<PAGE>
As filed with the Securities and Exchange Commission on January 6, 1994
Securities Act File No. 33---------
Investment Company Act File No. 811----------
=================================================================
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
FORM N-2
/X/ REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
/ / Pre-Effective Amendment No.
/ / Post-Effective Amendment No.
and/or
/X/ REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
/ / Amendment No.
------------------------------
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.
/ /
CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
<TABLE>
<CAPTION>
Proposed Proposed
Amount Offering Aggregate Amount of
Being Price Per Offering Registration
Title of Securities Being Registered Registered Unit Price Fee
<S> <C> <C> <C> <C>
Limited Partnership Interest 30,000 $1,000.00 $30,000,000$10,345
</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 Cover Page of Prospectus; The
the Registrant 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
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
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
24. 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>
Information contained herein is subject to completion or amendment.
A registration statement relating to these securities has been filed
with the Securities and Exchange Commission. These securities may not
be sold nor may offers to buy be accepted prior to the time the
registration statement becomes effective. This prospectus shall not
constitute an offer to sell or the solicitation of an offer to buy nor
shall there be any sale of these securities in any State in which such
offer, solicitation or sale would be unlawful prior to registration or
qualification under the securities laws of any such State.
Subject to Completion
Preliminary Prospectus Dated January 6, 1994
$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 ------- --, 1994, or such other subsequent
date, not later than --------- --, 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 $30,000,000 -- $30,000,000
(footnotes on next page)
Merrill Lynch & Co.
------------------
The date of this Prospectus is --------, 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 $-------- 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.
</TABLE>
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 ---------- --, 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
1992, 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 -
----- --, 1994, or such subsequent date,
not later than -------- --, 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.
1989 (the "1989 Partnership") and Merrill
Lynch KECALP L.P. 1991 (the "1991
3
<PAGE>
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)*...... .2%
____
Total Annual Expenses.................................. .2%
====
* Other Expenses" have been estimated for the current fiscal year and
assume Limited Partners' capital contribution 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:
<TABLE>
<CAPTION>
One Year Three years Five Years Ten Years
-------- ----------- --------- ---------
<S> <C> <C> <C>
$2 $7 $12 $27
</TABLE>
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 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 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
7
<PAGE>
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 or agents that arise out of or in any
way relate 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 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. 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 that the
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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 $--------, 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 entitled to receive annual reimbursements
from the Partnership, in amounts of up to 1.5% of the Limited Partners'
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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). Although most
of the officers and directors of the General Partner have been employed
in the financial community
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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.,
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 Merrill Lynch Capital Partners, Inc., 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 August 31, 1993,
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.
<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 Franchise 1/92 7/93 345,751 1,009,411
Systems, Inc.
Leveraged Buyout First USA, Inc. 9/91 8/93 68,808 390,261
------ -------
Total $470,524 $1,571,054
-------- ----------
NET PROFIT REALIZED $1,100,530
==========
</TABLE>
17
<PAGE>
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 August 31, 1993,
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 Date of
Classification Company Purchase Sale Cost Proceeds
-------------- ------- -------- ------- ---- --------
<S> <C> <C> <C> <C> <C>
Leveraged Buyout RJR Nabisco
Holding Corp. 5/91 9/92 $ 5,071 $ 2,407,194
Leveraged Buyout RJR Nabisco
Holding Corp. 5/91 12/92 $2,535,044 $ 3,621,389
Leveraged Buyout First USA, Inc. 5/91 2/93 83,961 401,735
Leveraged Buyout First USA, Inc. 8/91 2/93 316,370 1,024,709
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
---------- -----------
Total $3,351,234 $10,830,610
---------- -----------
NET PROFIT REALIZED 7,479,376
===========
</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 August 31, 1993,
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.
<TABLE>
<CAPTION>
Date of Date of
Classification Company Purchase Sale Cost Proceeds
-------------- ------- -------- ------- ---- --------
<S> <C> <C> <C> <C> <C>
Leveraged Buyout Mueller Holdings, Inc. 11/88 11/88 $ 62,507 $ 169,124
Leveraged Buyout Apparel marketing
Industries, Inc. 5/89 5/89 158,872 162,544(A)
Leveraged Buyout GU Acquisition
Corporation 7/89 7/89 1,373,836 3,088,851(B)
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 Switch
Partners L.P. 3/89 3/90 442,978 0(C)
Venture Capital TCOM Systems, Inc. 12/87 3/91 581,791 0
Venture Capital Meteor Message
Corporation 9/88 9/91 308,086 0
Leveraged Buyout GND Holdings Corporation 7/89 6/92 591,612 1,215,869
18
<PAGE>
Venture Capital IDEC Pharmaceuticals 6/89 7/92 16,304 88,244
Leveraged Buyout RJR Nabisco Holdings
Corp. 5/91 9/92 2,901 1,374,093
Leveraged Buyout John Alden Financial
Group 5/89 10/92 245,476 230,257
Venture Capital Bolt, Barenek & Newman 3/89 11/92 11,150 19,956
Levaraged Buyout RJR Nabisco Holdings
Corp. 5/91 12/92 1,450,665 2,066,766
Leveraged Buyout General Felt Industries 5/91 3/93 237,846 359,023
Leveraged Buyout Peter J. Schmitt,
Co. Inc. 5/91 12/93 190,580 0
---------- -----------
Total $6,471,293 $10,524,352
---------- -----------
NET PROFIT REALIZED $ 4,053,059
===========
----------------
(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 August 31, 1993,
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 Semiconductor
Corporation 4/86 5/88 203,867 470,412
Venture Capital Data Recording
Systems, Inc. 2/88 6/88 202,450 0
Venture Capital Alliant Computer
Systems Corp. 6/86 7/88 158,529 95,375
Leveraged Buyout CMI Holdings, Inc. 1/88 4/89 45,349 153,451
Other Variety 4/89 4/89 758,842 1,906,283
Leveraged Buyout Printing Holdings, L.P. 4/89 4/89 649,949 2,135,285
Leveraged Buyout Amstar Corporation 1/88 7/89 354,728 1,303,520
Venture Capital Intek Diagnostics, Inc. 8/86 12/89 104,534 0
Leveraged Buyout Education Management
Corp. 4/89 10/89 192,432 643,824
Venture Capital Qume Corporation 8/86 4/90 2,111,193 485,625
Venture Capital Computer-Aided Design
Group 1/88 9/90 117,183 0
Venture Capital International Power
Technology, Inc. 2/87 9/90 208,592 59,611
Venture Capital International Power
Technology, Inc. 2/87 9/90 208,592 59,611
Venture Capital Robert Wooldridge & Co. 7/87 9/90 205,882 0
Venture Capital Shared Resource
Exchange, Inc. 2/87 9/90 262,501 0
Leveraged Buyout Prince Holdings, Inc. 5/89 10/90 147,601 1,400,807
Venture Capital IDEXX Corporation 2/87 6/91 33,583 66,388
Venture Capital Computer-Aided Design
Group 1/88 9/91 39,061 0
Venture Capital ViewLogic Systems, Inc. 6/86 12/91 212,874 1,474,388
Venture Capital IDEXX Corporation 2/87 1/92 178,312 580,571
Venture Capital Enhance Financial Svcs.
Group Inc. 4/89 8/92 251,042 369,949
Venture Capital Zentec Corporation 12/86 9/92 277,500 0
Leveraged Buyout ALLTEL Corporation 2/87 3/93 24,277 428,451
Venture Capital BehaviorTech, Inc. 8/87 7/93 105,669 9,900
Leveraged Buyout ALLTEL Corporation 2/87 8/93 25,480 483,124
---------- ----------
Total $6,305,831 $14,452,586
---------- -----------
NET PROFIT REALIZED
</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 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
20
<PAGE>
($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 August 31, 1993,
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, Inc. 12/85 8/87 150,000 0
Leveraged Buyout Denny's, Inc. 9/86 9/87 399,968 1,898,631
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
Systems Corp. 6/86 7/88 101,225 63,563
Venture Capital Data Recording
Systems, Inc. 2/85 8/88 152,444 0
Leveraged Buyout Printing Holdings, L.P. 4/86 4/89 115,706 376,815
Leveraged Buyout New Axia Holdings
Corporation 9/86 12/89 31,225 262,500(B)
Venture Capital Intek Diagnostics, Inc. 8/86 12/89 100,980 0
Leveraged Buyout C.C. Packaging, Inc. 9/86 3/90 11,223 15,110
Venture Capital Shared Resource
Exchange, Inc. 2/87 9/90 74,999 0
Oil and Gas Berresford Enterprises-
Jerry 1984 11/84 3/93 350,000 0
Venture Capital BehaviorTech, Inc. 8/86 7/93 70,973 6,930
------- -----------
Total $2,653,009 $11,248,871
---------- -----------
NET PROFIT REALIZED $ 8,595,862
===========
---------------------
(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 August 31, 1993,
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.
<TABLE>
<CAPTION>
Date of Date of
Classification Company Purchase 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
Systems, Inc. 6/83 11/86 100,003 394,520
Equipment Financing Aztex Associates, L.P. 5/83 12/86 64,563 0
Research & Devlpmt. BRN R/S Expert, L.P. 6/84 5/87 230,000 769,531
Leveraged Buyout Denny's, Inc. 9/86 9/87 199,984 949,315
21
<PAGE>
Venture Capital FGIC Corporation 6/86 3/88 1,000,000 1,649,840
Venture Capital Alliant Computer
Systems Corp. 6/86 7/88 100,000 63,563
Leveraged Buyout Medical Disposables
Company 6/86 4/90 65,000 162,070
Oil and Gas Posse Petroleum, Ltd. 10/83 2/91 176,469 60,000
Research and
Devlpmt. NIP Plant Research, Ltd. 4/81 3/91 232,500 25,000
Equipment Financing Cortlandt Intermodal
Leasing 6/83 4/92 432,882 180,624
Oil and Gas Berresford Enterprises-
Jerry 1984 11/84 3/93 150,000 0
Oil and Gas Berresford Enterprises-
Margaret #1 10/83 3/93 550,000 0
---------- -----------
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.
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
22
<PAGE>
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 Merrill Lynch
Capital Partners, Inc., a subsidiary of ML & Co. These investments were
made available to the KECALP Partnerships by ML & Co. from its
co-investments with 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,
23
<PAGE>
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 Investment
The General Partner has approved the purchase by the Partnership of
one investment, 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.
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
24
<PAGE>
from the Securities and Exchange Commission permitting such transaction.
There can be no assurance that such order will be obtained.
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 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,
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(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.
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
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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 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 recognizingthe 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
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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 partner-
ship.
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 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
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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.
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 otherfactors whose "materiality
was unmistakable" were present. In Revenue Ruling 79-106, 1979-1 C.B.
448, the IRS
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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 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
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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 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".
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`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 inreal 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.
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
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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".
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.
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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
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.
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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.
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
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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.
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.
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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 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
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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 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.
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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.
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.
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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.
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.
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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 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
41
<PAGE>
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.
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 ------- --, 1994, or such
subsequent date, not later than ------- --, 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
42
<PAGE>
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:
(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.
43
<PAGE>
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 Chemical Bank, 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.
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.
44
<PAGE>
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 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
45
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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 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.
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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 opinion and report 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:
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;
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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
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
48
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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.
49
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INDEX TO FINANCIAL STATEMENTS
Page
-----
Merrill Lynch KECALP L.P. 1994
Independent Auditors'Opinion...............................
Balance Sheet, ------ --,1994..............................
Notes to Balance Sheet.....................................
KECALP Inc.
Accountants' Report.........................................
Balance Sheet, December 25, 1992............................
Notes to Balance Sheet......................................
50
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INDEPENDENT AUDITORS' OPINION
Merrill Lynch KECALP L.P. 1994:
We have audited the accompanying balance sheet of Merrill Lynch KECALP
L.P. 1994 as of ----- --, 1994. This financial statement is the
responsibility of the Partnerships 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 --
- ----- --, 1994, in conformity with generally accepted accounting
principles.
- --------------------------
New York, New York
- -------- --, 1994
51
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MERRILL LYNCH KECALP L.P. 1994
BALANCE SHEET
-------- --, 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
December --, 1993 and the Certificate of Limited Partnership was filed
under the Delaware Revised Uniform Limited Partnership Act on December -
-, 1993. 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.
2. Business
The Partnership intends to seek long-term capital appreciation. The
Partnership 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.
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<PAGE>
ACCOUNTANTS' 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 Corporations 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.
---------------------
New York, New York
July --, 1993
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INVESTORS WILL NOT ACQUIRE ANY INTEREST IN THIS COMPANY
KECALP Inc.
BALANCE SHEET
December 25, 1992
ASSETS
Cash ............................................ $ 17,502
Other receivables ............................... 246,875
Investment in limited partnerships (Note 1)...... 663,783
----------
TOTAL ........................................... $ 928,160
==========
LIABILITIES AND STOCKHOLDERS 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 6)............. 9,435,556
Capital contribution receivable (Note 2)........ (8,100,000)
Deficit ....................................... (609,724)
-----------
Total stockholders equity .................... 731,762
-----------
TOTAL ........................................... $ 928,160
===========
See notes to balance sheet and accountants' review 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 Partnership is
recorded at cost and adjusted for KECALPs 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).
Cash Flows - For purposes of the Statements of Consolidated Cash
Flows, KECALP considers all highly liquid investments purchased with a
maturity of three months or less to cash equivalents. Intercompany
interest and taxes are not paid, but KECALPs obligations have been
settled through an adjustment of the intercompany receivable account.
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. During 1992, KECALP recorded
interest income of $ 740,765 relating to such notes.
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. Those fees and expenses amounted
to approximately $223,000.
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.
55
<PAGE>
4. DUE TO ML & CO.
The Corporation has been authorized to borrow funds, as needed, from
ML & Co. The Corporation is to repay this loan with interest based on
the daily brokers call rate.
See accountants' report.
56
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(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
=========================================================================
<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 Duties.......................... A-12
SECTION 4.9 Discretion...................... A-12
SECTION 4.10 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>
Caption 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>
Caption 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 subscrip-
tions 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
A-5
<PAGE>
Partner may, under certain circumstances, be required to return, for the
benefit of Partnership creditors, amounts previously distributed to such
Limited Partner.
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.
A-6
<PAGE>
(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.
(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;
A-7
<PAGE>
(ii) the Interest of Limited Partners will not be adversely
affected; and
(iii) the sole General Partner shall not be Incapacitated.
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;
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(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;
(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 33 1/3% 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 33 1/3% 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.
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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
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 partnership 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
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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.
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
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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.
Section 4.8 Duties
To the extent that, at law or in equity, the General Partner or any
of its officers, directors, stockholders, employees or agents have
duties (including fiduciary duties) and liabilities relating thereto to
the Partnership or to the Partners, such Persons acting under this
Agreement or otherwise shall not be liable to the Partnership or to any
other Partner for its good faith reliance on the provisions of this
Agreement. The provisions of this Agreement, to the extent they
restrict the duties and liabilities of the General Partner or any of its
officers, directors, stockholders, employees or agents otherwise
existing at law or in equity, are agreed by the Partners to replace such
other duties and liabilities of such Persons.
Section 4.9 Discretion
Whenever in this Agreement the General Partner is permitted or
required to make a decision (i) in its "sole discretion" or "discretion"
or under a grant of similar authority or latitude, the General Partner
shall be entitled to consider only such interests and factors as it
desires, including its own interests, or (ii) in "good faith" or under
another express standard, the General Partner shall act under such
express standard and shall not be subject to any other or different
standard imposed by this Agreement or any other agreement contemplated
herein or by relevant provisions of law or in equity or otherwise.
Section 4.10 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.
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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:
(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).
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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.
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,
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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
availablefor examinationby anyLimited Partnerduring normalbusiness 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 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.
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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.
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.
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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;
(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 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.
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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.
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
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(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.
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
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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 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 1992, 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.
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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 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.
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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.
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.
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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.
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
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made on December 31, 1994, the General Partner may use the purchase
price of Partnership assets as the value of such assets.
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.
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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
(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.
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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.
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;
A-26
<PAGE>
(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;
(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;
A-27
<PAGE>
(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;
(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.
A-28
<PAGE>
Section 12.4 Applicable Law
This Agreement shall be construed and enforced in accordance with
the laws of the State.
Section 12.5 Counterparts
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 ------- --, 1994, or such
subsequent date, not later than ------- --, 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 with respect to 1992,
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.
B-2
<PAGE>
(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 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 ---------------- --, 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 with respect to 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
Number / / / / / / - / / / / - / / / / / / / /
ML Account
Number / / / / / / - / / / / / / / /
ML Employee
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 Telephone: / / / / / / -/ / / / / / -/ / / / / / / /
Office 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 Merrill Lynch
General Partner.................. 7 KECALP L.P.
Risk and Other Important Factors.. 8 1994
Compensation and Fees............. 12
The Partnership................... 12
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 -------------, 1994
Reports........................... 46 Merrill Lynch & Co.
Experts........................... 47
Legal Matters..................... 47
Exemptions from the Investment
Company Act of 1940............. 47
Additional Information............ 48
Index to Financial Statements..... 50
--------------------
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
-----------------
* To be filed by amendment
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 . . . . . . . . . . . . . . . . . . . . . . . . *
Fees and expenses of qualifications under state
securities laws (including fees of counsel) . . . . . *
Legal fees and expenses . . . . . . . . . . . . . . . . *
Accounting fees and expenses . . . . . . . . . . . . . . *
Miscellaneous . . . . . . . . . . . . . . . . . . . . . *
----------
Total . . . . . . . . . . . . . . . . . . . . . . . $ *
=========
--------------------
* 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 as of
-------------, 1993, 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
C-2
<PAGE>
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 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
C-3
<PAGE>
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) Not applicable.
(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.
(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.
C-4
<PAGE>
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 6th day of January, 1994.
Merrill Lynch KECALP L.P. 1994
By KECALP Inc., its General Partner
By /s/ James V. Caruso
----------------------------
James V. Caruso
Vice President
Each person whose signature appears below hereby authorizes
Rosemary T. Berkery and James V. Caruso, or either of them, as attorney-
in-fact, to sign on his or her behalf, individually and in each capacity
stated below, any amendments to this Registration Statement (including
post-effective amendments) and to file the same, with all exhibits
thereto, with the Securities and Exchange Commission.
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 6th day of January, 1994.
Signature Title
--------- -----
/s/ John L. Steffens President and Director (Chief
------------------------------- Executive Officer)
(John L. Steffens) KECALP Inc.
/s/ Robert Tully Vice President and Treasurer
------------------------------- (Chief Financial and
(Robert Tully) Accounting Officer)
KECALP Inc.
/s/ James V. Caruso Vice President and Director
------------------------------- KECALP Inc.
(James V. Caruso)
/s/ Rosemary T. Berkery Vice President and Director
------------------------------- KECALP Inc.
(Rosemary T. Berkery)
/s/ Walter Perlstein Director
------------------------------- KECALP Inc.
(Walter Perlstein)
/s/ Andrew Melnick Vice President and Director
------------------------------- KECALP Inc.
(Andrew Melnick)
/s/ Patrick J. Walsh Vice President and Director
------------------------------- KECALP Inc.
(Patrick J. Walsh)
<PAGE>
EXHIBIT INDEX
Exhibit Page No.
------- --------
(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 as
Exhibit B in the Prospectus . . . . . . . . . . . . .
(d) Copies of Instruments Defining the Rights
of Unitholders* . . . . . . . . . . . . . . . . . . .
(h) Form of Agency Agreement* . . . . . . . . . . . . . .
(j) Form of Escrow Deposit Agreement* . . . . . . . . . .
(l) Opinion and consent of Brown & Wood* . . . . . . . .
(n)(i) Consent of Independent Auditors* . . . . . . . . . .
(n)(ii) Form of opinion of Brown & Wood as to
certain tax matters* . . . . . . . . . . . . . . . .
------------------
* To be filed by amendment
<PAGE>
CERTIFICATE OF LIMITED PARTNERSHIP
OF
MERRILL LYNCH KECALP L.P. 1994
THIS Certificate of Limited Partnership of Merrill Lynch
KECALP L.P. 1994 (the "Partnership"), dated as of January 4, 1994, is
being duly executed and filed by KECALP Inc., a corporation, as general
partner, to form a limited partnership under the Delaware Revised Uniform
Limited Partnership Act (6 Del.C. Section17-101, et seq.).
------ -- ---
1. Name. The name of the limited partnership formed
----
hereby is Merrill Lynch KECALP L.P. 1994.
2. Registered Office. The address of the registered
-----------------
office of the Partnership in the State of Delaware is c/o The
Corporation Trust Company, Corporation Trust Center, 1209 Orange Street,
Wilmington, New Castle County, Delaware 19801.
3. Registered Agent. The name and address of the
----------------
registered agent for service of process on the Partnership in the State
of Delaware is The Corporation Trust Company, Corporation Trust Center,
1209 Orange Street, Wilmington, New Castle County, Delaware 19801.
4. General Partner. The name and the business
---------------
address of the sole general partner of the Partnership is: KECALP Inc.,
South Tower, World Financial Center, 225 Liberty Street, New York, New
York, 10080-6123.
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this
Certificate of Limited Partnership as of the date first above written.
KECALP Inc.
By /s/ James V. Caruso
-------------------
James V. Caruso
Vice President
