
interests in Freedom Tax Credit Plus L.P. (the "Partnership") was commenced by
Lehigh Tax Credit Partners L.L.C. ("Lehigh") for a purchase price of $2,650 per
$5,000 (BAC) invested by your client(s).
We are writing to explain the background of the Offer. Since the formation of
the Partnership, corporations have shown significant interest in investing in
programs benefitting from Low Income Housing Tax Credits. Such corporate
investors, in addition to utilizing such tax credits, are able to fully utilize
passive losses such as those generated by the Partnership, while individuals,
such as your clients, usually can not utilize such passive losses. Lehigh
believes this new corporate interest in tax credits has created an opportunity
for your client(s) to sell their interests, at what we believe to be an
attractive price.
Lehigh, which is an affiliate of a general partner of the Partnership, believes
that the per BAC benefit from the Offer, together with the value of the benefits
already received by your client since 1990, compares favorably with the present
value of the benefits your client has received and may expect to receive by
remaining in the Partnership. Lehigh estimates the per BAC benefit of accepting
the Offer is approximately $1,831, which consists of tax credits received
through August 31, 1997 ($932), the purchase price ($530), together with future
earnings from reinvesting the purchase price ($213, assuming a compounded return
of 5% per annum for approximately 10.5 years, discounted at a rate of 9%), and
estimated tax savings resulting from the capital loss (approximately $156). If
your client were to remain in the Partnership, Lehigh's estimate of his
benefits, together with the benefits already received, is approximately $1,821,
which consists of the tax credits received through August 31, 1997 ($932), the
present value of the expected remaining tax credits ($516) and the present value
of a projected return of your client's original $1,000 investment, assumed to be
paid ratably during the four years following the end of the compliance period
($373). You are encouraged to read Lehigh's Offer to Purchase, which is
incorporated herein by reference.
Attached please find a list of your client(s) who are BACs holders in the
Partnership. In addition, enclosed please find a copy of the cover letter each
of your clients is receiving in connection with the Offer. If your client is
interested in tendering, please have your clients sign the Letter of Transmittal
and return it to us in the prepaid envelope enclosed with the Offer.
If you have any questions or would like a copy of the Offer to Purchase, please
call The Herman Group, Inc., our Information Agent/Depositary, at 800-555-2649
or Brenda Abuaf of Related Capital Company's Investor Services Department at
800-600-6422, extension 2090.
Lehigh Tax Credit Partners, Inc.
Managing Member
GRID NOTE
---------
$9,660,000 New York, New York
August 26, 1997
FOR VALUE RECEIVED, LEHIGH TAX CREDIT PARTNERS L.L.C., a Delaware
limited liability company (the "Debtor"), hereby promises to pay to the order of
RCC CREDIT FACILITY, L.L.C., a Delaware limited liability company (the "Payee"),
at its offices located at 625 Madison Avenue, New York, New York 10022, or at
such other place as the Payee or any holder hereof may from time to time
designate, in lawful money of the United States, the principal sum of NINE
MILLION SIX HUNDRED SIXTY THOUSAND DOLLARS ($9,660,000), or, if less than such
sum, the aggregate principal amount of all monies advanced to the Debtor by the
Payee hereunder as indicated on the grid schedule attached hereto and made a
part hereof. All principal outstanding hereunder shall be payable in full on the
date (the "Payment Date") which is the earlier to occur of (i) the earlier to
occur of (x) the date on which the portion of the RCC Credit Loan (as
hereinafter defined) used to fund the loan to the Debtor evidenced hereby shall
be due and payable or (y) "Maturity Date" as such term is defined in the Loan
Agreement dated August 22, 1997 (as the same may be amended, modified or
supplemented from time to time, the "Loan Agreement"), among the Payee, The
Related Companies, L.P. ("TRCLP"), a New York limited partnership, Related
Capital Company ("RCC"), a New York general partnership, BankBoston, National
Association (f/k/a The First National Bank of Boston) ("BKB"), Fleet National
Bank ("Fleet" and together with BKB, the "Banks") and BKB, as agent for the
Banks, or such earlier or later date as the Payee shall be obligated under the
Loan Agreement to pay to the Banks the amounts outstanding under the RCC Credit
Loan and (ii) the date on which the Debtor shall receive cash proceeds in an
amount equal to or greater than the amount of principal, and interest thereon,
due and owing hereunder, from the sale of its membership interests as
contemplated by the Debtor's Offer to Purchase of Beneficial Assignment
Certificates ("BACs") of Freedom Tax Credit Plus L.P., dated August 27, 1997 (as
amended, the "Offer").
The Debtor hereby authorizes the Payee to record on the grid
schedule attached hereto and made a part hereof the amount and date of each
advance made hereunder and the date and amount of each payment of principal
thereon. All such notations shall be presumptive as to the correctness thereof
and the aggregate unpaid amount of advances set forth on such schedule shall be
presumed to be the unpaid principal amount hereof.
The principal amount of this Note may be prepaid at any time
or from time to time by Debtor, in whole or in part, without premium or penalty,
provided that all partial prepayments shall be in a minimum amount of $100,000
(or such lesser amount as may then be outstanding
<PAGE>
hereunder) and integral multiples of $25,000 thereof. All prepayments shall be
accompanied by the payment of interest accrued on the amount of such prepayment
to the date thereof. Amounts of principal prepaid or repaid under this Note may
not be reborrowed.
In addition, the Debtor promises to pay accrued interest to
the Payee, on the date of each prepayment of the principal hereof as set forth
in the previous paragraph, on the Payment Date and thereafter on demand, in like
money at said office or place from the date hereof on the unpaid principal
balance hereof at a rate per annum equal to the rate of interest payable at any
time and from time to time by the Payee to the Banks on advances made to the
Payee under the Loan Agreement (collectively, at any time, all such advances,
the "RCC Credit Loan") and advanced by the Payee to the Debtor hereunder.
Interest shall be calculated on the basis of a 360-day year and actual days.
If Payment of all outstanding principal and accrued interest
is not made in full on or prior to the Payment Date, then the Debtor shall pay,
as additional interest, all other amounts owing by Payee to the Banks under the
Loan Agreement as a result of such non-payment or incomplete payment, as the
case may be.
This Note is secured by the Pledge and Security Agreement (as amended,
modified or supplemented from time to time, the "Pledge Agreement") between the
Debtor and the Payee and is a note referred to therein and is entitled to the
benefits thereof.
The holder of this Note may declare all principal and interest thereon
evidenced by this Note immediately due and payable upon the happening of any of
the following events (each, an "Event of Default"): (i) nonpayment when the same
becomes due, whether by acceleration or otherwise, of any principal, interest or
other amount on or under this Note; (ii) default by the Debtor in the payment or
performance of any obligation under, or termination of, the Pledge Agreement;
(iii) Debtor shall (a) voluntarily commence any proceeding or file any petition
seeking relief under Title 11 of the United States Code or any other Federal,
state or foreign bankruptcy, insolvency, liquidation or similar law, (b) consent
to the institution of, or fail to contravene in a timely and appropriate manner,
any such proceeding or the filing of any such petition, (c) apply for or consent
to the appointment of a receiver, trustee, custodian, sequestrator or similar
official for Debtor or for a substantial part of its property or assets, (d)
file an answer admitting the material allegations of a petition filed against it
in any such proceeding, (e) make a general assignment for the benefit of
creditors, (f) become unable, admit in writing its inability or fail generally
to pay its debts as they become due or (g) take corporate action for the purpose
of effecting any of the foregoing; (iv) an involuntary proceeding shall be
commenced or an involuntary petition shall be filed in a court of competent
jurisdiction seeking (a) relief in respect of Debtor, or of a substantial part
of the property or assets of Debtor, under Title 11 of the United States Code or
any other Federal state or foreign bankruptcy, insolvency, receivership or
similar law, (b) the appointment of a receiver, trustee, custodian, sequestrator
or similar official for Debtor or for a substantial part of the property of
Debtor or (c) the winding-up or liquidation of Debtor, and such proceeding or
petition shall continue undismissed for 30 days or an order or decree approving
or ordering any of the foregoing shall continue unstayed and in effect for 30
days; or (v) the occurrence of any event described in clause
-2-
<PAGE>
(iii) or (iv) of this paragraph with respect to any endorser, guarantor or any
other party liable for, or whose assets or any interest therein secures, payment
of any indebtedness evidenced by this Note.
The Debtor hereby waives diligence, demand, presentment, protest and
notice of any kind, and assents to extensions of the time of payment, release,
surrender or substitution of security, or forbearance or other indulgence,
without notice.
This Note may not be changed, modified or terminated orally, but only
by an agreement in writing signed by the party to be charged.
THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF NEW YORK AND SHALL BE BINDING UPON THE SUCCESSORS AND
ASSIGNS OF THE DEBTOR AND INURE TO THE BENEFIT OF THE PAYEE AND ITS SUCCESSORS
AND ASSIGNS.
IN WITNESS WHEREOF, the Debtor, by its duly authorized officer, has
executed and delivered this Note on the date first above written.
LEHIGH TAX CREDIT PARTNERS L.L.C.
By: Lehigh Tax Credit Partners, Inc.,
its managing member
By: /s/ Alan P. Hirmes
------------------
Name: Alan P. Hirmes
Title: Vice President
-3-
<PAGE>
Loans and Payment
-----------------
Payments of Unpaid Principal
Date Amount of Loan Principal/Interest Balance of Note
- ---- -------------- ------------------ ---------------
FREEDOM TAX CREDIT PLUS L.P.
625 Madison Avenue
New York, NY 10022
August 26, 1997
Personal and Confidential
- -------------------------
Related Freedom Associates L.P.
Lehigh Tax Credit Partners L.L.C.
625 Madison Avenue
New York, NY 10022
Gentlemen:
As you requested, the purpose of this letter is to set forth our
understanding with regard to any proposed acquisition of beneficial assignment
certificates ("BACs") of Freedom Tax Credit Plus L.P., a Delaware limited
partnership (the "Partnership"), from holders of BACs (each a "BACs holder" and
collectively, "BACs holders") by Related Freedom Associates L.P. ("RFA"), Lehigh
Tax Credit Partners L.L.C. ("Lehigh") or any person who is their Affiliate (as
defined below) (collectively, "you").
In response to your proposal to commence a tender offer for BACs and in
consideration of the agreements set forth in this letter agreement, the
Partnership agrees to mail your tender offer materials, at your expense, subject
to the terms set forth below and whether or not such tender offer is subject to
the provisions of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"). Nothing in this letter agreement shall be construed as requiring the
Partnership to provide you with a current list of the names and addresses of the
BACs holders. The Partnership will not be obligated to mail your tender offer
materials until it has received from you an amount of cash equal to $10,000,
representing the estimated cost of such mailing together with the Partnership's
other expenses, including, without limitation, reasonable attorney fees. You
agree that you may only acquire up to 45% (including BACs acquired through all
other means) of the Partnership's outstanding BACs.
You represent and warrant that on the date hereof you beneficially own
not more than one hundred eighty nine (189) BACs. You also agree that prior to
the tenth anniversary of the date of this letter agreement, neither you nor any
person who is your Affiliate (as defined under Rule 405 of the Securities Act of
1933, as amended) will, without the prior written consent of the Partnership,
which may be withheld for any reason, directly or indirectly, (i) in any manner
including, without limitation, by tender offer (whether or not pursuant to a
filing made with
<PAGE>
the Securities and Exchange Commission), acquire, attempt to acquire or make a
proposal to acquire, directly or indirectly, more than 45% (including BACs
acquired through all other means) of the outstanding BACs of the Partnership
from any BACs holder, BACs holders or otherwise, (ii) seek or propose to enter
into, directly or indirectly, any merger, consolidation, business combination,
sale or acquisition of assets, liquidation, dissolution or other similar
transaction involving the Partnership, (iii) make, or in any way participate,
directly or indirectly, in any "solicitation" of "proxies" or "consents" (as
such terms are used in the proxy rules of the Securities and Exchange
Commission) to vote any voting securities of the Partnership, (iv) form, join or
otherwise participate in a "group" (within the meaning of Section 13(d)(3) of
the Exchange Act) with respect to any voting securities of the Partnership,
except that those Affiliates bound by this letter agreement will not be deemed
to have violated this letter agreement and formed a "group" solely by acting in
accordance with this letter agreement, (v) disclose in writing to any third
party any intention, plan or arrangement inconsistent with the terms of this
letter agreement or (vi) loan money to, advise, assist or encourage any person
in connection with any action inconsistent with the terms of this letter
agreement. Notwithstanding the foregoing restrictions, nothing in this letter
agreement shall apply to, govern, restrict or limit any sales, purchases,
transfers or assignments of interests in Lehigh.
You agree that any tender offer commenced by you will be at a price per
BAC not less than the value per BAC determined by an independent third party,
approved by the Partnership, in a report delivered to and approved by the
Partnership, completed or updated not more than three months prior to the
commencement of your tender offer. We hereby agree that the report by Valuation
Research Corporation, dated June 30, 1997, satisfies this requirement and is
approved by the Partnership. Notwithstanding any other provision of this letter
agreement, you agree that you shall not commence any tender offer for BACs of
the Partnership unless, prior to the commencement of such tender offer, the
Partnership's general partners agree to the response to be made by the
Partnership in connection with such tender offer.
You also agree during such ten year period, any proposal or request,
directly or indirectly, to amend, waive or terminate any provision of this
letter agreement shall be granted only upon the unanimous consent of the
Partnership's general partners. In addition, you (excluding your affiliate which
serves as a general partner of the Partnership while acting in its capacity as
general partner) agree that you will notify the Partnership in writing at least
five days (one day if such communication is a press release or is sent in
response to a prior communication made to BACs holders by the Partnership or its
general partners which is not seeking to advise or influence any person with
2
<PAGE>
respect to the voting of any voting securities of the Partnership) before
mailing or disseminating any communication with BACs holders and provide us a
copy of such communication (if written) with such notice.
You have advised us that, if requested by us, you (excluding your
affiliate which serves as a general partner of the Partnership while acting in
its capacity as general partner) will incorporate in any communication with BACs
holders a statement as to the valuation per BAC as determined by an independent
third party appraisal. In addition, if you commence a tender offer for less than
5% of the outstanding BACs, you will include verbatim the following language in
any such communication:
"TENDER OFFERS OF THIS NATURE ARE NOT REQUIRED TO COMPLY WITH CERTAIN
RULES AND REGULATIONS OF THE SECURITIES AND EXCHANGE COMMISSION.
Accordingly, this tender offer does not need to comply with certain
disclosure requirements and rules governing tender offers set forth in
the Securities Exchange Act of 1934."
In addition, you hereby represent, warrant and covenant to the
Partnership that any tender offer to purchase BACs commenced by you will be
conducted in compliance with Section 14(e) (misleading statements), Rule 14d-7
(additional withdrawal rights), Rule 14d-8 (pro rata requirements), Rule 14e-1
(unlawful tender offer practices) and Rule 14e-3 (non-public information) of the
Exchange Act, notwithstanding that such tender offer may be for less than 5.0%
of the outstanding BACs.
You understand that the general partners of the Partnership may
consider from time to time selling all or substantially all of the assets of the
Partnership or entering into any other transaction determined by the general
partners to be in the best interests of the BACs holders and the Partnership.
The result of any such transaction, if approved by a majority vote of the BACs
holders, might be the dissolution and liquidation of the Partnership in
accordance with the partnership agreement. Accordingly, in order to avoid
disrupting any possible sale of all or substantially all of the Partnership's
assets or any other transaction determined by the general partners to be in the
best interests of the BACs holders and the Partnership and any required vote of
BACs holders, you agree that, prior to the ten-year anniversary of the date of
this letter agreement, all BACs obtained by you pursuant to any means will be
voted by you on all issues in the same manner as by the majority of all other
BACs holders who vote on such proposal. Notwithstanding the
3
<PAGE>
foregoing, you may vote all BACs in the manner you determine, in your sole and
absolute discretion, on proposals (i) concerning the removal of RFA as general
partner of the Partnership or (ii) seeking to reduce any fees, profits,
distributions or allocations attributable to RFA or its Affiliates.
If at any time during such ten year period you (excluding your
affiliate which serves as a general partner of the Partnership while acting in
its capacity as general partner) are contacted in writing by, or have meaningful
negotiations with, any third party concerning participation in any transaction
involving the assets, businesses or securities of the Partnership or involving
any action inconsistent with the terms of this letter agreement, you will
promptly inform the Partnership of the nature of any such meaningful
negotiations and the parties thereto or forward a copy of such writing, as the
case may be, and you may inform such third party that this letter agreement
requires you to so notify the Partnership, provided however, this paragraph
shall not apply to any transaction or proposed transaction involving all or
substantially all of the assets, businesses or securities of Related Capital
Company and/or its Affiliates (other than the Partnership and RFA).
You will not sell any BACs owned by you prior to the tenth anniversary
of the date of this letter agreement, unless each buyer or transferee agrees in
writing with the Partnership to be bound by the terms and conditions of this
letter agreement until such tenth anniversary, provided however, that this
paragraph shall not apply to transfers made in the secondary market to any
purchaser which represents that following such sale, it shall not own 3% or more
of the BACs outstanding; provided further, however, that nothing in this letter
agreement shall apply to, govern, restrict or limit any sales, purchases,
transfers or assignments of interests in Lehigh. Notwithstanding the immediately
preceding sentence, Lehigh shall remain bound by this letter agreement
notwithstanding that any interests in Lehigh have been sold, purchased,
transferred or assigned.
Lehigh, RFA and Related Capital Company agree to indemnify and hold
harmless, to the fullest extent permitted by law, the Partnership, Freedom GP
Inc., and each of their partners, directors, officers, employees,
representatives and agents (the "Indemnified Parties") against any losses,
claims, damages, liabilities, costs, expenses (including reasonable attorney's
fees and expenses in advance of the final disposition of any claim, suit,
proceeding or investigation to each Indemnified Party to the fullest extent
permitted by law), judgments, fines
4
<PAGE>
and amounts (collectively, "Damages") paid in connection with any threatened or
actual claim, action, suit, proceeding or investigation which arises out of or
is the result of a breach of this letter agreement, any tender offer commenced
by you (regardless of whether such tender offer is subject to the provisions of
the Exchange Act) or the actual or proposed acquisition of BACs by you by any
other means; provided however, that if such claim, action, suit, proceeding or
investigation is threatened but not actual, your obligation to indemnify the
Indemnified Parties shall apply only if such threat is in writing and only with
respect to any legal fees incurred in connection with such threat. If such
threat becomes an actual claim, action, suit, proceeding or investigation, you
shall then be responsible for the full indemnification provided for in this
paragraph. If an Indemnified Party intends to seek indemnification pursuant to
this paragraph, it shall promptly notify you of such claim, in writing,
describing such claim in reasonable detail; provided, that the failure to
provide such notice shall not affect your obligations herein unless you are
materially prejudiced by the failure to provide such notice. Counsel for the
Indemnified Party shall be chosen at your discretion and shall be directed by
you. We both agree that you will be materially prejudiced if, due to the failure
of an Indemnified Party to provide the notice required above, you were not given
the opportunity to obtain the counsel of your choice or direct such counsel. You
may participate at your own expense in the defense of any such action; provided,
that counsel for the Indemnified Party shall not (except with the consent of the
Indemnified Party) also serve as your counsel. You shall not, without first
obtaining a general release from liability for the Indemnified Parties in a form
satisfactory to such Indemnified Parties, settle or compromise or consent to the
entry of any judgment with respect to any threatened or actual claim, action,
suit, proceeding or investigation involving an Indemnified Party which seeks
indemnity under this paragraph. If the indemnification provided in this
paragraph is for any reason unavailable to or insufficient to hold harmless an
Indemnified Party in respect of any Damages referred to above, then you and each
party seeking indemnification shall contribute to the aggregate amount of such
Damages incurred by such Indemnified Party in such proportion as is appropriate
to reflect the relative benefits received by each party from the act which gives
rise to the indemnification claim. You agree that the amount of such economic
benefit received by each Indemnified Party shall be $1 and the amount of such
economic benefit received by you shall be computed by multiplying your per BAC
offer price by the total number of BACs which were sought in your tender offer.
Both you
5
<PAGE>
and the Indemnified Parties each hereby agree to cooperate fully in all aspects
of any investigation, defense, pre-trial activities, trial, compromise,
settlement or discharge of any claim in respect of which indemnity is sought
pursuant to this paragraph, including, but not limited to, by providing the
other party reasonable access upon reasonable notice to employees and officers
and other information during reasonable business hours. Nothing in this
paragraph is intended to limit your ability to obtain indemnification from the
Partnership if such indemnification is available to you pursuant to the
Partnership's partnership agreement and applicable law, provided however, that
your obligations herein shall not be affected by your ability or inability to
obtain such indemnification. We each hereby agree that the provisions of this
paragraph shall have no effect on any other partnership which you or Freedom GP
Inc. or any of our respective Affiliates may be a partner.
Notwithstanding the immediately preceding paragraph, we acknowledge
that you may engage a third party lender(s) to finance your proposed acquisition
of BACs. We hereby acknowledge and agree for the benefit of such third party
lender(s) that the indemnification provisions in the immediately preceding
paragraph are not intended to apply to or obligate, and in no event shall be
binding upon, such third party lender(s) or any of its assignees or successors
in interest to any of the BACs acquired by you.
We each hereby acknowledge that we are aware, and that we will advise
our respective Affiliates, of our respective responsibilities under the
securities laws. We each agree that the other of us or our respective
Affiliates, as the case may be, shall be entitled to equitable relief, including
injunctive relief and specific performance, in the event of any breach of the
provisions of this letter agreement, in addition to all other remedies available
at law or in equity.
In case any provision in or obligation under this letter agreement
shall be invalid, illegal or unenforceable in any jurisdiction, the validity,
legality and enforceability of the remaining provisions or obligations, or of
such provision or obligation in any other jurisdiction, shall not in any way be
affected or impaired thereby.
This letter agreement shall be governed by the laws of the State of New
York without giving effect to principles of
6
<PAGE>
conflicts of law thereof. This letter agreement may be executed in counterparts,
each of which shall be deemed an original, but all of which together constitute
one and the same instrument.
* * *
7
<PAGE>
If you agree with the foregoing, please sign and return two copies of
this letter agreement, which will constitute our agreement with respect to the
subject matter of this letter agreement.
Very truly yours,
FREEDOM TAX CREDIT PLUS L.P.
By: Liberty GP, Inc.,
its general partner
By: /s/ Paul L. Abbott
------------------
Name: Paul L. Abbott
Title: President
Confirmed and agreed to as of
the date first above written
LEHIGH TAX CREDIT PARTNERS L.L.C.
By: /s/ Alan P. Hirmes
------------------
Name: Alan P. Hirmes
Title: Vice President
RELATED FREEDOM ASSOCIATES L.P.
By: Related Freedom Associates, Inc.,
its general partner
By: /s/ Alan P. Hirmes
------------------
Name: Alan P. Hirmes
Title: Vice President
LEHIGH TAX CREDIT PARTNERS L.L.C.
625 MADISON AVENUE
NEW YORK, NEW YORK 10022
April 23, 1997
Everest Properties
3280 E. Foothill Boulevard
Suite 320
Pasadena, California 91107
Attention: W. Robert Kohorst
Gentlemen:
This letter agreement confirms our mutual agreement to be
bound by the terms of this letter agreement, including the terms and conditions
set forth in Exhibit A annexed hereto and made a part hereof. This agreement is
intended to be legally binding and enforceable upon execution and delivery
hereof.
Each of the parties represents and warrants to the other that
(1) it has the right, power and authority to enter into this letter agreement
and perform its obligations hereunder, (2) upon the execution of this letter
agreement by each of the parties hereto, this letter agreement will constitute
the legal, valid and binding obligation of such party, enforceable against such
party in accordance with its terms, and (3) no consent or approval of any third
party or governmental agency or authority is required for such party to execute
and deliver this letter agreement or to perform its obligations hereunder.
Each of the parties hereto agrees that the terms of this
letter agreement are confidential and may not be disclosed by any party hereto,
except as may be required by law and except to the principals and authorized
representatives of the parties hereto and the general partners of Liberty III
and the Additional Partnerships (as defined in Exhibit A), without the written
consent of all of the parties. Except as may be required by law, any public
announcement regarding this letter agreement or the transactions contemplated
herein may not be made by any party without the prior consent of all other
parties hereto.
This letter agreement shall be governed by and interpreted in
accordance with the laws of the State of New York, without regard to the
conflicts of law provisions thereof. Nothing herein shall be deemed to grant
jurisdiction to the State of New York over any dispute concerning this letter
agreement.
This letter agreement may be executed in separate
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
<PAGE>
This letter agreement supersedes any and all prior agreements,
written or oral, by or among any of the parties hereto with respect to the
subject matter hereof and may not be amended or otherwise modified except in
writing signed by all of the parties hereto.
This letter agreement shall be binding upon the parties hereto
and their respective successors, assigns and controlled affiliates.
Any party may execute this letter agreement by transmitting a
copy of its signature by facsimile to the other parties. In such event the
signing party shall deliver an original of the signature page to each of the
other parties within one business day of signing and failure to so deliver such
originals shall result in the facsimile copy of that party's signature being
treated as an original.
Very truly yours,
LEHIGH TAX CREDIT PARTNERS L.L.C.
By: Lehigh Tax Credit Partners, Inc.,
Managing Member
By: /s/ Alan P. Hirmes
----------------------------------
Alan P. Hirmes, Vice President
LEHIGH TAX CREDIT PARTNERS, INC.
By: /s/ Alan P. Hirmes
----------------------------------
Alan P. Hirmes, Vice President
RELATED CAPITAL COMPANY
By: /s/ Alan P. Hirmes
-------------------------------
Name: Alan P. Hirmes
Title: Senior Managing Director
ACCEPTED AND AGREED TO AS
OF THE DATE FIRST ABOVE WRITTEN:
EVEREST PROPERTIES, INC.
By: /s/ David I. Lesser
------------------------
Name: David I. Lesser
Title: Executive Vice President
-2-
<PAGE>
EVEREST PROPERTIES II, LLC
By: /s/ David I. Lesser
------------------------
Name: David I. Lesser
Title: Executive Vice President
EVEREST PROPERTIES, LLC
By: /s/ David I. Lesser
------------------------
Name: David I. Lesser
Title: Executive Vice President
EVEREST TAX CREDIT INVESTORS, LLC
By: /s/ David I. Lesser
------------------------
Name: David I. Lesser
Title: Executive Vice President
-3-
<PAGE>
EXHIBIT A
OPTION TO PURCHASE SECURITIES
Tender Offer(s)
I. Liberty Tax Credit Plus III L.P.
--------------------------------
Lehigh Tax Credit Partners L.L.C. has commenced a tender offer
(the "Liberty III Offer") to purchase up to 17,500 of the issued and
outstanding Beneficial Assignment Certificates ("BACs") representing
limited partnership interests in Liberty Tax Credit Plus III L.P.
("Liberty III") at a purchase price of $588.20 per BAC, net to the
seller in cash, without interest, upon the terms and subject to the
conditions set forth in the Offer to Purchase, dated April 10, 1997.
The Liberty III Offer expires at 12:00 midnight, New York City time, on
May 8, 1997 or such later date to which the Liberty III Offer may be
extended. Lehigh filed a Tender Offer Statement on Schedule 14D-1 (the
"Liberty III Schedule 14D-1") with the Securities and Exchange
Commission (the "Commission") with respect to the Liberty III Offer on
April 10, 1997. References herein to the Liberty III Offer shall
include (a) any amendments to the Liberty III Schedule 14D-1 and (b)
any subsequent tender offer made by Lehigh for BACs in Liberty III.
II. Additional Tender Offers Contemplated
-------------------------------------
Attached hereto as Schedule I is a list of additional
partnerships (the "Additional Partnerships"), the securities of which
may be subject to a tender offer by Lehigh Tax Credit Partners L.L.C.,
Related Capital Company or any direct or indirect affiliate thereof
(collectively, "Lehigh"). Those additional tender offers, the Liberty
III Offer and any other tender offers for Liberty III or the Additional
Partnerships in which Lehigh participates (participation meaning the
activities covered by clauses (ii), (iv) and (vi) set forth under
"Standstill" below) are collectively referred to herein as the "Tender
Offers", and each a "Tender Offer". The BACs tendered pursuant to the
Liberty III Offer and the securities tendered pursuant to the other
Tender Offers are referred to herein as "Tendered Securities". Lehigh
agrees (a) that the tender offers for securities of any Additional
Partnerships shall be for at least 25% of the outstanding securities of
such Additional Partnership and (b) to commence Tender Offers for the
securities of at least two Additional Partnerships by July 31, 1997.
Option to Purchase Securities; Payment of Securities and Expenses
Subject to the terms and conditions set forth below, Lehigh hereby
grants, or will cause to be granted, to Everest Properties II, LLC and its
affiliates (collectively, "Everest") an option to purchase up to 25% of the
securities tendered in each Tender Offer; provided, however, the maximum amount
of all Tendered Securities purchased by Everest pursuant to this letter
agreement shall not exceed an amount that has an aggregate purchase price of
more than Ten Million ($10,000,000) Dollars; provided further, however, if
Everest has not had the opportunity to exercise its option to purchase Tendered
Securities with an aggregate purchase price of Ten Million ($10,000,000) Dollars
in connection with the first three Tender Offers, the 25% limitation set forth
above shall be increased in connection with any future Tender Offer(s) to a
percentage that will provide Everest with the opportunity to exercise its option
to
<PAGE>
purchase Tendered Securities with an aggregate purchase price of Ten Million
($10,000,000) Dollars. Upon the expiration of a Tender Offer, Lehigh shall
provide written notice to Everest of the amount of Tendered Securities accepted
by Lehigh pursuant to such Tender Offer. Within two business days following
Lehigh's notice to Everest, Everest shall notify Lehigh in writing whether or
not it elects to exercise its option and to what extent. If Everest fails to
notify Lehigh of the exercise of its option within such two business day period,
Everest shall be deemed not to have exercised its option. If such option is
exercised, Everest shall pay Lehigh, by wire transfer, on the later of (a) one
business day after Everest delivers written notice of its election to exercise,
(b) one business day after Lehigh has given notice to Everest that Lehigh will
pay tendering security holders in accordance with the terms of the Tender Offer
(such notice to be given by Lehigh to Everest not less than one business day
prior to the date of such payment) and (c) the date that Lehigh makes such
payment, an amount equal to (i) the number of Tendered Securities with respect
to which Everest exercised its option (the "Option Securities") multiplied by
the price per Tendered Security paid by Lehigh in the applicable Tender Offer
plus (ii) Everest's share of the "Total Expenses" (as defined below) for such
applicable Tender Offer (see "Allocation of Expenses" below). Upon receipt of
such payment, (1) Lehigh will deliver the Option Securities to Everest, together
with all necessary documentation to transfer to Everest all of Lehigh's right,
title and interest in and to such Option Securities, (2) Lehigh will assign to
Everest its rights under all letters of transmittal (including related proxies
and powers-of-attorney) relating to such Option Securities, and (3) Everest will
agree in writing to be bound by the terms and conditions of the "Partnership
Standstill Agreement" (as defined below), if any, governing the Tendered
Securities. Lehigh will deliver (or will cause to be delivered), concurrently
with the receipt of such payment from Everest by Lehigh, a confirmation from the
subject partnership setting forth the number of Option Securities that will be
transferred to Everest.
Allocation of Expenses
At the time of the purchase of any Option Securities, Everest shall pay
to Lehigh a portion of Total Expenses related to such Tender Offer equal to the
lesser of (a) $25,000 and (b) Total Expenses multiplied by a fraction, the
numerator of which is the number of Tendered Securities purchased by Everest and
the denominator of which is the total number of Tendered Securities purchased
pursuant to the Tender Offer. "Total Expenses" with respect to each Tender Offer
means all third-party out-of-pocket costs and expenses incurred by Lehigh,
Everest or their respective affiliates (including attorneys fees and expenses in
connection with the preparation and filing of any Tender Offer documents, but
excluding litigation expenses) with respect to each Tender Offer, including,
without duplication, Commission filing fees, the out-of-pocket expenses of any
person for acting as the information agent/depositary for the Tender Offer,
printing and mailing expenses, and the out-of-pocket expenses of the general
partners of Liberty III or any Additional Partnership which are paid for by
Lehigh. Total Expenses shall not include the costs of purchasing the Tendered
Securities or any non-third-party costs, including the overhead of Lehigh. Each
party will provide, upon the execution and delivery hereof, an estimate of its
costs and expenses incurred to date in connection with any Tender Offers and
shall provide, upon request, invoices or other appropriate evidence of the
incurrence of costs and expenses constituting Total Expenses hereunder.
Liabilities, costs, obligations and damages incurred by any party in connection
with any litigation or threatened litigation relating to, or arising from, the
Tender Offers ("Tender Offer Litigation") shall be borne by Lehigh and not
Everest. Lehigh agrees to indemnify and defend Everest and its affiliates,
officers, directors, members, employees and agents from and against all
liabilities, costs, obligations and damages in connection with Tender Offer
Litigation (even if the same are covered by an indemnification assumed by
Everest under the Partnership Standstill Agreement).
-2-
<PAGE>
Standstill Agreement
Everest covenants and agrees that neither it nor any person who is its
Affiliate (as defined under Rule 405 of the Securities Act of 1933, as amended)
will, directly or indirectly: (i) in any manner including, without limitation,
by tender offer (whether or not pursuant to a filing made with the Commission),
acquire, attempt to acquire or make a proposal to acquire, directly or
indirectly, any securities of Liberty III or any Additional Partnership, except
for (a) the Option Securities and (b) purchases of de minimis amounts of
securities in the secondary market at the prevailing secondary market price (it
being understood that the purchaser of such de minimis amounts of securities
shall be bound by the terms and conditions of this agreement); (ii) seek or
propose to enter into, directly or indirectly, any merger, consolidation,
business combination, sale or acquisition of assets, liquidation, dissolution or
other similar transaction involving Liberty III or any Additional Partnership;
(iii) make, or in any way participate, directly or indirectly, in any
"solicitation" of "proxies" or "consents" (as such terms are used in the proxy
rules of the Commission) to vote, or seek to advise or influence any person with
respect to the voting of, any voting securities of Liberty III or any Additional
Partnership; (iv) form, join or otherwise participate in a "group" (within the
meaning of Section 13(d)(3) of the Securities Exchange Act of 1934, as amended)
with respect to any voting securities of Liberty III or any Additional
Partnership; (v) disclose in writing to any third party any intention, plan or
arrangement inconsistent with the terms of this letter agreement; or (vi) loan
money to, advise, assist or encourage any person in connection with any action
inconsistent with the terms of this letter agreement. The foregoing restrictions
shall continue in full force and effect from the date hereof and forever, in
perpetuity, with respect to the securities of Liberty III and any Additional
Partnership, on a partnership by partnership basis if Lehigh has accepted
Tendered Securities of the subject partnership and Everest has either (a)
exercised its option, (b) not exercised its option or (c) such option is deemed
not to have been exercised in accordance with the terms hereof. The foregoing
restrictions shall continue in full force and effect from the date hereof and
forever, in perpetuity, with respect to the securities of Liberty III and all of
the Additional Partnership if Everest has been granted an option by Lehigh to
purchase Option Securities for an aggregate purchase price of Ten Million
($10,000,000) Dollars. If Lehigh fails to commence Tender Offers for the
securities of any Additional Partnership by October 31, 1997 and the aggregate
purchase price for which Everest could have exercised its option to purchase
Tendered Securities prior to such date (but for its failure or deemed failure to
exercise such option) is less than Ten Million ($10,000,000) Dollars or if
Lehigh defaults in any material respect in the performance of its obligations
hereunder, then Everest shall cease to be bound by the foregoing restrictions,
but only with respect to Additional Partnerships for which Lehigh has failed to
commence Tender Offers. If Lehigh defaults in any material respect in the
performance of its obligations under the section titled "Option to Purchase
Securities; Payment of Securities and Expenses" above, then Everest shall cease
to be bound by the foregoing restrictions, but only with respect to the
partnership to which such default relates and any Additional Partnerships for
which Lehigh has failed to commence tender offers prior to the date of such
default.
-3-
<PAGE>
Partnership Standstill Agreement(s)
Lehigh entered into a letter agreement with Liberty III, dated April 4,
1997 (the "Liberty III Standstill Agreement"), a copy of which has been filed as
an exhibit to the Liberty III Schedule 14D-1. It is expected that some or all of
the Additional Partnerships may require similar standstill agreements prior to
Lehigh commencing an offer for the securities of such Additional Partnerships
(such agreements, together with the Liberty III Standstill Agreement, are
referred to herein as the "Partnership Standstill Agreements"). Everest
covenants and agrees that upon the purchase of any Tendered Securities, it will,
if applicable, agree to be bound by the terms and conditions of any Partnership
Standstill Agreement (including without limitation the Liberty III Standstill
Agreement) or execute a replacement standstill agreement reasonably acceptable
to the subject partnership.
Litigation
Reference is made to the following actions pending in Delaware Chancery
Court: (i) Everest Properties, Inc. v. Liberty Tax Credit Plus III L.P., Related
Credit Properties III L.P., Liberty GP III Inc., Lehigh Tax Credit Partners
L.L.C. and Lehigh Tax Credit Partners, Inc. (C.A. No. 15660) (commenced April
15, 1997); and (ii) Everest Properties, Inc. v. Liberty Tax Credit Plus III
L.P., et al. (C.A. No. 15531) (commenced February 10, 1997). Everest covenants
and agrees that it shall immediately cause these actions to be dismissed,
without prejudice, and without costs to any of Lehigh, its affiliates or the
defendants in such actions. Each of Lehigh and Everest hereby releases the
other, and Everest hereby releases all of the defendants in the foregoing
actions, from any and all claims for events that have occurred prior to the date
of this letter agreement, such releases being expressly conditioned upon the
performance by Lehigh, in the case of Everest's release, Everest, in the case of
Lehigh's release, and the other defendants, in the case of Everest's release, of
their respective obligations, if any, hereunder.
Conduct of Offer(s)
All decisions relating to the conduct of the Tender Offers and the
acquisition and transfer of Tendered Securities pursuant thereto, including
without limitation any change in the terms or waiver of any of the conditions
thereof, shall be made solely by Lehigh. Notwithstanding the foregoing, if
requested by Everest, Lehigh agrees to consult with Everest prior to commencing
a Tender Offer with regard to the purchase price offered therein and prior to
increasing the offered price in any Tender Offer commenced prior to the date
hereof. Lehigh agrees to amend the Liberty III Offer materials to include the
following statement:
In its filed pleadings, Everest stated that the estimated
offer price of $414 per BAC for a possible tender offer by
Everest, as disclosed in the Offer to Purchase, was incorrect
and Everest intended to offer BACs holders a price higher than
the then-Purchase Price offered by the Purchaser.
Cooperation
Everest and Lehigh shall cooperate and provide each other with such
information as may be necessary or desirable to disclose the transaction(s)
contemplated hereby in accordance with applicable securities laws and the rules
and regulations promulgated thereunder. In addition, subject to applicable laws,
Lehigh agrees to provide Everest, promptly upon request (but in no event later
than five days prior
-4-
<PAGE>
to the commencement of a Tender Offer), with copies of all reports sent to
limited partners, filings with the Commission and other public information
reasonably requested by Everest. Additionally, Lehigh agrees to furnish Everest,
promptly upon request, a report of securities tendered in any pending Tender
Offer.
No Other Contracts
Except as expressly set forth herein, there are no contracts,
arrangements, understandings or relationships between Everest and Lehigh with
respect to the BACs or the securities of any Additional Partnership.
Further Assurances
Each of the parties agrees that it shall take whatever action or
actions as are deemed by counsel to any party hereto to be reasonably necessary,
advisable or convenient from time to time to effectuate the provisions or intent
of this agreement, and to that end, each party agrees that it will execute,
acknowledge and deliver any further instruments or documents as give force and
effect to this letter agreement or any of the provisions hereof, or to carry out
the intent of this letter agreement or any of the provisions hereof. Related
Capital Company agrees that it shall, and shall cause its affiliates to, take
such action as may be necessary to effectuate the provisions or intent of this
letter agreement. Furthermore, Related Capital Company agrees to (i) effect the
transfer to Everest of any Option Securities on the books and records of Liberty
III and any Additional Partnership to Everest contemporaneously with effecting
any such transfer to Lehigh on such books and records and (ii) consistent with
past practice and subject to the advice of legal counsel that the requested
transfer will result in the subject partnership being treated as a
"publicly-traded partnership" for federal income tax purposes, promptly effect
all other transfers to Everest of the securities of Liberty III and any
Additional Partnership permitted by the terms of this letter agreement.
Remedies
It is understood and agreed that monetary damages would be an
inadequate remedy for violation of this agreement, and in the case of an actual
breach by a party of the provisions hereof, any one or more of the other parties
shall be entitled to relief by way of injunction, specific performance or other
equitable relief. The prevailing party in any dispute arising out of this letter
agreement shall, in addition to any monetary damages or equitable relief, be
entitled to recover from the other party, the prevailing party's attorney's fees
and expenses (including the time of personnel employed by Lehigh or Everest)
incurred in connection with such dispute.
Notices
Any notice or other communication required or permitted hereunder shall
be in writing and shall be delivered personally, sent by facsimile transmission
or sent by reputable overnight courier, postage or other charges prepaid. Any
such notice shall be deemed given when so delivered personally, or by facsimile
transmission or, if sent by overnight courier, one day after delivery to the
courier, as follows:
If to Lehigh, to:
-5-
<PAGE>
Lehigh Tax Credit Partners L.L.C.
c/o Related Capital Company
625 Madison Avenue
New York, New York 10022
Attention: Alan P. Hirmes
Telephone: (212) 421-5333
Telecopier: (212) 593-5794
If to Everest, to:
Everest Properties
3280 E. Foothill Boulevard
Suite 320
Pasadena, California 91107
Attention: W. Robert Kohorst
Telephone: (818) 585-5920
Telecopier: (818) 585-5929
Any party may designate another address or person for receipt of
notices hereunder by notice given in accordance with this section to the other
party.
June 30, 1997
Freedom Tax Credit Plus L.P.
c/o Related Freedom Assoicates L.P.
625 Madison Avenue
New York, NY 10022
Ladies and Gentlemen:
Valuation Research Corporation ("VRC") has been retained by Freedom Tax Credit
Plus L.P., a Delaware limited partnership (the "Partnership"), to express our
opinion as of May 31, 1997, as to the fair value of the issued and outstanding
Beneficial Assignment Certificates ("BACs") representing assignments of Limited
Partnership Interests ("Limited Partnership Interests") in the Partnership in
connection with a proposed tender offer (the "Offer to Purchase") for BACs by
Lehigh Tax Credit Partners L.L.C., a Delaware limited liability company ("the
Purchaser"). We understand that under the terms of the Offer to Purchase, the
Purchaser would purchase up to 18,224 BACs and thus, with the BACs already owned
by the Purchaser and its affiliates, control approximately 25% of the
outstanding BACs of the Partnership.
Fair value is defined for purposes of this report as:
The amount for which a BAC would change hands between a willing buyer
and a willing seller neither under compulsion to act, with equity to
both, each having reasonable knowledge of all relevant facts, and
within a commercially reasonable period of time.
After employment of the valuation processes and methodology described in the
attached report and subject to the assumptions and factors discussed in the
attached report, we have estimated a Fair Value per BAC, effective as of May 31,
1997, of $528.84 to $576.88 per BAC.
The Partnership is a limited partnership formed in 1989, under the laws of the
State of Delaware. It was formed to invest, as a limited partner, in other
limited partnerships (referred to herein as "Local Partnerships" or "Subsidiary
Partnerships") each of which owns one or more leveraged low-income multifamily
residential complexes ("Apartment Complexes" or "Properties") that are eligible
for the low-income housing tax credit ("Housing Tax Credit") enacted in the Tax
Reform Act of 1986, some of which are eligible for the historic rehabilitation
tax credit ("Historic
<PAGE>
June 30, 1997
Page 2
Rehabilitation Tax Credit", "Rehabilitation Projects", and together with the
Apartment Complexes or "Properties"). Some of the Apartment Complexes benefit
from one or more other forms of federal or state housing assistance. The
Partnership's investment in each Local Partnership represents from 98% to 99% of
the partnership interests in the Local Partnership. According to the Form 10-Q,
as of December 31, 1996, all of the net proceeds from the original offering of
BACs was invested in 42 Local Partnerships.
During the course of our study, discussions were held with management and we
became familiar with the limited partnership agreement of Freedom Tax Credit
Plus L.P. In addition, VRC has examined extensive data provided by Related
Freedom Associates L.P. ("Related General Partner"), a General Partner of the
Partnership and the published market data pertaining to the Apartment Complexes
which form the underlying assets of the Partnership. This includes, but is not
limited to, the following:
o Selected financial data for the Partnership as reported in
the Form 10-K and Form 10-Q of the Securities and Exchange
Commission.
o Unaudited financial statement and other internal financial
analysis for the 42 Local Partnerships that comprise the
underlying assets of Freedom Tax Credit Plus L.P.
o Trading data pertaining to the current secondary trading
market for BACs of the Partnership.
o A draft of the Offer to Purchase.
o The original Prospectus dated February 9, 1990.
o Projected tax credits and tax losses for each of the 42
Limited Partnerships of the Partnership.
o Projected tax credits and tax losses for the Partnership.
o Federal U.S. Partnership Tax Returns.
In addition, certain assumptions regarding the Partnership and the 42 Local
Partnerships are made. These include, but are not limited to, the following:
<PAGE>
June 30, 1997
Page 3
o Each of the Local Partnerships will continue to qualify for
low-income housing tax credits and that there will not be a
forfeiture or recapture of these credits.
o There will be no future change in the Internal Revenue Code
that would change the tax status of the Partnership or the
Local Partnerships.
o All debt related to the Properties is for a term of 15 years
and thus there is no risk of refinancing within the
projection period.
The basis of our opinion of the value per BAC is the annual tax losses and tax
credits that flow through to the BAC owner in addition to any cash distribution
or tax loss which would flow to the BAC holder upon a sale of the Properties
owned or invested in by the Local Partnerships, net of any debt or tax liability
associated with the Property.
To determine the value of the BACs, an income capitalization appraisal technique
known as a discounted cash flow analysis was used. The result of this technique
was then verified by using a second technique known as the market approach. The
basic premise of the income approach is that the earning power of an investment
is the critical element affecting its value, and value is often defined as the
present worth of anticipated future income. The basic premise of the market
approach is the comparing of recently sold investments and their sales price
with the subject investment.
INCOME ANALYSIS
The first step in the income approach is the determination of a proper revenue
stream that one would expect to be able to obtain from the subject investment
based on actual historical operations and future projections. A similar analysis
of typical operating expenses aids in constructing an operating statement that
results in a net operating income (loss), (NOI), for the first and subsequent
years. The estimated future net income or tax losses and tax credits can be
converted into an indicated value by discounting those individual annual amounts
to a present value.
The discount rates used to convert these tax losses and tax credits to a present
value are derived from market expectations of returns commensurate with the risk
of the subject investment.
Our analysis began with an estimate of each of the 42 Local Partnerships' income
or loss potential based on an analysis of current and historical operating
results. Using this information and incorporating current economic and market
forecasts for each of the 42 locations of the subject
<PAGE>
June 30, 1997
Page 4
Local Partnerships' Apartment Complexes, a potential gross income estimate was
made. This estimated potential gross income was then projected to grow over the
course of the projectionperiod, 11 years, at 3 percent based on current and
forecasted economic conditions in each of the subject areas.
Secondly, a similar procedure was used to estimate and project the expenses
associated with the operation of the subject Properties.
The estimate of the operating expenses, including real estate taxes, was based
on a combination of historical expenses of the subject Properties and published
market surveys. These operating expenses were projected to grow at an estimated
2.5% inflation rate per year over the course of the 11-year projection period.
Finally, the mortgage payments and depreciation expense associated with each
Property was subtracted to arrive at the net pretax income (loss) which is
allocated to each of the BAC holders.
The second element addressed is the tax credits associated with each Property.
Each Property has been awarded tax credits under the Tax Credit for Low-Income
Rental Housing (LIHTC) Program, established under Section 42 of the Internal
Revenue Code of 1986. We have assumed that these credits are fixed and will
continue for the duration of the original 10-year compliance period.
The following table sets forth the estimated aggregate revenues, expenses,
pretax income (loss) and tax credits of the 42 Consolidated Local Partnerships
which form the underlying investment of the Partnership for each of the
twelve-month periods ending December 31, 1998 through December 31, 2007 and the
abbreviated seven-month 1997 fiscal year that were included in the financial
forecasts used by VRC in connection with the preparation of the valuation
opinion.
<PAGE>
June 30, 1997
Page 5
(In Thousands of Dollars)
Year 1997 1998 1999 2000 2001
Revenue 5,552 13,658 13,999 14,349 14,708
Expenses 7,646 18,588 18,832 19,084 19,343
Net Income (Loss) (2,094) (4,930) (4,833) (4,735) (4,635)
Tax Credits 5,604 11,209 11,209 11,113 6,812
Year 2002 2003 2004 2005 2006 2007
Revenue 15,076 15,453 15,839 16,235 16,641 17,057
Expenses 19,611 19,886 20,169 20,461 20,761 21,071
Net Income (4,535) (4,433) (4,330) (4,226) (4,120) 4,014
Tax Credits 1,716 0 0 0 0 0
In rendering this valuation opinion, VRC relied, without assuming responsibility
for independent verification, on the accuracy and completeness of all financial
and operating data, financial analyses, reports and other information that were
publicly available, compiled or approved by or otherwise furnished or
communicated to VRC by or on behalf of the Partnership. With respect to the
financial forecasts utilized by VRC, VRC believes that the assumptions
underlying the forecasts are reasonable and that consequently there is a
reasonable probability that the projections would prove to be substantially
correct. However, readers of this valuation opinion should be aware that actual
revenues, expenses and net operating income of the 42 Local Partnerships which
serve as the underlying assets of the subject Partnership will depend to a large
extent on a number of factors that cannot be predicted with certainty or which
may be outside of the control of the general partners, including general
business, market and economic conditions, supply and demand for rental
properties in the areas in which the properties owned by the 42 Local
Partnerships are located, future operating expense and capital expenditure
requirements for the properties, future occupancy rates, the ability of the
general partners and property managers for the properties to maintain the
attractiveness of the properties to tenants, real estate tax rates, changes in
tax laws and other factors. As a result, actual results could differ
significantly from the forecasted results.
The following paragraphs summarize the significant quantitative and qualitative
analyses performed by VRC in arriving at the valuation opinion. VRC considered
all such quantitative and qualitative analyses in connection with its valuation
analysis, and no one method of analysis was given particular emphasis.
<PAGE>
June 30, 1997
Page 6
Discounted Cash Flow Analysis - VRC preformed a discounted analysis of (i) the
present value of the forecasted net after tax income (loss) and tax credit
benefits from future operations of the 42 Local Partnerships which are the
underlying assets of the Partnership, and (ii) the present value of the
estimated net after tax proceeds or tax benefits (losses) of a sale of the
Properties at the conclusion of the forecast period. In completing its analysis,
VRC utilized financial and operating forecasts of each Properties' estimated net
pretax net income (loss) for the seven-month period ending December 31, 1997 and
each of the twelve-month periods ending December 31, 1998 to December 31, 2007.
From this amount, annual expenses associated with the management of the
Partnership were deducted. The resulting income (loss) was then adjusted to
reflect the income (loss) to the BAC holders. Finally, the resulting loss was
adjusted for taxes and the composite tax credits added. The resulting net
investor benefits, along with the forecasted net after tax residual value of the
Properties, were then discounted to a present value using market derived
discount rates (IRR) of 12% and 15%. Using this methodology, the fair value of
the 72,896 partnership BACs is $528.84 to $576.88 per BAC.
MARKET ANALYSIS
Valuation Research has analyzed and has given consideration to the trading
history of the subject Partnership's BACs on the Chicago Partnership Board from
May 31, 1996 to May 31, 1997. During that period of time there were seven
transactions and the total number of BACs traded is approximately 483. The high
was priced at $623 per BAC and the low was $500. On March 12, 1997, a 25-unit
trade took place at a recorded price of $564 per BAC.
The preparation of a valuation opinion involves various determinations as to the
most appropriate and relevant quantitative and qualitative methods of financial
analyses and the application of those methods to the particular circumstances
and therefore such an opinion is not readily susceptible to partial analyses or
summary description. Accordingly, VRC believes its analyses must be considered
as a whole and that considering any portion of such analyses and of the factors
considered, without considering all analyses and factors, could create a
misleading or incomplete view of the process underlying the valuation opinion.
Any estimates contained in these analyses are not necessarily indicative of
actual values or predictive of future results or values, which may be
significantly more or less than as set forth herein.
VRC's valuation opinion was based solely upon the information available to it
and the economic market and other circumstances that existed as of the date
hereof. Events occurring after such date could materially affect the assumptions
and conclusions contained in the valuation opinion. VRC has not undertaken to
reaffirm or revise this valuation opinion or otherwise comment upon any events
occurring after the date hereof.
<PAGE>
June 30, 1997
Page 7
VRC has relied without independent verification on the accuracy and completeness
of all of the financial and other information reviewed by us for purposes of
this opinion. Nothing came to our attention, for purposes of this opinion, which
causes us to question their accuracy or their representation of the operations
of the assets under review. We have not verified the title to ownership of these
assets, nor have we made an independent valuation or appraisal of the reported
current assets or any of the liabilities reported by the Partnership on its
financial statements. Our opinion necessarily is based on conditions as they
exist and can be valued only as of May 31, 1997.
Based on and subject to the foregoing and based on such other matters as we
consider relevant, it is our opinion that as of the date hereof, the fair value
per BAC is $528.84 to $576.88.
This letter is solely for the information of and assistance to the parties to
whom it is addressed in conducting their investigation with regard to the
upcoming tender offer for 18,224 of the BACs of the Partnership. The Partnership
may include this letter as a part of the information statement filed with the
Securities and Exchange Commission. Any other uses are expressly prohibited and
neither this letter nor any of its parts may be circulated, quoted, or otherwise
referred to for any other purpose without the written consent of VRC, the
exercise of which will be at the sole discretion of VRC, not unreasonably
withheld. If given, such consent shall not be without sufficient review by VRC
as to the precise language of such disclosure and the time and place of its
potential release.
The above limitations do not apply to interested parties as defined herein.
However, in such instances, this opinion must be provided to such parties in its
entirety. The term "interested parties" shall include the Partnership's auditors
and attorneys, participants and assignees, regulators, or appropriate parties
involved in this transaction.
VRC has no responsibility to update the opinion stated herein for events and
circumstances occurring after the date of this letter.
This opinion is subject to the assumptions and limiting conditions contained
herein. VRC has not investigated the title to, nor the liabilities against, the
Partnership or the Properties of the 42 Local Partnerships and assumes no
responsibility concerning these matters. Neither Valuation Research Corporation
nor any of its personnel have any present or contemplated financial interest in
the Partnership or the assets of the Partnership, and we certify that the
compensation received for this opinion letter is not contingent on the
conclusions stated. Additionally, the assignment was not based on a requested
minimum valuation, a specific valuation, or the approval of a loan.
<PAGE>
June 30, 1997
Page 8
Valuation Research Corporation does not conduct or provide environmental
liability assessments of any kind in performing its valuations so that our
opinion of the fairness of the Offer does not reflect any actual or contingent
environmental liabilities associated with the owned residential property that
constitutes the underlying assets of the Partnership.
Respectfully submitted,
VALUATION RESEARCH CORPORATION
/s/ Valuation Research Corporation
Engagement Number: 04-2749-00
<PAGE>
June 30, 1997
Page 9
LIMITING FACTORS AND ASSUMPTIONS
In accordance with recognized professional ethics, the professional fee for this
service is not contingent upon our conclusion of value, and neither Valuation
Research Corporation nor any of its employees have a present or intended
material financial interest in the subject company.
The opinion expressed herein is valid only for the stated purpose as of the date
of the valuation opinion.
Financial statements and other related information provided by the subject
company or its representatives in the course of this investigation have been
accepted, without further verification, as fully and correctly reflecting the
company's business conditions and operating results for the respective periods,
except as specifically noted herein.
Public information and industry and statistical information has been obtained
from sources we deem to be reliable; however, we make no representation as to
the accuracy or completeness of such information, and have accepted the
information without further verification.
The conclusions of value are based upon the assumption that the current level of
management expertise and effectiveness would continue to be maintained and that
the character and integrity of the Partnership and/or the 42 Local Partnerships
through any sale, reorganization, exchange, or diminution of the owners'
participation would not be materially or significantly changed.
This letter and the conclusions arrived at herein are for the exclusive use of
our client for the sole and specific purposes as noted herein. Furthermore, the
letter and conclusions are not intended by the author, and should not be
construed by the reader, to be investment advice in any manner whatsoever. The
conclusions reached herein represent the considered opinion of Valuation
Research Corporation, based upon information furnished to them by the
Partnership and other sources.
Related Freedom Associates L.P., a General Partner of Freedom Tax Credit Plus
L.P., has assured VRC that there will be no material change in the proposed
tender offer or any documents in VRC's possession as of May 31, 1997.
<PAGE>
June 30, 1997
Page 10
Except as provided above, neither all nor any part of the contents of this
letter (especially any conclusions as to value, the identity of any appraiser or
appraisers, or the firm with which such appraisers are connected, or any
reference to any of their professional designations) should be disseminated to
the public through advertising media, public relations, news media, sales media,
mail, direct transmittal, or any other public means of communication, without
the prior written consent and approval of Valuation Research Corporation.
Future services regarding the subject matter of this letter, including, but not
limited to, testimony or attendance in court, shall not be required of Valuation
Research Corporation, unless previous arrangements have been made in writing.
Valuation Research Corporation is not an environmental consultant or auditor,
and it takes no responsibility for any actual or potential environmental
liabilities. Any person entitled to rely on this letter wishing to know whether
such liabilities exist, or their scope, and the effect on the value of the
property is encouraged to obtain a professional environmental assessment.
Valuation Research Corporation does not conduct or provide environmental
assessments and has not performed one for the subject property.
Valuation Research Corporation has asked the Partnership whether it is subject
to any present or future liability relating to environmental matters (including
but not limited to CERCLA/Superfund liability). Valuation Research Corporation
has not determined independently whether the Partnership is subject to any such
liabilities, nor the scope of any such liabilities. Valuation Research
Corporation's appraisal takes no such liabilities into account except as they
have been reported expressly to Valuation Research Corporation by the
Partnership, or by an environmental consultant working for the Partnership and
then only to the extent that the liability was reported to us in an actual or
estimated dollar amount. To the extent such information has been reported to us,
Valuation Research Corporation has relied on it without verification and offers
no warranty or representation as to its accuracy or completeness.
We have not made a specific compliance survey or analysis of the subject
properties to determine whether it is subject to or in compliance with the
Americans with Disabilities Act of 1990 (ADA) and this opinion does not consider
the impact, if any, of noncompliance in estimating the value of the Units.
FREEDOM TAX CREDIT PLUS L.P.
625 MADISON AVENUE
NEW YORK, NY 10022
June 30, 1997
Mr. William H. Schoenecker, MAI ASA
Vice President
Valuation Research Corporation
330 E. Kilbourn Avenue
Milwaukee, WI 53202-3142
Dear Mr. Schoenecker:
Freedom Tax Credit Plus L.P. hereby consents to the use of the report prepared
by Valuation Research Corporation dated June 30, 1997 by Lehigh Tax Credit
Partners L.L.C. for all uses permitted for Freedom Tax Credit Plus L.P.
Please indicate your acceptance of the above rights for Lehigh Tax Credit
Partners L.L.C. by signing in the space provided below.
Very truly yours,
Freedom Tax Credit Plus L.P.
By: Related Freedom Associates L.P.,
general partner
By: Related Freedom Associates Inc.,
general partner
By: /s/ Alan P. Hirmes
--------------------
Alan P. Hirmes
Vice President
AGREED TO AND ACCEPTED:
Valuation Research Corporation
By: /s/ William H. Schoenecker
--------------------------
William H. Schoenecker
Vice President
CONSENT OF VALUATION RESEARCH CORPORATION
Valuation Research Corporation ("VRC"), an independent appraisal firm, hereby
consents to the reference to VRC and the opinion of VRC with respect to the
value of the BACs, subject to agreement in writing by Freedom Tax Credit Plus
L.P. to such use and further subject to VRC's final review and approval of such
specific references, to be contained in the:
Lehigh Tax Credit Partners L.L.C.
Offer to Purchase
of
Beneficial Assignment Certificates
in
Freedom Tax Credit Plus L.P.
Valuation Research Corporation
By: /s/ William H. Schoenecker
--------------------------
William H. Schoenecker
Vice President
Milwaukee, Wisconsin
June 30, 1997
