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SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (Amendment No. __)
Filed by the Registrant [ ]
Filed by a Party other than the Registrant [ X ]
Check the appropriate box:
[X] Preliminary Proxy Statement [ ] Confidential, for Use of the
Commission Only (as permitted
by Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
Synthetic Industries L.P.
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(Name of Registrant as Specified in Its Charter)
Charlene E. Sutherland
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(Name of Person(s) Filing Proxy Statement if other than the Registrant)
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction applies:
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(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the form or schedule and the date of its filing.
(1) Amount previously paid:
(2) Form, schedule or registration statement no.:
(3) Filing party:
(4) Date filed:
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CHARLENE E. SUTHERLAND
4512 BIRD OF PARADISE LANE
LA MESA, CA 91941
E-MAIL: [email protected]
May [ ], 1998
TO: LIMITED PARTNERS OF SYNTHETIC INDUSTRIES, L.P.
Re: REMOVAL OF GENERAL PARTNER AND DISSOLUTION OF SYNTHETIC INDUSTRIES, L.P.
Dear Limited Partners:
As a limited partner of Synthetic Industries, L.P. (the "Partnership"), I am
soliciting your proxy to authorize me to execute on behalf of limited
partners a written consent to the removal of the Partnership's general
partner, SI Management, L.P., the dissolution of the Partnership, and the
winding up of the Partnership under the stewardship of an independent
liquidating trustee. I believe such a course of action will maximize the
return to limited partners within the shortest practical time frame.
Like many of you, I have been a limited partner since the inception of the
Partnership. As a licensed securities principal, registered representative,
and certified financial planner, I believed that the Partnership represented
a sound investment. In 1993, control of the Partnership's general partner
was acquired by members of management of Synthetic Industries, Inc. (the
"Company"). At that time, the Partnership owned 100% of the Company.
Since management of the Company acquired control of the Partnership, I have
been concerned about the inherent conflict between the interests of the
management of the Company and the interests of the Partnership and its
limited partners. Since 1994, the general partner has sanctioned, and in some
cases affirmatively approved on behalf of the Partnership, actions by the
Company that I believe have been harmful to the Partnership. Most recently,
the general partner proposed a plan of withdrawal and dissolution (the "GP
Plan"), described in a proxy statement dated September 19, 1997. The GP
Plan, by its very design, would have forced the Partnership and its limited
partners to forfeit any possible premium over current market prices that the
Partnership might be able to obtain in a sale of control of the Company.
The GP Plan has been enjoined by the Court of Chancery of the State of
Delaware and by the United States District Court for the Northern District of
California.
I believe that, if the Partnership's controlling block of stock in the
Company were diligently marketed, it is likely that one or more buyers will
be willing to pay a significant premium over market price for the stock.
However, in view of what I see as an inherent conflict of interest faced by
the general partner, I do not believe the general partner will ever take the
steps necessary to identify and implement any change of control transaction
that might provide the Partnership and limited partners with an opportunity
to obtain a premium for the Partnership's controlling interest in the
Company. I believe only an independent liquidating trustee will diligently
pursue such a transaction.
For these and other reasons, which are more fully discussed in the
accompanying Proxy Statement, I am proposing that limited partners exercise
their contractual and statutory rights to remove the general partner, to
dissolve the Partnership, to elect a liquidating trustee (the "Trustee") and
to adopt a plan of dissolution pursuant to which the Trustee will seek to
maximize the value of the Partnership's stock ownership of the
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Company. I believe this plan (the "Proposed Dissolution") will optimize
limited partners' chances of maximizing in the shortest practical time frame
their return on their investment in the Partnership.
Please review carefully the accompanying Proxy Statement, which describes in
detail the Proposed Dissolution. Please do not hesitate to call [name], my
proxy solicitation agent, at [telephone number] to discuss the plan described
in the Proxy Statement.
Very truly yours,
/s/ Charlene E. Sutherland
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Charlene E. Sutherland
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PROXY STATEMENT TO THE LIMITED PARTNERS OF
SYNTHETIC INDUSTRIES, L.P.
by
Charlene E. Sutherland
4512 Bird of Paradise Lane
La Mesa, CA 91941
e-mail: [email protected]
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You are being sent this Proxy Statement by Charlene E. Sutherland
("Sutherland"), a limited partner in Synthetic Industries, L.P., a Delaware
limited partnership ( the "Partnership"), to describe a proposed plan of
dissolution of the Partnership and to solicit your proxy to authorize
Sutherland to execute a written consent in favor of the proposed plan of
dissolution. The plan of dissolution proposed by Sutherland is an
alternative to a plan of withdrawal and dissolution proposed by the
Partnership's general partner (the "GP Plan") and described in a Joint Proxy
Statement and Prospectus dated September 19 1997. The GP Plan has been
preliminarily enjoined by the Court of Chancery of the State of Delaware and
by the United States District Court for the Northern District of California.
The plan of dissolution proposed by Sutherland and described in this
Proxy Statement involves the following four principal actions: (1) the
removal of S.I. Management L.P. as the Partnership's sole general partner,
which under the terms of the partnership agreement would automatically
dissolve the Partnership after 90 days, (2) the determination by a majority
in interest of limited partners to dissolve the Partnership immediately, (3)
the election of [name] as a statutory liquidating trustee (the "Trustee")
pursuant to Section 17-803(a) of the Delaware Revised Uniform Limited
Partnership Act (the "Act") and (4) the approval of a plan of dissolution to
direct the Trustee in connection with settling the business and affairs of
the Partnership. In addition, limited partners must select a special counsel
to render an opinion required by the partnership agreement as a condition to
the right of limited partners to consent to or vote on the proposed
dissolution and must also approve the opinion rendered by such counsel. In
this Proxy Statement, the term "Proposed Dissolution" refers to the plan of
dissolution as a whole, including the approval of the dissolution of the
Partnership, the removal of the general partner, the appointment of the
Trustee, the adoption of the plan of dissolution, the selection of special
counsel, and the approval of the opinion rendered by special counsel.
For the Proposed Dissolution described in this Proxy Statement to be
adopted, the holders of a majority of the Partnership's outstanding limited
partnership interests must give their proxies to Sutherland. Sutherland
intends to execute a written consent to the Proposed Dissolution as soon as
practicable after receiving the necessary proxies from the holders of at
least a majority of the Partnership's outstanding limited partnership
interests. The Partnership has outstanding 800 units of limited partnership
interest held by approximately 1,850 limited partners. Under Delaware law
and the Partnership Agreement, there is no specified time by which proxies to
execute a written consent must be submitted. Sutherland intends at present to
solicit proxies until she receives proxies from the holders of at least a
majority in interest of the outstanding limited partnership interests.
However, Sutherland reserves the right to abandon the solicitation of proxies
in the event she determines (i) that she will be unable to obtain sufficient
proxies to enable her to execute a written consent in favor of the Proposed
Dissolution or (ii) that an alternative transaction has arisen that
Sutherland believes would be comparable to the Proposed Dissolution in
benefit to limited partners.
If you grant a proxy to Sutherland, you may revoke your proxy at any
time prior to the execution and delivery to the Partnership of a written
consent in favor of the Proposed Dissolution on behalf of holders of a
majority of the outstanding limited partnership interests. To revoke your
proxy, you must send to the Solicitation Agent (at the address set forth
herein) a letter or other written notice stating your name and that
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you wish to revoke a previously executed proxy. Any such letter or other
written notice must be executed and bear a later date than your previously
filed proxy.
Sutherland has retained [name] (the "Solicitation Agent") to assist in
the solicitation of proxies. To request additional copies of this Proxy
Statement, please contact [name] at the following address:
[insert address]
This Proxy Statement is dated [May __], 1998. It is first being sent to
limited partners of the Partnership on or about [May __], 1998.
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YOU ARE URGED TO GRANT YOUR PROXY TO SUTHERLAND TO CONSENT TO THE PROPOSED
DISSOLUTION BY COMPLETING, SIGNING, DATING AND MAILING THE ENCLOSED PROXY
IN THE ENVELOPE THAT HAS BEEN INCLUDED FOR YOUR CONVENIENCE.
PLEASE RESPOND. YOUR PROXY IS IMPORTANT.
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QUESTIONS AND ANSWERS ABOUT THE PROPOSED DISSOLUTION
Q. WHO IS SUTHERLAND?
Like you, Charlene E. Sutherland is a limited partner of the Partnership.
She beneficially owns two quarter-units of limited partnership interest.
She acquired one of her quarter-units in the Partnership's original sale of
limited partnership interests, and she acquired her other quarter-unit on
the secondary market. She is a licensed securities principal, a registered
representative, a certified financial planner, and a licensed tax
practitioner in the State of California. Her father-in-law, Judge Kenneth
E. Sutherland, owns one-quarter of a unit, and certain of her clients own
in the aggregate four and three-quarters units.
Q. WHAT IS THE PROPOSED TRANSACTION?
The transaction proposed is to dissolve and liquidate the Partnership in a
manner intended to maximize the return to limited partners. Under
Sutherland's Proposed Dissolution, a majority in interest of limited
partners will exercise their right under the partnership agreement to
remove the general partner and to dissolve the Partnership. Although
removal of the general partner would cause the automatic dissolution of
the Partnership after the expiration of 90 days, by also dissolving the
Partnership by consent of the limited partners, the effective date of
dissolution will be the same as the date on which the general partner is
removed. At the same time, limited partners will elect [name] as a
liquidating trustee to liquidate the Partnership's assets in accordance
with a plan of dissolution approved by the limited partners.
Q. WHAT WILL THE TRUSTEE DO?
The Partnership owns a controlling interest in Synthetic Industries, Inc.
(which we refer to as the "Company"). Sutherland believes that the
Partnership can sell its controlling interest to another person, or can
assist another person in acquiring control of the Company by using its
controlling interest to approve a merger, sale of assets or other similar
transaction. In transactions involving a change of control of a company,
the price paid for the stock of the company typically exceeds the
prevailing market price for the company's stock. The difference between
the market price and the price paid in a change of control transaction is
commonly referred to as a "control premium." The Trustee will seek to
obtain such a control premium for the Partnership. In 1997, in connection
with transactions in which 100% of a company was acquired, the average
control premium paid for companies in all industries was approximately 35%
more than the market price prior to announcement of the change of control
transaction. Of course, there is no assurance that a control premium of
that magnitude, or any control premium, can be obtained in connection with
the Proposed Dissolution.
Q. WHY IS SUTHERLAND PROPOSING THE DISSOLUTION?
The existing general partner is closely affiliated with management of the
Company. Sutherland believes the existing general partner has breached its
fiduciary duties to the Partnership and the limited partners by putting the
interests of the Company's management ahead of the interests of the
Partnership and its limited partners. In particular, the existing general
partner has consistently failed to explore ways of obtaining a control
premium for the Partnership's controlling interest in the Company. In
addition, Sutherland believes that the existing general partner (i) has
diluted the Partnership's interest in the Company by permitting a public
offering of stock by the Company at a price well below the fair value of
the stock, (ii) has permitted the Company to implement various measures
designed to impede a change of control and thereby entrench existing
management, (iii) has tried to dispose of the Partnership's controlling
stock interest in a public offering that would not capture any premium and
(iv) has tried to implement a plan of dissolution
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that Sutherland believes would have harmed limited partners and that has
currently been enjoined by the Delaware Court of Chancery as violative
of the partnership agreement.
Q. WHY DOES SUTHERLAND BELIEVE A CHANGE OF CONTROL TRANSACTION MAY BE
POSSIBLE?
An investigation had been conducted on Sutherland's behalf involving
consultations with experts, investment bankers, and corporate managers.
Based on this investigation, Sutherland has concluded that, if the
Partnership's controlling block of stock in the Company is marketed, it is
likely that one or more buyers will be willing to pay a significant premium
over market price for the stock.
Q. WHAT EFFECT WILL THE PROPOSED DISSOLUTION HAVE ON ME?
If approved, the Proposed Dissolution will result in the termination of the
Partnership. This will mean that the Partnership's property will be
disposed of as soon as practicable pursuant to the Proposed Dissolution and
the proceeds will be distributed to limited partners. If the Trustee
cannot dispose of the Company's stock owned by the Partnership at a premium
over its market value, the stock will be distributed to limited partners.
In that case, you will be able to decide whether to retain the stock
distributed to you or sell such stock in the open market.
Q. HOW MUCH WILL I RECEIVE?
There is no way to predict how much you will receive on dissolution of the
Partnership. The type and amount of distribution will depend on the type
of control premium transaction, if any, that the Trustee is able to
structure. If such a transaction occurs, limited partners may receive cash
or stock or other securities of a company that acquires the Partnership's
stock in the Company. If no transaction providing a control premium
occurs, then limited partners will receive a pro rata distribution of the
Company's stock owned by the Partnership. In addition, the expenses of
dissolution and liquidation will be paid by the Partnership. Such expenses
will depend in part on the type of transaction that the Trustee is able to
arrange, and accordingly they cannot be determined at present. They are
expected to be in the range of [$ ]. Such expenses will reduce the
amount distributed to limited partners. Thus, the actual value to be
received in connection with the Proposed Dissolution cannot be determined
at this time.
Q. WHAT VOTE OF LIMITED PARTNERS IS REQUIRED TO APPROVE THE PROPOSED
DISSOLUTION?
The holders of at least a majority of the outstanding limited partnership
interests must approve the Proposed Dissolution.
Q. WHAT WILL HAPPEN TO THE GENERAL PARTNER'S INTEREST?
Under the partnership agreement, upon the removal of the general partner,
the general partner ceases to function as a general partner of the
Partnership. The general partner's interest is automatically converted
into that of a special limited partner entitled only to certain
distributions, and having no voting rights. In addition, the Partnership
has the option to purchase the general partner's interest, subject to the
general partner's right to retain a 7.5% interest in the Partnership after
the limited partners receive their Priority Return. The Proposed
Dissolution contemplates that the Trustee will cause the Partnership to
exercise its option to purchase the general partner's interest.
Q. AM I ENTITLED TO APPRAISAL RIGHTS? Neither Delaware law nor the Partnership
Agreement provides limited partners with appraisal rights in connection
with dissolution of the Partnership or the sale or other disposition of its
assets. In the event that a transaction implemented by the Trustee would
involve a limited partnership roll-up under federal law, appraisal rights
may be made available in connection with such a transaction.
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Q. WILL I HAVE A VOTE ON ANY DISPOSITION OF PARTNERSHIP ASSETS?
Probably not. Approval of the Proposed Dissolution will authorize the
Trustee to dispose of the Partnership's assets in whatever transaction the
Trustee determines in its discretion will provide the greatest value to the
Partnership and its partners. It is possible, however, that the Trustee
could enter into certain transactions, such as a merger of the Partnership
into another entity, that may be subject to federal law regulating limited
partnership roll-ups, and that may require approval by a vote of the
limited partners.
Q. WHAT DO I NEED TO DO NOW?
If you are in favor of the Proposed Dissolution described in this Proxy
Statement, you must execute and return to Sutherland the form of proxy
accompanying this Proxy Statement. If you abstain from granting a proxy,
you will in effect be voting against the Proposed Dissolution.
Q. WHEN DO YOU EXPECT THE PROPOSED DISSOLUTION TO BE COMPLETED?
Sutherland cannot predict whether or when sufficient proxies will be
received to effect the Proposed Dissolution. However, if it is effected,
the Trustee will endeavor to identify, enter into and consummate a change
of control transaction as soon as practicable. It is not possible to
predict how long it may take the Trustee to do so or to determine that such
a transaction is not reasonably likely to occur. It is also possible that
even if such a transaction is entered into soon after the Proposed
Dissolution is effected, other circumstances, such as the need for
regulatory approvals, any litigation instituted challenging the Proposed
Dissolution, a material adverse change in the business prospects of the
Company or a material adverse change in the economy generally, may delay
implementation of any change of control transaction.
Q. WHAT HAPPENS IF THE TRUSTEE CANNOT STRUCTURE A CHANGE OF CONTROL
TRANSACTION?
If after having attempted to identify and structure a change of control
transaction the Trustee determines that it is not reasonably likely that
any such transaction can be effected, the Trustee will as soon thereafter
as practical dispose of shares of the Company's common stock in order to
discharge the Partnership's obligations and distribute remaining shares pro
rata to partners.
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Q. WHERE CAN I FIND MORE INFORMATION ABOUT THE PARTNERSHIP AND SYNTHETIC
INDUSTRIES, INC.?
You may obtain more information from various sources described under "Where
You Can Find More Information" on page [__] of this Proxy Statement.
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TABLE OF CONTENTS
<TABLE>
<S> <C>
Questions and Answers About the Proposed Dissolution . . . . . . . . . . . . 3
Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Charlene E. Sutherland . . . . . . . . . . . . . . . . . . . . . . . . 11
The Partnership . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
The General Partner . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Synthetic Industries, Inc. . . . . . . . . . . . . . . . . . . . . . . 12
Background and Purpose of the Proposed Dissolution . . . . . . . . . . 12
Lack of Distributions . . . . . . . . . . . . . . . . . . . . . . 12
Failure of General Partner to Protect the Interests of Limited
Partners . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Failure of General Partner to Seek Out a Control Premium . . . . . 13
Attractiveness of the Company as an Acquisition Candidate . . . . 14
General Partner Hindered by Conflicts of Interests . . . . . . . . 14
Need for Independent Trustee . . . . . . . . . . . . . . . . . . . 14
Proposed Dissolution . . . . . . . . . . . . . . . . . . . . . . . . . 14
Consent to the Proposed Dissolution . . . . . . . . . . . . . . . . . . 16
Selection and Approval of Opinion of Counsel . . . . . . . . . . . . . 16
Conditions to the Proposed Dissolution . . . . . . . . . . . . . . . . 16
Summary of Certain United States Income Tax Considerations . . . . . . 16
Expenses of the Proposed Dissolution . . . . . . . . . . . . . . . . . 17
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Possible Lack of Change of Control Transaction . . . . . . . . . . . . 18
Possible Opposition by the Company . . . . . . . . . . . . . . . . . . 18
Possible Failure to Approve Proposed Dissolution . . . . . . . . . . . 18
Possible Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . 19
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Risk of Amount Due General Partner . . . . . . . . . . . . . . . . . . 19
Possible Decline of Market Price for the Company's Stock . . . . . . . 20
Certain Tax Risks and Possible Tax Gain . . . . . . . . . . . . . . . . 20
Possible Need for Additional Limited Partner Vote . . . . . . . . . . . 21
Possible Delay in Liquidation . . . . . . . . . . . . . . . . . . . . . 21
The Proposed Dissolution . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Removal of General Partner . . . . . . . . . . . . . . . . . . . . . . 22
Dissolution of the Partnership . . . . . . . . . . . . . . . . . . . . 22
Appointment of Independent Liquidating Trustee . . . . . . . . . . . . 22
Approval of Plan of Dissolution . . . . . . . . . . . . . . . . . . . . 22
No Assurance of Change of Control Transaction . . . . . . . . . . . . . 23
Principal Intended Benefits . . . . . . . . . . . . . . . . . . . . . . 23
Risks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Background and Purpose of the Proposed Dissolution . . . . . . . . . . 24
Lack of Distributions . . . . . . . . . . . . . . . . . . . . . . 24
Failure of General Partner to Protect the Interests of Limited
Partners . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Failure of General Partner to Seek Out a Control Premium . . . . . 26
Attractiveness of the Company as an Acquisition Candidate . . . . 26
General Partner Hindered by Conflicts of Interests . . . . . . . . 26
Need for Independent Trustee . . . . . . . . . . . . . . . . . . . 27
Conditions to the Plan of Dissolution . . . . . . . . . . . . . . . . . 27
Expenses of the Plan of Dissolution . . . . . . . . . . . . . . . . . . 27
Solicitation of Proxies from Limited Partners . . . . . . . . . . . . . 28
Market Price for Units . . . . . . . . . . . . . . . . . . . . . . . . 28
Proxy Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Record Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Consent Required . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
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Probable Lack of Appraisal Rights . . . . . . . . . . . . . . . . . . . 30
Partnership Units and Principal Holders Thereof . . . . . . . . . . . . 30
The Partnership . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
The Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Selected Financial Data Concerning the Partnership . . . . . . . . . . . . . 31
Certain Federal Income Tax Considerations . . . . . . . . . . . . . . . . . 32
Classification as a Partnership . . . . . . . . . . . . . . . . . . . . 33
Principles of Partnership Taxation Applicable to the Proposed
Dissolution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Treatment of a Distribution . . . . . . . . . . . . . . . . . . . . . . 35
Treatment of Repayment of Partnership Liabilities and Plan Costs . . . 35
Other Tax Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
State and Other Tax Matters . . . . . . . . . . . . . . . . . . . . . . 35
Summary of Certain Provisions of the Partnership Agreement . . . . . . . . . 36
Dissolution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Allocation of Profits, Losses and Distributions, Priority Return. . . . 36
Voting Rights of Limited Partners . . . . . . . . . . . . . . . . . . . 37
Removal, Withdrawal, Bankruptcy, Insolvency, Dissolution,
Retirement or Resignation of the General Partner . . . . . . . . . 38
Applicable Law. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
About the Trustee. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Interest of Certain Persons in the Solicitation. . . . . . . . . . . . . . . 38
Charlene E. Sutherland. . . . . . . . . . . . . . . . . . . . . . . . . 38
The Mills Law Firm. . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Smith, Katzenstein & Furlow LLP . . . . . . . . . . . . . . . . . . . . 40
Summary of Certain Pending Litigation. . . . . . . . . . . . . . . . . . . . 40
Delaware Court of Chancery . . . . . . . . . . . . . . . . . . . . . . 40
United States District Court for the Northern District of California. . 42
Financial Information about the Partnership. . . . . . . . . . . . . . . . . 44
9
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Where You can Find More Information. . . . . . . . . . . . . . . . . . . . . 45
Exhibits
Exhibit A Plan of Dissolution
Exhibit B Opinion of [name]
Exhibit C Form 10-K for Synthetic Industries, L.P. for the fiscal year
ending September 30, 1997
Exhibit D Form 10-Q for Synthetic Industries, L.P. for the quarter
ending December 31, 1997
</TABLE>
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SUMMARY
THIS SUMMARY HIGHLIGHTS SELECTED INFORMATION FROM THIS PROXY STATEMENT AND
DOES NOT CONTAIN ALL OF THE INFORMATION THAT MAY BE IMPORTANT TO YOU. TO
UNDERSTAND THE PROPOSED DISSOLUTION FULLY AND FOR A MORE COMPLETE DESCRIPTION OF
THE PARTNERSHIP, SYNTHETIC INDUSTRIES, INC., AND THE METHOD OF IMPLEMENTING THE
PROPOSED DISSOLUTION, YOU SHOULD READ CAREFULLY THIS ENTIRE PROXY STATEMENT AND
THE DOCUMENTS TO WHICH YOU ARE REFERRED.
CHARLENE E. SUTHERLAND
Charlene E. Sutherland is a limited partner of the Partnership. She owns
two quarter-units of limited partnership interest. She acquired one of her
quarter-units in the Partnership's original offering of units, and she acquired
her other quarter-unit in the secondary market. She is a certified financial
planner and licensed tax practitioner in the State of California. Since January
of 1990 she has been a registered representative and a principal of a major
registered broker-dealer on an independent contractor basis. From 1986 to 1990,
Sutherland was a registered representative with Integrated Resources Equity
Corp., on an independent contractor basis. From 1979 to 1985, she was employed
by Equitec Securities Corp., as a senior account executive.
From 1990 to 1991, Sutherland served on the board of directors of the
American Association of Limited Partners, a lobbying group directly
associated with drafting the Limited Partnership Rollup Reform Act of 1993.
Between 1987 and 1990, Sutherland served as the producer and moderator of a
local public-access-cable, non-commercial television show called Wealth
Management, an informational show for investors.
Sutherland's father-in-law, Judge Kenneth E. Sutherland, owns one-quarter
unit in the Partnership, and a number of her clients own in the aggregate
another four and three-quarter units. As a limited partner, Sutherland had
serious concerns about the lack of fairness to limited partners of the GP Plan.
She sought to intervene in litigation involving the GP Plan in the United States
District Court for the Northern District of California, and was permitted to
intervene for a limited purpose. See "Summary of Certain Pending Litigation --
United States District Court for the Northern District of California."
Although it is Sutherland who is soliciting proxies pursuant to this Proxy
Statement, Sutherland's attorneys, The Mills Law Firm and Smith, Katzenstein &
Furlow LLP, are advancing all expenses associated with the solicitation of
proxies for the Plan of Dissolution, subject to being reimbursed by the
Partnership if the Proposed Dissolution is approved. Sutherland's attorneys
have financial incentive to cause the limited partners to receive the highest
possible return for their investment in the Partnership. See "Interest of
Certain Persons in the Solicitation."
THE PARTNERSHIP
The Partnership is a Delaware limited partnership organized in 1986 for the
purpose of acquiring Synthetic Industries, Inc. (the "Company"). An aggregate
of 800 Units were issued for aggregate capital contributions of approximately
$78.4 million, which were used to fund a portion of the purchase price for 100%
of the stock of the Company. In November of 1996, the existing general partner
permitted the Company to make a public offering of common stock that diluted the
Partnership's ownership from 100% to approximately 67% of the Company's common
stock. The Partnership owns no assets other than its approximately 67% of the
outstanding common stock of the Company. Based on publicly available
information, Sutherland believes that the Partnership's only liability consists
of a note payable to the Company for costs incurred by the Company on the
Partnership's behalf relating to the development of earlier restructuring
proposals that were not carried through. Sutherland has not been able to
determine the actual amount of such liability, but believes it to be at least
$650,000, though it may be substantially higher.
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THE GENERAL PARTNER
The existing general partner of the Partnership is S.I. Management L.P., a
Delaware limited partnership whose sole general partner is Synthetic Management
G.P., a Georgia general partnership having five partners controlled,
respectively, by Leonard Chill, Ralph Kenner, William Gardner Wright, Jr., and
W. Wayne Freed, who are each current executive officers of the Company, and Jon
P. Beckman, a former executive officer of and currently a paid consultant to the
Company. The principal place of business of the general partner is located at
309 LaFayette Road, Chickamauga, Georgia 30707. The general partner's telephone
number is (706) 375-3121.
SYNTHETIC INDUSTRIES, INC.
The Company is a Delaware corporation founded in 1969 to produce
polypropylene-based primary carpet backing. Since that time the Company's
business has expanded into the manufacturing and sale of a full line of
polypropylene-based industrial fabrics, specialty yarns and geotextiles. As a
result of a public offering of common stock in November 1996, the Company
currently has 8,656,250 shares of common stock outstanding, of which
approximately 67% is owned by the Partnership. The Common Stock trades under the
symbol "SIND" on the Nasdaq National Market.
The principal executive office of the Company is located at 309
LaFayette Road, Chickamauga, Georgia 30707. The Company's telephone number
is (706) 375-3121.
BACKGROUND AND PURPOSE OF THE PROPOSED DISSOLUTION
LACK OF DISTRIBUTIONS. Since the inception of the Partnership, limited
partners have received no distributions on their investment. By comparison, the
persons controlling the general partner have received substantial benefits that
include not only substantial salaries and bonuses from the Company but also a
substantial number of options to acquire the Company's common stock at favorable
exercise prices. According to the Company's financial reports, Messrs. Chill,
Kenner, Wright, Freed, and Beckman collectively own 360,766 options to acquire
Company stock at $10.72 per share. Sutherland estimates that, as of May 4,
1998, the collective value of these options was over $4.3 million (based on the
May 4, 1998 stock price of $22.875 per share).
FAILURE OF GENERAL PARTNER TO PROTECT THE INTERESTS OF LIMITED PARTNERS.
Based on recent actions by the general partner Sutherland believes that the
general partner has subordinated the interests of limited partners to those of
the Company's management, some of whom control the general partner, and to the
interests of the Company's public stockholders. In August of 1996, the general
partner proposed to cause the Partnership to sell all of its stock in the
Company in a public offering. Sutherland and many other limited partners,
believing that such a sale was not in the best interest of the Partnership
because the market had not been informed of a significant increase in the
Company's earnings, opposed the sale. In the face of that limited partner
opposition, largely organized and spearheaded by The Mills Law Firm on behalf of
a number of limited partners, the general partner abandoned the proposed sale.
Rather than diligently explore ways to enhance value for limited partners,
the general partner permitted a public offering of stock by the Company in
November of 1996 at approximately $13.00 per share and before the announcement
of a significant improvement in the Company's earnings for the fourth quarter
ending September 30, 1996. Shortly after public announcement of the Company's
fourth quarter earnings, the price of the stock increased to approximately $20.
A principal effect of the offering of stock by the Company was to dilute the
Partnership's stock ownership from 100% to approximately 67%. By creating a 33%
public stockholder minority, the Company (with the general partner's
cooperation) made it more difficult for the Partnership to dispose of the
Company as a whole. It also benefited holders of options to purchase stock of
the Company, such as the persons who control the Partnership, by creating a
public market that both gave greater value to the options and a ready market
into which to sell shares acquired on exercise of options. Sutherland does not
believe the Partnership received any material benefit from the public offering
by the
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Company.
In September of 1997, the general partner proposed a plan of dissolution
(the "GP Plan") that would have dissipated entirely any control premium that
might be obtained for the Partnership's 67% controlling interest in the
Company. Under the GP Plan, the Partnership Agreement was to be amended to
permit limited partners to withdraw their capital, those limited partners
desiring to do so could exchange their limited partnership units for their
pro rata share of stock of the Company, all shares so withdrawn had to be
sold immediately in an underwritten public offering, and all shares not
withdrawn would remain in the Partnership for distribution to limited
partners 360 to 720 days after commencement of implementation of the GP Plan.
Sutherland believed that the general partner's plan was both unfair to
limited partners and violated the partnership agreement. The general
partner's plan did not afford any opportunity for the Partnership (and
indirectly the limited partners) to capture a control premium. The
compulsory public offering forced those limited partners who chose to
withdraw their capital in the form of shares to sell the shares immediately
at a discount to market and to pay material underwriters' and brokers' fees
and other expenses. As a result, the net proceeds to limited partners would
likely have been materially less than in an ordinary broker's transaction.
Those limited partners who elected not to withdraw their capital would have
been forced to wait from one to two years (and possibly longer) after
implementation commenced to receive a distribution of capital. Sutherland
further believes that the primary purpose of the GP Plan was to ensure that
the Partnership's 67% ownership interest was dispersed into the hands of a
large number of public holders of stock, which would thereby destroy the
concentration of ownership that resides in the Partnership. Such a result
would be likely to aid incumbent management in retaining control of the
Company and fending off any change of control transaction.
Sutherland was also aware that certain limited partners had instituted two
lawsuits, one in the Court of Chancery of the State of Delaware (the "Chancery
Court") and one in the United States District Court for the Northern District of
California (the "District Court"), challenging the conduct of the general
partner and the persons controlling the general partner. The complaints in those
lawsuits were later amended to seek an injunction against the GP Plan. On
October 23, 1997, the Chancery Court preliminarily enjoined the GP Plan, finding
that it was likely that the plan's terms violated the partnership agreement.
On March 19, 1998, the Delaware Supreme Court affirmed the Chancery Court's
grant of a preliminary injunction. On November 6, 1997, the District Court
issued a temporary restraining order against implementation of the GP Plan,
finding that the plaintiff had raised serious questions as to whether the plan
violated federal law relating to limited partnership roll-ups and as to whether
the general partner failed to disclose properly what actions limited partners
needed to take to require the GP Plan to be approved by two-thirds in interest
of the limited partners. Sutherland sought to intervene in the litigation in the
District Court, and was permitted to intervene for a limited purpose. As of the
date of this Proxy Statement, both the Chancery Court's injunction and the
District Court's restraining order remain in effect. See "Summary of Certain
Pending Litigation."
On December 29, 1997, limited partners commenced a second lawsuit in the
Chancery Court to challenge certain stock options granted by the Company to
certain of its current and former directors and executive officers, some of whom
control the general partner. See "Summary of Certain Pending Litigation."
In its proxy statement soliciting votes in favor of its now enjoined plan,
the general partner indicated that the Partnership had outlived its purpose,
stating: "THERE IS NO BUSINESS PURPOSE OR BENEFIT TO INVESTORS HOLDING INTERESTS
IN A PARTNERSHIP, THE SOLE PURPOSE AND ACTIVITY OF WHICH IS TO HOLD PUBLICLY
TRADED SHARES OF A SINGLE CORPORATION." Sutherland agrees, but believes that the
Partnership should now take appropriate steps to ensure not only liquidity for
limited partners, but that limited partners also receive the maximum return
reasonably attainable on their investment. Sutherland believes that the best
return to limited partners is most likely to result from a sale of the
Partnership's 67% ownership interest in the Company in a change of control
transaction in which the Partnership (and possibly minority stockholders of the
Company) receives a higher price per share than the current market price for the
Company's common stock.
FAILURE OF GENERAL PARTNER TO SEEK OUT A CONTROL PREMIUM. Sutherland has
been advised that, in the pending Chancery Court litigation, the general partner
has consistently argued that there was no significant
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interest on the part of any person in acquiring the Company. However,
Sutherland has learned that, in discovery in the Chancery Court litigation,
the plaintiffs confirmed that the general partner had made no significant
effort since January of 1994, at the latest, to explore a sale of the Company
or other change of control transaction, even though the Company's results of
operations had significantly improved since 1994, making it a more attractive
acquisition candidate, and the stock market had also improved significantly.
Based on the proxy statement for the GP Plan and discovery in the Chancery
Court litigation, it appears that the only effort relating to exploring a
change of control transaction made by or on behalf of the general partner
within the last four years was that Bear Stearns & Co., one of the general
partner's prime advisers, made a limited inquiry in August 1996 concerning a
sale of the Company. That inquiry, which apparently consisted only of
mailing a prospectus about the Company to seven industrial companies and
three financial institutions, was made prior to the Company's public offering
and prior to the announcement of the significant increases in the Company's
earnings for the fourth quarter ended September 30, 1996. No such inquiry
was made contemporaneously with the GP Plan.
ATTRACTIVENESS OF THE COMPANY AS AN ACQUISITION CANDIDATE. An expert
retained by the plaintiffs in the Chancery Court litigation stated in an
affidavit filed in that action that the Company appears to be an attractive
candidate for being acquired. That statement appears to be supported by an
investigation recently conducted on Sutherland's behalf involving consultations
with experts, investment bankers, and corporate managers. Based on this
investigation, Sutherland has concluded that, if the Partnership's controlling
block of stock in the Company is marketed, it is likely that one or more buyers
will be willing to pay a significant premium over the current market price for
the stock.
GENERAL PARTNER HINDERED BY CONFLICTS OF INTEREST. Sutherland also
believes that the general partner has interests that materially conflict with
those of the Partnership and its limited partners. This conflict arises because
the general partner is dominated and controlled by individuals who are also
directors, principal executive officers, or both, of the Company. The interests
of the Company's management and public stockholders are not the same as the
interests of the Partnership and the limited partners. Sutherland believes that
this material conflict of interest is the principal reason that the general
partner failed to make any significant inquiries concerning a possible sale of
the Company as an alternative to the general partner's ill-conceived plan of
withdrawal and dissolution that has been enjoined by both the Chancery Court and
the District Court.
NEED FOR INDEPENDENT TRUSTEE. Sutherland believes that the Partnership has
outlived its utility, that the general partner continues to refuse to explore
change of control transactions that might yield a premium for the Partnership's
67% stock ownership of the Company, and that the general partner has material
conflicts of interest. Thus, Sutherland believes that the affairs of the
Partnership would best be wound up by an independent liquidating trustee who
will not be hampered by any conflict of interest and who will actively seek out
change of control transactions in an effort to maximize the return to the
limited partners.
PROPOSED DISSOLUTION
The Proposed Dissolution has four principal components, each of which is
contingent on limited partner approval of each of the other three components.
1. REMOVAL OF THE GENERAL PARTNER. The first component is the removal of
the general partner. Section 7(g) of the Partnership Agreement authorizes a
majority in interest of the limited partners to remove the general partner if
they determine in their discretion that the general partner is not performing in
the best interest of the Partnership or if they determine that it is otherwise
in the best interest of the Partnership to remove the general partner.
Sutherland believes that given the general partner's conflict of interest and
failure to take appropriate steps to maximize the value of the Partnership's
assets, it is in the best interests of the Partnership and the limited partners
to remove the general partner. Under Section 11(a)(iv) of the Partnership
Agreement, removal of the general partner will result in the dissolution of the
Partnership unless within 90 days of the removal all limited partners vote to
elect a successor general partner. Because Sutherland will not vote in favor of
the election of a successor general partner, upon removal of the general partner
the Partnership
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would after 90 days be dissolved by virtue of Section 11(a)(iv) of the
partnership agreement. In addition, by removing the general partner, the
Partnership will have the option of acquiring a substantial portion of the
general partner's interest in the Partnership. Sutherland believes that such
an acquisition of the general partner's interest is likely (but not
guaranteed) to decrease the distributions which the general partner will be
entitled to receive upon the dissolution and liquidation of the Partnership
and result in a corresponding increase in the distributions to the limited
partners.
2. DISSOLUTION OF THE PARTNERSHIP. The second component of the Proposed
Dissolution is the determination by a majority in interest of limited partners
to dissolve the Partnership, contingent on removal of the general partner,
pursuant to their right to do so under Section 11(a)(iii) of the partnership
agreement. Although, as explained above, the removal of the general partner
would ultimately result in the dissolution of the Partnership, the determination
by a majority of limited partners to dissolve the Partnership will cause the
Partnership to be dissolved 90 days earlier than if limited partners only
removed the general partner. By causing dissolution to occur immediately upon
the removal of the general partner, limited partners are entitled under Section
17-803(a) of the Act to immediately appoint an independent liquidating trustee
to wind up the Partnership's business and affairs.
3. APPOINTMENT OF INDEPENDENT LIQUIDATING TRUSTEE. The third component
of the Proposed Dissolution is the appointment pursuant to Section 17-803(a) of
the Act of [name] as the independent liquidating trustee (the "Trustee") to
carry out the winding up of the Partnership's business and affairs. [Name] has
no prior relationship with the Partnership, the general partner, the Company,
Sutherland or, to the knowledge of Sutherland, any affiliates or associates of
any of the foregoing.
4. APPROVAL OF PLAN OF DISSOLUTION. The fourth component of the Proposed
Dissolution is the approval of a plan of dissolution that the Trustee will
follow in connection with winding up the Partnership's business and affairs.
See Exhibit A. Under that plan, the Trustee will hire a nationally recognized
investment banking or similar financial firm, or a qualified business broker, to
seek out and structure a change of control transaction that would maximize the
price received by the Partnership for its 67% of the Company's common stock.
The Trustee will seek to identify, enter into and consummate a change of control
transaction as soon as practical following approval of the plan. Factors such
as litigation, the need for regulatory approvals, or other circumstances may
delay implementation of a change of control transaction.
If no change of control or similar transaction is identified, or if
identified is not entered into or consummated, and the Trustee determines that
it is not reasonably likely that a change of control transaction can be
consummated within a reasonable period of time, the Trustee will as soon
thereafter as practical distribute pro rata to partners the common stock of the
Company owned by the Partnership, net of expenses of the plan of dissolution.
Sutherland cannot predict whether a change of control transaction will be
identified by the Trustee or whether any such transaction will in fact be
consummated. However, if such a transaction is consummated, it may take the
form of a sale or exchange for cash or other property (including securities of
another entity) of the common stock of the Company owned by the Partnership, a
merger of the Partnership into another entity, or some other form of
transaction. To ensure liquidity for limited partners, the proposed plan of
dissolution requires the Trustee to dispose of the Partnership's assets only for
cash, cash equivalents, or securities that when distributed to limited partners
will be fully marketable without restriction.
In addition to the attempt to obtain a control premium for the common stock
of the Company owned by the Partnership, the plan of dissolution contemplates
that the Trustee will exercise the Partnership's option to acquire a substantial
portion of the general partner's interest in the Partnership following the
removal of the general partner. The partnership agreement provides in substance
that after the limited partners receive the Priority Return, any gain resulting
from the sale of all or substantially all of the Partnership's assets is to be
allocated 30% to the general partner and 70% to the limited partners. However,
the partnership agreement also provides that in the event that the general
partner is removed, the Partnership has the option of purchasing the general
partner's interest at its appraised value, subject to the right of the general
partner to retain a 7.5%
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interest in distributions after the Priority Return is reached. Sutherland
believes that the cost of acquiring the general partner's interest in the
Partnership will be substantially less that the amount of distributions that
the general partner would be entitled to receive if the general partner
retained its full interest. Thus, Sutherland believes that distributions to
limited partners would likely be increased if the Partnership exercised its
right to acquire a substantial portion of the general partner's interest.
Whether such an increase would occur will depend on a number of factors not
presently ascertainable, including the method used to appraise the value of
the general partner's interest. Whether the Partnership exercises the option
to acquire the general partner's interest will be determined by the Trustee
based on the circumstances. For example, if the Trustee determined that the
Priority Return was not likely to be achieved as a result of a change of
control transaction, or that no change of control transaction was likely and
that the common stock of the Company would thus likely be distributed to
limited partners, the Trustee may also determine that it is not in the best
interests of the Partnership and the limited partners to exercise the
Partnership's option to acquire the general partner's interest.
CONSENT TO THE PROPOSED DISSOLUTION
By this Proxy Statement, each limited partner is being asked to grant to
Sutherland a proxy authorizing Sutherland to execute a written consent on
behalf of such limited partner to the Proposed Dissolution, which includes
the removal of the general partner, the dissolution of the Partnership, the
appointment of [name] as a liquidating trustee, and the adoption of the plan
of dissolution attached as Exhibit A hereto.
For the Proposed Dissolution to be adopted, it must be approved by the
holders of more than 50% of the Partnership's outstanding limited partnership
interests. The Partnership has outstanding 800 units of limited partnership
interests. Holders of more than 400 units must grant proxies to Sutherland
for Sutherland to be able to execute a written consent approving the Proposed
Dissolution.
SELECTION AND APPROVAL OF OPINION OF COUNSEL
In addition to the consent necessary to adopt the Proposed Dissolution,
the Partnership Agreement requires that at least 10% in interest of limited
partners select counsel to render an opinion concerning certain legal matters
and that a majority in interest of limited partners approve the opinion of
counsel as a condition to the right of limited partners to exercise their
right to vote or consent to certain actions, including removal of the general
partner. Sutherland has obtained such an opinion from [name of firm], a copy
of which is attached as Exhibit B to this Proxy Statement. The proxy
solicited by Sutherland includes a proxy to execute a written consent
selecting [name of firm] and approving the opinion rendered by [name of firm].
CONDITIONS TO THE PROPOSED DISSOLUTION
As a condition to the Proposed Dissolution, a majority in interest of
limited partners must grant to Sutherland proxies to express their written
consent selecting [name of firm], approving the opinion rendered by
[name of firm], and adopting the Proposed Dissolution. In addition, the
Proposed Dissolution will not be consummated unless: (i) all necessary
regulatory approvals, if any, are obtained, (ii) no provision of applicable
law or regulations and no order or decree prohibits implementation or
consummation of the Proposed Dissolution and (iii) all actions by or filings
with any governmental body, agency or official authority required to permit
the consummation of the Proposed Dissolution have occurred.
SUMMARY OF CERTAIN UNITED STATES INCOME TAX CONSIDERATIONS
The tax consequences of the Proposed Dissolution cannot be predicted at
the present time. They will depend on the terms and conditions of any change
of control transaction that may be consummated by the Trustee.
Generally, if no change of control transaction were consummated, and
shares of common stock of the Company were to be distributed to limited
partners, no taxable gain or loss would be recognized on the shares
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distributed. A limited partner's tax basis in the shares distributed to the
limited partner should equal the tax basis of the limited partner's units
immediately prior to the distribution.
In the event of a change of control transaction that resulted in a sale
by the Partnership of the shares of common stock of the Company owned by the
Partnership for cash, followed by a distribution of the cash consideration
(net of expenses of the sale and certain other Partnership expenses
associated with the Proposed Dissolution), each limited partner would
recognize a long term capital gain equal to the difference between the
limited partner's basis in the units owned by the limited partner and the
amount of the gain allocated to the limited partner pursuant to the
partnership agreement.
In the event of a change of control transaction that resulted in an
exchange of the shares of common stock of the Company owned by the
Partnership for securities or other consideration, whether the transaction
would require limited partners to recognize any gain or loss in connection
with the transaction would depend on the nature of the transaction and the
consideration received. While it is possible that such a transaction might
be structured to avoid recognition of gain or loss for tax purposes, it is
more likely that the transaction would require limited partners to recognize
gain or loss for tax purposes.
In order to pay the liabilities of the Partnership and to fund expenses
of the Proposed Dissolution, including the fees of the Trustee, some of the
shares of stock of the Company owned by the Partnership will be sold. In
connection with such a sale of stock and the payment of expenses, a taxable
gain or loss will be recognized that will be allocated to limited partners in
accordance with the terms of the Partnership Agreement.
In addition to federal tax considerations, limited partners may be
affected by state tax laws in connection with Proposed Dissolution.
Accordingly, limited partners are advised to consult with their tax advisors
concerning both the federal and state tax law consequences to limited
partners in the event the Proposed Dissolution is effected.
EXPENSES OF THE PROPOSED DISSOLUTION
If the Proposed Dissolution is approved, the Partnership will be
required to discharge or make adequate provision for the payment of its
liabilities prior to making a distribution to limited partners. Based on
information distributed by the general partner in connection with the
enjoined GP Plan, Sutherland believes that the Partnership's only material
liability consists of a promissory note in favor of the Company in the amount
of at least $650,000 evidencing cash advances by the Company to the
Partnership to fund the Partnership's expenses in connection with the general
partner's past efforts to dissolve the Partnership. The Partnership has not
reported the extent of its liability to the Company, and thus it may be
substantially greater than $650,000.
In addition to repayment of the foregoing note, if the Proposed
Dissolution is approved by the limited partners, the Partnership will
reimburse Sutherland's attorneys for the expenses advanced by them connected
with the solicitation of proxies for the Proposed Dissolution. Sutherland
expects that these expenses and fees will total approximately $[ ].
The Partnership will also be liable for the fees of the Trustee. The
Trustee will be compensated at an hourly rate of $[ ] per hour and will be
entitled to reimbursement of all expenses incurred on behalf of the
Partnership. The Trustee will also be entitled to be indemnified, including
advancement of all litigation expenses, for any loss or expense arising out
of the Trustee's performance of the Trustee's duties, except for any loss or
expense resulting from gross negligence or willful misconduct by the Trustee.
RISK FACTORS
Limited partners should consider carefully all of the information
contained in this Proxy Statement prior to executing and returning the
enclosed form of proxy. Summarized below are certain significant risk
factors relating to the Proposed Dissolution. These risk factors are not the
only risks related to the Proposed
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Dissolution, and the order in which they are discussed is not indicative of
their relative importance. The risk factors summarized below should be
considered in the context of all of the information contained in this Proxy
Statement.
POSSIBLE LACK OF CHANGE OF CONTROL TRANSACTION
Sutherland is proposing the Proposed Dissolution in part because she
believes that there is a significant chance that the Company, or the
Partnership's 67% stock interest in the Company, can be sold at a price that
reflects a material premium over the current market price for the Company's
common stock. However, there is the risk that, if the Proposed Dissolution
were adopted, the Trustee will be unable to locate a purchaser and negotiate
and implement a change of control transaction that will result in a control
premium being paid for the Company or the Partnership's 67% stock interest in
the Company. In such a case, limited partners would receive a pro rata
distribution of the Company's stock, net of the expenses associated with the
Proposed Dissolution.
POSSIBLE OPPOSITION BY THE COMPANY
If the Trustee were to locate a prospective buyer, the board of
directors of the Company may oppose any change of control transaction. The
Company's certificate of incorporation and bylaws contain provisions that
restrict the ability of stockholders, including the Partnership, to call a
special meeting or take action by written consent. These provisions make it
more difficult for the Partnership to remove the incumbent directors in the
event they oppose a change of control transaction. Thus, such provisions may
discourage, delay, or make more difficult a change of control transaction.
The Company is also subject to Section 203 of the Delaware General
Corporation Law. Section 203 restricts certain business combinations with
any stockholder who acquires 15% or more of the Company's stock (called an
"Interested Stockholder") for a period of three years after a person becomes
an Interested Stockholder. Such restrictions do not apply if the board of
directors of the Company approve in advance either the person becoming an
Interested Stockholder or the business combination, or the business
combination is approved by at least 66% of the Company's stockholders
(excluding shares owned by directors, officers and certain employee benefit
plans). While the Partnership presently owns sufficient stock to meet the 66
vote requirement to exempt a transaction from Section 203, there is no
assurance that the Partnership will continue to have sufficient shares to
meet that vote requirement. Because the general partner in the past approved
an amendment to the certificate of incorporation of the Company that took
away the right of stockholders of the Company to act by written consent in
lieu of a meeting, the Partnership cannot use its stock ownership to remove
directors of the Company except at a meeting of stockholders. Stockholders
have no right to call a special meeting of stockholders. It is most likely,
therefore, that the Partnership could remove directors only at an annual
meeting of stockholders. The Company last held an annual meeting in February
of 1998, and therefore Sutherland assumes that the Company's next annual
meeting will be scheduled for February of 1999. Consequently, if the board
of directors of the Company opposes a change of control transaction, Section
203 and the inability of the Partnership to elect a new board of directors
until 1999 may deter, discourage, delay, or make more difficult a change of
control transaction proposed by the Trustee.
POSSIBLE FAILURE TO APPROVE PROPOSED DISSOLUTION
If the Proposed Dissolution is not approved, Sutherland believes that
the general partner will simply continue to conduct the business of the
Partnership as currently conducted. The general partner stated in its proxy
statement relating to the enjoined GP Plan that if that plan were not
approved, the general partner would continue the business of the Partnership
as currently being conducted. The general partner also stated that it was
not then exploring any alternatives to its plan of withdrawal and
dissolution, but might from time to time explore alternatives. At present,
Sutherland is not aware of any alternative being considered by the general
partner.
The general partner also disclosed that at some time in the future it might
elect to withdraw as general
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partner. Such a withdrawal would likely result in the dissolution of the
Partnership and could result in a distribution in kind to the limited
partners of the Company's stock owned by the Partnership. In such a case,
the Partnership and the limited partners would lose any opportunity to obtain
a control premium for the Partnership's 67% stock ownership of the Company.
The general partner has stated that a distribution of the Company's stock to
limited partners carries a risk that the market price for the Company's stock
might decline by reason of the sale by limited partners of a significant
amount of the Company's stock within a short period of time.
Sutherland believes it unlikely that the general partner will resign
because such a resignation would result in the general partner forfeiting any
right to wind up the affairs of the Partnership and permit limited partners
to appoint a liquidator or petition the Delaware Court of Chancery for the
appointment of a liquidator pursuant to Section 17-804(a) of the Act. Given
the identity between the persons controlling the general partner and the
Company, Sutherland believes it is doubtful that they would voluntarily
relinquish control over the winding up of the Partnership's affairs. In
addition, resignation of the general partner would result in the Partnership
having the right to buy out a substantial portion of the general partner's
interest in the Partnership, which could reduce the total returns to the
general partner. For these reasons, Sutherland believes at present that it
is unlikely that the general partner would elect to resign.
POSSIBLE LITIGATION
Sutherland had sought to intervene in the pending lawsuit in the U.S.
District Court for the Northern District of California against the general
partner, the persons controlling the general partner and the Company, and was
granted leave to intervene for the limited purpose of expressing her views on
class certification. Sutherland anticipates that the general partner and
management of the Company and/or certain limited partners who supported the
GP Plan will oppose the Proposed Dissolution to which this Proxy Statement
relates and may institute litigation in an effort to prevent Sutherland from
soliciting proxies in favor of the Proposed Dissolution or to enjoin
implementation of the Proposed Dissolution. It is also possible that the
general partner will contest the validity of its removal as general partner.
Were any such litigation commenced, it might delay execution of a written
consent to the Proposed Dissolution, deter, discourage or make more difficult
a change of control transaction or otherwise delay or prevent implementation
of the Proposed Dissolution.
RISK OF AMOUNT DUE GENERAL PARTNER
The partnership agreement provides that in the event of a sale of
substantially all of the Partnership's ownership interest in the Company,
after limited partners receive a "Priority Return," the gain realized by the
Partnership from the sale is to be allocated 70% to limited partners as a
group and 30% to the general partner. Under the partnership agreement, the
Priority Return occurs when limited partners have received distributions that
in the aggregate equal their original capital contributions plus interest at
6% per annum, compounded annually. Because limited partners have received no
distributions from the Partnership, for the Priority Return to occur the
limited partners would have to receive, as of September 1998, approximately
$190,000 in respect of each unit.
The Priority Return would be reached, as of September 1998, if the
Partnership receives approximately $27 per share for its stock in the
Company. Thus, if the Trustee liquidates the Partnership through a
transaction in which the Partnership receives more than $27 per share for its
Company stock, the General Partner would be entitled to 30 percent of the
excess proceeds, subject to the Partnership's right to buy out a substantial
portion of the General Partner's interest upon removal, as discussed below.
A clause in the partnership agreement provides that, after the Limited
Partners have received their Priority Return, gain received by the
Partnership in a sale of the Company or in the liquidation of the Partnership
is to be "allocated to the least extent necessary to cause the aggregate
Capital Accounts of the General Partner and of the Limited Partners to be in
a ratio of 30% for the General Partner and 70% for the Limited Partners."
The general partner and certain limited partners who claim to have
participated in the development of the general partner's enjoined plan of
withdrawal and dissolution have contended, apparently
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<PAGE>
relying on this clause, that the General Partner would be entitled to
approximately the first $60 or $65 million of distributions made by the
Partnership after the Priority Return is reached. Sutherland believes that
this contention by the general partner and the general partner's application
of the clause in question are both incorrect and inconsistent with
representations made to limited partners in the Partnership's original
offering materials used in connection with the sale of limited partnership
units. Sutherland's attorneys, and an expert consulted by them, have
concluded that the capital accounts of the general partner and of the limited
partners will be actually or approximately equal to zero after distributions
are made sufficient to cause the Priority Return to be reached and that
therefore the clause relied on by the general partner will have no monetary
effect. Sutherland's attorneys further believe that the purpose of the
clause in question was to adjust partnership distributions in the event that
the Priority Return was reached prior to a sale of the Partnership or
liquidation of the Company and all profits of the Partnership were not
distributed prior to such sale or liquidation. If the Proposed Dissolution
is approved, the Priority Return will be reached, if at all, only as a result
of the liquidation of the Partnership and/or sale of the Company, because the
Partnership has never made any distributions. Accordingly, Sutherland's
attorneys believe that the clause in question will not be implicated in a
manner that would cause it to significantly affect distributions to the
limited partners. However, although Sutherland's attorneys believe that it
is unlikely that a court would accept the general partner's application of
the clause, it is possible that a court could do so, in which case the return
received by the limited partners in the Proposed Dissolution could be
significantly reduced.
The partnership agreement gives the Partnership the right to purchase
the general partner's interest following its removal as general partner,
subject only to the right of the general partner to retain a 7.5% interest in
any gain realized by the Partnership after the Priority Return has been paid
to limited partners. The purchase price for the general partner's interest
is determined by one appraiser appointed by the general partner, one
appraiser appointed by the Partnership, and one appraiser selected by the
other appraisers in the event the two appraisers cannot agree on the value of
the general partner's interest. Sutherland anticipates that the Trustee will
exercise the Partnership's option to acquire the general partner's interest
as such an acquisition should decrease the amount otherwise allocable to the
general partner and increase correspondingly the amount allocable to the
limited partners. There can be no assurance, however, that the Trustee will
either elect or be able to cause the Partnership to acquire the general
partner's interest or that such acquisition will materially benefit limited
partners.
POSSIBLE DECLINE IN MARKET PRICE FOR THE COMPANY'S STOCK
The future market price for the Company's stock is inherently
unpredictable. General market and economic conditions may adversely affect
the trading price for the Company's stock, as may any adverse developments in
the business of the Company. Thus, there is a risk that the market price
might decline, with the result that the value of a change of control
transaction may decline. In the event that no change of control transaction
is consummated, such that the Company's stock owned by the Partnership is
distributed in kind to limited partners, the value of the stock at the time
of distribution may be less than its current market price. Moreover, if
following a distribution of stock by the Partnership a substantial amount of
the distributed stock is sold in a short period of time by limited partners,
such sales may result in a decline in the market price for the Company's
stock. Sutherland believes any such decline caused by sales of the Company's
common stock by limited partners would be temporary. Further, in the event
that the Trustee distributes the Company's common stock, the Trustee will
include with such distribution a notice reminding limited partners of the
possible impact on the then current market value of the stock if a
substantial number of limited partners immediately sell substantial amounts
of the stock received by them.
CERTAIN TAX RISKS AND POSSIBLE TAX GAIN
The tax consequences to limited partners in connection with a change of
control transaction as contemplated by the Proposed Dissolution will depend
on the specific terms of the transaction. Thus, it is not possible to
predict the actual federal and state tax consequences. Generally, however,
were the Partnership to dispose of its stock interest in the Company for
cash, recognizable gain would be incurred by the Partnership in connection
with the sale and allocated to limited partners in accordance with the
partnership agreement.
20
<PAGE>
Limited partners would be taxed on the difference between their tax
basis in their units and the gain allocated to them.
It is possible, however, that a change of control transaction might take a
form, such as a like kind exchange or a merger, that would not require the
Partnership or limited partners to recognize any gain in connection with the
change of control transaction. In such a case, recognition of gain by limited
partners would be deferred until disposition of the property received by them.
Similarly, should no change of control transaction occur, and the Company's
stock owned by the Partnership be distributed to limited partners, no gain would
be recognized by limited partners until they sold the shares distributed to
them.
The Trustee will attempt to structure a transaction that achieves the best
return reasonably obtainable. While the Trustee will take into account the tax
consequences of a transaction, limited partners will have no control over the
transaction selected by the Trustee except to the extent that the transaction
itself takes a form, such as a merger of the Partnership into another entity,
that requires a vote of limited partners. Accordingly, limited partners may be
unable to avoid adverse tax consequences to them resulting from a change of
control transaction or the Proposed Dissolution.
POSSIBLE NEED FOR ADDITIONAL LIMITED PARTNER VOTE
The Proposed Dissolution confers broad power on the Trustee to dispose of
the assets of the Partnership. However, it is possible that the Trustee may
determine that the best return to the Partnership and limited partners may
involve a type of change of control transaction, such as a merger of the
Partnership into an acquiror in exchange for cash or other securities, that
requires the approval of the limited partners. It is also possible that a
transaction or series of transactions proposed by the Trustee will be subject to
federal legislation regulating limited partnership roll-ups. Certain
transactions subject to such federal roll-up legislation require approval by
two-thirds or three-fourths in interest of limited partners, depending on the
terms of the transaction. If the Trustee proposes such a transaction, the
appropriate amount in interest of limited partners would have to approve the
transaction for it to be implemented. If the transaction proposed by the Trustee
requires approval by a note of the limited partners, the Partnership may bear
the additional expense of soliciting proxies in connection with such a
transaction. While the Trustee will endeavor to have such costs and expenses
borne by the other party to the transaction, there is no assurance that the
Trustee will be able to do so. Even if the Trustee is able to do so, there is
no assurance that such costs and expenses will not be borne indirectly by the
Partnership and the limited partners through a reduction in the amount of the
consideration paid for the stock of the Company owned by the Partnership.
POSSIBLE DELAY IN LIQUIDATION
The Proposed Dissolution and related Plan of Dissolution (see Exhibit A to
this Proxy Statement) do not impose time limitations on the Trustee to effect
any change of control transaction or distribute Partnership assets in kind
following dissolution. The Trustee will have considerable discretion in
determining whether a change of control transaction remains feasible, and
changes in the economy or the stock market may cause the Trustee to delay
implementation of a change of control transaction until the economy or market
conditions improve. Similarly, the Trustee will have considerable discretion in
determining whether to distribute the Partnership's assets in kind to limited
partners. It is likely that the Trustee will delay any distribution in kind
until such time as the Trustee is satisfied that it is not reasonably likely
that a change of control transaction providing a premium over market will be
entered into or consummated. Accordingly, the Proposed Dissolution carries the
risk of a material delay between the approval of the Proposed Dissolution and
the receipt by limited partners of any liquidating distributions.
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<PAGE>
THE PROPOSED DISSOLUTION
The dissolution proposed by Sutherland is set forth in a Plan of
Dissolution, a copy of which appears as Exhibit A to this Proxy Statement. The
Proposed Dissolution has four principal components, each of which is described
below. Limited partners should read the description below in conjunction with
the full text of the Plan of Dissolution. Implementation of each component of
the Proposed Dissolution is contingent on the receipt of proxies sufficient to
approve all components of the Proposed Dissolution.
REMOVAL OF GENERAL PARTNER. The first component is the removal of the
general partner. Section 7(g) of the Partnership Agreement authorizes a
majority in interest of the limited partners to remove the general partner if
they determine, in their discretion, that the general partner is not
performing in the best interest of the Partnership or if they determine that
it is otherwise in the best interest of the Partnership to remove the general
partner. Sutherland believes that given the general partner's conflict of
interest and failure to take appropriate steps to maximize the value of the
Partnership's assets, it is in the best interests of the Partnership and the
limited partners to remove the general partner. Under Section 11(a)(iv) of
the Partnership Agreement, removal of the general partner will result in the
dissolution of the Partnership unless within 90 days of the removal all
limited partners vote to elect a successor general partner. Because
Sutherland will not vote in favor of the election of a successor general
partner, upon removal of the general partner the Partnership would after 90
days be dissolved by virtue of Section 11(a)(iv) of the partnership
agreement. In addition, by removing the general partner, the Partnership
will have the option of acquiring a substantial portion of the general
partner's interest in the Partnership. Sutherland believes that such an
acquisition of the general partner's interest is likely (but not guaranteed)
to decrease the distributions to which the general partner will be entitled
to receive upon the dissolution and liquidation of the Partnership and result
in a corresponding increase in the distributions to the limited partners.
DISSOLUTION OF THE PARTNERSHIP. The second component of the plan of
dissolution is the determination by a majority in interest of limited
partners, contingent on removal of the general partner, to dissolve the
Partnership, pursuant to their right to do so under Section 11(a)(iii) of the
partnership agreement. Although, as explained above, the removal of the
general partner would ultimately result in the dissolution of the
Partnership, the determination by a majority of limited partners to dissolve
the Partnership will cause the Partnership to be dissolved 90 days earlier
than if limited partners only removed the general partner. By causing
dissolution to occur immediately upon the removal of the general partner,
limited partners are entitled under Section 17-803(a) of the Act to
immediately appoint an independent liquidating trustee to wind up the
Partnership's business and affairs.
APPOINTMENT OF INDEPENDENT LIQUIDATING TRUSTEE. The third component of
the Proposed Dissolution is the appointment pursuant to Section 17-803(a) of
the Act of [name] as the independent liquidating trustee (the "Trustee") to
carry out the winding up of the Partnership's business and affairs. The
procedures that the Trustee will follow in winding up the Partnership are
described below in "APPROVAL OF PLAN OF DISSOLUTION." [Name] has no prior
relationship with the Partnership, the general partner, the Company,
Sutherland or, to the knowledge of Sutherland, any affiliates or associates
of any of the foregoing. For more information about [name], see "About the
Trustee." The Trustee will be compensated on an hourly basis at the rate of
$[ ] per hour. In addition, the Trustee will be reimbursed for all
expenses incurred on behalf of the Partnership in connection with the
dissolution and liquidation of the Partnership, including the identification,
negotiation and implementation of any change of control transaction. The
Trustee will be entitled to be indemnified for any loss arising out of the
performance by the Trustee of the Trustee's duties, except for any loss
resulting from the gross negligence or willful misconduct of the Trustee. In
the event the Trustee is sued or otherwise involved in any action, suit or
proceeding arising out of the Trustee's service as the liquidating trustee,
the Trustee will be entitled to have all litigation expenses, including
attorneys' fees, paid by the Partnership in advance of the final disposition
of the action, suit or proceeding, provided that the Trustee first furnishes
the Partnership with an undertaking to repay such advances in the event that
it is ultimately determined that the Trustee is not entitled to be
indemnified by the Partnership for such expenses.
APPROVAL OF PLAN OF DISSOLUTION. The fourth component of the Proposed
Dissolution is the approval
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<PAGE>
of a plan of dissolution that the Trustee will follow in connection with
winding up the Partnership's business and affairs. Under that plan, the
Trustee will hire a nationally recognized investment banking or similar
financial firm, or a qualified business broker, to seek out and structure a
change of control transaction that would maximize the price received by the
Partnership for its 67% of the Company's common stock. The Trustee will seek
to identify, enter into and consummate a change of control transaction as
soon as practicable following approval of the plan. Factors such as
litigation, the need for regulatory approvals, or other circumstances may
delay implementation of a change of control transaction.
If no change of control or similar transaction is identified, or if
identified is not entered into or consummated, and the Trustee determines
that it is not reasonably likely that a change of control transaction can be
consummated within a reasonable period of time, the Trustee will as soon
thereafter as practicable distribute pro rata to partners the common stock of
the Company owned by the Partnership, net of expenses of the plan of
dissolution.
In addition to the attempt to obtain a control premium for the common
stock of the Company owned by the Partnership, the plan of dissolution
contemplates that the Trustee will exercise the Partnership's option to
acquire a substantial portion of the general partner's interest in the
Partnership following the removal of the general partner. The partnership
agreement provides in substance that after the limited partners receive the
Priority Return, any gain resulting from the sale of all or substantially all
of the Partnership's assets is to be allocated 30% to the general partner and
70% to the limited partners. However, the partnership agreement also
provides that in the event that the general partner is removed, the
Partnership has the option of purchasing the general partner's interest at
its appraised value, subject to the right of the general partner to retain a
7.5% interest in distributions after the Priority Return is reached.
Sutherland believes that the cost of acquiring the general partner's interest
in the Partnership will be substantially less that the amount of
distributions that the general partner would be entitled to receive if the
general partner retained its full interest. Thus, Sutherland believes that
distributions to limited partners would likely be increased if the
Partnership exercised its right to acquire a substantial portion of the
general partner's interest. Whether such an increase would occur will depend
on a number of factors not presently ascertainable, including the method used
to appraise the value of the general partner's interest. Whether the
Partnership exercises the option to acquire the general partner's interest
will be determined by the Trustee based on the circumstances. For example,
if the Trustee determined that the Priority Return was not likely to be
achieved as a result of a change of control transaction, or that no change of
control transaction was likely and that the common stock of the Company would
thus likely be distributed to limited partners, the Trustee may also
determine that it is not in the best interests of the Partnership and the
limited partners to exercise the Partnership's option to acquire the general
partner's interest.
NO ASSURANCE OF CHANGE OF CONTROL TRANSACTION. Sutherland cannot
predict what, if any, change of control transaction may be identified by the
Trustee, or whether any such transaction will in fact be consummated.
Accordingly, adoption of the Proposed Dissolution carries a risk that the
Partnership and limited partners will not receive any premium over the
current market price for the Company's common stock owned by the Partnership.
However, if such a transaction is consummated, it may take the form of a
sale or exchange for cash or other property (including securities of another
entity) of the common stock of the Company owned by the Partnership, a merger
of the Partnership into another entity, or some other form of transaction. To
ensure liquidity for limited partners, the proposed plan of dissolution
requires the Trustee to dispose of the Partnership's assets only for cash,
cash equivalents, or securities that when distributed to limited partners
will be fully marketable without restriction.
PRINCIPAL INTENDED BENEFITS. The Proposed Dissolution is intended to
provide the following principal benefits:
- Creating liquidity for limited partners on their investment,
through either a distribution in cash, cash equivalents or
other marketable securities received in a sale or other
disposition of the Partnership's assets or, if such a sale does
not take place, through the distribution of the common stock of
the Company owned by the Partnership.
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<PAGE>
- Acquirors typically pay a premium to obtain control over a
company. Entrusting the liquidation of the Partnership to an
independent, disinterested Trustee is intended to assure that
material efforts will be made to sell the common stock of the
Company owned by the Partnership in a transaction or series of
transactions designed to achieve such a control premium.
- As the general partner has observed, there is no business
purpose or benefit to limited partners from holding an interest
in a partnership, the sole purpose and activity of which is to
hold publicly traded shares of a single corporation. The
dissolution of the Partnership will eliminate the cost and
inefficiency of maintaining such a partnership entity and will
simplify tax reporting for limited partners.
While Sutherland believes the foregoing intended benefits will result from
adoption of the Proposed Dissolution, there can be no assurance that any of such
intended benefits will in fact result.
RISKS. Among the material risks of the Proposed Dissolution are the
following:
- It is not possible to predict whether a change of control
transaction will be consummated, and if consummated, when proceeds
would be distributed. There may be a material delay between
approval of the Proposed Dissolution and any distribution to the
limited partners.
- At the time of any distribution in kind of the common stock of the
Company, its trading price may be significantly lower than the price
at the time limited partners execute proxies.
- Sale of the common stock of the Company by the Partnership will
prevent limited partners from realizing any potential increase in the
value of the stock as a result of the possible growth of the Company's
business or otherwise.
- The Proposed Dissolution could be the subject of litigation.
- The Proposed Dissolution of the Partnership will likely involve a
taxable event or result in other federal and state tax consequences to
limited partners.
- Once a dissolution is approved by limited partners it cannot be
undone.
- Because neither Delaware law nor the Partnership Agreement provides
limited partners with any right to dissent from or seek an independent
appraisal of the value of the limited partnership interests, limited
partners likely will be bound to accept the terms of the transaction
or transactions entered into on behalf of the Partnership by the
Trustee.
- If the Trustee enters into a form of transaction that is a merger of
the partnership into another entity or that is subject to federal
legislation regulating limited partnership roll-ups, it may be
necessary for the Trustee to hold a second vote to obtain the approval
of limited partners.
- The costs and expenses advanced by Sutherland's attorneys in
connection with the solicitation of proxies for the Proposed
Dissolution, and the expenses and fees of the Trustee in effectuating
the Proposed Dissolution, collectively estimated at approximately
$______, will be paid by the Partnership.
BACKGROUND AND PURPOSE OF THE PROPOSED DISSOLUTION
LACK OF DISTRIBUTIONS. Since the inception of the Partnership, limited
partners have received no distributions on their investment. By comparison,
the persons controlling the general partner have received
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<PAGE>
substantial benefits that include not only substantial salaries and bonuses
from the Company but also a substantial number of options to acquire the
Company's common stock at favorable exercise prices. According to the Company's
financial reports, Messrs. Chill, Kenner, Wright, Freed, and Beckman
collectively own 360,766 options to acquire Company stock at $10.72 per
share. Sutherland estimates that, as of May 4, 1998, the collective value of
these options was over $4.3 million (based on the May 4, 1998 stock price of
$22.875 per share).
FAILURE OF GENERAL PARTNER TO PROTECT THE INTERESTS OF LIMITED PARTNERS.
Based on recent actions by the general partner, Sutherland believes that the
general partner has subordinated the interests of limited partners to those
of the Company's management, some of whom control the general partner, and to
the interests of the Company's public stockholders. In August of 1996, the
general partner proposed to cause the Partnership to sell all of its stock in
the Company in a public offering. Sutherland and many other limited partners,
believing that such a sale was not in the best interest of the Partnership
because the market had not been informed of a significant increase in the
Company's earnings, opposed the sale. In the face of that limited partner
opposition, largely organized and spearheaded by The Mills Law Firm on behalf
of a number of limited partners, the general partner abandoned the proposed
sale.
Rather than diligently explore ways to enhance value for limited
partners, the general partner permitted a public offering of stock by the
Company in November of 1996 at approximately $13.00 per share and before the
announcement of a significant improvement in the Company's earnings for the
fourth quarter ending September 30, 1996. Shortly after public announcement
of the Company's fourth quarter earnings, the price of the stock increased to
approximately $20. A principal effect of the offering of stock by the Company
was to dilute the Partnership's stock ownership from 100% to approximately
67%. By creating a 33% public stockholder minority, the Company (with the
general partner's cooperation) made it more difficult for the Partnership to
dispose of the Company as a whole. It also benefited holders of options to
purchase stock of the Company, such as the persons who control the
Partnership, by creating a public market that both gave greater value to the
options and a ready market into which to sell shares acquired on exercise of
options. Sutherland does not believe the Partnership received any material
benefit from the public offering by the Company.
In September of 1997, the general partner proposed a plan of dissolution
(the "GP Plan") that would have dissipated entirely any control premium that
might be obtained for the Partnership's 67% controlling interest in the
Company. Under the GP Plan, the Partnership Agreement was to be amended to
permit limited partners to withdraw their capital, those limited partners
desiring to do so could exchange their limited partnership units for their
pro rata share of stock of the Company, all shares so withdrawn had to be
sold immediately in an underwritten public offering, and all shares not
withdrawn would remain in the Partnership for distribution to limited
partners 360 to 720 days after commencement of implementation of the GP Plan.
Sutherland believed that the general partner's plan was both unfair to
limited partners and violated the partnership agreement. The general
partner's plan did not afford any opportunity for the Partnership (and
indirectly the limited partners) to capture a control premium. The
compulsory public offering forced those limited partners who chose to
withdraw their capital in the form of shares to sell the shares immediately
at a discount to market and to pay material underwriters' and brokers' fees
and other expenses. As a result, the net proceeds to limited partners would
likely have been materially less than in an ordinary broker's transaction.
Those limited partners who elected not to withdraw their capital would have
been forced to wait from one to two years (and possibly longer) after
implementation commenced to receive a distribution of capital. Sutherland
further believes that the primary purpose of the GP Plan was to ensure that
the Partnership's 67% ownership interest was dispersed into the hands of a
large number of public holders of stock, which would thereby destroy the
concentration of ownership that resides in the Partnership. Such a result
would be likely to aid incumbent management in retaining control of the
Company and fending off any change of control transaction.
Sutherland was also aware that certain limited partners had instituted
two lawsuits, one in the Court of Chancery of the State of Delaware (the
"Chancery Court") and one in the United States District Court for the
Northern District of California (the "District Court"), challenging the
conduct of the general partner and
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<PAGE>
the persons controlling the general partner. The complaints in those
lawsuits were later amended to seek an injunction against the GP Plan. On
October 23, 1997, the Chancery Court preliminarily enjoined the GP Plan,
finding that it was likely that the plan's terms violated the partnership
agreement. On March 19, 1998, the Delaware Supreme Court affirmed the
Chancery Court's grant of a preliminary injunction. On November 6, 1997, the
District Court issued a temporary restraining order against implementation of
the GP Plan, finding that the plaintiff had raised serious questions as to
whether the plan violated federal law relating to limited partnership
roll-ups and as to whether the general partner failed to disclose properly
what actions limited partners needed to take to require the general partner's
plan to be approved by two-thirds in interest of the limited partners.
Sutherland sought to intervene in the litigation in the District Court, and
was permitted to intervene for the limited purpose of expressing her views on
class certification. As of the date of this Proxy Statement, both the
Chancery Court's injunction and the District Court's restraining order remain
in effect. See "Summary of Certain Pending Litigation."
On December 29, 1997, limited partners commenced a second lawsuit in the
Chancery Court to challenge certain stock options granted by the Company to
certain of its current and former directors and executive officers, some of whom
control the general partner. See "Summary of Certain Litigation."
In its proxy statement soliciting votes in favor of its now enjoined plan,
the general partner indicated that the Partnership had outlived its purpose,
stating: "THERE IS NO BUSINESS PURPOSE OR BENEFIT TO INVESTORS HOLDING INTERESTS
IN A PARTNERSHIP, THE SOLE PURPOSE AND ACTIVITY OF WHICH IS TO HOLD PUBLICLY
TRADED SHARES OF A SINGLE CORPORATION." Sutherland agrees, but believes that the
Partnership should now take appropriate steps to ensure not only liquidity for
limited partners, but that limited partners also receive the maximum return
reasonably attainable on their investment. Sutherland believes that the best
return to limited partners is most likely to result from a sale of the
Partnership's 67% ownership interest in the Company in a change of control
transaction in which the Partnership (and possibly minority stockholders of the
Company) receives a higher price per share than the current market price for the
Company's common stock.
FAILURE OF GENERAL PARTNER TO SEEK OUT A CONTROL PREMIUM. Sutherland has
been advised that, in the pending Chancery Court litigation, the general partner
has consistently argued that there was no significant interest on the part of
any person in acquiring the Company. However, Sutherland has learned that, in
discovery in the Chancery Court litigation, the plaintiffs confirmed that the
general partner had made no significant effort since January of 1994, at the
latest, to explore a sale of the Company or other change of control transaction,
even though the Company's results of operations had significantly improved since
1994, making it a more attractive acquisition candidate, and the stock market
had also improved significantly. Based on the proxy statement for the GP Plan
and discovery in the Chancery Court litigation, it appears that the only effort
relating to exploring a change of control transaction made by or on behalf of
the general partner within the last four years was that Bear Stearns & Co., one
of the general partner's prime advisers, made a limited inquiry in August 1996
concerning a sale of the Company. That inquiry, which apparently consisted only
of mailing a prospectus about the Company to seven industrial companies and
three financial institutions, was made prior to the Company's public offering
and prior to the announcement of the significant increases in the Company's
earnings for the fourth quarter ended September 30, 1996. No such inquiry was
made contemporaneously with the general partner's proposed GP Plan.
ATTRACTIVENESS OF THE COMPANY AS AN ACQUISITION CANDIDATE. An expert
retained by the plaintiffs in the Chancery Court litigation stated in an
affidavit filed in that action that the Company appears to be an attractive
candidate for being acquired. That statement appears to be supported by an
investigation recently conducted on Sutherland's behalf involving consultations
with experts, investment bankers, and corporate managers. Based on this
investigation, Sutherland has concluded that, if the Partnership's controlling
block of stock in the Company is marketed, it is likely that one or more buyers
will be willing to pay a significant premium over the current market price for
the stock.
GENERAL PARTNER HINDERED BY CONFLICTS OF INTEREST. Sutherland also
believes that the general partner has interests that materially conflict with
those of the Partnership and its limited partners. This conflict arises because
the general partner is dominated and controlled by individuals who are also
directors, principal
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<PAGE>
executive officers, or both, of the Company. The interests of the Company's
management and public stockholders are not the same as the interests of the
Partnership and the limited partners. Sutherland believes that this material
conflict of interest is the principal reason that the general partner failed
to make any significant inquiries concerning a possible sale of the Company
as an alternative to the general partner's ill-conceived plan of withdrawal
and dissolution that has been enjoined by both the Chancery Court and the
District Court.
NEED FOR INDEPENDENT TRUSTEE. Sutherland believes that the Partnership has
outlived its utility, that the general partner continues to refuse to explore
change of control transactions that might yield a premium for the Partnership's
67% stock ownership of the Company, and that the general partner has material
conflicts of interest. Thus, Sutherland believes that the affairs of the
Partnership would best be wound up by an independent liquidating trustee who
will not be hampered by any conflict of interest and who will actively seek out
change of control transactions in an effort to maximize the return to limited
partners.
CONDITIONS TO THE PLAN OF DISSOLUTION
The Proposed Dissolution will not be consummated unless the following
conditions are satisfied:
- Limited partners holding at least a majority of the outstanding units
grant to Sutherland a proxy to execute on their behalf a written
consent of limited partners removing the general partner, dissolving
the Partnership, appointing [name] as a liquidating trustee pursuant
to Section 17-803(a) of the Act, adopting the plan of dissolution,
selecting special counsel, and approving the opinion of special
counsel required by the partnership agreement;
- All necessary regulatory approvals, if any, shall have been obtained;
- No provision of applicable law or regulation and no judgment,
injunction, order or decree prohibits implementation or consummation
of the plan of dissolution; and
- All actions by or in respect of or filing with any governmental body,
agency, official authority required to permit the consummation of the
plan of dissolution shall have occurred.
EXPENSES OF THE PLAN OF DISSOLUTION
The following table sets forth the material expenses estimated to be
incurred by the Partnership in connection with the implementation and
consummation of the Proposed Dissolution, exclusive of the expenses of
identifying, negotiating and consummating any change of control transaction and
the fees and expenses of any investment banking firm, brokerage firm or similar
professional hired by the Trustee to assist in attempting to identify and
consummate a change of control transaction:
<TABLE>
<CAPTION>
AMOUNT INCURRED OR
ESTIMATED TO BE INCURRED
<S> <C> <C>
SEC Registration Fees $ [ ]
Solicitation and Mailing Expenses [ ]
Solicitation Agent Fee [ ]
Trustee's Fees (1) [ ]
Fees and Expenses of Opinion of Counsel (2) [ ]
Printing Costs [ ]
Repayment of Promissory Note Payable to the Company (3) [ ]
Miscellaneous [ ]
-----------
Total $ [ ]
</TABLE>
--------------------------
1. The Trustee will receive fees based on an hourly rate of $[ ] per
hour. See "Plan of
27
<PAGE>
Dissolution; Trustee's Fees and Expenses" and
"About the Trustee."
2. Represents the fees and expenses incurred by [name] in rendering their
opinion pursuant to Section 12(d) of the partnership agreement.
3. The general partner represented in its Joint Proxy Statement and
Prospectus dated September 19, 1997 in connection with the GP Plan
that $650,000 was due from the Partnership to the Company in respect
of expenses paid by the Company on behalf of the Partnership.
Sutherland does not have more current information on the amount that
may be actually due under such note or such other undisclosed
indebtedness of the Partnership to the Company, but believes that the
total amount of such indebtedness may be substantially higher than
$650,000.
SOLICITATION OF PROXIES FROM LIMITED PARTNERS
Limited partners are being asked to grant to Sutherland a proxy to
execute a written consent of limited partners adopting the Proposed
Dissolution, including the removal of the general partner for the reasons set
forth in this Proxy Statement, dissolution of the Partnership, appointment of
[name] as liquidating trustee for the Partnership, the adoption of the plan
of dissolution attached as Exhibit A to this Proxy Statement and incorporated
herein by reference, selection of special counsel, and approval of the
opinion of counsel attached as Exhibit B to this Proxy Statement. As a
condition to the Proposed Dissolution, holders of at least a majority in
interest of outstanding Partnership units must grant proxies to Sutherland in
order for Sutherland to be authorized to execute a written consent of limited
partners taking the actions described above. Sutherland intends to execute a
written consent of limited partners as soon as practicable after receipt of
proxies from the holders of at least a majority of the outstanding units. As
of the date of this Proxy Statement, there were 800 units of partnership
interest outstanding held by approximately 1,850 limited partners of record.
YOU ARE URGED TO GRANT YOUR PROXY TO SUTHERLAND TO CONSENT TO THE PROPOSED
DISSOLUTION BY COMPLETING, SIGNING, DATING AND MAILING THE ENCLOSED PROXY IN
THE ENVELOPE THAT HAS BEEN INCLUDED FOR YOUR CONVENIENCE.
PLEASE RESPOND. YOUR PROXY IS IMPORTANT.
MARKET PRICE FOR UNITS
There is no established market for units of limited partnership interest.
The general partner has indicated that assignments of units have been extremely
limited and sporadic. The partnership agreement does not permit assignment of
units by limited partners without the consent of the general partner.
PROXY PROCEDURES
This Proxy Statement is furnished in connection with the solicitation of
proxies to authorize Sutherland to execute a written consent of limited partners
of the Partnership adopting the Proposed Dissolution. This Proxy Statement,
together with the enclosed proxy, were first mailed to limited partners on or
about [May ], 1998.
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<PAGE>
The costs of soliciting proxies are being advanced by attorneys for
Sutherland, who are also the attorneys representing certain limited partners
in litigation against the general partner and against the persons controlling
the general partner. The attorneys advancing such costs will be reimbursed
by the Partnership for such costs in the event that the Proposed Dissolution
is adopted. The attorneys will also reimburse custodians for their
reasonable expenses for forwarding proxy materials to beneficial owners of
units, subject to reimbursement by the Partnership in the event that the
Proposed Dissolution is adopted. Neither Sutherland, nor the Partnership,
will reimburse the attorneys for proxy solicitation costs if the Proposed
Dissolution is not adopted.
[Name] (the "Solicitation Agent") has been retained to assist Sutherland
in the solicitation of proxies for a customary fee, the estimated amount of
which is included under "The Proposed Dissolution - Expenses of the Plan of
Dissolution." The Solicitation Agent's fees will be advanced by the
attorneys for Sutherland, and will be reimbursed by the Partnership if the
Proposed Dissolution is adopted.
RECORD DATE
The partnership agreement contains no provisions for the fixing of a
record date in connection with the solicitation of proxies or the execution
of a written consent. Accordingly, no record date has been fixed. Proxies
granted to Sutherland will be valid for one year or until their earlier
revocation. In the event that Sutherland receives proxies from the holders
of at least a majority in interest of outstanding units and executes a
written consent to the actions proposed in this Proxy Statement, Sutherland
believes that to the extent a record date is relevant, it will be the date on
which the written consent is executed and delivered to the Partnership.
The proxy granted to Sutherland will also be valid for voting at any
meeting of limited partners called for the purpose of voting on the Proposed
Dissolution. The proxy granted to Sutherland will not authorize Sutherland to
take any other action by written consent or to vote at any meeting on any
matter other than the Proposed Dissolution.
The solicitation of proxies will continue until Sutherland has received
sufficient proxies to take the action by written consent contemplated by this
Proxy Statement or Sutherland determines to abandon the solicitation by
reason of (i) the inability to obtain proxies from the requisite number of
holders of units or (ii) a determination by Sutherland that a transaction
more beneficial to limited partners than the Proposed Dissolution obviates
the need for the Proposed Dissolution.
Proxies given by limited partners pursuant to this Proxy Statement are
revocable at any time prior to the execution and delivery by Sutherland to
the Partnership of a written consent of limited partners taking the actions
described in this Proxy Statement. Revocation may be effected by delivering
to Sutherland a written revocation of a proxy, by delivering to Sutherland a
later dated proxy, or in the event that a meeting of limited partners is
called to consider the actions proposed to be taken by written consent as
described in this Proxy Statement, by attending such meeting and voting in
person.
Limited partners are requested to give their proxies to Sutherland by
completing the enclosed form of proxy and returning it signed and dated by
mail, overnight courier or hand delivery to the address set forth below:
<TABLE>
<CAPTION>
<S> <C>
IF BY HAND: IF BY MAIL:
[address] [address]
</TABLE>
CONSENT REQUIRED
To take action by written consent, Sutherland must receive proxies from
the holders of a majority of the outstanding units of limited partnership
interest. A failure to return a proxy to Sutherland or an abstention by a
limited partner is tantamount to a vote against the Proposed Dissolution.
Therefore, each limited partner who desires to consent to the plan of
dissolution must return a proxy to Sutherland so that Sutherland may
29
<PAGE>
execute on behalf of such limited partner a written consent in favor of the
Proposed Dissolution.
Each limited partner of record is entitled to give a proxy to Sutherland
to authorize Sutherland to execute a written consent on behalf of such
limited partner. Only proxies granted by limited partners who are limited
partners on the date they execute the proxy and remain limited partners of
record on the date on which Sutherland executes the written consent taking
the actions described in this Proxy Statement will be valid. Proxies
solicited by Sutherland will be voted in accordance with the directions on
the proxy.
WHERE NO INSTRUCTIONS ARE INDICATED, THE PROXIES WILL BE VOTED FOR THE
PROPOSED DISSOLUTION.
PROBABLE LACK OF APPRAISAL RIGHTS
Neither the partnership agreement nor Delaware law provides any right to
limited partners to dissent from the Proposed Dissolution or to have their
units appraised or redeemed as a result of the adoption of the Proposed
Dissolution.
In the event that the Trustee proposes a transaction or series of
transactions that constitute a limited partnership roll-up under federal law,
limited partners may be afforded appraisal rights. In connection with a
limited partnership roll-up, limited partners must either (i) approve the
roll-up transaction by the affirmative vote of the holders of 75% in interest
of limited partners, (ii) be afforded appraisal rights, (iii) appoint a
committee to review, negotiate about and/or recommend the transaction or (iv)
be afforded an opportunity to retain a comparable investment. In addition,
certain transactions that would otherwise be within the definition of roll-up
under federal law are exempt from the definition of roll-up if they are
approved by two-thirds in interest of the limited partners.
Because it is not possible at this time to predict what transaction, if
any, the Trustee will enter into in connection with the disposition of the
Partnership's assets, it cannot be determined at this time whether the
transaction will be subject to the federal limited partnership roll-up rules
and regulations or, if subject to such rules and regulations, whether
appraisal rights will be offered to limited partners.
PARTNERSHIP UNITS AND PRINCIPAL HOLDERS THEREOF
As of the date of this Proxy Statement, the Partnership has reported
that there are 800 units of limited partnership interests outstanding held by
approximately 1,850 limited partners of record. As of the same date, no
person was reported by the Partnership, and no person is known to Sutherland,
to own beneficially more than 5% of the outstanding units.
THE PARTNERSHIP
The Partnership is a Delaware limited partnership organized in 1986 for
the purpose of acquiring the Company. An aggregate of 800 Units were issued
for aggregate capital contributions of approximately $78.4 million, which
were used to fund a portion of the purchase price for the Company. Since its
formation, the Partnership has conducted no business other than its ownership
of the Company, and the Partnership owns no assets other than common stock of
the Company. Based on publicly available information, Sutherland believes
that the Partnership's only material liability consists of a note payable to
the Company for costs incurred by the Company on the Partnership's behalf
relating to the development of earlier restructuring proposals that were not
carried through. Sutherland has not been able to determine the actual amount
of such liability, but believes it has to be at least $650,000, though it may
be substantially higher. Since its acquisition, the Company has been highly
leveraged and all cash remaining after payment of debt service and operating
costs has been reinvested in the Company's business. Under certain loan
agreements to which the Company is a party, the Company is prohibited from
paying dividends or making distributions to its stockholders, including the
Partnership. Consequently, the Company has not paid a dividend or made any
distributions since its acquisition by the Partnership, and the Partnership
has never made a cash distribution to its partners.
30
<PAGE>
Originally, the Partnership owned 100% of the common stock of the
Company. In November, 1996, the general partner of the Partnership permitted
the Company to make a public offering of stock. As a consequence, the
Partnership's ownership of the Company's stock was diluted to 5,781,250
shares, representing about 67% of the Company's currently issued and
outstanding common stock.
The sole general partner of the Partnership is SI Management, L.P., a
Delaware limited partnership. The sole general partner of SI Management,
L.P. is Synthetic Management G.P., a Georgia general partnership having five
general partners consisting of five Delaware corporations controlled,
respectively, by Leonard Chill, Ralph Kenner, William Gardner Wright, Jr. and
W. Wayne Freed, current executive officers of the Company, and Jon P.
Beckman, a former executive officer of the Company who is now a paid
consultant to the Company.
THE COMPANY
The Company is a Delaware corporation founded in 1969 to produce
polypropylene-based primary carpet backing. Since that time the Company's
business has expanded into the manufacturing and sale of a full line of
polypropylene-based industrial fabrics, specialty yarns and geotextiles.
The Company is one of the world's leading producers of polypropylene
fabrics and fibers for the home furnishing, construction, environmental,
recreational and agricultural industries. The Company manufactures and sells
more than 2,000 products in over 65 end-use markets. The Company believes
that it is the second largest producer of carpet backing in the world and is
the largest producer of synthetic fiber additives for concrete reinforcement
through its Fibermesh-Registered Trademark- line of products. The Company
also produces polypropylene products for the geotextile and erosion control
markets and is a leader in designing innovative products for speciality
applications. The Company's products are engineered to meet specific
customer criteria such as strength, flexibility, resistance to sunlight and
water/air permeability. The Company aims to compete in markets in which it
can be the primary or secondary provider of such products, with over 93% of
its products meeting this criterion. The Company's consolidated sales have
grown from $195 million in fiscal 1992 to net sales in excess of $345
million in fiscal 1997.
As a result of its public offering of common stock in November 1996, the
Company currently has 8,656,250 shares of common stock outstanding, of which
the Partnership owns 5,781,250 shares or approximately 67%. The Common Stock
trades under the symbol "SIND" on the Nasdaq National Market.
The principal executive office of the Company is located at 309
LaFayette Road, Chickamauga, Georgia 30707, and its telephone number is (706)
375-3121.
SELECTED FINANCIAL DATA CONCERNING THE PARTNERSHIP
Since its inception in 1986, the Partnership has conducted no business
other than to own and vote its shares of common stock of the Company. In the
partnership's annual report to the Securities and Exchange Commission on Form
10-K for the fiscal year ended September 30, 1997, the general partner stated
that because the Partnership has no independent operations or assets other
than its investment in the Company, the Partnership's financial statements
are substantially identical to those of the Company, with the exception of
the publicly-owned minority interest in the Company and the amount due to the
Company for expenses of the Partnership paid by the Company on behalf of the
Partnership. Sutherland believes that the amount of the Partnership's
indebtedness to the Company is at least $650,000, and that it may be
substantially higher.
The selected financial data presented below is reproduced from the
Partnership's annual report to the Securities and Exchange Commission on Form
10-K for the fiscal year ended September 30, 1997. Sutherland disclaims any
responsibility for the completeness or accuracy of the information reproduced
below. SEE ALSO "Financial Information About the Partnership" and Exhibits C
and D to this Proxy Statement.
31
<PAGE>
<TABLE>
<CAPTION>
Year Ended September 30,
1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS
DATA:
Net sales $345,572 $299,532 $271,427 $234,977 $210,516
Gross profit 112,385 91,211 76,721 82,672 68,335
Operating income 50,291 37,813 28,687 41,007 29,921
Income from continuing
operations before
provision for income
taxes, minority interest
in subsidiary net income
and extraordinary item 29,552 14,341 5,436 20,257 8,134
Income from continuing
operations before
minority interest in
subsidiary net income
and extraordinary item 17,011 7,441 1,936 11,657 3,662
Income from continuing
operations attributable
to limited partners 3,165 7,367 1,917 11,540 3,625
Income from discontinued
operations - - - - 1,420
Extraordinary item -
loss from early (11,950) - - - (8,892)
extinguishment of debt
Cumulative effect of
accounting change - - - - (8,500)
Net Income (loss) 3,197 7,441 1,936 11,657 (12,310)
Income from continuing
operations per limited
partnership unit $3.96 $9.21 $2.40 $14.43 $4.53
Limited partnership
units outstanding 800 800 800 800 800
BALANCE SHEET DATA:
Working capital $88,032 $63,418 $69,041 $44,116 $42,057
Total assets 394,795 323,756 312,302 287,935 260,374
Long-term debt 220,464 194,353 192,048 172,490 164,723
Partners' capital 68,876 65,185 57,758 55,819 44,425
</TABLE>
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The discussion below is based on the Internal Revenue Code of 1986 (as
amended) (the "Code"), Treasury Regulations (including proposed regulations)
promulgated thereunder, administrative pronouncements and judicial decisions,
each as now in effect, all of which are subject to change, possibly with
retroactive effect. The discussion below does not purport to address federal
income tax consequences applicable to particular categories of persons, some
of which (for example, financial institutions, insurance
32
<PAGE>
companies, foreign investors or persons who acquired their Partnership
interests generally within a two-year period of the implementation of the
Proposed Dissolution) may be subject to special rules. No ruling on any of
the issues discussed below will be sought from the Internal Revenue Service,
and the description of the income tax consequences below is not binding on
the Internal Revenue Service. Limited partners should consult their own tax
advisors in determining the specific federal, state, local, foreign and any
other tax consequences to them of the implementation of the Proposed
Dissolution. The limited partners are not indemnified for any federal income
taxes or other taxes that may be imposed upon them and the imposition of any
such taxes could reduce the value of the Proposed Dissolution to any
particular limited partner.
The following discussion of federal income tax considerations assumes
that pursuant to the Proposed Dissolution either cash resulting from a sale
by the Partnership of its common stock of the Company or the shares of the
Company's common stock owned by the Partnership will be distributed to
limited partners. It is possible that the Trustee may determine that some
other transaction will result in a greater return to the Partnership and the
limited partners. Any such transaction may have tax consequences that are
materially different from those discussed above. Accordingly, there is no
assurance that the actual tax consequences from implementation of the
Proposed Dissolution will be as described above. Because Sutherland cannot
determine at this time what transaction the Trustee may in fact consummate,
it is not possible to predict the tax consequences of the transaction.
CLASSIFICATION AS A PARTNERSHIP
The federal income tax consequences of the Proposed Dissolution depend,
in part, on the Partnership being classified as a partnership for federal tax
purposes. On December 17, 1996, the Internal Revenue Service issued Treasury
Regulation Sections 301.7701-1 through 301.7701-3 (the "Check-the-Box
Regulations"), thereby changing the longstanding entity classifications
regulations that were in effect at the time the Partnership was formed.
Under the Check-the-Box Regulations, a domestic entity formed under a state
limited partnership law is by default a partnership for federal income tax
purposes, unless such entity elects to be taxed as a corporation. The
Partnership is a limited partnership that was validly formed and has been
recognized as a limited partnership at all times since its inception under
the Act. The Partnership has claimed to be a partnership for federal income
tax purposes since its inception. Sutherland has no reason to believe that
the classification of the Partnership was or is under examination by the
Internal Revenue Service. Assuming the general partner does not cause or
otherwise permit the Partnership to elect to be taxable as a corporation, the
Partnership will remain a partnership for federal income tax purposes.
If, for any reason, the Partnership were treated for federal income tax
purposes as a corporation, the federal income tax consequences of the
implementation of the Proposed Dissolution would be different from the
description in this "Certain United States Federal Income Tax
Considerations." The Partnership would be required to pay federal income tax
at corporate tax rates on any net gain realized upon the sale or other
disposition or the distribution of the Common Stock to the Partners. Limited
partners generally would recognize gain or loss upon the distribution of
Common Stock.
PRINCIPLES OF PARTNERSHIP TAXATION APPLICABLE TO THE PROPOSED DISSOLUTION
Subject to exceptions not applicable to the implementation of the
Proposed Dissolution and the discussion of Section 731(c) of the Code below,
a partner does not recognize gain upon the distribution of property by a
partnership to the partner, except to the extent that any money distributed
exceeds the adjusted basis of the partner's interest in the partnership
immediately before the distribution. The partner does not recognize loss
upon any such distribution, except when only money and certain other assets
not applicable to the implementation of the Proposed Dissolution are
distributed. As a general rule, partnerships recognize no gain or loss on
the distribution of any property to its partners.
The basis of property (other than money) distributed by a partnership to
a partner other than in liquidation of such partner's interest generally is
the partnership's adjusted basis in the property immediately before the
distribution but, in no event, shall it exceed the distributee partner's
adjusted basis of such partner's
33
<PAGE>
interest reduced by any money distributed in the same transaction. In the
context of a liquidation of a partner's interest in a partnership, the basis
of property distributed to a partner generally is an amount equal to the
adjusted basis of such partner's interest in the partnership, generally
determined immediately before the liquidation (adjusted to reflect any
partnership tax items subsequently allocated to such partner), reduced by any
money distributed by the partnership to the partner as part of the same
transaction.
Under Section 731(c) of the Code, marketable securities generally will
be treated as money for purposes of determining whether partners recognize
gain with respect to partnership distributions as described above.
Marketable securities are defined to include, in part, (i) financial
instruments that are actively traded within the meaning of Section 1092(d)(1)
of the Code, (ii) financial instruments the value of which is determined
substantially by reference to marketable securities, (iii) financial
instruments that are readily convertible into, or exchangeable for, money or
marketable securities, and (iv) any interest in an equity if, at the time the
interest is distributed by the partnership, substantially all (i.e., 90
percent or more) of the assets of the entity consist of money, marketable
securities or both. In addition, any interest in an entity will be treated
as a marketable security at the time the interest is distributed by the
partnership. This latter provision applies only if less than 90 percent but
20 percent or more of the assets of the entity (determined by value) at the
time the interest in the entity is distributed consist of money, marketable
securities or both.
The Company's common stock is currently listed on the Nasdaq National
Market and Sutherland believes it likely that it will be so listed if and
when distributed by the Partnership under the Proposed Dissolution. In such
event, the common stock will be a marketable security within the meaning of
Section 731(c) of the Code at that time. Applicable Treasury Regulations
provide that Section 731(c) of the Code does not apply, however, to
marketable securities if the following conditions are met: (1) such
securities must not have been marketable when acquired by a partnership, (2)
the entity that issued the securities had no outstanding marketable
securities at the time such securities were acquired by the partnership, and
(3) the partnership distributed such securities within five years of the date
the securities became marketable. To the best of Sutherland's knowledge the
first two of these three conditions have been met. Therefore, if the
Company's common stock is distributed under the Proposed Dissolution, the
distribution should qualify for this exception to Section 731(c) of the Code
provided that the distribution is completed in accordance with the Proposed
Dissolution.
Despite qualifying for the exception discussed in the immediately
preceding paragraph, the common stock could be a marketable security in whole
or in part subject to Section 731(c) of the Code if 20 percent or more of the
Company's assets consist of marketable securities, cash or both at the time
the common stock was acquired by the Partnership or at the time it is
distributed by the Partnership. Sutherland believes, based on prior
representations of the general partner and the Company, that, at the time the
Partnership acquired the common stock and at all times since then, the
Company has not held money, marketable securities, or both having a total
value equal to or exceeding 20 percent of the total value of all assets of
the Company ("excessive money and marketable securities"). Provided that the
Company does not acquire excessive money and marketable securities and the
Partnership does not acquire money or marketable securities prior to
completion of the Proposed Dissolution, if the Company's stock is distributed
to the limited partners under the Proposed Dissolution, such distribution
will not be subject to the application of Section 731(c) of the Code.
This discussion assumes that the Proposed Dissolution will be completed
(1) by March 1, 2002; (2) at a time when less than 20 percent of the
Company's assets consist of marketable securities, cash or both; and (3) at a
time when the Partnership does not hold or own money or other marketable
securities. If the Proposed Dissolution is approved by the limited partners,
the distribution of the Company's common stock will occur, if at all, as
described in this Proxy Statement. Depending on all of the facts and
circumstances, the federal income tax consequences of failing to meet those
conditions may be minimal. Any gain recognized by a limited partner under
Section 731(c) of the Code upon a later distribution of common stock (or
other marketable securities) generally would be reduced by an amount equal to
the excess of such limited partner's share of total net gain in the
Partnership's marketable securities that would be recognized if the
Partnership sold all of its marketable securities before such distribution
over such limited partners' share of such gain immediately after the
distribution.
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<PAGE>
TREATMENT OF A DISTRIBUTION
Based on the discussion above, neither the Partnership nor any partner
will recognize gain or loss in the event of the distribution of common stock
pursuant to the Proposed Dissolution. The total tax basis of the common
stock distributed to each limited partner will equal the total tax basis of
such limited partner's Units as determined immediately before a distribution
of stock made pursuant to the Proposed Dissolution (as adjusted to reflect
any Partnership tax items subsequently allocated to such limited partner).
TREATMENT OF REPAYMENT OF PARTNERSHIP LIABILITIES AND PLAN COSTS
As part of the implementation of the Proposed Dissolution, the
Partnership will repay all of its outstanding liabilities (including costs
that it has incurred in connection with the Proposed Dissolution) by selling
shares of the Company's common stock. The use of common stock to repay such
liabilities will result in the recognition of taxable gain or loss which
(along with the costs of the Proposed Dissolution) will be allocated to the
partners in accordance with the terms of the partnership agreement. The
partners will recognize taxable gain or loss resulting from the use of common
stock to repay the liabilities. It is also not expected that the
Partnership's costs materially will exceed the estimated costs.
Nevertheless, any such variance could result in additional taxable income
being recognized by the partners. In addition, any other expenses of the
partners paid by the Partnership pursuant to the terms of the Proposed
Dissolution could result in additional taxable income being recognized by the
partners. Each limited partner should consult such limited partner's own tax
advisor regarding the tax consequences of the repayment of Partnership
liabilities and costs of the Proposed Dissolution relevant to such limited
partner.
OTHER TAX MATTERS
Sutherland cannot guarantee that any federal income tax consequences
described in this section will be available. The availability of the federal
income tax considerations as described above is, in large part, dependent on
past, present and future facts and circumstances. Thus, the views of
Sutherland represent only Sutherland's best judgment. The views cannot be
relied upon if any of the material facts contained in the relevant documents
or if any of the assumptions are, or later become, materially inaccurate.
The views have no binding effect or official status of any kind, so that no
assurance can be given that the views would be sustained by a court, if
contested, or that legislative or administrative changes or court decisions
will not be forthcoming which would require modifications of the statements
and conclusions expressed herein. Moreover, Sutherland has not requested and
will not request a private ruling from the Internal Revenue Service regarding
the classification of the Partnership as a partnership for federal income tax
purposes or regarding any of the tax consequences of the Proposed
Dissolution. The Internal Revenue Service is not precluded from challenging
the tax consequences of the Proposed Dissolution described above.
EACH PARTNER ALSO SHOULD BE AWARE THAT THE FOREGOING SUMMARY DOES NOT
DISCUSS ALL ASPECTS OF UNITED STATES FEDERAL INCOME TAXATION THAT MAY BE
RELEVANT TO A PARTICULAR PARTNER IN LIGHT OF HIS OR HER CIRCUMSTANCES AND
INCOME TAX SITUATION. FOR THESE REASONS, EACH PARTNER SHOULD CONSULT HIS OR
HER OWN TAX ADVISOR AS TO THE SPECIFIC TAX CONSEQUENCES TO SUCH PARTNER OF
THE IMPLEMENTATION OF THE PLAN.
STATE AND OTHER TAX MATTERS
In addition to the federal income tax consequences described in "Certain
United States Federal Income Tax Considerations," the limited partners should
consider the foreign, state and local tax consequences of the implementation
of the Proposed Dissolution. Foreign, state and local tax law may differ
substantially from federal income tax law, and the discussion above does not
describe any aspect of foreign, state or local taxation. Each partner should
consult his, her or its own tax advisor with respect to such tax matters.
35
<PAGE>
SUMMARY OF CERTAIN PROVISIONS OF THE PARTNERSHIP AGREEMENT
The Partnership Agreement governs the relationship among the partners
and establishes the respective rights and obligations of the general partner
and the limited partners. Some of the principal provisions of the Partnership
Agreement have been summarized elsewhere in this Proxy Statement. Certain
other provisions of the Partnership Agreement are summarized below. For
complete information, however, limited partners should read the Partnership
Agreement itself, a copy of which was provided to each limited partner in
connection with the original sale of Units by the Partnership and is on file
with the Securities and Exchange Commission as a part of the Registration
Statement relating to the original offering of Units. Sutherland will provide
free of charge a copy of the partnership agreement to any limited partner
requesting a copy.
The following statements and other statements in this Proxy Statement
concerning the Partnership Agreement and related matters are merely a
summary, do not purport to be complete and are subject to, and qualified in
their entirety by reference to, the Partnership Agreement. Such statements
do not and cannot modify or amend the Partnership Agreement.
DISSOLUTION
Section 11(a) of the partnership agreement provides that the Partnership
shall continue its existence until December 31, 2035, unless terminated
earlier as a result of:
(1) the sale or other disposition of all or substantially all of the
assets of the Company (other than to an entity owned in whole or in
part, directly or indirectly, and controlled by, the Partnership);
(2) a determination to dissolve the Partnership by a majority in interest
of the limited partners;
(3) the removal, retirement, death, dissolution, insanity or resignation
of the general partner or the bankruptcy or insolvency of the general
partner which is not discharged or vacated within 90 days from the
date thereof, unless all of the limited partners agree to continue the
business of the Partnership within 120 days of the occurrence of such
an event; or
(4) the occurrence of any other event causing the dissolution of the
Partnership under the laws of the State of Delaware.
ALLOCATION OF PROFITS, LOSSES AND DISTRIBUTIONS, PRIORITY RETURN
The Partnership Agreement provides that income, gains, losses,
deductions, credits and distributions of the Partnership will generally be
allocated among and credited 99% to the Limited Partners in proportion to
their respective capital account contributions and 1% to the General Partner
until such time as the aggregate of distributions of cash and other property
to all of the Partners is equal to the aggregate capital account
contributions of all of the Partners plus an amount equivalent to a return
thereon of 6%, compounded annually (referred to in the Partnership Agreement
as the "Priority Return"). As of September 1998, the Priority Return would be
reached if the Partnership distributed approximately $190,000 per unit, which
amount would be distributed if the Partnership received approximately $27 per
share for its stock in the Company in a sale of the Company. After the
Priority Return has occurred and until the liquidation and termination of the
Partnership, income, gains, losses, deductions, credits and distributions of
the Partnership will be allocated 70% to the limited partners in proportion
to their respective capital contributions and 30% to the general partner.
Upon the liquidation and termination of the Partnership, distributions will
be allocated 99% to the limited partners in proportion to their respective
capital account contributions and 1% to the general partner until the
Priority Return is paid. After the Priority Return is paid, distributions
generally will be allocated 70% to the limited partners in proportion to
their respective capital account contributions and 30% to the general
partner. A clause in the partnership agreement provides that, after the
Limited Partners have received the Priority Return in a sale of the Company
or in the liquidation of the Partnership, the balance of the gain received by
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the Partnership in such a sale or liquidation is to be "allocated to the
least extent necessary to cause the aggregate Capital Accounts of the General
Partner and of the Limited Partners to be in a ratio of 30% for the General
Partner and 70% for the Limited Partners." The general partner and certain
limited partners who claim to have participated in the development of the
general partner's enjoined plan of withdrawal and dissolution have contended,
apparently relying on this clause, that the General Partner would be entitled
to approximately the first $60 or $65 million of distributions made by the
Partnership after the Priority Return is reached. Sutherland believes that
this contention by the general partner and the general partner's application
of the clause in question are both incorrect and inconsistent with
representations made to limited partners in the Partnership's original
offering materials used in connection with the sale of limited partnership
units. Sutherland's attorneys, and an expert consulted by them, have
concluded that the capital accounts of the general partner and of the limited
partners will be actually or approximately equal to zero after distributions
are made sufficient to cause the Priority Return to be reached and that
therefore the clause relied on by the general partner will have no monetary
effect. Sutherland's attorneys further believe that the purpose of the
clause in question was to adjust partnership distributions in the event that
the Priority Return was reached prior to a sale of the Partnership or
liquidation of the Company and all profits of the Partnership were not
distributed prior to such sale or liquidation. If the Proposed Dissolution
is approved, the Priority Return will be reached, if at all, only as a result
of the liquidation of the Partnership and/or sale of the Company, because the
Partnership has never made any distributions. Accordingly, Sutherland's
attorneys believe that the clause in question will not be implicated in a
manner that would cause it to significantly affect distributions to the
limited partners. However, although Sutherland's attorneys believe that it
is unlikely that a court would accept the general partner's application of
the clause, it is possible that a court could do so, in which case the return
received by the limited partners in the Proposed Dissolution could be
significantly reduced.
VOTING RIGHTS OF LIMITED PARTNERS
The limited partners do not have the right to participate in the
management or control of the Partnership's business. The partnership
agreement provides that the limited partners may, by vote of the limited
partners whose interests in the aggregate exceed fifty percent (50%) of the
interests of the limited partners who are then partners in the Partnership,
(i) dissolve the Partnership; or (ii) remove any general partner.
Meetings may be called by limited partners holding more than ten percent
(10%) of the then outstanding partnership interests for any matters for which
the partners may vote as set forth in the partnership agreement. If limited
partners desire to exercise their voting rights with respect to (a) a
proposed sale, exchange, mortgage, pledge, transfer, financing or refinancing
of all or substantially all of the assets of the Partnership or (b) removal
of the general partner, an opinion must be delivered to the Partnership by
counsel selected by limited partners whose aggregate interests exceed ten
percent (10%) of the aggregate interests of all of the limited partners. The
opinion must state that the actions to be taken (i) are legal, (ii) may be
effected without subjecting any limited partner to liability as a general
partner under the laws of the State of Delaware or of any other jurisdiction
in which the Partnership is doing business and (iii) may be effected without
changing the status of the Partnership for tax purposes. In addition, the
partnership agreement requires that such opinion be affirmatively approved in
writing by limited partners whose aggregate interests in the Partnership
equal at least the same percentage in interest of the limited partners as is
required to take the action to which the opinion relates.
The partnership agreement, however, provides that an opinion need not be
obtained as regards matters referenced in clause (ii) of the preceding
paragraph if a court having appropriate jurisdiction has entered a judgment
that the actions to be taken may be effected without subjecting any limited
partner to liability as a general partner under the laws of the State of
Delaware or any other jurisdiction in which the Partnership is doing
business. Likewise, an opinion need not be obtained as regards matters
referenced in clause (iii) of the preceding paragraph if a court having
appropriate jurisdiction has entered a judgment, or the Internal Revenue
Service has issued a ruling, that the actions to be taken may be effected
without changing the status of the Partnership for tax purposes.
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Sutherland has obtained the opinion of such counsel as required by the
partnership agreement. A copy of the opinion appears as Exhibit B to this
Proxy Statement. In addition to seeking proxies in favor of the Proposed
Dissolution, this Proxy Statement also solicits proxies granting Sutherland
the authority to execute a written consent of limited partners selecting
[name] as counsel for purposes of rendering the opinion called for by the
partnership agreement and approving the opinion of counsel rendered by [name].
REMOVAL, WITHDRAWAL, BANKRUPTCY, INSOLVENCY, DISSOLUTION, RETIREMENT
OR RESIGNATION OF THE GENERAL PARTNER
The limited partners may, by vote of a majority in interest, remove any
general partner from the Partnership. The general partner is also permitted,
at its discretion, to resign at any time. Unless 100% in interest of the
limited partners designate a successor general partner within 90 days, the
Partnership will be dissolved. In the event of the removal or voluntary
withdrawal of the general partner, the general partner ceases to be a general
partner of the Partnership and a portion of its interest will be assigned,
PRO RATA with the limited partners, to any successor general partner so that
the successor general partner has not less than 1% in interest in the
Partnership. Any such interest not so assigned will, at the option of the
Partnership, either be wholly converted into a special limited partner
interest and retained by the General Partner or partially purchased by the
Partnership for its appraised value in accordance with the terms of the
Partnership Agreement and partially converted into a special limited partner
interest entitling the removed or voluntarily withdrawn general partner to
receive 7.5% of all distributions to partners after the Priority Return has
occurred. In the event of the bankruptcy, insolvency, dissolution,
retirement or resignation of the General Partner, if 100% in interest of the
limited partners appoint a successor general partner, the successor general
partner shall succeed to the interest of the bankruptcy, insolvent,
dissolved, retired or resigned General Partner without compensation to the
latter.
APPLICABLE LAW
The Partnership Agreement provides that it is to be construed and
enforced in accordance with the laws of the State of Delaware.
ABOUT THE TRUSTEE
[to be provided in amendment]
INTEREST OF CERTAIN PERSONS IN THE SOLICITATION
CHARLENE E. SUTHERLAND
Charlene E. Sutherland is a limited partner of the Partnership. She
owns two quarter-units of limited partnership interest. She acquired one of
her quarter-units in the Partnership's original offering of units, and she
acquired her other quarter-unit in the secondary market. She is a licensed
securities principal, a registered representative, a certified financial
planner, and a licensed tax practitioner in the State of California. Since
January of 1990 she has been a registered investment adviser and
broker-dealer with Royal Alliance Investment Advisory Services, Inc., on an
independent contractor basis. Royal Alliance Investment Advisory Services,
Inc. is not involved in any way with the Proposed Dissolution or the
solicitation of proxies for it, and has neither approved nor disapproved
Sutherland's actions with respect to the Proposed Dissolution. From 1986 to
1990, Sutherland was a registered representative with Integrated Resources
Equity Corp., on an independent contractor basis. From 1979 to 1985, she was
employed by Equitec Securities Corp., as a senior account executive.
From 1990 to 1991, Sutherland served on the board of directors of the
American Association of Limited Partners, a lobbying group directly associated
with drafting the Limited Partnership Rollup Reform
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Act of 1993. Between 1987 and 1990, Sutherland served as the producer and
moderator of a local public-access-cable, non-commercial television show
called Wealth Management, an informational show for investors.
Sutherland's father-in-law, Judge Kenneth E. Sutherland, owns
one-quarter unit in the Partnership, and a number of her clients own in the
aggregate another four and three-quarter units. As a limited partner,
Sutherland had serious concerns about the lack of fairness to limited
partners of the GP Plan. She sought to intervene in litigation involving the
GP Plan in the United States District Court for the Northern District of
California, and was permitted to intervene for a limited purpose. See
"Summary of Certain Pending Litigation -- United States District Court for the
Northern District of California."
In the event the Proposed Dissolution is approved, Sutherland will be
treated no differently than any other limited partner with respect to
distributions. However, the fees and expenses incurred by The Mills Law Firm
and Smith, Katzenstein & Furlow LLP on Sutherland's behalf in connection with
the solicitation of proxies will be paid by the Partnership. If the Proposed
Dissolution is not approved, Sutherland will not be obligated to reimburse
the fees and expenses incurred by The Mills Law Firm and Smith, Katzenstein &
Furlow LLP in connection with their assistance to Sutherland in the
solicitation of proxies in favor of the Proposed Dissolution.
THE MILLS LAW FIRM
The Mills Law Firm, together with Smith, Katzenstein & Furlow LLP,
attorneys at law, represent Sutherland in connection with the solicitation of
proxies pursuant to this Proxy Statement. The Mills Law Firm owns no units in
the Partnership, and other than as described herein, has no interest in the
Partnership or in the Proposed Dissolution.
The Mills Law Firm, together with Smith, Katzenstein & Furlow LLP,
represents certain limited partners in the Chancery Court litigation, which
is a derivative action and a putative class action, and the District Court
litigation, which is a putative class action. See "Summary of Pending
Litigation."
The Mills Law Firm, together with Smith, Katzenstein & Furlow LLP, have
participated in the development of the Proposed Dissolution as a means of
protecting the interests of the Partnership and its limited partners. The
Mills Law Firm, together with Smith, Katzenstein & Furlow LLP, has advanced
the costs and expenses of the preparation of this Proxy Statement and the
solicitation of proxies by Sutherland. In the event that the Proposed
Dissolution is approved and implemented, The Mills Law Firm and Smith,
Katzenstein & Furlow LLP will be entitled to be reimbursed by the Partnership
for the costs and expenses advanced by them in connection with the
solicitation of proxies by or on behalf of Sutherland. Such costs and
expenses are estimated to be approximately $[ ] in the aggregate.
The Mills Law Firm and Smith, Katzenstein & Furlow LLP intend to seek
attorney's fees to compensate them for their efforts on behalf of limited
partners as allowed under the law. Certain limited partners have signed
contingency fee agreements with The Mills Law Firm. In addition, counsel who
represent plaintiffs in derivative and class actions may petition the court
for reasonable attorney's fees. The interest of The Mills Law Firm and
Smith, Katzenstein & Furlow LLP in receiving attorney's fees as compensation
for the benefits produced by their efforts on behalf of limited partners give
The Mills Law Firm and Smith, Katzenstein & Furlow LLP an incentive to cause
the return the limited partners receive for their investment in the
Partnership to be increased as much as possible. The contingency fee
agreements entered into with The Mills Law Firm by certain limited partners
provide that the attorney's fees of The Mills Law Firm go up in proportion to
the amount those limited partners receive in the liquidation of the
Partnership. Similarly, in derivative and class actions, courts often, but
not always, award attorney's fees in proportion to the benefit generated by
the attorneys on behalf of the class or the investors in the corporation or
partnership involved.
The Mills Law Firm is located at 300 Drake's Landing, Suite 155,
Greenbrae, California 94904. Their telephone number is (415) 464-4770.
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SMITH, KATZENSTEIN & FURLOW LLP
Smith, Katzenstein & Furlow LLP ("SKF"), attorneys at law, together with
The Mills Law Firm, represent Sutherland in connection with the solicitation
of proxies pursuant to this Proxy Statement. SKF owns no units in the
Partnership, and other than as described herein, has no interest in the
Partnership or in the Proposed Dissolution.
SKF, together with The Mills Law Firm, represents certain limited
partners in the Chancery Court litigation and the District Court litigation.
See "Summary of Pending Litigation."
SKF's interests in the Proposed Dissolution are similar to those of The
Mills Law Firm, as described above.
SKF is located at 800 Delaware Avenue, Suite 7000, Wilmington, Delaware
19801. Their telephone number is (302) 652-8400.
SUMMARY OF CERTAIN PENDING LITIGATION
DELAWARE COURT OF CHANCERY
INITIAL PROCEEDINGS IN DELAWARE
Dr. Dwight E. Wininger, a limited partner, commenced on February 11,
1997 a class and derivative action on behalf of limited partners against the
general partner and the persons controlling the general partner (the "First
Delaware Lawsuit"). He amended his complaint in the First Delaware Lawsuit on
June 11, 1997, and again on October 3, 1997. Gary T. Charlebois, a limited
partner, became the second named plaintiff in the First Delaware Lawsuit when
the Delaware complaint was amended on October 3, 1997. On June 25, 1997, the
defendants filed a motion to dismiss the First Delaware Lawsuit. That motion
has not been decided.
On September 24, 1997, the plaintiffs filed a motion for a preliminary
injunction against a plan of withdrawal and dissolution proposed by the
general partner (the "GP Plan"). On October 23, 1997, the Delaware Chancery
Court granted the plaintiffs' motion for a preliminary injunction, and
enjoined the defendants from implementing the GP Plan, finding that the
plaintiffs in the First Delaware Lawsuit are probably correct that the GP
Plan violates various provisions of the Partnership Agreement.
The defendants appealed the preliminary injunction to the Delaware
Supreme Court. On March 19, 1998, the Delaware Supreme Court affirmed the
order of the Court of Chancery enjoining the GP Plan.
Certain limited partners favoring the GP Plan moved to intervene in the
First Delaware Lawsuit for the purpose of opposing the injunctive relief
granted by the Court of Chancery. These limited partners also moved to
disqualify The Mills Law Firm, one of the law firms representing Sutherland
and plaintiffs Wininger and Charlebois. On April 27, 1998, the Chancery
Court denied the motion to disqualify and granted the motion to intervene.
CLAIMS ASSERTED AGAINST THE DEFENDANTS
The central allegations of the plaintiffs in the First Delaware Lawsuit,
which are denied by the defendants, are that:
- The defendants have breached their fiduciary duties to the limited
partners by failing to adequately market the Partnership's controlling
interest in the Company as a block and to explore transactions which could
realize a control premium for the Partnership, such as transactions involving
a sale of the controlling interest to a single buyer.
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- The individual defendants -- Leonard Chill, Ralph Kenner, W. Wayne
Freed, W. Gardner Wright, and Jon Beckman (collectively, "Management") --
have conflicts of interest. The members of Management own and control the
general partner. Four of them also have executive positions with the Company
which pay them substantial salaries, bonuses, and benefits, and the fifth
receives $125,000 per year as a consultant to the Company. The First
Delaware Lawsuit alleges that Management has incentives not to explore
transactions which could involve a change of control of the Company and which
could thereby realize a control premium for the Partnership, because such a
transaction could cause the members of Management to lose their lucrative
positions with the Company. The First Delaware Lawsuit also alleges that
defendants Chill, Kenner, Freed, and Wright have fiduciary duties to the
minority shareholders in the Company which actually or potentially conflict
with their fiduciary duties to the limited partners.
- The defendants breached their fiduciary duties to the limited
partners by causing the Partnership to approve the granting of stock options
to the members of Management and to other officers and directors of the
Company at an exercise price of $10.72 per share. (On May 4, 1998, the
Company's stock closed at $22.875 per share.)
- The defendants breached their fiduciary duties to the limited
partners by causing the Company to grant defendants Chill, Kenner, Freed, and
Wright employment agreements with lucrative "golden parachute" provisions
which would entitle the four men to receive lump sum payments in excess of
twice their annual salaries should they be terminated in connection with a
change of control of the Company.
- The defendants breached their fiduciary duties to the limited
partners by attempting to sell all the Partnership's stock in the Company in
a public offering in August 1996 prior to the announcement of significantly
increased Company earnings. (This proposal was abandoned after over ten
percent in interest of the limited partners requested a Partnership meeting
to vote on the proposal.)
- The defendants breached their fiduciary duties to the limited
partners by conducting a public offering in November 1996 of newly-issued
Company stock at $13 per share, prior to the announcement of significantly
increased Company earnings which caused the stock price to rise. (The First
Delaware Lawsuit alleges that this public offering, because of its timing,
unfairly diminished the value of the Partnership's stock in the Company.)
RELIEF REQUESTED
The principal remedies requested by the First Delaware Lawsuit are:
- Removal of the General Partner.
- Dissolution of the Partnership.
- Appointment of a liquidating trustee charged with ensuring that the
limited partners receive the highest possible return for their investment upon
dissolution.
- An order requiring the defendants to disgorge any profits they may
receive through their stock options or the "golden parachute" provisions of
their employment agreements.
- An injunction against the GP Plan.
- A declaratory judgment stating, among other things, that the GP Plan
would violate the partnership agreement and that the defendants' fiduciary
duties require them to obtain the highest possible return for the limited
partners in the liquidation of the Partnership.
- Compensatory damages.
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- An award of costs of suit, including attorney's fees and expenses.
ADDITIONAL LITIGATION IN DELAWARE
On December 29, 1997, Dr. Wininger, one of the plaintiffs in the First
Delaware Lawsuit, commenced a second derivative action on behalf of the
Partnership in the Delaware Court of Chancery (the "Second Delaware Lawsuit") in
which he seeks to invalidate stock options granted by the Company to current and
former officers and directors of the Company.
UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF CALIFORNIA
PROCEEDINGS IN CALIFORNIA
Dr. Dwight E. Wininger, a limited partner, commenced on May 1, 1997, an
action in the United States District Court for the Northern District of
California (the "District Court") against the general partner and the persons
controlling the general partner (the "California Lawsuit"). In its initial
phase, the California Lawsuit alleged that the defendants violated the federal
securities laws by advocating for the GP Plan, in advance of the dissemination
of a proxy statement, in a letter dated March 21, 1997 and a press release dated
June 9, 1997. On May 23, 1997, the plaintiff moved for a preliminary injunction
to remedy these alleged violations.
On August 4, 1997, the District Court issued an order which decided the May
23 motion for a preliminary injunction. The District Court ruled that the
plaintiff demonstrated a likelihood of success on the merits on the California
Lawsuit's claims that the defendants violated the federal securities laws in
connection with their March 21 letter and their June 9 press release. The
District Court's August 4 order stated that "Defendants made statements that are
probably prohibited by SEC regulations." However, the District Court denied the
May 23 motion for a preliminary injunction, ruling that the equities weighed
against granting injunctive relief as of August 4.
On August 19, 1997, the District Court appointed plaintiff Wininger as lead
plaintiff and appointed The Mills Law Firm as class counsel, though the District
Court stated that these appointments are subject to reconsideration at the time
class certification is determined. On September 19, 1997, the lead plaintiff
filed a motion for partial summary judgment that the defendants violated federal
securities regulations in connection with their March 21 letter and their June 9
press release. This motion has been heard but has not yet been decided by the
District Court.
On October 1, 1997, the lead plaintiff filed a motion for a temporary
restraining order and a preliminary injunction to prohibit the defendants from
implementing the GP Plan, holding the special meeting at which the GP Plan was
to be voted on, or continuing to solicit proxies for the GP Plan. On October
15, 1997, in the California Lawsuit, three limited partners, including
Sutherland, with the aid of another law firm, filed a motion to intervene in the
California Lawsuit and a motion for a temporary restraining order. The latter
motion requested that the limited partners be given at least 120 days to call
for a meeting of limited partners at which the GP Plan would have been required
to receive, in order to be passed, approval by two-thirds in interest of the
limited partners.
On November 6, 1997, the District Court issued a temporary restraining
order prohibiting the defendants from implementing the GP Plan, but did not
enjoin the defendants from proceeding with the special meeting. The District
Court's order stated that the District Court will consider whether to issue a
preliminary injunction "if it becomes clear that the question is not moot, that
is, the Court will consider whether to issue an injunction if the [GP] Plan is
approved at the Special Meeting and the preliminary injunction issued by the
Delaware Chancery Court is lifted."
The District Court found that the lead plaintiff raised at least two
serious questions. First, the District Court found that the lead plaintiff
raised serious questions as to whether the defendants properly disclosed what
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the limited partners had to do in order to require the GP Plan to be approved by
two-thirds in interest of the limited partners.
Second, the District Court found that the lead plaintiff raised serious
questions regarding whether the GP Plan is a "roll-up transaction" governed by
the Limited Partnership Rollup Reform Act of 1993 ("the Rollup Reform Act").
The District Court noted that one of the requirements of the Rollup Reform Act
is giving limited partners at least 60 days to vote on a proposed transaction,
and that limited partners were given less than 60 days to decide how to vote on
the GP Plan.
In issuing a temporary restraining order, the District Court considered the
papers filed by the three limited partners, including Sutherland, who moved to
intervene in the California Lawsuit. On November 14, 1997, the parties
stipulated that the lead plaintiff's complaint would be amended, effective as of
December 5, 1997, to add claims relating to the GP Plan.
Plaintiff's motion for a preliminary injunction was argued on January 9,
1998. This motion has not been decided. The temporary restraining order issued
on November 6, 1997 remains in effect.
Certain limited partners favoring the GP Plan moved to intervene in the
California Lawsuit for the purposes of opposing injunctive relief against the GP
Plan. These limited partners also moved to disqualify The Mills Law Firm, one
of the law firms representing Sutherland and plaintiff Wininger, based on
alleged conflicts of interest. The Mills Law Firm denies any wrongdoing. The
motions to intervene and disqualify were argued on February 6, 1998. The
District Court ruled that the group of pro-GP-Plan limited partners may
intervene only for the limited purpose of expressing their views on class
certification. At the same time, the District Court ruled that Sutherland may
also intervene for the limited purpose of expressing her views on class
certification. The District Court took the motion to disqualify under
submission.
Plaintiff moved for class certification on April 10, 1998. Plaintiff's
motion for class certification is scheduled to be heard on June 19, 1998.
CLAIMS ASSERTED AGAINST THE DEFENDANTS
The central allegations of the plaintiff in the California Lawsuit, which
are denied by the defendants, are as follows:
- Because the GP Plan does not provide to limited partners dissenters'
rights that are described in the Rollup Reform Act, major stock exchanges (such
as the New York Stock Exchange and the American Stock Exchange) and the NASDAQ
would be prohibited from listing or trading the Company's stock if the GP Plan
were implemented.
- Defendants failed to adequately disclose their conflicts of interest
to the limited partners.
- Defendants failed to disclose that the Partnership could receive a
control premium by engaging in a transaction involving a sale or other block
transfer of its controlling interest in the Company.
- Defendants failed to adequately disclose that, under the GP Plan, the
underwriters of the mandatory underwritten sale of withdrawn stock would have an
option to purchase up to 450,000 shares of newly issued Company stock and sell
these shares in the underwritten sale.
- Defendants violated the Rollup Reform Act by not giving limited
partners at least 60 days to vote on the GP Plan.
- Defendants failed to disclose what the limited partners had to do in
order to require the GP Plan to be approved by two-thirds in interest of the
limited partners.
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- Defendants falsely or misleadingly represented that, upon the
liquidation and termination of the Partnership, after the Priority Return is
reached, the general partner would be entitled to 100% of the profits of the
Partnership until the ratio of the aggregate capital accounts of all partners
reached 30% for the general partner and 70% for the limited partners. (The
California Lawsuit alleges that the general partner has no right to receive 100%
of the profits of the Partnership at any time and only has the right to receive
30% of the profits of the Partnership after the Priority Return is reached.)
- Defendants violated the federal securities laws by making numerous
false and misleading statements and failing to disclose many material facts (in
addition to the alleged misrepresentations and nondisclosures described above)
in the proxy solicitations they sent to limited partners on or after September
19, 1997.
- Defendants violated the federal securities laws by advocating in favor
of the GP Plan, prior to disseminating a proxy statement, in their March 21
letter and their June 9 press release.
RELIEF REQUESTED
The main remedies requested by the California Lawsuit are:
- An injunction against future violations of the securities laws by the
defendants.
- A declaratory judgment stating that the defendants have violated the
federal securities laws.
- An injunction against the GP Plan.
- A declaratory judgment stating that the GP Plan is a "roll-up
transaction" within the meaning of the Rollup Reform Act and the regulations
promulgated pursuant to that Act.
- Damages, as according to proof.
- An award of costs of suit, including attorney's fees and expenses.
FINANCIAL INFORMATION ABOUT THE PARTNERSHIP
Since its inception in 1986, the Partnership has conducted no business
other than owning and voting its shares of common stock of the Company. The
general partner has stated that because the Partnership has no independent
operations or assets other than its investment in the Company, the Partnership's
financial statements are substantially identical to those of the Company, with
the exception of the publicly-owned minority interest in the Company and a debt
due to the Company for expenses of the Partnership paid by the Company on behalf
of the Partnership. Sutherland believes that the amount of the partnership's
indebtedness to the Company is at least $650,000, and that it may be
substantially higher.
The Partnership has furnished financial statements for the fiscal year
ended September 30, 1997 in its annual report on Form 10-K and its quarterly
report on Form 10-Q for the quarter ended December 31, 1997 filed with the
Securities and Exchange Commission. Copies of the Partnership's annual report
on Form 10-K and Form 10-Q are attached as Exhibits C and D to this Proxy
Statement. SEE ALSO "Selected Financial Data Concerning the Partnership."
Sutherland has no access to the financial records of the Partnership other
than those made publicly available by the Partnership. Consequently, Sutherland
makes no representation as to the accuracy of the financial information
appearing in the Partnership's annual and quarterly reports attached as Exhibits
C and D to this Proxy Statement.
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WHERE YOU CAN FIND MORE INFORMATION
The Partnership and the Company are subject to the informational
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"). In accordance with the Exchange Act, the Partnership and the Company
file reports, proxy statements and other information with the Securities and
Exchange Commission (the "Commission"). Such reports, proxy statements and
other information may be inspected and copied at the public reference facilities
maintained by the Commission at Room 1024, 450 Fifth Street, N.W., Judiciary
Plaza, Washington, D.C. 20549, and at the Commission's Regional Offices in New
York (Seven World Trade Center, 13th Floor, New York, New York 10048), and
Chicago (Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661). Copies of these materials may be obtained from the Public Reference
Section of the Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, at
prescribed rates. In addition, such reports, proxy statements and other
information may be electronically accessed at the Commission's site on the World
Wide Web located at http://www.sec.gov. Such reports, proxy statements and
other information concerning the Company may also be inspected at the offices of
the Nasdaq National Market, 1735 K Street, N.W., Washington, D.C. 20006.
/s/ Charlene E. Sutherland
--------------------------
Charlene E. Sutherland
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EXHIBIT A
PLAN OF DISSOLUTION
For the purpose of dissolving and winding up and settling the affairs of
Synthetics Industries, L.P. (the "Partnership"), a limited partnership
organized and existing under the Delaware Revised Uniform Limited Partnership
Act (the "Act") and pursuant to applicable provisions of the Act and the
Partnership's Amended and Restated Limited Partnership Agreement dated as of
November 11, 1986, including the Amendment to Amended and Restated Limited
Partnership Agreement of Synthetic Industries L.P. dated as of November 11,
1986 (as so amended, the "Partnership Agreement"), a majority in interest of
the limited partners of the Partnership adopt this Plan of Dissolution.
1. REMOVAL OF GENERAL PARTNER.
Pursuant to Section 7(g)(i) of the Partnership Agreement, a majority in
interest of limited partners having determined in their discretion that SI
Management, L.P., the general partner of the Partnership, is not fully
performing its powers, duties and obligations in the best interest of the
Partnership and that it is otherwise in the best interest of the Partnership
to do so, the general partner is hereby removed as general partner of the
Partnership, such removal to be effective as of the Effective Date (as
defined in Section 5). From and after the removal of the general partner, it
shall cease to function as such.
2. DISSOLUTION.
Pursuant to Section 11(a)(iii) of the Partnership Agreement, the
Partnership shall, contingent upon the removal of the general partner, be
dissolved, such dissolution to be effective as of the Effective Date.
3. APPOINTMENT OF LIQUIDATING TRUSTEE.
Pursuant to Section 17-803(a) of the Act, and contingent upon the
removal of the general partner, [name] is hereby appointed as, and shall be,
the liquidating trustee (the "Trustee") to wind up the business and affairs
of the Partnership. The appointment of the Trustee shall be effective upon
the later to occur of the Trustee's written acceptance of appointment or the
Effective Date. Pursuant to Section 17-803(b) of the Act, the Trustee shall
have the power and authority to wind up the business and affairs of the
Partnership, and may, in the name of, and for and on behalf of, the
Partnership, prosecute and defend suits, whether civil, criminal or
administrative, gradually settle and close the Partnership's business,
dispose of and convey the Partnership's property, discharge or make
reasonable provision for the Partnership's liabilities, and in accordance
with the provisions of the Partnership Agreement distribute to the partners
of the Partnership any remaining assets of the Partnership. As provided in
Section 17-803(b) of the Act, neither the appointment of the Trustee by the
limited partners, the acceptance by the Trustee of the appointment as
liquidating trustee, the Trustee's status as liquidating trustee, nor the
performance by the Trustee of the Trustee's duties and responsibilities in
connection with winding up the business and affairs of the Partnership shall
affect the limited liability of limited partners or impose the liability of a
general partner on the Trustee.
4. DISPOSITION OF PARTNERSHIP ASSETS BY TRUSTEE.
In connection with the winding up of the business and affairs of the
Partnership, the Trustee is authorized to dispose of the assets of the
Partnership in such manner and pursuant to such transaction or transactions
or series of related transactions as the Trustee in the Trustee's discretion
determines will result in the highest return to the Partnership and the
partners that the Trustee determines to be reasonably attainable. The
Trustee shall, and by the Trustee's acceptance of the Trustee's appointment
as Trustee, the Trustee agrees to, take the following actions:
(a) As soon as practicable following the Effective Date, the Trustee shall
seek to dispose of the common stock of Synthetic Industries, Inc., a Delaware
corporation (the "Company"), owned by the Partnership in a transaction or series
of transactions (whether related or unrelated) that will in the Trustee's
judgment result in the realization by the
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<PAGE>
Partnership of a premium over the market price of common stock of the Company
(a "change of control transaction"). The Trustee is expressly authorized to
exercise all voting rights of the stock of the Company held by the
Partnership, and is further expressly authorized to hire, and shall hire, a
qualified investment banking firm or similar financial institution or
qualified business broker to assist the Trustee in identifying, structuring
and consummating a change of control transaction.
(b) As soon as practicable following the Effective Date, the Trustee
shall take all action deemed by the Trustee to be reasonably necessary,
appropriate or convenient for the purpose of enabling the Partnership to
enter into one or more agreements providing for a change of control
transaction.
(c) If the Trustee enters into one or more agreements on behalf of the
Partnership as contemplated by subsection (b) above, the Trustee shall take
all action deemed by the Trustee to be reasonably necessary, appropriate or
convenient for the purpose of causing the change of control transaction to be
consummated as soon as reasonably practicable.
(d) Any change of control transaction entered into by the Trustee on
behalf of the Partnership, whether involving a sale of stock, exchange of
stock, merger of the Partnership or the Company, or other transaction of a
similar or different kind, shall provide that the consideration to be
received by the Partnership in such transaction shall consist of cash, cash
equivalents or marketable securities.
(e) In the event that the Trustee determines in the exercise of the
Trustee's good faith business judgment and after consultation with the
investment banking firm or similar financial institution or business broker
retained by the Trustee pursuant to Section 4(a) that a change of control
transaction is not reasonably likely to be entered into or consummated, the
Trustee shall liquidate such number of shares of common stock of the Company
as may be necessary to discharge the obligations of the Partnership and
distribute as soon as practicable the remaining shares of common stock of the
Company pro rata to the partners as their interests may appear. In the event
the Trustee so distributes the Company's stock, the Trustee shall include
with such distribution a notice cautioning limited partners that if a
substantial number of limited partners immediately sell substantial amounts
of the stock received by them, this could cause a decline in the market price
of the stock.
(f) As soon as practicable following the removal of the general
partner, the Trustee shall cause the Partnership to exercise its option to
acquire the interest of the removed general partner pursuant to and in
accordance with Section 7(g)(ii) of the Partnership Agreement unless the
Trustee, based upon the written opinion of a qualified expert, determines
that in the absence of the exercise of such option the amount distributable
to the general partner in respect of the general partner's interest in the
Partnership would be less than the sum of (i) the amount distributable to the
general partner following the exercise of such option and (ii) the exercise
price of the option.
(g) In making any determination that it is reasonably likely that a
change of control transaction will occur, that it is reasonably likely that
the Trustee will be able to enter into one or more agreements relating to a
change of control transaction or that there is a reasonable likelihood that a
change of control transaction can be consummated, the Trustee may rely on the
opinion, either oral or written, of any investment banking firm or similar
financial institution or business broker retained by the Trustee pursuant to
Section 4(a).
5. EFFECTIVE DATE.
This Plan of Dissolution shall become effective upon the approval of
this Plan of Dissolution by limited partners holding a majority in interest
of the Partnership's outstanding limited partnership interests (the
"Effective Date"). The approval of a majority in interest of the limited
partners may be given by written consent or by vote at a meeting of limited
partners.
6. TIME FOR WINDING UP.
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<PAGE>
The limited partners and the Trustee recognize that, although the
Trustee will endeavor to identify, negotiate, enter into, and cause to be
consummated a change of control transaction as soon as reasonably
practicable, the time within which a change of control transaction can be
effected, or a determination made that such a transaction is not reasonably
likely to occur, cannot be predicted in light of possible changes in the
economy in general or in the industry in which the Company engages, delays
caused by litigation challenging the plan of dissolution or any change of
control transaction, and other circumstances not within the control of the
Trustee. Accordingly, the Trustee shall be obligated only to wind up the
business and affairs of the Partnership within such period of time as the
Trustee may in the exercise of the Trustee's business judgment determine is
in the best interests of the Partnership and its partners as a whole.
7. COMPENSATION OF TRUSTEE.
The Trustee shall be compensated out of the assets of the Partnership on
an hourly basis at the rate of $[amount] per hour. In addition, the Trustee
shall be reimbursed out of the assets of the Partnership for all expenses
incurred by the Trustee in the performance of the Trustee's duties or
incurred on behalf of the Partnership in connection with any change of
control transaction or other liquidation of Partnership assets. The Trustee
shall look only to the assets of the Partnership for payment of the Trustee's
compensation and for reimbursement of expenses. No partner shall have any
personal liability for any compensation due to the Trustee or for any
expenses for which the Trustee is entitled to be reimbursed.
8. INDEMNIFICATION OF TRUSTEE.
The Trustee shall not be liable to the Partnership or any general
partner, removed general partner or limited partner except for acts or
omissions constituting gross negligence or willful misconduct. The Trustee
shall be entitled to be indemnified out of the property of the Partnership to
the fullest extent that a director of a corporation may be indemnified under
Section 145 of the General Corporation Law of the State of Delaware. The
right to be indemnified shall include the right to payment of all litigation
expenses, including attorney's fees and expenses, in advance of the final
disposition of any action, suit or proceeding, provided that the Trustee
first executes and delivers to the Partnership an undertaking to repay such
advances in the event that it is ultimately determined that the Trustee is
not entitled to be indemnified as authorized by this Section 8.
9. REIMBURSEMENT OF PROXY SOLICITATION EXPENSES
If this Plan of Dissolution becomes effective, the Partnership shall
reimburse whatever party or parties incur the costs connected with soliciting
proxies for the Plan of Dissolution for such costs and expenses.
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<PAGE>
EXHIBIT B
OPINION OF COUNSEL
[To be filed by amendment]
B-1
<PAGE>
EXHIBIT C
[Form 10-K for Synthetic Industries, L.P. for the fiscal year ending on
September 30, 1997.]
[Filed on December 29, 1997.]
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<PAGE>
EXHIBIT D
[Form 10-Q For Synthetic Industries, L.P. for the quarter ending on
December 31, 1997. ]
[Filed on February 11, 1998.]
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<PAGE>
PROXY
CHARLENE E. SUTHERLAND
4512 Bird of Paradise Lane
La Mesa, CA 91941
e-mail: [email protected]
THIS PROXY IS BEING SOLICITED BY CHARLENE E. SUTHERLAND, A LIMITED PARTNER IN
SYNTHETIC INDUSTRIES, L.P., A DELAWARE LIMITED PARTNERSHIP (THE "PARTNERSHIP").
THIS PROXY IS NOT BEING SOLICITED BY THE GENERAL PARTNER OF THE PARTNERSHIP.
The undersigned hereby appoints Charlene E. Sutherland ("Sutherland") as proxy,
with full power of substitution and resubstitution, and hereby authorizes
Sutherland to represent and to express written consent by the undersigned, as
designated below, with respect to the Proposed Dissolution. In the event that a
meeting of limited partners of the Partnership is called for the purpose of
voting on the Proposed Dissolution, this Proxy also appoints and authorizes
Sutherland to represent and to vote, as designated below, at any such meeting.
Capitalized terms used but not defined in this Proxy have the meanings given to
them in the Proxy Statement to which this Proxy relates.
YOU MAY AUTHORIZE SUTHERLAND TO EXPRESS YOUR WRITTEN CONSENT TO OR AGAINST, OR
TO VOTE IN FAVOR OF OR AGAINST, OR ABSTAIN FROM CONSENTING OR VOTING, WITH
RESPECT TO THE PROPOSED DISSOLUTION AND EACH OF THE PROPOSALS COMPRISING THE
PROPOSED DISSOLUTION. HOWEVER, THE ADOPTION OF EACH OF THE PROPOSALS COMPRISING
THE PROPOSED DISSOLUTION IS CONDITIONED ON THE ADOPTION OF ALL OF THE PROPOSALS
COMPRISING THE PROPOSED DISSOLUTION.
IN ORDER TO BE ADOPTED, ALL OF THE PROPOSALS COMPRISING THE PROPOSED
DISSOLUTION MUST RECEIVE THE APPROVAL OF LIMITED PARTNERS HOLDING IN EXCESS
OF 50% OF THE PARTNERSHIP'S OUTSTANDING UNITS OF LIMITED PARTNERSHIP
INTEREST.
<PAGE>
PLEASE MARK (a), (b), OR (c) UNDER SECTION (1) BELOW TO VOTE ON THE
PROPOSED DISSOLUTION AS A WHOLE. IF YOU WISH TO VOTE SEPARATELY ON THE SIX
INDIVIDUAL PROPOSALS COMPRISING THE PROPOSED DISSOLUTION, YOU MAY DO SO UNDER
SECTION (2) BELOW.
1. PROPOSAL TO APPROVE THE PROPOSED DISSOLUTION
(By marking (a) or (b) below, you can vote to collectively adopt or reject
the six individual proposals comprising the Proposed Dissolution.)
a. / / FOR approval of all of the Proposed Dissolution
b. / / AGAINST approval of all of the Proposed Dissolution
c. / / ABSTAIN from voting on the Proposed Dissolution or any part
of the Proposed Dissolution
2. INDIVIDUAL PROPOSALS COMPRISING THE PROPOSED DISSOLUTION
PLEASE LEAVE THIS SECTION BLANK IF YOU MARK (A), (B), OR (C) IN SECTION (1)
ABOVE. If you do not mark (a), (b), or (c) in section (1) above, you can vote
separately on each of the six proposals comprising the Proposed Dissolution by
marking the appropriate boxes below. PLEASE NOTE THAT NONE OF THE FOLLOWING
PROPOSALS CAN BE ADOPTED ON ITS OWN. THE ADOPTION OF ANY OF THE PROPOSALS SET
FORTH IN THIS SECTION (2) IS CONDITIONED ON THE ADOPTION OF ALL OF THE OTHER
PROPOSALS SET FORTH IN THIS SECTION (2).
i. Removal of S.I. Management, L.P. as the sole general partner of the
Partnership.
/ / FOR
/ / AGAINST
/ / ABSTAIN
ii. Dissolution of the Partnership.
/ / FOR
/ / AGAINST
/ / ABSTAIN
iii. Election of [name] as Liquidating Trustee.
/ / FOR
/ / AGAINST
/ / ABSTAIN
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<PAGE>
iv. Approval of the Plan of Dissolution (Exhibit A to the Proxy
Statement).
/ / FOR
/ / AGAINST
/ / ABSTAIN
v. Selection of [name] as counsel for purposes of the legal opinion
required by Section 12(d) of the Partnership Agreement.
/ / FOR
/ / AGAINST
/ / ABSTAIN
vi. Approval of the opinion of [name] (Exhibit B to the Proxy Statement).
/ / FOR
/ / AGAINST
/ / ABSTAIN
This Proxy, when properly executed and duly returned, will be used to execute a
written consent of limited partners or, if applicable, voted, in the manner
directed above by the undersigned limited partner.
IF NO DIRECTION IS MADE ON THIS PROXY, THIS PROXY WILL AUTHORIZE EXECUTION OF A
WRITTEN CONSENT FOR ALL OF THE PROPOSED DISSOLUTION OR, IF VOTED AT A MEETING,
WILL BE VOTED FOR ALL OF THE PROPOSED DISSOLUTION.
DATED: _________________ __________________________________
Signature
Name:
Title:
__________________________________
Signature (if held jointly)
Name:
Title:
PLEASE SIGN EXACTLY AS YOUR NAME APPEARS ON THE LABEL AFFIXED TO THIS PROXY.
WHEN UNITS ARE HELD BY JOINT TENANTS, PLEASE MAKE
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<PAGE>
SURE THAT THE PROXY IS SIGNED BY ALL THE JOINT TENANTS. WHEN SIGNING AS AN
ATTORNEY, EXECUTOR, ADMINISTRATOR, TRUSTEE OR GUARDIAN, PLEASE GIVE FULL
TITLE OF SUCH. IF A CORPORATION, PLEASE SIGN BY NAME BY AUTHORIZED OFFICER.
IF A PARTNERSHIP, PLEASE SIGN IN PARTNERSHIP NAME BY AUTHORIZED PERSON.
Any limited partner desiring to return this proxy should deliver it to the
Solicitation Agent at the following address:
IF BY HAND: IF BY MAIL:
[address] [address]
If you have any questions, please call the Solicitation Agent at [telephone
number].
INSTRUCTIONS
1. SIGNATURES OF REGISTERED HOLDERS. In order to be valid, each proxy
must be signed by the registered Limited Partner or Limited Partners. The
signature must correspond exactly with the name(s) as written on the label
affixed to the proxy representing the Units without alteration. If Units are
owned of record by two or more joint owners, all such owners must sign a single
proxy in respect of such Units. If Units are registered in different names, it
will be necessary to complete, sign and submit as many separate proxies as there
are different registrations.
If a proxy is to be signed by a trustee, executor, administrator, guardian,
attorney-in-fact, agent, officer of a corporation or other person acting in a
fiduciary capacity, such person should so indicate when signing.
2. DELIVERY. Delivery of a proxy to an address other than the address
set forth on the proxy does not constitute a valid delivery. If a partnership
meeting is called to vote on the Proposed Dissolution, only proxies received at
such address on or prior to the meeting date will be valid. The method of
delivery of a proxy is at the option and risk of the tendering limited partner.
If delivery is by mail, registered mail with return receipt requested is
recommended. In all cases, sufficient time should be allowed to insure timely
delivery.
3. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Requests for assistance
or additional copies of the Proxy Statement or the proxy may be directed to
[name, address and telephone number of Solicitation Agent].
4
