<PAGE>
As filed with the Securities and Exchange Commission on April 15, 1994
Securities Act File No. 33-51825
Investment Company Act File No. 811-7137
============================================================================
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
FORM N-2
/x/ REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
/x/ Pre-Effective Amendment No. 2
/ / Post-Effective Amendment No.
and/or
/x/ REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
/x/ Amendment No. 2
------------------------------
MERRILL LYNCH KECALP L.P. 1994
(Exact name of registrant as specified in charter)
------------------------------
World Financial Center - South Tower
225 Liberty Street
New York, New York 10080-6123
(Address of principal executive offices)
Registrant Telephone Number, including Area Code: (212) 236-7302
KECALP INC.
World Financial Center - North Tower
250 Vesey Street
New York, New York 10281-1334
Attn: Rosemary T. Berkery
(Name and address of agent for service)
-----------------------------
Approximate date of commencement of proposed sale to the public: As soon
as practicable after this Registration Statement becomes effective.
If any of the securities being registered on this form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. /x/
CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
<TABLE>
<CAPTION>
Proposed Proposed
Maximum Maximum
Amount Offering Aggregate Amount of
Being Price Per Offering Registration
Title of Securities Being Registered Unit Price Fee
Registered
<S> <C> <C> <C> <C>
Limited Partnership
Interest . . . . . . . . 30,000 Units $1,000.00 $30,000,000 $10,345*
- -------------------
* Previously paid.
</TABLE>
The registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant
files a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
============================================================================
<PAGE>
Merrill Lynch KECALP L. P. 1994
CROSS REFERENCE SHEET
Between Items of Registration Statement (Form N-2)
and Prospectus
Pursuant to Rule 404 (c)
PARTS A and B
Item
No. Caption Location in Prospectus
------- ----------------------
1. Outside Front Cover . . . Outside Front Cover
2. Inside Front and Outside
Back Cover Page . . . . . Inside Front and Outside Back Cover Page
3. Fee Table and Synopsis . Prospectus Summary; Fund Expenses
4. Financial Highlights . . Not Applicable
5. Plan of Distribution . . Outside Front Cover; Offering and Sale of
Units
6. Selling Shareholders . . Not Applicable
7. Use of Proceeds . . . . . The Partnership; Investment Objective and
Policies
8. General Description of the
Registrant . . . . . . . Cover Page of Prospectus; The Partnership;
Risk and Other Important Factors; Investment
Objective and Policies; Fiduciary
Responsibility of the General Partner;
Summary of the Partnership Agreement
9. Management . . . . . . . Fiduciary Responsibility of the General
Partner; The General Partner and Its
Affiliates; Summary of the Partnership
Agreement
10. Capital Stock, Long-Term
Debt, and Other
Securities . . . . . . . Summary of the Partnership Agreement;
Transferability of the Units
11. Defaults and Arrears on
Senior Securities . . . . Not Applicable
12. Legal Proceedings . . . . Not Applicable
13. Table of Contents of
the Statement of
Additional . . . . . . . Not Applicable
14. Cover Page . . . . . . . Not Applicable
15. Table of Contents . . . . Not Applicable
16. General Information and
History . . . . . . . . . Not Applicable
17. Investment Objective and
Policies . . . . . . . . Investment Objective and Policies
18. Management . . . . . . . Fiduciary Responsibility of the General
Partner; The General Partner and Its
Affiliates; Summary of the Partnership
Agreement
19. Control Persons and
Principal Holders of
Securities . . . . . . . Cover Page; The General Partner and Its
Affiliates
20. Investment Advisory and
Other Services . . . . . The General Partner and Its Affiliates
21. Brokerage Allocation and
Other Practices . . . . . Not Applicable
22. Tax Status . . . . . . . Tax Aspects of Investment in the Partnership
23. Financial Statements . . Financial Statements
PART C
Information required to be included in Part C is set forth under the
appropriate item, so numbered, in Part C to this Registration Statement.
<PAGE>
$30,000,000
30,000 Units of Limited Partnership Interest
Merrill Lynch KECALP L.P. 1994
$1,000 Per Unit Minimum Investment 5 Units ($5,000)
Merrill Lynch KECALP L.P. 1994 (the "Partnership") hereby offers 30,000
units of limited partnership interest (the "Units") in the Partnership to
certain employees of Merrill Lynch & Co., Inc. ("ML & Co.") and its
subsidiaries and to non-employee directors of ML & Co. The Partnership's
principal offices are at South Tower, World Financial Center, 225 Liberty
Street, New York, New York 10080-6123 and its telephone number is (212)
236-7302. KECALP Inc., a wholly-owned subsidiary of ML & Co., is the general
partner (the "General Partner") of the Partnership. The Partnership will
operate as a non-diversified, closed-end investment company of the management
type. The General Partner has obtained an order from the Securities and
Exchange Commission exempting the Partnership, as an "employees' securities
company", from certain provisions of the Investment Company Act of 1940. See
"Exemptions from the Investment Company Act of 1940".
The investment objective of the Partnership is to seek long-term capital
appreciation. It is expected that a substantial portion of the proceeds of
this offering will be invested in privately-offered equity investments in
leveraged buyout transactions and in transactions involving financial
restructurings or recapitalizations of operating companies. Investments may
also be made in real estate opportunities and, to a lesser extent, in venture
capital transactions. The Partnership may make other investments in equity and
fixed income securities that the General Partner considers appropriate in terms
of their potential for long-term capital appreciation. The Partnership's
investment policies involve a very high degree of risk. See "Investor
Suitability Standards", "Conflicts of Interest", "Risk and Other Important
Factors" and "Investment Objective and Policies". The Partnership may borrow
funds for investment in securities, which would have the effect of leveraging
the Units. See "Investment Objective and Policies Leverage".
The Units are being offered by Merrill Lynch, Pierce, Fenner & Smith
Incorporated ("MLPF&S") on a "best efforts" basis. This offering will
terminate not later than June 9, 1994, or such other subsequent date, not later
than July 7, 1994, as MLPF&S and the General Partner may agree upon (the
"Offering Termination Date"). If subscriptions for 5,000 Units have not been
received by the Offering Termination Date, no Units will be sold. Funds paid
by subscribers will be deposited in a bank escrow account and held in trust for
the benefit of subscribers, and, if the required minimum is not obtained or
other conditions not satisfied, will be refunded promptly with interest, if
any. Subscriptions deposited in the escrow account may not be terminated or
withdrawn by subscribers. See "Offering and Sale of Units".
------------------------
This Prospectus sets forth concisely information about the Partnership that a
prospective investor ought to know before investing. Investors are advised to
read this Prospectus and retain it for future reference.
------------------------
THE UNITS ARE A SPECULATIVE INVESTMENT AND THIS OFFERING INVOLVES
VARIOUS SUBSTANTIAL RISKS AS DESCRIBED IN THIS PROSPECTUS.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
Price to Sales Proceeds to
Public Load(1) Partnership(2)
<S> <C> <C> <C>
Per Unit . . . . . . . . . . .$ 1,000 -- $ 1,000
Total Minimum . . . . . . . . .$ 5,000,000 -- $ 5,000,000
Total Maximum . . . . . . . . .$30,000,000 -- $30,000,000
(footnotes on next page)
</TABLE>
Merrill Lynch & Co.
----------------------
The date of this Prospectus is April , 1994.
<PAGE>
(Continued from cover page)
(1) No sales commission will be charged purchasers of Units. The General
Partner has agreed to indemnify MLPF&S against certain liabilities,
including liabilities under the Securities Act of 1933. See "Offering and
Sale of Units".
(2) Before deducting organizational and offering expenses payable by the
Partnership, estimated at $205,000 but not exceeding 2% of the proceeds of
the offering. The General Partner will bear the remaining costs, if any,
of forming the Partnership and registering the Units under the Securities
Act of 1933 and the securities laws of various states.
No dealer, salesman or any other person has been authorized to give any
information or to make any representations other than those contained in this
Prospectus and, if given or made, such information and representations must not
be relied upon. This Prospectus does not constitute an offer to sell or a
solicitation of an offer to buy any of the securities offered hereby in any
state to any person to whom it is unlawful to make such offer.
Until July 14, 1994, all dealers effecting transactions in the Units,
whether or not participating in this distribution, may be required to deliver a
current copy of this Prospectus. This is in addition to the obligation of
dealers to deliver a Prospectus when acting as underwriters.
INVESTOR SUITABILITY STANDARDS
Only employees of ML & Co. and its subsidiaries and non-employee directors
of ML & Co. who meet the suitability standards described below will be eligible
to purchase Units. THE PURCHASE OF UNITS INVOLVES SIGNIFICANT RISKS AND UNITS
ARE NOT A SUITABLE INVESTMENT FOR ALL QUALIFIED INVESTORS. See "Risk and Other
Important Factors".
1. Substantial Means and Net Worth. Purchase of Units is suitable only
for those persons who have no need for liquidity in this investment and who
have adequate means of providing for their current needs and contingencies.
Accordingly, no Units will be sold to an employee of ML & Co. or its
subsidiaries or a non-employee director of ML & Co. unless such investor (i) in
the case of employees of ML & Co. or its subsidiaries, has a current annual
salary in an amount which, together with bonus received from ML & Co. or its
subsidiaries in respect of 1993, equals at least $100,000 or, if employed for
less than a full calendar year, is employed with an annualized gross income
from ML & Co. or its subsidiaries of at least $100,000, or (ii) in the case of
non-employee directors of ML & Co., (a) has a net worth (exclusive of homes,
home furnishings, personal automobiles and the amount to be invested in Units)
of not less than $125,000 in excess of the price of the Units for which such
investor has subscribed, or (b) has a net worth (exclusive of homes, home
furnishings, personal automobiles and the amount to be invested in Units) of
not less than $100,000 in excess of the price of the Units for which such
investor has subscribed and expects to have during each of the current and the
next three taxable years, gross income from all sources in excess of $100,000.
Investors will be required to represent in writing in the Subscription
Agreement that they meet the applicable requirements. Investors who can make
such representation are hereinafter referred to as "Qualified Investors".
Certain maximum purchase restrictions have been imposed on Qualified Investors.
See "Offering and Sale of Units Maximum Purchase by Qualified Investors".
2. Ability and Willingness to Accept Risks. The economic benefit from an
investment in the Partnership depends on many factors beyond the control of the
General Partner, including general economic conditions, changes in governmental
regulation, inflation, tax treatment of portfolio investments and resale value
of Partnership investments. See "Risk and Other Important Factors".
Accordingly, the suitability for any Qualified Investor of a purchase of Units
will depend on, among other things, such investor's investment objectives and
such investor's ability to accept speculative risks.
3. Ability to Accept Limitations on Transferability. Purchasers of Units
should view their interest in the Partnership as a long-term, illiquid
investment. Limited partners may not be able to liquidate their investment in
the event of emergency or for any other reason because there is not any public
market for Partnership Units and there are restrictions contained in the
Amended and Restated Agreement of Limited Partnership (the "Partnership
Agreement"), the form of which is attached as Exhibit A to this Prospectus,
which are intended to prevent the development of a public market for Units.
Moreover, the transferability of Units is subject to certain restrictions in
the Partnership Agreement and may be affected by restrictions on resales
imposed by the laws of some states. See "Transferability of Units".
2
<PAGE>
SUMMARY OF THE OFFERING
The summary information below should be read in conjunction with the
detailed information provided elsewhere in this Prospectus.
Introduction: The Partnership is designed as a convenient
vehicle for Qualified Investors to acquire
interests in a portfolio of varied investments.
It is expected that a substantial portion of the
Partnership's investments will be
privately-offered equity investments that have
been made available to ML & Co. or its affiliates
and are generally not available to individuals.
See "Investment Objective and Policies".
The Offering: 30,000 units of limited partnership interest in
the Partnership, each representing a capital
contribution of $1,000. MLPF&S is acting as
selling agent for the Partnership and the General
Partner. The minimum investment is five Units
($5,000) and additional Units may be purchased in
increments of $1,000. Certain maximum purchase
restrictions will be imposed on Qualified
Investors (see page 43). The offering will
terminate not later than June 9, 1994, or such
subsequent date, not later than July 7, 1994, as
the General Partner and MLPF&S may determine. If
subscriptions for 5,000 Units are not received by
the Offering Termination Date, none will be
accepted, and all funds received will be refunded
with interest, if any, actually earned thereon.
If properly executed subscriptions for 5,000 or
more Units are received, the General Partner will
accept all such subscriptions (up to the maximum
of 30,000). If subscriptions for more than
30,000 Units are received, the General Partner
may reject any subscription in whole or part.
Funds paid for any subscription for Units that is
rejected will be refunded promptly. Qualified
Investors admitted as limited partners are
hereinafter referred to, together with the
initial limited partner and any substituted
limited partners, as the "Limited Partners". The
Units will be non-assessable. See "Offering and
Sale of Units".
The Partnership: A Delaware limited partnership formed on January
4, 1994. Its address is South Tower, World
Financial Center, 225 Liberty Street, New York,
New York 10080-6123 (telephone: (212) 236-7302).
The Partnership will operate as a
non-diversified, closed-end investment company of
the management type under the Investment Company
Act of 1940. An order has been obtained from the
Securities and Exchange Commission exempting the
Partnership from certain provisions of such Act.
The functions and responsibilities of the General
Partner and the rights of the Limited Partners
are authorized by or specified in the Partnership
Agreement. See "The Partnership", "Summary of
the Partnership Agreement" and "Exemptions from
the Investment Company Act of 1940".
The General Partner: KECALP Inc. (the "General Partner"), a Delaware
corporation indirectly wholly-owned by ML & Co.,
a Delaware corporation, and located at South
Tower, World Financial Center, 225 Liberty
Street, New York, New York 10080-6123 (telephone:
(212) 236-7302). The General Partner will manage
and make investment decisions for the
Partnership. KECALP Inc. serves as the general
partner of Merrill Lynch KECALP Growth
Investments Limited Partnership 1983 (the "1983
Partnership"), Merrill Lynch KECALP L.P. 1984
(the "1984 Partnership"), Merrill Lynch KECALP
L.P. 1986 (the "1986 Partnership"), Merrill Lynch
KECALP L.P. 1987 (the "1987 Partnership"),
Merrill Lynch KECALP L.P.
3
<PAGE>
1989 (the "1989 Partnership") and Merrill Lynch
KECALP L.P. 1991 (the "1991 Partnership", and
together with each of such other partnerships,
the "KECALP Partnerships"), and it is
contemplated that in the future it will serve in
the same capacity for other similar partnerships
that may be offered to the same class of limited
partner investors. See "The General Partner and
Its Affiliates". The General Partner has also
been designated to serve as Tax Matters Partner
for the Partnership with respect to all
administrative and judicial proceedings relating
to an audit of the Partnership's U.S. Federal
income tax information return. See "Tax Aspects
of Investment in the Partnership".
Investment Objective: The investment objective of the Partnership is to
seek long-term capital appreciation. It is
expected that a substantial portion of its assets
will be invested in privately-offered equity
investments in leveraged buyout transactions and
in transactions involving financial
restructurings or recapitalization of operating
companies. Investments may also be made in real
estate opportunities and, to a lesser extent, in
venture capital transactions. The Partnership
anticipates that many of its investments will be
made available to it by ML & Co. or its
affiliates. Information concerning potential
sources of investments is set forth under
"Investment Objective and Policies Sources of
Investment Opportunities". The Partnership may
make other investments in equity and fixed income
securities that the General Partner considers
appropriate in terms of their potential for
capital appreciation. Current income will not
generally be a significant factor in the
selection of investments. There can be no
assurance that the Partnership's investment
objective will be attained. See "Investment
Objective and Policies" and "Tax Aspects of
Investment in the Partnership". The General
Partner has approved the purchase by the
Partnership of one initial investment. See
"Investment Objective and Policies Proposed
Initial Investment".
Leverage: The Partnership is authorized to borrow funds
when it believes such action is desirable to
enable the Partnership to make new investments or
follow-on investments. Such use of leverage
would exaggerate increases or decreases in the
Partnership's net assets. See "Investment
Objective and Policies Leverage".
Compensation and Fees: The Partnership will pay organizational and
offering expenses in an amount of up to 2% of the
proceeds of the offering. During the term of the
Partnership, the General Partner is obligated to
pay all expenses, fees, commissions and other
expenditures on behalf of the Partnership not
paid by ML & Co. or its other subsidiaries. The
General Partner will be entitled to receive
annual reimbursements from the Partnership, in
amounts of up to 1.5% of the Limited Partners
capital contributions, of operating expenses
incurred by the General Partner with respect to
the Partnership. Expenses paid by the General
Partner that are not reimbursed to it shall be
deemed a contribution to capital and be reflected
in the General Partner's capital account. Since
repayment of any positive amount in a Partner's
capital account is a priority item upon
dissolution, the General Partner may, upon
dissolution, recoup expenditures made on behalf
of the Partnership. In addition, the General
Partner will be entitled to a 1% interest in all
items of Partnership income, gain, deduction,
loss and credit, for which it has no obligation
to make a cash capital contribution upon the
admission of Qualified Investors as Limited
Partners. To the extent that investments are
made in transactions in which affiliates of the
General Partner are involved, certain other
benefits may accrue to affiliates. See
"Compensation and Fees".
4
<PAGE>
Partnership Distributions
and Allocations: During the Partnership term, items of income,
gain, deduction, loss and credit and Allocations
will generally be allocated 99% to the Limited
Partners and 1% to the General Partner. Cash
distributions will be made in the same manner.
The General Partner may make distributions of
Partnership assets in kind, in addition to cash
distributions. Each Limited Partner will be
required to take into account in computing his
Federal income tax liability his allocable share
of the Partnership's income, gain, loss,
deductions, credits and items of tax preference
for any taxable year of the Partnership ending
within or with the taxable year of such Limited
Partner, without regard to whether he has
received or will receive any distribution from
the Partnership. The Partnership has adopted a
calendar year for tax reporting purposes. See
"The Partnership" and "Tax Aspects of Investment
in the Partnership".
Reinvestment Policy: The General Partner has the discretion to
reinvest all Partnership revenues. To the extent
portfolio investments are disposed of within two
years after the closing of the sale of Units, the
General Partner will consider reinvesting all or
a substantial portion of the proceeds realized by
the Partnership. However, the General Partner
does not expect to reinvest proceeds from the
liquidation of portfolio investments (other than
temporary investments) occurring more than two
years after the closing of the sale of Units,
except in connection with follow-on investments
made in existing portfolio companies. The
General Partner may also cause the Partnership to
maintain reserves for follow-on investments or to
apply cash received from investments to the
prepayment of any borrowings made by the
Partnership. To the extent that cash received by
the Partnership is not required for such purposes
or to reimburse the General Partner for any
expenses incurred or held for reinvestment, it
will be distributed to the Partners at least
annually. See "Investment Objective and
Policies".
Dissolution: The Partnership term extends to December 31,
2034. However, pursuant to the Partnership
Agreement, the General Partner may dissolve the
Partnership, without the consent of the Limited
Partners, at any time after January 1, 2000. It
is not the General Partners intention to dissolve
the Partnership prior to the time when the
Partnership's equity investments have matured and
disposition of its other portfolio investments
can be effected. See "The Partnership" and
"Summary of the Partnership Agreement".
Risks: The purchase of Units involves a number of
significant risk factors. See "Risk and Other
Important Factors". Prospective investors should
also see the information set forth under
"Conflicts of Interest".
How to Subscribe: (a) The Qualified Investor completes, dates,
executes and delivers to KECALP Inc., a copy of
the Limited Partner Signature Page and Power of
Attorney attached as part of the Subscription
Agreement, a form of which is attached as Exhibit
B to this Prospectus.
(b) The Qualified Investors MLPF&S securities
account will be debited in the amount of $1,000
for each Unit (minimum purchase of five Units)
that he desires to purchase. A securities
account will be opened by MLPF&S for any
Qualified Investor who does not have such an
account.
5
<PAGE>
PARTNERSHIP EXPENSES
The following tables are intended to assist potential investors in
understanding the various costs and expenses associated with investing in the
Partnership.
Limited Partner Transaction Expenses
Sales Load (as a percentage of offering price) . . . . . . . . . . . None
Annual Expenses (as a percentage of net assets)
Management Fees . . . . . . . . . . . . . . . . . . . . . . . . . . None
Other Expenses (audit, legal and administrative)* . . . . . . . . . 1.0%
----
Total Annual Expenses . . . . . . . . . . . . . . . . . . . . . . . 1.0%
====
* "Other Expenses" have been estimated for the current fiscal year and
assume Limited Partners' capital contributions of $5 million, the minimum in
the Partnership's offering. Although the Partnership does not pay operating
expenses directly, the General Partner is entitled to receive annual
reimbursements from the Partnership of Partnership expenses paid by it, in
amounts of up to 1.5% of the Limited Partners' capital contributions.
Example
An investor would pay the following expenses on a hypothetical $1,000
investment in the Partnership, assuming a 5% annual return:
One Year Three Years Five Years Ten Years
-------- ----------- ---------- ---------
$10 $32 $55 $122
This "Example" assumes that all distributions are reinvested at net asset
value and that the percentage amounts listed under Annual Expenses remain the
same in the years shown. However, Limited Partners will not be able to
reinvest distributions of the Partnership. The above tables and the assumption
in the Example of a 5% annual return are required by regulations of the
Securities and Exchange Commission applicable to all investment companies. The
assumed 5% annual return and annual expenses should not be considered a
representation of actual or expected Partnership performance or expenses, both
of which may vary.
CONFLICTS OF INTEREST
The General Partner and its affiliates may be subject to various conflicts
of interest in their relationships with the Partnership. Such conflicts of
interest include:
1. Conflicts with Respect to Investment Opportunities. Affiliates of
the General Partner may in the future perform investment advisory services for
other investment entities with investment objectives and policies similar to
those of the Partnership and such entities may compete with the Partnership for
investment opportunities. Furthermore, ML & Co. and its affiliates may invest
directly in investments that would be appropriate investments for the
Partnership. While the General Partner is obligated to use its best efforts to
provide the Partnership with a continuing and suitable investment program
consistent with its investment objective and policies, the General Partner is
not required to present to the Partnership any particular investment
opportunity that has come to its attention, even if such opportunity is within
the investment objective and policies of the Partnership. Because of different
objectives or other factors, a particular investment may be bought by the
Partnership, the General Partner or its affiliates or one of their clients at a
time when one of such entities is selling such investment. In addition,
6
<PAGE>
affiliates of the General Partner, including its officers and directors, may
benefit to the extent the Partnership invests in securities offered to other
investors by MLPF&S in public offerings or private placements. See
"Compensation and Fees". The General Partner will endeavor to resolve
conflicts with respect to investment opportunities in a manner deemed equitable
to all to the extent possible under the prevailing facts and circumstances.
2. Relations with Issuers of Portfolio Investments. Affiliates of the
General Partner, including MLPF&S, may perform financial services for issuers
of securities held by the Partnership or for affiliates of such issuers. These
relationships could influence the General Partner to take actions, or forbear
from taking actions, that an independent general partner might not take or
forbear from taking.
3. Conflicts with Respect to Dissolution. The General Partner has the
authority to dissolve the Partnership, without the consent of the Limited
Partners, at any time after January 1, 2000. The General Partner does not
intend to dissolve the Partnership until its equity investments have reached a
level of maturity where their disposition can be considered and the Partnership
can dispose of its other portfolio securities. However, the General Partner
may dissolve the Partnership, for its administrative convenience, at a time
when some Limited Partners might prefer to have the Partnership continue its
operations.
4. Allocation of Management Time and Services. The Partnership will not
have independent management or employees and will rely on the General Partner
and its affiliates for management and administration of the Partnership and its
assets. Conflicts of interest may arise in allocating management time,
services or functions between the Partnership, the 1983 Partnership, the 1984
Partnership, the 1986 Partnership, the 1987 Partnership, the 1989 Partnership,
the 1991 Partnership and other entities for which officers of the General
Partner may provide services. The officers and directors of the General
Partner will devote such time to the affairs of the Partnership as they, in
their sole discretion, determine to be necessary for the conduct of the
business of the Partnership.
5. Participation by an Affiliate as Underwriter. As an affiliate of the
General Partner, MLPF&S may experience a conflict of interest in performing its
due diligence in connection with the public offering of the Units. Although
MLPF&S believes that its investigation of the General Partner, the Partnership
and their affairs for purposes of this offering has in fact been as complete as
would be the case in dealing with nonaffiliated persons, the review performed
by MLPF&S cannot be considered independent.
6. Determination of Reserves. In determining the appropriate level of
working capital reserves, the interest of the General Partner in assuring
adequate funds for operation (which may reduce the potential liability of the
General Partner to certain Partnership creditors) may, in some cases, be in
conflict with the interest of the Limited Partners in maximizing cash
distributions.
7. Lack of Separate Representation. The Partnership, the General Partner
and MLPF&S are represented by the same legal counsel and auditors. However,
should a dispute arise between the Partnership and either the General Partner
or any affiliate, the General Partner anticipates that it will retain separate
counsel or auditors as required for the Partnership for such matter.
FIDUCIARY RESPONSIBILITY OF THE GENERAL PARTNER
The General Partner is under a fiduciary duty to conduct the affairs of
the Partnership in the best interests of the Partnership and consequently must
exercise good faith and integrity in handling Partnership affairs. Prospective
Limited Partners who have questions concerning the duties of the General
Partner should consult with their counsel.
The Partnership Agreement provides that neither the General Partner nor
any of its officers, directors, stockholders, employees, or agents shall be
liable to the Partnership or the Limited Partners for any act or omission based
on errors of judgment or other fault in connection with the business or affairs
of the Partnership so long as the person against whom liability is asserted
acted in good faith on behalf of the Partnership and in a manner reasonably
believed by such person to be within the scope of his or its authority under
the Partnership Agreement
7
<PAGE>
and in or not opposed to the best interests of the Partnership, but only if
such action or failure to act does not constitute negligence or misconduct,
and, with respect to any criminal proceeding, such person had no reasonable
cause to believe its conduct was unlawful. The General Partner and its
officers, directors, stockholders, employees, and agents will be indemnified by
the Partnership to the fullest extent permitted by law for any (a) fees
(including, without limitation, legal fees), costs and expenses incurred in
connection with or resulting from any claim, action or demand, or threatened
claim, action or demand, against the General Partner, the Partnership or any of
their officers, directors, stockholders, employees or agents that arise out of
or in any way relate to the Partnership, its properties, business or affairs
and (b) losses or damages resulting from such claims, actions and demands, or
threatened claims, actions or demands, including amounts paid in settlement or
compromise (if recommended by attorneys for the Partnership) of any such claim,
action or demand or threatened claims, actions or demands; provided, however,
that this indemnification shall apply only so long as the person against whom a
claim, action or demand is asserted or threatened to be asserted has acted in
good faith and in a manner reasonably believed by such person to be within the
scope of his or its authority under the Partnership Agreement and in or not
opposed to the best interests of the Partnership, but only if such action or
failure to act does not constitute negligence or misconduct. Thus, the Limited
Partners may have a more limited right of action than would otherwise be the
case in the absence of such provisions. In the absence of a court
determination that the General Partner or officers or directors of the General
Partner were not liable on the merits or guilty of disabling conduct within the
meaning of Section 17(h) of the Investment Company Act of 1940, the decision by
the Partnership to indemnify the General Partner or any such person must be
based on the reasonable determination of independent counsel, after review of
the facts, that such disabling conduct did not occur.
RISK AND OTHER IMPORTANT FACTORS
The purchase of Units offered hereby involves a number of significant risk
factors. In addition to risk factors set forth elsewhere in this Prospectus,
prospective purchasers should consider the following:
A. General Risks
1. Risk of Unspecified and Unprofitable Investments. The proceeds of
this offering are intended to be invested in speculative growth securities most
of which have not yet been selected by the General Partner. See "Investment
Objective and Policies". Therefore, persons who purchase Units will not have
an opportunity to evaluate for themselves the specific investments in which
funds of the Partnership will be invested or the terms of any such investments,
and, accordingly, the risk of investing in Units may be substantially
increased. In addition, there can be no assurance that the Partnership's
investments will prove to be profitable. The purchasers of Units must depend
solely on the ability of the General Partner with respect to the selection and
timing of investments. See "The General Partner and Its Affiliates" and
"Investment Objective and Policies Sources of Investment Opportunities".
2. Risks of Equity Investments. The Partnership is authorized to make
equity investments offering the potential for long-term capital appreciation.
These investments may include equity investments in leveraged buyout
transactions, and in transactions involving financial restructurings or
recapitalization of operating companies. Investments may also be made in real
estate opportunities and, to a lesser extent, in venture capital transactions.
These investments involve a high degree of business and financial risk that can
result in substantial losses. Among these are the risks associated with
investment in companies with little or no operating history and companies
operating at a loss or with substantial variations in operating results from
period to period. These companies may encounter intense competition from
established companies with greater resources. In addition, companies in
high-technology fields face special risks of product obsolescence. Leveraged
buyout investments typically involve a high degree of debt financing and the
highly leveraged financial structure of these transactions introduces
substantial additional risks. Investments in companies that undertake
financial recapitalization or restructuring transactions involve the risk,
among others, that the transaction may not resolve financial or operational
conditions that led to the recapitalization or restructuring; in addition, to
the extent that a company remains leveraged following the completion of such a
transaction, an equity investment in the company may involve risks similar to
an equity investment in a leveraged buyout transaction. In addition, companies
in which the Partnership makes private equity investments may subsequently
require additional capital and may seek follow-on investments.
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3. Risks of Real Estate Investments. Real estate investments are subject
to a number of risks, including uncertainty of cash flow to meet fixed
obligations, adverse changes in local market conditions and neighborhoods,
changes in interest rates, the need for unanticipated renovation, changes in
real estate taxes and increases in other operating expenses. Real estate
investments may be illiquid. Investments in real estate of the type
contemplated by the Partnership are usually long term and can be as long as
fifteen years. Real estate investment cycles typically have lasted three to
five years, but recently have been longer.
4. Risks of High Yield Debt Investments. The Partnership is authorized
to make investments in high yield corporate debt securities (also referred to
as "junk bonds") offering the potential for long-term capital appreciation.
High yield debt securities are predominantly speculative with respect to the
capacity to pay interest and repay principal in accordance with the terms of
the security and generally involve a greater volatility of price than
securities in higher rating categories. In addition, to the extent that
affiliates of the Partnership hold securities of issuers in which the
Partnership has invested, the Partnership may be precluded by the Investment
Company Act of 1940 (the "Investment Company Act") from participating in sales
or other transactions in which such affiliates are participants unless it is
able to obtain exemptions under such statute from the Securities and Exchange
Commission. The inability to participate in such transactions may adversely
affect the Partnership in terms of the timing of dispositions of such
investments and the proceeds realized by the Partnership from such investments.
5. Need for Investment Company Act Exemptions. In addition to the
restrictions described above, the Investment Company Act contains restrictions
on co-investments by a registered investment company (such as the Partnership)
and affiliates of its sponsor and on purchases of securities by a registered
investment company from affiliates of its sponsor. Accordingly, as described
under "Investment Objective and Policies Sources of Investment Opportunities",
exemptions under the Investment Company Act may be required before the
Partnership can make investments in transactions where ML & Co. or its
affiliates are co-investors or where ML & Co. or its affiliates seek to sell an
investment to the Partnership. In this regard, the General Partner has
obtained blanket exemptive relief from the Securities and Exchange Commission
permitting co-investments and other transactions with ML & Co. and its
affiliates in leveraged buyout and other equity investments. The General
Partner has also obtained similar exemptive relief for venture capital
investments made by the Partnership with ML Venture Partners II, L.P. The
Partnership has applied for additional exemptive relief with respect to
co-investments by the Partnership and affiliated co-investors. There can be no
assurance that the Partnership will be able to obtain such requested relief or
similar exemptions in the future with respect to proposed purchases and sales
of portfolio securities in transactions in which affiliates of the Partnership
are participants and which do not qualify under the terms of existing
exemptions or those currently pending.
6. Illiquid Investments. Investments of the types to be made by the
Partnership are generally illiquid. Leveraged buyout and venture capital
investments may typically take from four to seven years to reach a state of
maturity where disposition can be considered. Real estate investments are
expected to be illiquid as described above. Investments in corporate
restructurings and recapitalization transactions may also require a substantial
time period before dispositions can be effected. In addition, investments
acquired by the Partnership in private transactions will generally be subject
to restrictions imposed by the Federal securities laws on resale by the
Partnership. Investments made by the Partnership in issuers in which ML & Co.
or its affiliates have significant investment positions may be subject to
further limitations imposed by the Federal securities laws which may delay the
disposition of publicly-traded securities owned by the Partnership.
7. Delay in Partnership Investments. Although the General Partner will
use its best efforts to invest Partnership funds as promptly as practicable, it
is anticipated that there may be a significant period of time (up to three to
four years) before the proceeds from the offering will be fully invested.
8. Reliance on the General Partner and Others. All decisions with
respect to the management of the Partnership will be made exclusively by the
General Partner. Limited Partners have no right or power to take part in the
management or control of the business of the Partnership. Accordingly, no
person should purchase Units unless such person is willing to entrust all
aspects of the management of the Partnership to the General Partner. See
"Summary of the Partnership Agreement" for the limitations imposed on the
Limited Partners' ability to remove
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the General Partner as general partner. The Partnership may make minority
equity investments in corporations, general partnerships, limited partnerships,
grantor trusts or management programs where investors are permitted at most a
limited role in the management of such ventures. To the extent the Partnership
invests in or through such entities or programs, the success or failure of such
ventures will depend on the skills of the venture's sponsor, promoter or
manager and not on the General Partner.
9. Absence of Operating History and Management Experience. The
Partnership has been recently formed and has no operating history upon which
purchasers of Units may base an evaluation of its likely performance. While
the composition of its officers and directors has changed over the years since
the General Partner's formation, the General Partner has managed similar
partnerships for more than ten years. See "The General Partner and Its
Affiliates".
10. Competition. It may be expected that the Partnership will encounter
substantial competition for certain investments, particularly from other
entities having similar investment objectives. There can be no assurance that
the Partnership will be successful in obtaining suitable investment
opportunities or that a desirable mix of investments will be achieved.
11. Use of Leverage. The Partnership has authority to utilize leverage
(i.e., borrowed funds or senior securities) in making investments as will many
of the entities in which the Partnership will make its investments. The use of
leverage, either by the Partnership or by the entities in which it invests,
would exaggerate increases or decreases in the Partnership's net assets and,
because of required debt service obligations, may result in delays in the
distribution of cash to Limited Partners. The Partnership Agreement does not
limit the amount of indebtedness that the Partnership may incur. The
Investment Company Act generally limits the amount of indebtedness the
Partnership may incur to 331/3% of its gross assets.
B. Income Tax Risks
12. Challenge to Tax Status. The availability to the Partners of the tax
attributes of investing in the Partnership depends on the classification of the
Partnership as a partnership, rather than as an "association taxable as a
corporation, for Federal income tax purposes. Brown & Wood, Tax Counsel to the
Partnership, will deliver its opinion to the Partnership that, at the time of
the admission of Qualified Investors to the Partnership as Limited Partners,
the Partnership will be treated as a partnership and will not be a publicly
traded partnership for Federal income tax purposes. However, such opinion is
not binding on the Internal Revenue Service ("IRS") and there can be no
assurance that the IRS could not successfully challenge the classification of
the Partnership as a partnership. Moreover, whether the Partnership will
continue to be treated as a partnership will depend on whether there are
changes in present law and regulations affecting partnerships and whether the
Partnership continues to satisfy various criteria. See "Tax Aspects of
Investment in the Partnership Classification as a Partnership".
13. Possible Changes in Law. The rules dealing with Federal income
taxation are under continual review by Congress and the IRS, resulting in
frequent revisions of the Federal tax laws and regulations promulgated
thereunder and revised interpretations of established concepts. No assurance
can be given that, during the term of the Partnership, applicable Federal
income tax laws or the interpretations thereof will not be changed in a manner
that would have a material adverse effect on an investment in the Partnership.
14. Fringe Benefits. The General Partner will incur various expenses in
connection with the organization and operation of the Partnership and will pay
any sales or brokerage commissions charged in connection with the Partnership's
investments. Since Units are being offered solely to ML & Co. employees and
non-employee directors, it is possible that the IRS would view the General
Partner's payment of such expenses as an indirect method of compensating the
employee-Limited Partner (i.e., as a fringe benefit). If the IRS were
successful in such characterization, an amount equal to the fair market value
of the underlying goods and services provided by the General Partner in
connection with the Partnership might be includable in the Limited Partner's
gross income as additional compensation. The Limited Partner may not, however,
be allocated a Partnership deduction in an amount corresponding to such income
inclusion because some of such fees and expenses incurred by the General
Partner
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on behalf of the Partnership would be attributable to nondeductible syndication
expenses, or investment expenses subject to the limitations on deductibility of
itemized miscellaneous expenses, or treated as part of the capitalized cost of
the Partnership's portfolio assets. See "Fringe Benefits" under "Tax Aspects
of Investment in the Partnership Other Tax Considerations".
C. Partnership and Contractual Risks
15. Funds Available from Offering. The potential profitability of the
Partnership and the risks associated therewith could be affected by the amount
of funds at its disposal. In the event the Partnership receives less than the
maximum proceeds, its ability to invest in a diversity of investments and
obtain a spreading of risk will be lessened and thus the risks associated with
the investment may be increased. See "Investment Objective and Policies".
16. Possible Loss of Limited Liability. The Partnership Agreement
provides certain rights for the Limited Partners by vote of a
majority-in-interest of the Limited Partners to, among other things, remove and
replace the General Partner, amend the Partnership Agreement, dissolve the
Partnership, approve or consent to certain actions of the General Partner and
approve the sale of all or substantially all of the Partnership's assets. (As
used in this Prospectus, "majority-in-interest" means the Limited Partners
whose aggregate capital contributions represent over 50% of the aggregate
capital contributions of all Limited Partners.) Although under current law in
Delaware, the jurisdiction of the Partnership's organization, such rights are
permitted without resulting in a loss of limited liability of Limited Partners,
in some jurisdictions there is uncertainty as to whether the exercise of these
rights under certain circumstances could cause the Limited Partners to be
deemed general partners of the Partnership under applicable state laws with a
resulting loss of limited liability. If the Limited Partners were deemed to be
general partners of the Partnership, they would be generally liable for
Partnership obligations (other than nonrecourse obligations), which could be
satisfied out of their personal assets.
In order to minimize the risk of general liability, the exercise of these
rights by the Limited Partners is subject under the Partnership Agreement to
the prior receipt of an opinion of counsel to the effect that the existence and
exercise of such rights will not adversely affect the status of the Limited
Partners as limited partners of the Partnership. If the Limited Partners
receive such an opinion of counsel, the General Partner will pay the cost
involved in obtaining such an opinion. See "Summary of the Partnership
Agreement Voting Rights". It should be noted that due to present and possible
future uncertainties in this area of partnership law, it may be difficult or
impossible to obtain an opinion of counsel to the effect that the Limited
Partners may exercise certain of their rights without jeopardizing their status
as Limited Partners.
17. Repayment of Certain Distributions. In the event that the
Partnership is unable otherwise to meet its obligations, its Limited Partners
may be required to pay to the Partnership or to pay to creditors of the
Partnership distributions previously received by them to the extent such
distributions are deemed to have been wrongfully paid to them. In addition,
Limited Partners may be required to repay to the Partnership any amounts
distributed which are required to be withheld by the Partnership for tax
purposes.
18. Absence of Market for Partnership Units. Purchasers of Units should
view their interest in the Partnership as a long-term, illiquid investment.
There is not now any market for Partnership Units and no market is expected to
develop. See "Transferability of Units". In addition, Units will not be
redeemable, except that the estate of any deceased Limited Partner will be able
to elect to have the Limited Partner's Units repurchased by the General Partner
or the Partnership for a price equal to the value of the Limited Partner's
interest determined at the next succeeding annual appraisal date, which will
generally occur as of the last day of the fiscal year. To have Units
repurchased, the estate of a Limited Partner must notify the General Partner
of its election to have the Units repurchased within 30 days after the date the
annual appraisal is sent to Limited Partners.
19. Reinvestment. The General Partner has the discretion to reinvest all
Partnership revenues. See "Summary of the Offering Reinvestment Policy".
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20. Dissolution. The General Partner has the right to dissolve the
Partnership without the consent of the Limited Partners at any time after
January 1, 2000. See "Summary of the Offering Dissolution".
COMPENSATION AND FEES
The Partnership is designed to serve as an employee-benefit vehicle for
employees of ML & Co. and its subsidiaries satisfying certain income
requirements and is not intended to earn compensation or fees for ML & Co. or
its affiliates. However, due to the structure of the Partnership, its
management by an affiliate of ML & Co. and its proposed investment activities,
some benefits will accrue to affiliates of ML & Co. and their employees,
including the following:
(i) The General Partner will receive a 1% interest in all items of
Partnership income, gain, deduction, loss and credit, for which it
will make no cash capital contribution beyond the $99.00 it
contributed upon formation of the Partnership. However, the General
Partner is generally obligated to pay, on behalf of the Partnership,
all expenses incurred by the Partnership that are not paid by ML &
Co. or its other subsidiaries, including brokerage costs and sales
commissions (including sales commissions paid directly or indirectly
to MLPF&S) and operating expenses. The General Partner will be
entitled to receive annual reimbursements from the Partnership, in
amounts of up to 1.5% of the Limited Partners capital contributions,
of operating expenses incurred by the General Partner with respect to
the Partnership. Expenses paid by the General Partner which are not
reimbursed to it will be treated as capital contributions of the
General Partner and reflected in its capital account. Under the terms
of the Partnership Agreement, upon dissolution of the Partnership,
positive amounts in a Partner's capital account will be a priority
item in the distribution of liquidated assets, and the General
Partner will be entitled to such distributions, if any.
(ii) To the extent that the Partnership invests in investment partnerships
or other investment vehicles offered by MLPF&S ("Sponsored
Programs"), the Partnership's purchase of such securities or assets
will be counted toward the minimum sales requirements often included
as a condition to "best efforts" offerings and therefore help satisfy
conditions to MLPF&S's receipt of any compensation in connection with
such offerings.
(iii) Employees of affiliates of ML & Co. (including certain members of the
Advisory Committee of the General Partner) are involved in the
origination of investments that may be acquired by the Partnership
and the sale or management of Sponsored Programs, and their
compensation is in large part determined by or related to the success
of such offerings. If the Partnership invests in these investments,
such employees may benefit accordingly.
(iv) If the Partnership invests in Sponsored Programs in which affiliates
of the General Partner issue securities and/or perform management and
other services for which they receive compensation, ML & Co. and its
subsidiaries will derive such benefits. The Partnership's investment
will, in all cases, be on the same terms as an investment offered to
nonaffiliated parties.
(v) To the extent the General Partner or its affiliates lend funds to the
Partnership or any partnership or other entity in which the
Partnership invests, the interest charges on such funds may be deemed
to be additional compensation to the General Partner or such
affiliates.
THE PARTNERSHIP
The Partnership was formed as of January 4, 1994, as a limited partnership
under Delaware law for the purpose of enabling Qualified Investors to pool
their investment resources in order to participate in certain investment
opportunities that are sponsored by or become available to ML & Co. and its
affiliates. It is intended
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that the Partnership serve as an investment vehicle which provides access to
investment opportunities which are not otherwise available, thus serving as an
incentive for Qualified Investors to remain as employees of ML & Co. and its
affiliates.
Upon the admission of Qualified Investors as Limited Partners, the Initial
Limited Partner will withdraw as a Partner of the Partnership.
The Partnership intends, whenever possible, to form, re-form or otherwise
qualify to do business in all jurisdictions where such qualification is
necessary to carry on Partnership business or to preserve the limited liability
of the Limited Partners.
The Partnership is a non-diversified, closed-end investment company. See
"Exemptions from the Investment Company Act of 1940" for a summary of certain
exemptions from the Investment Company Act applicable to the Partnership.
Financial Status of the Partnership
The Partnership was formed with a minimal capitalization of $100.00,
consisting of capital contributions of $99.00 by the General Partner and $1.00
by the Initial Limited Partner. The Partnership has not commenced operations,
other than temporarily to invest its start-up monies in a money market fund
sponsored by a subsidiary of ML & Co. Because the General Partner is obligated
to pay all the operating and overhead expenses of the Partnership, the
Partnership has no current or long-term liabilities arising from such expenses.
See "Financial Statements".
The Partnership has adopted a calendar year for tax reporting purposes.
Use of Proceeds
All of the proceeds of the offering of Units will be contributed to the
Partnership as capital contributions of the Limited Partners. After payment by
the Partnership of organizational and offering expenses, estimated at $205,000,
but not exceeding 2% of the proceeds of the offering, the net proceeds will be
available for investment.
The Partnership will expend substantially all of its funds for Partnership
investments as soon as practicable. Pending selection of long-term
investments, Partnership funds will be temporarily invested in money market
instruments, securities issued by other investment companies and other
marketable securities. The Partnership may maintain reserves for follow-on
investments and other investment contingencies. See "Investment Objective and
Policies". The Partnership may also maintain reserves to the extent necessary
to reimburse the General Partner for expenses incurred by it as described below
under "Capital Contributions; Partnership Expenses".
Capital contributions of Limited Partners will be held by the Partnership
in a Partnership account for the benefit of the Limited Partners and will be
used only for the purposes set forth herein.
Capital Contributions; Partnership Expenses
The proceeds of the offering of Units will be contributed to the
Partnership as capital contributions of the Limited Partners. The General
Partner made an initial capital contribution of $99.00 to the Partnership upon
its formation and will not make any further cash capital contribution upon the
admission of subscribing Qualified Investors as Limited Partners; however, the
General Partner will incur various expenses in connection with the operation of
the Partnership for, among other items, legal and accounting fees, telephone
charges, postage and other general and administrative items and out-of-pocket
costs of examination, appraisal and negotiation of investments, which expenses
are expected to be in excess of the amounts for such expenses paid by ML & Co.
or its other subsidiaries or reimbursed to it by the Partnership. The General
Partner will also be obligated to pay any sales or brokerage commissions
charged in connection with Partnership investments, but will not be obligated
to pay debt service or other interest charges incurred in connection with
Partnership investments. The General Partner will be
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entitled to receive annual reimbursements from the Partnership, in amounts of
up to 1.5% of the Limited Partners' capital contributions, of operating
expenses incurred by the General Partner with respect to the Partnership.
Expenses paid by the General Partner which are not reimbursed to it will be
deemed to be a capital contribution by the General Partner to the Partnership.
See "Compensation and Fees". The General Partner will deliver to the
Partnership quarterly a certificate itemizing the Partnership expenses it has
paid and maintain adequate records of such expenses.
Partnership Distributions and Allocations
In general, during the term of the Partnership, all items of Partnership
income, gain, deduction, loss or credit will be allocated 1% to the General
Partner and 99% to the Limited Partners (except that losses will be allocated
to the General Partner to the extent the Limited Partners' capital accounts
equal zero and the General Partner's capital account is positive due to its
payment of organizational and operating expenses of the Partnership in excess
of 1% of the Limited Partners' capital contributions). Upon liquidation, gross
income from the sale of the Partnerships assets will be allocated to the
Partners in the amount of their negative capital account balances, then to the
General Partner to the extent the amount of the capital contribution made by it
to the Partnership is in excess of 1% of the Limited Partners' capital
contributions, and thereafter 99% to the Limited Partners and 1% to the General
Partner. These items will be allocated among the Limited Partners in the ratio
the capital contribution of each Limited Partner (or the capital contribution
attributable to the interest held by a transferee Limited Partner) bears to the
total capital contributions of all Limited Partners.
Distributable Cash, as defined in the Partnership Agreement, will be
distributed 99% to the Limited Partners and 1% to the General Partner. The
General Partner may also make distributions in kind of securities or assets
held by the Partnership. Cash distributions will be credited to the Limited
Partner's MLPF&S securities account specified in his Signature Page and Power
of Attorney unless the General Partner is instructed otherwise by a Limited
Partner.
Allocations among the transferor and transferee of a Partnership interest
are described under "Transferability of Units".
Dissolution; Distributions on Liquidation
The Partnership term extends to December 31, 2034. However, pursuant to
the Partnership Agreement, the General Partner may dissolve the Partnership,
without the consent of the Limited Partners, at any time after January 1, 2000.
It is not the General Partner's intention to dissolve the Partnership prior to
the time when the Partnership's equity investments have matured and the
Partnership can dispose of its other portfolio investments. Other events
causing dissolution are summarized under "Summary of the Partnership
Agreement Dissolution".
In settling accounts after the sale of all Partnership property upon
liquidation, the assets of the Partnership shall be paid out (i) to creditors
(including any creditor who is a Partner), in the order of priority as provided
by law; (ii) to each Partner in an amount equivalent to the positive amount of
his capital account on the date of distribution, after giving effect to any
allocation of profits or losses arising from sales on liquidation; and (iii)
the balance, 99% to the Limited Partners and 1% to the General Partner.
Upon liquidation, the General Partner may distribute Partnership assets in
kind.
THE GENERAL PARTNER AND ITS AFFILIATES
KECALP Inc., an indirect wholly-owned subsidiary of ML & Co., is the
General Partner of the Partnership and as such will manage and control the
business and affairs of the Partnership and invest Partnership funds. The
General Partner is a Delaware corporation formed in June 1981 for the purpose
of serving as general partner of employee benefit partnerships such as the
Partnership, and has its business and executive offices at South Tower, World
Financial Center, 225 Liberty Street, New York, New York 10080-6123 (telephone:
(212) 236-7302).
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Although most of the officers and directors of the General Partner have been
employed in the financial community for many years, the experience of the
General Partner in managing portfolios of investments has been limited to the
management of six partnerships similar to the Partnership. The directors and
principal officers of the General Partner and their business experience for the
past five years are:
John L. Steffens President and Director
Walter Perlstein Director
Rosemary T. Berkery Vice President and Director
James V. Caruso Vice President and Director
Andrew J. Melnick Vice President and Director
Patrick J. Walsh Vice President and Director
Margaret E. Nelson Secretary
Robert Tully Vice President and Treasurer
John L. Steffens, age 52, President and Director. Mr. Steffens has served
as Executive Vice President, Private Client Group, of ML & Co. since October,
1990. Prior to that, from July, 1985, he was President of the Consumer Markets
Sector of ML & Co.
Walter Perlstein, age 74, Director. Mr. Perlstein was affiliated with
Merrill Lynch from 1972 to 1989, most recently as Executive Vice President and
Director of KECALP Inc., and as Vice President of MLPF&S, Merrill Lynch Venture
Capital Inc. and Merrill Lynch R&D Management Inc. He presently is serving in
a consulting role as Director of KECALP Inc.
Rosemary T. Berkery, age 40, Vice President and Director. Ms. Berkery is
Associate General Counsel of ML & Co. From 1988 to May, 1993, Ms. Berkery
served as Assistant General Counsel of MLPF&S and as General Counsel to the
Investment Banking Group. Ms. Berkery has been a First Vice President of
MLPF&S since 1988.
James V. Caruso, age 42, Vice President and Director. Mr. Caruso, a
Director in the Investment Banking Group of ML & Co., serves as the Chief
Financial Officer for Merrill Lynch's key employee investment partnerships. He
is Treasurer of Merrill Lynch Capital Partners, Inc. ("MLCP"), the general
partner of two institutional leveraged buyout funds. Since June, 1992, Mr.
Caruso has also performed administrative services for Merrill Lynch's retail
partnerships.
Andrew J. Melnick, CFA, age 51, Vice President and Director. Since
joining Merrill Lynch in January, 1988, Mr. Melnick has served as Director of
the Global Fundamental Equity Research Department.
Patrick J. Walsh, age 49, Vice President and Director. Mr. Walsh has
served as Senior Vice President, Director of Human Resources for ML & Co. since
January, 1991. Prior to that, from 1984 to 1991, Mr. Walsh managed Asset
Accumulation Services in the Consumer Markets Sector of ML & Co., where he was
responsible for managing and marketing the various account services which are
tailored for the individual investor.
Margaret E. Nelson, age 45, Secretary. Ms. Nelson is a Senior Counsel of
ML & Co. From 1983 to 1992, Ms. Nelson was an associate at the law firm of
Skadden, Arps, Slate, Meagher & Flom.
Robert F. Tully, age 46, Vice President and Treasurer. Since joining
Merrill Lynch in 1989, Mr. Tully has served as an Assistant Vice President in
the Investment Banking Group. Prior to that, he was Vice President of Finance
with Peerless Petrochemicals Inc., an oil and gas operator and general partner
to oil and gas limited partnerships.
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In addition, the General Partner has established an advisory committee
(the "Advisory Committee") to assist the directors and principal officers of
the General Partner in evaluating investment opportunities presented to the
Partnership. The members of the Advisory Committee and their business
experience for the past five years are:
Matthias B. Bowman
James J. Burke, Jr.
Robert J. Farrell
Alain Lebec
E. Stanley O'Neal
Charles K. Sweeney
Matthias B. Bowman, age 45. Mr. Bowman has been a Managing Director in
the Investment Banking Group of ML & Co. since 1978 and a First Vice President
of MLPF&S since July, 1988. During the last five years, Mr. Bowman has managed
a department that was responsible for maintaining ML & Co.'s relationship with
several corporate clients within the Investment Banking Group and is presently
the Manager of a department within the Investment Banking Group that has
responsibility for the Group's principal investments.
James J. Burke, age 41. Mr. Burke is President and Chief Executive
Officer of MLCP, the general partner of two
leveraged buyout funds totaling $1.9 billion. Mr. Burke co-founded Merrill
Lynch's leveraged buyout effort in 1981. He has been a First Vice President of
MLPF&S since July, 1988.
Robert J. Farrell, age 61. Mr. Farrell is Senior Investment Advisor for
MLPF&S. From 1968 to March, 1982, he served as the Manager of the Market
Analysis Department of the Securities Research Division of MLPF&S. Mr. Farrell
has served as a Senior Vice President of MLPF&S since January, 1986.
Alain Lebec, age 43. Mr. Lebec is a Managing Director and head of the
Telecommunications, Media and Technology Banking Department in the Investment
Banking Group of ML & Co. Mr. Lebec joined ML & Co. as a Managing Director and
as a Vice President of MLPF&S in 1984 as a result of the acquisition by ML &
Co. of Becker Paribas Incorporated, where he was a Managing Director of its
Mergers and Acquisitions Group.
E. Stanley O'Neal, age 42. Mr. O'Neal is a Managing Director and head of
the High Yield Finance and Restructuring Department in the Investment Banking
Group of ML & Co. Mr. O'Neal joined ML & Co. in 1986.
Charles K. Sweeney, age 51. Mr. Sweeney joined MLPF&S in 1965 as a member
of the Junior Executive Training Program. Since 1966, he has continued to work
as a Financial Consultant on both the Private Client and Capital Market sides
of the firm. He has completed management development, and was elected a Senior
Vice President - Investments in 1989.
Authority of the General Partner
The General Partner will have the authority to make all decisions
regarding the acquisition, financing, operation, management and ultimate
disposition of Partnership investments, assets and properties. The Board of
Directors of the General Partner will approve all investments made by the
Partnership and will be responsible for the general supervision and
administration of Partnership activities. In investing the Partnership's
capital, the General Partner will consider those investments proposed by
unrelated third parties as well as opportunities presented to the Partnership
by affiliates of the General Partner. All investments chosen by the General
Partner for the Partnership, whether from third parties or from other
opportunities presented to the Partnership by affiliates, will be evaluated
independently of each other and chosen only if the General Partner believes
they are suitable for and in the best interest of the Partnership. The General
Partner is unable to predict to what extent Partnership investments will be
made in affiliate-proposed investments or investment opportunities proposed by
unrelated third parties. The General Partner will execute or cause to be
executed any and all agreements, purchase orders, debt agreements, documents,
certificates and other instruments necessary for the purchase of, and
investment in, assets of the Partnership. See "Conflicts of Interest" and
"Investment Objective and Policies".
16
<PAGE>
Financial Status of the General Partner
The General Partner was formed with minimal capitalization. The General
Partner has agreed to use its best efforts at all times to maintain its net
worth at a level necessary to meet any present or future requirements of the
Federal income tax law regarding the net worth of a general partner of a
limited partnership. ML & Co. will issue a demand promissory note to the
General Partner in an amount necessary to meet current requirements and provide
the General Partner with such funds as are necessary to meet its other
obligations under the Partnership Agreement. See "Financial Statements".
Significant Affiliates of the General Partner
MLPF&S and the General Partner are both wholly-owned subsidiaries of ML &
Co. It is anticipated that ML & Co. and the investment banking group within
MLPF&S will be important sources of Partnership investments, particularly with
respect to leveraged buyout, corporate restructuring and recapitalization and
real estate transactions, and that other groups within MLPF&S and other
subsidiaries of ML & Co. may also be sources of investments.
Prior Partnerships
The General Partner also acts as the general partner for Merrill Lynch
KECALP L.P. 1991 (the "1991 Partnership"), Merrill Lynch KECALP L.P. 1989 (the
"1989 Partnership"), Merrill Lynch KECALP L.P. 1987 (the "1987 Partnership"),
Merrill Lynch KECALP L.P. 1986 (the "1986 Partnership"), Merrill Lynch KECALP
L.P. 1984 (the "1984 Partnership") and Merrill Lynch KECALP Growth Investments
Limited Partnership 1983 (the "1983 Partnership", and together with each of
such other partnerships, the "KECALP Partnerships"). The limited partnership
interests in these partnerships were offered only to certain employees and
directors of ML & Co. and its subsidiaries. Set forth below is information
concerning these investments by the partnerships. This information should not
be construed to indicate that the Partnership will or could make investments
that will produce results comparable to those of the investments made by the
earlier partnerships. It is expected that the types of equity investments made
by the Partnership will more closely resemble those of the 1991 and the 1989
Partnerships than the earlier partnerships.
1991 Partnership
The 1991 Partnership closed its subscription offering on September 11,
1991, at which time it sold 20,799 units of limited partnership interest to 964
investors for $20,799,000. By August 31, 1993, the 1991 Partnership had
invested in or committed to 16 investments with an aggregate purchase price of
$18.5 million. Fifteen were made in leveraged buyouts ($16.9 million) and one
in real estate ($1.6 million).
Set forth below is a chart showing the results, as of March 31, 1994, of
completed equity transactions with respect to the 1991 Partnership's
investments. The dates of purchase refer to the dates on which investments
were acquired by or on behalf of the 1991 Partnership.
17
<PAGE>
<TABLE>
<CAPTION>
Date of Date of
Classification Company Purchase Sale Cost Proceeds
-------------- ------- -------- ------ ---- --------
<S> <C> <C> <C> <C> <C>
Leveraged Buyout First USA, Inc. 9/91 2/93 $ 52,913 $ 162,037
Leveraged Buyout First USA, Inc. 9/92 3/93 3,052 9,345
Leveraged Buyout Hospitality 1/92 7/93 345,751 1,009,411
Franchise Systems,
Inc.
Leveraged Buyout First USA, Inc. 9/91 8/93 68,808 390,261
Leveraged Buyout Hospitality 1/92 11/93 315,159 1,244,700
Franchise Systems,
Inc.
Leveraged Buyout Hospitality 1/92 1/94 339,090 1,726,943
Franchise Systems,
Inc.
Leveraged Buyout First USA, Inc. 9/91 3/94 62,649 451,075
---------- ----------
Total $1,187,422 $4,993,772
---------- ----------
NET PROFIT REALIZED $3,806,350
==========
</TABLE>
1989 Partnership
The 1989 Partnership closed its subscription offering on May 16, 1989, at
which time it sold 21,096 units of limited partnership interest to 843
investors for $21,096,000. By May 1, 1992, the 1989 Partnership was fully
invested in 24 investments with an aggregate purchase price of $23.1 million.
Of the 24 investments, 23 were in leveraged buyouts ($22.6 million) and one in
venture capital ($500,000).
Set forth below is a chart showing the results, as of March 31, 1994, of
completed equity transactions with respect to the 1989 Partnership. The dates
of purchase refer to the dates on which investments were acquired by or on
behalf of the 1989 Partnership.
<TABLE>
<CAPTION>
Date of
Classification Company Purchase Date of Sale Cost Proceeds
- -------------- ------- -------- ------------ ---- --------
<S> <C> <C> <C> <C> <C>
Leveraged Buyout RJR Nabisco 5/91 9/92 $ 5,071 $ 2,407,194
Holding Corp.
Leveraged Buyout RJR Nabisco 5/91 12/92 2,535,044 3,621,389
Holding Corp.
Leveraged Buyout First USA, Inc. 5/91 2/93 83,961 379,830
Leveraged Buyout First USA, Inc. 8/91 2/93 316,370 968,837
Leveraged Buyout First USA, Inc. 5/91 3/93 17,193 77,778
Leveraged Buyout First USA, Inc. 5/91 8/93 376,132 3,151,488
Leveraged Buyout First USA, Inc. 5/91 8/93 17,463 146,317
Leveraged Buyout First USA, Inc. 5/91 3/94 358,358 3,811,597
---------- -----------
Total $3,709,592 $14,564,430
---------- -----------
NET PROFIT REALIZED $10,854,838
===========
</TABLE>
1987 Partnership
The 1987 Partnership closed its subscription offering on May 28, 1987, at
which time it sold 13,549 units of limited partnership interest to 895
investors for $13,549,000. By May 23, 1991, the 1987 Partnership was fully
invested or committed to invest in 26 investments with an aggregate purchase
price of $15.3 million. Of the 26 investments or commitments, 18 were in
leveraged buyouts ($10.6 million), seven in venture capital situations ($2.7
million) and one in real estate ($2.0 million).
Set forth below is a chart showing the results, as of March 31, 1994, of
completed equity transactions with respect to the 1987 Partnership's
investments. The dates of purchase indicated refer to the dates on which
investments were acquired by or on behalf of the 1987 Partnership.
18
<PAGE>
<TABLE>
<CAPTION>
Date of Date of
Classification Company Purchase Sale Cost Proceeds
-------------- ------- -------- ---- ---- --------
<S> <C> <C> <C> <C> <C>
Leveraged Buyout Mueller Holdings, 11/88 11/88 $ 62,507 $ 169,124
Inc.
Leveraged Buyout Apparel marketing 5/89 5/89 158,872 162,544(A)
Industries, Inc.
Leveraged Buyout GU Acquisition 7/89 7/89 1,373,836 3,088,851(B)
Corporation
Venture Capital Telecom USA 6/89 7/89 440,616 649,625
Venture Capital Magnesys 9/88 12/87 253,073 0
Venture Capital BBN Integrated 3/89 3/90 542,978 0(C)
Switch Partners L.P.
Venture Capital TCOM Systems, Inc. 12/87 3/91 581,791 0
Venture Capital Meteor Message 9/88 9/91 308,086 0
Corporation
Leveraged Buyout GND Holdings 7/89 6/92 591,612 1,215,869
Corporation
Venture Capital IDEC Pharmaceuticals 6/89 7/92 16,304 88,244
Leveraged Buyout RJR Nabisco Holdings 5/91 9/92 2,901 1,374,093
Corp.
Leveraged Buyout John Alden Financial 5/89 10/92 248,476 230,257
Group
Venture Capital Bolt, Barenek & 3/89 11/92 11,150 19,956
Newman
Levaraged Buyout RJR Nabisco Holdings 5/91 12/92 1,450,665 2,066,766
Corp.
Leveraged Buyout General Felt 5/91 3/93 237,846 359,023
Industries
Leveraged Buyout John Alden Financial 5/89 11/93 20,705 645,439
Corporation
Leveraged Buyout Peter J. Schmitt, 5/91 12/93 190,580 0
Co.
Leveraged Buyout Servam Corporation 3/91 12/93 26,048 0
---------- -----------
Total $6,518,046 $11,169,791
---------- -----------
NET PROFIT REALIZED $ 4,651,745
===========
- -----------------
(A) Includes value of preferred stock obtained in transaction.
(B) Proceeds include $591,612 which was used to purchase shares of GND Holdings Corporation.
(C) Received shares of Bolt, Barenek & Newman as part of dissolution of partnership.
</TABLE>
1986 Partnership
The 1986 Partnership closed its subscription offering on April 15, 1986,
at which time it sold 7,234 units of limited partnership interest to
approximately 500 investors for $7,234,000. By May 10, 1991, the Partnership
was fully invested in 26 investments with an aggregate purchase price of $8.3
million. Of the 26 investments, 16 were in venture capital situations ($4.4
million), nine in leveraged buyouts ($3.1 million) and one in a package of
securities in connection with a recapitalization ($759,000).
Set forth below is a chart showing the results, as of March 31, 1994, of
completed equity transactions with respect to the 1986 Partnership's
investments. The dates of purchase indicated refer to the dates on which
investments were acquired by or on behalf of the 1986 Partnership.
19
<PAGE>
<TABLE>
<CAPTION>
Date of Date of
Classification Company Purchase Sale Cost Proceeds
-------------- ------- -------- ---- ---- --------
<S> <C> <C> <C> <C> <C>
Venture Capital FGIC Corporation 6/86 3/88 $1,084,447 $ 1,889,415
Venture Capital Dallas 4/86 5/88 203,867 470,412
Semiconductor
Corporation
Venture Capital Data Recording 2/88 6/88 202,450 0
Systems, Inc.
Venture Capital Alliant Computer 6/86 7/88 158,529 95,375
Systems Corp.
Leveraged Buyout CMI Holdings, 1/88 4/89 45,349 153,451
Inc.
Other Variety 4/89 4/89 758,842 1,906,283
Leveraged Buyout Printing 4/89 4/89 649,949 2,135,285
Holdings, L.P.
Leveraged Buyout Amstar 1/88 7/89 354,728 1,303,520
Corporation
Venture Capital Intek 8/86 12/89 104,534 0
Diagnostics,
Inc.
Leveraged Buyout Education 4/89 10/89 192,432 643,824
Management Corp.
Venture Capital Qume Corporation 8/86 4/90 211,193 485,625
Venture Capital Computer-Aided 1/88 9/90 117,183 0
Design Group
Venture International 2/87 9/90 208,592 59,611
Capital Power
Technology, Inc.
Venture Capital Robert 7/87 9/90 205,882 0
Wooldridge & Co.
Venture Capital Shared Resource 2/87 9/90 262,501 0
Exchange, Inc.
Leveraged Buyout Prince Holdings, 5/89 10/90 147,601 1,400,807
Inc.
Venture Capital IDEXX 2/87 6/91 33,583 66,388
Corporation
Venture Capital Computer-Aided 1/88 9/91 39,061 0
Design Group
Venture Capital ViewLogic 6/86 12/91 212,874 1,474,388
Systems, Inc.
Venture Capital IDEXX 2/87 1/92 178,312 580,571
Corporation
Venture Capital Enhance 4/89 2/92 238,366 332,558
Financial
Services Group
Leveraged Buyout ALLTEL 2/87 7/92 11,589 163,649
Corporation
Venture Capital Enhance 4/89 8/92 251,042 369,949
Financial Svcs.
Group Inc.
Venture Capital Zentec 12/86 9/92 277,500 0
Corporation
Leveraged Buyout ALLTEL 2/87 3/93 24,277 428,451
Corporation
Venture Capital BehaviorTech, 8/87 7/93 105,669 9,900
Inc.
Leveraged Buyout ALLTEL 2/87 8/93 25,480 483,124
Corporation
Leveraged Buyout ALLTEL 2/87 11/93 12,071
240,807
Corporation ---------- -----------
Total $6,317,902 $14,693,393
---------- -----------
NET PROFIT REALIZED $ 8,375,490
===========
</TABLE>
1984 Partnership
The 1984 Partnership closed its subscription offering on May 22, 1984, at
which time it sold 3,747 units of limited partnership interest to approximately
300 investors for $3,747,000. By February 3, 1988, the 1984
20
<PAGE>
Partnership was fully invested in 23 investments with an aggregate purchase
price of $4.1 million. Of the 23 investments, six were in real estate
($750,000), nine in venture capital ($1.6 million), five in leveraged buyouts
($1.1 million), one in oil and gas ($350,000), one in equipment leasing
($250,000) and one in research and development ($90,000).
Set forth below is a chart showing the results, as of March 31, 1994, of
completed equity transactions with respect to the 1984 Partnership's
investments. The dates of purchase indicated refer to the dates on which
investments were acquired by or on behalf of the 1984 Partnership.
<TABLE>
<CAPTION>
Date of Date of
Classification Company Purchase Sale Cost Proceeds
-------------- ------- --------- ---- ---- --------
<S> <C> <C> <C> <C> <C>
Real Estate Cortland 6/84 12/86 $ 70,498 $ 43,772
Venture Capital California Devices, 12/85 8/87 150,000 0
Inc.
Leveraged Denny's, Inc. 9/86 9/87 399,968 1,898,631
Buyout
Leveraged Buyout Ithaca Corporation 4/86 1/88 422,563 7,488,000(A)
Venture Capital FGIC Corp. 6/86 3/88 601,205 1,133,550
Venture Capital Alliant Computer 6/86 7/88 101,225 63,563
Systems Corp.
Venture Capital Data Recording 2/85 8/88 152,444 0
Systems, Inc.
Leveraged Buyout Printing Holdings, 4/86 4/89 115,706 376,815
L.P.
Leveraged Buyout New Axia Holdings 9/86 12/89 31,225 262,500(B)
Corporation
Venture Capital Intek Diagnostics, 8/86 12/89 100,980 0
Inc.
Leveraged Buyout C.C. Packaging, 9/86 3/90 11,223 15,110
Inc.
Venture Capital Shared Resource 2/87 9/90 74,999 0
Exchange, Inc.
Oil and Gas Berresford 11/84 3/93 350,000 0
Enterprises-Jerry
1984
Venture Capital BehaviorTech, Inc. 8/86 7/93 70,973 6,930
Venture Capital Private Satellite 8/84 9/93 158,575 30,665
Network
Leveraged Buyout Axia Incorporated 12/89 3/94 0 86,120
--------- -----------
Total $2,811,584 $11,365,656
----------- -----------
NET PROFIT REALIZED $ 8,554,072
===========
- ----------------
(A) Includes dividend of $2,460,533.
(B) Includes dividend of $175,000.
</TABLE>
1983 Partnership
The 1983 Partnership closed its subscription offering on May 20, 1983, at
which time it sold 6,915 units of limited partnership interest to approximately
600 investors for $6,915,000. By March 2, 1987, the 1983 Partnership was fully
invested with 21 investments with an aggregate purchase price of approximately
$7.5 million. Of the 21 investments, four were in venture capital ($1.2
million), three in leveraged buyouts ($1.0 million), six in real estate ($2.8
million), three in oil and gas ($900,000), three in equipment financing ($1.1
million) and two in research and development ($500,000).
Set forth below is a chart showing the results as of March 31, 1994, of
completed equity transactions with respect to the 1983 Partnership's
investments. The dates of purchase indicated refer to the dates on which
investments were acquired by or on behalf of the 1983 Partnership.
21
<PAGE>
<TABLE>
<CAPTION>
Date of
Classification Company Purchase Date of Sale Cost Proceeds
-------------- ------- -------- ------------ ---- --------
<S> <C> <C> <C> <C> <C>
Leveraged Buyout Signode Industries 12/85 9/86 $ 761,003 $ 8,096,509
Venture Capital UAS Automation 6/83 11/86 100,003 394,520
Systems, Inc.
Equipment Financing Aztex Associates, 5/83 12/86 64,563 0
L.P.
Research & Devlpmt. BRN R/S Expert, 6/84 5/87 230,000 769,531
L.P.
Leveraged Buyout Denny's, Inc. 9/86 9/87 199,984 949,315
Venture Capital FGIC Corporation 6/86 3/88 1,000,000 1,649,840
Venture Capital Alliant Computer 6/86 7/88 100,000 63,563
Systems Corp.
Leveraged Buyout Medical 6/86 4/90 65,000 162,070
Disposables
Company
Oil and Gas Posse Petroleum, 10/83 2/91 176,469 60,000
Ltd.
Research and NIP Plant 4/81 3/91 232,500 25,000
Devlpmt. Research, Ltd.
Equipment Financing Cortlandt 6/83 4/92 432,882 180,624
Intermodal Leasing
Oil and Gas Berresford 11/84 3/93 150,000 0
Enterprises-Jerry
1984
Oil and Gas Berresford 10/83 3/93 550,000 0
Enterprises-
Margaret #1
---------- -----------
Total $4,062,404 $12,350,972
---------- -----------
NET PROFIT REALIZED $ 8,288,568
===========
</TABLE>
INVESTMENT OBJECTIVE AND POLICIES
General
The investment objective of the Partnership is to seek long-term capital
appreciation. It is expected that a substantial portion of the Partnership's
assets will be invested in privately-offered equity investments in leveraged
buyout transactions and in transactions involving restructurings or
recapitalization of operating companies. Investments may also be made in real
estate opportunities and, to a lesser extent, in venture capital transactions.
These investments are described below. The Partnership may make other
investments in equity and fixed income securities that the General Partner
considers appropriate in terms of their potential for capital appreciation.
Current income will not generally be a significant factor in the selection of
investments. The Partnership may not change its investment objective unless
authorized by the vote of a majority-in-interest of the Limited Partners of the
Partnership. There can be no assurance that the investment objective of the
Partnership will be realized.
While privately-offered equity investments of the types expected to be
acquired by the Partnership generally have the potential for achieving greater
appreciation than investments in publicly-traded securities of established
companies, these investments are highly speculative and involve substantial
risks which are increased by the long-term nature and limited liquidity of such
investments. It is anticipated that the proceeds of the offering will be
invested, or committed for investment, within three to four years after the
date the Partnership commences operations. It is also anticipated that the
Partnership will not reinvest proceeds from the sale of portfolio investments
except that the General Partner may consider reinvestments to the extent
initial investments are disposed of within two years from the closing of the
sale of Units or in connection with follow-on investments made in existing
portfolio companies.
Type of Investments
Leveraged buyout transactions typically involve the purchase of public or
privately-held corporations, or divisions or subsidiaries of such corporations,
through financing provided by equity investors and debt financing. The
transactions generally involve a significant degree of debt financing and the
highly leveraged financial structure of these investments may introduce
substantial risks to equity investors apart from those directly related to a
company's operations. As described under "Sources of Investment Opportunities"
below, the Partnership anticipates that it will seek to co-invest in a number
of these investments with ML & Co. or its affiliates.
22
<PAGE>
The Partnership anticipates that it may also make equity investments in
transactions involving financial restructurings or recapitalization of
operating companies. It is expected that these investments would be made in
connection with the restructuring or recapitalization of a leveraged company
pursuant to which a portion of its outstanding capitalization is to be
exchanged for, or repaid from the proceeds of the issuance of, one or more
classes of new securities. A company will generally undertake a financial
restructuring or recapitalization transaction because its financial structure
is overly leveraged in light of its current or anticipated operations. These
companies may also be encountering financial difficulties in meeting current
debt service payments. The Partnership anticipates that it will seek to
co-invest in financial restructuring or recapitalization transactions with ML &
Co. or its affiliates.
The Partnership also expects that it may make investments in real estate
transactions offering investment potential consistent with the Partnership's
objective of seeking long-term capital appreciation. As reflected in the
sub-heading "Proposed Initial Investment" below, the General Partner has
approved one such investment for the Partnership.
The Partnership does not presently anticipate that it will invest a
significant portion of its assets in venture capital investments. To the
extent the Partnership makes venture capital investments, it expects that these
investments will generally consist of investments in a limited number of new
companies or companies in an early stage of development that the General
Partner believes have outstanding appreciation and profit potential. While the
General Partner will maintain a flexible approach to the selection of venture
capital investments, these investments may include companies involved in
high-technology industries (e.g., telecommunications, microelectronics,
robotics or biotechnology) and companies with innovative manufacturing and
service businesses. Typically venture capital investments may take from four to
seven years to reach a state of maturity where disposition can be considered.
Following an initial equity investment in transactions described above,
the Partnership anticipates that it may, at times, provide additional or
follow-on funds to the issuer. Follow-on investments may be made pursuant to
rights to acquire additional securities, or otherwise in order to increase the
Partnership's position in a successful or promising portfolio company. The
Partnership may also be called on to provide follow-on investments for a number
of other reasons, including providing additional capital to a company to
implement fully its business plans, to develop a new line of business or to
recover from unexpected business problems.
The Partnership may invest up to 5% of its total assets in high yield
corporate debt securities that the General Partner believes have significant
potential for capital appreciation. These securities may be acquired in
restructuring or reorganization transactions in which ML & Co. or its
affiliates are participating as financial adviser or in other capacities. High
yield debt securities, also referred to as "junk bonds", are regarded as
predominantly speculative as to the issuer's ability to make payments of
principal and interest. See "Risk and Other Important Factors".
It is expected that the Partnership will not invest more than 15% of its
assets in any one portfolio company. The equity investments made by the
Partnership in portfolio companies will typically be structured in negotiated
private transactions and will generally be restricted as to the manner of
resale or disposition. The securities acquired by the Partnership will
primarily consist of common stocks and securities convertible into common
stocks, but may also consist of a combination of equity and debt securities and
warrants, options and other rights to obtain such securities or, in the case of
high yield debt securities, the debt securities themselves.
Sources of Investment Opportunities
The Partnership expects to locate suitable investments from a variety of
sources, including affiliates of the General Partner and third parties.
Although the Partnership cannot predict what percentage of its investments will
be in opportunities presented by affiliates of the General Partner or by third
parties, it expects that a significant portion will be invested in
opportunities presented by affiliates of the General Partner. See "The General
Partner and Its Affiliates Significant Affiliates of the General Partner" and
"Conflicts of Interest".
The Partnership will seek to invest in leveraged buyout and other equity
investments. Previous KECALP Partnerships (particularly the 1989 Partnership
and the 1991 Partnership) co-invested to a significant degree in buyout
investments with partnerships managed by MLCP, a subsidiary of ML & Co.
These investments were made available to the KECALP Partnerships by ML & Co.
from its co-investments with
23
<PAGE>
such buyout partnerships. As has been announced, ML & Co. does not generally
expect to make such investments in the foreseeable future and the investment
professionals of such subsidiary are forming a new management company that is
not affiliated with ML & Co. that expects to organize and manage buyout
partnerships. The principals of such new management company have advised the
General Partner that they are in the process of establishing the first
partnership to be managed by such company. The General Partner has also been
advised that, if such partnership is formed, the Partnership will be granted
rights to co-invest with such partnership in an amount of up to $2.5 million in
each investment made by such partnership, subject to a maximum investment by
the Partnership of a 3% interest in any acquired company. Since ML & Co.
expects to invest in such partnership as a limited partner, the Partnership has
applied for an exemptive order from the Securities and Exchange Commission, as
described below, to enable the Partnership to make any such co-investments.
The Investment Company Act contains restrictions on co-investments by a
registered investment company (such as the Partnership) and affiliates of its
sponsor and on purchases of securities by a registered investment company from
affiliates of its sponsor. Accordingly, to the extent the Partnership seeks to
invest in transactions in which ML & Co. or any of its affiliates is also a
participant or to purchase securities from ML & Co. or any of its affiliates,
the Partnership may be required to obtain an exemptive order from the
Securities and Exchange Commission under such Act before it can make the
investment. The prior partnerships for which the General Partner acts as
general partner have been able to obtain such exemptive orders under the
Investment Company Act. In this regard, the Partnership has obtained blanket
exemptive relief from the Securities and Exchange Commission permitting
co-investments under certain circumstances in leveraged buyout and other equity
investments with ML & Co. and its affiliates and in venture capital investments
with ML Venture Partners II, L.P. The Partnership has applied for additional
exemptive relief with respect to co-investment by the Partnership and
affiliated co-investors. There can be no assurance that the General Partner
will be able to obtain similar exemptions in the future with respect to
investments that do not qualify under the terms of existing exemptions.
Investment Factors
Prospective investments will be evaluated by the General Partner upon
selection factors established by the General Partner from time to time. The
following are typical of the factors which may be considered by the General
Partner:
(1) the potential return that may be earned from the investment;
(2) the nature of the risks associated with such investment ( e.g.,
industry risks or risks related to the structure of the
investment opportunity);
(3) the degree of diversification in the Partnership's investment
portfolio;
(4) the financial stability, creditworthiness and reputation of any
proposed partners or joint venturers;
(5) in the case of Sponsored Programs or indirect investments made
through third parties, the background, experience and, where
applicable, prior performance of the issuer of the constituent
securities;
(6) the potential return available in alternative investments; and
(7) other considerations relative to a specific investment being
considered.
Proposed Initial Investments
The General Partner has approved the purchase by the Partnership of three
investments, the details of which are set forth below:
ZML Partners Limited Partnership III ("Zell III") is a limited partnership
formed to act as the managing general partner of Zell/Merrill Lynch Real Estate
Opportunity Partners Limited Partnership III (the "Fund"). The Fund will seek
to acquire a high quality, geographically diversified portfolio of real estate
assets, primarily office buildings. The investment period is ten years and
Zell III has agreed to use its best efforts to sell the properties of the Fund
within 15 years from the initial closing.
24
<PAGE>
The General Partner has approved the acquisition by the Partnership from
an affiliate of ML & Co. of a limited partnership interest in Zell III for a
purchase price of up to $2 million, but not to exceed 15% of the Partnership's
assets. Such limited partnership interest permits participation in the carried
interest of Zell III in the Fund.
Since the interest in Zell III proposed for the Partnership will be
acquired from an affiliate of ML & Co., the Partnership will not be able to
make such investment until it receives an order under the Investment Company
Act from the Securities and Exchange Commission permitting such transaction.
There can be no assurance that such order will be obtained.
PCA Holding Corporation ("Holding") is a leading distributor of personal
computer accessory products. MLCP completed the acquisition of PC
Accessories, Inc. ("PCA"). As part of the acquisition MLCP formed Holding.
Founded less than three years ago, PCA has developed a broad line of
products in the rapidly growing computer accessory industry. Pursuant to
MLCP strategy, PCA will be merged into Gemini Holdings, Inc. ("Gemini"), an
investment of the 1987 Partnership.
Gemini is a leading independent distributor of home electronic and
entertainment accessories for sale by discount chains and home centers in the
U.S. The General Partner has approved the investment by the Partnership of up
to $1.190 million in the merged company, but not to exceed 7.5% of the
Partnership's assets.
Mail-Well Corporation ("Mail-Well") is a leading manufacturer and seller
of a broad line of customized conventional and specialty envelopes and related
packaging products designed and printed to customers' specifications. Mail-
Well focuses on the higher margin specialty product line as opposed to the
commodity type envelope business. Mail-Well was formed in November 1993, by an
investor group formed by The Sterling Group and management, to acquire G-P
Envelope Holdings Inc. from Georgia Pacific Corporation and to acquire Pavey
Envelope and Tag Corporation. The General Partner has approved the investment
by the Partnership of up to $1 million in Mail-Well, but not to exceed 10% of
the Partnership's assets.
Leverage
The Partnership Agreement permits the General Partner to borrow funds on
behalf of or lend funds to the Partnership. The General Partner will obtain
funds for making Partnership investments when it believes such action is
desirable. The Partnership may also borrow funds to enable it to make
follow-on investments with respect to any direct investments it might make in
portfolio companies. However, it is expected that the Partnership would not
otherwise incur substantial debt with respect to other types of investments.
The Partnership Agreement does not limit the amount of indebtedness which the
Partnership may incur. The Investment Company Act generally limits the amount
of indebtedness the Partnership may incur to 331/3% of its gross assets.
However, the General Partner has obtained an order from the Securities and
Exchange Commission applicable to the Partnership which permits the Partnership
to enter into nonrecourse loans relating to investments other than securities
without regard to such limitation.
The use of leverage would exaggerate increases or decreases in the
Partnership's net assets. To the extent that Partnership revenues are required
to meet debt service obligations, the Partners may be allocated income (and
therefore tax liability) in excess of cash available for distribution.
Liquidation of Investments
The Partnership intends to liquidate its portfolio investments prior to
dissolution. Leveraged buyout and venture capital investments typically
require from four to seven years to reach a state of maturity before
disposition can be considered. Investments in corporate restructuring and
recapitalization transactions may also require a substantial holding period.
Investments in partnerships involved in real estate investments may also be
illiquid for significant periods, including periods extending for the term of
the underlying investment vehicle. As a result, the Partnership's investments
will generally be held for a significant time period until disposition can be
considered through negotiated private sales or sales made in the public market
pursuant to exemptions from registration under the Federal securities laws.
The Partnership expects to utilize the services of MLPF&S, to the extent
permitted by
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the Investment Company Act, in executing transactions for the sale of its
investments. In the absence of a specific exemption, the Partnership is
generally precluded by the Investment Company Act from selling portfolio
securities, including high yield debt securities, to MLPF&S on a principal
basis.
Reinvestment Policy
The General Partner has the discretion to reinvest all Partnership
revenues. To the extent portfolio investments are disposed of within two years
after the closing of the sale of Units, the General Partner will consider
reinvesting all or a substantial portion of the proceeds realized by the
Partnership. However, the General Partner does not expect to reinvest proceeds
from the liquidation of portfolio investments (other than temporary
investments) occurring more than two years after the closing of the sale of
Units, except in connection with follow-on investments made in existing
portfolio companies. The General Partner may also cause the Partnership to
maintain reserves for follow-on investments or to apply cash received from
investments to the prepayment of any borrowings made by the Partnership. To
the extent that cash received by the Partnership is not required for such
purposes or to reimburse the General Partner for expenses incurred by it, such
cash will be distributed to the Partners at least annually.
Investment Restrictions
The Partnership has adopted the following investment restrictions which
may not be changed unless authorized by an amendment of the Partnership
Agreement by the vote of a majority-in-interest of the Limited Partners of the
Partnership. These restrictions provide that the Partnership may not (i) issue
senior securities other than in connection with borrowings described in (iii)
below, (ii) make short sales of securities, purchase securities on margin,
except for use of short-term credit necessary for the clearance of
transactions, or write put or call options, (iii) borrow amounts in excess of
331/3% of its gross assets, except that the Partnership may enter into
nonrecourse loans relating to investments other than securities without regard
to such limitation, (iv) underwrite securities of other issuers, except insofar
as the Partnership may be deemed an underwriter under the Securities Act of
1933 in selling portfolio securities, (v) invest more than 25% of its Partners'
capital contributions in the securities of issuers in any particular industry,
except for temporary investments in United States Government and Government
agency securities, domestic bank money market instruments and money market
funds, or (vi) make loans to other persons in excess of 331/3% of its gross
assets, provided that investments in privately offered debt securities issued
by entities in which the Partnership has an equity participation or with which
the Partnership has contracted to acquire an equity participation are not
considered loans for purposes of this restriction. In addition, the
Partnership will not invest any of its assets in the securities of other
investment companies, except to the extent permitted by the Investment Company
Act.
Temporary Investments
Prior to the expenditure of the capital contributions of the Limited
Partners, and pending distributions of available cash, the Partnership will
invest funds in various types of marketable securities. These securities
include money market instruments, securities issued by or on behalf of states,
municipalities and their instrumentalities, the interest from which is exempt
from Federal income tax, and securities issued by other investment companies
(including unit investment trusts and tax-exempt money market funds sponsored
by affiliates of the General Partner). An exemptive order obtained from the
Securities and Exchange Commission permits the Partnership to purchase money
market instruments, shares of money market funds and certain other securities
from affiliates of ML & Co. in principal transactions.
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TAX ASPECTS OF INVESTMENT IN THE PARTNERSHIP
EACH PROSPECTIVE LIMITED PARTNER IS URGED TO CONSULT A PERSONAL TAX ADVISOR
WITH RESPECT TO THE MATTERS DISCUSSED BELOW AS THEY RELATE TO SUCH PROSPECTIVE
LIMITED PARTNER'S CIRCUMSTANCES.
Scope and Limitation
The following discussion of the Federal income tax consequences of an
investment in the Partnership, together with the opinions of counsel referred
to below, are based upon the existing provisions of the Internal Revenue Code
of 1986, as amended to date (the "Code"), the regulations promulgated or
proposed thereunder (the "Regulations" or the "Proposed Regulations"), current
administrative rulings and practices of the Internal Revenue Service (the
"IRS") and existing court decisions, any of which could be changed at any time.
Any such changes may or may not be retroactive with respect to transactions
prior to the date of such changes and could significantly modify the statements
and opinions expressed herein.
At the Closing of the offering of Units, the Partnership will receive the
opinion of Brown & Wood ("Tax Counsel") to the effect that:
(i) the Partnership will be classified as a partnership for Federal
income tax purposes and not as an association taxable as a corporation and will
not be classified as a publicly traded partnership within the meaning of Code
Section 7704(b) (see "Classification as a Partnership" below); and
(ii) the allocations of income, gain, loss, deduction and credit of the
Partnership will be respected for Federal income tax purposes, so long as no
Limited Partner's capital account becomes negative (see "General Principles of
Partnership Taxation Allocations and Distributions" below).
The Partnership also will request additional opinions of Tax Counsel with
respect to the other material Federal income tax issues described in this
Prospectus as such matters arise in the course of the Partnership's investment
decisions. All such opinions of Tax Counsel will be subject to, and limited
by, the assumptions made and matters referred to in such opinions, including
the laws, rulings and regulations in effect as of the date of such opinions,
all of which are subject to change.
Partners should note that the opinions of Tax Counsel are not binding on
the IRS or the courts. The opinions of Tax Counsel regarding the issues
specifically identified represent Tax Counsel's judgment based on its analysis
of the law, and express what Tax Counsel believes a court would conclude if
properly presented with such issues. Accordingly, no assurance can be given
that the IRS will not challenge the tax treatment of certain items or, if it
does, that it will not be successful. The opinions are based on the applicable
statutes, regulations, cases and rulings in effect on the date of the opinions.
If any of the authorities on which the opinions are based should change, the
conclusions set forth in the opinions may be affected. The opinions of Tax
Counsel are also based on certain representations by the General Partner,
including a representation that the factual matters referred to herein are
accurate and complete as of the date of Closing. If such facts or
representations are inaccurate, Tax Counsel's opinion may not apply to such
changed circumstances.
Overview of Tax Aspects
The Code provides that a partnership is not itself subject to Federal
income taxation. Rather, each Limited Partner will be required to take into
account in computing his Federal income tax liability his allocable share of
the Partnership's capital gains and capital losses and other income, losses,
deductions, credits and items of tax preference for any taxable year of the
Partnership ending within or with the taxable year of such Limited Partner,
without regard to whether he has received or will receive any distribution from
the Partnership. Partnership revenues may be retained by the Partnership to be
applied to working capital reserves, or used to reduce outstanding debts, pay
Partnership expenses or repay any Partnership borrowings. In addition, certain
of the temporary
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investments which the Partnership may purchase include zero coupon bonds or
other obligations having original issue discount. For Federal income tax
purposes, accrual of original issue discount will be attributable to Partners
as interest income even though the Partnership does not realize any cash flow
as a result of such accrual.
The Partnership is required to (i) file annually an information return on
Form 1065 and (ii) following the close of the Partnership's taxable years,
provide to each Partner a Schedule K-1 indicating such Partner's allocable
share of the Partnership's income, gain, losses, deductions, credits, and items
of tax preference. Assignees of Limited Partners who are not admitted to the
Partnership will not receive any tax information from the Partnership. See
"General Principles of Partnership Taxation Partners, Not Partnership, Subject
to Tax" below.
Classification of a Partnership as a PTP
Under Section 7704 of the Code, as added by the Revenue Act of 1987 (the
"1987 Tax Act"), a publicly traded partnership ("PTP") (other than a PTP
substantially all of whose income is from specified passive sources) is to be
treated as a corporation for Federal income tax purposes, effective for taxable
years beginning after December 31, 1987.
PTPs are defined in Code Section 7704(b) as partnerships whose interests
are (i) traded on an established securities market (i.e., a national exchange,
local exchange, or over-the-counter market) or (ii) readily tradeable on a
secondary market (or the substantial equivalent thereof). Units in the
Partnership will not be listed for trading on an established securities market
and the General Partner will use its best efforts to ensure that Units will not
be readily tradeable on any secondary market (or substantial equivalent
thereof). There can be no assurance, however, that such efforts will be
successful. A Limited Partner may not transfer a Unit unless the Limited
Partner represents, and provides other documentation, satisfactory in form and
substance to the General Partner that such transfer was not effected through a
broker-dealer or matching agent which makes a market in Units or which provides
a readily available, regular and ongoing opportunity to Partners to sell or
exchange their Units through a public means of obtaining or providing
information of offers to buy, sell or exchange Units. Prior to recognizing the
sale of a Unit, the General Partner must determine that such sale, assignment
or transfer will not, by itself or together with any other sales, transfers or
assignments, substantially increase the risk of the Partnership being
classified as a publicly traded partnership. A transferor will not be required
to make the representations described above if the transferor represents that
the transfer is effected through an agent whose procedures have been approved
by the General Partner as consistent with the requirements for avoiding
classification as a publicly traded partnership.
On June 17, 1988, the Internal Revenue Service issued Advance Notice 88-75
(the "Notice"). The Notice provides certain safe harbors which, if satisfied
by a partnership, will result in interests in the partnership not being treated
as readily tradeable on a secondary market or the substantial equivalent
thereof. The Notice provides, in relevant part, that interests in a
partnership will not be considered readily tradeable on a secondary market or a
substantial equivalent thereof within the meaning of Section 7704(b) of the
Code for a taxable year of the partnership if the sum of the percentage
interests in partnership capital or profits represented by partnership
interests that are sold or otherwise disposed of during the taxable year does
not exceed 5% (2% in the case of a partnership that also relies on a separate
matching service safe harbor described below) of the total interest in
partnership capital or profits (the "5% Safe Harbor"). For this purpose, the
following transfers, as well as certain redemptions (collectively, "Safe Harbor
Transfers"), will be disregarded: (i) transfers in which the basis of the
partnership interest in the hands of the transferee is determined, in whole or
in part, by reference to its basis in the hands of the transferor or is
determined under Section 732 of the Code; (ii) transfers at death; (iii)
transfers between members of a family (as defined in Section 267(c)(4) of the
Code); (iv) the issuance of interests by or on behalf of the partnership in
exchange for cash, property, or services; (v) distributions from a retirement
plan qualified under Section 401(a); and (vi) block transfers. (The term
"block transfer" means the transfer by a partner in one or more transactions
during any thirty calendar day period of partnership interests representing in
the aggregate more than 5 percent of the total interest in partnership capital
or profits.)
The Notice also provides that sales through a matching service ("Matched
Sales") will be disregarded (the "Matching Service Safe Harbor") for purposes
of determining whether partnership interests are to be considered
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readily tradeable on a secondary market or the substantial equivalent thereof
if: (i) at least a 15 calendar day delay occurs between the day the operator
receives written confirmation from the listing customer that an interest in a
partnership is available for sale (the "contact date") and the earlier of (A)
the day information is made available to potential buyers regarding the
offering of such interest for sale, or (B) the day information is made
available to the listing customer regarding the existence of any outstanding
bids to purchase an interest in such partnership at a stated price; (ii) the
closing of the sale effected through the matching service does not occur prior
to the 45th calendar day after the contact date; (iii) the listing customer's
information is removed from the matching service within 120 calendar days after
the contact date; (iv) following any removal of the listing customer's
information from the matching service (other than removal by reason of a sale
of any part of such interest), no interest in the partnership is entered into
the matching service by such listing customer for at least 60 calendar days;
and (v) the sum of the percentage interests in partnership capital and profits
represented by partnership interests that are sold or otherwise disposed of
other than in Safe Harbor Transfers during the taxable year of the partnership
does not exceed 10 percent of the total interest in partnership capital and
profits. If a partnership relies on the Matching Service Safe Harbor for its
Matched Sales, the 5% Safe Harbor is applied (to sales other than Safe Harbor
Transfers and Matched Sales) by substituting 2% for 5%.
The Partnership Agreement provides that the Partnership will satisfy one
of such safe harbors. The Partnership Agreement also provides that any transfer
of Units to a market maker will be null and void unless the market maker
certifies that it is holding such Units for investment purposes. The General
Partner has also represented that it intends to exercise its discretion
regarding transfers in a manner designed to prevent the Partnership from
becoming a PTP. Accordingly, it is not anticipated that the Partnership will
be a PTP. There can be no assurance, however, that the General Partner will
be successful in its efforts. In addition, new regulations may be adopted that
would cause the Partnership to be treated as a PTP. Investors are urged to
consider ongoing developments in this area.
Although, as indicated above, it is possible that the Partnership could be
treated as a PTP, it is expected that the Partnership will meet the
requirements for an exception to the rule that would treat PTPs as
corporations. The exception is available to a partnership if 90% or more of
its gross income consists of passive-type income ("PTI"). PTI includes certain
interest, dividends, rents from real property, gains from the sale or other
disposition of real property, and income and gains from certain natural
resource activities. The definition of PTI also includes gain from the sale or
disposition of capital assets or certain other trade or business property, if
such assets or property were held for the production of PTI. Interest or
rental income that is contingent on profits or income earned by the borrower or
lessee generally does not qualify as PTI. The General Partner expects that the
Partnership will meet the 90% of gross income test on an ongoing basis. A
partnership that inadvertently fails to meet the requirement that at least 90%
of its income be PTI will not be taxed as a corporation if (i) the Secretary of
the Treasury determines that the failure was inadvertent, (ii) the partnership
takes steps within a reasonable time to meet the requirement and (iii) the
partnership and each person holding an interest in the partnership during the
failure period agree to make the adjustments directed by the Secretary.
Classification as a Partnership
Significance of Partnership Status
A limited partnership may be classified for Federal income tax purposes as
either a "partnership" or an association taxable as a corporation. If the
Partnership is classified as a partnership, the Partners will be subject to tax
currently on their respective distributive shares of Partnership income and
gain, and, subject to certain limitations, will be entitled to claim currently
their respective distributive shares of any Partnership losses and credits. If
the Partnership were to be classified as an association taxable as a
corporation, the Partners therein would be treated as shareholders of a
corporation and, consequently, (i) items of income, gain, deduction, loss and
credit would not flow through to such Partners to be accounted for on their
individual Federal income tax returns, (ii) cash distributions would be treated
as corporate distributions to such Partners, some or all of which might be
taxable as dividends and (iii) the taxable income of the Partnership would be
subject at the partnership level to the Federal income tax imposed on
corporations and, potentially, to state and local corporate income and
franchise taxes.
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The Partnership will not seek a ruling from the IRS on the question of its
classification for Federal income tax purposes as a partnership but rather will
rely on an opinion of Tax Counsel as described below. The opinion of Tax
Counsel will not be binding upon the IRS.
Qualification of the Partnership as a Partnership
At the Closing of the offering of Units, Tax Counsel will deliver its opinion
that, under the present provisions of the Code, Regulations, published rulings
of the IRS and court decisions, all of which are subject to change, assuming
the activities of the Partnership are conducted as described herein and in
compliance with the provisions of the Partnership Agreement, and based on
certain representations of the General Partner, for Federal income tax
purposes, the Partnership will be treated as a partnership.
Tax Counsel's opinion as to the partnership status of the Partnership is
based in part upon Section 301.7701-2 of the current Regulations which provides
that an organization that qualifies as a limited partnership under the
applicable state law will be classified as a partnership for Federal income tax
purposes unless it has more corporate characteristics than noncorporate
characteristics. The Regulations set forth four principal characteristics of a
corporation that must be considered for this purpose: (i) centralized
management, (ii) continuity of life, (iii) free transferability of interests
and (iv) limited liability. In Tax Counsel's opinion, based upon the
assumptions and representations of the General Partner, the Partnership will
not have more than two of the foregoing corporate characteristics, and
therefore, will be treated as a partnership for Federal income tax purposes
rather than an association taxable as a corporation.
In addition to the four specific characteristics mentioned above, the
Regulations state that other factors may be significant in classifying an
organization. In Larson v. Commissioner, 66 T.C. 159 (1976), appeal
withdrawn, 1977 acq. 1979-1 C.B. 1, the IRS argued that even if a majority of
the specifically enumerated corporate characteristics are absent, an
organization may be classified as an association if other factors not
specifically discussed in the Regulations are present. The Tax Court, however,
rejected this position, holding that if a majority of the relevant specifically
identified criteria were absent, the entity would not be taxed as an
association unless other factors whose "materiality was unmistakable" were
present. In Revenue Ruling 79-106, 1979-1 C.B. 448, the IRS indicated it would
follow the Larson decision and that it would not consider certain other factors
not specifically mentioned in the Regulations to have independent significance
for purposes of classifying partnerships.
No assurance can be given that partnership status will not be lost as a
result of future changes in the applicable law or Regulations (which changes
might be applied retroactively) or due to changes in the manner in which the
Partnership in fact is operated. As more fully described below, loss of
partnership status and treatment of the Partnership as an "association" taxable
as a corporation would have a material adverse effect of the tax treatment of
the Partnership, the Partners and on the value of the Units.
In addition to the foregoing considerations concerning classification of
the Partnership as a partnership, the General Partner has instituted measures
which are intended to reduce the risk of the Partnership being treated as a PTP
or an association taxable as a corporation for Federal income tax purposes.
Specifically, the General Partner will represent, at the time of Closing, that
it will take such actions and implement such procedures as are necessary to
enable the Partnership to comply with one of the safe harbors enumerated in the
Notice. In addition, the General Partner will not recognize any transfer of
Units if, in the opinion of the Partnership's tax counsel, the manner of such
transfer could cause the Partnership to be classified as an association taxable
as a corporation for Federal income tax purposes or cause it to be a PTP.
Accordingly, at the Closing of the offering of Units, Tax Counsel will deliver
their opinion that the Partnership will not be a PTP within the meaning of
Section 7704(b) of the Code.
If for any reason the Partnership were treated as an "association" taxable
as a corporation, capital gains and losses and other income and deductions of
the Partnership would not be passed through to the Limited Partners, and the
Limited Partners would be treated as shareholders for tax purposes. Any
distributions by the Partnership to each Limited Partner would be taxable to
that Limited Partner as a dividend, to the extent of the Partnership's current
and accumulated earnings and profits, and treated as gain from the sale of a
Partnership interest to the extent it
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exceeded both the current and accumulated earnings and profits of the
Partnership and the Limited Partner's tax basis for his interest.
The remainder of the discussion under "Tax Aspects of Investment in the
Partnership", including observations as to the tax results of the normal
operation of the Partnership and of such events as the Partnership's sale of an
interest in portfolio companies or a Partner's sale of an interest in the
Partnership, is based on the assumption that the Partnership will be classified
as a partnership for Federal income tax purposes. In general, this discussion
is limited to the Federal income tax aspects of investment in the Partnership,
although reference is made to other tax considerations. See "State and Local
Taxes".
General Principles of Partnership Taxation
Partners, Not Partnership, Subject to Tax
As discussed above, the Partnership, if recognized as a partnership for
Federal income tax purposes, will not itself be liable for any Federal income
tax. Although the Partnership must annually file a U.S. Partnership Return of
Income, Form 1065, that return is merely an information return. Instead, the
Partnership will report to each Partner such Partner's distributive share
(generally, as determined under the Partnership Agreement, as discussed under
"Allocations and Distributions" below, and reported on Schedule K-1 of Form
1065) of income, gain, loss, deduction, credit and items of tax preference.
Each Partner will then report on his own Federal income tax return, much as if
the Partner were directly engaged in the investment activities of the
Partnership, such Partner's share of those items for the Partnership tax year
that ends with or within the Partner's tax year.
A Partner's share of items of Partnership income are included directly in
the computations of the Partner's adjusted gross income and taxable income. The
Partner's share of any Partnership deductions or losses may, subject to certain
exceptions discussed below (see "Basis of Partnership Interest", "`At Risk'
Limitation on Deducting Losses", "Passive Activity Loss Limitation", "
Deductibility of Operating Expenses" and "Limitations on the Deductibility of
Interest") offset the Partner's allocable share of Partnership income and, if
sufficient in amount, a Partner's income from other sources.
As a general rule, any cash distributions or constructive distributions (
e.g., a decrease in the Partner's share of Partnership liabilities) by the
Partnership will be taxable to a Partner only to the extent that such
distributions exceed the tax basis of the recipient Partner in the year of
receipt or are received in exchange for the recipient Partner's interest in
"unrealized receivables" or substantially appreciated "inventory items" under
Section 751 of the Code. See "Basis of Partnership Interest" and "Transfer of
a Partnership Interest" below. Conversely, the mere absence of cash or
constructive distributions will not, of itself, limit or affect the recognition
of taxable income by Partners.
Basis of Partnership Interest
As a general matter, a partner's basis for his interest in a partnership
is significant in determining (i) taxable gain or loss to the partner on
disposition or liquidation of such partner's interest in the partnership, (ii)
the extent to which partnership expenses or losses are deductible by the
partner and (iii) the extent to which partnership distributions represent
taxable income to the partner. In this respect, a partner's basis for his
partnership interest represents a measure of the partner's "investment" in the
partnership at any given time for Federal income tax purposes.
A Limited Partner's basis for his interest in the Partnership will
initially be the amount of such Partner's cash contribution to the capital of
the Partnership, plus such Partner's share, as discussed below, of any
Partnership liabilities. Such basis will be increased by (i) the Partner's
distributive share of Partnership taxable income, including capital gain, (ii)
the Partner's distributive share of Partnership income exempt from tax, if any,
and (iii) any increase in the Partner's share of Partnership liabilities. A
Partner's basis will be decreased (but not below
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zero) by (i) the Partner's distributive share of cash distributions, (ii) the
Partner's distributive share of Partnership losses and deductions, (iii) any
decrease in the Partner's share of Partnership liabilities and (iv) the
Partner's distributive share of Partnership expenditures that are neither
deductible nor properly chargeable to his capital account.
It is anticipated that the Partnership may incur borrowings to make
follow-on investments with respect to its direct equity investments. It should
also be anticipated that debt financing will be utilized by the Sponsored
Programs in which the Partnership may acquire interests. Such borrowings will
usually be nonrecourse liabilities by their terms secured solely by the assets
of the Partnership or the Sponsored Program and for which no Partner will have
any personal liability. Each Limited Partner will be permitted to include his
allocable share (as determined under Code Section 752) of any such nonrecourse
liabilities in the basis of his Partnership interest, but only to the extent
that the amount of such liabilities does not exceed the fair market value of
the property securing such liabilities. However, even though a Limited
Partner's allocable share of Partnership nonrecourse borrowings will be
includable in the tax basis of his Partnership interest, such borrowings will
not increase the amount the Limited Partner is considered "at risk" for purpose
of the deductibility of Partnership losses. See "`At Risk' Limitation on
Deducting Losses".
If recognition of a Partner's distributive share of Partnership losses
would reduce the tax basis of the Partner's interest in the Partnership below
zero, the recognition of such losses is deferred until such time as the
recognition of such losses would not reduce the Partner's basis below zero. To
the extent that Partnership cash distributions, or any decrease in a Partner's
share of the nonrecourse liabilities of the Partnership (which is considered a
constructive cash distribution to the Partners), would reduce a Partner's basis
below zero, such distributions constitute taxable income to the recipient
Partner. If the Partner is not a "dealer" in securities, the distribution will
normally represent a capital gain and, if the Partnership interest has been
held for longer than the capital gains holding period (currently one year), the
distribution will constitute a long-term capital gain. See "Other Tax
Considerations Revenue Reconciliation Act of 1993".
`At Risk' Limitation on Deducting Losses
Under Section 465 of the Code, individuals and certain closely-held
corporations are entitled to deduct their distributive shares of partnership
losses attributable to partnership activities only to the extent of the amount
they are considered "at risk" with respect to their partnership interests at
the end of the taxable year.
A Limited Partner in the Partnership will initially be considered "at
risk" with respect to his Partnership interest to the extent of the cash
contributed to the Partnership for Units, provided such Units are not financed
with borrowings from persons with certain interests (other than as a creditor)
in the Partnership activities or with borrowings solely secured by Units.
While a Limited Partner's tax basis in his Units will be increased by his
allocable share of any nonrecourse liabilities of the Partnership (see "Basis
in Partnership Interest" above), such liabilities are not includable in the
Partner's amount "at risk". However, the Tax Reform Act of 1986 (the "1986
Act") provides an exception to this general rule that permits certain qualified
nonrecourse financing secured by real property to be included in an investor's
amount "at risk". This exception may have relevance if the Partnership
indirectly invests in real estate through a Sponsored Program.
The amount a Limited Partner is "at risk" in the Partnership will be
increased by, among other things, his share of Partnership ordinary income and
capital gain. A Limited Partner's amount "at risk" will be reduced by (i) all
Partnership distributions to, or on behalf of, the Partner and (ii) his share
of Partnership deductions and losses. The Partner's share of Partnership
deductions and losses over Partnership income not allowable in any year as a
result of the "at risk" limitation is carried forward until such time, if ever,
as it is allowable under the "at risk" rules.
If, at the end of any taxable year, the amount a Partner is "at risk" is
less than zero (for example, as a result of a cash distribution from the
Partnership) the deficit amount "at risk" is "recaptured"; that is, the
taxpayer must include in gross income an amount equal to the negative amount
"at risk". However, the amount of gross income so recognized to offset the
deficit amount "at risk" may be treated as a deduction and carried forward as a
suspended loss until such time, if ever, as it is allowable.
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The timing, duration and extent of any deferral or "recapture" of losses
as a consequence of the "at risk" limitation will depend upon the nature of the
Partnership's investments, the amount of Partnership revenue and expenses and
the amount and the terms of Partnership leverage. In any event, prospective
investors should consider the effect of the "at risk" rules in arranging any
financing for a purchase of Units.
Passive Activity Loss Limitation
Under the passive activity loss provisions of Section 469 of the Code,
losses and credits from trade or business activities in which a taxpayer does
not materially participate (i.e., "passive activities") will only be allowed
against income from such activities. Therefore, such losses cannot be used to
offset salary or other earned income, active business income or "portfolio
income" (such as dividends, interest, royalties and nonbusiness capital gains)
of the taxpayer. Losses and credits suspended under this limitation can be
carried forward indefinitely and can be used in later years against income from
passive activities. Moreover, a taxable disposition by a taxpayer of the
entire interest in a passive activity will cause the recognition of any
suspended losses attributable to that activity. The passive activity loss
limitation applies to individuals, estates, trusts, and most personal service
corporations. A modified form of the rule also applies to closely-held
corporations.
The primary activity of the Partnership will be the investment, holding
and eventual disposition of privately-offered securities acquired in connection
with direct equity investments. Prior to the commitment of Partnership funds
to such investments, and pending distributions of available cash to the
Partners, the Partnership will temporarily invest funds in various types of
marketable securities. Any ordinary income (such as interest or dividend
income) derived from either of such investment activities, or capital gains
realized upon disposition of such investments, will be treated as portfolio
income. Portfolio income is not considered passive income and, thus, cannot be
offset by a Partner's passive losses from other activities of the Partnership
(such as investment in certain Sponsored Programs) or other sources.
Accordingly, a prospective Limited Partner should not invest in the Partnership
with the expectation of using his proportionate share of portfolio income and
capital gain from the Partnership to offset losses from his interest in passive
activities. On the other hand, a Limited Partner's proportionate share of any
capital loss from portfolio investments or any ordinary expense (including any
interest expense) allocable to portfolio investments, although they may be
subject to the limitations imposed on deductibility of (i) capital losses (see
"Other Tax Considerations Revenue Reconciliation Act of 1993"), (ii) itemized
investment expenses incurred in the production of portfolio income (see
"Deductibility of Operating Expenses") or (iii) investment interest (see "Other
Tax Considerations Limitations on the Deductibility of Interest"), will not be
subject to the passive loss limitation rules described above.
Allocations and Distributions
Under Section 704 of the Code, a partner's distributive share of the
income, gain, loss and deduction of a partnership is determined in accordance
with the partnership agreement unless the allocation of such items does not
have a "substantial economic effect" independent of tax consequences. On
December 24, 1985 and September 9, 1986, the Treasury Department issued final
Regulations relating to a partner's distributive share of tax items and the
"substantial economic effect" test. Under such Regulations, an allocation of
partnership income, gain, loss or deduction (or item thereof) to a partner will
be considered to have "substantial economic effect" if it is determined that
(i) the allocation has "economic effect" and (ii) that economic effect is
"substantial". An allocation of tax items to partners will be considered to
have "economic effect" if (a) the partnership maintains capital accounts in
accordance with specific rules set forth in such Regulations and such
allocation is reflected through an appropriate increase or decrease in the
partners' capital accounts, (b) liquidating distributions (including
liquidations of a partner's interest in the partnership) are required to be
made in accordance with the partners' respective capital account balances, and
(c) any partner with a deficit in his capital account following the
distribution of liquidation proceeds would be unconditionally required to
restore the amount of such deficit to the partnership. If the first two of
these requirements are met, but the partner to whom an allocation is made is
not obligated to restore the full amount of any deficit balance in his capital
account, the allocation still will be considered to have "economic effect" to
the extent the allocation does not cause or increase a deficit balance in the
partner's capital account (determined after reducing that account for certain
"expected" adjustments, allocations, and distributions specified by the
Regulations) if the partnership agreement contains a "qualified income offset".
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The Partnership Agreement provides that a capital account is to be
maintained for each Partner, that the capital accounts are to be maintained in
accordance with applicable tax accounting principles set forth in the
Regulations, and that all allocations of Federal tax items to a Partner are to
be reflected by an appropriate increase or decrease in the Partner's capital
account. In addition, distributions on liquidation of the Partnership (or of a
Partner's interest) are to be made in accordance with respective positive
capital account balances. Although the Partnership Agreement does not impose
any obligation on the part of a Limited Partner to restore any deficit in his
capital account balance following liquidation, the Partnership Agreement does
contain a "qualified income offset'' provision as defined in the Regulations.
In order for the "economic effect" of an allocation to be considered
"substantial", the Regulations require that the allocation must have a
"reasonable possibility" of "substantially" affecting the dollar amounts to be
received by the partners, independent of tax consequences. An allocation is
insubstantial if its after-tax consequences on at least one partner, in present
value, are enhanced and it is likely that the allocation will not lessen such
consequences for any partner. Also, allocations are insubstantial if they just
shift tax consequences within a partnership's tax year or, if they will
probably be offset by future allocations.
Based on the Regulations, Tax Counsel is of the opinion that the tax
allocations of income, gain, loss, deduction and credit under the Partnership
Agreement for Federal income tax purposes will be considered to have
"substantial economic effect" (and thus should be respected by the IRS) to the
extent such allocations do not result in any Limited Partner having a deficit
in his capital account balance. Tax Counsel has advised the Partnership that
allocations to Limited Partners that actually result in deficit capital account
balances likely would not be recognized for Federal income tax purposes in the
absence of an obligation to restore deficit capital account balances. It is
extremely unlikely, however, that the Partnership's operations will result in
any Limited Partner having a deficit balance in his capital account.
If any allocation fails to satisfy the "substantial economic effect"
requirement, the allocated items would be allocated among the Partners based on
their respective "interests in the Partnership", determined on the basis of all
of the relevant facts and circumstances. Such a determination might result in
the income, gains, losses, deductions or credits allocated under the
Partnership Agreement being reallocated among the Limited Partners and the
General Partner. Such a reallocation, however, would not alter the
distribution of cash flow under the Partnership Agreement, resulting in a
possible mismatching of taxable income and cash distributed to the Partners.
Retroactive allocations of income, gain, deductions, losses and credits
are not permitted under the Federal income tax laws. Accordingly, under the
Partnership Agreement, items of income, gain, deduction, loss or credit will be
allocable to Partners only for the quarterly periods of the tax year in which
they are members of the Partnership. When the Partnership recognizes a transfer
of an interest by a Limited Partner the distributive share of any Partnership
income, gain, loss, deduction or credit for the taxable year will be allocated
between the transferor Partner and the transferee based upon the quarterly
periods during the taxable year that each owned such Partnership interest.
Deductibility of Operating Expenses
The 1986 Act imposed limitations on individuals with respect to the
deductibility of investment expenses by allowing a deduction for itemized
expenses incurred for the production of income only to the extent such
expenses, combined with certain other itemized deductions, in the aggregate
exceed 2% of adjusted gross income. Accordingly, to the extent certain
Partnership expenses are not deductible as trade or business expenses, but
rather as investment expenses, the Limited Partners might not be able to fully
claim their proportionate shares of these expenses as an itemized deduction on
their individual income tax returns. To the extent certain Partnership
expenses are nondeductible under this new limitation, Limited Partners may have
to recognize taxable income in an amount greater than cash available from the
Partnership for distribution to the Partners. However, the effect of this
limitation should not be significant because the General Partner is responsible
for paying Partnership investment expenses in excess of the amount of 1.5% of
the aggregate capital contributions of the Limited Partners (which payment will
be treated as an additional capital contribution of the General Partner to be
reflected in its capital
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account). Moreover, the General Partner may attempt to minimize the effect of
the investment expense limitation provision under the 1986 Act by investing
funds not invested in equity investments in short-term tax-exempt securities.
Organization and Syndication Expenses
For Federal income tax purposes, a partnership may not deduct
organizational or syndication expenses in the year in which they are paid or
incurred. Rather, Section 709(b) of the Code provides that a partnership must
amortize amounts paid or incurred to organize the partnership over a period of
not less than 60 months. Under Regulation 1.709-2 examples of organizational
expenses of a partnership include "legal fees for services incident to the
organization of the partnership, such as negotiation and preparation of a
partnership agreement; accounting fees for establishing a partnership
accounting system; and necessary filing fees". However, the expenses of
syndicating a partnership, i.e., the expenses to promote the sale of, or to
sell, interests in the partnership (such as most of the printing costs and
professional fees incurred in connection with preparation and registration of
this Prospectus), are non-amortizable capital assets of the partnership.
The Partnership will pay expenses in connection with its organization and
the sale of Units in an amount up to 2% of the proceeds of this offering. The
General Partner will bear the remainder of any such costs. The General Partner
will allocate expenses between organizational expenses, which can be amortized,
and syndication expenses, which cannot be amortized or deducted, but must be
capitalized. There can be no assurance, however, that the IRS would not
challenge such allocation, attributing a greater amount of such expenditures to
nondeductible syndication costs.
Transfer of a Partnership Interest
The amount of gain recognized on the sale by a Limited Partner of his
interest in the Partnership generally will be the excess of the sales price
received over his adjusted basis in such interest. The sale by a Limited
Partner of an interest held by him for more than one year generally will result
in his recognizing long-term capital gain or loss (provided such Limited
Partner is not deemed to be a "dealer" in such property). However, to the
extent the proceeds of sale are attributable to such Limited Partner's
allocable share of Partnership "unrealized receivables" or "substantially
appreciated inventory items", as defined in Section 751 of the Code, any gain
will be treated as ordinary income. It is not anticipated that the Partnership
will have significant amounts, if any, of "unrealized receivables" or
"substantially appreciated inventory items". The sale by a Limited Partner of
an interest held by him for less than one year generally will result in his
recognizing short-term capital gain or loss. See "Other Tax
Considerations Revenue Reconciliation Act of 1993". With respect to the
allocation of tax items between the transferor and the transferee in the year
in which an interest is transferred, see "Allocations and Distributions" above.
It is not expected that a transfer of an interest in the Partnership by
gift or upon death will result in recognition of gain or loss. In general, the
recipient of an interest in the Partnership by gift will have a tax basis in
that interest equal to the transferor's basis increased by the amount of any
gift tax paid on the transfer. However, if the fair market value of the
interest at the time of the gift is less than this amount, Section 1015 of the
Code may reduce the amount of loss the recipient can recognize on a subsequent
sale. The recipient of such an interest resulting from a transfer upon death
generally would have a tax basis in such interest equal to the fair market
value of the interest at the date of death or, where applicable, the estate tax
alternate valuation date.
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No Election under Section 754
Section 754 of the Code permits a partnership to make an election to
adjust the basis of the partnership's assets in the event of a distribution of
partnership property to a partner or transfer of a partnership interest.
Depending upon particular facts at the time of any such event, such an election
could increase the value of a partnership interest to the transferee (because
the election would increase the basis of the partnership's assets for the
purpose of computing the transferee's allocable share of partnership tax items)
or decrease the value of a partnership interest to the transferee (because the
election would decrease the basis of the partnership's assets for that
purpose). Because an election under Section 754, once made, cannot be revoked
without obtaining the consent of the IRS, because such an election may not
necessarily be advantageous to all the Limited Partners, and because of the
accounting complexities that can result from having such an election in effect,
it is unlikely that the General Partner would make such an election on behalf
of the Partnership. The General Partner will advise the Limited Partners prior
to any election under Section 754.
Termination of the Partnership for Tax Purposes
Because of the absence of an established market for the Units, and because
investments in the Partnership most likely will be made primarily with a view
toward realizing long-term capital appreciation, it is not anticipated that 50%
or more of the capital and profits interests in the Partnership will be sold or
exchanged within any single 12-month period. However, if 50% or more of such
interest were sold or exchanged within any single 12-month period, the
Partnership would be deemed terminated for Federal income tax purposes. Among
other tax consequences, the effect to a Limited Partner of such a deemed
termination would be that he would recognize gain to the extent that his
allocable share of the Partnership's cash on the date of termination exceeded
the adjusted tax basis of his interest in the Partnership.
Liquidation of the Partnership
In the event of the liquidation of the Partnership, the Limited Partner
will recognize gain (i) to the extent that the cash received in the liquidation
exceeds the tax basis for such Partner's interest in the Partnership, adjusted
by such Partner's share of income, gain or loss arising from normal operations
or the sale of any property held by the Partnership in the year of dissolution
or (ii) if the cash so received does not exceed such Partner's basis, as so
adjusted, to the extent such cash is treated as received in exchange for such
Partner's interest in "unrealized receivables" and substantially appreciated
"inventory items". Such gain would be capital gain, except to the extent
treated as ordinary income because attributable to "unrealized receivables" and
substantially appreciated "inventory items" held by the Partnership.
Capital loss will be recognized in the event only cash, "unrealized
receivables" and "inventory items" are distributed, and only to the extent the
adjusted basis of a Limited Partner's interest in the Partnership exceeds the
sum of money distributed and such Limited Partner's acquired basis for
"unrealized receivables" and substantially appreciated "inventory items".
Income, gain, losses, deductions, credits and items of tax preference of
the Partnership realized prior to the liquidation of the Partnership will be
allocated to the Limited Partners in accordance with the Partnership Agreement.
Tax Returns and Information; Audits
The Partnership has adopted the calendar year as its tax year. The Code
requires entities, such as the Partnership, in which interests are publicly
offered for sale pursuant to a registration statement under the Securities Act
of 1933, to adopt an accrual method of accounting for Federal income tax
purposes. Within 75 days or as soon as practicable, after the close of the
taxable year, the Partnership will furnish each Limited Partner (and the
assignees of the Partnership interest of any Partner) copies of (i) the
Partnership Schedule K-1 indicating the Partner's distributive share of tax
items and (ii) such additional information as is reasonably necessary to permit
the Limited Partners to prepare their own Federal, state and local tax returns.
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The Code provides for a single unified audit of partnerships at the
partnership level rather than separate audits of individual partners. Under
this procedure, a "Tax Matters Partner" must be appointed to represent the
partnership in connection with IRS audits and other administrative and judicial
proceedings. (The General Partner will act as Tax Matters Partner of the
Partnership.) The IRS must send notice of a commencement of a partnership level
audit to each partner with a 1% or more interest in the partnership and to the
Tax Matters Partner. All partners may participate in administrative
proceedings relating to the determination of partnership items; however, the
Tax Matters Partner has the primary responsibility for representing the
partnership in an audit and for contesting any adverse determinations. A
settlement agreement between the IRS and one or more partners binds all parties
to the agreement, and all other partners have the right to enter into
consistent agreements. The final result of the partnership proceeding will be
binding on all partners (other than partners agreeing to or being bound by a
settlement with the IRS), and any resulting deficiency may be assessed and
collected by notice and demand at any time after the determination becomes
final.
The Code also provides that (i) a partner must report a partnership item
consistent with its treatment on the partnership return, unless the partner
files a statement which identifies the inconsistency, and (ii) the statute of
limitations for assessment of tax with respect to partnership items (or
affected items) under the new partnership level proceedings will generally be
three years from the date of filing of the partnership return or the last date
without extension for filing such return, whichever date is later.
Notwithstanding the partnership level audit procedures, the IRS may assess a
deficiency against any partner where treatment of an item in his individual
return is inconsistent with the treatment on the partnership return.
Any costs which the Partnership or the General Partner may incur with
respect to a "unified" partnership audit and related administrative or judicial
proceedings would reduce the cash otherwise available for distribution to the
Partners or otherwise be borne by the Partners.
The "unified" partnership audit procedures may increase the likelihood of
IRS audits for organizations such as the Partnership.
Accuracy Related Penalties
The Revenue Reconciliation Act of 1989 adopted, in Section 6662 of the
Code, a general accuracy related penalty encompassing many of the penalty
provisions of prior law, with certain amendments. In particular, Section 6662
imposes a 20% penalty on the portion of any underpayment of tax attributable
to, among other things, negligence or disregard of rules or regulations. The
General Partner believes that, based upon the nature of the anticipated
investments of the Partnership, it will be able to properly characterize the
tax treatment of the income generated from such investments so as to facilitate
accurate reporting by the Limited Partners. Accordingly, the 20% penalty
imposed under Section 6662 should not apply to Limited Partners with respect to
their investment in the Partnership.
Other Tax Considerations
Revenue Reconciliation Act of 1993
The Revenue Reconciliation Act of 1993 (the "1993 Act"), which was enacted
on August 10, 1993, raises the top income tax rate for individuals to 39.6
percent for taxable years beginning after December 31, 1992. The 1993 Act
makes permanent a phase-out of personal exemptions and a limit on itemized
deductions for certain high-income taxpayers. Under the 1993 Act, an
individuals net capital gains (i.e., long-term capital gains) remain subject to
a maximum marginal tax rate of 28 percent. The deductibility of capital
losses, however, is still limited.
Limitations on the Deductibility of Interest
Section 163(d) of the Code substantially limits the deductibility of
interest on funds borrowed to purchase or hold property held for investment.
"Investment interest" generally is deductible by a noncorporate taxpayer only
to the extent of "net investment income". With certain limitations, excess
investment interest not allowed as a deduction
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in one taxable year may be carried forward and deducted in subsequent taxable
years to the extent that there is sufficient net investment income in such
subsequent taxable years. The deductibility of interest also affects an
investors potential minimum tax liability. See "Alternative Minimum Tax".
Investment interest is broadly defined as interest which is paid or
accrued on indebtedness incurred or continued to purchase or carry property
held for investment including generally the purchase of Units. Interest taken
into account in determining a taxpayers passive losses, including generally any
interest incurred or continued by a taxpayer to purchase or carry an interest
in a partnership to which the passive loss rules apply, is not considered
investment interest for purposes of the investment interest limitations. See
"General Principles of Partnership Taxation Basis of Partnership Interest;
Passive Activity Loss Limitation".
In addition to the "investment interest" limitation described above,
Section 265 (a) (2) of the Code disallows certain deductions for interest paid
by a taxpayer or a related person on indebtedness incurred or continued to
purchase or carry tax-exempt obligations. A Limited Partner for whom
tax-exempt obligations constitute a significant portion of such Limited
Partners net worth should consider the impact of Section 265 (a) (2) of the
Code on his ability to deduct his allocable share of the Partnerships interest
expense.
Alternative Minimum Tax
The alternative minimum tax, which applies to individuals, is determined
by: (i) adding "tax preference" items to the individuals adjusted gross income
(as reduced by certain itemized deductions and as otherwise adjusted pursuant
to Sections 56 and 58 of the Code), (ii) subtracting therefrom the statutory
exemption ($33,750 for single taxpayers, $45,000 for married taxpayers filing
joint returns; but such exemptions are phased out for alternative minimum
taxable incomes above $112,500 for single taxpayers and $150,000 for joint
returns) and (iii) computing a tax at the rate of 26% on the first $175,000 of
alternative minimum taxable income in excess of the exemption amount, and 28%
on alternative minimum taxable income that is more than $175,000 above the
exemption amount. For married individuals filing separate returns, the 28%
rate applies to alternative minimum taxable income that is more than $87,500
above the applicable exemption amount. If the alternative tax so computed
exceeds the individuals regular tax, then he or she must pay an additional tax
equal to the excess.
Each Limited Partner must include his or her allocable share of the
Partnerships tax preference items in the computation of the applicable minimum
tax. It is anticipated that the Partnership will not generate any significant
items of tax preference for Limited Partners. However, for investors with
substantial tax preference items from sources other than the Partnership, the
imposition of the alternative minimum tax could reduce the after-tax economic
benefits of investment in the Partnership. Prospective investors are urged to
consult their tax advisors with regard to the specific effect of the new
alternative minimum tax on an investment in the Partnership.
Fringe Benefits
Unless excluded under Section 132 of the Code or some other statutory
provision, employee "fringe benefits" are includable in gross income. Under
the Partnership Agreement, the General Partner will bear various expenses in
connection with the organization of the Partnership (to the extent such
expenses exceed 2%) and operation of the Partnership (to the extent such
expenses exceed 1.5% of the proceeds of this offering) and will bear any sales
or brokerage commissions charged in connection with the Partnerships
investments. Payment by the General Partner of such expenses in excess of such
amounts of the Limited Partners capital contributions will be treated as an
additional capital contribution of the General Partner under the Partnership
Agreement and the General Partners capital account will be credited to reflect
such additional contribution.
Since Units are being solely offered to ML & Co. employees and
non-employee directors, it is possible that the IRS would view the General
Partners payment of such expenses as an indirect method of compensating the
employee-Limited Partner (i.e., a fringe benefit). If the IRS were successful
in such characterization, a Limited Partners pro rata share of such expenses
(equal to the fair market value of the underlying goods and services rendered
the Limited Partner) might be includable in the Limited Partners gross income
as additional compensation. The Limited Partner may not, however, be allocated
a Partnership deduction for such fees and expenses in an
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amount corresponding to such income inclusion because some of such fees and
expenses would be attributable to non-deductible syndication expenses, or
investment expenses subject to the new limitation imposed on the deductibility
of itemized miscellaneous expenses, or treated as part of the capitalized cost
of the Partnerships portfolio assets. See "General Principles of Partnership
Taxation Deductibility of Operating Expenses; Organization and Syndication
Expenses" above.
State and Local Taxes
In addition to the Federal income tax consequences described above,
prospective Limited Partners should consider potential state and local tax
consequences of an investment in the Partnership. State and local laws often
differ from Federal income tax law with respect to the treatment of specific
items of income, gain, loss, deductions and credit. A Limited Partners
distributive share of the taxable income or loss of the Partnership generally
will be required to be included in determining his reportable income for state
and local tax purposes in the jurisdiction in which he is a resident. In
addition, a number of other states in which the Partnership may do business or
own properties may impose a tax on non-resident Limited Partners determined
with reference to their allocable shares of Partnership income derived by the
Partnership from such state. Partners may be subject to tax return filing
obligations and income, franchise, estate, inheritance or other taxes in other
jurisdictions in which the Partnership does business, as well as in their own
states or localities of residence or domicile. Also, any tax losses derived
through the Partnership from operations in such states may be available to
offset only income from other sources within the same state. To the extent
that a non-resident Limited Partner pays tax to a state by virtue of
Partnership operations within that state, he may be entitled to a deduction or
credit against tax owed to his state of residence with respect to the same
income. In addition, estate or inheritance taxes might be payable in a
jurisdiction in which the Partnership owns property upon the death of a Limited
Partner. Prospective Limited Partners are urged to consult their tax advisors
with respect to possible state and local income and death tax consequences of
an investment in the Partnership.
Tax Considerations for Foreign Investors
The tax treatment applicable to a non-resident alien who invests in the
Partnership is complex and will vary depending upon the particular
circumstances of each Limited Partner. Each foreign investor is urged to
consult with his tax counsel concerning the U.S. Federal, state and local and
foreign tax treatment of his investment in the Partnership. In general, the
U.S. tax treatment will vary depending upon whether the Partnership is deemed
to be engaged in a U.S. trade or business. At present, it is uncertain
whether, or at which point in time, the Partnership will be so engaged.
If the Partnership is not engaged in a U.S. trade or business in the tax
year, the foreign Limited Partner would, in general, be subject to a 30% (or
lower treaty rate) withholding tax with respect to his share of the
Partnerships U.S. source interest, dividends and most other portfolio or
investment income for such year, but would be exempt from U.S. taxation on his
share of capital gains realized by the Partnership if he is not present in the
United States for 183 days or more in the calendar year in which the
Partnerships year ends.
If the Partnership is engaged in a U.S. trade or business in the tax year,
the foreign Limited Partner would be required to file a U.S. Federal income tax
return and would be taxed in the United States at graduated Federal income
rates upon that portion of his net income from the Partnership for such year
which is "effectively connected" with such business. Moreover, under a Code
provision added by the 1986 Act and subsequently amended in the Technical and
Miscellaneous Revenue Act of 1988, the Partnership would be required to
withhold an amount equal to the U.S. tax on the foreign partners distributive
share (whether or not actually distributed) of income which is attributable to
"effectively connected income" with the Partnerships conduct of a trade or
business in the United States. Such withholding tax would be required to be
made by the Partnership on a quarterly basis. However, this provision would
not apply, and withholding at 30% (or reduced treaty rates) would continue to
apply to distributions attributable to dividends, interest, and other items of
income subject to tax under Code Sections 871 or 881. For tax treaty purposes,
the foreign Limited Partner would generally be deemed to have a "permanent
establishment" in the United States in any year in which the Partnership is
engaged in a U.S. trade or business.
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A non-resident aliens interest in the Partnership would be subject to U.S.
Federal estate taxation if the investor dies while owning such interest.
The above general guidelines are subject to modification by a tax treaty.
Moreover, the internal tax rules of the foreign investors home country must
also be considered in determining the advisability of an investment in the
Partnership.
Backup Withholding
When a Unit is sold through a broker, the proceeds of the sale may
constitute a "reportable payment" under the Federal income tax rules regarding
backup withholding. Backup withholding, however, would apply only if the
Limited Partner (i) failed to furnish and certify his Social Security number or
other taxpayer identification number to the person subject to the backup
withholding requirement (e.g., the broker) or (ii) furnished an incorrect
Social Security number or taxpayer identification number. If backup
withholding were applicable to a Limited Partner, the person subject to the
backup withholding requirement would be required to withhold 31% of each
distribution to such Partner and to pay such amount to the IRS on behalf of
such Partner.
Possible Changes in Law
The rules dealing with Federal income taxation are under continual review
by Congress and the IRS, resulting in frequent revisions of the Federal tax
laws and regulations promulgated thereunder and revised interpretations of
established concepts. No assurance can be given that, during the term of the
Partnership, applicable Federal income tax laws or the interpretations thereof
will not be changed in a manner that would have a material adverse effect on an
investment in the Partnership.
Importance of Obtaining Professional Advice
The foregoing analysis is not intended as a substitute for careful tax
planning. The tax matters relating to the Partnership and the transactions
described herein are complex and are subject to varying interpretations.
Moreover, the effect of existing income tax laws and possible changes in such
laws will vary with the particular circumstances of each investor. In
addition, with the exception of those issues specifically referred to as the
subject of the opinion of Tax Counsel to the Partnership, no opinion as to the
tax consequences of an investment in the Partnership has been obtained by the
Partnership. Accordingly, as previously stated, each prospective Limited
Partner should consult with and rely on his own advisors with respect to the
possible tax consequences of an investment in the Partnership.
SUMMARY OF THE PARTNERSHIP AGREEMENT
The form of the Amended and Restated Agreement of Limited Partnership (the
"Partnership Agreement") is included as Exhibit A to this Prospectus. It is
recommended that each prospective purchaser read it in its entirety.
Certain provisions of the Partnership Agreement have been described
elsewhere in this Prospectus. With regard to various transactions and
relationships of the Partnership with the General Partner and its affiliates,
see "Conflicts of Interest", with regard to the management of the Partnership,
see "The Partnership" and "The General Partner and Its Affiliates", with regard
to the transfer of Limited Partners Units, see "Transferability of Units", and
with regard to reports to be made to the Limited Partners, see "Reports".
The following briefly summarizes certain provisions of the Partnership
Agreement which are not described elsewhere in this Prospectus. All statements
made below and elsewhere in this Prospectus relating to the Partnership
Agreement are hereby qualified in their entirety by reference to the
Partnership Agreement. Capitalized terms used in this summary have the
meanings ascribed to them in the Partnership Agreement.
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Term
The Partnership shall continue in full force and effect until December 31,
2034, or until dissolution prior thereto.
Partnership Capital
No Partner shall be entitled to interest on any Capital Contribution to
the Partnership or on such Partners Capital Account. No Partner, other than
the Initial Limited Partner, has the right to withdraw, or to receive any
return of, his or her Capital Contribution. However, upon the death of a
Limited Partner, the legal representative of such Partner may cause the
interest of such Partner to be purchased as described under "Transferability of
Units". No Partner has the right to receive property other than cash in return
for his or her Capital Contribution.
Annual Appraisal
The Partnership Agreement provides that, beginning December 31, 1994 and
each succeeding December 31 (the "Valuation Date"), the General Partner will
make an Appraisal or have an Appraisal made of all of the assets of the
Partnership as of such date. The Appraisal, which may be made by independent
third parties appointed by the General Partner, is to be based on such methods
relating to the valuation of the Partnerships assets and liabilities as are
deemed appropriate by the General Partner or an independent third party. A
copy of the Appraisal will be sent to the Limited Partners within 120 days, or
as soon as practicable, after the end of the Partnerships fiscal year, which
ends December 31. See "Reports" for information as to the valuation procedures
expected to be utilized with respect to private equity investments.
Voting Rights
Under the Partnership Agreement, either the General Partner or 10% or more
in Interest of the Limited Partners may propose any act or other matter to
which the Consent of any Partner is required. Within 20 days of the making of
any such proposal, the General Partner must give all Partners Notification of
such proposal (including the text of any amendment or document, a statement of
its purposes and a favorable opinion of counsel, pursuant to Section 10.1A of
the Partnership Agreement). Any matter requiring the Consent of any or all of
the Limited Partners may be considered at a meeting of the Partners held not
less than 15 nor more than 30 days after Notification to the Limited Partners
of any proposal. Any Consent required by the Partnership Agreement shall be
deemed to have been given only when the General Partner has actually received
the written Consents of the Partners to the doing of the act or to such matter
for which the Consent was solicited, or after the affirmative vote of the
Partners to the doing of such act or to such matter at a meeting called to
consider the same. Any Consent so given will be nullified if a written
nullification by a Limited Partner of his Consent is actually received by the
General Partner prior to the time such proposed act or such matter is actually
voted upon.
Among other matters subject to approval by the Limited Partners are
admission of a successor General Partner, Removal of the General Partner, Sale
of all or substantially all of the assets of the Partnership, certain
amendments to the Partnership Agreement, and dissolution of the Partnership
prior to January 1, 2000. However, as provided in detail in Section 11.3 of
the Partnership Agreement, unless, at the time of the giving or withholding of
Consent for certain actions by the Limited Partners, counsel retained by the
Partnership at such time is of the opinion that the giving or withholding of
Consent for such action is permitted by the Delaware Revised Uniform Limited
Partnership Act, does not impair the liability of the Limited Partners and does
not adversely affect the tax status of the Partnership, certain voting rights
of the Limited Partners may be restricted.
Liability of Partners to Third Parties
The General Partner will be generally liable for all obligations of the
Partnership.
The Partnership Agreement provides that no Limited Partner shall be
personally liable for the debts of the Partnership beyond the amount committed
by such Limited Partner to the capital of the Partnership and such Limited
Partners share of the Partnerships assets and undistributed profits. See "Risk
and Other Important Factors Possible
41
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Loss of Limited Liability". In the event the Partnership is unable otherwise
to meet its obligations, the Limited Partners might, under applicable law, be
obligated under some circumstances to return distributions previously received
by them. See "Risk and Other Important Factors Repayment of Certain
Distributions".
Dissolution
The Partnership shall be dissolved upon: the expiration of its term; the
Incapacity, Removal or withdrawal of the General Partner and failure to
designate a successor; the Sale or other disposition at one time of all or
substantially all of the assets of the Partnership; an election prior to
January 1, 2000 to dissolve by the General Partner with the Consent of a
Majority-in-Interest of the Limited Partners; the failure of the Limited
Partners to approve, by Consent of a Majority-in-Interest, the admission of a
successor General Partner to the General Partner pursuant to Section 6.1A of
the Partnership Agreement; after January 1, 2000, the General Partners election
to dissolve the Partnership; or the occurrence of any other event causing
dissolution of the Partnership under the laws of the State of Delaware.
Amendment
Subject to the provisions of Section 10.1 thereof, the Partnership
Agreement may be amended by action of a Majority-in-Interest of the Limited
Partners. However, without the Consent of all Partners, Section 4.3C of the
Partnership Agreement (relating to certain restrictions on the General Partners
authority), Article Ten (relating to amendment of the Partnership Agreement)
and Section 11.3 (relating to certain limitations on Limited Partners voting
rights) may not be amended. Also, without the Consent of each Partner who may
be adversely affected, the Partnership Agreement may not be amended to (i)
enlarge the obligation of any Partner under the Partnership Agreement or
convert a Limited Partners Interest into a General Partners Interest; (ii)
modify the limited liability of a Limited Partner; or (iii) alter the
provisions of the Partnership Agreement relating to distributions of
Distributable Cash and allocations of Profits and Losses. In addition,
Sections 6.1 and 6.2 (relating to successors to the General Partner) may not be
amended without the Consent of the General Partner. As a result of the
limitations on Limited Partners voting rights described above under "Voting
Rights", there may be situations when Limited Partners are not permitted to
vote on amendments of the Partnership Agreement. However, in accordance with
Section 10.1 of the Partnership Agreement, under certain circumstances the
General Partner, without the Consent of a Majority-in-Interest of the Limited
Partners, may amend the Partnership Agreement if, in its opinion, such
amendment does not have a material adverse effect on the Limited Partners or
the Partnership.
Elections
All elections required or permitted to be made by the Partnership under
the Code may be made by the General Partner in such manner as it deems most
advantageous to individual taxpayers who are (i) married and filing joint
returns, (ii) not "dealers" for Federal income tax purposes, and (iii) in the
highest marginal Federal income tax bracket.
Appointment of General Partner as Attorney-in-Fact
Each Limited Partner irrevocably constitutes and appoints the General
Partner such Limited Partners true and lawful attorney-in-fact, with full power
and authority in such Limited Partners name, place and stead to make, execute,
acknowledge and file such documents, instruments and conveyances as may be
necessary or appropriate to carry out the provisions of the Partnership
Agreement.
Principal Office of the Partnership
The principal business office of the Partnership shall be at South Tower,
World Financial Center, 225 Liberty Street, New York, New York 10080-6123,
unless changed by the General Partner. The business of the Partnership may also
be conducted at such additional places as the General Partner may determine.
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Applicable Law
The Partnership Agreement will be construed and enforced in accordance
with the laws of the State of Delaware.
OFFERING AND SALE OF UNITS
Offering of Units
MLPF&S has entered into an Agency Agreement with the Partnership and the
General Partner pursuant to which MLPF&S has agreed to act as selling agent for
the Partnership and the General Partner to assist in the sale of the Units to
Qualified Investors on a "best efforts" basis. MLPF&S and its affiliates will
not receive, directly or indirectly, any payments or compensation in connection
with the offering and sale of Units.
The Agency Agreement contains cross-indemnification clauses with respect
to certain liabilities under the Securities Act of 1933.
The offering will terminate not later than June 9, 1994, or such
subsequent date, not later than July 7, 1994, as the parties may determine
(the "Offering Termination Date"), except that unless 5,000 Units are
subscribed for by the Offering Termination Date, none will be sold and all
payments received will be refunded with interest, if any, actually earned. If
properly-executed subscriptions for 5,000 or more Units (up to the maximum of
30,000) are received by the Offering Termination Date, and all conditions
precedent to closing are met, all such subscriptions will be accepted and such
investors will be admitted to the Partnership as Limited Partners.
If properly-executed subscriptions for more than 30,000 Units are
received, the General Partner may, in its sole discretion, reject, in whole or
in part, any Limited Partners subscription.
Investor Suitability Standards
Only Qualified Investors will be eligible to purchase Units. See
"Investor Suitability Standards" on page 2.
Maximum Purchase by Qualified Investors
The Partnership has imposed restrictions on the maximum amount of Units
which may be purchased by any Qualified Investor. An employee of ML & Co. or
its subsidiaries may only purchase Units in an amount which does not exceed 15%
of such employees cash compensation from ML & Co. or its subsidiaries received
with respect to 1993 on an annualized basis unless the employee either (x) has
a net worth, individually or jointly with the employees spouse, in excess of
$1,000,000 at the time of purchase of the Units, or (y) had an individual
income in excess of $200,000 in each of 1992 and 1993 or joint income with the
employees spouse in excess of $300,000 in each of those years and reached or
has a reasonable expectation of reaching the same level in 1994. An employee
of ML & Co. who meets the requirements of clause (x) or (y) above may purchase
Units in an amount which does not exceed 75% of the employees compensation
received in 1993 on an annualized basis. A non-employee director of ML & Co.
may only purchase Units in an amount which does not exceed two times the
directors fees (including committee fees, but not including reimbursement of
expenses) received from ML & Co. during 1993. Notwithstanding the foregoing, a
Qualified Investor will only be permitted to purchase Units in the Partnership
in an aggregate amount in excess of $250,000 if the offering is not fully
subscribed. In the event that the offering is not fully subscribed, Qualified
Investors will be permitted to invest up to the specified percentage of his or
her 1993 compensation (or directors fees, as applicable), provided that such
amount is equal to less than 10% of the outstanding limited partnership
interests of the Partnership.
Subscription to Purchase Units
Each Qualified Investor who desires to purchase any Units must:
43
<PAGE>
(a) subscribe to purchase five or more Units;
(b) complete, date, execute and deliver to KECALP Inc., South Tower,
World Financial Center, 225 Liberty Street, New York, NY 10080-6123, one copy
of the Signature Page and Power of Attorney, a form of which is attached as
part of the Subscription Agreement attached to this Prospectus as Exhibit B;
and
(c) authorize an amount equal to $1,000 for each Unit that the
prospective purchaser desires to purchase to be debited from his MLPF&S
securities account.
The General Partner will not, under any circumstances, accept
subscriptions for a fractional interest in a Unit.
Payment for Units
Each Qualified Investor who subscribes to purchase Units will, by
execution of the Subscription Agreement, agree to make a capital contribution
of $1,000 for each Unit subscribed for and authorize that amount to be debited
from his MLPF&S securities account specified on his Signature Page and Power of
Attorney. If sufficient funds are not already available in the Qualified
Investors MLPF&S securities account, the Qualified Investor must deposit
additional funds so that the full amount of the capital contribution for the
Units for which the investor has subscribed will be available in such account.
Not more than 30 days after any Qualified Investor enters into a
Subscription Agreement, the General Partner will notify such investor whether
such investors subscription will be rejected (and any subscription not so
rejected will be accepted, subject to the satisfaction of the conditions
referred to below). Amounts paid by an investor whose subscription is rejected
will be promptly returned with interest, if any, actually earned and received
thereon, as provided below.
MLPF&S will promptly debit subscription amounts upon subscription from
subscribers MLPF&S securities accounts and deposit such funds in an escrow
account with The Bank of New York, for the benefit of investors. The bank
escrow agent for such account may, at the direction of MLPF&S, invest such
payment in U.S. government securities, bank time deposits, certificates of
deposit of a domestic bank which mature prior to the Closing of the purchase of
Units or bank money market accounts. The Qualified Investors funds in such
account, but not the interest earned thereon, will be released to the
Partnership only if each of the following conditions has been satisfied:
(a) on the date of Closing, Qualified Investors have subscribed for at
least 5,000 Units;
(b) on the date of Closing, the escrow agent has received the full
payment of the capital contributions for the Units which the Partnership will
issue and sell at such Closing; and
(c) on the date of Closing, Brown & Wood has delivered its opinion that
the Partnership will be treated as a partnership for Federal income tax
purposes and will not be treated as a publicly traded partnership within the
meaning of Section 7704(b) of the Internal Revenue Code of 1986, as amended.
If such conditions are not timely satisfied, all the investors funds so
held in such account will be returned to the investors. If all of such
conditions are timely satisfied, each investor who has subscribed to purchase
Units to be issued and sold at such Closing will become a Limited Partner and
thereafter (but only thereafter) such investors capital contributions will be
paid to the Partnership, to be applied by it as described in this Prospectus.
Any interest earned on funds held in escrow will be paid to subscribers in
proportion to their respective subscription amounts and the length of time
their subscription amounts were on deposit.
Each Limited Partner will be entitled to the distributive share of items
of income, gain, deduction, loss or credit and cash distributions allocable to
such Limited Partners interest in the Partnership, as provided in the
Partnership Agreement, without regard to the dates on which any Limited
Partners may have subscribed to purchase Units.
44
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TRANSFERABILITY OF UNITS
Restrictions
The Partnership is designed as an investment vehicle for Qualified
Investors only. The Partnership has obtained exemptions from certain
provisions of the Investment Company Act on the basis that, with certain
exceptions, only Qualified Investors will become Limited Partners. Purchasers
of Units should view their interest in the Partnership as a long-term, illiquid
investment.
No transfer or assignment by a Limited Partner of his or her interest in
the Partnership shall be effective unless made in accordance with the
provisions of the Partnership Agreement. The Partnership Agreement prohibits
transfer or assignment by a Limited Partner of his or her interest in the
Partnership to any person who is not a Qualified Investor, except transfers to
a member of his or her immediate family or transfers resulting by operation of
law. (For this purpose, the members of a Limited Partners immediate family
consist of the partner's spouse and children.) No transfer of a Limited
Partners interest may be made without the consent of the General Partner, which
consent may be withheld in the sole discretion of the General Partner. No
sale, assignment or transfer of, or after which the transferor and transferee
would each hold, an interest representing a capital contribution of less than
$1,000, will be permitted or recognized for any purpose without the consent of
the General Partner, which consent will be granted only for good cause shown.
The sale or transfer of a Partnership interest may result in adverse
income tax consequences to the transferor. Limited Partners are advised to
consult their tax advisors prior to any such transfer. See "Tax Aspects of
Investment in the Partnership Transfer of a Partnership Interest".
No transfer, assignment or negotiation of an interest in the Partnership
will be recognized or effective if such transfer or assignment, together with
all other such transfers on the books of the Partnership during the immediately
preceding 12 months, would result in the transfer of 50% or more of the Units.
See "Tax Aspects of Investment in the Partnership General Principles of
Partnership Taxation Termination of the Partnership for Tax Purposes". In
addition, pursuant to the Partnership Agreement, the Partnership will satisfy
one or more safe harbor limitations from classification as a publicly traded
partnership which would impose more restrictive numerical limitations on the
number of Units transferred. One safe harbor under current law would restrict
transfers (except for certain exempt transfers) of 5% or more Units during the
same taxable year. Transfers, assignments or negotiations, the recognition and
effectiveness of which are so suspended and deferred, will be recognized (in
chronological order to the extent practicable) when, and to the extent that,
such recognition will not result in there having been transfers of Units in
excess of the limitations referred to above.
The General Partner has the authority to amend the transferability
provisions of the Partnership Agreement in such manner as may be necessary or
desirable to preserve the tax status of the Partnership.
Further, no sale, exchange, transfer or assignment of a Limited Partners
interest may be made if the sale of such interest would, in the opinion of
counsel for the Partnership, result in a termination of the Partnership for
purposes of Section 708 of the Code, violate any applicable Federal or state
securities laws, cause the Partnership to be treated as an association taxable
as a corporation for Federal income tax purposes, cause the Partnership to be
classified as a publicly traded partnership and taxable as a corporation for
Federal income tax purposes, or cause all or a portion of the Partnerships
assets to be treated as "tax-exempt use property" under Section 168(j) of the
Code.
Acquisition of Certain Limited Partners Interests
by the General Partner or the Partnership
Upon the death of a Limited Partner, the legal representative(s) of such
Limited Partner may tender, and the General Partner shall purchase the interest
in the Partnership held by such Limited Partner at a purchase price equal to
the value of the interest determined at the next annual Valuation Date. To
have Units repurchased, the estate of a Limited Partner must notify the General
Partner of its election to have the Units repurchased within 30 days after
45
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the date the appraisal is sent to the Limited Partners. The Partnership,
rather than the General Partner, may purchase such interest if it is determined
the purchase is in the best interests of the Partnership. If the General
Partner purchases any such interest for its own account pursuant to this
provision, it shall be entitled to the rights of an assignee of such interest,
including the right to vote as if it were a Substituted Limited Partner, and it
may become a Substituted Limited Partner. The General Partner may sell any
interest acquired pursuant to this provision and the purchaser will be entitled
to be admitted as a Substituted Limited Partner effective as of the date of
payment to the General Partner for such interest.
Assignees
An assignee of a Limited Partner does not automatically become a
Substituted Limited Partner, but has the right to receive the same share of
profits, losses and distributable cash of the Partnership to which the assignor
Limited Partner would have been entitled. A Limited Partner who assigns all of
his Partnership interest ceases to be a Limited Partner, and shall not retain
any statutory rights as a Limited Partner. The assignee of a Partnership
interest who does not become a Substituted Limited Partner and desires to make
further assignment of such interest is subject to all of the restrictions on
transferability of Partnership interests described in this Prospectus and the
Partnership Agreement.
In the event of the death, incapacity or bankruptcy of a Limited Partner,
his or her legal representatives will have all the rights of a Limited Partner
for the purpose of settling or managing his or her estate and such power as the
decedent, incompetent or bankrupt Limited Partner possessed to assign all or
any part of his interest in the Partnership, and to join with such assignee in
satisfying conditions precedent to such assignees becoming a Substituted
Limited Partner. In the event of the death of a Limited Partner, but not in
the event of adjudication of incompetence or bankruptcy, the deceased Limited
Partners interest may be distributed as part of the estate, transferred by
operation of law, tendered to the General Partner as described above, or
assigned to another Qualified Investor.
A purported sale, assignment or transfer of a Limited Partners interest
will be recognized by the Partnership on the first day of the fiscal quarter
following the quarter in which the Partnership has received written notice of
such sale, assignment or transfer in form satisfactory to the General Partner,
signed by both parties, containing the purchasers, assignees or transferees
acceptance of the terms of the Partnership Agreement and a representation by
the parties that the sale or assignment was made in accordance with all
applicable laws and regulations.
Substituted Limited Partners
No Limited Partner has the right to substitute an assignee as a Limited
Partner in his or her place. The General Partner, however, has the right in its
sole and absolute discretion, to permit such assignee to become a Substituted
Limited Partner and any such permission by the General Partner is binding and
conclusive without the consent or approval of any Limited Partner. Any
Substituted Limited Partner must, as a condition to receiving any interest in
the Partnership, sign a Signature Page and Power of Attorney, pay the
reasonable legal fees and filing and publication costs of the Partnership and
the General Partner in connection with his or her substitution as a Limited
Partner and satisfy the other conditions specified in Section 10.2 of the
Partnership Agreement. Notwithstanding the actual time of the admission of a
Substituted Limited Partner, for purposes of allocating profits, losses and
distributable cash (as those terms are defined in the Partnership Agreement), a
person will be treated as having become a Limited Partner as of the date on
which the sale, assignment or transfer of such persons interest was recognized
by the Partnership, as described above, even if that person does not in fact
become a Substituted Limited Partner.
REPORTS
Financial information contained in all reports to the Limited Partners
will be prepared on an accrual basis of accounting in accordance with generally
accepted accounting principles and will include, where applicable, a
46
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reconciliation to information furnished to the Limited Partners for income tax
purposes. Federal and state tax information will be provided to the Limited
Partners within 75 days following the close of each calendar year or as soon as
practicable thereafter. Financial statements, which will be prepared annually,
will be certified by independent auditors and will be furnished within 120 days
following the close of the calendar year. A statement of appraisal of the
value of Partnership assets will be provided with the financial statements.
Limited Partners also have the right under applicable law to obtain other
information about the Partnership and may, at their expense, obtain a list of
the names and addresses of all of the Limited Partners for any proper purpose.
In connection with the appraisal of the value of the Partnerships
investments in portfolio companies that are not publicly traded, there is a
range of values which is reasonable for such investments at any particular
time. The General Partner presently expects that the following procedures will
be utilized with respect to these investments. In the early stages of
development, these investments will typically be valued based on their original
cost to the Partnership (the "cost method"). The cost method will be utilized
until significant developments affecting the portfolio company provide a basis
for use of an appraisal valuation (the "appraisal method"). The appraisal
method will be based on such factors affecting the portfolio company as
earnings and net worth, the market prices for similar securities of comparable
companies and an assessment of the company's future prospects. In the case of
unsuccessful operations, the appraisal may be based on liquidation value.
Valuations based on the appraisal method are necessarily subjective. The
General Partner will also use third party transactions (actual or proposed) in
the portfolio company's securities as the basis of valuation (the "private
market method"). The private market method will be used only with respect to
actual transactions or actual firm offers by sophisticated, independent
investors. The valuation of debt securities that are not publicly traded will
be determined by or under the direction of the General Partner. The General
Partner expects that the private market method of valuation will be the primary
method utilized with respect to these securities. Securities with legal,
contractual or practical restrictions on transfer may be valued at a discount
from their value determined by the foregoing methods to reflect the effect of
such restrictions.
EXPERTS
The financial statements included in this Prospectus have been examined by
Deloitte & Touche, independent auditors, as indicated in their opinions with
respect thereto, and are included herein in reliance upon the authority of that
firm as experts in accounting and auditing.
LEGAL MATTERS
The legality of the securities offered hereby will be passed upon by Brown
& Wood, One World Trade Center, New York, New York 10048, as counsel to the
Partnership and the General Partner, who may rely as to matters of Delaware law
upon the opinion of Richards, Layton & Finger, One Rodney Square, Wilmington,
Delaware 19801.
The statements under the heading "Tax Aspects of Investment in the
Partnership" have been reviewed by Brown & Wood.
EXEMPTIONS FROM THE INVESTMENT COMPANY ACT OF 1940
The Partnership will operate as a non-diversified, closed-end, management
investment company registered with the Securities and Exchange Commission (the
"Commission") under the Investment Company Act. However, an exemptive order
was obtained from the Commission in 1982 pursuant to Section 6(b) of the Act
that exempts the Partnership, as an "employees securities company" within the
meaning of the Investment Company Act, from certain provisions of such Act.
The exemptive order relates to the following provisions of the Investment
Company Act and the rules and regulations promulgated thereunder:
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Section 8(b) to exempt the Partnership from filing annual amendments to
its Registration Statement under the Investment Company Act;
Section 10(a) to permit the Partnership to include the General Partner as
the sole general partner and to permit all of the directors and officers of the
General Partner to be persons who are employees of ML & Co. or its affiliates;
Section 10(b) to permit the Partnership to employ subsidiaries of ML & Co.
to act as broker and principal underwriter for the Partnership;
Section 10(f) to permit the Partnership to purchase securities in
underwritten offerings, a principal underwriter of which may be an affiliate of
the General Partner;
Section 14(a) to permit the Partnership to offer Units to Qualified
Investors prior to the time the Partnership has a net worth of $100,000;
Section 15(a) to permit the General Partner to act from time to time as
investment adviser to the Partnership without a written contract and without
the approval of the Limited Partners;
Section 16(a) to permit ML & Co. to appoint and replace the directors of
the General Partner in accordance with the Partnership Agreement;
Section 17(a) to permit ML & Co. and its subsidiaries to engage in certain
transactions as principal with the Partnership in addition to transactions as
agent, including transactions involving money market securities and real
estate;
Section 17(d) to permit the Partnership to engage in transactions in which
certain affiliated persons of the Partnership may also be participants;
Section 17(f) to permit ML & Co. or one of its subsidiaries to act as
custodian without a written contract;
Section 17(g) to permit the Partnership to comply with requirements
applicable to fidelity bonds without the necessity of having a majority of the
Board of Directors of the General Partner which are not "interested persons"
take such action and make such approvals as are set forth in Rule 17g-1 under
the Investment Company Act;
Section 18(a)(1) to exempt the Partnership from certain limitations on
borrowings so that the Partnership may enter into nonrecourse loans relating to
investments other than securities without regard to the restrictions on "asset
coverage" contained in the Investment Company Act;
Section 18(i) to permit the Limited Partners to have only those rights
with respect to the management of the Partnership as are set forth in the
Partnership Agreement;
Section 19(b) to permit the Partnership to distribute long-term capital
gains more frequently than annually;
Section 20(a) to exempt the Partnership from the proxy requirements set
forth in the rules under the Investment Company Act;
Section 23(c) to permit the Partnership to repurchase Partnership
interests pursuant to the terms of the Partnership Agreement;
Section 30(a),(b) and (d) to exempt the Partnership from filing annual and
quarterly reports with the Commission and from sending semi-annual reports to
Limited Partners; and
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Section 32(a) to permit the General Partner to select independent
certified public accountants for the Partnership without submitting their
selection to the Limited Partners for ratification or rejection.
On May 7, 1991, the Commission issued an order amending the order
described above to expand the categories of investments in which the
Partnership and other partnerships managed by the General Partner may
participate with ML & Co. and its affiliates. The transactions in which such
joint investments may be made relate generally to equity and equity-related
investments in buyout transactions and other transactions structured by ML &
Co. or its affiliates or in which ML & Co. or its affiliates have an equity or
equity-related investment. The order requires, among other things, that the
General Partner make specified findings before the Partnership participates in
such investments and that the General Partner, at least annually, provide to
the Limited Partners a list of such investments in which the Partnership has
invested with ML & Co. or its affiliates. The Partnership has applied for
additional exemptive relief with respect to co-investments by the Partnership
and affiliated co-investors.
ADDITIONAL INFORMATION
This Prospectus does not contain all the information set forth in the
Registration Statement that the Partnership has filed with the Securities and
Exchange Commission, Washington, D.C., under the Securities Act of 1933 and the
Investment Company Act. For further information pertaining to the securities
offered hereby, reference is made to the Registration Statement including the
exhibits filed as a part thereof.
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INDEX TO FINANCIAL STATEMENTS
Page
----
Merrill Lynch KECALP L.P. 1994
Independent Auditors' Report . . . . . . . . . . . . . . . . . . . . . 51
Balance Sheet, February 4, 1994 . . . . . . . . . . . . . . . . . . . 52
Notes to Balance Sheet . . . . . . . . . . . . . . . . . . . . . . . . 52
KECALP Inc.
Independent Auditors' Report . . . . . . . . . . . . . . . . . . . . . 53
Balance Sheet, December 25, 1992 . . . . . . . . . . . . . . . . . . . 54
Notes to Balance Sheet . . . . . . . . . . . . . . . . . . . . . . . . 55
50
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INDEPENDENT AUDITORS' REPORT
Merrill Lynch KECALP L.P. 1994:
We have audited the accompanying balance sheet of Merrill Lynch KECALP L.P.
1994 as of February 4, 1994. This financial statement is the responsibility of
the Partnership's management. Our responsibility is to express an opinion on
this financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statement is free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statement. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, such balance sheet presents fairly, in all material respects,
the financial position of Merrill Lynch KECALP L.P. 1994 at February 4, 1994,
in conformity with generally accepted accounting principles.
Deloitte & Touche
New York, New York
March 24, 1994
51
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MERRILL LYNCH KECALP L.P. 1994
BALANCE SHEET
February 4, 1994
Assets
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $100
----
PARTNERS' CAPITAL ACCOUNT
Capital Contributions:
General Partner . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 99
Initial Limited Partner . . . . . . . . . . . . . . . . . . . . . . . . . 1
----
$100
====
NOTES TO BALANCE SHEET
1. Organization and Purpose
Merrill Lynch KECALP L.P. 1994 (the "Partnership") was formed as of
January 4, 1994 and the Certificate of Limited Partnership was filed under the
Delaware Revised Uniform Limited Partnership Act on January 6, 1994. The only
transactions to date have been capital contributions of $99 by KECALP Inc.
("KECALP" or the "General Partner") and $1 by the Initial Limited Partner. The
Initial Limited Partner purchased an interest in the Partnership for $1 to
permit the formation of the Partnership. KECALP is a Delaware corporation,
formed in June 1981 and an indirect wholly-owned subsidiary of Merrill Lynch &
Co., Inc. The General Partner is authorized to admit additional limited
partners to the Partnership if, after the admission of such additional limited
partners, the capital contributions of all additional limited partners would
not be less than $5,000,000 and not more than $30,000,000. The Partnership is
an "employees securities company" under the Investment Company Act of 1940.
KECALP will pay the organizational expenses of the Partnership incurred prior
to the commencement of the offering of the Partnership's units. The
Partnership has agreed to reimburse KECALP for such costs. Deferred
organizational expenses of the Partnership will be amortized on a straight line
basis over a period not to exceed five years from the commencement of the
Partnership's operations. In the event that the Partnership liquidates before
the deferred organizational expenses are fully amortized, KECALP shall bear
such unamortized deferred organizational expenses for the Partnership.
2. Business
The Partnership intends to seek long-term capital appreciation. The
Partneship shall not engage in any other business or activity. The Partnership
term extends to December 31, 2034. However, pursuant to the Partnership
Agreement, the General Partner may dissolve the Partnership, without the
consent of the Limited Partners, at any time after January 1, 2000.
3. Fiscal Year
The fiscal year of the Partnership will be the year ending December 31 of
each year.
52
<PAGE>
INDEPENDENT AUDITORS' REPORT
To KECALP Inc.:
We have audited the accompanying balance sheet of KECALP Inc. as of December
25, 1992. This financial statement is the responsibility of the Corporation's
management. Our responsibility is to express an opinion on this financial
statement based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statement is free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statement. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, such balance sheet presents fairly, in all material respects,
the financial position of KECALP Inc. at December 25, 1992 in conformity with
generally accepted accounting principles.
Deloitte & Touche
New York, New York
July 29, 1993
53
<PAGE>
INVESTORS WILL NOT ACQUIRE ANY INTEREST IN THIS COMPANY
KECALP Inc.
BALANCE SHEET
December 25, 1992
ASSETS
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 17,502
Other receivable . . . . . . . . . . . . . . . . . . . . . . . . 246,875
Investment in limited partnerships (Note 1) . . . . . . . . . . . 663,783
--------
TOTAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 928,160
========
LIABILITIES AND STOCKHOLDER'S EQUITY
Liabilities:
Due to Merrill Lynch & Co., Inc. (Note 4) . . . . . . . . . . . $ 127,065
Deferred federal and state income taxes . . . . . . . . . . . . 35,333
Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . 34,000
------------
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . 196,398
------------
STOCKHOLDER'S EQUITY: (Note 1)
Common stock $1 par value; authorized and
outstanding 1,000 shares (Note 3) . . . . . . . . . . . . . . $ 1,000
Additional paid-in-capital (Note 3) . . . . . . . . . . . . . . 9,435,556
Capital contribution receivable (Note 2) . . . . . . . . . . . (8,100,000)
Deficit . . . . . . . . . . . . . . . . . . . . . . . . . . . . (604,794)
------------
Total stockholders equity . . . . . . . . . . . . . . . . . 731,762
------------
TOTAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 928,160
============
See notes to balance sheet and independent auditors' report.
54
<PAGE>
KECALP INC.
NOTES TO BALANCE SHEET
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
KECALP Inc. ("KECALP"), a Delaware corporation, is a wholly-owned
subsidiary of Merrill Lynch Group Inc. ("ML Group"). ML Group is a
wholly-owned subsidiary of Merrill Lynch & Co., Inc. ("ML & Co."). KECALP is
the General Partner of six Delaware limited partnerships, Merrill Lynch KECALP
Growth Investments Limited Partnership 1983 (the "1983 Partnership"), Merrill
Lynch KECALP L.P. 1984 (the "1984 Partnership"), Merrill Lynch KECALP L.P. 1986
(the "1986 Partnership"), Merrill Lynch KECALP L.P. 1987 (the "1987
Partnership"), Merrill Lynch KECALP L.P. 1989 (the "1989 Partnership") and
Merrill Lynch KECALP L.P. 1991 (the "1991 Partnership"), collectively referred
to as the "Partnerships". As General Partner, KECALP manages the Partnerships,
pays certain of their expenses and maintains a one percent ownership interest
in each of the Partnerships.
The 1983 Partnership and the 1984 Partnership intend to seek long-term
capital appreciation and the tax advantages associated with certain
investments, primarily through the purchase of speculative, tax-oriented
investments in real estate, oil and gas properties, personal property and/or
indirect interests therein. At least 25 percent of the total proceeds will be
invested in real estate. The investment objectives of the 1986, 1987, 1989 and
1991 Partnerships are to seek long-term capital appreciation with a substantial
portion of its total proceeds invested in venture capital and leveraged buyout
investments. The Partnerships may purchase other investments that KECALP deems
appropriate. The Partnerships shall not engage in any other business or
activity.
Investment in Partnerships - The investment in the Partnerships is
recorded at cost and adjusted for KECALP's share of the undistributed net
realized income or loss (which excludes unrealized appreciation or
depreciation of investments, in accordance with the agreements of the
respective Partnerships).
Capital Requirements - As a condition to the closing of the sales of units
of limited partnership interest, KECALP has agreed to maintain a net worth as
required in accordance with applicable U.S. income tax regulations and rulings
of the Internal Revenue Service. ML & Co. provides capital to KECALP by a
demand promissory note or other investment to satisfy the requirement that
KECALP have such net worth (see Note 2).
2. CAPITAL CONTRIBUTION RECEIVABLE
The Capital Contribution receivable represents promissory notes from ML &
Co. The notes are due on demand and bear interest at rates of 8.8% to 9.5% per
year compounded semiannually. Intercompany interest and taxes are not paid,
but KECALP's obligations have been settled through an adjustment of the
intercompany receivable account.
3. RELATED PARTY TRANSACTIONS
KECALP is obligated to pay certain expenses, fees, sales or brokerage
commissions, and other expenditures (except for debt service and interest
expense) of the Partnerships.
KECALP is required to maintain an investment in the Partnerships of
approximately 1% of the Partnerships net assets less (plus) unallocated net
unrealized appreciation (depreciation) of investments.
4. DUE TO MERRILL LYNCH & CO.
The Corporation has been authorized to borrow funds, as needed, from
Merrill Lynch & Co. The Corporation is to repay this loan with interest based
on the daily brokers call rate.
55
<PAGE>
5. INCOME TAXES
The results of operations of KECALP are included in the consolidated
Federal income tax returns of ML&Co., Inc. It is the policy of ML&Co., Inc. to
allocate to KECALP the Federal and state tax expense associated with such
operating results in its consolidated tax return, including the recognition of
deferrred tax assets.
56
<PAGE>
(This Page Intentionally Left Blank.)
57
<PAGE>
EXHIBIT A
============================================================================
MERRILL LYNCH KECALP L.P. 1994
(A Delaware Limited Partnership)
AMENDED AND RESTATED AGREEMENT
OF
LIMITED PARTNERSHIP
============================================================================
59
<PAGE>
TABLE OF CONTENTS
-----------------
Caption Page
------- ----
ARTICLE ONE
DEFINED TERMS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-1
ARTICLE TWO
ORGANIZATION
SECTION 2.1 Governance . . . . . . . . . . . . . . . . . . . . . . A-4
SECTION 2.2 Name, Place of Business and Office; Registered Agent . A-4
SECTION 2.3 Purpose . . . . . . . . . . . . . . . . . . . . . . . . A-4
SECTION 2.4 Term . . . . . . . . . . . . . . . . . . . . . . . . . A-4
ARTICLE THREE
PARTNERS AND CAPITAL
SECTION 3.1 General Partner . . . . . . . . . . . . . . . . . . . . A-4
SECTION 3.2 Initial Limited Partner . . . . . . . . . . . . . . . . A-5
SECTION 3.3 Additional Limited Partners . . . . . . . . . . . . . . A-5
SECTION 3.4 Partnership Capital . . . . . . . . . . . . . . . . . . A-5
SECTION 3.5 Liability of Partners . . . . . . . . . . . . . . . . . A-5
SECTION 3.6 Lender as Partner . . . . . . . . . . . . . . . . . . . A-6
ARTICLE FOUR
MANAGEMENT
SECTION 4.1 Powers of the General Partner . . . . . . . . . . . . . A-6
SECTION 4.2 Prohibited Transactions . . . . . . . . . . . . . . . . A-8
SECTION 4.3 Restrictions on the Authority of the General Partner . A-8
SECTION 4.4 Duties and Obligations of the General Partner . . . . . A-9
SECTION 4.5 Compensation and Reimbursement of the General Partner . A-11
SECTION 4.6 Other Businesses of Partners . . . . . . . . . . . . . A-11
SECTION 4.7 Indemnification . . . . . . . . . . . . . . . . . . . . A-11
SECTION 4.8 Management by Limited Partners . . . . . . . . . . . . A-12
ARTICLE FIVE
DISTRIBUTIONS OF PARTNERSHIP FUNDS;
ALLOCATIONS OF PROFITS AND LOSSES
SECTION 5.1 Distributions of Partnership Funds . . . . . . . . . . A-12
SECTION 5.2 Allocations of Profits and Losses . . . . . . . . . . . A-12
SECTION 5.3 Determinations of Allocations and Distributions
Among Limited Partners . . . . . . . . . . . . . . . . A-13
i
<PAGE>
ARTICLE SIX
TRANSFERABILITY OF THE GENERAL PARTNERS INTEREST
SECTION 6.1 Voluntary Withdrawal or Transfer by the General Partner A-14
SECTION 6.2 Admission of Successor General Partner . . . . . . . . A-15
SECTION 6.3 Liability of a Withdrawn or Removed General Partner . . A-16
SECTION 6.4 Incapacity of the General Partner . . . . . . . . . . . A-16
SECTION 6.5 Removal of the General Partner . . . . . . . . . . . . A-16
SECTION 6.6 Distributions on Withdrawal or Removal of
the General Partner . . . . . . . . . . . . . . . . . . . A-16
ARTICLE SEVEN
TRANSFERABILITY OF A LIMITED PARTNERS INTEREST
SECTION 7.1 Restrictions on Transfers of Interest . . . . . . . . . A-17
SECTION 7.2 Incapacity of Limited Partner . . . . . . . . . . . . . A-19
SECTION 7.3 Assignees . . . . . . . . . . . . . . . . . . . . . . . A-19
SECTION 7.4 Substituted Limited Partners . . . . . . . . . . . . . A-19
SECTION 7.5 Acquisition of Certain Limited Partners
Interests by the General Partner or the
Partnership . . . . . . . . . . . . . . . . . . . . . . . A-21
ARTICLE EIGHT
DISSOLUTION, LIQUIDATION AND
TERMINATION OF THE PARTNERSHIP
SECTION 8.1 Events Causing Dissolution . . . . . . . . . . . . . . A-21
SECTION 8.2 Liquidation . . . . . . . . . . . . . . . . . . . . . . A-22
ARTICLE NINE
BOOKS AND RECORDS; ACCOUNTING;
APPRAISAL; TAX ELECTIONS; ETC.
SECTION 9.1 Books and Records . . . . . . . . . . . . . . . . . . . A-23
SECTION 9.2 Accounting Basis for Tax and Reporting Purposes;
Fiscal Year . . . . . . . . . . . . . . . . . . . . . . . A-23
SECTION 9.3 Bank Accounts . . . . . . . . . . . . . . . . . . . . . A-23
SECTION 9.4 Appraisal . . . . . . . . . . . . . . . . . . . . . . . A-23
SECTION 9.5 Reports . . . . . . . . . . . . . . . . . . . . . . . . A-24
SECTION 9.6 Elections . . . . . . . . . . . . . . . . . . . . . . . A-24
ARTICLE TEN
AMENDMENTS
SECTION 10.1 Proposal and Adoption of Amendments Generally . . . . A-24
SECTION 10.2 Amendments on Admission or Withdrawal of Partners . . . A-25
ii
<PAGE>
ARTICLE ELEVEN
CONSENTS, VOTING AND MEETINGS
SECTION 11.1 Method of Giving Consent . . . . . . . . . . . . . . . A-26
SECTION 11.2 Meetings of Partners . . . . . . . . . . . . . . . . . A-26
SECTION 11.3 Limitations on Requirements for Consents . . . . . . . A-26
SECTION 11.4 Submissions to Limited Partners . . . . . . . . . . . . A-27
ARTICLE TWELVE
MISCELLANEOUS PROVISIONS
SECTION 12.1 Appointment of the General Partner as Attorney-in-Fact A-27
SECTION 12.2 Notification to the Partnership or the General Partner A-28
SECTION 12.3 Binding Provisions . . . . . . . . . . . . . . . . . . A-28
SECTION 12.4 Applicable Law . . . . . . . . . . . . . . . . . . . . A-29
SECTION 12.5 Counterparts . . . . . . . . . . . . . . . . . . . . . A-29
SECTION 12.6 Separability of Provisions . . . . . . . . . . . . . . A-29
SECTION 12.7 Entire Agreement . . . . . . . . . . . . . . . . . . . A-29
SECTION 12.8 Headings . . . . . . . . . . . . . . . . . . . . . . . A-29
iii
<PAGE>
AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP
OF MERRILL LYNCH KECALP L.P. 1994
Amended and Restated Agreement of Limited Partnership of Merrill Lynch
KECALP L.P. 1994 (the "Partnership") dated ----------, 1994, among KECALP Inc.,
a Delaware corporation, as General Partner, James V. Caruso, the Initial
Limited Partner, and those Persons who shall be admitted as Additional Limited
Partners and as Substituted Limited Partners.
Whereas, pursuant to a Certificate of Limited Partnership dated as of
January 4, 1994, and filed with the Delaware Secretary of State on January 4,
1994, and an Agreement of Limited Partnership, dated January 4, 1994 (the
"Original Agreement"), KECALP Inc. and James V. Caruso, have heretofore formed
the Partnership under the Delaware Revised Uniform Limited Partnership Act;
Whereas, KECALP Inc., the Initial Limited Partner and the Additional
Limited Partners, as defined herein, desire to amend and restate in its
entirety the terms and provisions of the Original Agreement governing the
Partnership;
Now, Therefore, in consideration of the mutual promises made herein, the
parties, intending to be legally bound, hereby agree as follows:
ARTICLE ONE
Defined Terms
The defined terms used in this Agreement shall, unless the context
otherwise requires, have the meanings specified in this Article One. The
singular shall include the plural and the masculine gender shall include the
feminine, and vice versa, as the context requires.
"Act" means the Delaware Revised Uniform Limited Partnership Act (6 Del.
C.17-101 et seq.), as amended from time to time and any successor to the said
Act.
"Additional Limited Partners" means those Persons admitted to the
Partnership pursuant to Section 3.3 and shown as limited partners of the
Partnership on the books and records of the Partnership.
"Affiliate" means when used with reference to a specified Person, (i) any
Person that, directly or indirectly through one or more intermediaries,
controls or is controlled by or is under common control with the specified
Person, (ii) any Person that is an officer, partner (excluding unrelated third
parties who are joint venturers or participants in joint ventures electing to
be taxed as partners for Federal income tax purposes) or trustee of, or serves
in a similar capacity with respect to, the specified Person or of which the
specified Person is an officer, partner or trustee, or with respect to which
the specified Person serves in a similar capacity, (iii) any Person that,
directly or indirectly, is the beneficial owner of 5% or more of any class of
equity securities of the specified Person or of which the specified Person is
directly or indirectly the owner of 5% or more of any class of equity
securities and (iv) any member of the immediate family of the specified Person
or his or her spouse.
"Agreement" means this Amended and Restated Agreement of Limited
Partnership, as originally executed and as amended and restated from time to
time, as the context requires.
"Appraisal" means the statement of valuation of the assets of the
Partnership as described in Section 9.4.
A-1
<PAGE>
"Auditors" means Deloitte & Touche or such other nationally or regionally
recognized firm of independent auditors as shall be engaged by the Partnership.
"Capital Account", as to any Partner, means the sum of a Partner's Capital
Contributions, increased by his share of any Profits, and decreased by his
share of any Losses and by his share of any Partnership Distributable Cash
reasonably expected to be distributed to such Partner and other assets
distributed to such Partner or on behalf of such Partner in payment of any
taxes or other expenses allocable to such Partner and as otherwise increased or
decreased in accordance with the tax accounting principles set forth in
Treasury Regulation Section 1.704-1(b)(2)(iv) of the Code.
"Capital Contribution" means the total amount of money contributed to the
Partnership by all Partners or any class of Partners or any one Partner (or the
predecessor holders of the Interests of such Partners or Partner), as the
context requires, upon the formation of the Partnership or the admission of
such Partner to the Partnership, or as that money is contributed to the
Partnership.
"Code" means the Internal Revenue Code of 1986, as amended (or any
corresponding provision of succeeding law).
"Consent" means the approval of a Person, given as provided in Section
11.1, to do the act or thing for which the approval is solicited, or the act of
granting such approval, as the context may require. Reference to the Consent
of a specified percentage in Interest of the Limited Partners means the Consent
of Limited Partners whose combined Capital Contributions represent, at the time
in question, at least such specified percentage of the Capital Contributions of
all the then Limited Partners.
"Distributable Cash" means, with respect to any fiscal period of the
Partnership, the cash assets of the Partnership on hand at the end of such
fiscal period (but not including the Capital Contribution to the Partnership)
less amounts required to be retained out of such cash assets in the sole
judgment of the General Partner to pay the Partnership's liabilities whether
accrued or anticipated to accrue in the future or to make permissible
investments.
"Fiscal Year" means the calendar year.
"General Partner" means KECALP Inc., a Delaware corporation whose business
address is South Tower, World Financial Center, 225 Liberty Street, New York,
New York 10080-6123, and any successor to it in its capacity as general partner
of the Partnership.
"Incapacity" or "Incapacitated" means the entry of an order for relief in
a case under Title 11 of the United States Code (the "Bankruptcy Code")
("bankruptcy") (except that, in the case of the General Partner, the term
"bankruptcy" shall mean only the being subject to Chapter 7 of the Bankruptcy
Code) or the incompetence, insanity, interdiction, death, incapacity,
disability, dissolution or termination (other than by merger or consolidation),
as the case may be, of any Person.
"Income" means the gross income of the Partnership as determined for
Federal income tax purposes including capital gains and Code Section 1231 gains
(but not losses).
"Initial Limited Partner" means James V. Caruso.
"Interest" means the entire ownership interest of a Partner in the
Partnership at any particular time, including the right of such Partner to any
and all benefits to which a Partner may be entitled as provided in this
Agreement, together with the obligations of such Partner to comply with all the
terms and provisions of this Agreement. Reference to a specified percentage in
Interest of the Limited Partners shall mean Limited Partners whose Capital
Contributions represent, at the time in question, at least such specified
percentage of the Capital Contributions of all the then Limited Partners.
A-2
<PAGE>
"Limited Partner" means any Person who is a limited partner of the
Partnership as shown on the books and records of the Partnership (whether the
Initial Limited Partner, an Additional Limited Partner or a Substituted Limited
Partner) at the time of reference thereto, in such Person's capacity as a
limited partner of the Partnership.
"Majority-in-Interest" means the Limited Partners whose aggregate Capital
Contributions represent over 50% of the aggregate Capital Contributions of all
Limited Partners.
"Notification" means a writing, containing the information required by
this Agreement to be communicated to any Person, sent by first class mail,
postage prepaid, to such Person at the last known address of such Person, five
days after the mailing thereof being deemed the date of the giving of
Notification; provided however, that any communication containing the
information sent to the Person and actually received by the Person shall
constitute Notification for all purposes of this Agreement.
"Partner" means the General Partner or a Limited Partner.
"Partnership" means the limited partnership governed hereby, as said
limited partnership may from time to time be constituted.
"Partnership Account" means the bank account or bank accounts to be
maintained by the General Partner on behalf of the Partnership with any bank in
the United States having assets in excess of $100,000,000.
"Person" means any individual, partnership, corporation, trust or other
entity.
"Profits" or "Losses" means the profits or losses of the Partnership for
Federal income tax purposes including, without limitation, each item of
Partnership Income, gain, loss, deduction or credit.
"Prospectus" means the prospectus contained in the registration statement
filed by the Partnership on Form N-2 at the time such registration statement
was declared effective by the Securities and Exchange Commission; except that
if a prospectus filed by the Partnership pursuant to Rule 497(b) or 497(d)
under the Securities Act of 1933 differs from the prospectus contained in the
registration statement, as aforesaid, then the term "Prospectus" refers to the
Rule 497(b) or 497(d) prospectus from and after the time it is mailed to the
Securities and Exchange Commission for filing.
"Remove", "Removed" or "Removal" when used in reference to the removal of
the General Partner means the termination of all management powers, duties and
responsibilities of the General Partner pursuant to Section 6.5, but not the
elimination of the General Partner as a Partner.
"Sale" means any event, action or transaction that is, for Federal income
tax purposes, considered a sale, exchange or abandonment by the Partnership of
any Partnership property.
"State" means the State of Delaware.
"Substituted Limited Partner" means any Person admitted to the Partnership
as a Limited Partner pursuant to the provisions of Section 7.4 and who is shown
on the books and records of the Partnership as a limited partner of the
Partnership.
"Unit" means an Interest in the Partnership attributable to an aggregate
payment of $1,000 to the Partnership by, or on behalf of, the Limited Partner
who originally acquired the Interest.
"Valuation Date" means each of the dates described in Section 9.4.
A-3
<PAGE>
ARTICLE TWO
Organization
Section 2.1 Governance
The undersigned parties hereto hereby agree that the rights and
liabilities of the Partners shall be as provided in the Act except as herein
otherwise expressly provided.
Section 2.2 Name, Place of Business and Office; Registered Agent
The name of the limited partnership heretofore formed and hereby continued
shall be Merrill Lynch KECALP L.P. 1994. The business of the Partnership may
be conducted under any other name deemed necessary or desirable by the General
Partner in order to comply with local law. The Partnership shall maintain a
registered office in the State c/o The Corporation Trust Company, Corporation
Trust Center, 1209 Orange Street, Wilmington, New Castle County, Delaware
19801. The Partnership shall maintain its principal office at South Tower,
World Financial Center, 225 Liberty Street, New York, New York 10080-6123. The
General Partner may at any time change the location of the Partnership's
offices and may establish additional offices, if it deems it advisable. The
name and address of the Partnership's registered agent for service of process
in the State is The Corporation Trust Company, Corporation Trust Center, 1209
Orange Street, Wilmington, New Castle County, Delaware 19801. The General
Partner has filed the certificate of limited partnership of the Partnership and
shall file any amendment to the certificate of limited partnership of the
Partnership as required by the Act in the proper office in the State and shall
take such steps as are necessary to qualify the Partnership to conduct business
in other jurisdictions in which it owns properties or conducts business and
otherwise to insure that the Limited Partners will have limited liability with
respect to the activities of the Partnership in such other jurisdictions.
Section 2.3 Purpose
The purpose and character of the business of the Partnership is to invest
the funds of the Partnership in various speculative and non-speculative
investments, seeking, among other things, long-term capital appreciation, and
to engage in any and all activities necessary or incidental thereto.
Section 2.4 Term
The Partnership term commenced on January 4, 1994, and shall continue in
full force and effect until December 31, 2034, or until dissolution prior
thereto pursuant to the provisions hereof.
ARTICLE THREE
Partners and Capital
Section 3.1 General Partner
A. The name, residence, business or mailing address and Capital
Contribution of the General Partner are set forth in the books and records of
the Partnership, as amended from time to time, and are incorporated herein by
reference.
A-4
<PAGE>
B. The General Partner, as general partner of the Partnership, shall be
deemed to have made additional Capital Contributions to the Partnership to the
extent it pays expenses of the Partnership pursuant to this Agreement which are
not reimbursed to it by either the Partnership or an Affiliate of the General
Partner.
Section 3.2 Initial Limited Partner
A. The name, business address and Capital Contribution of the Initial
Limited Partner are James V. Caruso, South Tower, World Financial Center, 225
Liberty Street, New York, N.Y. 10080-6123 and his Capital Contribution is
$1.00.
B. Upon the admission of Additional Limited Partners pursuant to Section
3.3, the Initial Limited Partner shall withdraw from the Partnership and
receive forthwith the return of his Capital Contribution without interest or
deduction.
Section 3.3 Additional Limited Partners
A. The General Partner is authorized to admit Additional Limited Partners
to the Partnership pursuant to the terms contained in the Prospectus and this
Agreement. The manner of the offering of Additional Limited Partners Units,
the terms and conditions under which subscriptions for such Units will be
accepted, and the manner of and conditions to the sale of Units to subscribers
therefor and the admission of such subscribers as Additional Limited Partners
will be as provided in the Prospectus and subject to any provisions thereof.
B. The name, residence, business or mailing address and Capital
Contribution of each Additional Limited Partner shall be set forth in the books
and records of the Partnership, as amended from time to time.
C. No Limited Partner shall be required to make any additional
contributions to the capital of the Partnership.
Section 3.4 Partnership Capital
A. No Partner shall be paid interest on any Capital Contribution to the
Partnership.
B. No Partner, other than the Initial Limited Partner pursuant to Section
3.2, shall have the right to withdraw any part of his Capital Contribution or
to receive any return of any portion of his Capital Contribution except as
otherwise provided herein.
C. Under circumstances involving a return of any Capital Contribution, no
Partner shall have the right to receive property other than cash, except as may
be specifically provided in this Agreement.
D. The General Partner shall make additional contributions to the capital
of the Partnership in an amount sufficient to pay for Partnership expenses
allocable to it pursuant to Section 4.4A.
Section 3.5 Liability of Partners
A. No Limited Partner shall be liable for the debts, liabilities,
contracts or any other obligations of the Partnership, except to the extent of
his Capital Contribution and his share of the Partnership's assets and
undistributed profits, or for the debts or liabilities of any other Partner.
To the extent provided by law, a Limited Partner may, under certain
circumstances, be required to return, for the benefit of Partnership creditors,
amounts previously distributed to such Limited Partner.
A-5
<PAGE>
B. A Limited Partner shall be liable only to make the payment of his
Capital Contribution as set forth in Sections 3.2A and 3.3B.
C. No Limited Partner shall be required to lend funds to the Partnership
or make any further contribution to the capital of the Partnership.
D. The General Partner shall not be required to contribute to the capital
of, or loan, the Partnership any funds other than the General Partner's Capital
Contributions to the capital of the Partnership as set forth in Sections 3.1
and 3.4D. Neither the General Partner nor any of its Affiliates shall have (i)
any personal liability for the return or repayment of the Capital Contribution
of any Limited Partner or (ii) to repay to the Partnership any portion or all
of any negative amount of the General Partner's Capital Account, except as
otherwise provided in Section 8.2D.
Section 3.6 Lender as Partner
No creditor who makes a nonrecourse loan to the Partnership shall have or
acquire, at any time as a result of making the loan, any direct interest in the
profits, capital or property of the Partnership, other than as a secured
creditor.
ARTICLE FOUR
Management
Section 4.1 Powers of the General Partner
A. The General Partner shall manage the affairs of, and shall control the
business of, the Partnership and shall have all powers necessary to manage and
control the Partnership's affairs and business and fulfill the purposes of the
Partnership, including, by way of illustration and not by way of limitation:
(i) The power and duty to invest the balance (after the setting
aside of suitable reserves) of the Capital Contributions of the Partners
and reinvest revenues of the Partnership in accordance with the purpose of
the Partnership and in keeping with its investment objectives as stated in
the Prospectus.
(ii) The power to acquire securities or property of all types on
behalf of the Partnership, including, without limitation, stocks, bonds,
debentures, notes, shares in investment companies, general and limited
partnership interests, investment contracts and interests in trusts.
(iii) The power to enter into transactions and make investments with
or through Affiliates of the General Partner and to participate in
investment transactions sponsored or underwritten (either on a best
efforts or firm commitment basis) by Affiliates of the General Partner or
in entities as to which Affiliates of the General Partner serve as
investment adviser or placement agent.
(iv) The power to purchase interests in entities sponsored by
Affiliates of the General Partner or in which Affiliates of the General
Partner have an interest, including, but not limited to, limited
partnership interests in limited partnerships in which such Affiliates
serve as general partner.
(v) The power to cause securities owned by the Partnership to be
registered in the Partnership name or in the name of a nominee or to be
held in street name, as it shall elect.
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(vi) The power and duty to maintain the books and records of the
Partnership in accordance with the provisions of Section 9.1.
(vii) The power to reserve funds out of Partnership Income or borrow
money in the name of the Partnership from any bank or other lending
institution in the United States or from an Affiliate of the General
Partner for the purpose of leveraging investments of the Partnership,
paying assessments levied on Partnership investments or paying other costs
of the Partnership (other than costs that the General Partner is obligated
to pay) and in connection with any borrowing, to mortgage, pledge,
encumber, and hypothecate the assets of the Partnership.
(viii) The power to lend money to the Partnership on commercially
reasonable terms.
(ix) The power to make temporary investments of Partnership capital
in all types of securities, including, without limitation, short-term U.S.
Government and Government agency securities, certificates of deposit,
interest-bearing deposits in U.S. banks, securities issued by or on behalf
of states, municipalities and their instrumentalities, the interest from
which is exempt from Federal income tax, securities issued by other
investment companies (including unit investment trusts and taxable and
tax-exempt money market funds sponsored and/or advised by Affiliates of
the General Partner) prior to long-term investment or pending cash
distributions to the Partners.
(x) The power to seek exemptions from provisions of the Investment
Company Act of 1940 from the Securities and Exchange Commission.
(xi) The power to enter into a sales agency agreement relating to the
offering and sale of Units by the Partnership with Merrill Lynch, Pierce,
Fenner & Smith Incorporated, or any other Affiliate of the General
Partner.
(xii) In addition to and not in limitation of any rights and powers
conferred by law or other provisions of this Agreement, and except as
limited, restricted or prohibited by the express provisions of this
Agreement, the General Partner shall have and may exercise on behalf of
the Partnership all powers and rights necessary, proper, convenient or
advisable to effectuate and carry out the purpose, business and objectives
of the Partnership including the power to have investment opportunities
evaluated by an advisory committee selected by the General Partner.
B. In order to expedite the handling of the Partnership's business, it is
understood and agreed that any document executed by the General Partner while
acting in the name and on behalf of the Partnership shall be deemed to be the
action of the Partnership vis-a-vis any third parties (including the Limited
Partners as third parties for such purpose).
C. In the event the original General Partner withdraws as provided in
Article Six, is Incapacitated or is Removed, any additional or successor
General Partner or General Partners shall possess all the power and authority
of the original General Partner. Any remaining and any additional and
successor General Partner is authorized to and shall continue the business of
the Partnership. The General Partner may admit an additional or successor
General Partner provided that if it subsequently wishes to withdraw or transfer
its interest, Sections 6.1 and 6.2 shall be complied with as to the additional
or successor General Partner prior to its becoming a sole General Partner, and
provided that the following conditions are satisfied:
(i) appropriate filings are made under the Act and in such other
jurisdictions as the Partnership's business requires;
(ii) the Interest of Limited Partners will not be adversely affected;
and
(iii) the sole General Partner shall not be Incapacitated.
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In the event an additional or successor General Partner is admitted, the
term "General Partner" as used in this Agreement shall include the additional
or successor General Partner.
Section 4.2 Prohibited Transactions
Notwithstanding anything to the contrary contained herein, the following
transactions are specifically prohibited to the Partnership:
(i) The Partnership shall not make any loans to the General Partner
or any of its Affiliates unless permitted by the Investment Company Act of
1940 or an order of exemption therefrom;
(ii) The Partnership shall not sell or lease any property to the
General Partner or any of its Affiliates except on terms at least as
favorable as those obtainable from unaffiliated third parties and except
that this provision shall not prohibit any transaction contemplated by
Section 8.2 or permitted by the terms of any partnership agreement or
investment contract into which the Partnership may enter by virtue of its
investment as a general or limited partner, where an Affiliate of the
General Partner also acts as general partner of such partnership;
(iii) No funds of the Partnership shall be kept in any account other
than a Partnership Account, and funds shall not be commingled with the
funds of any other Person, and the General Partner shall not employ, or
permit any other Person to employ, such funds in any manner except for the
benefit of the Partnership; it being understood that the General Partner
may invest temporarily Partnership funds in accordance with the provisions
of Section 4.1 (A) (ix); and
(iv) No expense of the Partnership shall be billed except directly to
the Partnership (but shall be paid pursuant to the terms of this
Agreement), and no reimbursements shall be made therefor to the General
Partner or any of its Affiliates except as permitted by Section 4.5.
Section 4.3 Restrictions on the Authority of the General Partner
A. The General Partner shall not have the authority to:
(i) do any act in contravention of the Investment Company Act of
1940, as applied to the Partnership; or
(ii) do any act that would make it impossible to carry on the
ordinary business of the Partnership.
B. The General Partner shall not perform any act that would subject any
Limited Partner to liability as a general partner in any jurisdiction.
C. Without the Consent of a Majority-in-Interest of the Limited Partners,
the General Partner shall not have the authority to:
(i) lease, sell, or otherwise dispose of at any one time all or
substantially all of the assets of the Partnership;
(ii) elect to dissolve the Partnership prior to January 1, 2000;
(iii) issue senior securities other than in connection with the
borrowings described in (v) below;
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(iv) make short sales of securities, purchase securities on margin,
except for use of short-term credit necessary for the clearance of
transactions, or write put or call options;
(v) borrow amounts in excess of 331/3% of the Partnership's gross
assets, or otherwise as permitted under the Investment Company Act of
1940, except that the Partnership may enter into nonrecourse loans
relating to investments other than securities without regard to such
limitation;
(vi) underwrite securities of other issuers, except insofar as the
Partnership may be deemed an underwriter under the Securities Act of 1933
in selling portfolio securities;
(vii) invest more than 25% of its Partners' Capital Contributions in
the securities of issuers in any particular industry, except for real
estate investments and for temporary investments in U.S. Government and
Government agency securities, domestic bank money market instruments and
money market funds;
(viii) make loans to other Persons in excess of 331/3% of the
Partnership's gross assets, provided that investments in privately-offered
debt securities issued by entities in which the Partnership has an equity
participation or with which the Partnership has contracted to acquire an
equity participation shall not be considered loans for purposes of this
paragraph; or
(ix) alter the investment objectives and business purpose of the
Partnership.
D. The General Partner shall not borrow funds on behalf of the
Partnership except in accordance with Section 4.1A (vii) and (xii).
E. The General Partner shall not cause the Partnership to consent to, or
join in, any waiver, amendment, or modification of the terms of any partnership
agreement, limited partnership agreement, management agreement or investment
contract to which it is a party unless, in the good faith judgment of the
General Partner, such waiver, amendment, or modification would be in the best
interest of the Partnership.
Section 4.4 Duties and Obligations of the General Partner
A. The General Partner shall pay all expenses (but not income, personal
property, franchise or other taxes) incurred in the organization and operation
of the Partnership, including, without limitation, Auditors' fees, legal fees,
postage, printing costs, Appraisal costs, general and administrative costs and
expenses and, in addition, any brokerage commissions, selling agents' fees,
advisory fees or similar charges incurred in investing Partnership funds. The
General Partner is not obligated to pay from its own funds, debt service or
other interest charges incurred in connection with the making of Partnership
investments and is entitled to indemnification in accordance with Section 4.7.
B. The General Partner shall take all action that may be necessary or
appropriate for the continuation of the Partnership's valid existence as a
limited partnership under the laws of the State, and for the acquisition,
holding and disposition, in accordance with the provisions of this Agreement
and applicable laws and regulations, of the investments of the Partnership.
C. The General Partner shall devote to the Partnership the time that it
deems to be necessary to conduct the Partnership business and affairs in the
best interests of the Partnership and use its best efforts to obtain a suitable
investment portfolio for the Partnership.
D. The General Partner shall be under an obligation to conduct the
affairs of the Partnership in the best interest (or not opposed to the best
interest) of the Partnership, including the safekeeping and use of all
Partnership funds and assets (whether or not in the immediate possession or
control of the General Partner) and the use thereof for
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the benefit of the Partnership. Notwithstanding the foregoing, the General
Partner may, in its sole and absolute discretion, elect to dissolve the
Partnership at any time after January 1, 2000, and, upon liquidation, to
purchase Partnership assets in accordance with Section 8.2. The General
Partner shall at all times act with integrity and good faith and exercise due
diligence in all activities relating to the conduct of the business of the
Partnership and in resolving conflicts of interest.
E. The General Partner will use its best efforts at all times to maintain
its net worth at a level that is sufficient to meet all present and future
requirements set by statute, Treasury Regulations, the Internal Revenue Service
or the courts applicable to a corporate general partner in a limited partner-
ship to insure that the Partnership will not fail to be classified for Federal
income tax purposes as a partnership, rather than as an association taxable as
a corporation, on account of the net worth of the General Partner.
F. The General Partner shall prepare or cause to be prepared and shall
file on or before the due date (or any extension thereof) any Federal, state or
local tax returns required to be filed by the Partnership. The General Partner
shall cause the Partnership to pay, from Partnership funds, any taxes payable
by the Partnership.
G. The General Partner shall, from time to time, submit to any
appropriate Federal or state securities administrator, or any other regulatory
authorities having jurisdiction, all documents, papers, statistics and reports
required to be filed with or submitted to such authority.
H. The General Partner shall use its best efforts to cause the
Partnership to be formed, reformed, qualified to do business, or registered
under any applicable assumed or fictitious name statute or similar law in any
jurisdiction in which the Partnership then owns property or transacts business,
if such formation, reformation, qualification or registration is necessary in
order to protect the limited liability of the Limited Partners or to permit the
Partnership lawfully to own property or transact business.
I. The General Partner shall, from time to time, prepare and file all
amendments to this Agreement, the certificate of limited partnership of the
Partnership and other similar documents that are required by law to be filed
and recorded for any reason, in the office or offices that are required under
the laws of the State or any other jurisdiction in which the Partnership is
then qualified or formed. The General Partner shall do all other acts and
things (including making publications or periodic filings of this Agreement or
amendments thereto or other similar documents) that may now or hereafter be
required, or deemed by the General Partner to be necessary, (i) for the
perfection and continued maintenance of the Partnership as a limited
partnership under the laws of the State and each other state in which the
Partnership is then qualified or formed, (ii) to protect the limited liability
of the Limited Partners under the laws of the State and each other state in
which the Partnership is then qualified or formed, and (iii) to cause such
certificates or other documents to reflect accurately the agreement of the
Partners, the identity of the Limited Partners and the General Partner and the
amounts of their respective Capital Contributions as may be required by such
laws.
J. The General Partner shall monitor the activities of entities invested
in by the Partnership and keep the Limited Partners informed of such activities
in the manner provided in this Agreement.
K. The General Partner shall inform each Limited Partner of all
administrative and judicial proceedings for an adjustment at the Partnership
level for Partnership tax items and forward to each Limited Partner within 30
days of receipt all notices received from the Internal Revenue Service
regarding the commencement of a partnership level audit or a final partnership
administrative adjustment and will perform all other duties imposed by Sections
6221 through 6232 of the Code on the General Partner as "tax matters partner"
of the Partnership, including (but not limited to) the following: (a) the
power to conduct all audits and other administrative proceedings (including
windfall profit tax audits) with respect to Partnership tax items; (b) the
power to extend the statute of limitations for all Partners with respect to
Partnership tax items; and (c) the power to file a petition with an appropriate
Federal court for review of a final partnership administrative adjustment. The
General Partner shall be the "tax matters partner" of the Partnership.
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Section 4.5 Compensation and Reimbursement of the General Partner
A. Except as provided in Article Five, the General Partner shall not
receive any salary, fees or Profits from the Partnership.
B. The General Partner shall be entitled to reimbursement from the
Partnership for expenses it incurs up to an amount equal to 2% of the Limited
Partners' Capital Contributions in connection with the organization of the
Partnership and the offering of the Units and, commencing in 1994 and annually
in each calendar year thereafter, for expenses it incurs up to an annual amount
equal to 1.5% of the Limited Partners' Capital Contributions in connection with
the operation of the Partnership. Except as provided in this Article Four and
Article Eight, neither the General Partner nor its Affiliates shall be
reimbursed out of Partnership funds for expenses incurred by them on behalf of
the Partnership.
Section 4.6 Other Businesses of Partners
Subject to Section 4.4C, any Partner, and any Affiliate of any Partner may
engage in or possess any interest in other business ventures of any kind,
nature or description, independently or with others, for his, her or its own
account or for the account of others. Neither the Partnership nor any Partner
as a result of this Agreement shall have any rights or obligations in or to
such independent ventures or the income or profits or losses derived therefrom.
Section 4.7 Indemnification
Neither the General Partner nor any of its officers, directors,
stockholders, employees, or agents shall be liable to the Partnership or the
Limited Partners for any act or omission based on errors of judgment, or other
fault in connection with the business or affairs of the Partnership so long as
the Person against whom liability is asserted acted in good faith on behalf of
the Partnership and in a manner reasonably believed by such Person to be within
the scope of its authority under this Agreement and in or not opposed to the
best interests of the Partnership, but only if such action or failure to act
does not constitute negligence or misconduct, and, with respect to any criminal
proceeding, such Person had no reasonable cause to believe its conduct was
unlawful. The General Partner and its officers, directors, stockholders,
employees, and agents will be indemnified by the Partnership to the fullest
extent permitted by law for any (a) fees (including, without limitation, legal
fees), costs and expenses incurred in connection with or resulting from any
claim, action or demand, or threatened claim, action or demand, against the
General Partner, the Partnership or any of their officers, directors,
stockholders, employees, or agents that arises out of or in any way relates to
the Partnership, its properties, business or affairs and (b) losses or damages
resulting from such claims, actions and demands, or threatened claims, actions
or demands, including amounts paid in settlement or compromise (if recommended
by attorneys for the Partnership) of any such claim, action or demand or
threatened claims, actions or demands; provided, however, that this
indemnification shall apply only so long as the Person against whom a claim,
action or demand is asserted or threatened to be asserted has acted in good
faith on behalf of the Partnership and in a manner reasonably believed by such
Person to be within the scope of his or its authority under this Agreement and
in or not opposed to the best interests of the Partnership, but only if such
action or failure to act does not constitute negligence or misconduct. Absent
a court determination that the General Partner or officers or directors of the
General Partner were not liable on the merits or guilty of disabling conduct
within the meaning of Section 17(h) of the Investment Company Act of 1940, the
decision by the Partnership to indemnify the General Partner or any such Person
must be based upon the reasonable determination of independent counsel, after
review of the facts, that such disabling conduct did not occur. The rights set
forth above shall continue as to the General Partner and its officers,
directors, stockholders, employees or agents who have ceased to serve in such
capacities and shall inure to the benefit of their heirs, successors, assigns
and administrators.
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Section 4.8 Management by Limited Partners
No Limited Partner shall participate in the management or in the control
of the business of the Partnership or use his name in the Partnership's
business or perform any actions prohibited to limited partners under the laws
of the State or the laws of any other jurisdiction where the Partnership is
qualified or formed to conduct business. Limited Partners hereby consent to
the exercise by the General Partner of the powers conferred on it by this
Agreement.
ARTICLE FIVE
Distributions of Partnership Funds;
Allocations of Profits and Losses
Section 5.1 Distributions of Partnership Funds
Distributable Cash of the Partnership shall be distributed at least
annually, within 30 days after the end of the Fiscal Year, and distributions
may be made at such other times as the General Partner deems advisable, and
each such distribution shall be made 99% to the Limited Partners and 1% to the
General Partner. If the General Partner deems it advisable, distributions of
Partnership assets may be made in kind, in the same manner and to the same
Persons as Distributable Cash is then being distributed. Cash distributions to
Limited Partners will be credited to each Limited Partner's securities account
with Merrill Lynch, Pierce, Fenner & Smith Incorporated or as otherwise
instructed to the General Partner by a Limited Partner.
Section 5.2 Allocations of Profits and Losses
A. The Profits and Losses of the Partnership shall be determined and
allocated with respect to each Fiscal Year of the Partnership as of the end of,
and within 75 days after the end of, such Fiscal Year.
B. Profits and Losses of the Partnership, other than arising from Sales
upon liquidation pursuant to Section 8.2, shall be allocated among and credited
to or charged against each Partner's Capital Account as follows:
(i) With respect to Losses, (a) 99% to the Limited Partners and 1%
to the General Partner until the Limited Partners' Capital Accounts equal
zero; (b) thereafter, 100% to the General Partner until the General
Partner's Capital Account equals zero; (c) thereafter, 99% to the Limited
Partners and 1% to the General Partner or 100% to the General Partner, as
appropriate, to the extent necessary to make the Capital Account balances
of the General Partner and Limited Partners equal 1% and 99%,
respectively, of the total of the Partners' Capital Accounts; and (d)
thereafter, 99% to the Limited Partners and 1% to the General Partner; and
(ii) With respect to Profits, (a) 99% to the Limited Partners and 1%
to the General Partner or 100% to the General Partner, as appropriate, to
the extent necessary to make the Capital Account balances of the General
Partner and the Limited Partners equal 1% and 99%, respectively, of the
total of the Partners' Capital Accounts; and (b) thereafter, 99% to the
Limited Partners and 1% to the General Partner.
C. For purposes of determining the Capital Account balance of any Limited
Partner as of the end of any Fiscal Year under this Section 5.2, any such
Partner's Capital Account shall be reduced by:
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(i) Allocations of Loss (or any item thereof) as of the end of such
Fiscal Year, which reasonably are expected to be made to such Partner
pursuant to Code Sections 704, 706, and 752 and Treasury Regulations
promulgated thereunder; and
(ii) Distributions that, as of the end of such Fiscal Year,
reasonably are expected to be made to such Partner to the extent they
exceed offsetting increases to such Partner's Capital Account that
reasonably are expected to occur during (or prior to) the Partnership's
Fiscal Year in which such distributions reasonably are expected to be
made.
D. Notwithstanding any provision of this Agreement to the contrary, if a
Partner receives an unexpected adjustment, allocation or distribution described
in Treasury Regulations Section 1.704-1(b)(2)(ii)(d)(4), (5) or (6) which
creates or increases a deficit balance in the Partner's Capital Account, items
of income and gain shall be allocated to such Partner in an amount and manner
sufficient to eliminate the Partner's Capital Account deficit as quickly as
possible. If any allocations are made pursuant to the previous sentence, then
future allocations of income or gain to such Partner will be reduced by an
amount of income or gain equal to the amount previously allocated to the
Partner under the previous sentence.
E. If there is a net decrease in the Partnership's Minimum Gain (as
defined in Treasury Regulations under Section 704(b) of the Code) during a
taxable year, each Partner with a deficit balance in his Capital Account at the
end of the taxable year will be allocated, before any other allocation of
Partnership items is made pursuant to this Agreement, items of income and gain
for the taxable year and, if necessary, subsequent taxable years, in the amount
necessary to eliminate such deficit as quickly as possible. For the purpose of
this Minimum Gain calculation and for purposes of the preceding paragraph,
there will be excluded from the Partner's deficit balance in his Capital
Account (i) any amount the Partner is obligated to restore to his Capital
Account and (ii) any addition to his Capital Account represented by the
Partner's share of Minimum Gain. In addition, for the purpose of calculating
the amount of Minimum Gain, each Partner's Capital Account will be reduced for
items described in Treasury Regulations Section 1.704-1(b)(2)(ii)(d)(4), (5)
and (6).
Section 5.3 Determinations of Allocations and Distributions Among
Limited Partners
A. All Distributable Cash distributed to the Limited Partners, as a
class, and all Profits and Losses allocated to the Limited Partners, as a
class, shall be distributed or allocated, as the case may be, to each Limited
Partner in the ratio that the Capital Contribution of such Limited Partner (or
of his predecessor in interest) bears to the total Capital Contribution of all
Limited Partners.
B. All Profits and Losses allocated to the Limited Partners shall be
allocated to the Persons who were Limited Partners as of the last day of the
fiscal quarter for which the allocation is made. If during any Fiscal Year of
the Partnership there is a change in any Partner's Interest in the Partnership,
then allocation of Profits and Losses among the Partners shall be determined by
the use of any method prescribed by Section 706(d)(1) of the Code and the
Treasury Regulations promulgated thereunder. Allocations of "allocable cash
basis items" shall be determined in accordance with the method prescribed by
Section 706(d)(2) of the Code and the Treasury Regulations promulgated
thereunder.
C. All Distributable Cash distributed to the Limited Partners shall be
distributed to the Persons who were Limited Partners as of the last day of the
fiscal quarter preceding the fiscal quarter in which the distribution is made.
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ARTICLE SIX
Transferability of the General
Partner's Interest
Section 6.1 Voluntary Withdrawal or Transfer by the General Partner
A. Except as provided in Section 6.2, the General Partner (including by
definition any successor or additional General Partner) may withdraw as General
Partner at any time, but only upon compliance with all of the following
procedures:
(i) The General Partner shall give Notification to all Limited
Partners that it proposes to withdraw and that there be substituted in its
place a Person designated and described in such Notification.
(ii) Enclosed with the Notification shall be a certificate, duly
executed by or on behalf of such proposed successor General Partner, to
the effect that, (a) it is experienced in performing (or employs
sufficient personnel who are experienced in performing) functions of the
type then being performed by the resigning General Partner; (b) it has a
net worth of at least 10% of the Capital Contributions of the Partners or
will otherwise meet the net worth requirements of statutes, Treasury
Regulations, the Internal Revenue Service or the courts applicable to a
corporate general partner in a limited partnership in order to insure that
the Partnership will not fail to be classified for Federal income tax
purposes as a partnership rather than as an association taxable as a
corporation; and (c) it is willing to become the General Partner under
this Agreement without receiving any compensation for services from the
Partnership in excess of that payable under this Agreement to the
withdrawing General Partner or any interest in the Income or Profits of
the Partnership other than a transfer to the successor General Partner of
some or all of the withdrawing General Partner's Interest in the
Partnership, plus such other compensation as the successor General Partner
may receive from the withdrawing General Partner.
(iii) If the General Partner proposes to withdraw, there shall be on
file at the principal office of the Partnership, prior to such withdrawal,
audited financial statements of the proposed successor General Partner, as
of a date not earlier than 12 months prior to the date of the Notification
required by this Section 6.1A, certified by a nationally recognized firm
of independent auditors, together with a certificate duly executed by the
proposed successor General Partner, or on its behalf by its principal
financial officer, to the effect that no material adverse change in its
financial condition has occurred since the date of such audited financial
statements that has caused its net worth, apart from the purchase price of
its Interest in the Partnership, to be reduced to less than the amount
required under Section 6.1A(ii)(b). Such audited statements and
certificates shall be available for examination by any Limited Partner
during normal business hours.
(iv) The Consent of at least a Majority-in-Interest of the Limited
Partners approving the appointment of any successor General Partner
pursuant to this Section 6.1A is obtained.
(v) The withdrawing General Partner shall cooperate fully with the
successor General Partner so that the responsibilities of the withdrawn
General Partner may be transferred to the successor General Partner with
as little disruption of the Partnership's business and affairs as is
practicable.
B. Except as part of a transfer to a successor General Partner pursuant
to Section 6.1A, the General Partner shall not have the right to withdraw or to
transfer or assign its General Partners Interest, except that the General
Partner may (i) substitute in its stead as General Partner any entity that has,
by merger, consolidation or otherwise, acquired substantially all of the assets
or capital stock of the General Partner and continued its business, (ii)
substitute in its stead any other wholly-owned subsidiary of its corporate
parent, and (iii) pledge or grant an interest
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in its right to receive payments and distributions under this Agreement, in
which event the General Partner shall continue to be the general partner of the
Partnership.
C. Subject to the provisions of Section 11.3, each Limited Partner hereby
Consents pursuant to Section 6.1A to the admission as a successor General
Partner of any Person meeting the requirements of Section 6.1A to whose
admission as such at least a Majority-in-Interest of the Limited Partners has
expressly approved, and no further express Consent or approval shall be
required.
D. Notwithstanding anything to the contrary in this Article Six, the
General Partner's Interest shall at all times be subject to any restrictions on
transfer imposed by Federal or state securities laws.
E. Any withdrawal of the General Partner, or transfer or assignment of
the General Partner's entire Interest shall occur immediately after the
admission of a successor General Partner.
Section 6.2 Admission of Successor General Partner
The admission of any successor General Partner pursuant to Section 6.1
shall be effective only if and after the following conditions are satisfied:
(i) this Agreement and the certificate of limited partnership of the
Partnership shall be amended to reflect the admission of such Person as
successor General Partner prior to the withdrawal of the withdrawing
General Partner or the transfer of the withdrawing General Partner's
Interest, pursuant to Section 6.1;
(ii) the Interests of the Limited Partners shall not be affected by
the admission of such successor General Partner;
(iii) any Person designated as successor General Partner pursuant to
Section 6.1 shall have satisfied the requirements of Section 10.2; and
(iv) the withdrawing General Partner shall not have ceased to be
General Partner because of its Incapacity.
Any successor General Partner is hereby authorized to and shall continue
the business of the Partnership.
Section 6.3 Liability of a Withdrawn or Removed General Partner
Any General Partner who shall withdraw or be Removed from the Partnership
shall remain liable for any obligations and liabilities incurred by it as
General Partner prior to the time such withdrawal or Removal shall have become
effective, but it shall be free of any obligation or liability incurred on
account of the activities of the Partnership from and after the time such
withdrawal or Removal shall have become effective.
Section 6.4 Incapacity of the General Partner
In the event of the Incapacity of the General Partner, the Partnership
shall be dissolved.
Upon the Incapacity of the General Partner, the General Partner shall
immediately cease to be General Partner and its General Partner's Interest, as
such, shall continue only for the purpose of determining the amount, if any,
that it is entitled to receive upon dissolution pursuant to Section 8.2. Any
termination or Removal of a General Partner shall not affect any rights or
liabilities of the Incapacitated or Removed General Partner that matured prior
to such Incapacity or Removal.
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Section 6.5 Removal of the General Partner
A. Upon the delivery by counsel for the Partnership or counsel designated
by 10% in Interest of the Limited Partners of an opinion to the effect that the
possession and exercise by a Majority-in-Interest of the Limited Partners of
the power to Remove the General Partner will not impair the liability of the
Limited Partners, then the power shall be vested in the Limited Partners to
Remove the General Partner upon the Consent of a Majority-in-Interest of the
Limited Partners, but the exercise of that power shall be subject to the
conditions set forth in Section 11.3. The Removal of any General Partner
pursuant to this Section 6.5 shall be without prejudice to the rights, if any,
the Limited Partners may have against the General Partner for damages
attributable to its negligence or misconduct or other breach of duty.
B. Upon the delivery by counsel for the Partnership or counsel designated
by 10% in Interest of the Limited Partners of an opinion to the effect that the
possession and exercise by a Majority-in-Interest of the Limited Partners of
the power to designate a successor General Partner will not impair the limited
liability of the Limited Partners, then with the Consent of a
Majority-in-Interest of the Limited Partners to the admission of a general
partner, the Limited Partners may, subject to the provisions of Section 6.2, at
any time designate one or more Persons to be successors to the General Partner
being Removed pursuant to Section 6.5. Any such Removal shall occur
immediately after the admission of the successor General Partner.
C. Upon the Removal of the General Partner (and failure to designate a
successor General Partner) pursuant to Section 6.5A, the Partnership shall be
dissolved.
Section 6.6 Distributions on Withdrawal or Removal of the General
Partner
In the event the General Partner (i) exercises its right to withdraw from
the Partnership in accordance with Section 6.1A or (ii) is Removed pursuant to
Section 6.5, the withdrawing or Removed General Partner shall have its then
existing Capital Account (to the extent not acquired by any successor)
converted into a capital account of a Limited Partner.
ARTICLE SEVEN
Transferability of a Limited Partner's Interest
Section 7.1 Restrictions on Transfers of Interest
A. Notwithstanding any other provisions of this Section 7.1, a sale,
exchange, transfer or assignment of a Limited Partner's Interest may not be
made if:
(i) such sale, exchange, transfer or assignment, when added to the
total of all other sales, exchanges, transfers or assignments of Interests
within the preceding 12 months, would result in the Partnership being
considered to have terminated within the meaning of Section 708 of the
Code;
(ii) such sale, exchange, transfer or assignment would violate any
U.S. securities laws, or any state securities or "blue sky" laws
(including any investor suitability standards) applicable to the
Partnership or the Interest to be sold, exchanged, transferred or
assigned;
(iii) such sale, exchange, transfer or assignment would cause the
Partnership to lose its status as a partnership for Federal income tax
purposes;
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(iv) such sale, exchange, transfer or assignment would cause all or
any portion of the Partnership's property to be deemed "tax-exempt use
property" within the meaning of Section 168(j) of the Code; or
(v) such sale, exchange, transfer or assignment would cause the
Partnership to be classified as a publicly traded partnership within the
meaning of Section 7704(b) of the Code.
B. In no event shall all or any part of an Interest be assigned or
transferred to an Incapacitated Person except by operation of law.
C. Except as provided in Section 7.5B, no transfer or assignment by a
Limited Partner of all or any part of his Interest may be made to any Person
who (i) is not a Partner, (ii) is not a member of the immediate family of a
Limited Partner or (iii) does not meet the requirements to become an Additional
Limited Partner in accordance with the terms of the offering of Units contained
in the Prospectus and this Agreement, as modified by the last sentence of this
Section 7.1C; provided, however, no Limited Partner's Interest or any fraction
thereof may be sold, assigned or transferred without the consent of the General
Partner, which consent may be withheld in the sole discretion of the General
Partner. For purposes of this Section 7.1C, the members of the immediate
family of a Limited Partner consist of persons within the meaning of such phrase
as is used in the definition of "employees' securities company" in the
Investment Company Act of 1940, and include the Partner's spouse and
children, including stepchildren and adopted children. With respect to the
requirements referenced in clause (iii), the requirement as to compensation
from Merrill Lynch & Co., Inc. shall be measured on the basis of the current
annual salary and the bonus with respect to the most recently completed fiscal
year.
D. Subject to Section 7.1C, no purported sale, assignment or transfer by
a transferor of, or after which the transferor and each transferee would hold,
an Interest representing a Capital Contribution of less than $1,000 will be
permitted or recognized for any purpose without the consent of the General
Partner, which consent shall be granted only for good cause shown.
E. No purported sale, assignment or transfer by a transferor of, or after
which the transferor and each transferee would hold, an Interest representing a
Capital Contribution of less than $1,000 will be permitted or recognized for
any purpose without the consent of the General Partner, which consent shall be
granted only for good cause shown, except for any sale, assignment or transfer
(i) that consists of the entire Interest of the transferor or (ii) that occurs
by operation of law.
F. Each Limited Partner agrees that he will, upon request of the General
Partner, execute such certificates or other documents and perform such acts as
the General Partner deems appropriate after an assignment of an Interest by the
Limited Partner to preserve the limited liability of the Limited Partners under
the laws of any jurisdiction in which the Partnership is doing business. For
purposes of this Section 7.1F, any transfer of an Interest, whether voluntary
or by operation of law, shall be considered an assignment.
G. Any sale, assignment or transfer of an Interest to a Person who makes
a market in securities shall be void ab initio unless such Person shall certify
to the General Partner that it has acquired such Interest solely for investment
purposes and not for the purpose of resale.
H. No purported sale, assignment or transfer by a transferor of an
Interest will be recognized unless (1) the transferor shall have represented
that such transfer (a) was effected through a broker-dealer or matching agent
whose procedures with respect to the transfer of Units have been approved by
the General Partner as not being incident to a public trading market and not
through any other broker-dealer or matching agent or (b) otherwise was not
effected through a broker-dealer or matching agent which makes a market in
Interests or which provides a readily available, regular and ongoing
opportunity to Limited Partners to sell or exchange their Interests through a
public means of obtaining or providing information of offers to buy, sell or
exchange Interests and (2) the General Partner determines that such sale,
assignment or transfer would not, by itself or together with any other sales,
transfers or assignments, likely result in, as determined by the General
Partner in its sole discretion, the Partnership's being classified as a
publicly traded partnership.
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I. No purported sale, assignment or transfer of a Unit will be recognized
if, after giving effect to such sale, assignment or transfer, the Partnership
would not satisfy at least one of the safe harbors contained in Internal
Revenue Service Advance Notice 88-75 (the "Notice"). Without limiting the
foregoing, no purported sale, assignment or transfer of a Unit will be
recognized if such sale, assignment or transfer, together with all other such
transfers during the same taxable year of the Partnership would result in both
(i) the transfer of more than 5% of the Units (excluding the "excludable
transfers" described below); and (ii)(x) the transfer of more than 2% of the
Units (excluding excludable transfers and sales completed through a matching
service which meets the requirements of the Notice, part II, section D) or (y)
the transfer of more than 10% of the Units (excluding excludable transfers).
For purposes of the 5% and the 2% limitations described in the preceding
sentence, the following transfers ("excludable transfers") will be disregarded:
(i) transfers in which the basis of the Unit in the hands of the transferee is
determined, in whole or in part, by reference to its basis in the hands of the
transferor or is determined under Section 732 of the Code; (ii) transfers at
death; (iii) transfers between members of a family (as defined in Section
267(c)(4) of the Code); (iv) the issuance of Units by or on behalf of the
Partnership in exchange of cash, property or services; (v) distributions from a
retirement plan qualified under Section 401(a) of the Code; and (vi) block
transfers; and for purposes of the 2% limitation, there shall be disregarded
transfers through a matching service subject to the 10% limitation described in
the previous sentence. For purposes of the above limitations, the percentage
of Units transferred during a taxable year shall equal the sum of the monthly
percentage of Units transferred. The monthly percentage of Units transferred
in any month shall be the percentage equal to a fraction the numerator of which
is the number of Units transferred during such month and the denominator of
which is the number of Units outstanding on the last day of such month,
provided that the denominator shall not include Units owned by the General
Partner or any Person related to the General Partner (within the meaning of
Section 267(b) or 707(b)(1) of the Code). The term "block transfer" means the
transfer by a Partner in one or more transactions during any thirty calendar
day period of Units representing in the aggregate more than 5% of the total
Interests in Partnership capital or profits.
J. Any purported assignment of an Interest which is not made in
compliance with this Agreement is hereby declared to be null and void and of no
force or effect whatsoever.
K. The General Partner may reasonably interpret, and is hereby authorized
to take such action as it deems necessary or desirable to effect, the foregoing
provisions of this Section 7.1. The General Partner may, in its reasonable
discretion, amend the provisions of this Section 7.1 in such manner as may be
necessary or desirable (or eliminate or amend such provisions to the extent
they are no longer necessary or desirable) to preserve the tax status of the
Partnership.
Section 7.2 Incapacity of Limited Partner
If a Limited Partner dies, his executor, administrator or trustee, or, if
he becomes an adjudicated incompetent, his committee, guardian or conservator,
or, if he becomes bankrupt, the trustee or receiver of his estate, shall have
all the rights of a Limited Partner for the purpose of settling or managing the
estate of such Limited Partner, and such power as the Incapacitated Limited
Partner possessed to assign all or any part of the Incapacitated Limited
Partner's Interest and to join with such assignee in satisfying conditions
precedent to such assignee's becoming a Substituted Limited Partner. In the
event of death of a Limited Partner, but not in the event of bankruptcy or
adjudication of incompetence, the deceased Limited Partner's Interest may be
tendered to the General Partner within 30 days of receipt of the next Appraisal
pursuant to Section 7.5.
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Section 7.3 Assignees
A. The Partnership shall not recognize for any purpose any purported
sale, assignment or transfer of all or any fraction of the Interest of a
Limited Partner unless the provisions of Section 7.1A shall have been complied
with and there shall have been filed with the Partnership a written and dated
Notification of such sale, assignment or transfer, in form satisfactory to the
General Partner, executed and acknowledged by both the seller, assignor or
transferor and the purchaser, assignee or transferee, and such Notification (i)
contains the acceptance by the purchaser, assignee or transferee of all of the
terms and provisions of this Agreement, (ii) represents that such sale,
assignment or transfer was made in accordance with all applicable laws and
regulations and (iii) contains the purchaser's, assignee's or transferee's
power of attorney identical to that provided in Section 12.1. Any sale,
assignment or transfer shall be recognized by the Partnership as effective as
of the first day of the fiscal quarter following the quarter in which such
Notification is filed with the Partnership.
B. Any Limited Partner who shall assign all of his Interest shall cease
to be a Limited Partner as of the first day of the fiscal quarter following the
quarter in which such Notification is filed with the General Partner.
C. A Person who is the assignee of all or any fraction of the Interest of
a Limited Partner, but does not become a Substituted Limited Partner and
desires to make a further assignment of such Interest, shall be subject to all
the provisions of this Article Seven to the same extent and in the same manner
as any Limited Partner desiring to make an assignment of his Interest.
Section 7.4 Substituted Limited Partners
A. No Limited Partner shall have the right to substitute a purchaser,
assignee, transferee, donee, heir, legatee, distributee or other recipient of
all or any portion of such Limited Partner's Interest as a Limited Partner in
his place. Any such purchaser, assignee, transferee, donee, heir, legatee,
distributee or other recipient of an Interest shall be admitted to the
Partnership as a Substituted Limited Partner only with the consent of the
General Partner, which consent shall be granted or withheld in the sole and
absolute discretion of the General Partner and may be arbitrarily withheld,
and, if necessary, by an amendment of this Agreement executed by all necessary
parties and filed or recorded in the proper records of each jurisdiction in
which such filing or recordation is necessary to qualify the Partnership to
conduct business or to preserve the limited liability of the Limited Partners.
The Limited Partners hereby consent to the admission of a Substituted Limited
Partner whose admission has been consented to by the General Partner. Any such
consent by the General Partner and the Limited Partners may be evidenced, if
necessary, by the execution by the General Partner of an amendment to this
Agreement on its behalf and on behalf of all Limited Partners pursuant to
Section 12.1 evidencing the admission of such Person as a Limited Partner and
the making of any filing required by law. The admission of a Substituted
Limited Partner shall be recorded on the books and records of the Partnership.
B. No Person shall become a Substituted Limited Partner until such Person
shall have satisfied the requirements of Section 10.2; provided, however, that
for the purpose of allocating Profits, Losses and Distributable Cash, a Person
shall be treated as having become, and as appearing in the books and records of
the Partnership as, a Limited Partner on such date as the sale, assignment or
transfer to such Person was recognized by the Partnership pursuant to Section
7.3A.
C. To the fullest extent permitted by law, each Limited Partner shall
indemnify and hold harmless the Partnership, the General Partner and every
Limited Partner who was or is a party or is threatened to be made a party of
any threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative, by reason of or arising from any
actual or alleged misrepresentation or misstatement of facts or omission to
state facts made (or omitted to be made) by such Limited Partner in connection
with any assignment, transfer, encumbrance or other disposition of all or any
part of an Interest, or the admission of a Substituted Limited Partner to the
Partnership, against expenses for which the Partnership or such other Person
has not otherwise been
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reimbursed (including attorneys' fees, judgments, fines and amounts paid in
settlement) actually and reasonably incurred by him in connection with such
action, suit or proceeding.
D. (1) Each Limited Partner represents and warrants that the information
set forth on his Subscription Agreement is a true and correct statement of his
total direct and indirect, within the meaning of Section 318 of the Code,
holdings of stock of the General Partner or any of its Affiliates, as defined
in Section 1504(a) of the Code. No Person shall be accepted as a Limited
Partner if the admission of such Person would cause the Limited Partner to own,
directly or indirectly, more than 20% of the outstanding stock of the General
Partner or any of its Affiliates as defined in Section 1504(a) of the Code.
(2) Each Limited Partner further represents and warrants that the
following statements are true: (i) if such Limited Partner is an individual, he
is over 21 years of age; if such Limited Partner is a corporation, it is
authorized and otherwise duly qualified to hold an Interest in the Partnership;
(ii) he has thoroughly read the Prospectus and this Agreement and understands
the nature of the risks involved in the proposed investment; (iii) he is
experienced in investment and business matters; (iv) in the case of an employee
of Merrill Lynch & Co., Inc. or its subsidiaries he has a current annual salary
in an amount which, together with bonus received from Merrill Lynch & Co., Inc.
or its subsidiaries in respect of 1993, equals at least $100,000 or, if
employed for less than a full calendar year, is employed with an annualized
gross income from Merrill Lynch & Co., Inc. or its subsidiaries of at least
$100,000 and the aggregate amount of Units he will invest in will not exceed an
amount that would result in the price of such Units exceeding 15% of his cash
compensation from Merrill Lynch & Co., Inc. or its subsidiaries with respect to
the most recent calendar year on an annualized basis unless he either (x) has a
net worth, individually or jointly with his spouse, in excess of $1,000,000 at
the time of purchase of the Units or (y) had an individual income in excess of
$200,000 in each of the two most recent calendar years or joint income with his
spouse in excess of $300,000 in each of those years and has a reasonable
expectation of reaching the same income level in the current calendar year, or
in the case of non-employee directors of Merrill Lynch & Co., Inc., (a) has a
net worth (exclusive of homes, home furnishings, personal automobiles and the
amount to be invested in Units) of not less than $125,000 in excess of the
price of the Units for which such investor has subscribed, or (b) has a net
worth (exclusive of homes, home furnishings, personal automobiles and the
amount to be invested in Units) of not less than $100,000 in excess of the
price of the Units for which such investor has subscribed and expects to have
during each of the current and the next three taxable years, gross income from
all sources in excess of $100,000; (v) he recognizes that the Partnership is
newly organized and has no history of operations or earnings and is subject to
speculative risks; (vi) he understands that the transferability of his
Interest(s) in the Partnership is restricted pursuant to the provisions of this
Agreement and that he cannot expect to be able to liquidate his investment
readily in case of emergency; and (vii) unless otherwise indicated in his
Subscription Agreement, he is the sole party in interest in his Interest and,
as such, is vested with all legal and equitable rights in such Interests.
Investors will be required to represent in writing in the Subscription
Agreement that they meet all applicable requirements and satisfy any more
restrictive suitability requirements imposed by applicable Blue Sky laws.
Section 7.5 Acquisition of Certain Limited Partners' Interests by the
General Partner or the Partnership
A. The General Partner shall purchase from its own funds for its own
account, or cause to be purchased by the Partnership, from the Partnership's
funds for the Partnership's account, any Limited Partner's Interest tendered to
it pursuant to Section 7.2. The purchase price shall be the value of such
Interest determined at the next annual Valuation Date.
B. The Partnership may, but is not obliged to, purchase from the
Partnership's funds for the Partnership's account any Interest tendered to the
General Partner pursuant to Section 7.2 if such purchase is in the best
interests of the Partnership.
C. If the General Partner purchases any Interest pursuant to this Section
7.5 for its own account and not for the account of the Partnership, the General
Partner shall be entitled to the rights of an assignee of such Interest and be
entitled to vote such Interest as if it were a Substituted Limited Partner or
be admitted as a Substituted Limited
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Partner. The General Partner may sell any Interest acquired by it under the
provisions of this Section 7.5 on such terms as are acceptable to it, and if
the purchaser of such Interests is not a Partner of this Partnership, he will
be entitled to be admitted to the Partnership as a Substituted Limited Partner
with respect to such Interest. The effective date of any such sale shall be
the date on which payment has been made by the purchaser of such Interest.
ARTICLE EIGHT
Dissolution, Liquidation and
Termination of the Partnership
Section 8.1 Events Causing Dissolution
A. Except as provided in Section 8.1(B), the Partnership shall be
dissolved and its affairs shall be wound up upon the happening of any of the
following events:
(i) the expiration of its term;
(ii) the Incapacity of the General Partner;
(iii) the Removal of the General Partner and the failure to designate
a successor;
(iv) the Sale or other disposition at one time of all or
substantially all of the Partnership's assets;
(v) the election to dissolve the Partnership prior to January 1,
2000 by the General Partner with the Consent of a Majority-in-Interest of
the Limited Partners, which Consent shall be subject to Article Eleven;
(vi) the election to dissolve the Partnership by the General Partner
at any time after January 1, 2000; or
(vii) the withdrawal of the General Partner without the designation of
a successor General Partner under Section 6.1.
The occurrence of any event described in Sections 17-402(a)(4) or 17-
402(a)(5) of the Act (other than an event that would cause the Incapacity of
the General Partner) shall not cause the General Partner to cease to be a
General Partner of the Partnership or cause the Partnership to dissolve.
B. Upon the happening of an event described in Section 8.1(A)(ii), (iii)
or (vii), the Partnership shall not be dissolved if, at the time of the
occurrence of such event there is at least one other General Partner, or within
ninety (90) days after the occurrence of such an event, all remaining partners
agree to continue the business of the Partnership and to the appointment,
effective as of the date of such event, of one or more successor General
Partners.
C. The Incapacity of any Limited Partner shall not dissolve the
Partnership and the seizure of the Interest of any Partner shall not dissolve
the Partnership. Dissolution of the Partnership shall be effective on the day
on which the event occurs giving rise to the dissolution, but the Partnership
shall not terminate until the Partnership's certificate of limited partnership
has been cancelled and the assets of the Partnership have been distributed as
provided in Section 8.2.
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Section 8.2 Liquidation
A. Upon dissolution of the Partnership, its liabilities shall be paid in
the order provided herein. The General Partner shall cause Partnership
property to be sold in such manner as it, in its sole discretion, shall
determine in an effort to obtain the best price for such property. In order
for the Partnership to obtain a reasonable price for any Partnership
investments which are illiquid, the General Partner may, to the extent
permitted by applicable law, purchase from the Partnership any Partnership
investments upon which there are significant restrictions as to transferability
or for which a fair market price is not readily obtainable. Payment of the
fair market value of any such investment as established by the annual Appraisal
made in accordance with Section 9.4, adjusted for any distributions or other
significant events subsequent to the Valuation Date, shall be deemed fair and
reasonable and not a violation of any General Partner's duty to the
Partnership. Pending Sale of Partnership property, the General Partner shall
have the right to continue to operate and otherwise deal with Partnership
property. In the event that the General Partner has been Removed and a
successor General Partner has not been designated, the Limited Partners shall
elect, in accordance with the provisions of Article Eleven, a Person to perform
the functions of the General Partner in liquidating the assets of the
Partnership and in winding up its affairs.
B. Profits and Losses arising from Sales upon liquidation shall be
allocated as follows:
(i) Profits shall be allocated (a) first, to the Partners in amounts
equal to the negative balances, if any, in their respective Capital
Accounts, without giving effect to any cash distributions arising from
Sales at liquidation; (b) second, to the General Partner up to the amount
of the Capital Contributions of the General Partner made to the
Partnership during its term under Section 3.1B in excess of 1% of the
Limited Partners' Capital Contributions, but not to exceed the amount of
assets payable to the General Partner under Section 8.2C(ii); and (c)
third, all remaining Profits, 99% to the Limited Partners and 1% to the
General Partner.
(ii) Losses shall be allocated 99% to the Limited Partners and 1% to
the General Partner.
C. In settling accounts after dissolution, the assets of the Partnership
shall be paid out in the following order:
(i) first, to any creditors (including any creditor who is a
Partner), in the order of priority as provided by law or the establishment
of reasonable reserves for the payment of obligations to creditors;
(ii) second, to each Partner in an amount equivalent to the positive
amount of his Capital Account on the date of distribution, after giving
effect to any allocation of Profits or Losses arising from Sales on
liquidation; and
(iii) third, the balance, 99% to the Limited Partners and 1% to the
General Partner.
D. In the event that following the final dissolution under Section 8.2C,
the General Partner has a deficit balance in its Capital Account balance, the
General Partner shall contribute cash to the Partnership necessary to eliminate
said deficit balance.
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ARTICLE NINE
Books and Records; Accounting; Appraisal;
Tax Elections; Etc.
Section 9.1 Books and Records
The books and records of the Partnership, including information relating
to the sale by the General Partner or any of its Affiliates of securities,
property, goods or services to the Partnership, and a list of the name,
residence, business or mailing address and Interest of each Limited Partner,
shall be maintained by the General Partner at the office of the Partnership or
of the General Partner and shall, for any purpose, other than commercial
purposes, reasonably related to a Limited Partner's Interest as a limited
partner, be available for examination there by any Limited Partner or his duly
authorized representative at any and all reasonable times. Any Limited
Partner, or his duly authorized representatives, upon paying the costs of
collection, duplication and mailing, for any purpose reasonably related to a
Limited Partner's Interest as a limited partner, shall be entitled to a copy of
the list of name, residence, business or mailing address and Interest of each
Limited Partner. Such information shall be used for Partnership purposes only.
The Partnership may maintain such other books and records and may provide such
financial or other statements as the General Partner in its discretion deems
advisable.
Section 9.2 Accounting Basis for Tax and Reporting Purposes; Fiscal
Year
The books and records, and the financial statements and reports of the
Partnership, both for tax and financial reporting purposes, shall be kept on an
accrual basis. The Fiscal Year of the Partnership for both tax and financial
reporting purposes shall be the calendar year.
Section 9.3 Bank Accounts
The General Partner shall maintain the Partnership Account and withdrawals
shall be made only in the regular course of the Partnership business on such
signature or signatures as the General Partner may determine. Temporary
investments of the type permitted by Section 4.1A(ix) are deemed activities in
the ordinary course of Partnership business.
Section 9.4 Appraisal
Beginning December 31, 1994, and as of December 31, of each succeeding
year thereafter (the "Valuation Date"), the General Partner will make or have
made an appraisal of all of the assets of the Partnership as of the Valuation
Date (the "Appraisal"). The Appraisal of the Partnerships assets may be by
independent third parties appointed by the General Partner and deemed qualified
by the General Partner to render an opinion as to the value of Partnership
assets, using such methods and considering such information relating to the
investments, assets and liabilities of the Partnership as such Persons may deem
appropriate, but in the case of an event subsequent to the Valuation Date
materially affecting the value of any Partnership asset or investment, the
General Partner may revise the Appraisal as it, in its good faith and sole
discretion, deems appropriate. For purposes of the Appraisal to be made on
December 31, 1994, the General Partner may use the purchase price of
Partnership assets as the value of such assets.
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Section 9.5 Reports
Within 75 days after the end of each Fiscal Year or as soon as practicable
thereafter, the General Partner shall send to each Person who was a Limited
Partner at any time during the Fiscal Year then ended (i) a statement (which
shall be audited by the Auditors) showing the Distributable Cash (or assets
distributed in kind) distributed in respect of such year; (ii) such tax
information as shall be necessary for the preparation by such Limited Partner
of his Federal and state income tax returns; and (iii) a report of the
investment activities of the Partnership during such year. Within 120 days
after the end of each Fiscal Year, the General Partner shall send to each
Person who was a Limited Partner at any time during the Fiscal Year then ended
Partnership financial statements audited by the Auditors and a copy of the
Appraisal. Within 45 days after the end of each quarter of a Fiscal Year the
General Partner shall send to the Partnership a certificate itemizing the
Partnership expenses it has paid during such quarter. The General Partner
shall not be required to deliver or mail a copy of the certificate of limited
partnership of the Partnership or any amendment thereof to the Limited
Partners.
Section 9.6 Elections
The General Partner may cause the Partnership to make all elections
required or permitted to be made by the Partnership under the Code and not
otherwise expressly provided for in this Agreement, in the manner that the
General Partner believes will be most advantageous to individual taxpayers who
(i) are married and filing joint Federal income tax returns, (ii) are not
"dealers" for Federal income tax purposes, and (iii) have income at least part
of which, without giving effect to any additional tax on preference items, is
subject to Federal income taxation at the then highest marginal tax rate for
persons set forth in (i).
ARTICLE TEN
Amendments
Section 10.1 Proposal and Adoption of Amendments Generally
A. Amendments to this Agreement to reflect the addition or substitution
of a Limited Partner, the admission of a successor General Partner or the
withdrawal of the General Partner, shall be made at the time and in the manner
referred to in Section 10.2. Any other amendment to this Agreement may be
proposed by the General Partner or by 10% in Interest of the Limited Partners.
The Partner or Partners proposing such amendment shall submit (a) the text of
such amendment, (b) a statement of the purpose of such amendment, and (c) an
opinion of counsel obtained by the Partner or Partners proposing such amendment
to the effect that such amendment is permitted by the Act and the laws of any
other jurisdiction where the Partnership is qualified to do business, will not
impair the liability of the Limited Partner and will not adversely affect the
classification of the Partnership as a partnership for Federal income tax
purposes. The General Partner shall, within 20 days after receipt of any
proposal under this Section 10.1A, give Notification to all Partners of such
proposed amendment, of such statement of purpose and of such opinion of
counsel, together, in the case of an amendment proposed by Limited Partners,
with the views, if any, of the General Partner with respect to such proposed
amendment.
B. Amendments of this Agreement shall be adopted if:
(i) in the case of amendments referred to in Sections 10.2A and
10.2B, the conditions specified in Sections 6.1 and 6.2 shall have been
satisfactorily completed;
(ii) in the case of amendments referred to in Section 10.2C, the
conditions specified in Section 7.4 shall have been satisfactorily
completed; or
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(iii) in the case of all amendments, subject to the provisions of
Section 11.3, such amendment shall have been Consented to by a
Majority-in-Interest of the Limited Partners; provided, however, that no
such amendment may:
(a) enlarge the obligations of any Partner under this Agreement or
convert the Interest of any Limited Partner into the Interest of
a General Partner or modify the liability of any Limited Partner
without the Consent of such Partner;
(b) modify the method provided in Article Five of determining,
allocating or distributing, as the case may be, Profits and
Losses and Distributable Cash without the Consent of each
Partner adversely affected by such modification;
(c) amend Sections 6.1 or 6.2 without the Consent of the General
Partner;
(d) amend Section 4.3C, this Article Ten or Section 11.3 without the
Consent of all the Partners; or
(e) allow additional contributions of capital by some or all of the
Limited Partners without the Consent of the General Partner and
a Majority-in-Interest of the Limited Partners.
C. Upon the adoption of any amendment to this Agreement, the amendment
shall be executed by the General Partner and the Limited Partners and, if
required by the Act, an amendment to the certificate of limited partnership of
the Partnership shall be filed or recorded in the proper records of the State
and of each jurisdiction in which filing or recordation is necessary for the
Partnership to conduct business or to preserve the limited liability of the
Limited Partners. Each Limited Partner hereby irrevocably appoints and
constitutes the General Partner as his agent and attorney-in-fact to execute,
file, and record any and all such amendments including, without limitation,
amendments to admit Limited Partners and to increase or decrease the amount of
the contribution to the Partnership of any Partner. The power of attorney
given herewith is irrevocable, is coupled with an interest and shall survive
and not be affected by the subsequent Incapacity of any Limited Partner
granting it.
D. Notwithstanding anything to the contrary contained herein, the General
Partner may, without prior notice or Consent of any Limited Partner, amend any
provision of this Agreement if, in its opinion, such amendment does not have a
material adverse effect upon the Limited Partners.
Section 10.2 Amendments on Admission or Withdrawal of Partners
A. If this Agreement shall be amended to reflect the admission of a
General Partner, the amendment to this Agreement and to the certificate of
limited partnership of the Partnership shall be adopted, executed and filed as
required by the Act and this Agreement.
B. If this Agreement shall be amended to reflect the withdrawal or
Removal of the General Partner and the continuation of the business of the
Partnership, the amendment to this Agreement and to the certificate of limited
partnership shall be adopted, executed and filed as required by the Act and
this Agreement.
C. No Person shall become a Partner unless such Person shall have become
a party to, and adopted all of the terms and conditions of, this Agreement, and
except for the Initial Limited Partner or an Additional Limited Partner, paid
any reasonable legal fees of the Partnership and the General Partner and filing
and publication costs in connection with such Person's becoming a Partner
elected to be so charged in the General Partner's discretion.
A-25
<PAGE>
ARTICLE ELEVEN
Consents, Voting and Meetings
Section 11.1 Method of Giving Consent
Any Consent required by this Agreement may be given as follows:
(i) by a written Consent given by the approving Partner at or prior
to the date set by the General Partner for the delivery of the Consent,
provided that such Consent shall not have been nullified by either (a)
Notification to the General Partner by the approving Partner at or prior
to the time of, or the negative vote by such approving Partner at, any
meeting held to consider the doing of such act or thing, or (b)
Notification to the General Partner by the approving Partner prior to the
date set by the General Partner for the delivery of the Consent with
respect to actions the doing of which is not subject to approval at such
meeting; or
(ii) by the affirmative vote by the approving Partner to the doing of
the act or thing for which the Consent is solicited at any meeting called
and held pursuant to Section 11.2 to consider the doing of such act or
thing.
Section 11.2 Meetings of Partners
The termination of the Partnership and any other matter requiring the
Consent of all or any of the Limited Partners pursuant to this Agreement may be
considered at a meeting of the Partners held not less than 15 nor more than 30
days after Notification thereof shall have been given by the General Partner to
all Partners. Such Notification (i) may be given by the General Partner, in
its discretion, at any time and (ii) shall be given by the General Partner
within 15 days after receipt by the General Partner of a request for such a
meeting made by 10% in Interest of the Limited Partners. Such meeting shall be
held within or outside the State at such reasonable place as shall be specified
by the General Partner if Notification of such meeting is given pursuant to
this Section 11.2.
Section 11.3 Limitations on Requirements for Consents
Notwithstanding the provisions of Sections 4.3C, 6.1A(iv), 6.1C, 6.5A,
6.5B, 8.1(v) and 10.1B, as the case may be,
(i) the provision of Section 4.3C(i) requiring the Consent of a
Majority-in-Interest of the Limited Partners to the sale or other
disposition at any one time of all or substantially all of the assets of
the Partnership shall be void and the General Partner shall have authority
to sell or dispose at any one time all or substantially all of the assets
of the Partnership;
(ii) the provisions of Section 4.3C(ii) and 8.1(v) permitting the
General Partner to dissolve the Partnership prior to January 1, 2000 with
the Consent of the Majority-in-Interest of the Limited Partners shall be
void and the General Partner shall have the authority to dissolve the
Partnership at any time without the Consent of the Limited Partners;
(iii) the provisions of Section 4.3C(iii) through (ix) requiring the
Consent of a Majority-in-Interest of the Limited Partners as to the taking
of certain actions by the General Partner shall be void and the General
Partner may take such actions on behalf of the Partnership if not
prohibited by the Investment Company Act of 1940;
(iv) the provisions of Sections 6.1A(iv) and 6.1C permitting the
giving of the Consent of the Limited Partners by the express Consent of a
Majority-in-Interest of the Limited Partners shall be void;
A-26
<PAGE>
(v) the power granted pursuant to the provisions of Section 6.5A and
6.5B to Remove the General Partner and designate a successor General
Partner upon the Consent of a Majority-in-Interest of the Limited Partners
may not be exercised; and
(vi) the provisions of Section 10.1B(iii) relating to the amendment
of this Agreement by or upon the Consent of a Majority-in-Interest of the
Limited Partners shall be void;
unless at the time of the giving or withholding of the Consent pursuant to the
provisions of Sections 4.3C, 6.1A(iv), 6.1C, 6.5A, 6.5B, 8.1(v) or 10.1B, as
the case may be, counsel for the Partnership or counsel designated by 10% in
Interest of the Limited Partners shall have delivered to the Partnership an
opinion to the effect that the giving or withholding of the Consent is
permitted by the Act, will not impair the liability of the Limited Partners and
will not adversely affect the classification of the Partnership as a
partnership for Federal income tax purposes.
Section 11.4 Submissions to Limited Partners
The General Partner shall give all the Limited Partners Notification of
any proposal or other matters required by any provisions of this Agreement or
by law to be submitted for the consideration and approval of the Limited
Partners. Such Notification shall include any information required by the
relevant provision of this Agreement or by law.
ARTICLE TWELVE
Miscellaneous Provisions
Section 12.1 Appointment of the General Partner as Attorney-in-Fact
A. Each Limited Partner, by his execution hereof, hereby makes,
constitutes and appoints the General Partner and each of its officers his true
and lawful agent and attorney-in-fact, with full power of substitution and full
power and authority in his name, place and stead to make, execute, sign,
acknowledge, swear to, record and file, on behalf of him and on behalf of the
Partnership, such documents, instruments and conveyances that may be necessary
or appropriate to carry out the provisions or purposes of this Agreement,
including, without limitation:
(i) this Agreement and the certificate of limited partnership of the
Partnership and all amendments to this Agreement and the certificate of
limited partnership of the Partnership required or permitted by law or the
provisions of this Agreement including, without limitation, such
certificates, agreements and amendments thereto relating to the admission
to the Partnership of Partners and the increase or decrease of the amount
of the Capital Contributions of any Partner;
(ii) all certificates and other instruments deemed advisable by the
General Partner to carry out the provisions of this Agreement or to permit
the Partnership to become or to continue as a limited partnership or
partnership wherein the Limited Partners have limited liability in any
jurisdiction where the Partnership may be doing business;
(iii) all instruments that the General Partner deems appropriate to
reflect a change or modification of this Agreement, in accordance with
this Agreement, including, without limitation, the substitution of
assignees as Substituted Limited Partners pursuant to Sections 7.4 and
10.2C and, if required, the filing of certificates to effect the same;
A-27
<PAGE>
(iv) all conveyances and other instruments or papers deemed advisable
by the General Partner to effect the dissolution and termination of the
Partnership, including a certificate of cancellation;
(v) all fictitious or assumed name certificates required or
permitted to be filed on behalf of the Partnership;
(vi) all instruments or papers required by law to be filed in
connection with the issuance of limited partnership interests senior to
the Units;
(vii) all other instruments or papers which may be required or
permitted by law to be filed on behalf of the Partnership; and
(viii) all instruments and filings required by Section 6111 of the Code
("Registration of Tax Shelters") and Section 6112 of the Code relating to
maintenance of lists of investors in tax shelters.
B. The foregoing power of attorney:
(i) is coupled with an interest, shall be irrevocable, shall not be
affected by and shall survive the subsequent Incapacity of each Limited
Partner;
(ii) may be exercised by the General Partner either by signing
separately or jointly as attorney-in- fact for each or all Limited
Partner(s) or, with or without listing all of the Limited Partners
executing an instrument, by a single signature of the General Partner
acting as attorney-in-fact for all of them; and
(iii) shall survive the delivery of an assignment by a Limited Partner
of the whole of his Interest; except that, where the assignee of the whole
of such Limited Partner's Interests has been approved by the General
Partner for admission to the Partnership as a Substituted Limited Partner,
the power of attorney of the assignor shall survive the delivery of such
assignment for the sole purpose of enabling the General Partner to
execute, swear to, acknowledge and file any instrument necessary or
appropriate to effect such substitution.
C. Each Limited Partner shall execute and deliver to the General Partner
within five days after receipt of the General Partner's request therefor such
further designations, powers-of-attorney and other instruments as the General
Partner deems necessary or appropriate to carry out the terms of this
Agreement.
Section 12.2 Notification to the Partnership or the General Partner
Any notification to the Partnership or the General Partner shall be sent
to the principal office of the Partnership.
Section 12.3 Binding Provisions
The covenants and agreements contained herein shall be binding upon and
inure to the benefit of the heirs, executors, administrators, permitted
successors and assigns of the respective parties hereto.
Section 12.4 Applicable Law
This Agreement shall be construed and enforced in accordance with the laws
of the State.
Section 12.5 Counterparts
A-28
<PAGE>
This Agreement may be executed in several counterparts, all of which
together shall constitute one agreement binding on all parties hereto,
notwithstanding that not all the parties have signed the same counterpart
except that no counterpart shall be binding unless signed by the General
Partner. The General Partner may execute any document by facsimile signature
of a duly authorized officer.
Section 12.6 Separability of Provisions
If for any reason any provisions hereof that are not material to the
purposes or business of the Partnership or the Limited Partners' Interests are
determined to be invalid and contrary to any existing or future law, such
invalidity shall not impair the operation of or affect those portions of this
Agreement that are valid.
Section 12.7 Entire Agreement
This Agreement constitutes the entire agreement among the parties. This
Agreement supersedes any prior agreement or understanding among the parties and
may not be modified or amended in any manner other than as set forth therein.
Section 12.8 Headings
The headings in this Agreement are for descriptive purposes only and shall
not control or alter the meaning of this Agreement as set forth in the text.
A-29
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
KECALP INC.
General Partner
By: -------------------------
Attest:
By: -------------------------
Secretary
Withdrawing and Initial Limited Partner
-----------------------------
James V. Caruso
LIMITED PARTNERS
All Limited Partners now and
hereafter admitted as limited
partners to the Partnership,
pursuant to Powers of Attorney now
and hereafter executed in favor
of, and delivered to, the General
Partner.
By: KECALP Inc.
By: -------------------------
A-30
<PAGE>
EXHIBIT B
SUBSCRIPTION AGREEMENT
MERRILL LYNCH KECALP L.P. 1994
KECALP Inc., General Partner of
Merrill Lynch KECALP L.P. 1994
South Tower
World Financial Center
225 Liberty Street
New York, New York 10080-6123
Gentlemen:
By signing the Limited Partner Signature Page and Power of Attorney
attached hereto, the undersigned hereby applies for the purchase of the number
of limited partner interests (the "Units"), set forth below, in Merrill Lynch
KECALP L.P. 1994, a Delaware limited partnership (the "Partnership"), at a
price of $1,000 per Unit (minimum purchase of five Units), and authorizes
Merrill Lynch, Pierce, Fenner & Smith Incorporated to debit his securities
account in the amount set forth below for such Units. The undersigned
understands that such funds will be held by Chemical Bank, as Escrow Agent, and
will be returned promptly in the event that 5,000 Units of the 30,000 Units
offered by the Prospectus are not subscribed for by June 9, 1994, or such
subsequent date, not later than July 7, 1994, as the Partnership and Merrill
Lynch, Pierce, Fenner & Smith Incorporated may agree upon. The undersigned
hereby acknowledges receipt of a copy of the Prospectus, as well as the Amended
and Restated Agreement of Limited Partnership (the "Partnership Agreement") of
the Partnership attached to the Prospectus as Exhibit A, and hereby
specifically accepts and adopts each and every provision of, and executes, the
Partnership Agreement and agrees to be bound thereby.
Arkansas Legend:
"THE UNITS OF LIMITED PARTNERSHIP INTEREST ARE OFFERED PURSUANT TO A
CLAIM OF EXEMPTION UNDER SECTION 23-42-504(a)(9) OF THE ARKANSAS
SECURITIES ACT. A REGISTRATION STATEMENT WAS FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION AND WITH THE ARKANSAS SECURITIES
DEPARTMENT, BUT THE DEPARTMENT HAS NOT PASSED UPON THE VALUE OF THESE
SECURITIES OR MADE ANY RECOMMENDATION AS TO THEIR PURCHASE, AND
NEITHER THE DEPARTMENT NOR THE COMMISSION HAS APPROVED OR DISAPPROVED
THE OFFERING, OR PASSED UPON THE ADEQUACY OR ACCURACY OF THE
PROSPECTUS, AND ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL".
California Legend:
"IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THIS SECURITY, OR
ANY INTEREST THEREIN, OR TO RECEIVE ANY CONSIDERATION THEREFOR,
WITHOUT THE PRIOR WRITTEN CONSENT OF THE COMMISSIONER OF CORPORATIONS
OF THE STATE OF CALIFORNIA, EXCEPT AS PERMITTED IN THE COMMISSIONER'S
RULES."
Any sale or transfer of the Units outside California not involving
California residents does not require the prior written consent of the
Commissioner of Corporations of the State of California.
B-1
<PAGE>
The undersigned hereby represents and warrants to you as follows:
1. The undersigned has carefully read the Prospectus and has relied
solely on the Prospectus and investigation made by the undersigned or his or
her representatives in making the decision to invest in the Partnership.
2. The undersigned is aware that investment in the Units involves certain
risk factors and has carefully read and considered the matters set forth under
the captions "Investment Objective and Policies", "Conflicts of Interest",
"Risk and Other Important Factors" and "Tax Aspects of Investment in the
Partnership" in the Prospectus.
3. The undersigned is 21 years of age or over, has adequate means of
providing for his or her current needs and personal contingencies and has no
need for liquidity in this investment.
4. The undersigned represents that he or she (i) in the case of an
employee of Merrill Lynch & Co., Inc. ("ML & Co.") or its subsidiaries,
receives a current annual salary which, together with bonus received from ML &
Co. or its subsidiaries in respect of 1993, equals at least $100,000; or, if
employed for less than a full calendar year, is employed with an annualized
gross income from ML & Co. or its subsidiaries of at least $100,000 or (ii) in
the case of a non-employee director of ML & Co., (a) has a net worth (exclusive
of homes, home furnishings, personal automobiles and the amount to be invested
in Units) of not less than $125,000 in excess of the price of the Units for
which such investor has subscribed, or (b) has a net worth (exclusive of homes,
home furnishings, personal automobiles and the amount to be invested in Units)
of not less than $100,000 in excess of the price of the Units for which such
investor has subscribed and expects to have during each of the current and the
next three taxable years, gross income from all sources in excess of $100,000.
5. The undersigned represents that the amount of Units to be purchased
hereby (i) in the case of an employee of ML & Co. or its subsidiaries, does not
exceed an amount that would result in the price of such Units exceeding either
(a) 15% of the employee's cash compensation from ML & Co. or its subsidiaries
received during 1993 on an annualized basis unless the employee either (x) has
a net worth, individually or jointly with the employee's spouse, in excess of
$1,000,000 at the time of purchase of the Units, or (y) had an individual
income in excess of $200,000 in each of 1992 and 1993 or joint income with the
employee's spouse in excess of $300,000 in each of those years and reached or
has a reasonable expectation of reaching the same income level in 1994 or (b)
75% of his compensation received in respect of 1993 on an annualized basis,
provided that the employee meets the standards of (x) or (y) above; or (ii) in
the case of a non-employee director of ML & Co., does not exceed an amount
equal to two times the director's fees (including committee fees, but not
including reimbursements of expenses) received from ML & Co. during 1993.
6. The undersigned represents and warrants that the statements contained
in Section 7.4D of the Partnership Agreement are true insofar as they relate to
the undersigned:
The undersigned understands and recognizes that:
(a) The subscription may be accepted or rejected in whole or in part
by the General Partner in its sole and absolute discretion, except that,
if this subscription is to be accepted in part only, it shall not be
reduced to an amount less than $5,000.
(b) No Federal or state agency has made any finding or determination
as to the fairness for public investment, nor any recommendation or
endorsement, of the Units.
(c) There are restrictions on the transferability of the Units,
there will be no public market for Units, and accordingly, it may not be
possible for the undersigned readily, if at all, to liquidate his or her
investment in the Partnership in case of an emergency.
(d) Prior to any contrary notification to the General Partner by the
undersigned, the undersigned hereby authorizes all cash distributions to
be made by the Partnership to the undersigned as a Limited Partner to be
B-2
<PAGE>
credited to the undersigned's securities account at Merrill Lynch, Pierce,
Fenner & Smith Incorporated as specified in the Signature Page and Power
of Attorney attached hereto.
The undersigned hereby acknowledges and agrees that the undersigned is not
entitled to cancel, terminate or revoke this subscription or any agreements of
the undersigned hereunder and that such subscription and agreements shall
survive the disability of the undersigned.
This Subscription Agreement and all rights hereunder shall be governed by,
and interpreted in accordance with, the laws of the State of Delaware.
In Witness Whereof, the undersigned executes and agrees to be bound by
this Subscription Agreement by executing the Limited Partner Signature Page and
Power of Attorney attached hereto on the date therein indicated.
B-3
<PAGE>
INSTRUCTIONS FOR PURCHASERS OF UNITS
Any person desiring to subscribe for Units should carefully read and
review the Prospectus and, if he or she desires to subscribe for Units in the
Partnership, complete the following steps:
1. Complete, date and execute the Limited Partner Signature Page and
Power of Attorney (sent with Prospectus, on green paper).
2. Use the sample that follows, to assist you in the accurate completion
of the Signature Page.
3. Indicate in the four boxes provided the number of Units you would
like to purchase (minimum 5 Units). If this amount is in excess of 250 Units,
your subscription will be entered initially for 250 Units and, if the offering
is not fully subscribed at the offering termination date, you will receive as
many of the Units you have requested as are available on a pro rata basis based
on the amount of Units available.
4. Partnership Services will, upon receipt of the acceptance of your
purchase from KECALP, enter and execute an order. An execution wire will be
generated to your branch office and a trade confirmation will be made to you.
Settlement date will be five (5) business days following execution.
Your MLPF&S Securities Account will be debited in the amount of $1,000 for
each Unit that you purchase.
5. Cancellations and quantity reductions are difficult to handle after
an investor has been accepted and the funds placed in escrow. Nonetheless, if
you wish to cancel, contact Andrew Kaufman at (212) 236-7302.
B-4
<PAGE>
MERRILL LYNCH KECALP L.P. 1994
LIMITED PARTNER SIGNATURE PAGE AND POWER OF ATTORNEY
The undersigned, desiring to become a Limited Partner of Merrill Lynch
KECALP L.P. 1994 (the "Partnership"), pursuant to Section 3.3 or 7.4 of the
Amended and Restated Agreement of Limited Partnership (the "Partnership
Agreement"), a form of which is included as Exhibit A to the Prospectus of the
Partnership dated April 15, 1994 (the "Prospectus"), hereby executes, and
agrees to all of the terms of, the Partnership Agreement of the Partnership and
agrees to be bound by the terms and provisions thereof. The undersigned
further, by executing this Limited Partner Signature Page and Power of
Attorney, hereby executes, adopts and agrees to all terms, conditions and
representations of the Subscription Agreement included as Exhibit B to the
Prospectus. The undersigned further irrevocably constitutes and appoints
KECALP Inc., the General Partner of the Partnership, and its successors and
assigns with full power of substitution, the true and lawful attorney for the
undersigned and in the name, place and stead of the undersigned to make,
execute, sign, acknowledge, swear to, deliver, record and file any documents or
instruments which may be considered necessary or desirable by the General
Partner to carry out fully the provisions of the Partnership Agreement,
including, without limitation, the Partnership Agreement, the certificate of
limited partnership of the Partnership and any amendment or amendments thereto,
including, without limitation, amendments thereof for the purpose of increasing
or decreasing the capital contribution of any partner and adding and deleting
the undersigned and others as the partners in the Partnership, as contemplated
by the Partnership Agreement (which amendment(s) the undersigned hereby joins
in and executes, hereby authorizing his Limited Partner Signature Page and
Power of Attorney to be attached, if required, to any such amendment) and of
otherwise amending the Partnership Agreement from time to time, or cancelling
the same. The power of attorney hereby granted shall be deemed to be coupled
with an interest and shall be irrevocable and survive and not be affected by
the subsequent death, disability, incapacity or insolvency of the undersigned
or any delivery by the undersigned of an assignment of the whole or any portion
of the interest of the undersigned. The place of residence of the undersigned
is as shown below.
ALL INFORMATION MUST BE COMPLETED
Signature of Limited Partner:
______________
____________________________
# of Units applied for (whole Units only) _______ x $1,000. = Dollar Amount to
be debited from account listed below __________
Does purchase price of Units applied for exceed 15% of your Merrill Lynch
compensation in respect of 1993? Yes / / No / /
If so, do you satisfy either of the exceptions specified under "Maximum
Purchase by Qualified Investors" on page 43 of the Prospectus?
Yes / / No / /
Limited Partner Name: __________________________________
Last Name
__________________________________
First Name MI
Social Security ML Account ML Employee
Number ___-__-____ Number ___-____ Number ______
Spouse of
Reference:
Mailing Address: (As it is to appear on Envelopes)
Name: ______________________________
Street: ______________________________
Address: ______________________________
City: _____________________ State: ____ Zip Code: ________
Residence State if different from above: ____
Home Office
Telephone: ___-____ Telephone: ___-____
Fax: ___-___-____
Are you an active Financial Consultant: Yes / / No / /
If yes, Branch Office # _____ and F.C. # ______
U.S. Citizen? Yes / / No / / If No, What Country or State are you a
Citizen of?
_________________________
____________________________________________________________________________
FOR OFFICE
USE ONLY Date Received Date Settled Accepted Control Number Additional Order
________ ________ ________ ________ __
B-5
<PAGE>
==================================== ==============================
TABLE OF CONTENTS
30,000 Units of
Page Limited Partnership
____ Interest
Investor Suitability Standards 2
Summary of the Offering . . . . 3
Partnership Expenses . . . . . 6
Conflicts of Interest . . . . . 6
Fiduciary Responsibility of the
General Partner . . . . . . . 7
Risk and Other Important
Factors . . . . . . . . . . . 8 Merrill Lynch
Compensation and Fees . . . . . 12 KECALP L.P.
The Partnership . . . . . . . . 12 1994
The General Partner and Its
Affiliates . . . . . . . . . 14
Investment Objective and
Policies . . . . . . . . . . 22
Tax Aspects of Investment in the
Partnership . . . . . . . . . . 26
Summary of the Partnership
Agreement . . . . . . . . . . . 40
Offering and Sale of
Units . . . . . . . . . . . . 42
Transferability of Units . . . 44
Reports . . . . . . . . . . . . 46
Experts . . . . . . . . . . . . 47
Legal Matters . . . . . . . . . 47
Exemptions from the Investment
Company Act of 1940 . . . . . 47 April 15, 1994
Additional Information . . . . 48
Index to Financial Statements . 50
Merrill Lynch & Co.
______________________
Form of Amended and Restated
Agreement of Limited
Partnership . . . . . . . . Ex. A
Subscription Agreement . . . Ex. B
================================ ==============================
<PAGE>
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(1) Financial Statements
Contained in Part A:
-- See "Index to Financial Statements" in the Prospectus.
Contained in Part B
-- Not Applicable
Contained in Part C
-- None
(2) Exhibits
(a)(i) -- Certificate of Limited Partnership of Merrill Lynch KECALP
L.P. 1994*
(a)(ii) -- Form of Amended and Restated Agreement of Limited
Partnership of Merrill Lynch KECALP L.P. 1994 is included
as Exhibit A in the Prospectus
(a)(iii) -- Subscription Agreement is included in Exhibit B in the
Prospectus
(b) -- Not Applicable
(c) -- Not Applicable
(d) -- Copies of Instruments Defining the Rights of Unitholders**
(e) -- Not Applicable
(f) -- Not Applicable
(g) -- Not Applicable
(h) -- Form of Agency Agreement*
(i) -- Not Applicable
(j) -- Form of Escrow Deposit Agreement*
(k) -- Not Applicable
(l) -- Opinion and Consent of Brown & Wood*
(m) -- Not Applicable
(n)(i) -- Consent of Independent Accountants*
(n)(ii) -- Form of opinion of Brown & Wood as to certain tax matters*
(o) -- Not Applicable
(p) -- Not Applicable
(q) -- Not Applicable
- -----------------
* Previously filed.
** Reference is made to the Amended and Restated Agreement of Limited
Partnership of Merrill Lynch KECALP L.P. 1994, included as Exhibit A in
the Prospectus.
C-1
<PAGE>
Item 25. Marketing Arrangements.
None.
Item 26. Other Expenses of Issuance and Distribution.
The following table sets forth the estimated expenses to be incurred in
connection with the offering described in this Registration Statement.
Registration fees....................................... $ 10,345.00
National Association of Securities Dealers, Inc. fees... 3,500.00
Printing................................................ 75,000.00
Fees and expenses of qualifications under state
securities laws (including fees of counsel)........... 18,000.00
Legal fees and expenses................................. 85,000.00
Accounting fees and expenses............................ 3,500.00
Miscellaneous........................................... 9,655.00
__________
Total.............................................. $205,000.00
____________________
* To be completed by amendment.
Item 27. Persons Controlled by or Under Common Control with Registrant.
The General Partner of the Partnership is a wholly-owned subsidiary of
Merrill Lynch & Co., Inc.
Item 28. Number of Holders of Securities.
James V. Caruso, an employee of Merrill Lynch & Co., Inc. purchased a
limited partnership interest in the Partnership for $1.00 in order to become
the Initial Limited Partner and permit the filing of the Agreement and
Certificate of Limited Partnership. This sale was prior to the date of
effectiveness of this Registration Statement, as a "private offering" pursuant
to the exemption contained in Section 4(2) of the Securities Act of 1933. Upon
admission of the purchasers of Units to the Partnership as Limited Partners,
Mr. Caruso will withdraw from the Partnership and receive a return of his
$1.00.
Item 29. Indemnification.
Pursuant to Section 4.7 of the Partnership Agreement, neither the General
Partner nor any of its officers, directors or agents shall be liable to the
Partnership or the Limited Partners for any act or omission based upon errors
of judgment or other fault in connection with the business or affairs of the
Partnership so long as the person against whom liability is asserted acted in
good faith and in a manner reasonably believed by such person to be within the
scope of its authority under the Partnership Agreement and in or not opposed to
the best interests of the Partnership, but only if such action or failure to
act does not constitute negligence, misconduct or any other breach of fiduciary
duty. The General Partner and its officers, directors and agents will be
indemnified by the Partnership to the fullest extent permitted by law for any
(a) fees, costs and expenses incurred in connection with or resulting from any
claim, action or demand against the General Partner, the Partnership or any of
their officers, directors and agents that arises out of or in any way relates
to the Partnership, its properties, business or affairs and (b) such claims,
actions and demands and any losses or damages resulting from such claims,
actions and demands, including amounts paid in settlement or compromise (if
recommended by attorneys for the Partnership) of any such claim, action or
demand; provided, however, that this indemnification shall apply only so long
as the person against whom a claim, action or demand is asserted has acted in
good faith and in a manner reasonably believed by such person to be within the
scope of his or its authority under the Partnership Agreement and in or not
opposed to the best
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interests of the Partnership, but only if such action or failure to act does
not constitute negligence, misconduct or any other breach of fiduciary duty.
Insofar as indemnification for liabilities under the Securities Act of
1933 may be permitted to the General Partner, the Partnership has been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against the public policy as expressed in such Act and is
therefore unenforceable. If a claim for indemnification against such
liabilities under the Securities Act of 1933 (other than for expenses incurred
in a successful defense) is asserted against the Partnership by the General
Partner under the Partnership Agreement or otherwise, the Partnership will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question of
whether such indemnification by it is against public policy as expressed in
such Act and will be governed by the final adjudication of such issue.
Reference is made to Section 8 of the form of Agency Agreement to be filed
as Exhibit (h) hereto, which contains provisions requiring indemnification of
the Partnership's principal underwriter by the General Partner and of the
Partnership and the General Partner by the Partnership's principal underwriter.
Item 30. Business and Other Connections of the Investment Adviser.
Information concerning the General Partner and biographical information
for each of the directors and executive officers of the General Partner is
contained in Part A of this Registration Statement under the caption "The
General Partner and Its Affiliates."
Item 31. Location of Accounts and Records.
The accounts and records of the Partnership will be maintained at the
office of the Partnership at South Tower, World Financial Center, 225 Liberty
Street, New York, New York 10080-6123.
Item 32. Management Services.
Not Applicable.
Item 33. Undertakings.
(1) Registrant undertakes to suspend offering of the Common Stock covered
hereby until it amends its Prospectus contained herein if (i) subsequent to the
effective date of this Registration Statement, its net asset value declines
more than 10 percent from its net asset value as of the effective date of this
Registration Statement, or (ii) its net asset value increases to an amount
greater than its net proceeds as stated in the Prospectus contained herein.
(2) Not applicable.
(3) Not applicable.
(4) Registrant undertakes:
(a) to file, during any period in which offers or sales are being
made, a post-effective amendment to the registration statement:
(1) to include any prospectus required by Section 10(a)(3) of
the 1933 Act [15 U.S.C. 77j(a)(3)];
(2) to reflect in the prospect any facts or events after the
effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually
or in the aggregate, represent a fundamental change in the
information set forth in the registration statement; and
(3) to include any material information with respect to the plan
of distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement;
(b) that, for the purpose of determining any liability under the
1933 Act, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered
therein, and the offering of those securities at that time shall be
deemed to be the initial bona fide offering thereof; and
(c) to remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold
at the termination of the offering.
(5) Registrant undertakes that:
(a) For the purposes of determining any liability under the
Act, the information omitted from the form of prospectus filed as
part of this Registration Statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the registrant pursuant to
Rule 424(b)(1) or (4) or 497(h) under the Act shall be deemed to be
part of this Registration Statement as of the time it was declared
effective.
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(b) For the purpose of determining any liability under the Act,
each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at
that time shall be deemed to be the initial bona fide offering
thereof.
(6) Not applicable.
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of New York and State of New York on the 14th day
of April, 1994.
Merrill Lynch KECALP L.P. 1994
By KECALP Inc., its General Partner
By /s/ James V. Caruso
_____________________________
James V. Caruso
Vice President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities indicated and on the 13th day of April, 1994.
Signature Title
_________ _____
John L. Steffens* President and Director (Chief
______________________________ Executive Officer) KECALP Inc.
(John L. Steffens)
Robert Tully* Vice President and Treasurer (Chief
______________________________ Financial and Accounting Officer)
(Robert Tully) KECALP Inc.
/s/ James V. Caruso Vice President and Director
______________________________ KECALP Inc.
(James V. Caruso)
Rosemary T. Berkery* Vice President and Director
KECALP Inc.
______________________________
(Rosemary T. Berkery)
Walter Perlstein* Director
KECALP Inc.
______________________________
(Walter Perlstein)
Andrew Melnick* Vice President and Director
KECALP Inc.
______________________________
(Andrew Melnick)
Patrick J. Walsh* Vice President and Director
KECALP Inc.
______________________________
(Patrick J. Walsh)
*By: /s/ James V. Caruso
______________________________
James V. Caruso
Attorney-in-Fact
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