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[LEXFORD, INC. LETTERHEAD]
6954 AMERICANA PARKWAY
REYNOLDSBURG, OHIO 43068
PHONE: 614/575-5202 FAX: 614/575-5217
[Date]
ACTION REQUIRED TO RECEIVE POTENTIAL CASH DISTRIBUTION OF UP TO
$[X,XXX] PER UNIT.
Re: [Partnership Name] (the "Partnership")
Dear Limited Partner:
Lexford, Inc. (formerly Cardinal Realty Services, Inc.) 1, Managing
General Partner of the Partnership, recently announced plans to consolidate
ownership of real estate presently owned by syndicated limited partnerships in
which Lexford, Inc. serves as the general partner. Lexford, Inc. seeks your
consent to dispose of the Partnership's property in early 1998. If completed,
the proposed transaction will result in a CASH DISTRIBUTION TO YOU IN THE AMOUNT
OF [$X,XXX]PER UNIT of limited partner interest, which Lexford, Inc. believes is
at least equal to any cash distribution you could receive as a result of any
alternatives available to the Partnership. The proposed transaction must receive
the consent of a majority of the Partnership's outstanding limited partner
Units. Additionally, you may be able to utilize any previously suspended tax
benefits depending upon your individual tax situation. Please consult your tax
advisor with regard to actual tax benefits available to you. THE CASH
DISTRIBUTION WILL ONLY BE PAID IF THE TRANSACTION RECEIVES THE CONSENT OF A
MAJORITY OF OUTSTANDING LIMITED PARTNER UNITS AND IS CONSUMMATED. If we receive
your consent by [DATE] and the transaction is consummated you will be entitled
to an additional cash payment of [$X,XXX] per Unit to assist you in paying any
taxes relating to the transaction.
CURRENT FINANCIAL CONDITION OF THE PARTNERSHIP
After many difficult years, our property has finally appreciated to the
point where there is equity for the limited partners as set forth in Section A.7
of the attached Appendix A. Due to the current strong real estate market for
multifamily properties, we believe it is an opportune time to dispose of the
Partnership's property, which transaction would result in a cash distribution in
the amount of $X,XXX per Unit of limited partner interest if the transaction
receives the consent of a majority of the Partnership's outstanding limited
partner Units and is consummated.
- --------
1 Cardinal Realty Services, Inc. changed its name to Lexford, Inc. effective
October 7, 1997 in order to better reflect its mission under new management.
There was no change of ownership of the company.
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TRANSACTION SUMMARY AND BENEFITS
We have determined that it is in the best interests of both the limited
partners and Lexford, Inc. for a Lexford affiliate to acquire 100% ownership of
the Partnership's property. We have further determined that the most efficient
and economic way to achieve 100% ownership is to seek your consent to a merger
of the Partnership with a wholly-owned affiliate of Lexford, Inc. The consent of
the limited partners holding a majority of the Partnership's outstanding limited
partner Units is required to authorize the disposition of the Partnership's
property. Accordingly, we request your consent to amend the Partnership's
Agreement of Limited Partnership to authorize us to effect a merger of the
Partnership with another entity or to sell the Partnership's property, each of
which would result in the cancellation of your Unit(s). Additionally, if we
receive your consent to the transaction by [DATE], the transaction receives the
consent of a majority of the Partnership's outstanding limited partner Units and
is consummated, you will receive a voluntary payment in addition to the expected
cash distribution, as shown in Section C of the attached Appendix A. The form of
the Amendment to the Agreement of Limited Partnership as well as the form of
Consent we ask you to sign and return to us are included with this letter.
Provided that the limited partners consent, it is our present intention to
transfer the Partnership's property during the second quarter of 1998, with the
cash distributions to occur promptly thereafter. However we reserve the right to
change our plans to transfer the Partnership's property based upon facts and
circumstances which may develop prior to that time.
Benefits to Limited Partners
This transaction will allow limited partners to (i) receive a cash
distribution in the amount of up to [$X,XXX] per Unit of limited partner
interest, (ii) eliminate the omnipresent specter of future "recapture taxes" (if
applicable) at marginal rates lower than ever before and (iii) rid themselves of
their own tax and investment recordkeeping requirements. Additionally, Section B
of Appendix A may indicate that you will have a tax loss relating to the
transaction. (For further explanation, please see the first paragraph under the
heading "Federal Income Tax Considerations" below.) However, you should consult
your tax advisor with respect to the availability of these tax attributes. If
such a transfer is accomplished, you would receive a final (1998) K-1 in 1999.
Once and for all, the Partnership can be REMOVED FROM YOUR TAX AND ESTATE
PLANNING, along with concerns about possible future phantom (non-cash) income
such as debt discharge income, depreciation recapture, imputed gain on sale
(negative capital account recapture), etc.
Benefits to Lexford
We believe that Lexford, Inc. may derive more favorable economic
benefits from ownership of the Partnership property than a third party because
of the size and uniformity of Lexford, Inc.'s overall portfolio of apartment
complexes. If the proposed transaction occurs, Lexford, Inc. can then seek to
recover its second mortgage or other interests in the Partnership's property
without the cost and administrative burden of limited partner financial and tax
reporting and communications.
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FEDERAL INCOME TAX CONSIDERATIONS
While each limited partner's tax situation is unique, we estimate that,
upon disposition of the Partnership's property, a limited partner holding one
Unit of limited partner interest will have an adjusted capital account balance
as set forth under Section B of Appendix A. If a deduction for suspended passive
activity losses is shown on Appendix A, this analysis assumes that passive
activity losses have been disallowed in prior years and carried forward, as
required by law, and have not been utilized in other income offsetting
transactions, in which case, a tax benefit may be available to you upon
disposition. If the adjusted capital account is shown as a deficit, a limited
partner will incur federal "recapture taxes" on amounts claimed (as of December
31, 1996) as losses in previous tax years to the extent such claimed losses
exceed the limited partner's investment in the Partnership, a substantial
portion of which would represent "depreciation recapture" taxes at a "special
rate" of not more than 25% (compared to a rate of up to 39.6% at the current tax
rate on ordinary income). Any remaining taxable income or gain should be taxed
as capital gain (assuming, among other things, you will have been a limited
partner of the Partnership for at least 18 months) at a federal rate of not more
than 20% (compared to a rate of up to 28% under prior law). THERE CAN BE NO
ASSURANCE THAT THESE REDUCED RATES WILL REMAIN IN EFFECT IN FUTURE YEARS.
If you have received debt discharge income in prior years, you may have
elected to defer this income, and instead reduce the basis in your share of the
Partnership's property. In such situations, you may recognize a gain that is
greater than the analysis shows. Please consult your tax advisor on this matter,
both with regard to whether an election has been made in prior years, and with
regard to the tax consequences of the current proposed transaction in light of
any such prior election. Of course, these are only estimates and your personal
income tax situation may vary. Accordingly, we urge you to consult your own tax
advisor for advice specific to your personal tax situation.
If your capital account is shown as a deficit, failure to consummate
this transaction could place you in the position of recognizing non-cash
ordinary income from continuing operations, taxable at rates of up to 39.6%.
Generally, to the extent your tax capital account is negative, federal tax law
will seek ways to impute "recapture" income to you. For example, this income can
arise from any refinancing of the property's debt, especially when debt is
reduced or forgiven. Taxable income will also increase to all partners as
federal tax depreciation is exhausted on the property. Finally, basis for
allocating losses to you may have previously been available to you, by operation
of federal tax law, through your allocation of the basis in the second mortgage.
Regulations developed by the U.S. Department of Treasury will ultimately require
you to recapture any losses previously allowed for your portion of this
obligation.
THE CASH DISTRIBUTIONS WILL ONLY BE PAID TO LIMITED PARTNERS IF THE
TRANSACTION RECEIVES THE CONSENT OF A MAJORITY OF THE PARTNERSHIP'S OUTSTANDING
LIMITED PARTNER UNITS AND IS CONSUMMATED. PLEASE SIGN AND RETURN THE ENCLOSED
CONSENT OF LIMITED PARTNER IN THE POSTAGE PAID ENVELOPE PROVIDED OR BY FACSIMILE
(614/575-5217) BY [DATE].
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If you have any questions regarding the contents of this letter, feel
free to call Corporate Investor Communications, Inc. at 800/248-5108 or our
limited partner inquiry line at 614/575-5202 and Jeff Meyer, Assistant Vice
President, Lee Blackburn, Portfolio Manager, or Dana Lochard, Investor Services
Representative, will return your call.
Very truly yours,
LEXFORD, INC.
(formerly known as
Cardinal Realty Services, Inc.)
/s/ Paul R. Selid
By: Paul R. Selid
Senior Vice President
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INSTRUCTIONS FOR DELIVERY OF CONSENT AND RECEIPT OF CASH DISTRIBUTION
* Sign the enclosed Consent of Limited Partner.
* Return the signed Consent of Limited Partner in the enclosed
postage paid envelope OR fax the signed Consent of Limited
Partner to 614/575-5217. Facsimile transmissions will be
recognized if the transmission is received by Lexford by [DATE]
and an original copy of the signed Consent of Limited Partner as
transmitted is received within 7 days following [DATE].
* If the proposed transaction receives the consent of a majority of
the Partnership's outstanding limited partner Units and the
proposed transaction occurs, no further action is required by you
to receive the cash distribution - you will receive your cash
distribution within 10 days of the consummation of the
transaction, which is expected to occur in the second quarter of
1998 (no later than June 30, 1998).
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CONSENT OF LIMITED PARTNER
--------------------------
The undersigned limited partner(s) in [Partnership Name](the
"Partnership"), hereby consents to (i) the amendment of the Partnership's
[Agreement] to authorize [General Partner Name], general partner of the
Partnership (the "General Partner"), to negotiate, execute and deliver any and
all documents and to take any and all actions necessary to merge the Partnership
with or into another entity or sell the Partnership's property in accordance
with the terms and conditions of the Amendment to Agreement of Limited
Partnership attached to this Consent as Exhibit A or (ii) a sale of the
Partnership's property to a wholly-owned affiliate of the General Partner.
The undersigned limited partner(s) hereby irrevocably constitutes and
appoints the General Partner the true and lawful attorney-in-fact in such
Limited Partner's name, stead and place to make, execute, sign, acknowledge and
file, if necessary, the Amendment to Agreement of Limited Partnership
substantially in the form attached to this Consent as Exhibit A. The foregoing
grant of power of attorney is coupled with an interest.
THE GENERAL PARTNER RECOMMENDS THAT ALL
LIMITED PARTNERS CONSENT TO THE PROPOSED AMENDMENT.
__________________________________ ___________________________ _____________
Signature of Custodian or Trustee* Signature Date
(Required for all Custodial
Accounts)
___________________________
Print Name
___________________________ _____________
Signature, if held jointly* Date
___________________________
Print Name
* When limited partnership interest(s) are held by joint tenants, both joint
tenants should sign. When signing as attorney, executor, administrator,
trustee or guardian, please give full title as such. When the limited
partnership interest(s) are held of record by a tax-exempt Limited Partner
(such as an IRA account), the signature of the custodian or trustee is also
required. If a corporation, please have signed in full corporate name by
the President or other authorized officer. If a partnership, please have
signed in partnership name by an authorized person.
PLEASE MARK, SIGN, DATE AND RETURN THIS CONSENT FORM BY [DATE] USING THE
ENCLOSED ENVELOPE OR FACSIMILE (614/575-5217).
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EXHIBIT A
AMENDMENT
TO
[Partnership Agreement]
OF
[Partnership Name]
This Amendment ("Amendment") to the ("Partnership Agreement") of
[Partnership Name] (the "Partnership") is made effective this day of , 199 , by
and among [General Partner Name][Co- General Partner Name] (the "General
Partner(s)") and those individuals listed on Schedule A to this Amendment as
limited partners (the "Limited Partners"), and hereby amends the Partnership
Agreement.
RECITALS
A. Terms which are used but not otherwise defined in this Amendment
have the meanings given them in the Partnership Agreement.
B. Section 20.01 of the Partnership Agreement provides that no
amendment of the Partnership Agreement shall be effective or
binding upon the General or Limited Partners unless the same shall
have been agreed to by the General Partner(s) and the Limited
Partners holding at least fifty-one percent (51%) of the
outstanding units of the Partnership.
C. The General Partner(s) and the Limited Partners holding at least
fifty-one percent (51%) of the outstanding units of the
Partnership desire to amend the Partnership Agreement as set forth
below.
AMENDMENT
Effective upon the execution of this Amendment, the Partnership
Agreement is amended as follows:
1. Section 15.01 shall be amended by adding the following paragraph as the final
paragraph of Section 15.01:
The Managing General Partner shall have the authority, in its sole discretion,
to negotiate, execute and deliver any and all documents and to take any and all
actions necessary to merge the Partnership with or into another entity, which
entity may be affiliated with the Partnership, the General Partner of the
Partnership or any shareholder, member, partner, or any other person holding an
equity interest in the Partnership or the General Partner of the Partnership.
Any such merger may be effected upon such terms and conditions (including,
without limitation, terms providing for the cancellation of any units of the
Partnership outstanding prior to the merger transaction for such consideration,
if any, deemed reasonable by the Managing General Partner) as the Managing
General Partner may determine in its sole discretion.
2. Should this Amendment contradict with any of the other terms and conditions
of the Partnership Agreement, the terms of this Amendment shall control.
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3. All other terms and conditions of the Partnership Agreement shall remain in
full force and effect.
IN WITNESS WHEREOF, the parties have executed this Amendment as of the
date first above written.
GENERAL PARTNER(S):
___________________________________ ___________________________________
By: _______________________________ By: _______________________________
By: ______________________ By: _______________________
Its:______________________ Its: _______________________
LIMITED PARTNERS
By: _____________________________,
as Attorney-in-fact
By: ______________________
Its:______________________
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APPENDIX A
NAME OF LIMITED PARTNERSHIP
CURRENT FINANCIAL INFORMATION
Name of Partnership: Name of Limited Partnership ("Partnership")
Name of General Partner: Lexford, Inc. ("General Partner")
SECTION A: VALUATION OF PROPERTY AND LIMITED PARTNER EQUITY
1. Fair Market Value Estimate of Partnership Property:1 X,XXX,XXX
2. 1st and 2nd Mortgage Indebtedness (owed to non-affiliate of General Partner): X,XXX,XXX
3. 2nd Mortgage and Other Advances (owed to General Partner or its affiliate): XXX,XXX
4. Other Net Liabilities/(Assets): XX,XXX
------------
5. Total Partnership Obligations: X,XXX,XXX
------------
6. Net Partnership Equity in Property:2 XXX,XXX
============
7. Average Value of One Limited Partner Investment Unit in Partnership: X,XXX
============
SECTION B: SUMMARY OF SALIENT LIMITED PARTNER TAX INFORMATION
(BASED ON OWNERSHIP OF ONE LIMITED PARTNER INVESTMENT UNIT, ON AVERAGE)3
1. Limited Partner Capital Account Surplus/(Deficit) - Tax Basis: (XX,XXX)
2. Total Potential Distributions to Limited Partners (as set for in Section C.3 below): (X,XXX)
------------
3. Total Projected (Income)/Loss to Limited Partners (XX,XXX)
4. Estimated Suspended Passive Activity Losses:4 XX,XXX
------------
5. Net Taxable Loss/(Gain): (XX,XXX)
Assumed Tax Rate: 31%
------------
6. Estimated Average Limited Partner Tax Benefit/(Liability) per unit (based on
tax rate of 31%): 5 (X,XXX)
============
SECTION C: PROPOSED PAYMENT/DISTRIBUTIONS TO LIMITED PARTNERS
(ALL AMOUNTS PER ONE LIMITED PARTNER INVESTMENT UNIT)
1. Distribution of Limited Partner Equity in Partnership Property: X,XXX
2. Voluntary Payment: X,XXX
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3. Total Potential Distributions to Limited Partners: X,XXX
============
THIS ANALYSIS WAS PREPARED BY THE GENERAL PARTNER. LIMITED PARTNERS ARE URGED TO
CONSULT THEIR OWN REAL ESTATE AND TAX ADVISORS, ATTORNEYS AND ACCOUNTANTS WITH
SPECIFIC REFERENCE TO THE ABOVE ANALYSIS, THEIR OWN TAX SITUATION AND POTENTIAL
CHANGES IN APPLICABLE LAW.
1 The valuation methodology for the estimated fair market value is an accepted
industry valuation model for income-producing real estate, which involves (i)
deriving net operating income over the prior 12 months ended September 30,
1997, (ii) subtracting $300 per unit for a replacement reserve from net
operating income, (iii) applying a capitalization rate of 10.25% to the
result and (iv) subtracting a sales cost of 4%. Capitalization rate is
defined as the present value rate of return of income-producing property
expressed as a percentage. For example, a capitalization rate of 10% applied
to a property producing $10,000 in annual net income results in a present
market value of $100,000.
2 The Partnership's equity in the property is computed by subtracting the
Partnership's liabilities (including mortgage debt and advances from the
General Partner or its affiliate) from the estimated fair market value of the
property.
3 Your actual investment history may differ. Please consult your tax advisor.
4 This amount assumes each Limited Partner has not utilized Passive
Activity Losses on prior tax returns.
5 Assumes federal tax rate of 25% (based on capital gains tax rate applicable
to depreciation recapture) and 6% for state and local taxes. Actual effective
tax rate may be lower for portion of gain in excess of depreciation
recapture. And may be higher for any voluntary payment.
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