SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
- --------------------------------------------------------------------------------
SCHEDULE 14D-1
Tender Offer Statement Pursuant to Section 14(d)(1)
of the Securities Exchange Act of 1934
- --------------------------------------------------------------------------------
INDEPENDENCE TAX CREDIT PLUS L.P. III
(Name of Subject Company)
LEHIGH TAX CREDIT PARTNERS III L.L.C.
LEHIGH TAX CREDIT PARTNERS, INC.
(Bidders)
BENEFICIAL ASSIGNMENT CERTIFICATES
(Title of Class of Securities)
45378D 10 0
(CUSIP Number of Class of Securities)
- --------------------------------------------------------------------------------
J. Michael Fried
c/o Related Capital Company
625 Madison Avenue
New York, NY 10022
(212) 421-5333
Copy to:
Peter M. Fass
Mark Schonberger
Battle Fowler LLP
75 East 55th Street
New York, NY 10022
(212) 856-7000
(Name, Address and Telephone Numbers of
Person Authorized to Receive Notices and
Communications on Behalf of Bidder)
Calculation of Filing Fee
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Transaction Amount of
Valuation* Filing Fee
<S> <C>
$8,145,000 $1629.00
- --------------------------------------------------------------------------------
</TABLE>
*For purposes of calculating the filing fee only. This amount assumes the
purchase of 10,860 Beneficial Assignment Certificates (representing assignments
of limited partnership interests) ("BACs") of the subject company for $750 per
BAC in cash.
{ } Check box if any part of the fee is offset as provided by Rule
0-11(a)(2) and identify the filing with which the offsetting fee was
previously paid. Identify the previous filing by registration statement
number, or the Form or Schedule and date of its filing.
Amount previously paid: N/A Filing party: N/A
Form or registration no.: N/A Date filed: N/A
(Continued on following pages)
(Page 1 of 8 pages)
<PAGE>
CUSIP No.: 45378D 10 0 14D-1 Page 2 of 8
_______________________________________________________________________________
1. Name of Reporting Person
S.S. or I.R.S. Identification No. of Above Person
LEHIGH TAX CREDIT PARTNERS III L.L.C.
_______________________________________________________________________________
2. Check the Appropriate Box if a Member of a Group
(See Instructions)
(a) {X}
(b) { }
_______________________________________________________________________________
3. SEC Use Only
_______________________________________________________________________________
4. Sources of Funds (See Instructions)
BK, WC
_______________________________________________________________________________
5. Check if Disclosure of Legal Proceedings is Required Pursuant to
Items 2(e) or 2(f)
[]
_______________________________________________________________________________
6. Citizenship or Place of Organization
Delaware
_______________________________________________________________________________
7. Aggregate Amount Beneficially Owned by Each Reporting Person
57 Beneficial Assignment Certificates (representing assignments of
limited partnership interests)
_______________________________________________________________________________
8. Check if the Aggregate Amount in Row (7) Excludes Certain Shares (See
Instructions)
[]
_______________________________________________________________________________
9. Percent of Class Represented by Amount in Row (7)
Less than 1%
_______________________________________________________________________________
10. Type of Reporting Person (See Instructions)
OO
<PAGE>
CUSIP No.: 45378D 10 0 14D-1 Page 3 of 8
_______________________________________________________________________________
1. Name of Reporting Person
S.S. or I.R.S. Identification No. of Above Person
LEHIGH TAX CREDIT PARTNERS, INC.
_______________________________________________________________________________
2. Check the Appropriate Box if a Member of a Group
(See Instructions)
(a){X}
(b){ }
_______________________________________________________________________________
3. SEC Use Only
_______________________________________________________________________________
4. Sources of Funds (See Instructions)
AF
_______________________________________________________________________________
5. Check if Disclosure of Legal Proceedings is Required Pursuant to Items 2(e)
or 2(f)
[]
_______________________________________________________________________________
6. Citizenship or Place of Organization
Delaware
_______________________________________________________________________________
7. Aggregate Amount Beneficially Owned by Each Reporting Person
57 Beneficial Assignment Certificates (representing assignments of
limited partnership interests)
_______________________________________________________________________________
8. Check if the Aggregate Amount in Row (7) Excludes Certain Shares (See
Instructions)
[]
_______________________________________________________________________________
9. Percent of Class Represented by Amount in Row (7)
Less than 1%
_______________________________________________________________________________
10. Type of Reporting Person (See Instructions)
CO
<PAGE>
Item 1. Security and Subject Company.
(a) The name of the subject company is Independence Tax Credit Plus L.P.
III, a Delaware limited partnership (the "Partnership"), which has its principal
executive offices at 625 Madison Avenue, New York, New York 10022.
(b) This Schedule 14D-1 relates to the offer by Lehigh Tax Credit
Partners III L.L.C., a Delaware limited liability company ("the Purchaser"), to
purchase up to 10,860 issued and outstanding Beneficial Assignment Certificates
("BACs") representing assignments of limited partnership interests in the
Partnership ("Limited Partnership Interests") at $750 per BAC, net to the seller
in cash (the "Purchase Price"), without interest thereon, upon the terms and
subject to the conditions set forth in the Offer to Purchase dated October 9,
1998 (the "Offer to Purchase") and the related Letter of Transmittal, copies of
which are attached hereto as Exhibits (a)(1) and (a)(2), respectively. The
Purchase Price will be automatically reduced by $14 per BAC for each month (or
part of a month) between December 15, 1998 and the date of transfer for BACs
transferred after December 15, 1998. Information concerning the number of
outstanding BACs is set forth in the Introduction to the Offer to Purchase and
is incorporated herein by reference.
(c) The information set forth in Section 13 ("Purchase Price
Considerations") of the Offer to Purchase is incorporated herein by reference.
Item 1. Identity and Background.
(a)-(d) The information set forth in Section 10 ("Certain Information
Concerning the Purchaser") and Schedule I to the Offer to Purchase is
incorporated herein by reference.
(e) and (f) During the last five years, neither the Purchaser nor, to
the best of its knowledge, any of the persons listed in Schedule I or referred
to in Section 10 ("Certain Information Concerning the Purchaser") of the Offer
to Purchase (i) have been convicted in a criminal proceeding (excluding traffic
violations or similar misdemeanors) or (ii) were a party to a civil proceeding
of a judicial or administrative body of competent jurisdiction and as a result
of such proceeding were or are subject to a judgment, decree or final order
enjoining future violations of, or prohibiting activities subject to, federal or
state securities laws or finding any violation of such laws.
(g) The information set forth in Schedule I to the Offer to Purchase is
incorporated herein by reference.
Item 2. Past Contacts, Transactions or Negotiations With the Subject Company.
(a) The Purchaser is an affiliate of Related Independence Associates III
L.P., the general partner of the Partnership. Accordingly, the information
contained in Section 9 ("Certain Information Concerning the Partnership") of the
Offer to Purchase, including the terms of the Partnership's amended and restated
agreement of limited partnership (the "Partnership Agreement"), is incorporated
herein by reference. Additionally, the information set forth in Section 10
("Certain Information Concerning the Purchaser") and Schedule I to the Offer to
Purchase is incorporated herein by reference.
(b) The information set forth in Section 11 ("Background of the Offer")
of the Offer to Purchase is incorporated herein by reference.
4
<PAGE>
Item 3. Source and Amount of Funds or Other Consideration.
(a)-(c) The information set forth in Section 12 ("Source of Funds") of
the Offer to Purchase is incorporated herein by reference.
Item 4. Purpose of the Tender Offer and Plans or Proposals of the Bidder.
(a)-(b) The information set forth in Section 8 ("Purpose of the Offer;
Future Plans") of the Offer to Purchase is incorporated herein by reference.
(c)-(e) Not applicable.
(f)-(g) The information set forth in Section 7 ("Effects of the Offer")
of the Offer to Purchase is incorporated herein by reference.
Item 5. Interest in Securities of the Subject Company.
(a)-(b) The information set forth in the Introduction and Section 10
("Certain Information Concerning the Purchaser") of the Offer to Purchase is
incorporated herein by reference.
Item 6. Contracts, Arrangements, Understandings or Relationships with
Respect to the Subject Company's Securities.
The information set forth in Section 10 ("Certain Information Concerning
the Purchaser") and Section 11 ("Background of the Offer") of the Offer to
Purchase is incorporated herein by reference.
Item 7. Persons Retained, Employed or to Be Compensated.
The information set forth in Section 16 ("Certain Fees and Expenses") of
the Offer to Purchase is incorporated herein by reference.
Item 8. Financial Statements of Certain Bidders.
Not applicable.
Item 9. Additional Information.
(a) None.
(b)-(d) The information set forth in Section 15 ("Certain Legal
Matters") of the Offer to Purchase is incorporated herein by reference.
(e) None.
(f) The information set forth in the Offer to Purchase and the related
Letter of Transmittal is incorporated herein in its entirety by reference.
Item 10. Material to Be Filed as Exhibits.
(a)(1) Offer to Purchase, dated October 9, 1998.
(a)(2) Letter of Transmittal.
5
<PAGE>
(a)(3) Cover Letter, dated October 9, 1998, from Lehigh Tax Credit
Partners III L.L.C. to the holders of BACs.
(a)(4) Notice to Brokers, dated October 9, 1998.
(b)(1) Promissory Note, dated October 9, 1998.
(c)(1) Letter Agreement, dated October 6, 1998, among Independence Tax
Credit Plus L.P. III, Lehigh Tax Credit Partners III L.L.C. and
Related Independence Associates III L.P. (the "Standstill
Agreement").
(c)(2) Letter Agreement, dated April 23, 1997, between Lehigh Tax
Credit Partners L.L.C. and Everest Properties (the "Everest
Agreement").
(d)(1) Opinion of Battle Fowler LLP, dated October 9, 1998, regarding
tax consequences of the Offer to the Partnership.
(e) Not applicable.
(f) None.
<PAGE>
SIGNATURES
After due inquiry and to the best of my knowledge and belief, I certify
that the information set forth in this statement is true, complete and correct.
Dated: October 9, 1998
LEHIGH TAX CREDIT PARTNERS III L.L.C.
By: Lehigh Tax Credit Partners, Inc.,
its managing member
By: /s/ Alan P. Hirmes
--------------------------
Name: Alan P. Hirmes
Title: Vice President
LEHIGH TAX CREDIT PARTNERS, INC.
By: /s/ Alan P. Hirmes
--------------------------
Name: Alan P. Hirmes
Title: Vice President
7
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT INDEX
EXHIBIT
NO. TITLE
- ------- -----
<S> <C>
(a)(1) Offer to Purchase, dated October 9, 1998.
(a)(2) Letter of Transmittal.
(a)(3) Cover Letter, dated October 9, 1998, from Lehigh Tax
Credit Partners III L.L.C. to the holders of BACs.
(a)(4) Notice to Brokers, dated October 9, 1998.
(b)(1) Promissory Note, dated October 9, 1998.
(c)(1) Letter Agreement, dated October 6, 1998, among
Independence Tax Credit Plus L.P. III, Lehigh Tax Credit Partners
III L.L.C. and Related Independence Associates III L.P. (the
"Standstill Agreement").
(c)(2) Letter Agreement, dated April 23, 1997, between Lehigh Tax
Credit Partners L.L.C. and Everest Properties (the "Everest
Agreement").
(d)(1) Opinion of Battle Fowler LLP, dated October 9, 1998, regarding tax
consequences of the Offer to the Partnership.
</TABLE>
OFFER TO PURCHASE
UP TO 10,860
BENEFICIAL ASSIGNMENT CERTIFICATES
in
INDEPENDENCE TAX CREDIT PLUS L.P. III
for
$750 NET PER BAC IN CASH
by
LEHIGH TAX CREDIT PARTNERS III L.L.C.
- --------------------------------------------------------------------------------
THE OFFER, WITHDRAWAL RIGHTS AND PRORATION PERIOD WILL EXPIRE AT 12:00
MIDNIGHT, NEW YORK CITY TIME, ON NOVEMBER 9, 1998, UNLESS EXTENDED.
- --------------------------------------------------------------------------------
Lehigh Tax Credit Partners III L.L.C., a Delaware limited liability company
(the "Purchaser") and an affiliate of the general partner of the Partnership (as
defined below), hereby offers to purchase up to 10,860 of the issued and
outstanding Beneficial Assignment Certificates ("BACs") representing assignments
of limited partnership interests ("Limited Partnership Interests") in
Independence Tax Credit Plus L.P. III, a Delaware limited partnership (the
"Partnership"), at a purchase price of $750 per BAC, net to the seller in cash
(the "Purchase Price"), without interest thereon, upon the terms and subject to
the conditions set forth in this Offer to Purchase (the "Offer to Purchase") and
in the related Letter of Transmittal, as each may be supplemented, modified or
amended from time to time (which together constitute the "Offer"). The Purchase
Price will be automatically reduced by $14 per BAC for each month (or part of a
month) between December 15, 1998 and the date of transfer for BACs transferred
after December 15, 1998. BACs HOLDERS WHO TENDER THEIR BACs WILL NOT BE
OBLIGATED TO PAY ANY COMMISSIONS OR PARTNERSHIP TRANSFER FEES, WHICH COMMISSIONS
AND FEES WILL BE BORNE BY THE PURCHASER. The 10,860 BACs sought pursuant to the
Offer represent, to the best knowledge of the Purchaser, approximately 25% of
the BACs outstanding as of the date of this Offer.
---------------------
THE PURCHASER AND RELATED INDEPENDENCE ASSOCIATES III L.P., THE GENERAL
PARTNER OF THE PARTNERSHIP, ARE AFFILIATED.
---------------------
THE OFFER IS NOT CONDITIONED UPON ANY MINIMUM NUMBER OF BACs BEING
TENDERED. SEE SECTION 14 ("CONDITIONS OF THE OFFER").
---------------------
IN ORDER TO COMPLY WITH CERTAIN RESTRICTIONS SET FORTH IN THE
PARTNERSHIP'S AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP,
TENDERS OF LESS THAN ALL BACs OWNED BY A BACs HOLDER THAT WOULD RESULT IN
A BACs HOLDER HOLDING LESS THAN 5 BACs WILL NOT BE ACCEPTED.
---------------------
Before tendering, BACs holders are urged to consider the following factors:
o BACs holders who have a present or future need for the tax credits and/or
tax losses from the BACs may prefer to retain their BACs and not tender
them pursuant to the Offer, or any other tender offer.
o Although the Purchaser cannot predict the future value of the Partnership's
assets on a per BAC basis, the net after-tax benefit that would be
realized from retaining ownership of BACs together with any cash
distributions from operations and any net proceeds from a future sale of
the properties owned by the Local Partnerships (as defined below) in which
the Partnership has an interest (the "Properties") could be greater than
or less than the Purchase Price. See Section 13 ("Purchase Price
Considerations").
o If the Purchaser is successful in acquiring a significant number of BACs
pursuant to the Offer, the Purchaser could, subject to the Standstill
Agreement (as defined in the Glossary), be in a position to significantly
influence all Partnership decisions on which BACs holders may vote,
including decisions regarding removal of the General Partner, certain
amendments to the Partnership Agreement (as defined in the Glossary) and
dissolution of the Partnership.
o The Purchaser believes that the projected aggregate per BAC benefit of the
Offer, together with the benefits already received by a BACs holder,
compares favorably with the potential benefits the Purchaser believes a
BACs holder will receive if he or she remains in the Partnership, together
with the benefits already received by a BACs holder. See Section 13
("Purchase Price Considerations").
<PAGE>
IMPORTANT
Any (i) BACs holder, (ii) beneficial owner, in the case of BACs owned by
Individual Retirement Accounts or Keogh Plans (a "Beneficial Owner"), or (iii)
person who has purchased BACs but has not yet been reflected on the
Partnership's books as a transferee of such BACs (an "Assignee"), desiring to
tender any or all of such person's BACs should either (1) complete and sign the
Letter of Transmittal, or a facsimile copy thereof, in accordance with the
instructions in the Letter of Transmittal and mail or deliver the Letter of
Transmittal, or a facsimile copy thereof, and any other required documents to
the Purchaser at the address or facsimile number set forth below, or (2) request
his or her broker, dealer, commercial bank, trust company or other nominee to
effect the transaction for him or her. Unless the context requires otherwise,
references to BACs holders in this Offer to Purchase shall be deemed to also
refer to Beneficial Owners and Assignees. Questions or requests for assistance
may be directed to the Purchaser at the address and telephone number set forth
below. Requests for additional copies of this Offer to Purchase, the Letter of
Transmittal and other related documents may be directed to the Purchaser.
NO PERSON HAS BEEN AUTHORIZED TO MAKE ANY RECOMMENDATION OR ANY
REPRESENTATION ON BEHALF OF THE PURCHASER OR TO PROVIDE ANY INFORMATION OTHER
THAN AS CONTAINED HEREIN OR IN THE LETTER OF TRANSMITTAL. NO SUCH
RECOMMENDATION, INFORMATION OR REPRESENTATION MAY BE RELIED UPON AS HAVING BEEN
AUTHORIZED.
EACH BACs HOLDER IS URGED TO READ CAREFULLY THE ENTIRE OFFER TO PURCHASE,
THE LETTER OF TRANSMITTAL AND RELATED DOCUMENTS.
For Additional Information Call:
Lehigh Tax Credit Partners III L.L.C.
Attn: Denise Bernstein
c/o Related Capital Company
625 Madison Avenue, 5th Floor
New York, New York 10022
Tel: 1-800-600-6422 ext. 2030
Fax: 212-751-3550
ii
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
INTRODUCTION ............................................................................... 1
THE TENDER OFFER ........................................................................... 4
1. Terms of the Offer ........................................................... 4
2. Proration; Acceptance for Payment and Payment for BACs ....................... 5
3. Procedures for Tendering BACs ................................................ 6
4. Withdrawal Rights ............................................................ 7
5. Extension of Tender Period; Termination; Amendment ........................... 8
6. Certain Federal Income Tax Consequences ...................................... 9
7. Effects of the Offer ......................................................... 10
8. Purpose of the Offer; Future Plans ........................................... 12
9. Certain Information Concerning the Partnership ............................... 13
10. Certain Information Concerning the Purchaser ................................. 21
11. Background of the Offer ...................................................... 22
12. Source of Funds .............................................................. 23
13. Purchase Price Considerations ................................................ 24
14. Conditions of the Offer ...................................................... 25
15. Certain Legal Matters ........................................................ 26
16. Certain Fees and Expenses .................................................... 27
17. Miscellaneous ................................................................ 27
Appendix A. Glossary of Defined Terms .................................................... A-1
Schedule I. Information with Respect to the Executive Officers and Directors of Lehigh Tax
Credit Partners, Inc. and Everest Properties, Inc. ........................... S-1
Schedule II. Local Partnership Schedule ................................................... S-3
Schedule III. Certain Information Concerning the Properties ................................ S-5
</TABLE>
iii
<PAGE>
(This Page Intentionally Left Blank)
<PAGE>
To the Holders of Beneficial Assignment Certificates of Independence Tax Credit
Plus L.P. III:
INTRODUCTION
Lehigh Tax Credit Partners III L.L.C., a Delaware limited liability company
(the "Purchaser") and an affiliate of the general partner of the Partnership (as
defined below), hereby offers to purchase up to 10,860 of the issued and
outstanding Beneficial Assignment Certificates ("BACs") representing limited
partnership interests in Independence Tax Credit Plus L.P. III, a Delaware
limited partnership (the "Partnership"), at a purchase price of $750 per BAC,
net to the seller in cash (the "Purchase Price"), without interest, upon the
terms and subject to the conditions set forth in this Offer to Purchase (the
"Offer to Purchase") and in the related Letter of Transmittal, as each may be
supplemented, modified or amended from time to time (which together constitute
the "Offer"). The Purchase Price will be automatically reduced by $14 per BAC
for each month (or part of a month) between December 15, 1998 and the date of
transfer for BACs transferred after December 15, 1998. BACs holders who tender
their BACs will not be obligated to pay any commissions or Partnership transfer
fees, which commissions and fees will be borne by the Purchaser. The 10,860 BACs
sought pursuant to the Offer represent, to the best knowledge of the Purchaser,
approximately 25% of he BACs issued and outstanding as of the date of this
Offer.
The Purchaser is affiliated with Related Independence Associates III L.P.,
the general partner of the Partnership (the "General Partner"). In order to
comply with certain restrictions set forth in the Partnership's Amended and
Restated Agreement of Limited Partnership (the "Partnership Agreement"), tenders
of less than all BACs owned by a BACs holder that would result in a BACs holder
holding less than 5 BACs will not be accepted.
The Purchaser is making this Offer because it believes that the BACs
represent an attractive investment at the price offered based upon, in part, the
expected remaining Tax Credits (as defined below) and tax losses. There can be
no assurance, however, that the Purchaser's judgment is correct, and, as a
result, ownership of BACs (either by the Purchaser or BACs holders who retain
their BACs) will remain a speculative investment. The Purchaser is acquiring the
BACs for investment purposes and does not intend to make any effort to change
current management or the operations of the Partnership. Because the Purchaser
is affiliated with the General Partner, the Purchaser's acquisition of BACs may
have the effect of making any future change of current management more
difficult. The Purchaser has no current plans for any extraordinary transaction
involving the Partnership.
Factors to be considered by BACs holders. In considering the Offer, BACs
holders are urged to consider the following factors:
o BACs holders who have a present or future need for the Tax Credits and/or
tax losses from the BACs may prefer to retain their BACs and not tender
them pursuant to the Offer, or any other tender offer.
o Although the Purchaser cannot predict the future value of the Partnership's
assets on a per BAC basis, the net after-tax benefit that would be
realized from retaining ownership of the BACs together with any cash
distributions from operations and any net proceeds from a future sale of
the properties owned by the Local Partnerships in which the Partnership
has an interest (the "Properties") could be greater than or less than the
Purchase Price. See Section 13 ("Purchase Price Considerations").
o There may be a conflict between the desire of the Purchaser to acquire the
BACs at a low price and the desire of the BACs holders to sell their BACs
at a high price. Therefore, BACs holders might receive greater value if
they hold their BACs, rather than tender, continue to be allocated Tax
Credits and tax losses, and receive any distributions from operations and
any proceeds, if any, from the liquidation of the Partnership.
Alternatively, BACs holders may prefer to receive the Purchase Price now
rather than wait to be allocated future Tax Credits and tax losses and
uncertain future cash distributions. The return to BACs holders could be
higher or lower than the Purchase Price for persons who retain their
BACs.
o BACs holders should note that the most recent trading activity in the BACs
occurred in July, 1997. The selling price for BACs reported in the
limited and sporadic secondary market during the two-month period ended
July 31, 1997 was $850. No trading of BACs has occurred since July, 1997
through August 31, 1998 (the last date for which public information
concerning trading in BACs is available). See Section 13 ("Purchase Price
Considerations"). Such secondary market selling prices, however, do not
take into account commissions charged by secondary market makers
effectuating such sales which the Purchaser believes, based
<PAGE>
on a typical 5 BAC sales transaction, range from 5% to 8.75% of the sales
price (which would result in a reduction of the net proceeds to the seller
of approximately $42.50 to approximately $74.38 per BAC). Additionally,
because the BACs are less valuable with the passage of time since fewer Tax
Credits remain, the Purchaser believes the price per BAC should be reduced
by at least $10 for each passing month, or a total of approximately $160
per BAC from August 1, 1997 to November 30, 1998. Therefore, the Purchaser
believes the value of BACs on November 30, 1998, based upon the most
recently reported secondary market sales, net of sales commissions, would
be approximately $605.62 to $637.50 per BAC. The Purchase Price represents
a premium to this range of values. However, the secondary market prices
reported in the limited and sporadic secondary market may not reflect the
actual value of the BACs in light of the limited trading in such market.
Furthermore, in arriving at a purchase price, the Purchaser did not attempt
to obtain current independent valuations or appraisals of the underlying
assets owned by the Partnership.
o The Offer is being made in order to acquire BACs for investment purposes.
The Purchaser intends to sell, and has begun the process of selling,
membership interests in the Purchaser to third parties (predominantly
corporations) with a need for the Tax Credits and/or tax losses
attributable to the tendered BACs. The aggregate sales price of the
Purchaser's membership interests to third parties will be equal to the
aggregate purchase price for the tendered BACs and all other securities
acquired by the Purchaser pursuant to secondary market transactions,
together with the expenses associated therewith, the expenses associated
with the Purchaser's sale of membership interests and the prepayment of
certain fees and expenses in connection with the Purchaser's operations.
Neither the Purchaser nor its current members will derive a profit from the
sale of the Purchaser's membership interests. However, in connection with
such sales and in consideration for structuring this transaction and for
certain services to be performed for the Purchaser, it is expected that
affiliates of the Purchaser will earn substantial fees. These fees will be
dependent, in part, on the amount third parties are willing to pay for
membership interests and the amount of membership interests sold. There can
be no assurance, however, that any membership interests in the Purchaser
will be sold or at what price. See Item 8, Purpose of the Offer; Future
Plans.
o If the Purchaser is successful in acquiring a significant number of BACs
pursuant to the Offer, the Purchaser could, subject to the Standstill
Agreement (as defined in the Glossary), be in a position to significantly
influence all Partnership decisions on which BACs holders may vote.
Additionally, because the Purchaser is affiliated with the General Partner,
the Purchaser's acquisition of BACs may have the effect of making any
future change of the Partnership's current management more difficult. If
the maximum number of BACs sought by the Purchaser is tendered and accepted
for payment pursuant to the Offer, the Purchaser will own approximately 25%
of the outstanding BACs. After October 6, 2008 (the "Standstill Expiration
Date"), the ownership of tendered BACs by the Purchaser could effectively
(i) prevent non-tendering BACs holders from taking actions they desire but
that the Purchaser opposes and (ii) enable the Purchaser to take actions
desired by it but opposed by certain non-tendering BACs holders. Under the
Partnership Agreement, Limited Partners and BACs holders holding more than
50% of aggregate Limited Partnership Interests and BACs representing
Limited Partnership Interests are entitled, either directly or through the
Assignor Limited Partner, as the case may be, to take action with respect
to a variety of matters, including: approving the dissolution of the
Partnership; approving the removal of any General Partner and proposing and
approving a replacement therefor; approving or disapproving the sale of all
or substantially all of the assets of the Partnership; and most types of
amendments to the Partnership Agreement. Although the Purchaser does not
have any current intentions with regard to any of these matters, it will,
following the Standstill Expiration Date, vote the BACs acquired pursuant
to the Offer in its interest, which may, or may not, be in the best
interest of non-tendering BACs holders. Until the Standstill Expiration
Date, the Purchaser has agreed to vote its BACs in the same manner as the
majority of all voting BACs holders; provided, however, the Purchaser shall
be entitled to vote its BACs as it determines with regard to any proposal
(i) to remove the General Partner or (ii) concerning the reduction of any
fees, profits, distributions or allocations for the benefit of the General
Partner or its affiliates.
o Many of the properties owned by the Local Partnerships in which the
Partnership has an interest began to qualify for Housing Tax Credits in
1995 and 1997. Housing Tax Credits are generally available for 10 years.
The amount of the Housing Tax Credits claimed by the Partnership was
$4,324,222 for the calender year 1998 (through November 30, 1998),
$3,683,727 for the 1997 calendar year, $2,386,725 for the 1996 calendar
year, and $2,371,629 for the 1995 calendar year. Although there can be no
assurance as to whether
2
<PAGE>
Housing Tax Credits will continue to be available, the Purchaser estimates
that a total of approximately $1011.77 Housing Tax Credits per BAC will be
available during the period beginning December 1, 1998 and ending December
31, 2009. In addition, although there can be no assurance as to whether tax
losses will continue to be available, in calendar year 1997 each BAC was
allocated approximately $57 of tax losses and the Purchaser estimates that
each BAC will be allocated (a) approximately $74 of tax losses per year
through December 31, 2011, and (b) approximately $203 of taxable income
upon a liquidation of the Partnership, assuming no cash distributions are
made. Actual future tax benefits may differ significantly from the
foregoing estimates. Tax losses are less valuable than tax credits because
tax losses can reduce income (thereby resulting in a savings equal to the
product of the tax loss and the taxpayer's applicable tax rate) and require
a reduction in tax basis (which may cause taxable income to be recognized
in subsequent years), whereas tax credits result in a dollar-for-dollar
reduction in tax liability. BACs holders should consider whether the
benefits of the Offer, including the Purchase Price, are more valuable to
them than the present value of anticipated future tax benefits. See Section
13 ("Purchase Price Considerations").
BACs holders may no longer wish to continue with their investment in the
Partnership for a number of reasons, including:
o Although there are some limited resale mechanisms available to the BACs
holders wishing to sell their BACs, there is no formal or organized trading
market for the BACs. The Partnership's Annual Report on Form 10-K for the
fiscal year ended March 31, 1998 (the "Form 10-K") states: "Neither the
BACs nor the Limited Partnership Interests are traded on any established
trading market. The Partnership does not intend to include the BACs for
quotation on NASDAQ or for listing on any national or regional stock
exchange or any other established securities market." Accordingly, BACs
holders who desire resale liquidity may wish to consider the Offer. The
Offer affords a significant number of BACs holders with an opportunity to
dispose of their BACs for cash, which alternative otherwise might not be
available to them. The Purchase Price is not intended to represent either
the fair market value of a BAC or the fair market value of the Tax Credits
and tax losses attributable to each BAC and the Partnership's assets on a
per BAC basis.
o The Offer will provide BACs holders with an immediate opportunity to
liquidate their investment in the Partnership without the usual transaction
costs associated with market sales or partnership transfer fees.
o The Purchaser believes that the projected aggregate per BAC benefit from
the Offer, together with the benefits received since 1994, total
approximately $1,380. Such benefits include $750 (the Purchase Price) plus
$293 (representing the Tax Credits allocated through November 30, 1998)
plus approximately $80 (representing the tax savings, assuming a tax rate
of 20% for capital gain and 36% for ordinary income, attributable to the
use of a capital loss of $27 and an ordinary loss of $208 the Purchaser
believes an individual BACs holder will realize if all of his BACs are sold
in the Offer and the individual has not previously used such losses to
offset passive income) plus approximately $275 (representing the assumed
return on the reinvestment of the Purchase Price at 4% for approximately 12
years, discounted at a rate of 8%) less approximately $18 (representing a
recapture of Historic Tax Credits). See Section 13 ("Purchase Price
Considerations"). The Purchaser believes that such aggregate projected
benefit compares favorably with the potential benefits to a BACs holder who
remains in the Partnership (together with the benefits received since
1994), continuing to receive Tax Credits, and assuming a return of the
present value of the original investment of $1,000 as, and if, the 20
properties owned by the Local Partnerships in which the Partnership has an
interest are sold for amounts in excess of the then existing indebtedness
and other liabilities. The aggregate of such potential benefits (including
Tax Credits allocated through November 30, 1998) is estimated by the
Purchaser to be approximately $1,350. BACs HOLDERS SHOULD CONSULT WITH
THEIR RESPECTIVE TAX AND OTHER ADVISORS REGARDING THE CONSEQUENCES OF THE
OFFER TO THEM.
o The Offer may be attractive for BACs holders whose circumstances have
changed such that anticipated future allocation of Tax Credits and tax
losses may no longer be beneficial to them.
o Acceptance of the Offer will eliminate any future risk to the selling BACs
holder of recapture of the Tax Credits received, since such risk will be
borne by the Purchaser. The Purchaser believes, however, that any risk of
such recapture is minimal.
o General disenchantment with real estate investments and with long-term
investments in limited partnerships because of, among other things, their
illiquidity.
3
<PAGE>
o The Offer may be attractive to certain BACs holders who wish in the future
to avoid the continued additional expense, delay and complication in filing
income tax returns which result from the ownership of BACs.
o The Offer provides BACs holders with the opportunity to liquidate their
BACs and to reinvest the proceeds in other investments should they desire
to do so.
o The Purchaser believes that the BACs represent an attractive investment at
the Purchase Price based upon, in part, the expected remaining Tax Credits
and tax losses. There can be no assurance, however, that this judgment is
correct. Therefore, ownership of BACs will remain a speculative investment.
Following the completion of the Offer and subject to the terms of the
Standstill Agreement, the Purchaser and its affiliates may acquire additional
BACs. Any such acquisitions may be made through private purchases, through one
or more future tender offers or by any other means deemed advisable, and may be
at prices higher or lower than the price to be paid for the BACs purchased
pursuant to the Offer. See Section 8 ("Purpose of the Offer; Future Plans").
The Offer is not conditioned upon any minimum number of BACs being
tendered. If, as of the Expiration Date, more than 10,860 BACs are validly
tendered and not properly withdrawn, the Purchaser will only accept for purchase
on a pro rata basis 10,860 BACs, subject to the terms and conditions herein. See
Section 14 ("Conditions of the Offer").
BACs holders are urged to consider carefully all of the information
contained herein before accepting the Offer.
The Purchaser expressly reserves the right, in its sole discretion and for
any reason, to terminate the Offer at any time and to waive any or all of the
conditions of the Offer, although the Purchaser does not presently intend to
waive any such conditions. See Section 7 ("Effects of the Offer"). In order to
comply with certain restrictions set forth in the Partnership Agreement, tenders
of less than all BACs owned by a BACs holder that would result in a BACs holder
holding less than 5 BACs will not be accepted.
According to the Form 10-K, there were 43,440 BACs issued and outstanding,
which represent 43,440 Limited Partnership Interests issued to the Assignor
Limited Partner. The Form 10-K reports that as of June 12, 1998 the Partnership
had 2,818 registered holders of the issued and outstanding BACs. The Purchaser
owns 57 BACs.
Certain historical and factual statements and information contained in this
Offer to Purchase pertaining to the Partnership (such as information with
respect to the properties owned by the Local Partnerships in which the
Partnership has an interest or the financial statements of the Partnership) were
taken directly from statements and information included in the reports and
documents publicly filed by the Partnership with the Securities and Exchange
Commission (the "Commission"). The Purchaser did not prepare any such
information and makes no representation as to the accuracy or completeness of
such statements or information.
Each BACs holder must make his or her own decision whether to accept the
Offer based on his or her particular circumstances. BACs holders should consult
with their respective advisors about the financial, tax, legal and other
implications to them of accepting the Offer. BACs holders are urged to read this
Offer to Purchase, the related Letter of Transmittal and the other accompanying
materials carefully before deciding whether to tender their BACs.
THE TENDER OFFER
1. Terms of the Offer.
Upon the terms of the Offer (including the terms and conditions of any
extension or amendment of the Offer), the Purchaser will accept for payment and
pay for up to 10,860 BACs that are validly tendered on or prior to the
Expiration Date (as hereinafter defined) and not withdrawn in accordance with
Section 4 ("Withdrawal Rights"). The term "Expiration Date" shall mean 12:00
midnight, New York City time, on November 9, 1998, unless the Purchaser, in its
sole discretion, shall have extended the period of time during which the Offer
is open, in which event the term "Expiration Date" shall refer to the latest
time and date at which the Offer, as so extended by the Purchaser, will expire.
4
<PAGE>
IF, PRIOR TO THE EXPIRATION DATE, THE PURCHASER SHALL INCREASE THE PURCHASE
PRICE OFFERED TO BACs HOLDERS, SUCH INCREASED PURCHASE PRICE SHALL BE PAID FOR
ALL BACs ACCEPTED FOR PAYMENT PURSUANT TO THE OFFER, WHETHER OR NOT SUCH BACs
WERE TENDERED PRIOR TO THE INCREASE OF THE PURCHASE PRICE.
The Offer is conditioned on satisfaction of certain conditions. See Section
14 ("Conditions of the Offer"). The Purchaser reserves the right (but shall not
be obligated), in its sole discretion, to waive any or all of such conditions.
If, on or prior to the Expiration Date, any or all of such conditions have not
been satisfied or waived, the Purchaser may (i) decline to purchase any of the
BACs tendered, terminate the Offer and return all tendered BACs to tendering
BACs holders, (ii) waive all the then unsatisfied conditions and, subject to
complying with applicable rules and regulations of the Commission, purchase all
BACs validly tendered, (iii) extend the Offer and, subject to the right of BACs
holders to withdraw BACs until the Expiration Date, retain the BACs that have
been tendered during the period or periods for which the Offer is extended, or
(iv) amend the Offer.
At the request of the Purchaser, and pursuant to Rule 14d-5 of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), this Offer to
Purchase, the related Letter of Transmittal and, if required, any other relevant
materials are being mailed, at the Purchaser's expense, by the Partnership to
BACs holders, Beneficial Owners and Assignees who hold BACs, to the extent their
names and addresses are reflected on the books and records of the Partnership.
2. Proration; Acceptance for Payment and Payment for BACs.
If more than 10,860 BACs are validly tendered on or prior to the Expiration
Date and not properly withdrawn on or prior to the Expiration Date, the
Purchaser will only accept for payment, upon the terms and subject to the
conditions of the Offer, and pay for an aggregate of 10,860 BACs so tendered,
pro rata according to the number of BACs validly tendered and not properly
withdrawn on or prior to the Expiration Date, with appropriate adjustments to
avoid purchases that would violate the transfer restrictions in Section 7.1 of
the Partnership Agreement (the "Transfer Restrictions"). If the number of BACs
validly tendered and not properly withdrawn on or prior to the Expiration Date
is less than or equal to 10,860 BACs, the Purchaser will purchase all BACs so
tendered and not properly withdrawn, upon the terms and subject to the
conditions of the Offer.
If proration of tendered BACs is required, and because of the difficulty of
determining the proration results, the Purchaser may not be able to announce the
final results of such proration until at least approximately seven business days
after the Expiration Date. Subject to the Purchaser's obligation under Rule
14e-1(c) under the Exchange Act, to pay BACs holders the Purchase Price in
respect of BACs tendered or return those BACs promptly after the termination or
withdrawal of the Offer, the Purchaser does not intend to pay for any BACs
accepted for payment pursuant to the Offer until the final proration results are
known.
Upon the terms and subject to the conditions of the Offer (including, if
the Offer is extended or amended, the terms and conditions of any such extension
or amendment), the Purchaser will purchase, by accepting for payment, and will
pay for, all BACs validly tendered and not withdrawn in accordance with Section
4 on or prior to the Expiration Date as promptly as practicable following the
Expiration Date. In addition, subject to applicable rules of the Commission, the
Purchaser expressly reserves the right to delay acceptance for payment of, or
payment for, BACs pending receipt of any regulatory or governmental approvals
specified in Section 15 ("Certain Legal Matters") or pending receipt of any
additional documentation required by the Letter of Transmittal. In all cases,
payment for BACs accepted for payment pursuant to the Offer will be made only
after timely receipt by the Purchaser of (a) the Letter of Transmittal properly
completed and duly executed and (b) any other documents required by the Letter
of Transmittal.
For purposes of the Offer, the Purchaser shall be deemed to have accepted
for payment tendered BACs when, as and if such BACs are received by the
Purchaser pursuant to the Offer. No tender of BACs will be deemed to have been
validly made until all defects and irregularities with respect to such tender
have been cured or waived. Upon the terms and subject to the conditions of the
Offer, payment for BACs tendered and accepted for payment pursuant to the Offer
will in all cases be the Purchaser, who will transmit payment to tendering BACs
holders.
The Purchase Price will be automatically reduced by $14 per BAC for each
month (or part of a month) between December 15, 1998 and the date of transfer
for BACs transferred after December 15, 1998. Under no circumstances will the
Purchaser pay interest on the Purchase Price for BACs.
5
<PAGE>
If any tendered BACs are not purchased pursuant to the Offer for any
reason, the Letter of Transmittal with respect to such BACs will be destroyed by
the Purchaser. If, for any reason whatsoever, acceptance for payment of or
payment for any BACs tendered pursuant to the Offer is delayed or the Purchaser
is unable to accept for payment, purchase or pay for BACs tendered pursuant to
the Offer, then, without prejudice to the Purchaser's rights under Section 14
("Conditions of the Offer"), the Purchaser, subject to Rule 14e-1(c) under the
Exchange Act, may retain tendered BACs, and such BACs may not be withdrawn
except to the extent that the tendering BACs holder is entitled to withdrawal
rights as described in Section 4 ("Withdrawal Rights").
3. Procedures for Tendering BACs.
Valid Tender. For BACs to be validly tendered pursuant to the Offer, a
Letter of Transmittal or facsimile thereof properly completed and duly executed,
together with any other documents required by the Letter of Transmittal, must be
received by the Purchaser at its address or facsimile number on the back cover
page of the Offer to Purchase on or prior to the Expiration Date. If tendering
by facsimile, a BACs holder should subsequently send original copies of the
Letter of Transmittal and any other documents required by the Letter of
Transmittal to the Purchaser at its address on the back cover of the Offer to
Purchase. In order to comply with certain restrictions set forth in the
Partnership Agreement, tenders of less than all BACs owned by a BACs holder that
would result in a BACs holder holding less than 5 BACs will not be accepted. See
Instructions to the Letter of Transmittal.
In order for a tendering BACs holder to participate in the Offer, BACs must
be validly tendered and not withdrawn on or prior to the Expiration Date, which
is 12:00 midnight, New York City time, on November 9, 1998, unless extended.
The method of delivery of the Letter of Transmittal and all other required
documents is at the option and risk of the tendering BACs holder and delivery
will be deemed made only when actually received by the Purchaser. If delivery is
by mail, registered mail with return receipt requested is recommended. In all
cases, sufficient time should be allowed to ensure timely delivery.
Backup Federal Income Tax Withholding. To prevent the possible application
of backup federal income tax withholding with respect to payment of the Purchase
Price pursuant to the Offer, a tendering BACs holder must execute the Letter of
Transmittal, thereby certifying such BACs holder's correct taxpayer
identification number or social security number.
FIRPTA Withholding. To prevent the withholding of federal income tax in an
amount equal to 10% of the sum of the Purchase Price plus the amount of
Partnership liabilities allocable to each BAC purchased, each BACs holder must
execute the Letter of Transmittal, thereby certifying such BACs holder's
taxpayer identification number and address and that the BACs holder is not a
foreign person.
Appointment as Proxy; Power of Attorney. By executing and delivering the
Letter of Transmittal, a tendering BACs holder irrevocably appoints the
Purchaser and the designees of the Purchaser and each of them as such BACs
holder's proxies, in the manner set forth in the Letter of Transmittal, each
with full power of substitution, to the full extent of such BACs holder's rights
with respect to the BACs tendered by such BACs holder and accepted for payment
by the Purchaser (and with respect to any and all other BACs or other securities
issued or issuable in respect of such BACs on or after the date hereof). All
such proxies shall be considered irrevocable and coupled with an interest in the
tendered BACs. Such appointment will be effective when, and only to the extent
that, the Purchaser accepts such BACs for payment. Upon such acceptance for
payment, all prior proxies given by such BACs holder with respect to such BACs
(and such other BACs and securities) will be revoked without further action, and
no subsequent proxies may be given nor any subsequent written consents executed
(and, if given or executed, will not be deemed effective). The Purchaser and its
designees will, with respect to the BACs (and such other BACs and securities)
for which such appointment is effective, be empowered to exercise all voting and
other rights of such BACs holder as it in its sole discretion may deem proper
pursuant to the Partnership Agreement or otherwise. The Purchaser may assign
such proxy and/or power of attorney to any person with or without assigning the
related BACs with respect to which such proxy and/or power of attorney was
granted. The Purchaser reserves the right to require that, in order for BACs to
be deemed validly tendered, immediately upon the Purchaser's payment for such
BACs, the Purchaser must be able to exercise full voting rights with respect to
such BACs and other securities.
In addition, pursuant to such appointment as attorneys-in-fact, the
Purchaser and its designees each will have the power, among other things, (i) to
seek to transfer ownership of such BACs on the books and records of
6
<PAGE>
the Partnership maintained by the Assignor Limited Partner (and execute and
deliver any accompanying evidences of transfer and authenticity any of them may
deem necessary or appropriate in connection therewith, including, without
limitation, any documents or instruments required to be executed under the
Partnership Agreement or a "Transferor's (Seller's) Application for Transfer"
created by the NASD, if required), (ii) upon receipt by the BACs holder of the
Purchase Price, to be allocated all Tax Credits and tax losses and to receive
any and all distributions made by the Partnership after the Expiration Date, and
to receive all benefits and otherwise exercise all rights of beneficial
ownership of such BACs in accordance with the terms of the Offer, (iii) to
execute and deliver to the Partnership, the General Partner and/or the Assignor
Limited Partner (as the case may be) a change of address form instructing the
Partnership to send any and all future distributions to which the Purchaser is
entitled pursuant to the terms of the Offer in respect of tendered BACs to the
address specified in such form, and (iv) to endorse any check payable to or upon
the order of such BACs holder representing a distribution, if any, to which the
Purchaser is entitled pursuant to the terms of the Offer, in each case on behalf
of the tendering BACs holder.
Assignment of Entire Interest in the Partnership. By executing and
delivering the Letter of Transmittal, a tendering BACs holder irrevocably
assigns to the Purchaser and its assigns all of the direct and indirect right,
title and interest of such BACs holder in the Partnership with respect to the
BACs tendered and purchased pursuant to the Offer, including, without
limitation, such BACs holder's right, title and interest in and to any and all
Tax Credits and tax losses and any and all distributions made by the Partnership
after the Expiration Date in respect of the BACs tendered by such BACs holder
and accepted for payment by the Purchaser, regardless of the fact that the
record date for any such distribution may be a date prior to the Expiration
Date. Upon the Purchaser's acceptance of, and payment for, tendered BACs, a
tendering BACs holder will no longer be entitled to any benefits as a BACs
holder, regardless of whether such BACs holder retains a Beneficial Assignment
Certificate. The Purchaser reserves the right to transfer or assign, in whole or
from time to time in part, to any third party, the right to purchase BACs
tendered pursuant to the Offer, together with its rights under the Letter of
Transmittal, but any such transfer or assignment will not relieve the assigning
party of its obligations under the Offer or prejudice the rights of tendering
BACs holders to receive payment for BACs validly tendered and accepted for
payment pursuant to the Offer.
Determination of Validity. All questions as to the form of documents and
validity, eligibility (including time of receipt) and acceptance for payment of
any tender of BACs will be determined by the Purchaser, in its sole discretion,
whose determination shall be final and binding on all parties. The Purchaser
reserves the absolute right to reject any or all tenders determined by it not to
be in proper form, or the acceptance of or payment for which may, in the opinion
of the Purchaser's counsel, be unlawful. The Purchaser also reserves the
absolute right to waive any of the conditions of the Offer or any defect or
irregularity in any tender of BACs of any particular BACs holder whether or not
similar defects or irregularities are waived in the case of other BACs holders.
Assignee Status. Assignees must provide documentation to the Purchaser
which demonstrates, to the satisfaction of the Purchaser, such person's status
as an assignee of a BAC.
The Purchaser's interpretation of the terms and conditions of the Offer
(including the Letter of Transmittal and the instructions thereto) will be final
and binding. No tender of BACs will be deemed to have been validly made until
all defects and irregularities with respect to such tender have been cured or
waived. None of the Purchaser, any of its affiliates or assigns, if any, or any
other person will be under any duty to give any notification of any defects or
irregularities in tenders or incur any liability for failure to give any such
notification.
The Purchaser's acceptance for payment of BACs tendered pursuant to the
procedures described above will constitute a binding agreement between the
tendering BACs holder and the Purchaser upon the terms and subject to the
conditions of the Offer.
4. Withdrawal Rights.
Tenders of BACs made pursuant to the Offer are irrevocable, except that
BACs tendered pursuant to the Offer may be withdrawn at any time prior to the
Expiration Date and, unless theretofore accepted for payment as provided in this
Offer to Purchase, may also be withdrawn at any time after December 9, 1998.
For a withdrawal to be effective, a written or facsimile transmission
notice of withdrawal must be timely received by the Purchaser at the address set
forth on the back cover of this Offer to Purchase. Any such notice of withdrawal
must specify the name(s) of the person(s) who tendered the BACs to be withdrawn,
the number of BACs to be withdrawn and the name(s) of the registered holder(s)
of the BACs, if different from that of the person(s)
7
<PAGE>
who tendered such BACs. Such notice of withdrawal must also be signed by the
same person(s) who signed the Letter of Transmittal in the same manner as the
Letter of Transmittal was signed (including, if applicable, medallion signature
guarantees). If the BACs are held in the name of two or more persons, all such
persons must sign the notice of withdrawal. Any BACs properly withdrawn will be
deemed not validly tendered for purposes of the Offer, but may be re-tendered at
any subsequent time prior to the Expiration Date by following the procedures
described in Section 3 ("Procedures for Tendering BACs").
If, for any reason whatsoever, acceptance for payment of any BACs tendered
pursuant to the Offer is delayed, or the Purchaser is unable to accept for
payment or pay for BACs tendered pursuant to the Offer, then, without prejudice
to the Purchaser's rights set forth herein, the Purchaser may retain tendered
BACs and such BACs may not be withdrawn except to the extent that the tendering
BACs holder is entitled to and duly exercises withdrawal rights as described
herein. The reservation by the Purchaser of the right to delay the acceptance or
purchase of or payment for BACs is subject to the provisions of Rule 14e-1(c)
under the Exchange Act, which requires the Purchaser to pay the consideration
offered or return BACs tendered by or on behalf of BACs holders promptly after
the termination or withdrawal of the Offer.
All questions as to the form and validity (including time of receipt) of
notices of withdrawal will be determined by the Purchaser, in its sole
discretion, whose determination shall be final and binding. None of the
Purchaser, any of its affiliates or assigns, if any, or any other person will be
under any duty to give any notification of any defects or irregularities in any
notice of withdrawal or incur any liability for failure to give any such
notification.
5. Extension of Tender Period; Termination; Amendment.
The Purchaser reserves the right, in its sole discretion and regardless of
whether any of the conditions set forth in Section 14 ("Conditions of the
Offer") shall have been satisfied, at any time and from time to time, (i) to
extend the period of time during which the Offer is open and thereby delay
acceptance for payment of, and the payment for, any BACs, (ii) to terminate the
Offer and not accept for payment any BACs not already accepted for payment or
paid for, and (iii) to amend the Offer in any respect.
If the Purchaser increases or decreases either the number of the BACs being
sought or the consideration to be paid for any BACs pursuant to the Offer and
the Offer is scheduled to expire at any time before the expiration of a period
of 10 business days from, and including, the date that notice of such increase
or decrease is first published, sent or given in the manner specified below, the
Offer will be extended until, at a minimum, the expiration of such period of 10
business days. If the Purchaser makes a material change in the terms of the
Offer (other than a change in price or percentage of securities sought) or in
the information concerning the Offer, or waives a material condition of the
Offer, the Purchaser will extend the Offer, if required by applicable law, for a
period sufficient to allow BACs holders to consider the amended terms of the
Offer.
The Purchaser also reserves the right, in its sole discretion, if any of
the conditions specified under Section 14 ("Conditions of the Offer") shall not
have been satisfied and so long as BACs have not theretofore been accepted for
payment, to delay (except as otherwise required by applicable law) acceptance
for payment of or payment for BACs or to terminate the Offer and not accept for
payment or pay for BACs.
If the Purchaser extends the period of time during which the Offer is open,
delays acceptance for payment of or payment for BACs or is unable to accept for
payment or pay for BACs pursuant to the Offer for any reason, then, without
prejudice to the Purchaser's rights under the Offer, the Purchaser may retain
all BACs tendered, and such BACs may not be withdrawn except as otherwise
provided under Section 4 ("Withdrawal Rights"). The reservation by the Purchaser
of the right to delay acceptance for payment of or payment for BACs is subject
to applicable law, which requires that the Purchaser pay the consideration
offered or return the BACs deposited by or on behalf of BACs holders promptly
after the termination or withdrawal of the Offer.
Any extension, termination or amendment of the Offer will be followed as
promptly as practicable by a public announcement thereof. Without limiting the
manner in which the Purchaser may choose to make any public announcement, the
Purchaser will have no obligation (except as otherwise required by applicable
law) to publish, advertise or otherwise communicate any such public announcement
other than by making a release to the Dow Jones News Service. In the case of an
extension of the Offer, the Purchaser will make a public announcement of such
extension no later than 9:00 a.m., New York City time, on the next business day
after the previously scheduled Expiration Date.
8
<PAGE>
6. Certain Federal Income Tax Consequences.
The following summary is a general discussion of certain federal income tax
consequences of a sale of BACs pursuant to the Offer assuming that the
Partnership is a partnership for federal income tax purposes and that it is not
a "publicly traded partnership" as defined in Section 7704 of the Internal
Revenue Code of 1986, as amended (the "Code"). This summary is based on the
Code, applicable Treasury Regulations thereunder, administrative rulings,
practice and procedures and judicial authority as of the date of the Offer. All
of the foregoing are subject to change, and any such change could affect the
continuing accuracy of this summary. This summary does not discuss all aspects
of federal income taxation that may be relevant to a particular BACs holder in
light of such BACs holder's specific circumstances or to certain types of BACs
holders subject to special treatment under the federal income tax laws (for
example, foreign persons (if any), dealers in securities, banks, insurance
companies and tax-exempt entities), nor does it discuss any aspect of state,
local, foreign or other tax laws. Sales of BACs pursuant to the Offer will be
taxable transactions for federal income tax purposes, and may also be taxable
transactions under applicable state, local, foreign and other tax laws. EACH
BACs HOLDER SHOULD CONSULT HIS OR HER TAX ADVISOR AS TO THE PARTICULAR TAX
CONSEQUENCES TO SUCH BACs HOLDER OF SELLING BACs PURSUANT TO THE OFFER,
INCLUDING, WITHOUT LIMITATION, FEDERAL, STATE AND LOCAL TAX CONSEQUENCES.
Consequences to Tendering BACs holder. A BACs holder will recognize gain or
loss on a sale of BACs pursuant to the Offer equal to the difference between (i)
the BACs holder's "amount realized" on the sale and (ii) the BACs holder's
adjusted tax basis in the BACs sold. The "amount realized" with respect to a BAC
sold pursuant to the Offer will be a sum equal to the amount of cash received by
the BACs holder for the BAC plus the amount of Partnership liabilities allocable
to the BAC (as determined under Code Section 752). The amount of a BACs holder's
adjusted tax basis in BACs sold pursuant to the Offer will vary depending upon
the BACs holder's particular circumstances, and will be affected by allocations
of Partnership income, gain or loss, and any historic tax credits to a BACs
holder with respect to such BACs. In this regard, tendering BACs holders will be
allocated a pro rata share of the Partnership's taxable income or loss with
respect to BACs sold pursuant to the Offer through the effective date of the
sale.
Tendering BACs holders who have not utilized passive losses: A BACs holder
who sells his or her BACs pursuant to this Offer will receive $750 of proceeds
per BAC that may result in a tax loss of approximately $27 per BAC, which loss
could be available to reduce income from other sources. In addition, if an
individual sells all of his or her BACs, unused passive losses of up to
approximately $208 per BAC may be available to offset other income of such BACs
holder. Tendering BACs holders who have utilized passive losses: An individual
BACs holder who sells his or her BACs pursuant to this Offer, who acquired BACs
pursuant to the original offering of BACs by the Partnership and who has
utilized all of his passive losses is expected to recognize a tax loss of
approximately $27 per BAC.
In general, the character (as capital or ordinary) of BACs holder's gain or
loss on a sale of a BAC pursuant to the Offer will be determined by allocating
the BACs holder's amount realized on the sale and his adjusted tax basis in the
BACs sold between "Section 751 items," which are "inventory items of the
partnership" and "unrealized receivables" (including depreciation recapture) as
defined in Code Section 751, and non-Section 751 items. The difference between
the portion of the BACs holder's amount realized that is allocable to Section
751 items and the portion of the BACs holder's adjusted tax basis in the BACs
sold that is so allocable will be treated as ordinary income or loss, and the
difference between the BACs holder's remaining amount realized and adjusted tax
basis will be treated as capital gain or loss assuming the BACs were held by the
BACs holder as a capital asset. The Purchaser believes that substantially all of
any tax loss realized on a sale of BACs pursuant to the Offer will be treated as
a capital loss under these rules, although it is possible, because a BACs
holder's adjusted tax basis in the BACs sold will be allocated to Section 751
items based on the Partnership's tax basis in these items, that a BACs holder
may recognize ordinary income with respect to the portion of the BACs holder's
amount realized on the sale of a BAC that is attributable to Section 751 items
while recognizing a capital loss with respect to the balance of the selling
price.
Under current law, long-term capital gains of individuals and other
non-corporate taxpayers are taxed at a maximum marginal federal income tax rate
of 20% with respect to assets held more than one year, whereas the maximum
marginal federal income tax rate for other income of such persons is 39.6%.
Capital losses are deductible only to the extent of capital gains, except that
non-corporate taxpayers may deduct up to $3,000 of capital losses
9
<PAGE>
in excess of the amount of their capital gains against ordinary income. Excess
capital losses generally can be carried forward to succeeding years (a
corporation's carryforward period is five years and a non-corporate taxpayer can
carry forward such losses indefinitely); in addition, corporations, but not
non-corporate taxpayers, are allowed to carry back excess capital losses to the
three preceding taxable years.
Under Code Section 469, a non-corporate taxpayer or personal service
corporation can deduct passive activity losses in any year only to the extent of
such person's passive activity income for such year, and closely held
corporations may not offset such losses against so-called "portfolio" income. If
a BACs holder is subject to these restrictions and has unused tax losses from
prior years, such tax losses will generally become available upon a sale of
BACs, provided the BACs holder sells all his BACs. If a BACs holder is unable to
sell all his BACs, the deductibility of such losses would continue to be subject
to the passive activity loss limitation until the BACs holder sells his
remaining BACs. See Section 7 ("Effects of the Offer").
In certain cases, the transfer of an interest in a partnership from which
tax credits were allocated can result in a recapture of the tax credits to the
seller (i.e., the seller would be required to pay an additional amount of tax
equal to the credit "recaptured"). A disposition by a BACs holder of his entire
interest in the Partnership within five years from the date property for which
the Historic Tax Credit was claimed was placed in service will trigger a
recapture of a portion of the Historic Tax Credits previously claimed by the
BACs holder. The Purchaser anticipates that $18 per BAC of Historic Tax Credits
will be recaptured with respect to BACs acquired in the original offering. The
transfer of an interest in an entity that has generated Housing Tax Credits
generally results in a recapture of a portion of the Housing Tax Credits.
However, an exception to this rule is provided for partnerships with 35 or more
partners, such as the Partnership. In order for this rule to be applicable,
within a 12-month period at least 50% (in value) of the ownership of the
Partnership must remain unchanged. The Purchaser anticipates that, as a result
of this rule, the sale of BACs will not cause a recapture of Housing Tax
Credits.
A BACs holder (other than corporations and certain foreign individuals) who
tenders BACs may be subject to 31% backup withholding unless the BACs holder
provides a taxpayer identification number ("TIN") and certifies that the TIN is
correct or properly certifies that he is awaiting a TIN. A BACs holder may avoid
backup withholding by properly completing and signing the Letter of Transmittal.
If a BACs holder does not properly complete and sign the Letter of Transmittal,
thereby failing to make the requisite certifications, the Purchaser is required
to withhold 31% from payments to such BACs holder.
Gain realized by a foreign BACs holder on a sale of a BAC pursuant to the
Offer will be subject to federal income tax. Under Section 1445 of the Code, the
transferee of a partnership interest held by a foreign person is generally
required to deduct and withhold a tax equal to 10% of the amount realized on the
disposition. The Purchaser will withhold 10% of the amount realized by a
tendering BACs holder from the Purchase Price payable to such BACs holder unless
the BACs holder properly completes and signs the Letter of Transmittal
certifying the BACs holder's TIN, that such BACs holder is not a foreign person
and the BACs holder's address. Amounts withheld would be creditable against a
foreign BACs holder's federal income tax liability and, if in excess thereof, a
refund could be obtained from the Internal Revenue Service by filing a U.S.
income tax return.
Consequences to a Non-Tendering BACs holder. The Purchaser does not
anticipate that a BACs holder who does not tender his or her BACs will realize
any material tax consequences as a result of the election not to tender. The
Purchaser has retained an independent law firm which will deliver an opinion
that consummation of the Offer will not result in the Partnership being treated
as a publicly-traded partnership for federal income tax purposes. There can be
no assurance, however, that the Internal Revenue Service (the "IRS") will agree
with the conclusions reached in such opinion. There is no precedent governing
whether the Offer will cause the Partnership to be treated as a publicly-traded
partnership for federal income tax purposes. If the IRS successfully asserted
that the Partnership should be treated as a publicly-traded partnership,
investors who are subject to the passive activity loss rules would not be able
to use tax losses derived from the Partnership to offset income from sources
other than the Partnership prior to the investor's disposition of his entire
interest in the Partnership.
7. Effects of the Offer.
Certain Restrictions on Transfer of Interests. The Partnership Agreement
restricts transfers of BACs if, among other things, such transfer would cause a
termination of the Partnership for federal income tax purposes (which
termination would occur when BACs that represent 50% or more of the total
Partnership capital and profits are transferred within a twelve-month period).
Consequently, sales of BACs in the secondary market and in private
10
<PAGE>
transactions during the twelve-month period following completion of the Offer
may be restricted, and requests for transfers of BACs during such twelve-month
period may not be recognized. The Purchaser does not intend to purchase BACs to
the extent such purchase would violate the transfer restrictions set forth in
the Partnership Agreement. Based on information provided by the Partnership, for
the period from September 1, 1997 to September 30, 1998, no BACs were
transferred. Therefore, the Purchaser does not believe the number of BACs
sought in the Offer will violate the Transfer Restrictions.
Effect on Trading Market; Registration Under Section 12(g) of the Exchange
Act. If a substantial number of BACs are purchased pursuant to the Offer, the
result will be a reduction in the number of BACs holders. In the case of certain
kinds of equity securities like the BACs, a reduction in the number of
securityholders might be expected to result in a reduction in the liquidity and
volume of activity in the trading market for the security. The Form 10-K states:
"Neither the BACs nor the Limited Partnership Interests are traded on any
established trading market. The Partnership does not intend to include the BACs
for quotation on NASDAQ or for listing on any national or regional stock
exchange or any other established securities market." Therefore, the Purchaser
does not believe a reduction in the number of BACs holders will materially
further restrict the BACs holders' ability to find purchasers for their BACs
through secondary market transactions.
Partnership Profiles, Inc., which publishes the Partnership Spectrum,
tracks recent trades in certain limited partnership interests. The most recent
issue of the Partnership Spectrum (July/August 1997) in which trades in the BACs
were reported indicates that 20 BACs traded in the period from July 1, 1997
through August 31,1997 at a per BAC price of $850, exclusive of commissions and
transfer costs.
The BACs currently are registered under Section 12(g) of the Exchange Act,
which means, among other things, that the Partnership is required to file
periodic reports with the Commission and to comply with the Commission's proxy
rules. The Purchaser does not expect or intend that consummation of the Offer
will cause the BACs to cease to be registered under Section 12(g) of the
Exchange Act. If the BACs were to be held by fewer than 300 persons, the
Partnership could apply to de-register the BACs under the Exchange Act. Because
the BACs are widely held, however, the Purchaser expects that even if it
purchases the maximum number of BACs in the Offer, the BACs will continue to be
held of record by substantially more than 300 persons.
Influence over All BACs Holder Voting Decisions by Purchaser. Pursuant to
the Partnership Agreement, the Purchaser, through the Assignor Limited Partner,
will have the right to vote each BAC purchased by it pursuant to the Offer. If
the Purchaser is successful in acquiring a significant number of BACs pursuant
to the Offer, the Purchaser could, subject to the Standstill Agreement, be in a
position to significantly influence all Partnership decisions on which BACs
holders, through the Assignor Limited Partner, and Limited Partners,
collectively, may vote. If the maximum number of BACs sought by the Purchaser is
tendered and accepted for payment pursuant to the Offer, the Purchaser will own
approximately 25% of the outstanding BACs. After the Standstill Expiration Date,
the ownership of tendered BACs by the Purchaser could effectively (i) prevent
non-tendering BACs holders from taking actions they desire but that the
Purchaser opposes and (ii) enable the Purchaser to take actions desired by it
but opposed by non-tendering BACs holders. Generally, under the Partnership
Agreement, holders of more than 50% of the Limited Partnership Interests and
BACs (which represent Limited Partnership Interests) are entitled, directly or
through the Assignor Limited Partner, as the case may be, to take action with
respect to a variety of matters, including: approving the removal of any General
Partner and proposing and approving a replacement therefor; approving the
dissolution of the Partnership; approving or disapproving the sale of all or
substantially all of the assets of the Partnership; and most types of amendments
to the Partnership Agreement. No such votes have, however, ever been taken and
the General Partner has indicated that none are presently scheduled or expected.
Although the Purchaser does not have any current plans or intentions with regard
to any of these matters, it will, following the Standstill Expiration Date, vote
the BACs acquired pursuant to the Offer in its interest, which may, or may not,
be in the best interest of non-tendering BACs holders. Until the Standstill
Expiration Date, the Purchaser has agreed to vote its BACs in the same manner as
a majority of all voting BACs holders; provided, however, the Purchaser shall be
entitled to vote its BACs as it determines with regard to any proposal (i) to
remove the General Partner or (ii) concerning the reduction of any fees,
profits, distributions or allocations for the benefit of the General Partner or
its affiliates.
It is likely that the Purchaser, which is affiliated with the General
Partner, will vote all of its BACs to continue the General Partner as the
general partner of the Partnership and in a manner that is otherwise consistent
with the decisions and recommendations of the General Partner, including as they
relate to matters involving transactions
11
<PAGE>
between the Partnership and affiliates of the Purchaser. Therefore, the
Purchaser's acquisition of BACs may have the effect of making any future change
of the Partnership's policies and/or current management more difficult.
8. Purpose of the Offer; Future Plans.
Purpose of the Offer. The purpose of the Offer is to enable the Purchaser
to acquire a significant interest in the Partnership for investment purposes
based on its expectation that the Partnership will continue to generate Tax
Credits and tax losses attributable to the BACs. The Purchaser intends to sell,
and has begun the process of selling, membership interests in the Purchaser to
third parties with a need for Tax Credits and/or tax losses. The aggregate sales
price of the Purchaser's membership interests to third parties will be
determined so as to be equal to the aggregate purchase price for the tendered
BACs and all other securities acquired by the Purchaser pursuant to secondary
market transactions and other tender offers conducted to date, together with the
expenses associated therewith, the expenses associated with the Purchaser's sale
of membership interests and the prepayment of certain fees and expenses in
connection with the Purchaser's operations.
Neither the Purchaser nor its current members will derive a profit from the
sale of the Purchaser's membership interests. However, affiliates of the
Purchaser will earn substantial fees in connection with such sales, for
structuring this transaction and for performing certain services for the
Purchaser. Such fees may include, without limitation, an offering and
organization fee, acquisition fee and a partnership management fee. The total
fees may be as much as 11% of the entire amount of funded capital commitments
received by the Purchaser in connection with its sale of membership interests.
Purchaser has not sold any membership interests as of the date hereof and the
approximate maximum aggregate offering price of membership interests is
$10,740,000.
Another purpose of the Offer is to allow BACs holders who have a current or
anticipated need or desire for liquidity to sell their BACs. An additional
purpose of the Offer is to establish a standard against which any subsequent
tender offers for BACs can be judged.
The Purchaser does not currently intend to make any effort to change
current management or the operation of the Partnership nor does it have any
current plans or intentions for any extraordinary transaction involving the
Partnership. However, the Purchaser's plans with respect to its investment in
the BACs could change at any time in the future. If such plans with respect to
the Partnership change in the future, the ability of the Purchaser to influence
actions on which BACs holders (through the Assignor Limited Partner) have a
right to vote will depend on the BACs holders' response to the Offer (i.e., the
number of BACs tendered). If the Purchaser acquires only a small number of BACs
pursuant to the Offer, it will not be in a position to influence matters over
which BACs holders have a right to vote. Conversely, if the maximum number of
BACs sought are tendered and accepted for payment pursuant to the Offer, the
Purchaser will own approximately 25% of the issued and outstanding BACs and, as
a result, will, subject to the Standstill Agreement, be in a position to exert
significant influence over matters on which BACs holders (through the Assignor
Limited Partner) have a right to vote. The purchase of the BACs will allow the
Purchaser to benefit from any of the following: (a) any and all Tax Credits and
tax losses attributable to such BACs; (b) any cash distributions from
Partnership operations in the ordinary course of business; (c) distributions, if
any, of net proceeds from the sale of any Properties after the Partnership has
satisfied its liabilities; and (d) any distributions of net proceeds from the
dissolution of the Partnership.
Future Plans. Following the completion of the Offer and subject to the
terms of the Standstill Agreement, the Purchaser and its affiliates may acquire
additional BACs. Any such acquisition may be made through private purchases,
through one or more future tender offers or by any other means deemed advisable,
and may be at prices higher or lower than the price to be paid for the BACs
purchased pursuant to the Offer. Additionally, the Purchaser has sold and may
continue to sell membership interests in the Purchaser to third parties with a
need for Tax Credits and/or tax losses. The aggregate sales price of the
Purchaser's membership interests to third parties was determined so as to be
equal to the aggregate purchase price for the tendered BACs and all other
securities acquired by the Purchaser pursuant to secondary market transactions
and other tender offers conducted to date, together with the expenses associated
therewith, the expenses associated with the Purchaser's sale of membership
interests and the prepayment of certain fees and expenses in connection with the
Purchaser's operations.
Pursuant to the Standstill Agreement with the Partnership and the General
Partner (a copy of which has been filed as Exhibit (c)(1) to the Purchaser's
Tender Offer Statement on Schedule 14D-1 filed with the Commission on October 9,
1998), the Purchaser agreed that, prior to the Standstill Expiration Date, it
will not and it will cause certain affiliates not to (i) seek to propose to
enter into, directly or indirectly, any merger, consolidation, business
12
<PAGE>
combination, sale or acquisition of assets, liquidation, dissolution or other
similar transaction involving the Partnership, (ii) form, join or otherwise
participate in a "group" (within the meaning of Section 13(d)(3) of the Exchange
Act) with respect to any voting securities of the Partnership, except that those
affiliates bound by the Standstill Agreement will not be deemed to have violated
it and formed a "group" solely by acting in accordance with the Standstill
Agreement, (iii) disclose in writing to any third party any intention, plan or
arrangement inconsistent with the terms of the Standstill Agreement, or (iv)
loan money to, advise, assist or encourage any person in connection with any
action inconsistent with the terms of the Standstill Agreement. By the terms of
the Standstill Agreement, the Purchaser has also agreed to vote its BACs in the
same manner as a majority of all voting BACs holders; provided, however, the
Purchaser is entitled to vote its BACs as it determines with regard to any
proposal (i) to remove the General Partner or (ii) concerning the reduction of
any fees, profits, distributions or allocations for the benefit of the General
Partner or its affiliates.
9. Certain Information Concerning the Partnership.
Information included herein concerning the Partnership is derived from the
Partnership and its publicly filed reports. Additional financial and other
information concerning the Partnership is contained in the Partnership's Annual
Reports on Form 10-K, Quarterly Reports on Form 10-Q and other filings with the
Commission. Such reports and other documents may be examined and copies may be
obtained from the public reference facilities maintained at the principal
offices of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at
the regional offices of the Commission located at 7 World Trade Center, Suite
1300, New York, New York 10048 and 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661, and at the Commission's World Wide Web site at
http://www.sec.gov. Copies should be available by mail upon payment of the
Commission's customary charges by writing to the Commission's principal offices
at 450 Fifth Street, N.W., Washington, D.C. 20549. The Purchaser did not prepare
any information included in such reports and extracted in this Offer to Purchase
and the Purchaser makes no representation as to the accuracy or completeness of
such information.
The Partnership's Assets and Business
The Partnership is a limited partnership formed in 1993, under the laws of
the State of Delaware. Its principal executive offices are located at 625
Madison Avenue, New York, New York 10022. Its telephone number is (212)
421-5333. The Partnership's fiscal year ends March 31st.
The Partnership was formed to invest, as a limited partner, in other
limited partnerships (referred to herein as "Local Partnerships" or "Subsidiary
Partnerships") each of which owns one or more leveraged low-income multifamily
residential complexes ("Apartment Complexes") that are eligible for the
low-income housing tax credit ("Housing Tax Credit") enacted in the Tax Reform
Act of 1986, some of which are eligible for the historic rehabilitation tax
credit ("Historic Tax Credit"). Some of the Apartment Complexes benefit from one
or more other forms of federal or state housing assistance. Except for the
interest owned by the Partnership in one Local Partnership (where the
Partnership owns 41.86% of the partnership interests), the Partnership has
invested in either 98.99% or 99.89% of the partnership interests in each Local
Partnership. According to the Form 10-K, as of March 31, 1998, the Partnership
had acquired an interest in 20 Local Partnerships. According to the Form 10-K,
the Partnership does not anticipate making additional investments in the future.
Independence SLP III L.P. ("Independence SLP") is the special limited
partner in all 20 Local Partnerships and is an affiliate of the General Partner.
Independence SLP has certain rights and obligations in its role as special
limited partner which permit Independence SLP to exercise control over the
management and policies of the Local Partnerships.
According to the Form 10-K, the stated investment objectives of the
Partnership are to:
1. Entitle qualified BACs holders to Housing Tax Credits over the Credit
Period (as defined below) with respect to each Apartment Complex;
2. Preserve and protect the Partnership's capital;
3. Participate in any capital appreciation in value of the Apartment
Complexes and provide distributions of sale or refinancing proceeds upon the
disposition of the Apartment Complexes; and
4. Allocate passive losses to individual BACs holders to offset passive
income that they may realize from rental real estate investments and other
passive activities, and allocate passive losses to corporate BACs holders to
offset business income.
13
<PAGE>
According to the Form 10-K, one of the Partnership's objectives is to
entitle qualified BACs holders to Housing Tax Credits over the period of the
Partnership's entitlement to claim such Tax Credits (for each Apartment Complex,
generally ten years from the date of investment or, if later, the date the
Apartment Complex is placed in service; referred to herein as the "Credit
Period"). Each of the Local Partnerships in which the Partnership has acquired
an interest has been allocated by the relevant state credit agency the authority
to recognize Housing Tax Credits during the Credit Period provided that the
Local Partnership satisfies the rent restriction, minimum set-aside and other
requirements for recognition of the Housing Tax Credits at all times during such
period. Once a Local Partnership has become eligible to recognize Housing Tax
Credits, it may lose such eligibility and suffer an event of "recapture" if its
property fails to remain in compliance with the Housing Tax Credit requirements.
According to the Form 10-K, none of the Local Partnerships in which the
Partnership has acquired an interest has suffered an event of recapture.
According to the Form 10-K, as of March 31, 1998, there can be no assurance that
the Partnership will achieve its investment objectives as described above.
According to the Form 10-K, the Partnership and BACs holders began to
recognize Housing Tax Credits with respect to an Apartment Complex when the
Credit Period for such Apartment Complex commenced. Because of the time required
for the acquisition, completion and rent-up of Apartment Complexes, the amount
of Tax Credits per BAC gradually increased over the first five years of the
Partnership. Housing Tax Credits not recognized in the first three years will be
recognized in the 11th through 15th years. According to the Form 10-K, the
Partnership generated $3,683,727, $2,386,725 and $920,294 Housing Tax Credits
and $0, $0 and $1,451,336 Historic Tax Credits during the 1997, 1996 and 1995
tax years, respectively.
According to the Form 10-K and information provided by the Partnership, the
Partnership holds a 98.99% or 99.89% limited partnership interest in 19 of the
20 Local Partnerships and a 41.86% interest in 1 Local Partnership. Attached to
this Offer to Purchase as Schedule II is a schedule of these Local Partnerships
(the "Local Partnership Schedule"), including certain information concerning
their respective Apartment Complexes. Attached to this Offer to Purchase as
Schedule III is additional information concerning these Local Partnerships and
their Apartment Complexes, including information relating to mortgage
encumbrances and accumulated depreciation. The information set forth in
Schedules II and III includes information provided by the Partnership and also
repeats information set forth in the Form 10-K.
According to the Form 10-K, the General Partner has generally required in
connection with investments in development-stage Apartment Complexes that the
general partners of the Local Partnerships (the "Local General Partners")
provide completion guarantees and/or undertake to repurchase the Partnership's
interest in the Local Partnership if construction or rehabilitation is not
completed substantially on time or on budget ("Development Deficit Guarantees").
The Development Deficit Guarantees have generally also required the Local
General Partner to provide any funds necessary to cover net operating deficits
of the Local Partnership until such time as the Apartment Complex has achieved
break-even operations. In addition, the General Partner has generally required
that the Local General Partners undertake an obligation to fund operating
deficits of the Local Partnership (up to a stated maximum amount) during a
limited period of time (typically three to five years) following the achievement
of break-even operations ("Operating Deficit Guarantees"). Under the terms of
the Development and Operating Deficit Guarantees, amounts funded will be treated
as operating loans which will not bear interest and which will be repaid only
out of 50% of available cash flow or out of available net sale or refinancing
proceeds. In some instances, the Local General Partners are required to
undertake an obligation to comply with a Rent-Up Guaranty Agreement, whereby the
Local General Partner agrees to pay liquidating damages if predetermined
occupancy rates are not achieved. These payments are made without right of
repayment. In cases where the General Partner deems it appropriate, the
obligations of a Local General Partner under the Development Deficit, Operating
Deficit and/or Rent-Up Guarantees are secured by letters of credit and/or cash
escrow deposits. See "Liquidity and Capital Resources" below.
According to the Form 10-K, all leases at the Properties are generally for
periods not exceeding one to two years and no tenant occupies more than 10% of
the rentable square footage.
Rent from commercial tenants (to which average rental per square foot
applies) comprise less than 5% of the rental revenues of the Partnership. Rents
for the residential units are determined annually by HUD and reflect increases
in consumer price indexes in various geographic areas.
According to the Form 10-K, management of the Partnership continuously
reviews the physical state of the properties and budgets improvements when
required, which are generally funded from cash flow from operations or release
of replacement reserve escrows. No improvements are expected to require
additional financing.
14
<PAGE>
According to the Form 10-K, management of the Partnership continuously
reviews the insurance coverage of the properties and believes such coverage is
adequate.
Real estate taxes are calculated using rates and assessed valuations
determined by the township or city in which the property is located. Such taxes
have approximated 1% of the aggregate cost of the Apartment Complexes.
Selected Financial Data. Set forth below is a summary of certain financial
data for the Partnership which has been excerpted from the Form 10-K and the
Form 10-Q for the quarter ended June 30, 1998 ("10-Q"). More comprehensive
financial and other information is included in such reports and other documents
filed by the Partnership with the Commission, and the following summary is
qualified in its entirety by reference to such reports and other documents and
all the financial information and related notes contained therein.
15
<PAGE>
Independence Tax Credit Plus L.P. III and Subsidiaries
Consolidated Statements of Operations
For the Years Ended March 31, 1998, 1997 and 1996
(audited)
<TABLE>
<CAPTION>
Year Ended March 31,
-------------------------------------------------
1998 1997 1996
----------- ----------- ----------
<S> <C> <C> <C>
Revenues:
Rental income ............................................... $ 3,583,763 $ 2,737,310 $1,315,538
Other income ................................................ 640,496 682,881 974,392
----------- ----------- ----------
Total Revenues ........................................... 4,224,259 3,420,191 2,289,930
----------- ----------- ----------
Expenses:
General and administrative .................................. 1,340,081 1,118,716 676,153
General and administrative--related parties ................. 392,769 494,031 417,432
Repairs and maintenance ..................................... 477,641 345,582 96,978
Operating and other ......................................... 513,816 427,306 196,438
Real Estate taxes ........................................... 198,566 109,362 26,095
Insurance ................................................... 252,926 187,773 80,571
Financial, principally interest ............................. 1,271,723 772,263 423,277
Depreciation and amortization ............................... 1,956,448 1,384,995 656,268
----------- ----------- ----------
Total Expenses ........................................... 6,403,970 4,840,028 2,573,212
----------- ----------- ----------
Net loss before minority interest ............................ (2,179,711) (1,419,837) (283,282)
Minority interest in loss of subsidiary partnerships ......... 30,346 2,563 415
----------- ----------- ----------
Net loss ..................................................... $(2,149,365) $(1,417,274) $ (282,867)
=========== =========== ==========
Net loss--limited partners ................................... $(2,127,871) $(1,403,101) $ (280,038)
=========== =========== ==========
Number of BACs outstanding ................................... 43,440 43,440 42,407
=========== =========== ==========
Net loss per BAC ............................................. $ (48.98) $ (32.30) $ (6.60)
=========== =========== ==========
</TABLE>
16
<PAGE>
INDEPENDENCE TAX CREDIT PLUS L.P. III
AND SUBSIDIARIES
Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Three Months ended June 30,
----------------------------
1998 1997
------------ ------------
<S> <C> <C>
Rental income ......................................................... $1,210,930 $ 781,870
Other income .......................................................... 81,730 128,699
---------- ----------
Total revenues ........................................................ 1,292,660 910,569
---------- ----------
Expenses
General and administrative ............................................ 371,299 282,684
General and administrative--related parties ........................... 175,923 103,697
Repairs and maintenance ............................................... 166,174 77,628
Operating ............................................................. 153,166 128,619
Taxes ................................................................. 48,487 38,129
Insurance ............................................................. 93,397 73,393
Financial, principally interest ....................................... 291,509 215,097
Depreciation and amortization ......................................... 536,618 383,154
---------- ----------
Total expenses ........................................................ 1,836,573 1,302,401
---------- ----------
Net loss before minority interest ..................................... (543,913) (391,832)
Minority interest in (income) loss of subsidiary partnerships ......... (7,662) 313
---------- ----------
Net loss .............................................................. $ (551,575) $ (391,519)
========== ==========
Net loss--limited partners ............................................ $ (546,059) $ (387,604)
========== ==========
Number of BACs outstanding ............................................ 43,440 43,440
========== ==========
Net loss per BAC ...................................................... $ (12.57) $ (8.92)
========== ==========
</TABLE>
<TABLE>
<CAPTION>
June 30, March 31,
----------- --------------------------------------------------------------
FINANCIAL POSITION 1998 1998 1997 1996 1995
- --------------------------------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Total assets .................... $83,041,735 $85,077,315 $76,809,088 $74,448,444 $35,005,729
Total liabilities ............... $47,193,694 $46,678,291 $38,050,750 $34,647,450 $ 6,862,014
Minority interest ............... $ 3,512,177 $ 3,511,585 $ 1,721,534 $ 1,346,916 $ 95,670
Total partners' capital ......... $34,335,864 $34,887,439 $37,036,804 $38,454,078 $28,048,045
</TABLE>
According to the Form 10-K, during the years ended March 31, 1998, 1997,
1996 and 1995, total assets and liabilities increased primarily due to the
continued acquisition of Local Partnerships. For the years ended March 31, 1998,
1997, 1996 and 1995, property and equipment increased approximately $18,000,000,
$11,600,000, $28,600,000 and $6,800,000, respectively, construction in progress
(decreased) increased approximately ($700,000), $600,000, $4,700,000 and
$800,000, respectively, and mortgage notes increased approximately $6,000,000,
$4,900,000, $16,000,000 and $2,800,000, respectively. For the years ended March
31, 1996 and 1995, construction notes increased approximately $600,000 and
$2,200,000, respectively. For the years ended March 31, 1996 and 1995, the
increase in assets was also due to capital contributions which were not fully
expended. For the year ended March 31, 1997, the increase in property and
equipment and construction in progress was partially offset by a decrease in
cash and cash equivalents, investments available for sale and cash held in
escrow as a result of the funding of such acquisitions and construction. For the
years ended March 31, 1997, 1996 and 1995, minority interest increased due to
capital contributions from local general partners.
Cash Distributions
According to the Form 10-K, the Partnership has made no distributions to
the BACs holders as of March 31, 1998.
17
<PAGE>
Liquidity and Capital Resources
According to the Form 10-K and Form 10-Q, the Partnership's primary source
of funds includes interest earned on the proceeds from its offering that
terminated as of May 9, 1995 which are invested in tax-exempt money market
instruments pending acquisition of and final payments to Local Partnerships and
a working capital reserve in the original amount of 2.5% of gross proceeds
raised and interest earned thereon.
According to the Form 10-K, during the year ended March 31, 1998, cash and
cash equivalents decreased approximately $416,000. This decrease is primarily
due to construction in progress of $10,423,000, acquisition of property and
equipment of $7,935,000, a decrease in accounts payable and other liabilities of
$147,000, and net cash used by operating activities of $86,000, a net increase
in deferred costs of $122,000, a net increase in due to local general partners
and affiliates relating to investing and financing activities of $1,761,000, a
decrease in due from general partner and affiliates of $317,000, net proceeds
from mortgage notes and construction loans of $4,882,000, a decrease in
investments available-for-sale of $6,500,000, a decrease in cash held in escrow
of $2,278,000, proceeds from a HUD Grant of $739,000 and an increase in
capitalization of consolidated subsidiaries attributable to minority interest of
$1,820,000.
According to the Form 10-K, the Partnership has working capital reserves of
approximately $792,000 and $1,095,000 at March 31, 1998 and September 30, 1997,
respectively. According to the Form 10-Q, the working capital reserves were
approximately $336,000 at June 30, 1998.
According to the Form 10-K, Partnership management fees owed to the General
Partner amounting to approximately $200,000 and $150,000 were accrued and unpaid
as of March 31, 1998 and 1997, respectively. According to the Form 10-Q, such
accrued and unpaid management fees equaled $280,000 at June 30, 1998.
According to the Form 10-K, the Partnership has negotiated Development
Deficit Guarantees with the Local Partnerships in which it has invested. The
Local General Partners have agreed to fund development deficit through the
certain dates as defined in the partnership agreement of each Local Partnership.
The guarantees are defined in the respective partnership agreements. All current
development deficit guarantees expire upon completion of the improvements of
each Property. Management of the Partnership does not expect their expiration to
have a material impact on liquidity, based on prior years' fundings.
According to the Form 10-K, the Partnership has negotiated Operating
Deficit Guaranty Agreements with all Local Partnerships pursuant to which the
Local General Partners have agreed to fund operating deficits for a specified
period of time. The terms of the Operating Deficit Guaranty Agreements vary for
each Local Partnership, with maximum dollar amounts to be funded for a specified
period of time, generally three years, commencing on the break-even date.
According to the Form 10-K, as of March 31, 1998, 1997 and 1996, the gross
amounts of the Operating Deficit Guarantees aggregated approximately $4,597,000,
$3,360,000 and $2,991,000, respectively, none of which had expired as of March
31, 1998, 1997 and 1996. All current operating deficit guarantees expire within
the next three years. As of March 31, 1998, 1997 and 1996, approximately
$343,000, $323,000 and $62,500, respectively, had been funded under the
Operating Deficit Guaranty Agreements. Amounts funded under such agreements are
treated as non-interest bearing loans, which will be paid only out of 50% of
available cash flow or out of available net sale or refinancing proceeds.
Management of the Partnership does not expect the expiration of the current
operating deficit guarantees to have a material impact on liquidity, based on
prior years' fundings.
In addition, several Local Partnerships have Rent-Up Guaranty Agreements,
in which the Local General Partner agrees to pay liquidated damages if
predetermined occupancy rates are not achieved. The terms of the Rent-Up
Guaranty Agreements vary for each Local Partnership, with maximum dollar amounts
to be funded for a specified period of time. According to the Form 10-K, as of
March 31, 1998, 1997 and 1996, the gross amounts of the Rent-Up Guarantees for
the Local Partnerships aggregated approximately $1,719,000, $1,326,000 and
$1,326,000, respectively, of which approximately $1,755,000, $542,000 and
$542,000 had expired as of March 31, 1998, 1997 and 1996, respectively. All
current rent-up deficit guarantees expire within the next three years. There has
not been any funding under the Rent-Up Guaranty Agreements. Amounts received
under rental guaranty from the sellers of the properties purchased by the Local
Partnerships in which the Partnership has an interest will be treated as a
reduction of the asset. Management of the Partnership does not expect the
expiration of the current rent-up deficit guarantees to have a material impact
on liquidity, based on prior years' fundings.
According to information provided by the Partnership, cash flow
distributions received from operations of the Local Partnerships were de minimis
during the years ended March 31, 1998 and 1997, respectively. Management of the
Partnership anticipates receiving distributions in the future, although not to a
level sufficient to permit
18
<PAGE>
cash distributions to BACs holders. Management of the Partnership believes that
these distributions, as well as the working capital reserves referred to above,
will be sufficient to fund the Partnership's ongoing operations for the
foreseeable future.
Results of Operations of Certain Local Partnerships
2301 First Avenue Limited Partnership
According to the Form 10-K, 2301 First Avenue Limited Partnership ("2301
First Avenue") is a defendant in a lawsuit alleging personal injury. The amount
of the claim may exceed 2301 First Avenue's insurance coverage limits. In the
opinion of 2301 First Avenue's management, the general contractor is responsible
for the claim. However, the building's insurance carrier does not believe that
any claim paid will exceed the insurance coverage. A lawsuit by a Class Z
limited partner seeking damages, in a material amount, has been commenced
against the building's general contractor, and the sole stockholder of the
corporate general partner. The plaintiff alleges breach of agreements involving
several projects including 2301 First Avenue. The action is in the discovery
stage and 2301 First Avenue and the related defendants cannot estimate damages,
if any. Since it is premature to make an evaluation of the amount of 2301 First
Avenue's potential loss, management of the Partnership is of the opinion that no
accrual for potential losses is currently warranted in the financial statements.
According to the Form 10-K, the Partnership's investment in and advances to 2301
First Avenue at March 31, 1998 and 1997 was approximately $531,000 and $656,000,
respectively, and the minority interest balance was zero at each date. 2301
First Avenue's net loss after minority interest amounted to approximately
$135,000, $261,000 and $76,000 for the years ended March 31, 1998, 1997 and
1996, respectively.
New Zion Apartments Limited Partnership
According to the Form 10-K, at December 31, 1997, current liabilities of
New Zion Apartments Limited Partnership ("New Zion") exceed its current assets
by over $149,000. Although this condition could raise substantial doubt about
New Zion's ability to continue as a going concern, such doubt is alleviated as
follows:
1. Included in current liabilities at December 31, 1997 is $76,067 owed to
related parties who do not intend to pursue collection beyond New Zion's ability
to pay.
2. The Local General Partner has agreed to fund operating deficits up to
$200,000.
3. Rent subsidy payments begin January 1, 1998.
Accordingly, management believes that New Zion has the ability to continue
as a going concern for at least one year from December 31, 1997.
Edward Hotel Limited Partnership
Edward Hotel Limited Partnership ("Edward Hotel") has not been paying its
debt service of interest only with respect to its $1,175,000 loan to the State
of California Department of Housing and Community Development ("HCD"). Edward
Hotel is in discussions with HCD and intends to restructure the terms of the
loan in 1998.
Year 2000 Compliance
According to the Form 10-K, as the year 2000 approaches, an issue has
emerged regarding how existing application software programs and operating
systems can accommodate this date value. Failure to adequately address this
issue could have potentially serious repercussions. The General Partner is in
the process of working with the Partnership's service providers to prepare for
the year 2000. Based on information currently available, the Partnership does
not expect that it will incur significant operating expenses or be required to
incur material costs to be year 2000 compliant.
Other
According to the Form 10-K, the Partnership's investment as a limited
partner in the Local Partnerships is subject to the risks of potential losses
arising from management and ownership of improved real estate. The Partnership's
investments also could be adversely affected by poor economic conditions
generally, which could increase vacancy levels, rental payment defaults, and
operating expenses, any or all of which could threaten the financial viability
of one or more of the Local Partnerships.
19
<PAGE>
According to the Form 10-K, there also are substantial risks associated
with the operation of Apartment Complexes receiving government assistance. These
risks stem from governmental regulations concerning tenant eligibility, which
may make it more difficult to rent apartments in the complexes; difficulties in
obtaining government approval for rent increases; limitations on the percentage
of income which low- and moderate-income tenants may pay as rent; the
possibility that Congress may not appropriate funds to enable HUD to make the
rental assistance payments it has contracted to make; and that when the rental
assistance contracts expire there may not be market demand for apartments at
full market rents in a Local Partnership's Apartment Complex.
According to the Form 10-K, the Local Partnerships are impacted by
inflation in several ways. Inflation allows for increases in rental rates
generally to reflect the impact of higher operating and replacement costs.
Inflation also affects the Local Partnerships adversely by increasing operating
costs, such as fuel, utilities and labor.
The Partnership Agreement
The General Partner and its affiliates have received or will receive
certain types of compensation, fees or other distributions in connection with
the operations of the Partnership. The arrangements for payment of compensation
and fees set forth in the Partnership Agreement were not determined in
arm's-length negotiations with the Partnership.
Pursuant to the Partnership Agreement, the General Partner is entitled to a
consulting and monitoring fee (the "Consulting and Monitoring Fee") for its
services in connection with assisting the Local Partnerships in acquiring
Apartment Complexes and supervising the construction of the Apartment Complexes.
The Consulting and Monitoring Fee is paid by the Partnership and/or the Local
Partnerships in an aggregate amount up to 6% of the gross proceeds of the
Partnership's offering paid upon investor closings. Consulting and Monitoring
Fees are capitalized as a cost of the investments upon the closing of Local
Partnerships' acquisitions. According to the Form 10-K, as of both March 31,
1998 and 1997, $2,606,400 of such costs have been incurred, of which $2,509,717
and $1,962,092, respectively, have been capitalized.
Pursuant to the Partnership Agreement, the General Partner is entitled to a
fee (the "Partnership Management Fee") for its services in connection with the
administration of the affairs of the Partnership (including, without limitation,
coordination of communications between the Partnership and BACs holders and with
the Local Partnerships). The Partnership Management Fee is payable annually and
is determined by the General Partner based on its review of the Partnership's
investments, up to a maximum of 0.5% of the Partnership's Invested Assets (as
defined below); provided, however, Partnership Management Fees for any year will
be reduced to the extent that the sum of (i) the aggregate amount of operating
cash flow received by affiliates of the General Partner or the General Partner
itself from Local Partnerships and (ii) the amount of operating cash flow
received by the General Partner from the Partnership exceeds 1% of all
distributions of operating cash flow by the Partnership for such year. "Invested
Assets" means the purchase price paid upon the acquisition by the Partnership of
the Properties and interests in Local Partnerships, including (i) the total of
all fees and commissions paid in connection with the selection or purchase by
the Partnership or Local Partnerships of any interests in Local Partnerships or
any Properties, and (ii) the amount of all liens and mortgages on the
Properties. For the three years ended March 31, 1998, 1997 and 1996, the General
Partner earned aggregate Partnership Management Fees of $50,000, $237,252 and
$245,805, respectively. According to the Form 10-K, Partnership Management Fees
owed to the General Partner amounting to approximately $200,000 and $150,000
were accrued and unpaid as of March 31, 1998 and 1997, respectively.
According to the Partnership Agreement, the General Partner is also
entitled to receive a disposition fee (the "Disposition Fee") for services
rendered in connection with the sale of a property or the sale of the
Partnership's interest in a Local Partnership. Payment of such fee shall be
subordinated to the return to Limited Partners and BACs holders of their capital
contribution and other items as set forth in the Partnership Agreement. Each
Disposition Fee is equal to the lesser of one-half the competitive real estate
commission or 3% of the sale price in respect of any such sale (including the
principal amount of any mortgage loans and any related seller financing with
respect to a property to which such sale is subject). In no event, however,
shall the Disposition Fee and all other fees payable to the General Partner or
any of its affiliates and any unrelated parties arising out of any given sale
exceed in the aggregate the lesser of the competitive rate or 6% of the gross
proceeds from such sale. For the three years ended March 31, 1998, 1997 and
1996, the General Partner did not earn any Disposition Fee.
Independence SLP is an affiliate of the General Partner. Independence SLP,
as special limited partner of the Local Partnerships, earned a fee (the "Local
Administrative Fee") of $44,000, $25,000 and $16,500 from the
20
<PAGE>
Local Partnerships for the three years ended March 31, 1998, 1997 and 1996,
respectively. According to the Form 10-K, Independence SLP is entitled to
receive up to $5,000 per year as a Local Administrative Fee from each Local
Partnership of which it is a special limited partner, but the sum of the
aggregate Local Administrative Fee and the Partnership Management Fee for any
year shall not exceed 0.5% of Invested Assets.
The General Partner and the officers and directors of the General Partner
are each entitled to indemnification under certain circumstances from the
Partnership pursuant to provisions of the Partnership Agreement. Generally, the
General Partner is also entitled to reimbursement of expenditures made on behalf
of the Partnership. An affiliate of the General Partner performs asset
monitoring services for the Partnership. These services include site visits and
evaluations of the Local Partnerships' performance. For the years ended March
31, 1998, 1997 and 1996, the Partnership incurred, in the aggregate, $119,911,
$91,999 and $79,409, respectively, to the General Partner and its affiliates as
reimbursement of expenditures and asset monitoring services made on behalf of
the Partnership.
10. Certain Information Concerning the Purchaser.
Purchaser
The Purchaser was organized for the purpose of acquiring the BACs pursuant
to the Offer, to acquire other securities which generate tax credits and/or tax
losses, and, ultimately, to sell its membership interests to third parties
(principally corporations) with a need for such tax credits and tax losses. The
principal executive office of the Purchaser is at 625 Madison Avenue, New York,
New York 10022. The managing member of the Purchaser (the "Managing Member") is
Lehigh Tax Credit Partners, Inc., a Delaware corporation. Since its inception,
the directors of the Managing Member have been J. Michael Fried, Stuart J.
Boesky, and Alan P. Hirmes. The executive officers of the Managing Member are J.
Michael Fried, Stuart J. Boesky, Alan P. Hirmes, Marc D. Schnitzer and Denise L.
Kiley. The business address for each of Messrs. Fried, Boesky, Hirmes and
Schnitzer and Ms. Kiley is 625 Madison Avenue, New York, New York 10022.
For certain information concerning the executive officers and directors of
the Managing Member, see Schedule I to this Offer to Purchase. Other than Ms.
Kiley, the persons set forth on Schedule I, who effectively control the
Purchaser, are also officers of Related Independence Associates III Inc., the
sole general partner of the General Partner. Therefore, the Purchaser and the
General Partner, subject to its fiduciary duties, may have a conflict of
interest with respect to certain matters involving BACs holders, Limited
Partners and/or the Partnership.
Except as otherwise set forth in this Offer to Purchase or Schedule I
hereto, (1) neither the Purchaser, the Managing Member and, to the best of the
Purchaser's knowledge, the persons listed on Schedule I, nor any affiliate of
the foregoing beneficially owns or has a right to acquire any BACs, (2) neither
the Purchaser, the Managing Member and, to the best of the Purchaser's
knowledge, the persons listed on Schedule I, nor any affiliate thereof or
director, executive officer or subsidiary of the Managing Member has effected
any transaction in the BACs within the past 60 days, (3) neither the Purchaser,
the Managing Member and, to the best of the Purchaser's knowledge, any of the
persons listed on Schedule I, nor any director or executive officer of the
Managing Member has any contract, arrangement, understanding or relationship
with any other person with respect to any securities of the Partnership,
including, but not limited to, contracts, arrangements, understandings or
relationships concerning the transfer or voting thereof, joint ventures, loan or
option arrangements, puts or calls, guarantees of loans, guarantees against loss
or the giving or withholding of proxies, (4) there have been no transactions or
business relationships which would be required to be disclosed under the rules
and regulations of the Commission between any of the Purchaser, the Managing
Member, or, to the best of the Purchaser's knowledge, the persons listed on
Schedule I to this Offer to Purchase, on the one hand, and the Partnership or
its affiliates, on the other hand, and (5) there have been no contracts,
negotiations or transactions between the Purchaser, the Managing Member or, to
the best of the Purchaser's knowledge, the persons listed on Schedule I, on the
one hand, and the Partnership or its affiliates, on the other hand, concerning a
merger, consolidation or acquisition, tender offer or other acquisition of
securities, an election of directors or a sale or other transfer of a material
amount of assets.
The Purchaser owns 57 BACs, which represents less than 1% of the number of
BACs outstanding as reported in the Form 10-K (the most recently available
filing containing such information).
Everest
The following information was furnished to Purchaser by Everest Properties,
Inc. ("Everest"):
Everest, with whom an affiliate of the Purchaser has entered into a certain
letter agreement more particularly described in Section 11 below, is a
California corporation whose principal business is investing in real estate
21
<PAGE>
partnerships. The principal office of Everest is 199 South Los Robles Avenue,
Suite 440, Pasadena, California 91101. For certain information concerning the
executive officers and directors of Everest, see Schedule I. The inclusion of
information concerning Everest does not constitute any acknowledgment or
agreement that Everest is a co-bidder in the Offer.
Neither Everest nor any executive officer or director of Everest has,
during the past five years, (a) been convicted in a criminal proceeding
(excluding traffic violations or similar misdemeanors) or (b) been a party to a
civil proceeding in a judicial or administrative body of competent jurisdiction
and as a result of such proceeding was or is subject to a judgment, decree or
final order enjoining future violations of, or prohibiting activities subject
to, Federal or state securities laws or a finding of any violation of such laws.
Except as otherwise set forth in this Offer to Purchase: Everest does not
beneficially own or have a right to acquire, and, to the best knowledge of
Everest, no associate or majority-owned subsidiary of Everest or the persons
listed in Schedule I to this Offer to Purchase, beneficially owns or has a right
to acquire any BACs; Everest does not have, and, to the best knowledge of
Everest, neither the persons and entities referred to above nor any of their
executive officers, directors or subsidiaries has, effected any transaction in
the BACs within the past 60 days; Everest does not have, and, to the best
knowledge of Everest, none of the persons listed in Schedule I to this Offer to
Purchase has, any contract, arrangement, understanding or relationship with any
other person with respect to any securities of the Partnership, including, but
not limited to, contracts, arrangements, understandings or relationships
concerning the transfer or voting thereof, joint ventures, loan or option
arrangements, puts or calls, guarantees of loans, guarantees against loss or the
giving or withholding of proxies; there have been no transactions or business
relationships which would be required to be disclosed under the rules and
regulations of the Commission between the Partnership or any of its affiliates
and Everest or any of its subsidiaries or, to the best knowledge of Everest, any
of the persons listed in Schedule I to this Offer to Purchase, on the one hand,
and the Partnership or its affiliates, on the other hand; and, there have been
no contracts, negotiations or transactions between the Partnership or any of its
affiliates and Everest or any of its subsidiaries or, to the best knowledge of
Everest, any of the persons listed in Schedule I to this Offer to Purchase, on
the one hand, and the Partnership or its affiliates, on the other hand,
concerning a merger, consolidation or acquisition, tender offer or other
acquisition of securities, an election of directors or a sale or other transfer
of a material amount of assets.
11. Background of the Offer.
The purpose of the Offer is to enable the Purchaser to acquire a
significant interest in the Partnership for investment purposes based on its
expectation that the Partnership will continue to generate Tax Credits and tax
losses attributable to the BACs. The Purchaser intends to sell, and has begun
the process of selling, membership interests in the Purchaser to third parties
(mostly corporations) with a need for Tax Credits and/or tax losses. The
aggregate sales price of the Purchaser's membership interests to third parties
will be equal to the aggregate purchase price for the tendered BACs and all
other securities acquired by the Purchaser pursuant to secondary market
transactions, together with the expenses associated therewith, the expenses
associated with the Purchaser's sale of membership interests and the prepayment
of certain fees and expenses in connection with the Purchaser's operations.
Neither the Purchaser nor its current members will derive a profit from the sale
of the Purchaser's membership interests. However, affiliates of the Purchaser
will earn substantial fees in connection with such sales, for structuring this
transaction and for performing certain services for the Purchaser. See Item 8,
Purpose of the Offer; Future Plans.
The Purchaser has not commenced tender offers for the securities of
affiliated partnerships in the past but will commence such tender offers in the
future. However, affiliates of the Purchaser have previously commenced and
completed such tender offers. In connection with a tender offer and the
settlement of matters relating to such tender offer, commenced on April 10, 1997
by Lehigh Tax Credit Partners L.L.C. ("Lehigh I"), an affiliate of the
Purchaser, Lehigh I entered into an agreement with Everest, dated April 23, 1997
(the "Everest Agreement", a copy of which has been filed as Exhibit (c)(2) to
the Purchaser's Tender Offer Statement on Schedule 14D-1 filed with the
Commission on October 9, 1998). Pursuant to the Everest Agreement, Lehigh I and
its affiliates (including the Purchaser) granted to Everest, among other things,
an option to purchase up to 25% of the BACs tendered in the Offer on the same
terms and conditions as the Purchaser's purchase of BACs (the "Everest Option").
In consideration of the foregoing, Everest agreed, among other things, that
neither it nor any of its affiliates will, directly or indirectly: (i) in any
manner, including, without limitation, by tender offer (whether or not pursuant
to a filing made with the Commission), acquire, attempt to acquire or make a
proposal to acquire, directly or indirectly, any securities of the Partnership,
except for (a) the BACs it acquires pursuant to the Everest Option and (b)
purchases of de minimis amounts of securities in the secondary market at the
prevailing secondary market price (it being under-
22
<PAGE>
stood that the purchaser of such de minimis amounts of securities shall be bound
by the terms and conditions of the Everest Agreement); (ii) seek or propose to
enter into, directly or indirectly, any merger, consolidation, business
combination, sale or acquisition of assets, liquidation, dissolution or other
similar transaction involving the Partnership; (iii) make, or in any way
participate, directly or indirectly, in any "solicitation" of "proxies" or
"consents" (as such terms are used in the proxy rules of the Commission) to
vote, or seek to advise or influence any person with respect to the voting of,
any voting securities of the Partnership; (iv) form, join or otherwise
participate in a "group" (within the meaning of Section 13(d)(3) of the Exchange
Act) with respect to any voting securities of the Partnership; (v) disclose in
writing to any third party any intention, plan or arrangement inconsistent with
the terms of the Everest Agreement; or (vi) loan money to, advise, assist or
encourage any person in connection with any action inconsistent with the terms
of the Everest Agreement. The foregoing restrictions shall continue in full
force and effect forever, in perpetuity, with respect to the securities of the
Partnership unless the Purchaser fails to perform its obligations under the
Everest Agreement. The foregoing description of the Everest Agreement is subject
to and qualified in its entirety by reference to such agreement, which agreement
is incorporated herein by reference.
The Purchaser and the General Partner are effectively controlled by the
same persons. Therefore, the Purchaser and the General Partner, subject to its
fiduciary duties, may have a conflict of interest with respect to certain
matters involving BACs holders, Limited Partners and/or the Partnership. In
order to address certain of those matters, the Purchaser entered into the
Standstill Agreement.
The Partnership expressed concern that consummation of the Offer would
cause it to be classified as a "publicly-traded partnership" (a "PTP") for
federal income tax purposes and, therefore, suffer adverse tax consequences. To
address this concern, the Purchaser agreed to retain an independent law firm to
deliver a legal opinion to the Partnership that consummation of the Offer will
not result in it being treated as a PTP. This legal opinion (a copy of which has
been filed as Exhibit (d)(1) to the Purchaser's Tender Offer Statement on
Schedule 14D-1 filed with the Commission on October 9, 1998) was rendered on
October 9, 1998 and, based on certain assumptions set forth in such legal
opinion, stated that consummation of the Offer will not cause the Partnership to
be treated as a publicly-traded partnership for federal income tax purposes.
The Purchaser requested that the Partnership mail this Offer to Purchase,
the related Letter of Transmittal and other relevant material. On October 9,
1998, the Partnership notified the Purchaser that it anticipated mailing such
materials at the Purchaser's expense on such date and the Offer was commenced on
such date.
12. Source of Funds.
The Purchaser expects that approximately $8,145,000 (exclusive of fees and
expenses) would be required to purchase all of the BACs sought pursuant to the
Offer, if tendered. Other than BACs purchased by Everest pursuant to the Everest
Option, if any, the Purchaser presently contemplates that it will borrow all of
such funds from one of its members pursuant to a promissory note dated as of
October 9, 1998 (a copy of which has been filed as Exhibit (b)(1) to the
Purchaser's Tender Offer Statement on Schedule 14D-1 filed on October 9, 1998)
(the "Tender Offer Loan"), containing substantially the same economic terms and
conditions that such member borrows such funds under an existing credit facility
it has available to it with BankBoston, National Association (formerly known as
The First National Bank of Boston) ("BankBoston") and Fleet National Bank (the
"Lenders"). Alternatively, if the Purchaser has completed its contemplated sale
of membership interests, the Purchaser may finance the purchase of BACs pursuant
to the Offer with its own working capital resulting from capital contributions
from its members. Notwithstanding the availability of such funds, the Purchaser
will have the right, and may elect to utilize funds from the Tender Offer Loan
to purchase BACs pursuant to the Offer.
The existing credit agreement is among the Lenders and RCC Credit Facility,
L.L.C., Related Capital Company and The Related Companies, L.P.. The stated
interest rate is the "Base Rate" (as publicly announced by BankBoston, from time
to time) plus 0.5%, which is presently equal to 8.25% per annum or, at the
election of RCC Credit Facility, L.L.C., the "Euro Loan Rate" plus 2.375%. All
of the BACs tendered pursuant to the Offer and all of the Purchaser's membership
interests will be pledged to the Lenders to secure the loan. Additionally,
Related Capital Company will guarantee all amounts borrowed under such credit
facility.
The Purchaser expects to repay all amounts borrowed from its member by
selling additional membership interests to persons or entities that have a need
for the Tax Credits and/or tax losses from the BACs. No plans or arrangements
have been made with regard to the payment of periodic interest required by the
terms of the loan. However, it is expected that if interest payments are due and
payable, the Purchaser may borrow those funds from its affiliate(s).
23
<PAGE>
If Everest exercises the Everest Option for 25% of all of the BACs sought
pursuant to the Offer and 10,860 BACs are tendered and accepted for payment, the
Purchaser expects that approximately $2,036,250 (exclusive of fees and expenses)
of the aggregate purchase price would be paid by Everest. Everest has informed
the Purchaser that Everest will obtain all of such funds from investment funds
Everest has raised from investors.
13. Purchase Price Considerations.
The Purchaser has set the Purchase Price at $750 net per BAC (subject to
adjustment as set forth in this Offer to Purchase). The Purchaser considered the
estimated potential benefits to a non-tendering BACs holder (see below in this
Section 13) and determined the Purchase Price in order to provide comparable
potential benefits to a tendering BACs holder.
If you tender your BACs pursuant to the Offer, the Purchaser believes your
aggregate benefits will total $1,380:
<TABLE>
<S> <C>
Purchase Price: $ 750
Tax Credits Received through November 30, 1998: 293
Tax Savings: 80
Interest to Be Earned on Investing Purchase Price: 275
Historic Tax Credit Recapture: (18)
------
$1,380
======
</TABLE>
If you retain your BACs, the Purchaser believes your aggregate benefits
will total $1,350:
<TABLE>
<S> <C>
Tax Credits Received through November 30, 1998: $ 293
Present Value of Expected Remaining Tax Credits: 728
Present Value of Original Investment, if returned: 329
------
$1,350
======
</TABLE>
The Purchaser believes that the projected aggregate per BAC benefit from
the Offer, together with the benefits received since 1994, total approximately
$1,380. Such benefits include $750 (the Purchase Price) plus $293 (representing
the Tax Credits allocated through November 30, 1998) plus approximately $80
(representing the tax savings, assuming a tax rate of 20% for capital gain and
36% for ordinary income, attributable to the use of a capital loss of $27 and an
ordinary loss of $208 the Purchaser believes an individual BACs holder will
realize if all of his BACs are sold in the Offer) plus approximately $275
(representing the assumed return on the reinvestment of the Purchase Price at 4%
for approximately 12 years, discounted at a rate of 8%) less approximately $18
(representing a recapture of Historic Tax Credits). The projected benefit of
$1,380 assumes the BACs holder acquired the BACs pursuant to the original
offering and such BACs holder did not utilize any passive losses. The projected
benefit may be more or less depending on, among other things, a tendering BACs
holder's tax rate and the return a tendering BACs holder may earn upon investing
the Purchase Price.
The Purchaser believes that such aggregate projected benefit compares
favorably with the potential benefits to a BACs holder who remains in the
Partnership (together with the benefits received since 1994), continuing to
receive Tax Credits, and assuming a return of the present value of the original
investment of $1,000 as, and if, the 20 properties owned by the Local
Partnerships in which the Partnership has an interest are sold for amounts in
excess of the then existing indebtedness and other liabilities. The aggregate of
such potential benefits is estimated by the Purchaser to be approximately
$1,350, which includes $293 (the Tax Credits allocated through November 30,
1998) plus $728 (the present value at 8% of the remaining Tax Credits to be
allocated over the remaining compliance period) plus approximately $329 (the
present value at 8% of a BACs holder's original $1,000 investment, returned
ratably over the 4 years beginning December 1, 2011 and ending December 1, 2014
and assuming a discount rate of 8%). There can, however, be no assurance that
these benefits will be realized. Neither the General Partner nor the Purchaser
is making any representation, and there can be no assurance, that any or all of
the properties owned by the Local Partnerships in which the Partnership has an
interest will be sold and, if sold, will result in distributable cash sufficient
to return any of a BACs holder's original investment.
The Form 10-K states that: "Neither the BACs nor the Limited Partnership
Interests are traded on any established trading market. The Partnership does not
intend to include the BACs for quotation on NASDAQ or for listing on any
national or regional stock exchange or any other established securities market."
At present, pri-
24
<PAGE>
vately negotiated sales and sales through intermediaries (e.g., through the
trading system operated by Chicago Partnership Board, Inc., which publishes
sales by holders of BACs) are the only means available to BACs holders to
liquidate an investment in BACs (other than the Offer) because the BACs are not
listed or traded on any exchange or quoted on any NASDAQ list or system.
According to Partnership Spectrum, an independent third-party industry
publication, for the two months ended August 31, 1997, a total of 20 BACs traded
at a per BAC price of $850. Set forth below is a schedule of the trading
activity of BACs during the two years ended August 31, 1998 as reported by The
Partnership Spectrum (as of the date of this Offer to Purchase, the most recent
issue of The Partnership Spectrum is for the two month period ended August 31,
1998):
Trading Activity for Two Years Ended August 31, 1998
<TABLE>
<CAPTION>
Period Low/High No. of BACs Traded
------ -------- ------------------
<S> <C> <C>
July 1, 1996--September 30, 1996 $ 870/$870 20
October 1, 1996--November 30, 1996 $ 870/$870 5
December 1, 1996--January 31, 1997 $ 700/$824.78 32
February 1, 1997--May 31, 1997 N/A 0
June 1, 1997--July 31, 1997 $ 850/$850 20
August 1, 1997--August 31, 1998 N/A 0
</TABLE>
BACs holders are advised, however, that such gross sales prices reported by The
Partnership Spectrum do not necessarily reflect the net sales proceeds received
by sellers of BACs, which typically are reduced by commissions and other
secondary market transaction costs to amounts less than the reported prices.
The Purchase Price represents the price at which the Purchaser is willing
to purchase BACs. No independent person has been retained to evaluate or render
any opinion with respect to the fairness of the Purchase Price and no
representation is made by the Purchaser or any affiliate of the Purchaser as to
such fairness. The Purchaser did not attempt to obtain current independent
valuations or appraisals of the underlying assets owned by the Partnership.
Other measures of the value of the BACs may be relevant to BACs holders. BACs
holders are urged to consider carefully all of the information contained herein
and should consult with their respective tax and other advisors regarding the
terms of the Offer before deciding whether to tender BACs.
14. Conditions of the Offer.
Notwithstanding any other provisions of the Offer and in addition to (and
not in limitation of) the Purchaser's rights to extend and amend the Offer at
any time in its sole discretion, the Purchaser shall not be required to accept
for payment, subject to Rule 14e-1(c) under the Exchange Act, any tendered BACs
and may terminate the Offer as to any BACs not then paid for if, prior to the
Expiration Date, (i) the Purchaser shall not have confirmed to its reasonable
satisfaction that, upon purchase of the BACs pursuant to the Offer, the
Purchaser will have full rights to ownership as to all such BACs and the
Purchaser will become the transferee of the purchased BACs for all purposes
under the Partnership Agreement, (ii) the Purchaser shall not have confirmed to
its reasonable satisfaction that, upon the purchase of the BACs pursuant to the
Offer, the Transfer Restrictions will have been satisfied, or (iii) all
authorizations, consents, orders or approvals of, or declarations or filings
with, or expirations of waiting periods imposed by, any court, administrative
agency or commission or other governmental authority or instrumentality,
domestic or foreign, necessary for the consummation of the transactions
contemplated by the Offer shall not have been filed, occurred or been obtained.
Furthermore, notwithstanding any other term of the Offer, the Purchaser will not
be required to accept for payment and may terminate or amend the Offer as to
such BACs if, at any time on or after the date of the Offer and before the
Expiration Date, any of the following conditions exist:
(a) there shall have occurred (i) any general suspension of trading in, or
limitation on prices for, securities on any national securities exchange or the
over-the-counter market in the United States, (ii) a declaration of a banking
moratorium or any suspension of payments in respect of banks in the United
States (whether or not mandatory), (iii) the commencement or escalation of a
war, armed hostilities or other national or international crisis involving the
United States, (iv) any limitation (whether or not mandatory) imposed by any
governmental authority on, or any other event that might have material adverse
significance with respect to, the nature or extension of credit by banks or
other lending institutions in the United States, or (v) in the case of any of
the foregoing, a material acceleration or worsening thereof; or
(b) any material adverse change (or any condition, event or development
involving a prospective material adverse change) shall have occurred or be
likely to occur in the business, prospects, financial condition, results
25
<PAGE>
of operations, properties, assets, liabilities, capitalization, partners'
equity, licenses, franchises or businesses of the Partnership and its
subsidiaries taken as a whole; or
(c) there shall have been threatened, instituted or pending any action,
proceeding, application, audit, claim or counterclaim by any government or
governmental authority or agency, domestic or foreign, or by or before any court
or governmental, regulatory or administrative agency, authority or tribunal,
domestic, foreign or supranational, which (i) challenges the acquisition by the
Purchaser of the BACs or seeks to obtain any material damages as a result
thereof, (ii) makes or seeks to make illegal, the acceptance for payment,
purchase or payment for any BACs or the consummation of the Offer, (iii) imposes
or seeks to impose limitations on the ability of the Purchaser or any affiliate
of the Purchaser to acquire or hold or to exercise full rights of ownership of
the BACs, including, but not limited to, the right to vote (through the Assignor
Limited Partner) any BACs purchased by them on all matters with respect to which
BACs holders have the right to direct the Assignor Limited Partner on the manner
in which it will vote on matters presented to the Limited Partners and BACs
holders, (iv) may result in a material diminution in the benefits expected to be
derived by the Purchaser or any of their affiliates as a result of the Offer,
(v) requires divestiture by the Purchaser of any BACs, (vi) might materially
adversely affect the business, properties, assets, liabilities, financial
condition, operations, results of operations or prospects of the Partnership or
the Purchaser, or (vii) challenges or adversely affects the Offer; or
(d) there shall be any action taken, or any statute, rule, regulation,
order or injunction shall have been enacted, promulgated, entered, enforced or
deemed applicable to the Offer, or any other action shall have been taken, by
any government, governmental authority or court, domestic or foreign, other than
the routine application to the Offer of waiting periods that has resulted, or in
the reasonable good faith judgment of the Purchaser could be expected to result,
in any of the consequences referred to in clauses (i) through (vii) of paragraph
(c) above; or
(e) the Partnership or any of its subsidiaries shall have authorized,
recommended, proposed or announced an agreement or intention to enter into an
agreement, with respect to any merger, consolidation, liquidation or business
combination, any acquisition or disposition of a material amount of assets or
securities, or any comparable event, not in the ordinary course of business
consistent with past practices; or
(f) the failure to occur of any necessary approval or authorization by any
federal or state authorities necessary to the consummation of the purchase of
all or any part of the BACs to be acquired hereby, which in the reasonable
judgment of the Purchaser in any such case, and regardless of the circumstances
(including any action of the Purchaser) giving rise thereto, makes it
inadvisable to proceed with such purchase or payment; or
(g) the Purchaser shall become aware that any material right of the
Partnership or any of its subsidiaries under any governmental license, permit or
authorization relating to any environmental law or regulation is reasonably
likely to be impaired or otherwise adversely affected as a result of, or in
connection with, the Offer; or
(h) the Partnership or its General Partner shall have amended, or proposed
or authorized any amendment to, the Partnership Agreement or the Purchaser shall
have become aware that the Partnership or its General Partner has proposed any
such amendment.
The foregoing conditions are for the sole benefit of the Purchaser and its
affiliates and may be asserted by the Purchaser regardless of the circumstances
(including, without limitation, any action or inaction by the Purchaser or any
of its affiliates) giving rise to such condition, or may be waived by the
Purchaser, in whole or in part, from time to time in its sole discretion. The
failure by the Purchaser at any time to exercise the foregoing rights will not
be deemed a waiver of such rights, which will be deemed to be ongoing and may be
asserted at any time and from time to time. Any determination by the Purchaser
concerning the events described in this Section 14 will be final and binding
upon all parties.
15. Certain Legal Matters.
Except as set forth in this Offer to Purchase, based on its review of
publicly available filings by the Partnership with the Commission and other
publicly available information regarding the Partnership, the Purchaser is not
aware of any licenses or regulatory permits that would be material to the
business of the Partnership, taken as a whole, and that might be adversely
affected by the Purchaser's acquisition of BACs as contemplated herein, or any
filings, approvals or other actions by or with any domestic or foreign
governmental authority or administrative or regulatory agency that would be
required prior to the acquisition of BACs by the Purchaser pursuant to the Offer
as contemplated herein, other than the filing of a Tender Offer Statement on
Schedule 14D-1 (which has been filed)
26
<PAGE>
and any required amendments thereto. Should any such approval or other action be
required, there can be no assurance that any such additional approval or action,
if needed, would be obtained without substantial conditions or that adverse
consequences might not result to the Partnership's business, or that certain
parts of the Partnership's or the Purchaser's businesses might not have to be
disposed of or held separate or other substantial conditions complied with in
order to obtain such approval or action in the event that such approvals were
not obtained or such actions were not taken.
Appraisal Rights. BACs holders will not have appraisal rights as a result
of the Offer.
State Anti-takeover Laws. A number of states have adopted anti-takeover
laws which purport, to varying degrees, to be applicable to attempts to acquire
securities of corporations or other entities which are incorporated or organized
in such states or which have substantial assets, securityholders, principal
executive offices or principal places of business therein. Although the
Purchaser has not attempted to comply with any state anti-takeover statutes in
connection with the Offer, the Purchaser reserves the right to challenge the
validity or applicability of any state law allegedly applicable to the Offer and
nothing in this Offer to Purchase nor any action taken in connection therewith
is intended as a waiver of such right. If any state anti-takeover statute is
applicable to the Offer, the Purchaser might be unable to accept for payment or
purchase BACs tendered pursuant to the Offer or be delayed in continuing or
consummating the Offer. In such case, the Purchaser may not be obliged to accept
for purchase or pay for any BACs tendered.
ERISA. By executing and returning the Letter of Transmittal, a BACs holder
will be representing that either (a) the BACs holder is not a plan subject to
Title I of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), or Section 4975 of the Code, or an entity deemed to hold "plan
assets" within the meaning of 29.C.F.R. '2510.3-101 of any such plan; or (b) the
tender and acceptance of BACs pursuant to the Offer will not result in a
nonexempt prohibited transaction under Section 406 of ERISA or Section 4975 of
the Code.
Margin Requirements. The BACs are not "margin securities" under the
regulations of the Board of Governors of the Federal Reserve System and,
accordingly, those regulations generally are not applicable to the Offer.
Antitrust. Under the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended (the "HSR Act"), and the rules and regulations that have been
promulgated thereunder by the Federal Trade Commission (the "FTC"), certain
acquisition transactions may not be consummated until certain information and
documentary material has been furnished for review by the Antitrust Division of
the Department of Justice and the FTC and certain waiting period requirements
have been satisfied. The Purchaser does not believe any filing is required under
the HSR Act with respect to its acquisition of BACs contemplated by the Offer.
16. Certain Fees and Expenses.
Except as set forth in this Section 16, the Purchaser will not pay any fees
or commissions to any broker, dealer or other person for soliciting tenders of
BACs pursuant to the Offer. The Purchaser has chosen initially not to utilize
the services of an outside information agent/depository (the "Outside Agent") in
connection with the Offer, but reserves the right retain an Outside Agent in the
future. In such a case, the Purchaser will pay to such Outside Agent reasonable
and customary compensation for its services, plus reimbursement for reasonable
out-of-pocket expenses, and may agree to indemnify such Outside Agent against
certain liabilities and expenses in connection therewith, including certain
liabilities under the federal securities laws. The Purchaser will also pay all
costs and expenses of printing and mailing the Offer and its legal fees and
expenses.
17. Miscellaneous.
The Offer is being made to all BACs holders, Beneficial Owners and
Assignees, all to the extent their names and addresses are reflected on the
books and records of the Partnership. The Purchaser is not aware of any state in
which the making of the Offer is prohibited by administrative or judicial action
pursuant to a state statute. If the Purchaser becomes aware of any state where
the making of the Offer is so prohibited, the Purchaser will make a good faith
effort to comply with any such statute or seek to have such statute declared
inapplicable to the Offer. If, after such good faith effort, the Purchaser
cannot comply with any applicable statute, the Offer will not be made to (nor
will tenders be accepted from or on behalf of) BACs holders in such state.
Pursuant to Rule 14d-3 of the General Rules and Regulations under the
Exchange Act, the Purchaser has filed with the Commission a Tender Offer
Statement on Schedule 14D-1, together with exhibits, furnishing certain
additional information with respect to the Offer. Such statement and any
amendments thereto, including exhibits,
27
<PAGE>
may be inspected and copies may be obtained at the same places and in the same
manner as set forth with respect to information concerning the Partnership in
Section 9 ("Certain Information Concerning the Partnership") (except that they
will not be available at the regional offices of the Commission).
No person has been authorized to give any information or make any
representation on behalf of the Purchaser not contained herein or in the Letter
of Transmittal and, if given or made, such information or representation must
not be relied upon as having been authorized.
Lehigh Tax Credit Partners III L.L.C.
October 9, 1998
28
<PAGE>
APPENDIX A
GLOSSARY OF DEFINED TERMS
"Assignee" means a person or entity who has purchased BACs but is not
recognized on the books and records of the Partnership maintained by the
Assignor Limited Partner as a registered holder of such BACs.
"Assignor Limited Partner" means Independence Assignor Inc., a Delaware
corporation, or any successor to it which holds Limited Partnership Interests on
behalf of BACs holders.
"BACs" means the beneficial assignment certificates executed by the
Assignor Limited Partner and delivered to a purchaser of BACs in evidence of the
assignment by the Assignor Limited Partner to such BACs holder of all of the
economic and virtually all of the other rights, benefits and privileges of the
ownership of a portion of the Partnership interest of the Assignor Limited
Partner.
"BACs holder" means a holder of BACs and who is reflected as an assignee of
record of BACs on the books and records of the Partnership maintained by the
Assignor Limited Partner.
"BankBoston" means BankBoston, N.A. (formerly known as The First National
Bank of Boston).
"Beneficial Owner" means a BACs holder in the case of BACs owned by
Individual Retirement Accounts or Keogh plans.
"business day" means any day other than a Saturday, Sunday or federal
holiday and consists of the time period from 12:01 a.m. through 12:00 midnight,
New York City time, and any time period of business days will be computed in
accordance with Rule 14d-1(c)(6) under the Exchange Act.
"Code" means the Internal Revenue Code of 1986, as amended.
"Commission" means the Securities and Exchange Commission.
"Credit Period" has the meaning set forth in Section 9.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Everest" means Everest Properties, Inc.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, and
the rules and regulations promulgated thereunder.
"Expiration Date" has the meaning set forth in Section 1.
"Form 10-K" means the Partnership's Form 10-K for the fiscal year ended
March 31, 1998.
"FTC" means the Federal Trade Commission.
"General Partner" means Related Independence Associates III L.P., a
Delaware limited partnership and the general partner of the Partnership. The
General Partner is affiliated with the Purchaser.
"Historic Tax Credits" means any historic rehabilitation credits to tax
allowed to the Partnership and its partners under Section 47 of the Code.
"Housing Tax Credits" means any low-income housing credits to tax allowed
to the Partnership and its partners under Section 42 of the Code.
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended.
"Independence SLP" means Independence SLP III L.P., a Delaware limited
partnership and an affiliate of the General Partner.
"IRA" means an individual retirement account.
"Lenders" means BankBoston and Fleet National Bank.
A-1
<PAGE>
"Limited Partner" means the Assignor Limited Partner, the Original Limited
Partner or any other person or entity who is admitted as a Substituted Limited
Partner, at the time of reference thereto, in such person's or entity's capacity
as a limited partner of the Partnership.
"Limited Partnership Interest" means the ownership interest of a Limited
Partner, including its interest in distributions, including liquidating
distributions, and profits and losses of the Partnership and all of its other
rights, duties and obligations under the Partnership Agreement.
"Managing Member" means Lehigh Tax Credit Partners, Inc., a Delaware
corporation and the managing member of the Purchaser.
"NASD" means the National Association of Securities Dealers, Inc.
"Offer" has the meaning set forth in the Introduction.
"Offer to Purchase" means this Offer to Purchase, dated October 9, 1998.
"Outside Agent" has the meaning set forth in Section 16.
"Partnership" means Independence Tax Credit Plus L.P. III, a Delaware
limited partnership.
"Partnership Agreement" means the Amended and Restated Agreement of Limited
Partnership of the Partnership, dated as of August 2, 1994, by and among Related
Independence Associates III L.P., a Delaware limited partnership, as General
Partner, Alan P. Hirmes as Original Limited Partner, Independence SLP III L.P.,
a Delaware limited partnership, as Special Limited Partner of Local
Partnerships, Independence Assignor Inc., a Delaware corporation, as Assignor
Limited Partner, and those persons or entities admitted to the Partnership from
time to time as Limited Partners.
"Purchase Price" has the meaning set forth in the Introduction.
"Purchaser" means Lehigh Tax Credit Partners III L.L.C., a Delaware limited
liability company and an affiliate of the General Partner.
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder.
"Standstill Agreement" means the letter agreement, dated October 6, 1998,
among the Partnership, the Purchaser and the General Partner.
"Standstill Expiration Date" means October 6, 2008.
"Substituted Limited Partner" means any person or entity admitted to the
Partnership as a Limited Partner pursuant to the provisions of Section 7.2D of
the Partnership Agreement.
"Tax Credits" means Historic Tax Credits and Housing Tax Credits.
"Tender Offer Loan" has the meaning set forth in Section 12.
"TIN" means taxpayer identification number.
"Transfer Restrictions" has the meaning set forth in Section 2.
"UBTI" means unrelated business taxable income.
"Unit" means a unit of limited partner interest in the Partnership,
representing a cash contribution of $1,000 to the capital of the Partnership.
A-2
<PAGE>
SCHEDULE I
EXECUTIVE OFFICERS AND DIRECTORS OF LEHIGH TAX CREDIT PARTNERS, INC.
Set forth below is the name, current business address, present principal
occupation, and employment history for at least the past five years of each
executive officer and director of Lehigh Tax Credit Partners, Inc. (the
"Managing Member" of the Purchaser). Each person listed below is a citizen of
the United States.
J. Michael Fried is a director and executive officer of the Managing
Member. Mr. Fried is also the President and a Director of Related Independence
Associates III Inc., the sole general partner of the General Partner.
Additionally, Mr. Fried is the sole stockholder of one of the general partners
of Related Capital Company ("Related Capital"), a New York general partnership
that has, directly or indirectly, sponsored 22 public and 238 private real
estate investment programs that have raised in excess of $2.8 billion from more
than 106,000 investors. In that capacity, he is generally responsible for all of
syndication, finance, acquisition and investor reporting activities of Related
Capital and its affiliates. Mr. Fried practiced corporate law in New York City
with the law firm of Proskauer Rose Goetz & Mendelsohn (now Proskauer Rose LLP)
from 1974 until he joined Related in 1979. Mr. Fried graduated from Brooklyn Law
School with a Juris Doctor Degree, magna cum laude; from Long Island University
Graduate School with a Master of Science degree in Psychology; and from Michigan
State University with a Bachelor of Arts degree in History. Mr. Fried's business
address is 625 Madison Avenue, New York, New York 10022.
Stuart J. Boesky is a director and executive officer of the Managing
Member. Mr. Boesky is also a Vice President of Related Independence Associates
III Inc., the sole general partner of the General Partner. Mr. Boesky practiced
real estate and tax law in New York City with the law firm of Shipley &
Rothstein from 1984 until February 1986 when he joined Related Capital. From
1983 to 1984 Mr. Boesky practiced law with the Boston law firm of Kaye, Fialkow,
Richmond & Rothstein and from 1978 to 1980 was a consultant specializing in real
estate at the accounting firm of Laventhol & Horwath. Mr. Boesky is the sole
stockholder of one of the general partners of Related Capital. Mr. Boesky
graduated from Michigan State University with a Bachelor of Arts degree and from
Wayne State School of Law with a Juris Doctor degree. He then received a Master
of Laws degree in Taxation from Boston University School of Law. Mr. Boesky's
business address is 625 Madison Avenue, New York, New York 10022.
Alan P. Hirmes is a director and executive officer of the Managing Member.
Mr. Hirmes is also the Senior Vice President of Related Independence Associates
III Inc., the sole general partner of the General Partner. Additionally, Mr.
Hirmes has been a Certified Public Accountant in New York since 1978. Prior to
joining Related Capital in October 1983, Mr. Hirmes was employed by Wiener &
Co., certified public accountants. Mr. Hirmes is the sole stockholder of one of
the general partners of Related Capital. Mr. Hirmes graduated from Hofstra
University with a Bachelor of Arts degree. Mr. Hirmes' business address is 625
Madison Avenue, New York, New York 10022.
Marc D. Schnitzer is an executive officer of the Managing Member. Mr.
Schnitzer is also a Vice President of Related Independence Associates III Inc.,
the sole general partner of the General Partner. Mr. Schnitzer received a Master
of Business Administration degree from The Wharton School of The University of
Pennsylvania in December 1987 and joined Related Capital in January 1988. From
1983 to 1986, Mr. Schnitzer was a Financial Analyst in the Fixed Income Research
department of The First Boston Corporation in New York. Mr. Schnitzer is an
Executive Vice President of Related Capital. Mr. Schnitzer received a Bachelor
of Science degree, summa cum laude, in Business Administration from the School
of Management at Boston University in May 1983. Mr. Schnitzer's business address
is 625 Madison Avenue, New York, New York 10022.
Denise L. Kiley is an executive officer of the Managing Member. Prior to
joining Related Capital in 1990, Ms. Kiley was a First Vice President with
Resources Funding Corporation where she was responsible for acquiring,
financing, and asset managing multifamily residential properties. From 1981
through 1985 she was an auditor with Price Waterhouse. Ms. Kiley is an Executive
Vice President of Related Capital. Ms. Kiley holds a Bachelor of Science in
Accounting from The Carroll School of Management at Boston College. Ms. Kiley's
business address is 625 Madison Avenue, New York, New York 10022.
S-1
<PAGE>
EXECUTIVE OFFICERS AND DIRECTORS OF EVEREST PROPERTIES, INC.
The business address of each executive officer and director of Everest
Properties, Inc. is 199 South Los Robles Avenue, Suite 440, Pasadena,
California 91101. Each executive officer and director of Everest Properties,
Inc. is a United States citizen. The name and principal occupation or
employment of each executive officer and director of Everest Properties, Inc.
are set forth below.
<TABLE>
<CAPTION>
Present Principal Occupation or Employment
Name Position and Five-Year Employment History
---- -----------------------------------------
<S> <C>
W. Robert Kohorst President and Director of Everest Properties, Inc. from 1994--present.
President of Everest Properties II, LLC from 1996--present.
President and Director of KH Financial, Inc. from 1991--present.
David I. Lesser Executive Vice President of Everest Properties, Inc. from 1995--present.
Executive Vice President and Secretary of Everest Properties II, LLC
from 1996--present.
Principal and member of Feder, Goodman & Schwartz, Inc. from
1992-1996.
</TABLE>
S-2
<PAGE>
SCHEDULE II
Local Partnership Schedule
<TABLE>
<CAPTION>
% of Units Occupied at May 1,
---------------------------------
Name and Location (Number of Units) Date Acquired 1998 1997 1996
- -------------------------------------- --------------- -------- -------- -----------
<S> <C> <C> <C> <C>
Edward Hotel Limited Partnership
Los Angeles, CA (47) November 1994 98% 100% 98%
Pacific-East L.P.
Brooklyn, NY (39) December 1994 100% 97% 100%
Overtown Development Group, Ltd.
Miami, FL (65) December 1994 78% 89% 90%
Sumpter Commons Associates, L.P.
Brooklyn, NY (21) April 1995 95% 95% 100%
Park Housing Limited Partnership
Hartford, CT (30) May 1995 93% 97% 86%**
Livingston Manor Urban
Renewal Associates, L.P.
New Brunswick, NJ (50) June 1995 96% 94% 34%**
Jefferis Square Housing
Partnership L.P.
Chester, PA (36) June 1995 100% 97% 0%*
2301 First Avenue Limited Partnership
New York, NY (92) August 1995 99% 97% 96%
Lewis Street L.P.
Buffalo, NY (32) October 1995 97% 100% 0%*
Savannah Park Housing
Limited Partnership
Washington, DC (64) October 1995 79% 77% 92%
Brannon Group, L.C.
Leisure City, FL (80) December 1995 94% 95% 96%
Mansion Court Phase II Venture
Philadelphia, PA (19) December 1995 100% 100% 0%*
Primm Place Partners, L.P.
St. Louis, MO (128) December 1995 97%* 31% 0%*
BK-9-A Partners L.P.
Brooklyn, NY (23) December 1995 100% 100% 100%
BK-10K Partners L.P.
Brooklyn, NY (21) December 1995 81% 91% 100%
Aspen-Olive Associates
Philadelphia, PA (22) October 1996 100% 0%*
West Mill Creek Associates III L.P.
Philadelphia, PA (72) January 1997 99% 0%*
Universal Court Associates
Philadelphia, PA (32) April 1997 0%*
</TABLE>
S-3
<PAGE>
<TABLE>
<CAPTION>
% of Units Occupied at May 1,
---------------------------------
Name and Location (Number of Units) Date Acquired 1998 1997 1996
- -------------------------------------- --------------- -------- -------- -----------
<S> <C> <C>
New Zion Apartments, Limited
Partnership
Shreveport, LA November 1997 0%*
Dreitzer House
New York, NY December 1997 0%*
</TABLE>
- ----------------
* Properties in construction phase during year indicated.
** Properties in rent-up phase during year indicated.
S-4
<PAGE>
SCHEDULE III
Certain Information Concerning the Properties
As of March 31, 1998
<TABLE>
<CAPTION>
Initial Cost to Partnership
----------------------------
Cost
Capitalized
Subsequent to
Buildings and Acquisition:
Description Encumbrances Land Improvements Improvements Land
- ----------- ------------ ---- ------------- ------------- ----
<S> <C> <C> <C> <C> <C>
Apartment Complexes
Edward Hotel
Limited Partnership
Los Angeles, CA $2,399,459 $275,000 $ 591,240 $2,569,916 $281,123
Pacific-East, L.P.
Brooklyn, NY 2,159,530 1,950 3,125,584 156,037 8,075
Overtown
Development Group, Ltd.
Miami, FL 1,446,235 52,284 2,627,099 147,487 58,408
Sumpter Commons
Associates, L.P.
Brooklyn, NY 1,253,898 500 1,862,916 46,663 3,673
Park Housing
Limited Partnership
Hartford, CT 851,456 5,000 2,343,351 64,880 8,173
Livingston Manor
Urban Renewal
Associates, L.P.
New Brunswick, NJ 3,080,000 119,988 7,047,532 578,995 123,161
Jefferis Square Housing
Partnership, L.P.
Chester, PA 1,900,000 55,158 0 4,581,407 39,347
2301 First Avenue
Limited Partnership
New York, NY 5,558,533 64,350 5,818,269 83,080 67,523
Lewis Street Limited
Partnership
Buffalo, NY 1,600,000 7,000 0 2,746,565 10,173
Savannah Park
Housing Limited
Partnership
Washington, DC 855,633 0 2,049,888 2,054,271 3,173
Brannon Group, L.C.
Leisure City, FL 2,366,025 380,000 2,598,402 63,464 383,173
<CAPTION>
Life on Which
Depreciation
Gross Amount at which Carried At Close of in
Period Year Latest
--------------------------------------------- of Income
Buildings and Accumulated Constitution/ Date Statements is
Description Improvements Total Depreciation Renovation Acquired Computed (a)(b)
- ----------- ------------- ----- ------------ ------------- -------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Apartment Complexes
Edward Hotel
Limited Partnership
Los Angeles, CA $3,155,033 $3,436,156 $282,261 1994-95 November 1994 40 years
Pacific-East, L.P.
Brooklyn, NY 3,275,496 3,283,571 452,441 1994-95 December 1994 27.5 years
Overtown
Development Group, Ltd.
Miami, FL 2,768,462 2,826,870 236,372 1994-95 December 1994 27.5 years
Sumpter Commons
Associates, L.P.
Brooklyn, NY 1,906,406 1,910,079 164,502 1995-96 April 1995 27.5 years
Park Housing
Limited Partnership
Hartford, CT 2,405,058 2,413,231 180,080 1995-96 May 1995 27.5 years
Livingston Manor
Urban Renewal
Associates, L.P.
New Brunswick, NJ 7,623,354 7,746,515 359,493 1995-96 June 1995 40 years
Jefferis Square Housing
Partnership, L.P.
Chester, PA 4,597,218 4,636,565 188,292 1995-96 June 1995 20-40 years
2301 First Avenue
Limited Partnership
New York, NY 5,898,176 5,965,699 623,658 1995-96 August 1995 27.5 years
Lewis Street Limited
Partnership
Buffalo, NY 2,743,392 2,753,565 174,875 1995-96 October 1995 27.5 years
Savannah Park
Housing Limited
Partnership
Washington, DC 4,100,986 4,104,159 283,367 1995-96 October 1995 27.5 years
Brannon Group, L.C.
Leisure City, FL 2,658,693 3,041,866 178,011 1995-96 December 1995 40 years
</TABLE>
S-5
<PAGE>
SCHEDULE III (continued)
Certain Information Concerning the Properties
As of March 31, 1998
<TABLE>
<CAPTION>
Initial Cost to Partnership
-----------------------------
Cost
Capitalized
Subsequent to
Buildings and Acquisition
Description Encumbrances Land Improvements Improvements Land
- ----------- ------------ ---- ------------- ------------- ----
<S> <C> <C> <C> <C> <C>
Independence Tax
Credit Fund L.P. (c) $ 2,387,072 $ 1,732 $ 339,661 $ 6,157,346 $ 5,123
Primm Place
Partners, L.P.
St. Louis, MO 4,395,000 168,258 0 6,991,409 67,777
BK-9-A Partners L.P.
Brooklyn, NY 1,087,690 0 1,517,313 (57,378) 3,173
BK-10K Partners L.P.
Brooklyn, NY 1,216,390 11,000 1,637,762 (8,271) 14,176
West Mill Creek
Associates III L.P.
Philadelphia, PA 2,773,583 37,031 6,922,563 12,362 37,649
Universal Court
Associates
Philadelphia, PA 0 31,024 279,220 12,362 31,642
New Zion
Apartments, Limited
Partnership
Shreveport, LA 1,125,750 20,000 2,688,770 12,362 20,618
Dreitzer House
New York, NY 268,335 5 0 12,362 623
$36,754,589 $1,230,280 $41,449,570 $26,225,319 $1,166,783
=========== ========== =========== =========== ==========
<CAPTION>
Life on Which
Depreciation
Gross Amount at which Carried At Close of in
Period Year Latest
-------------------------------------------- of Income
Buildings and Accumulated Constitution/ Date Statements is
Description Improvements Total Depreciation Renovation Acquired Computed (a)(b)
- ----------- ------------- ----- ------------ ------------- -------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Independence Tax
Credit Fund L.P. (c) $ 6,493,616 $ 6,498,739 $ 122,716 1995-96 December 1995 20-40 years
Primm Place
Partners, L.P.
St. Louis, MO 7,091,890 7,159,667 116,689 1995-96 December 1995 10-40 years
BK-9-A Partners L.P.
Brooklyn, NY 1,456,762 1,459,935 107,106 1995-96 December 1995 40 years
BK-10K Partners L.P.
Brooklyn, NY 1,626,315 1,640,491 119,582 1995-96 December 1995 40 years
West Mill Creek
Associates III L.P.
Philadelphia, PA 6,934,307 6,971,956 189,094 1997-98 December 1996 27.5 years
Universal Court
Associates
Philadelphia, PA 290,964 322,606 1,833 1997-98 April 1997 27.5 years
New Zion
Apartments, Limited
Partnership
Shreveport, LA 2,700,514 2,721,132 17,912 1997-98 November 1997 15-27.5 years
Dreitzer House
New York, NY 11,744 12,367 1,833 1997-98 December 1997 27.5 years
$67,738,386 $68,905,169 $3,800,117
=========== =========== ==========
</TABLE>
- -----------
(a) Depreciation is computed using primarily the straight line method over the
estimated useful lives determined by the Partnership date of acquisition.
(b) Personal property is depreciated primarily by the straight line method over
the estimated useful lives of 5 to 12 years.
(c) Includes consolidated information for Mansion Court Phase II Venture and
Aspen-Olive Associates.
S-6
<PAGE>
SCHEDULE III (continued)
Certain Information Concerning the Properties
As of March 31, 1998
<TABLE>
<CAPTION>
Cost of Property and Equipment Accumulated Depreciation
------------------------------------------ -----------------------------------
Year Ended March 31,
----------------------------------------------------------------------------------
1998 1997 1996 1998 1997 1996
----------- ----------- ----------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance at beginning of period $49,002,477 $36,045,837 $ 6,850,227 $1,937,998 $ 609,470 $ 41,573
Additions during period:
Improvements 19,902,692 12,956,640 29,195,610
Depreciation expense 1,862,119 1,328,528 567,897
Deductions during period:
Dispositions 0 0 0 0 0 0
----------- ----------- ----------- ---------- ---------- --------
Balance at close of period $68,905,169 $49,002,477 $36,045,837 $3,800,117 $1,937,998 $609,470
=========== =========== =========== ========== ========== ========
</TABLE>
At the time the Local Partnerships were acquired by Independence Tax Credit Plus
L.P. III, the entire purchase price paid by Independence Tax Credit Plus L.P.
III was pushed down to the Local Partnerships as property and equipment with an
offsetting credit to capital. Since the projects were in the construction phase
at the time of acquisition, the capital accounts were insignificant at the time
of purchase. Therefore, there are no material differences between the original
cost basis for tax and GAAP.
S-7
<PAGE>
Facsimile copies of the Letter of Transmittal, properly completed and duly
executed, will be accepted. Questions and requests for assistance may be
directed to the Purchaser at the address and telephone number listed below.
Additional copies of this Offer to Purchase, the Letter of Transmittal and other
tender offer materials may be obtained from the Purchaser as set forth below,
and will be furnished promptly at the Purchaser's expense. The Letter of
Transmittal and any other required documents should be sent or delivered by each
BACs holder to the Purchaser at its address or facsimile number set forth below.
If tendering by facsimile, a BACs holder should subsequently send original
copies of the Letter of Transmittal and any other required documents to the
Purchaser at its address set forth below. To be effective, a duly completed and
signed Letter of Transmittal or facsimile thereof must be received by the
Purchaser at the address or facsimile number set forth below before 12:00
midnight, New York City Time, on Monday, November 9, 1998.
By Mail/Hand or Overnight Delivery:
Lehigh Tax Credit Partners III L.L.C.
Attn: Denise Bernstein
c/o Related Capital Company
625 Madison Avenue, 5th Floor
New York, New York 10022
Fax: 212-751-3550
For Additional Information Call:
Denise Bernstein
Lehigh Tax Credit Partners III L.L.C.
Tel: 1-800-600-6422 ext. 2030
<PAGE>
(This Page Intentionally Left Blank)
LETTER OF TRANSMITTAL
TO
TENDER BENEFICIAL ASSIGNMENT CERTIFICATES
IN INDEPENDENCE TAX CREDIT PLUS L.P. III
PURSUANT TO THE OFFER TO PURCHASE DATED OCTOBER 9, 1998
BY LEHIGH TAX CREDIT PARTNERS III L.L.C.
<TABLE>
<CAPTION>
Taxpayer Identification Number:
Total Purchase(3)
Number of Number of (1)(2) Purchase Price(3) Price if all
BACs Owned BACs Tendered Per BAC BACs Tendered
------------ ------------------ ------------------- ------------------
<S> <C> <C> <C>
$750
</TABLE>
(1) If no indication is marked in the Number of BACs Tendered column, all
BACs issued to you will be deemed to have been tendered.
(2) Tenders of less than all BACs owned by a BACs holder that would result in
such BACs holder holding less than 5 BACs will not be accepted.
(3) The Purchase Price will be automatically reduced by $14 per BAC for each
month (or part of a month) between December 15, 1998 and the date of
transfer for BACs transferred after December 15, 1998.
Please indicate changes or corrections to the information printed above.
- --------------------------------------------------------------------------------
THE OFFER, PRORATION PERIOD AND WITHDRAWAL RIGHTS WILL EXPIRE AT
MIDNIGHT, NEW YORK CITY TIME, ON THE EXPIRATION DATE (AS SUCH TERM IS DEFINED IN
THE OFFER TO PURCHASE, AS DEFINED BELOW) UNLESS SUCH OFFER IS EXTENDED.
The undersigned hereby tender(s) to Lehigh Tax Credit Partners III L.L.C.,
a Delaware limited liability company (the "Purchaser"), the number of
Beneficial Assignment Certificates ("BACs") representing assignments of limited
partnership interests in Independence Tax Credit Plus L.P. III, a Delaware
limited partnership (the "Partnership"), specified above, pursuant to the
Purchaser's offer to purchase up to 10,860 of the issued and outstanding BACs
at a purchase price of $750 per BAC, net to the seller in cash (the "Purchase
Price"), without interest thereon, upon the terms and subject to the conditions
set forth in the Offer to Purchase dated October 9, 1998 (the "Offer to
Purchase") and this Letter of Transmittal (the "Letter of Transmittal," which,
together with the Offer to Purchase and any supplements, modifications or
amendments thereto, constitute the "Offer"), all as more fully described in the
Offer to Purchase. The Purchase Price will be automatically reduced by $14 per
BAC for each month (or part of a month) between December 15, 1998 and the date
of transfer for BACs transferred after December 15, 1998. BACs HOLDERS WHO
TENDER THEIR BACs WILL NOT BE OBLIGATED TO PAY ANY COMMISSIONS OR PARTNERSHIP
TRANSFER FEES, WHICH COMMISSIONS AND FEES WILL BE BORNE BY THE PURCHASER.
Receipt of the Offer to Purchase is hereby acknowledged. Capitalized terms used
but not defined herein have the respective meanings ascribed to them in the
Offer to Purchase.
By executing and delivering this Letter of Transmittal, a tendering BACs
holder irrevocably appoints the Purchaser and the designees of the Purchaser
and each of them as such BACs holder's attorneys-in-fact and proxies, each with
full power of substitution, to the full extent of such BACs holder's rights
with respect to the BACs tendered by such BACs holder and accepted for payment
by the Purchaser (and with respect to any and all other BACs or other
securities issued or issuable in respect of such BACs on or after the date
hereof). Such appointment and such proxies shall be considered irrevocable and
coupled with an interest in the tendered BACs. Such appointment will be
effective when, and only to the extent that, the Purchaser accepts such BACs
for payment. Upon such acceptance for payment, all prior grants and proxies
given by such BACs holder with respect to such BACs (and such other BACs and
securities) will be revoked without further action, and no subsequent grants
and/or proxies may be given nor any subsequent written consents executed (and,
if given or executed, will not be deemed effective). The Purchaser and its
designees will, with respect to the BACs (and such other BACs and securities)
for which such appointment is effective, be empowered to exercise all voting
and other rights of such BACs holder as it in its sole discretion may deem
proper pursuant to the Partnership Agreement or otherwise. Pursuant to such
appointment as attorneys-in-fact, the Purchaser and its designees each will
have the power, among other things, (i) to seek to transfer ownership of such
BACs on the books and records of the Partnership maintained by the Assignor
Limited Partner (and execute and deliver any accompanying evidences of transfer
and authenticity any of them may deem necessary or appropriate in connection
therewith, including, without limitation, (Continued on Back)
YOU MUST READ CAREFULLY BOTH SIDES OF THIS LETTER OF TRANSMITTAL
- --------------------------------------------------------------------------------
SIGNATURE BOX
- --------------------------------------------------------------------------------
Please sign exactly as your name is printed (or corrected) above. For joint
owners, each joint owner must sign. The signatory hereto hereby certifies under
penalties of perjury that: (i) the Taxpayer Identification Number ("TIN"; i.e.,
the signatory's social security number) printed or corrected above is the
correct TIN of the BACs holder; (ii) the BACs holder is not subject to backup
withholding either because the BACs holder (a) is exempt from backup
withholding, (b) has not been notified by the Internal Revenue Service that the
BACs holder is subject to backup withholding as a result of a failure to report
all interest or dividends, or (c) has been notified by the IRS that such BACs
holder is no longer subject to backup withholding; and (iii) if an individual,
is a U.S. citizen or a resident alien for purposes of U.S. income taxation, and
if other than an individual, is not a foreign corporation, foreign partnership,
foreign trust or foreign estate (as those terms are defined in the Code and
Income Tax Regulations). The undersigned hereby represents and warrants for the
benefit of the Partnership and the Purchaser that the undersigned owns (or
beneficially owns) the BACs tendered hereby and has full power and authority to
validly tender, sell, assign, transfer, convey and deliver the BACs tendered
hereby and that when the same are accepted for payment by the Purchaser, the
Purchaser will acquire good, marketable and unencumbered title thereto, free and
clear of all liens, restrictions, charges, encumbrances, conditional sales
agreements or other obligations relating to the sale or transfer thereof, such
BACs will not be subject to any adverse claims, the transfer and assignment
contemplated herein are in compliance with all applicable laws and regulations,
and that upon such transfer and assignment the undersigned will not own less
than 5 BACs. All authority herein conferred or agreed to be conferred shall
survive the death or incapacity of the undersigned and any obligations of the
undersigned shall be binding upon the heirs, personal representatives,
successors and assigns of the undersigned. Except as stated in Section 4
("Withdrawal Rights") of the Offer to Purchase, this tender is irrevocable.
X______________________________________________________________________________
(Signature of Owner) (Date)
X______________________________________________________________________________
(Signature of Co-Owner, if any) (Date)
X______________________________________________________________________________
(Signature of Owner) (Date)
_______________________________________________________________________________
(Title) (Date)
Telephone (Date) ( )_____________________Telephone (Eve)( )__________________
If signing as a fiduciary, additional documentation will be required to evidence
proper irrevocable. authority. Please call the Purchaser (Attn: Denise
Bernstein) at 1-800-600-6422 ext. 2030.
<PAGE>
any documents or instruments required to be executed under the Partnership
Agreement or a "Transferor's (Seller's) Application for Transfer" created by
the NASD, if required), (ii) upon receipt by the Purchaser of the Purchase
Price, to be allocated all Tax Credits and tax losses and to receive any and
all distributions made by the Partnership after the Expiration Date, and to
receive all benefits and otherwise exercise all rights of beneficial ownership
of such BACs in accordance with the terms of the Offer, (iii) to execute and
deliver to the Partnership, the General Partner and/or the Assignor Limited
Partner (as the case may be) a change of address form instructing the
Partnership to send any and all future distributions to which the Purchaser is
entitled pursuant to the terms of the Offer in respect of tendered BACs to the
address specified in such form, and (iv) to endorse any check payable to or
upon the order of such BACs holder representing a distribution, if any, to
which the Purchaser is entitled pursuant to the terms of the Offer, in each
case on behalf of the tendering BACs holder. This power of attorney shall not
be affected by the subsequent mental disability of the BACs holder, and the
Purchaser shall not be required to post bond in any nature in connection with
this power of attorney. The Purchaser may assign such power of attorney and/or
proxy to any person with or without assigning the related BACs with respect to
which such power of attorney and/or proxy was granted. The Purchaser reserves
the right to require that, in order for BACs to be deemed validly tendered,
immediately upon the Purchaser's payment for such BACs, the Purchaser must be
able to exercise full voting rights with respect to such BACs and other
securities, including voting at any meeting of BACs holders.
By executing and delivering this Letter of Transmittal, a tendering BACs
holder irrevocably assigns to the Purchaser and its assigns all of the, direct
and indirect, right, title and interest of such BACs holder in the Partnership
with respect to the BACs tendered and purchased pursuant to the Offer,
including, without limitation, such BACs holder's right, title and interest in
and to any and all Tax Credits and tax losses and any and all distributions
made by the Partnership after the Expiration Date in respect of the BACs
tendered by such BACs holder and accepted for payment by the Purchaser,
regardless of the fact that the record date for any such distribution may be a
date prior to the Expiration Date. The Purchaser reserves the right to transfer
or assign, in whole or from time to time in part, to any third party, the right
to purchase BACs tendered pursuant to the Offer, together with its rights under
the Letter of Transmittal, but any such transfer or assignment will not relieve
the assigning party of its obligations under the Offer or prejudice the rights
of tendering BACs holders to receive payment for BACs validly tendered and
accepted for payment pursuant to the Offer.
A tendering BACs holder recognizes that, if proration is required pursuant
to the terms of the Offer, the Purchaser will accept for payment from among
those BACs validly tendered on or prior to the Expiration Date and not properly
withdrawn, the maximum number of BACs permitted pursuant to the Offer on a pro
rata basis, with adjustments to avoid purchases which would violate the terms
of the Offer, based upon the number of BACs validly tendered prior to the
Expiration Date and not properly withdrawn.
A tendering BACs holder understands that a tender of BACs to the Purchaser
will constitute a binding agreement between a tendering BACs holder and the
Purchaser upon the terms and subject to the conditions of the Offer. A
tendering BACs holder recognizes that under certain circumstances set forth in
Section 2 ("Proration; Acceptance for Payment and Payment for BACs") and
Section 14 ("Conditions of the Offer") of the Offer to Purchase, the Purchaser
may not be required to accept for payment any of the BACs tendered hereby. In
such event, a tendering BACs holder understands that any Letter of Transmittal
for BACs not accepted for payment will be destroyed by the Purchaser. Except as
stated in Section 4 ("Withdrawal Rights") of the Offer to Purchase, this tender
is irrevocable, provided BACs tendered pursuant to the Offer may be withdrawn
at any time prior to the Expiration Date. A tendering BACs holder acknowledges
that (i) upon acceptance of, and payment for, tendered BACs, a tendering BACs
holder shall no longer be entitled to any benefits as a BACs holder and (ii)
notwithstanding that a tendering BACs holder may retain a Beneficial Assignment
Certificate, such certificate shall not entitle a tendering BACs holder or any
purported transferees (other than the Purchaser) to any benefits as a BACs
holder.
- --------------------------------------------------------------------------------
INSTRUCTIONS FOR COMPLETING LETTER OF TRANSMITTAL
Forming Part of the Terms and Conditions of the Offer
- --------------------------------------------------------------------------------
FOR ASSISTANCE IN COMPLETING THE LETTER OF TRANSMITTAL, CALL:
LEHIGH TAX CREDIT PARTNERS III L.L.C.
(Attn: Denise Bernstein) AT 1-800-600-6422 ext.2030
- --------------------------------------------------------------------------------
Delivery of Letter of Transmittal. For convenience in responding to the
Offer, a self-addressed, postage-paid envelope had been enclosed with the
Offer to Purchase. However, to ensure receipt of the Letter of
Transmittal, it is suggested that you use an overnight courier or, if the
Letter of Transmittal is to be delivered by United States mail, that you
use certified or registered mail, return receipt requested.
To be effective, a duly completed and signed Letter of Transmittal must be
received by the Purchaser at the address (or facsimile number) set forth
below before the Expiration Date, as such term is defined in the Offer to
Purchase, unless extended. Letters of Transmittal which have been duly
executed, but where no indication is marked in the "Number of BACs
Tendered" column, shall be deemed to have tendered all BACs pursuant to
the Offer. Tenders of less than all BACs owned by a BACs holder that would
result in such BACs holder holding less than 5 BACs will not be accepted.
<TABLE>
<S> <C>
By Mail/Hand or Overnight Delivery: LEHIGH TAX CREDIT PARTNERS III L.L.C..
c/o Related Capital Company
625 Madison Avenue, 5th Floor
New York, NY 10022
By Facsimile (see note below): (212) 751-3550
For Additional Information Call: LEHIGH TAX CREDIT PARTNERSHIP III, L.L.C.
Attn: Denise Bernstein, 1-800-600-6422
ext. 2030
</TABLE>
THE METHOD OF DELIVERY OF THE LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED
DOCUMENTS IS AT THE OPTION AND SOLE RISK OF THE TENDERING BACS HOLDER, AND THE
DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE PURCHASER. IN
ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE TIMELY DELIVERY. IF
TENDERING BY FACSIMILE, PLEASE TRANSMIT BOTH THE FRONT AND BACK OF THIS LETTER
OF TRANSMITTAL TO THE PURCHASER AT THE FACSIMILE NUMBER LISTED ABOVE PRIOR TO
THE EXPIRATION OF THE OFFER AND THEN MAIL THE ORIGINAL COPIES OF SUCH PAGES TO
THE PURCHASER AT THE ADDRESS LISTED ABOVE.
All tendering holders of BACs, by execution of this Letter of Transmittal or
facsimile hereof, waive any right to receive any notice of the acceptance of
their BACs for payment.
Validity of Letter of Transmittal. All questions as to the validity, form,
eligibility (including time of receipt) and acceptance of a Letter of
Transmittal will be determined by the Purchaser and such determination
will be final and binding. The Purchaser's interpretation of the terms and
conditions of the Offer (including these instructions for the Letter of
Transmittal) also will be final and binding. The Purchaser will have the
right to waive any irregularities or conditions as to the manner of
tendering. Any irregularities in connection with tenders must be cured
within such time as the Purchaser shall determine unless waived by them.
The Letter of Transmittal will not be valid unless and until any
irregularities have been cured or waived. The Purchaser has no duty to
give notification of defects in a Letter of Transmittal and will incur no
liability for failure to give such notification.
Questions and requests for assistance may be directed to the Purchaser at its
address and telephone number listed below. Additional copies of the Offer to
Purchase, the Letter of Transmittal and other tender offer materials may be
obtained from the Purchaser as set forth below, and will be furnished promptly
at the Purchaser's expense. You may also contact your broker, dealer,
commercial bank, trust company or other nominee for assistance concerning the
Offer.
The address and phone number of the Purchaser is:
LEHIGH TAX CREDIT PARTNERS III L.L.C.
c/o Related Capital Company
625 Madison Avenue, 5th Floor
New York, NY 10022
Telephone: 1-800-600-6422 ext. 2030
LEHIGH TAX CREDIT PARTNERS III L.L.C.
625 Madison Avenue, 5th Floor
New York, New York 10022
October 9, 1998
$750 PER BAC OFFER TO PURCHASE
To BACs holders in Independence Tax Credit Plus L.P. III:
Lehigh Tax Credit Partners III L.L.C., a Delaware limited liability
company (the "Purchaser"), is offering to purchase up to 10,860 of the
outstanding Beneficial Assignment Certificates ("BACs") representing
assignments of limited partnership interests of Independence Tax Credit Plus
L.P. III (the "Partnership") for a cash purchase price of $750 per BAC, net to
the seller in cash (the "Purchase Price"), upon the terms and subject to the
conditions in the attached Offer to Purchase, dated October 9, 1998, and the
related Letter of Transmittal (which together constitute the "Offer"). The
Purchase Price will be automatically reduced by $14 per BAC for each month (or
part of a month) between December 15, 1998 and the date of transfer for BACs
transferred after December 15, 1998. THE PURCHASER AND RELATED INDEPENDENCE
ASSOCIATES III L.P., THE GENERAL PARTNER OF THE PARTNERSHIP, ARE AFFILIATED.
Unless extended by the Purchaser, the Offer will expire at
midnight, New York City time, on November 9, 1998. The Offer is not conditioned
upon any minimum number of BACs being tendered; however, tenders of less than
all BACs owned by a BACs holder that would result in a BACs holder holding less
than 5 BACs will not be accepted.
The materials included in this package include important
information concerning the Purchaser, the terms and conditions to the Offer,
tax implications and instructions for tendering your BACs. It is important that
you take some time to read carefully the enclosed Offer to Purchase, the Letter
of Transmittal and other accompanying materials in order to evaluate the Offer
being made by the Purchaser.
The Offer is being made to provide BACs holders that have a current
or anticipated need or desire for liquidity with an opportunity to sell their
BACs. Such BACs holders may feel that their circumstances have changed such
that anticipated future allocation of tax credits and tax losses will no longer
be beneficial to them.
The Purchaser believes that the projected aggregate per BAC benefit
from the Offer, together with the benefits received since 1994, total
approximately $1,380. Such benefits include $750 (the Purchase Price) plus $293
(representing the Tax Credits allocated through November 30, 1998) plus
approximately $80 (representing the tax savings attributable to the use of a
capital loss of $27 and an ordinary loss of $208, assuming a tax rate of 20%
for capital gain and 36% for ordinary income) plus approximately $275
(representing the assumed return on the reinvestment of the Purchase Price at
4% for approximately 12 years, discounted at a rate of 8%) less approximately
$18 (representing a recapture of Historic Tax Credits). The projected benefit
of $1,380 assumes the BACs holder acquired the BACs pursuant to the original
offering and such BACs holder did not utilize any passive losses. The projected
benefit may be more or less depending on, among other things, a tendering BACs
holder's tax rate and the return a tendering BACs holder may earn upon
investing the Purchase Price.
<PAGE>
The Purchaser believes that such aggregate projected benefit
compares favorably with the potential benefits to a BACs holder who remains in
the Partnership (together with the benefits received since 1994), continuing to
receive Tax Credits, and assuming a return of the present value of the original
investment of $1,000 as, and if, the 20 properties owned by the Local
Partnerships in which the Partnership has an interest are sold for amounts in
excess of the then existing indebtedness and other liabilities. The aggregate
of such potential benefits is estimated by the Purchaser to be approximately
$1,350, which include $293 (the Tax Credits allocated through November 30,
1998) plus $728 (the present value at 8% of the remaining Tax Credits to be
allocated over the remaining compliance period) plus approximately $329 (the
present value at 8% of a BACs holder's original $1,000 investment, returned
ratably over the 4 years following the end of the compliance period and
assuming a discount rate of 8%). There can, however, be no assurance that these
benefits will be realized. Neither the General Partner of the Partnership nor
the Purchaser is making any representation, and there can be no assurance, that
any or all of the properties owned by the Local Partnerships in which the
Partnership has an interest will be sold and, if sold, will result in
distributable cash sufficient to return any of a BACs holder's original
investment.
Possible tax consequences to tendering BACs holders:
Tendering BACs holders who have not utilized passive losses: A BACs
holder who sells his or her BACs pursuant to this Offer will receive $750
of proceeds per BAC that may result in a tax loss of approximately $208
per BAC, which loss could be available to reduce income from other
sources.
Tendering BACs holders who have utilized passive losses: An
individual BACs holder who sells his or her BACs pursuant to this Offer,
who acquired BACs pursuant to the original offering of BACs by the
Partnership and who has utilized all of his passive losses is expected to
recognize a tax loss of approximately $27 per BAC.
You must decide whether to tender your BACs based on your own
particular circumstances. YOU SHOULD CONSULT WITH YOUR ADVISORS ABOUT THE
FINANCIAL, TAX, LEGAL AND OTHER IMPLICATIONS TO YOU OF ACCEPTING THE OFFER.
If you desire additional information regarding the Offer or need
assistance in tendering your BACs, please do not hesitate to call the Purchaser
(Attn: Denise Bernstein) at 1-800-600-6422 ext. 2030.
LEHIGH TAX CREDIT PARTNERS III L.L.C.
c/o Related Capital Company
625 Madison Avenue, 5th Floor
New York, NY 10022
Attn: Denise Bernstein
Facsimile No. 212-757-3550
For information call: 1-800-600-6422 ext. 2030
LEHIGH TAX CREDIT PARTNERS III L.L.C.
LEHIGH TAX CREDIT PARTNERS III L.L.C.
625 MADISON AVENUE, 5TH FLOOR
NEW YORK, NY 10022
October 9, 1998
RE: Independence Tax Credit Plus L.P. III
Dear Financial Advisor:
Today, a tender offer (the "Offer") for your client's BACs/limited
partnership interests in Independence Tax Credit Plus L.P. III (the
"Partnership") was commenced by Lehigh Tax Credit Partners III L.L.C.
("Lehigh") for a purchase price of $750 per beneficial assignment certificate
of the Partnership ("BAC") invested by your client(s).
We are writing to explain the background of the Offer. Since the
formation of the Partnership, corporations have shown significant interest in
investing in programs benefitting from Low Income Housing Tax Credits. Such
corporate investors, in addition to utilizing such tax credits, are able to
fully utilize passive losses such as those generated by the Partnership, while
individuals, such as your clients, usually can not utilize such passive losses.
Lehigh believes this new corporate interest in tax credits has created an
opportunity for your client(s) to sell their interests at what we believe to be
an attractive price.
Lehigh, which is an affiliate of the general partner of the Partnership,
believes that the per BAC benefit from the Offer, together with the value of
the benefits already received by your client since 1994, compares favorably
with the present value of the benefits your client has received and may expect
to receive by remaining in the Partnership. Lehigh estimates the per BAC
benefit of accepting the Offer is approximately $1,380, which consists of tax
credits received through November 30, 1998 ($293), plus the purchase price
($750), plus future earnings from reinvesting the purchase price ($275,
assuming a compounded return of 4% per annum for approximately 12 years,
discounted at a rate of 8%), plus estimated tax savings resulting from a tax
loss (approximately $80), less a recapture of historic tax credits ($18). If
your client were to remain in the Partnership, Lehigh's estimate of his or her
benefits, together with the benefits already received, is approximately $1,350,
which consists of the tax credits received through November 30, 1998 ($293),
plus the present value of the expected remaining tax credits ($728), plus the
present value of a projected return of your client's original $1,000
investment, assumed to be paid ratably during the four years following the end
of the compliance period ($329). You are encouraged to read Lehigh's Offer to
Purchase, which is incorporated herein by reference.
Attached please find a list of your client(s) who are BACs holders in the
Partnership. In addition, enclosed please find a copy of the cover letter each
of your clients is receiving in connection with the Offer. If your client is
interested in tendering, please have your clients sign the Letter of
Transmittal and return it to us in the prepaid envelope enclosed with the
Offer.
If you have any questions or would like a copy of the Offer to Purchase,
please call Denise Bernstein of our Company at 1-800-600-6422 ext. 2030.
Lehigh Tax Credit Partners, Inc.
Managing Member
GRID NOTE
---------
$16,740,750 New York, New York
October 9, 1998
FOR VALUE RECEIVED, LEHIGH TAX CREDIT PARTNERS III L.L.C., a Delaware
limited liability company (the "Debtor"), hereby promises to pay to the order of
RCC CREDIT FACILITY, L.L.C., a Delaware limited liability company (the "Payee"),
at its offices located at 625 Madison Avenue, New York, New York 10022, or at
such other place as the Payee or any holder hereof may from time to time
designate, in lawful money of the United States, the principal sum of SIXTEEN
MILLION SEVEN HUNDRED FORTY THOUSAND SEVEN HUNDRED FIFTY DOLLARS ($16,740,750),
or, if less than such sum, the aggregate principal amount of all monies advanced
to the Debtor by the Payee hereunder as indicated on the grid schedule attached
hereto and made a part hereof. All principal outstanding hereunder shall be
payable in full on the date (the "Payment Date") which is the earlier to occur
of (i) the earlier to occur of (x) the date on which the portion of the RCC
Credit Loan (as hereinafter defined) used to fund the loan to the Debtor
evidenced hereby shall be due and payable or (y) "Maturity Date" as such term is
defined in the Amended and Restated Loan Agreement dated as of September 10,
1998 (as amended and restated, and as the same may be further amended, modified
or supplemented from time to time, the "Loan Agreement"), among the Payee, The
Related Companies, L.P. ("TRCLP"), a New York limited partnership, Related
Capital Company ("RCC"), a New York general partnership, BankBoston, N.A. (f/k/a
The First National Bank of Boston ("BB"), Fleet Bank ("Fleet" and collectively
with BB, the "Banks") and BB, as agent for the Banks, or such earlier or later
date as the Payee shall be obligated under the Loan Agreement to pay to the
Banks the amounts outstanding under the RCC Credit Loan and (ii) the date on
which the Debtor shall receive cash proceeds in an amount equal to or greater
than the amount of principal, and interest thereon, due and owing hereunder,
from the sale of its membership interests.
The Debtor hereby authorizes the Payee to record on the grid schedule
attached hereto and made a part hereof the amount and date of each advance made
hereunder and the date and amount of each payment of principal thereon. All such
notations shall be presumptive as to the correctness thereof and the aggregate
unpaid amount of advances set forth on such schedule shall be presumed to be the
unpaid principal amount hereof.
The principal amount of this Note may be prepaid at any time or from time
to time by Debtor, in whole or in part, without premium or penalty, provided
that all partial prepayments shall be in a minimum amount of $100,000 (or such
lesser amount as may then be outstanding hereunder) and integral multiples of
$25,000 thereof. All prepayments shall be accompanied by the payment of interest
accrued on the amount of such prepayment to the date thereof. Amounts of
principal prepaid or repaid under this Note may not be reborrowed.
<PAGE>
In addition, the Debtor promises to pay accrued interest to the Payee, on
the date of each prepayment of the principal hereof as set forth in the previous
paragraph, on the Payment Date and thereafter on demand, in like money at said
office or place from the date hereof on the unpaid principal balance hereof at a
rate per annum equal to the rate of interest payable at any time and from time
to time by the Payee to the Banks on advances made to the Payee under the Loan
Agreement (collectively, at any time, all such advances, the "RCC Credit Loan")
and advanced by the Payee to the Debtor hereunder. Interest shall be calculated
on the basis of a 360-day year and actual days.
If Payment of all outstanding principal and accrued interest is not made in
full on or prior to the Payment Date, then the Debtor shall pay, as additional
interest, all other amounts owing by Payee to the Banks under the Loan Agreement
as a result of such non-payment or incomplete payment, as the case may be.
This Note is secured by the Pledge and Security Agreement dated the date
hereof (as amended, modified or supplemented from time to time, the "Pledge
Agreement") between the Debtor and the Payee and is the Note referred to therein
and is entitled to the benefits thereof.
The holder of this Note may declare all principal and interest thereon
evidenced by this Note immediately due and payable upon the happening of any of
the following events (each, an "Event of Default"): (i) nonpayment when the same
becomes due, whether by acceleration or otherwise, of any principal, interest or
other amount on or under this Note; (ii) default by the Debtor in the payment or
performance of any obligation under or termination of, the Pledge Agreement;
(iii) Debtor shall (a) voluntarily commence any proceeding or file any petition
seeking relief under Title 11 of the United States Code or any other Federal,
state or foreign bankruptcy, insolvency, liquidation or similar law, (b) consent
to the institution of, or fail to contravene in a timely and appropriate manner,
any such proceeding or the filing of any such petition, (c) apply for or consent
to the appointment of a receiver, trustee, custodian, sequestrator or similar
official for Debtor or for a substantial part of its property or assets, (d)
file an answer admitting the material allegations of a petition filed against it
in any such proceeding, (e) make a general assignment for the benefit of
creditors, (f) become unable, admit in writing its inability or fail generally
to pay its debts as they become due or (g) take corporate action for the purpose
of effecting any of the foregoing; (iv) an involuntary proceeding shall be
commenced or an involuntary petition shall be filed in a court of competent
jurisdiction seeking (a) relief in respect of Debtor, or of a substantial part
of the property or assets of Debtor, under Title 11 of the United States Code or
any other Federal state or foreign bankruptcy, insolvency, receivership or
similar law, (b) the appointment of a receiver, trustee, custodian, sequestrator
or similar official for Debtor or for a substantial part of the property of
Debtor or (c) the winding-up or liquidation of Debtor, and such proceeding or
petition shall continue undismissed for 30 days or an order or decree approving
or ordering any of the foregoing shall continue unstayed and in effect for 30
days; or (v) the occurrence of any event described in clause (iii) or (iv) of
this paragraph with respect to any endorser, guarantor or any other party liable
for, or whose assets or any interest therein secures, payment of any
indebtedness evidenced by this Note.
-2-
<PAGE>
The Debtor hereby waives diligence, demand, presentment, protest and notice
of any kind, and assents to extensions of the time of payment, release,
surrender or substitution of security, or forbearance or other indulgence,
without notice.
This Note may not be changed, modified or terminated orally, but only by an
agreement in writing signed by the party to be charged.
THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF
THE STATE OF NEW YORK AND SHALL BE BINDING UPON THE SUCCESSORS AND ASSIGNS OF
THE DEBTOR AND INURE TO THE BENEFIT OF THE PAYEE AND ITS SUCCESSORS AND ASSIGNS.
IN WITNESS WHEREOF, the Debtor, by its duly authorized officer, has
executed and delivered this Note on the date first above written.
LEHIGH TAX CREDIT PARTNERS III L.L.C.
By: Lehigh Tax Credit Partners, Inc.,
its managing member
By: /s/ Alan P. Hirmes
------------------------------------------
Name: Alan P. Hirmes
Title: Vice President
-3-
<PAGE>
Loans and Payment
-----------------
<TABLE>
<CAPTION>
Payments of Unpaid Principal
Date Amount of Loan Principal/Interest Balance of Note
- ---- -------------- ------------------ ---------------
<S> <C> <C> <C>
</TABLE>
-4-
INDEPENDENCE TAX CREDIT PLUS L.P. III
625 Madison Avenue, 5th Floor
New York, NY 10022
October 6, 1998
Personal and Confidential
Lehigh Tax Credit Partners III L.L.C.
Lehigh Tax Credit Partners, Inc.
625 Madison Avenue
New York, NY 10022
Gentlemen:
As you requested, the purpose of this letter is to set forth our
understanding with regard to any proposed acquisition of beneficial assignment
certificates ("BACs") of Independence Tax Credit Plus L.P. III, a Delaware
limited partnership (the "Partnership"), from holders of BACs (each a "BACs
holder" and collectively, "BACs holders") by Lehigh Tax Credit Partners III
L.L.C. ("Lehigh"), Lehigh Tax Credit Partners, Inc. ("Lehigh, Inc.") or any
person who is their Affiliate (as defined below) (collectively, "you").
In response to your proposal to commence a tender offer for BACs and in
consideration of the agreements set forth in this letter agreement, the
Partnership agrees to mail your tender offer materials, at your expense, subject
to the terms set forth below and whether or not such tender offer is subject to
the provisions of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"). Nothing in this letter agreement shall be construed as requiring the
Partnership to provide you with a current list of the names and addresses of the
BACs holders. The Partnership will not be obligated to mail your tender offer
materials until it has received from you an amount of cash equal to $10,000,
representing the estimated cost of such mailing together with the Partnership's
other expenses, including, without limitation, reasonable attorney fees.
You represent and warrant that on the date hereof you beneficially own not
more than fifty-seven (57) BACs. You also agree that prior to the tenth
anniversary of the date of this letter agreement, neither you nor any person who
is your Affiliate (as defined under Rule 405 of the Securities Act of 1933, as
amended) will, without the prior written consent of the Partnership, which may
be withheld for any reason, directly or indirectly, (i) seek or propose to enter
into, directly or indirectly, any merger, consolidation, business combination,
sale or acquisition of assets, liquidation, dissolution or other similar
transaction involving the Partnership, (ii) form, join or otherwise participate
in a "group" (within the meaning of Section 13(d)(3) of the Exchange Act) with
respect to any voting securities of the Partnership, except that those
Affiliates bound by this
<PAGE>
letter agreement will not be deemed to have violated this letter agreement and
formed a "group" solely by acting in accordance with this letter agreement,
(iii) disclose in writing to any third party any intention, plan or arrangement
inconsistent with the terms of this letter agreement or (iv) loan money to,
advise, assist or encourage any person in connection with any action
inconsistent with the terms of this letter agreement. Notwithstanding the
foregoing restrictions, nothing in this letter agreement shall apply to, govern,
restrict or limit any sales, purchases, transfers or assignments of interests in
Lehigh.
You hereby represent, warrant and covenant to the Partnership that any
tender offer to purchase BACs commenced by you will be conducted in compliance
with Section 14(e) (misleading statements), Rule 14d-7 (additional withdrawal
rights), Rule 14d-8 (pro rata requirements), Rule 14e-1 (unlawful tender offer
practices) and Rule 14e-3 (non-public information) of the Exchange Act,
notwithstanding that such tender offer may be for less than 5.0% of the
outstanding BACs.
You understand that the general partner of the Partnership may consider
from time to time selling all or substantially all of the assets of the
Partnership or entering into any other transaction determined by the general
partner to be in the best interests of the BACs holders and the Partnership. The
result of any such transaction, if approved by a majority vote of the BACs
holders, might be the dissolution and liquidation of the Partnership in
accordance with the partnership agreement. Accordingly, in order to avoid
disrupting any possible sale of all or substantially all of the Partnership's
assets or any other transaction determined by the general partner to be in the
best interests of the BACs holders and the Partnership and any required vote of
BACs holders, you agree that, prior to the ten-year anniversary of the date of
this letter agreement, all BACs obtained by you pursuant to any means will be
voted by you on all issues in the same manner as by the majority of all other
BACs holders who vote on such proposal. Notwithstanding the foregoing, you may
vote all BACs in the manner you determine, in your sole and absolute discretion,
on proposals (i) concerning the removal of Related Independence Associates III
L.P. ("RIA") as general partner of the Partnership or (ii) seeking to reduce any
fees, profits, distributions or allocations attributable to RIA or its
Affiliates.
If at any time during such ten year period you (excluding your affiliate
which serves as the general partner of the Partnership while acting in its
capacity as general partner) are contacted in writing by any third party
concerning participation in any transaction involving the assets, businesses or
securities of the Partnership or involving any action inconsistent with the
terms of this letter agreement, you will promptly forward a copy of such writing
to the Partnership and you may inform such third party that this letter
agreement requires you to so notify the Partnership, provided, however, this
paragraph shall not apply to any transaction or proposed transaction involving
all or substantially all of the assets, businesses or securities of Related
Capital Company and/or its Affiliates (other than the Partnership and RIA).
Nothing in this letter agreement shall apply to, govern, restrict or limit
any sales, purchases, transfers or assignments of interests in Lehigh.
Notwithstanding the immediately
2
<PAGE>
preceding sentence, Lehigh shall remain bound by this letter agreement
notwithstanding that any interests in Lehigh have been sold, purchased,
transferred or assigned.
Lehigh, RIA and Related Capital Company agree to indemnify and hold
harmless, to the fullest extent permitted by law, the Partnership, Independence
SLP III L.P., and each of their partners, directors, officers, employees,
representatives and agents (the "Indemnified Parties") against any losses,
claims, damages, liabilities, costs, expenses (including reasonable attorney's
fees and expenses in advance of the final disposition of any claim, suit,
proceeding or investigation to each Indemnified Party to the fullest extent
permitted by law), judgments, fines and amounts (collectively, "Damages") paid
in connection with any threatened or actual claim, action, suit, proceeding or
investigation which arises out of or is the result of a breach of this letter
agreement, any tender offer commenced by you (regardless of whether such tender
offer is subject to the provisions of the Exchange Act) or the actual or
proposed acquisition of BACs by you by any other means; provided, however, that
if such claim, action, suit, proceeding or investigation is threatened but not
actual, your obligation to indemnify the Indemnified Parties shall apply only if
such threat is in writing and only with respect to any legal fees incurred in
connection with such threat. If such threat becomes an actual claim, action,
suit, proceeding or investigation, you shall then be responsible for the full
indemnification provided for in this paragraph. If an Indemnified Party intends
to seek indemnification pursuant to this paragraph, it shall promptly notify you
of such claim, in writing, describing such claim in reasonable detail; provided,
that the failure to provide such notice shall not affect your obligations herein
unless you are materially prejudiced by the failure to provide such notice.
Counsel for the Indemnified Party shall be chosen at your discretion and shall
be directed by you. We both agree that you will be materially prejudiced if, due
to the failure of an Indemnified Party to provide the notice required above, you
were not given the opportunity to obtain the counsel of your choice or direct
such counsel. You may participate at your own expense in the defense of any such
action; provided, that counsel for the Indemnified Party shall not (except with
the consent of the Indemnified Party) also serve as your counsel. You shall not,
without first obtaining a general release from liability for the Indemnified
Parties in a form satisfactory to such Indemnified Parties, settle or compromise
or consent to the entry of any judgment with respect to any threatened or actual
claim, action, suit, proceeding or investigation involving an Indemnified Party
which seeks indemnity under this paragraph. If the indemnification provided in
this paragraph is for any reason unavailable to or insufficient to hold harmless
an Indemnified Party in respect of any Damages referred to above, then you and
each party seeking indemnification shall contribute to the aggregate amount of
such Damages incurred by such Indemnified Party in such proportion as is
appropriate to reflect the relative benefits received by each party from the act
which gives rise to the indemnification claim. You agree that the amount of such
economic benefit received by each Indemnified Party shall be $1 and the amount
of such economic benefit received by you shall be computed by multiplying your
per BAC offer price by the total number of BACs which were sought in your tender
offer. Both you and the Indemnified Parties each hereby agree to cooperate fully
in all aspects of any investigation, defense, pre-trial activities, trial,
compromise, settlement or discharge of any claim in respect of which indemnity
is sought pursuant to this paragraph, including, but not limited to, by
providing the other party reasonable access upon reasonable notice to employees
and officers and other
3
<PAGE>
information during reasonable business hours. Nothing in this paragraph is
intended to limit your ability to obtain indemnification from the Partnership if
such indemnification is available to you pursuant to the Partnership's
partnership agreement and applicable law, provided, however, that your
obligations herein shall not be affected by your ability or inability to obtain
such indemnification. We each hereby agree that the provisions of this paragraph
shall have no effect on any other partnership which you or any of our respective
Affiliates may be a partner.
Notwithstanding the immediately preceding paragraph, we acknowledge that
you may engage a third party lender(s) to finance your proposed acquisition of
BACs. We hereby acknowledge and agree for the benefit of such third party
lender(s) that the indemnification provisions in the immediately preceding
paragraph are not intended to apply to or obligate, and in no event shall be
binding upon, such third party lender(s) or any of its assigns or successors in
interest to any of the BACs acquired by you.
We each hereby acknowledge that we are aware, and that we will advise our
respective Affiliates, of our respective responsibilities under the securities
laws. We each agree that the other of us or our respective Affiliates, as the
case may be, shall be entitled to equitable relief, including injunctive relief
and specific performance, in the event of any breach of the provisions of this
letter agreement, in addition to all other remedies available at law or in
equity.
In case any provision in or obligation under this letter agreement shall be
invalid, illegal or unenforceable in any jurisdiction, the validity, legality
and enforceability of the remaining provisions or obligations, or of such
provision or obligation in any other jurisdiction, shall not in any way be
affected or impaired thereby.
This letter agreement shall be governed by the laws of the State of New
York without giving effect to principles of conflicts of law thereof. This
letter agreement may be executed in counterparts, each of which shall be deemed
an original, but all of which together constitute one and the same instrument.
[signature page follows]
4
<PAGE>
If you agree with the foregoing, please sign and return two copies of this
letter agreement, which will constitute our agreement with respect to the
subject matter of this letter agreement.
Very truly yours,
INDEPENDENCE TAX CREDIT PLUS L.P. III
By: Related Independence Associates III L.P., its general
partner
By: Related Independence Associates III Inc., its
general partner
By: /s/ Stuart J. Boesky
--------------------------------------------
Name: Stuart J. Boesky
Title: Vice President
Confirmed and agreed to as of
the date first above written
LEHIGH TAX CREDIT PARTNERS III L.L.C. LEHIGH TAX CREDIT PARTNERS, INC.
By: Lehigh Tax Credit Partners, Inc., By: /s/ Alan P. Hirmes
its managing member ----------------------------
Name: Alan P. Hirmes
Title: Vice President
By: /s/ Alan P. Hirmes
------------------------------
Name: Alan P. Hirmes
Title: Vice President
RELATED INDEPENDENCE ASSOCIATES III L.P. For purposes of the indemnification
provisions on pages 2-3 only:
By: Related Independence Associates III Inc.,
its general partner RELATED CAPITAL COMPANY,
a New York general partnership
By: /s/ Alan P. Hirmes By: APH Associates, L.P.
-------------------------------
Name: Alan P. Hirmes
Title: Senior Vice President By: APH Associates, Inc.,
its general partner
By: /s/ Alan P. Hirmes
----------------------
Name: Alan P. Hirmes
Title: President
LEHIGH TAX CREDIT PARTNERS L.L.C.
625 MADISON AVENUE
NEW YORK, NEW YORK 10022
April 23, 1997
Everest Properties, Inc.
3280 E. Foothill Boulevard
Suite 320
Pasadena, California 91107
Attention: W. Robert Kohorst
Gentlemen:
This letter agreement confirms our mutual agreement to be
bound by the terms of this letter agreement, including the terms and conditions
set forth in Exhibit A annexed hereto and made a part hereof. This agreement is
intended to be legally binding and enforceable upon execution and delivery
hereof.
Each of the parties represents and warrants to the other that
(1) it has the right, power and authority to enter into this letter agreement
and perform its obligations hereunder, (2) upon the execution of this letter
agreement by each of the parties hereto, this letter agreement will constitute
the legal, valid and binding obligation of such party, enforceable against such
party in accordance with its terms, and (3) no consent or approval of any third
party or governmental agency or authority is required for such party to execute
and deliver this letter agreement or to perform its obligations hereunder.
Each of the parties hereto agrees that the terms of this
letter agreement are confidential and may not be disclosed by any party hereto,
except as may be required by law and except to the principals and authorized
representatives of the parties hereto and the general partners of Liberty III
and the Additional Partnerships (as defined in Exhibit A), without the written
consent of all of the parties. Except as may be required by law, any public
announcement regarding this letter agreement or the transactions contemplated
herein may not be made by any party without the prior consent of all other
parties hereto.
This letter agreement shall be governed by and interpreted in
accordance with the laws of the State of New York, without regard to the
conflicts of law provisions thereof. Nothing herein shall be deemed to grant
jurisdiction to the State of New York over any dispute concerning this letter
agreement.
This letter agreement may be executed in separate
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
<PAGE>
This letter agreement supersedes any and all prior agreements,
written or oral, by or among any of the parties hereto with respect to the
subject matter hereof and may not be amended or otherwise modified except in
writing signed by all of the parties hereto.
This letter agreement shall be binding upon the parties hereto
and their respective successors, assigns and controlled affiliates.
Any party may execute this letter agreement by transmitting a
copy of its signature by facsimile to the other parties. In such event the
signing party shall deliver an original of the signature page to each of the
other parties within one business day of signing and failure to so deliver such
originals shall result in the facsimile copy of that party's signature being
treated as an original.
Very truly yours,
LEHIGH TAX CREDIT PARTNERS L.L.C.
By: Lehigh Tax Credit Partners, Inc.,
Managing Member
By: /s/ Alan P. Hirmes
----------------------------------
Alan P. Hirmes, Vice President
LEHIGH TAX CREDIT PARTNERS, INC.
By: /s/ Alan P. Hirmes
----------------------------------
Alan P. Hirmes, Vice President
RELATED CAPITAL COMPANY
By: /s/ Alan P. Hirmes
-------------------------------
Name: Alan P. Hirmes
Title: Senior Managing Director
ACCEPTED AND AGREED TO AS
OF THE DATE FIRST ABOVE WRITTEN:
EVEREST PROPERTIES, INC.
By: /s/ David I. Lesser
------------------------
Name: David I. Lesser
Title: Executive Vice President
-2-
<PAGE>
EVEREST PROPERTIES II, LLC
By: /s/ David I. Lesser
------------------------
Name: David I. Lesser
Title: Executive Vice President
EVEREST PROPERTIES, LLC
By: /s/ David I. Lesser
------------------------
Name: David I. Lesser
Title: Executive Vice President
EVEREST TAX CREDIT INVESTORS, LLC
By: /s/ David I. Lesser
------------------------
Name: David I. Lesser
Title: Executive Vice President
-3-
<PAGE>
EXHIBIT A
OPTION TO PURCHASE SECURITIES
Tender Offer(s)
I. Liberty Tax Credit Plus III L.P.
--------------------------------
Lehigh Tax Credit Partners L.L.C. has commenced a tender offer
(the "Liberty III Offer") to purchase up to 17,500 of the issued and
outstanding Beneficial Assignment Certificates ("BACs") representing
limited partnership interests in Liberty Tax Credit Plus III L.P.
("Liberty III") at a purchase price of $588.20 per BAC, net to the
seller in cash, without interest, upon the terms and subject to the
conditions set forth in the Offer to Purchase, dated April 10, 1997.
The Liberty III Offer expires at 12:00 midnight, New York City time, on
May 8, 1997 or such later date to which the Liberty III Offer may be
extended. Lehigh filed a Tender Offer Statement on Schedule 14D-1 (the
"Liberty III Schedule 14D-1") with the Securities and Exchange
Commission (the "Commission") with respect to the Liberty III Offer on
April 10, 1997. References herein to the Liberty III Offer shall
include (a) any amendments to the Liberty III Schedule 14D-1 and (b)
any subsequent tender offer made by Lehigh for BACs in Liberty III.
II. Additional Tender Offers Contemplated
-------------------------------------
Attached hereto as Schedule I is a list of additional
partnerships (the "Additional Partnerships"), the securities of which
may be subject to a tender offer by Lehigh Tax Credit Partners L.L.C.,
Related Capital Company or any direct or indirect affiliate thereof
(collectively, "Lehigh"). Those additional tender offers, the Liberty
III Offer and any other tender offers for Liberty III or the Additional
Partnerships in which Lehigh participates (participation meaning the
activities covered by clauses (ii), (iv) and (vi) set forth under
"Standstill" below) are collectively referred to herein as the "Tender
Offers", and each a "Tender Offer". The BACs tendered pursuant to the
Liberty III Offer and the securities tendered pursuant to the other
Tender Offers are referred to herein as "Tendered Securities". Lehigh
agrees (a) that the tender offers for securities of any Additional
Partnerships shall be for at least 25% of the outstanding securities of
such Additional Partnership and (b) to commence Tender Offers for the
securities of at least two Additional Partnerships by July 31, 1997.
Option to Purchase Securities; Payment of Securities and Expenses
Subject to the terms and conditions set forth below, Lehigh hereby
grants, or will cause to be granted, to Everest Properties II, LLC and its
affiliates (collectively, "Everest") an option to purchase up to 25% of the
securities tendered in each Tender Offer; provided, however, the maximum amount
of all Tendered Securities purchased by Everest pursuant to this letter
agreement shall not exceed an amount that has an aggregate purchase price of
more than Ten Million ($10,000,000) Dollars; provided further, however, if
Everest has not had the opportunity to exercise its option to purchase Tendered
Securities with an aggregate purchase price of Ten Million ($10,000,000) Dollars
in connection with the first three Tender Offers, the 25% limitation set forth
above shall be increased in connection with any future Tender Offer(s) to a
percentage that will provide Everest with the opportunity to exercise its option
to
<PAGE>
purchase Tendered Securities with an aggregate purchase price of Ten Million
($10,000,000) Dollars. Upon the expiration of a Tender Offer, Lehigh shall
provide written notice to Everest of the amount of Tendered Securities accepted
by Lehigh pursuant to such Tender Offer. Within two business days following
Lehigh's notice to Everest, Everest shall notify Lehigh in writing whether or
not it elects to exercise its option and to what extent. If Everest fails to
notify Lehigh of the exercise of its option within such two business day period,
Everest shall be deemed not to have exercised its option. If such option is
exercised, Everest shall pay Lehigh, by wire transfer, on the later of (a) one
business day after Everest delivers written notice of its election to exercise,
(b) one business day after Lehigh has given notice to Everest that Lehigh will
pay tendering security holders in accordance with the terms of the Tender Offer
(such notice to be given by Lehigh to Everest not less than one business day
prior to the date of such payment) and (c) the date that Lehigh makes such
payment, an amount equal to (i) the number of Tendered Securities with respect
to which Everest exercised its option (the "Option Securities") multiplied by
the price per Tendered Security paid by Lehigh in the applicable Tender Offer
plus (ii) Everest's share of the "Total Expenses" (as defined below) for such
applicable Tender Offer (see "Allocation of Expenses" below). Upon receipt of
such payment, (1) Lehigh will deliver the Option Securities to Everest, together
with all necessary documentation to transfer to Everest all of Lehigh's right,
title and interest in and to such Option Securities, (2) Lehigh will assign to
Everest its rights under all letters of transmittal (including related proxies
and powers-of-attorney) relating to such Option Securities, and (3) Everest will
agree in writing to be bound by the terms and conditions of the "Partnership
Standstill Agreement" (as defined below), if any, governing the Tendered
Securities. Lehigh will deliver (or will cause to be delivered), concurrently
with the receipt of such payment from Everest by Lehigh, a confirmation from the
subject partnership setting forth the number of Option Securities that will be
transferred to Everest.
Allocation of Expenses
At the time of the purchase of any Option Securities, Everest shall pay
to Lehigh a portion of Total Expenses related to such Tender Offer equal to the
lesser of (a) $25,000 and (b) Total Expenses multiplied by a fraction, the
numerator of which is the number of Tendered Securities purchased by Everest and
the denominator of which is the total number of Tendered Securities purchased
pursuant to the Tender Offer. "Total Expenses" with respect to each Tender Offer
means all third-party out-of-pocket costs and expenses incurred by Lehigh,
Everest or their respective affiliates (including attorneys fees and expenses in
connection with the preparation and filing of any Tender Offer documents, but
excluding litigation expenses) with respect to each Tender Offer, including,
without duplication, Commission filing fees, the out-of-pocket expenses of any
person for acting as the information agent/depositary for the Tender Offer,
printing and mailing expenses, and the out-of-pocket expenses of the general
partners of Liberty III or any Additional Partnership which are paid for by
Lehigh. Total Expenses shall not include the costs of purchasing the Tendered
Securities or any non-third-party costs, including the overhead of Lehigh. Each
party will provide, upon the execution and delivery hereof, an estimate of its
costs and expenses incurred to date in connection with any Tender Offers and
shall provide, upon request, invoices or other appropriate evidence of the
incurrence of costs and expenses constituting Total Expenses hereunder.
Liabilities, costs, obligations and damages incurred by any party in connection
with any litigation or threatened litigation relating to, or arising from, the
Tender Offers ("Tender Offer Litigation") shall be borne by Lehigh and not
Everest. Lehigh agrees to indemnify and defend Everest and its affiliates,
officers, directors, members, employees and agents from and against all
liabilities, costs, obligations and damages in connection with Tender Offer
Litigation (even if the same are covered by an indemnification assumed by
Everest under the Partnership Standstill Agreement).
-2-
<PAGE>
Standstill Agreement
Everest covenants and agrees that neither it nor any person who is its
Affiliate (as defined under Rule 405 of the Securities Act of 1933, as amended)
will, directly or indirectly: (i) in any manner including, without limitation,
by tender offer (whether or not pursuant to a filing made with the Commission),
acquire, attempt to acquire or make a proposal to acquire, directly or
indirectly, any securities of Liberty III or any Additional Partnership, except
for (a) the Option Securities and (b) purchases of de minimis amounts of
securities in the secondary market at the prevailing secondary market price (it
being understood that the purchaser of such de minimis amounts of securities
shall be bound by the terms and conditions of this agreement); (ii) seek or
propose to enter into, directly or indirectly, any merger, consolidation,
business combination, sale or acquisition of assets, liquidation, dissolution or
other similar transaction involving Liberty III or any Additional Partnership;
(iii) make, or in any way participate, directly or indirectly, in any
"solicitation" of "proxies" or "consents" (as such terms are used in the proxy
rules of the Commission) to vote, or seek to advise or influence any person with
respect to the voting of, any voting securities of Liberty III or any Additional
Partnership; (iv) form, join or otherwise participate in a "group" (within the
meaning of Section 13(d)(3) of the Securities Exchange Act of 1934, as amended)
with respect to any voting securities of Liberty III or any Additional
Partnership; (v) disclose in writing to any third party any intention, plan or
arrangement inconsistent with the terms of this letter agreement; or (vi) loan
money to, advise, assist or encourage any person in connection with any action
inconsistent with the terms of this letter agreement. The foregoing restrictions
shall continue in full force and effect from the date hereof and forever, in
perpetuity, with respect to the securities of Liberty III and any Additional
Partnership, on a partnership by partnership basis if Lehigh has accepted
Tendered Securities of the subject partnership and Everest has either (a)
exercised its option, (b) not exercised its option or (c) such option is deemed
not to have been exercised in accordance with the terms hereof. The foregoing
restrictions shall continue in full force and effect from the date hereof and
forever, in perpetuity, with respect to the securities of Liberty III and all of
the Additional Partnership if Everest has been granted an option by Lehigh to
purchase Option Securities for an aggregate purchase price of Ten Million
($10,000,000) Dollars. If Lehigh fails to commence Tender Offers for the
securities of any Additional Partnership by October 31, 1997 and the aggregate
purchase price for which Everest could have exercised its option to purchase
Tendered Securities prior to such date (but for its failure or deemed failure to
exercise such option) is less than Ten Million ($10,000,000) Dollars or if
Lehigh defaults in any material respect in the performance of its obligations
hereunder, then Everest shall cease to be bound by the foregoing restrictions,
but only with respect to Additional Partnerships for which Lehigh has failed to
commence Tender Offers. If Lehigh defaults in any material respect in the
performance of its obligations under the section titled "Option to Purchase
Securities; Payment of Securities and Expenses" above, then Everest shall cease
to be bound by the foregoing restrictions, but only with respect to the
partnership to which such default relates and any Additional Partnerships for
which Lehigh has failed to commence tender offers prior to the date of such
default.
-3-
<PAGE>
Partnership Standstill Agreement(s)
Lehigh entered into a letter agreement with Liberty III, dated April 4,
1997 (the "Liberty III Standstill Agreement"), a copy of which has been filed as
an exhibit to the Liberty III Schedule 14D-1. It is expected that some or all of
the Additional Partnerships may require similar standstill agreements prior to
Lehigh commencing an offer for the securities of such Additional Partnerships
(such agreements, together with the Liberty III Standstill Agreement, are
referred to herein as the "Partnership Standstill Agreements"). Everest
covenants and agrees that upon the purchase of any Tendered Securities, it will,
if applicable, agree to be bound by the terms and conditions of any Partnership
Standstill Agreement (including without limitation the Liberty III Standstill
Agreement) or execute a replacement standstill agreement reasonably acceptable
to the subject partnership.
Litigation
Reference is made to the following actions pending in Delaware Chancery
Court: (i) Everest Properties, Inc. v. Liberty Tax Credit Plus III L.P., Related
Credit Properties III L.P., Liberty GP III Inc., Lehigh Tax Credit Partners
L.L.C. and Lehigh Tax Credit Partners, Inc. (C.A. No. 15660) (commenced April
15, 1997); and (ii) Everest Properties, Inc. v. Liberty Tax Credit Plus III
L.P., et al. (C.A. No. 15531) (commenced February 10, 1997). Everest covenants
and agrees that it shall immediately cause these actions to be dismissed,
without prejudice, and without costs to any of Lehigh, its affiliates or the
defendants in such actions. Each of Lehigh and Everest hereby releases the
other, and Everest hereby releases all of the defendants in the foregoing
actions, from any and all claims for events that have occurred prior to the date
of this letter agreement, such releases being expressly conditioned upon the
performance by Lehigh, in the case of Everest's release, Everest, in the case of
Lehigh's release, and the other defendants, in the case of Everest's release, of
their respective obligations, if any, hereunder.
Conduct of Offer(s)
All decisions relating to the conduct of the Tender Offers and the
acquisition and transfer of Tendered Securities pursuant thereto, including
without limitation any change in the terms or waiver of any of the conditions
thereof, shall be made solely by Lehigh. Notwithstanding the foregoing, if
requested by Everest, Lehigh agrees to consult with Everest prior to commencing
a Tender Offer with regard to the purchase price offered therein and prior to
increasing the offered price in any Tender Offer commenced prior to the date
hereof. Lehigh agrees to amend the Liberty III Offer materials to include the
following statement:
In its filed pleadings, Everest stated that the estimated
offer price of $414 per BAC for a possible tender offer by
Everest, as disclosed in the Offer to Purchase, was incorrect
and Everest intended to offer BACs holders a price higher than
the then-Purchase Price offered by the Purchaser.
Cooperation
Everest and Lehigh shall cooperate and provide each other with such
information as may be necessary or desirable to disclose the transaction(s)
contemplated hereby in accordance with applicable securities laws and the rules
and regulations promulgated thereunder. In addition, subject to applicable laws,
Lehigh agrees to provide Everest, promptly upon request (but in no event later
than five days prior
-4-
<PAGE>
to the commencement of a Tender Offer), with copies of all reports sent to
limited partners, filings with the Commission and other public information
reasonably requested by Everest. Additionally, Lehigh agrees to furnish Everest,
promptly upon request, a report of securities tendered in any pending Tender
Offer.
No Other Contracts
Except as expressly set forth herein, there are no contracts,
arrangements, understandings or relationships between Everest and Lehigh with
respect to the BACs or the securities of any Additional Partnership.
Further Assurances
Each of the parties agrees that it shall take whatever action or
actions as are deemed by counsel to any party hereto to be reasonably necessary,
advisable or convenient from time to time to effectuate the provisions or intent
of this agreement, and to that end, each party agrees that it will execute,
acknowledge and deliver any further instruments or documents as give force and
effect to this letter agreement or any of the provisions hereof, or to carry out
the intent of this letter agreement or any of the provisions hereof. Related
Capital Company agrees that it shall, and shall cause its affiliates to, take
such action as may be necessary to effectuate the provisions or intent of this
letter agreement. Furthermore, Related Capital Company agrees to (i) effect the
transfer to Everest of any Option Securities on the books and records of Liberty
III and any Additional Partnership to Everest contemporaneously with effecting
any such transfer to Lehigh on such books and records and (ii) consistent with
past practice and subject to the advice of legal counsel that the requested
transfer will result in the subject partnership being treated as a
"publicly-traded partnership" for federal income tax purposes, promptly effect
all other transfers to Everest of the securities of Liberty III and any
Additional Partnership permitted by the terms of this letter agreement.
Remedies
It is understood and agreed that monetary damages would be an
inadequate remedy for violation of this agreement, and in the case of an actual
breach by a party of the provisions hereof, any one or more of the other parties
shall be entitled to relief by way of injunction, specific performance or other
equitable relief. The prevailing party in any dispute arising out of this letter
agreement shall, in addition to any monetary damages or equitable relief, be
entitled to recover from the other party, the prevailing party's attorney's fees
and expenses (including the time of personnel employed by Lehigh or Everest)
incurred in connection with such dispute.
Notices
Any notice or other communication required or permitted hereunder shall
be in writing and shall be delivered personally, sent by facsimile transmission
or sent by reputable overnight courier, postage or other charges prepaid. Any
such notice shall be deemed given when so delivered personally, or by facsimile
transmission or, if sent by overnight courier, one day after delivery to the
courier, as follows:
If to Lehigh, to:
-5-
<PAGE>
Lehigh Tax Credit Partners L.L.C.
c/o Related Capital Company
625 Madison Avenue
New York, New York 10022
Attention: Alan P. Hirmes
Telephone: (212) 421-5333
Telecopier: (212) 593-5794
If to Everest, to:
Everest Properties
3280 E. Foothill Boulevard
Suite 320
Pasadena, California 91107
Attention: W. Robert Kohorst
Telephone: (818) 585-5920
Telecopier: (818) 585-5929
Any party may designate another address or person for receipt of
notices hereunder by notice given in accordance with this section to the other
party.
October 9, 1998
Independence Tax Credit Plus L.P. III
625 Madison Avenue
New York, New York 10022
Ladies and Gentlemen:
We have acted as counsel to Lehigh Tax Credit Partners III L.L.C. (the
"Purchaser") in connection with an offer made by the Purchaser on October 9,
1998 (the "Offer") to acquire beneficial assignment certificates, representing
assignments of limited partnership interests in Independence Tax Credit Plus
L.P. III (the "Partnership"). The Offer is being made in compliance with
Schedule 14D-1 of the Securities Exchange Act of 1934. This opinion addresses
whether the acquisition by the Purchaser or its designee of interests in the
Partnership representing up to approximately a 25% interest in the Partnership
(the "Transfers") will, either by itself or in conjunction with other transfers
that have occurred and transfers that are expected to occur, cause the
Partnership to be treated as a publicly traded partnership within the meaning of
Section 7704 of the Internal Revenue code of 1986, as amended (the "Code").
In rendering this opinion, we have assumed, without regard to the
Transfers, that (a) the Partnership has properly been treated, and will continue
to be properly treated, for federal income tax purposes, as a partnership other
than a publicly traded partnership, (b) less than 5% of the outstanding
interests in the Partnership have been and will be transferred each year, and
(c) transfers of interests in the Partnership have been made, and any future
transfers of interests in the Partnership will be made, in a manner that is not
consistent with a readily available, regular and ongoing opportunity to sell
Partnership interests.
The tender offer to acquire interests in the Partnership, which has been
made on Schedule 14D-1 and in compliance with the rules applicable thereto, is
for a fixed price (rather than pursuant to any negotiated price) and will remain
outstanding for only a limited amount of time. All interests in the Partnership
that will be sold pursuant to the tender offer will be sold at the same time,
and there will be no broker-dealer or market maker involved in the tender. Thus,
the restrictive nature of the tender offer, which is consistent with the
parameters of Section 14(d) of the Securities Exchange Act and the rules
promulgated thereunder, is fundamentally inconsistent with the "readily
available, regular, and ongoing opportunity to sell or exchange" that must be
present in order for interests in the Partnership to be readily tradable on a
secondary market or the substantial equivalent thereof.
It should be noted that this opinion is not a representation or a guarantee
of the tax results discussed herein and has no binding effect or official status
of any kind. Rather, it represents our views as to the interpretation of
existing law. No assurance can be given that the conclusions reached in this
opinion would be sustained by a court if contested by the Internal Revenue
Service ("IRS").
Section 7704(a) of the code provides generally that a publicly traded
partnership shall be treated as a corporation. The term "publicly" traded
partnership" is defined in Section 7704(b) of the Code to mean any partnership
if (1) interests in the partnership are traded on an established securities
market or (2) interests in such partnership are readily tradable on a secondary
market (or the substantial equivalent thereof).
There is no statutory definition of the terms "established securities
market" or "readily tradable on a secondary market (or the substantial
equivalent thereof)." In Notice 88-75, 1988-2 C.B. 386, the IRS issued guidance
concerning rules under which a partnership would not be considered publicly
traded. Notice 88-75 did not provide guidance as to the meaning of the term
"traded on an established securities market," but did provide guidance
concerning the circumstances in which interests in a partnership would be
treated as readily tradable on a secondary market or the substantial equivalent
thereof. The Notice states that a secondary market is generally indicated by the
existence of a person standing ready to make a market in the interest, and that
an interest is treated as readily tradable if the interest is regularly quoted
by persons such as brokers or dealers who are making a market in the partnership
interest. The substantial equivalent of a secondary market is present if there
is not a market maker but either the holder of an interest has a readily
available, regular, and ongoing opportunity to transfer his interest through a
public means of obtaining or providing information of offers to buy, sell or
exchange interests or buyers and sellers have the opportunity to transfer his
interest through a public means of obtaining or providing information of offers
to buy, sell or exchange interests or buyers and sellers have the opportunity to
transfer interests in a time frame and with the regularity and continuity that
the existence of a market maker would provide. Notice 88-75 also provides for a
number of "safe harbors," none of which is applicable to the Transfers, but also
states that the failure of a partnership to satisfy the safe harbors is not
intended to establish or give rise to a presumption that the interests in the
partnership will be treated as readily tradable on a secondary market or the
substantial equivalent thereof.
On November 29, 1995, the IRS issued regulations which set forth the
circumstances in which a partnership will be treated as a publicly traded
partnership. The regulations include a definition of "established securities
market," which does not include the Transfers, as well as an interpretation of
the term "readily tradable on a secondary market or the substantial equivalent
thereof," which is substantively similar to the interpretation set forth in
Notice 88-75, but which restricts the availability of safe harbors. The
regulations generally provide that interests in a partnership are readily
tradable on a secondary market or the substantial equivalent thereof "if, taking
into account all of the facts and circumstances, the partners are readily able
to buy, sell, or exchange their partnership interests in a manner that is
comparable economically to trading on an established securities market," Treas.
Reg. Section1.7704-1(c)(1), and that this standard will be met if partners have
a "readily available, regular, and ongoing opportunity to sell or exchange"
their partnership interests. Treas. Reg. Section 1.7704-1(c)(2)(iii).
In Private Letter Ruling 9111023 (December 14, 1990), a partnership
permitted limited partners to redeem their interests in accordance with NASAA
Guidelines for Commodity Pool Programs, which require the redemption of
interests at least quarterly. The partnership agreement prohibited the sale of
additional units after the earlier of the sale of $7,500,000 of units or two
years after the initial effective date of the registration statement (the
"Prohibition Date"). The IRS ruled that after such date transfers of partnership
interests through the redemption plan would be disregarded in determining
whether the partnership was a PTP because such transfers were done through a
closed-end redemption plan. With respect to the period prior to the Prohibition
Date, the IRS stated that it need not decide whether the partnership was a
closed end partnership because any redemptions that might occur "do not
constitute the regular plan of redemptions that congress intended to prohibit.
Because the redemption period is effectively limited to a time frame that cannot
exceed 12 months . . . these redemptions . . . do not provide holders of
interests with a readily available, regular and ongoing opportunity to dispose
of their interests in a manner that is substantially equivalent to a secondary
market." The redemption period of 12 months in Private Letter Ruling 9111023 far
exceeds the time period investors in the Partnership are being granted to accept
or reject the Offer. In addition, quarterly redemptions are clearly more regular
and ongoing than the Offer, which is a discrete event.
Based on our review of Section 7704 of the code, its legislative history,
Notice 88-75, and the regulations pursuant to Section 7704, we believe the
Transfers and the other transactions described in the second paragraph of this
opinion will not constitute trading on an established securities market and,
because of the absence of a readily available, regular, and ongoing opportunity
to transfer interests in the Partnership, will also not cause interests in the
Partnership to be readily tradable on a secondary market or the substantial
equivalent thereof. Accordingly, based upon the foregoing, we are of the opinion
that, for federal income tax purposes, the Partnership will not be treated as a
publicly traded partnership as a result of the Transfers and the other
transactions described in the second paragraph of this letter. Our opinion is
based upon the facts and assumptions set forth in the second paragraph of this
opinion.
This opinion does not constitute an opinion, representation or comment on
any issue not expressly addressed herein. We can provide no assurance that the
Code or regulations or existing administrative or judicial interpretations
thereof, will not be amended, revoked or modified (with or without retroactive
effect) in a manner which affects our conclusions. We disclaim any
responsibility to update this opinion or advise you for any changes in either
law or fact. This opinion is delivered to the Partnership, may not be relied on
by anyone else and may not be published to anyone else without our prior written
consent. This opinion is limited to the matters set forth herein, and no
opinions are intended to be implied ormay be inferred beyond those expressly
stated herein.
Very truly yours,
/s/ Battle Fowler LLP
- ---------------------
