EXHIBIT 99 (D)
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 21, 1999
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PRELIMINARY COPY
SCHEDULE 14A
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE
SECURITIES EXCHANGE ACT OF 1934
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Filed by the Registrant [ ]
Filed by a Party other than the Registrant [X]
Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
KRUPP REALTY LIMITED PARTNERSHIP - V (Name of
Registrant as Specified In Its Charter)
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Payment of Filing Fee (Check the appropriate box):
[ ] No fee required.
[X] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
Investor Limited Partnership Interests ("Units")
(2) Aggregate number of securities to which transaction applies:
31,214.5 Units
(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11: $1,200
(4) Proposed maximum aggregate value of transaction: $37,457,400
(5) Total fee paid: $7,491.48
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
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KRUPP REALTY LIMITED PARTNERSHIP - V
One Beacon Street
Suite 1500
Boston, Massachusetts 02108
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Dear Limited Partner:
You are cordially invited to attend a Special Meeting of Unitholders of
Krupp Realty Limited Partnership"V ("Krupp Realty"), to be held on ,
2000 at 10:00 a.m. at .
At the special meeting you will be asked to consider and vote upon a
proposed merger, described in the accompanying proxy statement, of Krupp Realty
with and into KR5 Acquisition, L.L.C., a Delaware limited liability company that
is an affiliate of the general partners. Under the terms of the merger, KR5 is
offering you $1,200 per unit in cash. The general partners of Krupp Realty have
determined that the merger transaction is fair and in the interests of the
unitholders and therefore recommend that unitholders vote "FOR" the merger and
the amendment.
Among the factors considered by the general partners in making the
recommendation were the following:
* Cushman & Wakefield, an independent real estate consulting firm,
appraised the properties owned by Krupp Realty. This offer represents a $350
premium over the independent appraised value of $864 per unit determined based
primarily upon Cushman & Wakefield's appraisals; and
* ERP Operating Limited Partnership, a wholly owned subsidiary of
Equity Residential Properties, itself a $5.3 billion Chicago based Real Estate
Investment Trust UNAFFILIATED with Krupp Realty and the general partners, first
sought to acquire control of Krupp Realty in November 1999 through a tender
offer for the units at $675 per unit. KR5 in turn offered $864 per unit, and
through a subsequent bidding contest, the price offered to you increased from
$864 to $1,200 per unit.
Please read the entire proxy statement carefully, including the discussion
concerning the factors considered by the general partners in making their
recommendation.
The merger, the related merger agreement and the per unit price to be
paid to unitholders have not been reviewed independently. A vote in favor of the
merger will also constitute a vote in favor of an amendment to Krupp Realty's
partnership agreement allowing Krupp Realty to enter into the merger agreement
and complete the merger with KR5.
KR5 has entered into a joint venture agreement with investment funds
affiliated with Equity Resources Group, Inc., a Cambridge, Massachusetts real
estate concern that is not affiliated with ERP. Equity Resouces currently own
approximately 11% of the outstanding units and has agreed to vote in favor of
the merger and the amendment.
Your vote is important no matter how many units you own. Please date,
sign and promptly return the proxy card in the enclosed envelope or by facsimile
as instructed in this proxy statement. If you plan to attend the special meeting
in person, please check the appropriate box on the proxy card. You may change
your vote in person, even if you have previously sent in a proxy.
Any signed proxy cards that are returned without a choice indicated on
them will be voted "FOR" the transaction. The proxy statement explains in detail
the terms of the proposed merger and the related transactions.
This proxy statement explains in detail the terms of the proposed
merger and the related transactions. The date of this proxy statement is
and was first mailed to unitholders of Krupp Realty on .
KRUPP REALTY LIMITED PARTNERSHIP - V
The Krupp Corporation
GENERAL PARTNER
By:
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Douglas Krupp, CO-CHAIRMAN OF
THE BOARD OF DIRECTORS
Boston, Massachusetts
, 2000
THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE UNITED STATES
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS
THE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE FAIRNESS OR
MERITS OF SUCH TRANSACTION, NOR UPON THE ACCURACY OR ADEQUACY OF THE INFORMATION
CONTAINED IN THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
KRUPP REALTY LIMITED PARTNERSHIP - V
One Beacon Street
Suite 1500
Boston, Massachusetts 02108
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NOTICE OF SPECIAL MEETING OF UNITHOLDERS
TO BE HELD , 2000
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To Our Unitholders:
We are holding a special meeting of the holders of investor limited
partnership units of Krupp Realty Limited Partnership - V on , 2000,
at , local time, at , for the following purposes:
- To consider and vote on a proposal to approve a merger agreement
under which KR5 Acquisition, L.L.C., a newly-formed company, will
merge with and into Krupp Realty. Each Krupp Realty unitholder
other than certain unitholders that have agreed to reinvest their
units in KR5 Acquisition will receive $1,200 in cash for each
outstanding investor limited partnership unit that the unitholder
owns immediately before the effective time of the merger. A vote in
favor of the merger agreement will also constitute a vote in favor
of an amendment to Krupp Realty's partnership agreement allowing
Krupp Realty to enter into the merger agreement and complete the
merger with KR5 Acquisition. Copies of the merger agreement and
amendment are attached as Appendices A and B, respectively, and are
described in the accompanying proxy statement.
- To consider and act upon such other matters as may properly come
before the special meeting or any adjournment of the meeting.
Only unitholders of Krupp Realty's investor limited partnership
interests at the close of business on the record date, , 2000, will
be entitled to notice of, and to vote at, the special meeting or any
adjournment of the meeting.
KRUPP REALTY LIMITED PARTNERSHIP - V
The Krupp Corporation
GENERAL PARTNER
By:
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Scott D. Spelfogel
SECRETARY
Boston, Massachusetts
, 2000
QUESTIONS AND ANSWERS ABOUT THE TRANSACTION
Q. WHAT ARE UNITHOLDERS BEING ASKED TO VOTE UPON?
A. Unitholders are being asked to approve a merger agreement and
related amendment to Krupp Realty Limited Partnership-V's
partnership agreement which allows for the merger of KR5
Acquisition, L.L.C. into Krupp Realty. If the unitholders approve
the transactions, Krupp Realty will no longer be a publicly held
limited partnership.
Q. WHAT WILL UNITHOLDERS RECEIVE IF THE MERGER AGREEMENT IS APPROVED?
A. Unitholders will receive $1,200 in cash for each investor limited
partnership unit of Krupp Realty that they own. Unitholders will
then no longer hold any interest in Krupp Realty.
Q. WHEN IS THE MERGER EXPECTED TO BE COMPLETED?
A. By , 2000.
Q. WHAT DO UNITHOLDERS NEED TO DO NOW?
A. After carefully reading and considering the information contained in
this document, unitholders should indicate on their proxy card how
they want to vote and mail their signed and dated proxy card in the
enclosed return envelope as soon as possible. Unitholders may also
fax their completed proxy cards to Krupp Funds Group Limited
Partnership at (617) 423-8919.
Q. WHAT SHOULD UNITHOLDERS DO IF THEY WANT TO CHANGE THEIR VOTE?
A. Just send in a later-dated, signed voting form to Krupp Funds Group
Limited Partnership before the special meeting or attend the meeting
in person and vote.
Q. WHAT IF UNITHOLDERS PLAN TO ATTEND THE SPECIAL MEETING IN PERSON?
A. Unitholders should send in their proxy card in any event.
Unitholders may request a ticket for admission to the special
meeting by marking the appropriate box on the proxy card and return
it no later than , 2000.
WHO CAN HELP ANSWER YOUR QUESTIONS?
After reading through this proxy statement, if you have more questions
about the merger, you should contact:
KRUPP FUNDS GROUP LIMITED PARTNERSHIP
One Beacon Street
Suite 1500
Boston, Massachusetts 02108
Attention: Investor Communications
Phone: 1-800-25-KRUPP
(1-800-255-7877)
Fax: (617) 423-8919
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SUMMARY
This summary highlights selected information included in this proxy
statement, and is qualified by reference to the detailed information appearing
elsewhere in this proxy statement and the attached appendices. A copy of the
merger agreement and the amendment to Krupp Realty's partnership agreement are
attached as Appendices A and B, respectively. Much of the information contained
in this proxy statement is not covered by the summary. Therefore, please
carefully review all of the information provided in this proxy statement.
PARTIES TO THE TRANSACTION
THE PARTNERSHIP
Krupp Realty Limited Partnership - V, a Massachusetts limited
partnership (the "Partnership" or "Krupp Realty"), was formed in Massachusetts
in 1983 to engage in real estate activities, including the ownership, operation
and management of residential real estate and other real estate related assets.
The Partnership currently owns two multi-family apartment complexes, one located
in Chicago, Illinois (the "Park Place Tower Apartments") and the other in
Cockeysville, Maryland (the "Century II Apartments") (collectively, the
"Properties").
The principal executive offices and place of business of the
Partnership are located at One Beacon Street, Suite 1500, Boston, Massachusetts
02108, and its telephone number is (617) 523-7722.
THE GENERAL PARTNERS
The Krupp Corporation, a Massachusetts corporation ("Krupp Corp"), and
The Krupp Company Limited Partnership-II, a Massachusetts limited partnership
("Krupp LP") (collectively, the "General Partners"), are the general partners of
the Partnership. The principal business of each of Krupp Corp and Krupp LP is
acting as a general partner of limited partnerships and managing real estate.
The principal executive offices and place of business of Krupp Corp and
Krupp LP are located at One Beacon Street, Suite 1500, Boston, Massachusetts
02108, and their telephone number is (617) 523-7722.
THE PURCHASER
The proposed purchaser of the Partnership is KR5 Acquisition, L.L.C., a
Delaware limited liability company (the "Purchaser"), formed on November 24,
1999, by KRF Company, L.L.C., a Massachusetts limited liability company ("KRF
Company"). KRF Company is the sole managing member of the Purchaser and an
affiliate of the General Partners.
The Purchaser was formed for the purpose of merging with the
Partnership, and after the completion of the merger, its primary business will
be operating, managing and otherwise dealing with the Properties.
Before completing the merger, investment funds affiliated with
Equity Resources Group Incorporated (collectively, "Equity Resources") will
contribute the investor limited partnership units ("Units") held by them to
the Purchaser in exchange for an approximately 25% interest in the Purchaser,
assuming the Properties are refinanced as described below under "Special
Factors--Financing of the Merger-- Source of Funds." Consequently, at the
time of and following the merger, KRF Company will own approximately 75% of
the Purchaser.
The principal executive offices and place of business of the Purchaser
is at One Beacon Street, Suite 1500, Boston, Massachusetts 02108, and its
telephone number is (617) 523-7722.
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DATE, TIME AND PLACE OF SPECIAL MEETING
The Partnership will hold a special meeting of the holders of the Units
("Unitholders") on , 2000 at , local time, at .
PURPOSE OF THE SPECIAL MEETING
Unitholders of the Partnership will be asked to vote on the merger and
an amendment to Krupp Realty's partnership agreement to permit the Partnership
to enter the merger agreement and complete the merger.
WHAT UNITHOLDERS WILL RECEIVE IN THE MERGER
In the merger, Unitholders will receive $1,200 for each Unit they own.
This price is intended to provide Unitholders with the opportunity to liquidate
their investment in the Partnership for cash at a fair price. The per Unit
merger price will not be reduced by distributions declared or made by the
Partnership to Unitholders.
Unitholders will receive a $20 per Unit distribution from the
Partnership in February 2000.
THE AMENDMENT
The amendment is necessary because the partnership agreement currently
prohibits the General Partners from entering into agreements or transactions on
behalf of the Partnership with affiliates of the General Partners, except as
expressly permitted. Because the Purchaser is an affiliate of the General
Partners, the Unitholders are being asked to consider and consent to an
amendment to the partnership agreement to allow the Partnership to enter into
the merger agreement and complete the merger. Failure to approve the amendment
would preclude the completion of the merger even if the merger were approved by
the Unitholders; consequently, a vote for the merger will automatically
constitute a vote in favor of the amendment.
VOTE REQUIRED
The affirmative vote of the holders of a majority of Units is necessary
to approve the merger and the related approval of the amendment. Equity
Resources, which holds approximately 11% of the Partnership's outstanding Units,
has agreed to vote for the approval of the merger and the amendment to the
Partnership's partnership agreement. This means that Unitholders representing an
additional 39% of the Units must vote in favor of the proposal to ensure its
approval. See "Related Agreements."
INDEPENDENT APPRAISALS OF PROPERTIES
Cushman & Wakefield has appraised the Properties and issued its reports
related to the appraisals, which are described in this proxy statement under
"Special Factors-- Independent Appraisals."
PURPOSE OF AND REASONS FOR THE MERGER
The General Partners considered a number of factors in approving the
merger agreement and recommending it to Unitholders, including:
- the $1,200 per Unit merger price has been established as a
result of several competing offers for the Units between the
Purchaser and a third-party bidder;
- providing liquidity to Unitholders;
- the elimination of uncertainties relating to the price and
timing of any disposition of the Properties by the Partnership;
- the elimination of the risks associated with the future costs
that might be required to maintain the Properties and the
incurrence of additional indebtedness related to such
maintenance; and
- the elimination of the annual filing and reporting of tax
information by the Unitholders.
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The primary potential disadvantages of the merger to the unaffiliated
Unitholders include:
- a potentially lower price than what could be realized from the sale
of the Properties to a third party; and
- a potential loss of benefits resulting from any improvements in
economic and market conditions.
See "Special Factors--Fairness of the Merger."
FAIRNESS OF THE MERGER; CONFLICTS OF INTEREST
The General Partners believe that the merger is fair and in the best
interest of the Unitholders and recommends that Unitholders vote for the
approval of the merger. However, the General Partners have economic and other
interests that are in conflict with the interests of the unaffiliated
Unitholders. No independent committee or independent third party has reviewed or
approved the merger, the related merger agreement or the per Unit price to be
paid to Unitholders.
FINANCING OF THE MERGER
The Purchaser expects to finance the merger through capital
contributions from an affiliate and the anticipated refinancing of mortgage
indebtedness of the Partnership. See "Special Factors--Financing of the
Merger--Source of Funds."
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
Sales of Units under the merger will be taxable transactions for federal
income tax purposes. On a sale of Units under the merger, Unitholders will
recognize gain or loss equal to the difference between:
- their "amount realized" on the sale;
and
- their adjusted tax basis in the Units
sold.
Unitholders "amount realized" will equal the sum of:
- the amount of cash Unitholders
receive; and
- the amount of Partnership
liabilities allocable to their Units.
Unitholders' adjusted tax basis in the Units sold will depend upon the facts of
their situation. The character of any gain or loss Unitholders recognize may be
partially capital and partially ordinary.
THE PRECISE TAX CONSEQUENCES OF THE MERGER TO UNITHOLDERS WILL DEPEND UPON THE
FACTS OF THEIR SITUATION. UNITHOLDERS SHOULD CONSULT THEIR TAX ADVISOR.
MARKET INFORMATION
On December 23, 1999, ERP Operating Partnership, an Illinois limited
partnership ("ERP"), made a revised tender offer to acquire all outstanding
Units at a price of $1,100 per Unit less Partnership distributions. Following
this offer, the Purchaser established a merger price of $1,200 per Unit.
There is otherwise no active trading market in the Units and there have been
no significant transactions between private parties that would establish an
accurate market price for the Units.
According to The Partnership Spectrum, an independent third-party industry
publication, for the eight months ended September 30, 1999, a total of 100 Units
traded at per Unit prices between $575 and $651 with a weighted average of $624
per Unit. For the period between October 1, 1999 and November 30, 1999, a total
of 50 Units traded at per Unit prices between $652 and $655.83 with a weighted
average of
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$653.80 per Unit. The General Partners do not, however, know if this information
is accurate or complete and have not independently confirmed these trading
prices.
See "Special Factors--Determination of Merger Price--Recent Unit Sales;
Tender Offer."
RIGHTS OF APPRAISAL
Neither Massachusetts law nor the partnership agreement grants Unitholders
appraisal rights, without regard to how a Unitholder votes (or abstains) at the
special meeting.
FORWARD-LOOKING STATEMENTS
Statements in this proxy statement are or may be forward-looking statements
that involve risks and uncertainties. Actual results may differ materially from
those expressed in these statements depending on a variety of factors.
Unitholders should carefully review all information, including the financial
statements and the notes to the financial statements, included in this document.
SELECTED HISTORICAL FINANCIAL INFORMATION
The following table sets forth selected financial information
regarding the Partnership's results of operations and financial position.
This information should be read in conjunction with the Consolidated
Financial Statements and Notes thereto and other financial information
included or incorporated by reference in this document. The historical
financial data as of and for the quarters ended September 30, 1999 and 1998
have been derived from the unaudited financial statements included in the
Partnership's Quarterly Report on Form 10-Q for the quarters ended
September 30, 1999 and 1998, respectively. The historical financial data for
the years ended December 31, 1998, 1997, 1996, 1995 and 1994 have been derived
from audited financial statements included in the Partnership's Annual Report on
Form 10-K for the year ended December 31, 1998. See "Where You Can Find More
Information."
NINE MONTHS ENDED,
SEPTEMBER 30 YEAR ENDED DECEMBER 31,
------------------------ --------------------------------------------------------
Unaudited
1999 1998 1998 1997 1996 1995
---- ---- ---- ---- ---- ----
Total revenues.................. 11,763,548 11,277,451 $15,100,395 $14,523,598 $13,660,261 $13,839,760
Income (loss) before gain from
capital transactions............ 1,574,044 1,012,231 692,911 (304,383) (119,075) (795,377)
Gain on sale of property........ -- -- -- -- -- 3,265,789
Income (loss) before extraordinary
loss............................ 1,574,044 1,012,231 692,911 (304,383) (119,075) 2,470,412
Extraordinary loss.............. -- -- -- (288,156) -- (93,215)
Net income (loss)............... 1,574,044 1,012,231 692,911 (592,539) (119,075) 2,377,197
Net income (loss) allocated to:
Investor Limited Partners....... 1,463,861 941,375 644,407 (586,614) (117,884) 2,353,425
Per Unit........................ 41.59 26.74 18.31 (16.67) (3.35) 66.86
Original Limited Partner........ 94,443 60,734 41,575 -- -- --
Net income (loss) allocated to:
General partners................ 15,740 10,122 6,929 (5,925) (1,191) 23,772
Total assets.................... 34,014,347 35,077,699 34,721,709 35,457,032 37,162,269 38,555,732
Long-term obligations........... 40,752,418 41,387,711 41,235,548 41,848,811 41,700,453 42,273,669
YEAR ENDED DECEMBER 31,
-----------------------
1994
----
Total revenues.................. $13,652,413
Income (loss) before gain from
capital transactions............ (1,450,214)
Gain on sale of property........ --
Income (loss) before extraordinary
loss............................ (1,450,214)
Extraordinary loss.............. --
Net income (loss)............... (1,450,214)
Net income (loss) allocated to:
Investor Limited Partners....... (1,435,712)
Per Unit........................ (40.79)
Original Limited Partner........ --
Net income (loss) allocated to:
General partners................ (14,502)
Total assets.................... 42,604,180
Long-term obligations........... 46,805,538
DISTRIBUTIONS:
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Investor Limited Partners ...... 1,408,000 1,408,000 1,408,000 1,408,000 704,000 -- --
Per Unit........................ 40.00 40.00 40.00 40.00 20.00 -- --
Original Limited Partner........ 90,838 90,839 90,839 90,839 45,419 -- --
General partners................ 15,140 15,140 15,140 15,140 7,570 -- --
The selected financial data results for the periods presented are not
comparable due to the sale of the Marine Terrace multi-family apartment complex
on July 19, 1995.
The per Unit distributions for the years ended December 31, 1998, 1997,
1996, 1995 and 1994 were $40.00, $40.00, $20.00, $0 and $0, respectively, none
of which represented a return of capital for tax purposes.
The historical performance of the Partnership is not necessarily
indicative of its future operations.
6
SPECIAL FACTORS
BACKGROUND OF THE MERGER; PURPOSE OF THE TRANSACTION
The Partnership was formed in 1983. In that year 35,200 Units were
offered to the public at a price of $1,000 per Unit. The Partnership initially
owned four multi-family apartment complexes and a joint venture interest in a
fifth project. In 1992, the Partnership sold one apartment complex as well as
the joint venture. In 1995, the Partnership sold another apartment complex.
The General Partners believe that most Unitholders have held their
investment in the Partnership for longer than their anticipated holding
period. While the Partnership currently provides investors with a $40 annual
distribution, other investment opportunities may offer a rate of return that
is as good or better than that offered by the Partnership.
The Units are not listed or traded on an exchange or quoted on the
National Association of Securities Dealers Automated Quotation System, and no
active trading market in the Units has developed. Because of the limited trading
market for the Units, Unitholders who wish to sell Units may have difficulty
doing so, and from time to time, the General Partners have been asked by
Unitholders to provide a means of disposing of their Units at a fair price.
In the spring of 1999, affiliates of the General Partners considered
the possibility of acquiring the outstanding Units, thereby providing
Unitholders with the opportunity to liquidate their investment in the
Partnership for cash. On July 8, 1999, Cushman & Wakefield was retained by the
Partnership to appraise the fair market value of the Properties, the principal
assets of the Partnership. The Cushman & Wakefield appraisals were completed in
August 1999.
In September 1999, representatives of the Purchaser contacted
representatives of Equity Resources, the holders of approximately 11% of the
outstanding Units, regarding the possibility of forming a joint venture to
acquire the remaining outstanding Units. Equity Resources was approached because
of its considerable experience in evaluating the benefits and risks associated
with continued ownership of the Properties.
During October and November 1999, representatives of the Purchaser and
Equity Resources negotiated the terms of their joint venture, and on December 2,
1999, executed an investment agreement setting forth the terms of their
agreements regarding the merger and the operation of the Properties following
the merger. See "Related Agreements." In connection with the execution of these
agreements, Equity Resources agreed to vote in favor of the merger and the
amendment to Krupp Realty's partnership agreement allowing the Partnership to
complete the merger with the Purchaser. Equity Resources also agreed to reinvest
their outstanding Units as a capital contribution to the Purchaser. The
Purchaser has contacted certain other Unitholders who are engaged in the
business of real estate management and development regarding their interest in
reinvesting Units in the Purchaser on the same terms as Equity Resources, but
has reached no understandings or agreements.
On November 23, 1999, ERP Operating Limited Partnership, an Illinois
limited partnership ("ERP"), made a third-party tender offer to acquire
two-thirds of the outstanding Units at $675 per Unit less distributions. ERP is
an affiliate of Equity Residential Properties Trust, the largest REIT
apartment owner in the country, which owns 1,062 properties in 35 states. On
December 2, 1999, in response to ERP's offer, the Purchaser made a proposal
to acquire all of the Units held by unaffiliated Unitholders at a price of
$864 per Unit. The Purchaser based the $864 per Unit price on an appraisal of
the Properties prepared by Cushman & Wakefield, which determined the
aggregate value of the Properties to be $70,550,000. In establishing this
price, the
7
Purchaser (a) added to that amount the remaining assets of the Partnership as of
September 30, 1999, principally consisting of cash, cash equivalents and prepaid
assets, (b) decreased such amount by the liabilities of the Partnership as of
September 30, 1999, principally consisting of the approximately $41.4 million of
mortgage indebtedness on the Properties and (c) deducted mortgage debt repayment
costs of approximately $1.6 million which are expected to be incurred in
connection with the refinancing of the Properties.
In response to a third-party tender offer made by ERP on December
15, 1999 to acquire two-thirds of the outstanding Units at a price of $875
per Unit less Partnership distributions, the Purchaser increased its merger
price to Unitholders to $1,000 per Unit.
Following a revised tender offer made by ERP on December 23, 1999 to
acquire all of the outstanding Units at a price of $1,100 per Unit less
Partnership distributions, the Purchaser again increased its merger price to
$1,200 per Unit.
The purpose of the merger is for the Purchaser to acquire all of the
outstanding Units, while providing Unitholders with the opportunity to liquidate
their investment in the Partnership for cash at a fair price.
ALTERNATIVES TO THE MERGER
The General Partners considered two primary alternatives to the merger:
(1) the continued ownership of the Properties by the Partnership and (2) the
sale of one or both of the properties by the Partnership and the distribution of
the net proceeds of the sales to the Unitholders.
CONTINUATION OF THE PARTNERSHIP
The Properties owned by the Partnership were constructed in 1973, in
the case of the Park Place Tower Apartments, and 1969, in the case of the
Century II Apartments. Except for normal and necessary capital improvements,
neither of the Properties have undergone significant renovation. As residential
properties age, they incur increasing maintenance costs and may require
extensive capital improvements to maintain competitive with other properties
located in the marketplace in which the properties are located. These capital
improvements may require the investment of additional equity capital, additional
borrowings or the reduction or discontinuation of future cash distributions
from the Partnership. The Partnership has incurred an average of $1,770,000
of capital improvement expenditures during the last five years. Although
there are no significant capital expenditures currently required for the
Properties, other than for normal and necessary capital improvements, the
Partnership may be required to invest additional capital in the future to
maintain competitively the Properties.
In addition, the Partnership's investment in the Properties is subject
to competition from newly constructed or renovated residential properties
located in the markets served by the Properties.
Finally, as noted above, the General Partners believe that the duration
of most Unitholders' investments in the Properties has exceeded their initial
estimated holding periods, and that providing a means for Unitholders to
liquidate their investment is consistent with the desire of many of the
Unitholders, particularly in light of the limited and sporadic secondary market
for the Units.
8
SALE OF THE PROPERTIES
The General Partners believe that a sale of the Properties by the
Partnership through a solicitation of third-party bids or an auction would
not necessarily result in a more favorable transaction for Unitholders, and
could result in Unitholders realizing less for their Units than in the
merger. A third-party transaction could require the payment of transaction
costs far in excess of costs incurred by the Partnership in the merger, all
of which would be borne by the Partnership, and these costs would reduce the
amount received by each Unitholder in respect of his or her Units. For
example, a sale of the Properties would entitle the General Partners to a
brokerage fee in an amount equal to 3% of the sales price of the Properties.
Moreover, the Partnership would likely be required to retain a portion of the
proceeds of a third-party sale to cover the expenses related to ongoing
administration of the Partnership and to fund possible post-closing
liabilities to a third-party purchaser. Under the terms of the proposed
merger agreement, the Partnership will not make any representations regarding
the Properties, and following the completion of the merger, Unitholders'
proceeds will not be reduced by claims relating to contingent liabilities of
the Properties.
Although the General Partners do not believe that the solicitation of
third-party bids would necessarily result in a more favorable transaction for
Unitholders, there is no assurance that Unitholders would not ultimately receive
more for their Units as a result of the sale of the Properties to a third party
who was able to consummate this type of transaction.
TENDER OFFER
From time to time, Unitholders have been approached by investors
seeking to acquire Units. Based on analyses of the proposals and general
market information, the General Partners have concluded that these offers are
generally made at prices that are significantly less than the fair value per
Unit. For instance, in the tender offer made by ERP, Unitholders were offered
a price of $1,100 per Unit, 10.9% less than the merger price and distribution
payment offered by the Purchaser. The General Partners recommended that
Unitholders decline this offer.
FAIRNESS OF THE MERGER
THE GENERAL PARTNERS RECOMMEND THAT UNITHOLDERS VOTE FOR THE MERGER AND
THE RELATED TRANSACTIONS. Although the amount to be paid to Unitholders
following the merger is not the result of arm's-length negotiations between the
Purchaser and the Partnership and is subject to conflicts of interest, the
General Partners believe that the per Unit merger price and the other terms of
the merger are fair to Unitholders. Therefore, the General Partners recommend
that Unitholders vote "FOR" the merger. The General Partners based their
conclusion on the following:
- The merger price exceeds by approximately 38.8% the appraised
value of the Properties as determined by Cushman & Wakefield,
an independent, nationally recognized real estate valuation
firm.
- The fact that the $1,200 per Unit merger price (after taking
into account the $20 per Unit distribution payment) is $120
higher than the $1,100 per Unit price offered by a third party
in a recent tender offer, as well as the purchase prices
Unitholders realized on the sale of their Units in recent,
privately negotiated transactions as reported by an
independent, third-party source, which ranged from $571 to
$655 per Unit. See "--Determination of Merger Price--Recent
Unit Sales; Tender Offer."
9
- The merger will eliminate the uncertainties relating to the
amount and timing of any liquidation of the Partnership
following the sale of the Properties, which will depend upon
the then-current markets for the Properties, as well as upon
amounts that would be required to be reserved to satisfy
contingent liabilities associated with these sales.
Furthermore, by transferring their Units for cash now,
Unitholders will have the opportunity to redeploy investment
assets into alternative and potentially more liquid
investments.
- Because there is no formal trading market for the Units, they
can be difficult to sell. The merger provides Unitholders with
the opportunity to immediately sell their Units for what the
General Partners believe is a fair price without the
commissions or broker's fee of a secondary market sale and
without any transfer fees.
- The merger price will be paid in cash, and will not be reduced
by the amount of any distribution made or declared by the
Partnership before completing the merger.
- Because the transaction is structured as a merger, cash
proceeds will be paid directly to Unitholders by the Purchaser
and all of the assets and liabilities of the Partnership will
be transferred to the Purchaser immediately upon the merger.
As a result, the Partnership is not required to continue
operations or to escrow funds to fund possible post-closing
liabilities. A sale of the Properties, as opposed to a merger,
would require the Partnership to continue operating for an
uncertain time period before distributing the cash
consideration received to the Unitholders. Additionally, it
would be difficult to predict with any precision the amount
ultimately realized by Unitholders, as the amount of
post-closing liabilities is difficult to determine.
- Although the Properties are in good condition, they are now
more than 27 years old and may require refurbishing in the
future.
- The Purchaser's belief that changing market conditions,
including as a result of new construction or renovations to
existing properties competing with the Properties, may
adversely affect the future cash flows generated by the
Properties unless capital improvements are effected.
- The merger is not subject to a financing contingency, which
increases the likelihood that Unitholders who desire to
realize liquidity will be able to do so.
- As a result of the Purchaser's affiliation with the General
Partners, the Purchaser is familiar with the condition of the
Properties and thus is willing to assume all of the assets and
liabilities of the Partnership on terms and conditions that
would be extremely uncommon for a third-party purchaser,
including the absence of representations and warranties about
the Properties, the absence of any indemnification protection
and the lack of any financing contingency. If the Partnership
were to sell the Properties to a third party, a significant
dollar amount of the proceeds would have to be retained to
fund contingent liabilities, thereby delaying Unitholders'
ability to realize the full value of the sale.
10
- The Merger is subject to the approval of a majority in
interest of the Unitholders.
In determining the fairness of the merger price to Unitholders, and
related terms to Unitholders, the General Partners did not find it practicable
to quantify or otherwise attach relative weights to the specific factors
described above.
DISADVANTAGES AND RISKS ASSOCIATED WITH THE MERGER
Unitholders should note that the affiliates of the General Partners may
benefit from the merger. This is most likely to occur if the Properties are
ultimately sold by the Purchaser for an amount greater than the per Unit price
being offered to Unitholders. The General Partners considered the following
potential disadvantages and risks to the Unitholders if the merger is completed:
- Continued ownership of the Units could be more economically
beneficial to Unitholders than the merger if the value of the
Properties were to increase.
- A more favorable transaction might be available from a
third-party purchaser of the Properties now or in the future.
- No independent committee or entity negotiated, reviewed or
evaluated the merger consideration offered by the Purchaser.
- Unitholders will not be offered appraisal rights or
dissenters' rights in connection with the merger.
- Unitholders may incur tax liabilities as a result of the
merger.
CONFLICTS OF INTEREST
The General Partners faced conflicts of interest with respect to the
merger that may be in conflict with the economic interest of the Unitholders.
Specifically, there is a conflict between the desire of the Purchaser, an
affiliate of the General Partner, to pay unaffiliated Unitholders a lower price
in exchange for Units cancelled in the merger and the desire of unaffiliated
Unitholders to receive a higher price in exchange for their Units.
The General Partners also have an indirect economic interest in
completing the merger, as opposed to a sale or liquidation of the Partnership's
assets to a third party, because a third-party sale or liquidation would
eliminate (a) the distributions received by the General Partners in respect of
their indirect interests in the Properties and (b) the fees paid to their
affiliates for services provided to the Partnership.
To mitigate these conflicts of interest, the General Partners have
relied upon independent appraisals of the Properties prepared by Cushman &
Wakefield. In addition, a majority of the unaffiliated Unitholders must approve
the merger and the amendment to Krupp Realty's partnership agreement before the
merger can be implemented. Although the conflicts of interest cannot be
eliminated, the Purchaser and the General Partners believe that the steps taken
and to be taken constitute sufficient procedural safeguards for Unitholders'
interests and that the proposed transaction is procedurally fair.
11
Unitholders were not independently represented in the negotiation of
the merger agreement and no independent person or committee has evaluated or
rendered any opinion with respect to the fairness of the per Unit price to be
paid to Unitholders.
INDEPENDENT APPRAISALS
Copies of the appraisals of the Century II Apartments and the Park
Place Tower Apartments have been filed as exhibits to the Statement on
Schedule 13E-3 of the Purchaser and its affiliates, of which this proxy
statement is a part. See "Where You Can Find More Information."
EXPERIENCE OF CUSHMAN & WAKEFIELD
Cushman & Wakefield is part of a national network of affiliated full
service real estate companies providing brokerage, management, consulting and
valuation services in the United States (the "C&W Affiliated Companies"). The
clients of the C&W Affiliated Companies include major commercial and investment
banks, Fortune 500 corporations, pension funds, advisory firms and government
agencies. The Valuation Advisory Services Group of the C&W Affiliated Companies
has 19 branch offices located in various geographic regions of the United
States. This large network of professionals provides local expertise in key
markets and subsidiary-regions and enables Cushman & Wakefield to effectively
handle broad-based, multi-property assignments. Furthermore, the C&W Affiliated
Companies valuation network provides a large national database of market
information and ensures a consistent methodology for each property valuation.
The General Partners considered several appraisal firms but ultimately chose
Cushman & Wakefield based upon their expertise and industry leadership.
APPRAISAL
Based on its complete appraisal, as defined by the Uniform Standards of
Professional Appraisal Practice, Cushman & Wakefield determined that, subject to
the assumptions and limitation described below and disregarding in each case the
existing financing, the "as is" market value of the Park Place Tower Apartments
and the Century II Apartments as of the date of the appraisals was $48,250,000
and $22,300,000, respectively. The appraisals assume a standard marketing and
exposure time of one year. The summary set forth below does not purport to be a
complete description of the analyses employed or the assumptions made by Cushman
& Wakefield in preparing the appraisals. The Partnership imposed no conditions
or limitations on the scope of Cushman & Wakefield's investigation or the
methods and procedures to be followed in preparing the appraisals.
12
FACTORS CONSIDERED
In preparing its valuation of the Properties, Cushman & Wakefield:
- conducted a physical inspection of each Property and site
improvements;
- reviewed the leasing policy, concessions and history of recent
occupancy with each Property's manager;
- reviewed a history of income and expenses and budget forecasts for
1999;
- conducted market research of occupancies, asking rents, concessions
and operating expenses at competing properties;
- conducted market inquiries into and otherwise researched sales of
similar properties;
- prepared an estimate of stabilized income and expenses; and
- considered the highest and best use of each site.
SUMMARY OF CUSHMAN & WAKEFIELD'S METHODOLOGY AND APPROACHES TO VALUE
SALE COMPARISON APPROACH. The sale comparison approach uses analysis
techniques and sales of comparable improved properties to derive units of
comparison that are then used to indicate a value for the subject property.
Cushman & Wakefield conducted a search for sales of comparable improved
properties. In the case of the Park Place Tower Apartments, in determining units
of comparisons, Cushman & Wakefield placed considerable emphasis and
understanding on the sales of properties Cushman & Wakefield had previously
appraised. The primary units of comparison used in this analysis were sales
price per unit, capitalization rates and gross income multiplier. In addition,
the appraisal of the Park Place Tower Apartments utilized a comparison of value
per square foot.
INCOME APPROACH. The purpose of the income approach is to value an
income-producing property by analyzing likely future income and expenses to the
property.
Cushman & Wakefield employed a direct capitalization analysis on each
of the Properties by dividing a forecast of net operating income ("NOI") by an
appropriate capitalization rate, which Cushman & Wakefield believed to be 9.75%
for the Century II Apartments and 9.25% for the Park Place Tower Apartments.
Capitalization rates are extracted from comparable market sales as an indication
of value. Cushman & Wakefield relied on a variety of sources as the basis of the
forecast of NOI, including an analysis of each Property's income and expenses
based on historical figures and comparable projects, as well as the calculation
of a stabilized vacancy rate and collection loss of 7.0% for the Century II
Apartments and 5% for Park Place Tower Apartments. In addition, Cushman &
Wakefield deducted a replacement reserve when calculating the NOI for the Park
Place Tower Apartments and the value of deferred maintenance from the overall
value of the Century II Apartments.
Cushman & Wakefield also utilized a discounted cash flow method to
analyze the value of the Century II Apartments. Under this method, anticipated
future cash flow and a reversionary
13
value are discounted at an appropriate rate of return to arrive at an estimate
of present value. The assumptions employed by Cushman & Wakefield to determine
the value of the Century II Apartments under the discount cash flow method
included: a terminal capitalization rate of 10%, a discount rate of 12%, a 3%
cost of sale, a holding period of ten years, a market rent growth rate and an
expense growth rate of 3%, and a vacancy rate and collection loss of 7%. Cushman
& Wakefield did not utilize this method to value the Park Place Tower
Apartments, as it believed that the direct capitalization rate was the method
more likely to be used by potential investors in properties with characteristics
similar to that property.
RECONCILIATION AND CONCLUSIONS OF APPRAISAL. The final step in the
appraisal process was to reconcile the sale comparison approach and the income
approach values to arrive at a final value conclusion. The primary consideration
to reconcile the two approaches are the reliability of the data used and the
applicability of each method for valuing a particular property. After
reconciling the various factors, Cushman & Wakefield arrived at a final
appraised value for the Park Place Tower Apartments of $48,250,000 and a final
appraised value for the Century II Apartments of $22,300,000. The appraisal
valued the Properties at $70,550,000 in the aggregate, disregarding existing
financing secured by the Properties. For a description of how the appraisal was
utilized to determine the fairness of the merger, see "-- Determination of the
Merger Price."
ASSUMPTIONS, LIMITATIONS AND QUALIFICATIONS OF CUSHMAN & WAKEFIELD'S
VALUATION
In preparing the appraisals, Cushman & Wakefield relied, without
independent verification, on the accuracy and completeness of all information
supplied or otherwise made available to it by or on behalf of the Partnership,
including rent rolls, histories of income and expenses and lease summaries. In
arriving at the appraisals, Cushman & Wakefield assumed:
- good and marketable title to the Properties;
- each Property was free and clear of all liens, unless
otherwise stated;
- responsible ownership and competent management of each
Property;
- no hidden or unapparent conditions related to either Property,
its structure and its subsoil;
- full compliance with zoning and environmental laws;
- possession of all necessary licenses, certificates of
occupancy and other governmental consents and that the renewal
of these items are possible;
- the soundness of the structures on each Property;
- the functionality of mechanical equipment and plumbing and
electrical components located and utilized by each Property;
- no potentially hazardous or toxic materials were utilized in
the construction or maintenance of the Properties nor located
at or about the Properties; and
- compliance with the Americans with Disabilities Act of 1990.
14
Further, in its valuation of the Park Place Tower Apartments, Cushman &
Wakefield was not provided with building plans for the site improvements and,
accordingly, building sizes relating to gross and net rentable area were
compiled from other documentation furnished by the Partnership. Cushman &
Wakefield did not conduct a legal survey of the Properties or review actual
tenant leases. To the knowledge of the General Partners, there have been no
material changes in the Partnership, its assets or any other relevant
information since the date of the appraisals which may limit the usefulness of
the appraisals and otherwise affect the validity and accuracy of the
appraisals.
AN APPRAISAL IS ONLY AN ESTIMATE OF VALUE, AS OF THE SPECIFIC DATES
STATED IN THE APPRAISAL, AND IS SUBJECT TO THE ASSUMPTIONS AND LIMITING
CONDITIONS STATED IN THE APPRAISAL REPORT. AN OPINION IS NOT A MEASURE OF
REALIZABLE VALUE AND MAY NOT REFLECT THE AMOUNT WHICH WOULD BE RECEIVED IF THE
PROPERTY WAS SOLD. REFERENCE SHOULD BE MADE TO THE ENTIRE APPRAISAL REPORT.
AVAILABILITY OF REPORT
Copies of the appraisals have been filed with the Commission as an
exhibit to the Schedule 13E-3 filed by the Partnership and the Purchaser. Copies
of the appraisals for the Properties are also available for inspection and
copying at the principal executive offices of the Partnership during regular
business hours by any interested Unitholder or his designated representative at
its or his cost.
COMPENSATION
Cushman & Wakefield was paid a fee of $15,000 in connection with the
appraisals. The fees paid to Cushman & Wakefield in connection with the
appraisal were negotiated by the General Partners. The Partnership has agreed to
indemnify Cushman & Wakefield against specified liabilities arising out of its
engagement to prepare and deliver the appraisals.
The General Partners engaged Cushman & Wakefield in July 1999 to
value the Properties. In 1998 and 1999, Cushman & Wakefield provided its
appraisal services to Berkshire Realty Company, Inc., an affiliate of the
General Partners and the property manager of the Properties, and Berkshire
Realty Holdings, L.P., also an affiliate of the General Partners. Cushman &
Wakefield received approximately $700,000 for the services provided to
Berkshire Realty Company and Berkshire Realty Holdings. Other than these
engagements, there has been no material relationship between Cushman &
Wakefield or its affiliates and the Partnership or its affiliates, nor is any
material relationship contemplated.
DETERMINATION OF MERGER PRICE
As described above under "--Background of the Merger; Purpose of the
Transaction," the Purchaser based its initial merger price of $864 per Unit
on the appraisals of the Properties prepared by Cushman & Wakefield. The
established merger price of $1,200 per Unit was determined following the
revised tender offer of $1,100 per Unit made by ERP. The General Partners
believe that this price is fair to Unitholders.
BOOK VALUE
Because the Partnership's principal assets, the Properties, are carried
on the Partnership's balance sheet at their historical cost and have been
depreciated over the sixteen years of the Partnership's existence, the net book
value of a Unit is a negative number, and therefore the Purchaser does not
believe net book value is meaningful in determining the fairness of the merger
price.
RECENT UNIT SALES; TENDER OFFER
Although not necessarily an indication of value, the per Unit price to
be paid to Unitholders in the merger is higher than the trading prices for the
Units during the past year as
15
reported by The Partnership Spectrum, an independent third-party industry
publication. The General Partners do not know whether the information
compiled by The Partnership Spectrum is accurate or complete. According to
its reports, for the eight months ended September 30, 1999, a total of 100
Units traded at per Unit prices between $575 and $651 with a weighted average
of $624 per Unit. In addition, for the period between October 1, 1999 and
November 30, 1999, a total of 50 Units traded at per Unit prices between $652
and $655.83 with a weighted average of $653.80 per Unit. Trading prices as
reported by The Partnership Spectrum do not necessarily reflect the net sales
proceeds received by sellers of Units, which typically are reduced by
commissions and other secondary market transaction costs to amounts less than
the reported prices. The General Partners have not independently confirmed
the trading prices referred to above, and believe that these prices are not
necessarily indicative of value. Consequently, the General Partners believe
that the comparison of the per Unit price to be paid to Unitholders with
these prices, while informative, is not dispositive of the fairness of the
price to be paid to Unitholders.
The $1,200 per Unit price to be paid to Unitholders in the merger is
also higher than the $1,100 price (less distributions) offered in a recent
third-party tender offer to acquire the outstanding Units.
EFFECTS OF THE TRANSACTION
EFFECT ON THE PARTNERSHIP
If the merger is approved and the remaining conditions to the merger
are met or waived, the merger will be effected by filing certificates of merger
with the Delaware Secretary of State and the Massachusetts Secretary of State.
As a result, the assets and liabilities of the Partnership will be transferred
to the Purchaser as the surviving entity in the merger and the Partnership will
cease to exist. The benefits and risks associated with ownership of the
Properties will then rest solely with the Purchaser.
Following the merger, the Partnership will cease to be a public company
and will not file reports under the Securities Exchange Act of 1934 or be
subject to the rules under it.
EFFECTS ON THE UNITHOLDERS
As a result of the merger, each Unit of the unaffiliated Unitholders
will be cancelled in exchange for a $1,200 cash payment, without interest,
payable by the Purchaser to the Unitholder upon receipt by the Purchaser of the
appropriate forms from the Unitholder. Following the completion of the merger,
the Unitholders will cease to be owners of the Partnership and will no longer
have the potential benefits and risks associated with ownership. Unitholders
will forego the opportunity to continue to participate as investors in the
Partnership, including the right to distributions and potential appreciation of
its assets over time.
Unitholders will recognize a gain or loss on the conversion of Units
into cash in the merger to the extent of the difference between the amount
realized and the Unitholder's adjusted basis in the Units sold. See "--Material
Federal Income Tax Consequences."
16
EFFECTS ON THE GENERAL PARTNERS AND THE PURCHASER
The General Partners will not receive any payment in exchange for the
redemption of their general partnership or original limited partnership
interests nor will they receive any fees from the Partnership in connection with
the merger. Following the merger, the Purchaser will continue to pay management
fees to an affiliate of the General Partner as described below under
"Information About the Partnership, Its General Partners and Their
Affiliates--Related Party Transactions." An affiliate of the General Partners
will manage and control and have an approximate 75% ownership interest in the
Purchaser and thus will benefit from any returns the Purchaser receives from its
investment in the Properties, whether from operating the Properties, selling the
Properties or otherwise.
FAILURE TO APPROVE THE MERGER
If the merger is not approved by Unitholders, the General Partners will
continue to operate the Partnership in accordance with the terms of the
partnership agreement and in fulfillment of their fiduciary duties. The
Partnership may (1) continue to hold the Properties, (2) refinance either or
both of the Properties and utilize the proceeds of the refinancing to implement
capital improvements in the Properties, (3) solicit offers from potential
purchasers to acquire either or both Properties, through bid solicitation,
auction or otherwise or (4) pursue other strategies intended to enhance the
value of the Unitholders' investment in the Partnership.
PLANS OR PROPOSALS BY PARTNERSHIP OR AFFILIATES FOLLOWING THE MERGER
Following the completion of the merger, the Purchaser intends to review
the Partnership and its assets, distribution policy, capitalization, operations,
properties, policies, management and personnel and consider what further
changes, if any, would be desirable in light of the circumstances which then
exist. The Purchaser presently anticipates conducting the business and
operations of the Partnership substantially as they are currently conducted.
The Purchaser does not have any specific plans for the sale or
disposition of the Properties or any material change in the business of the
Partnership following the merger. The Purchaser will, however, evaluate any
proposals and may sell or dispose of its assets if attractive terms are offered.
Presently, there are no arrangements or proposals to do so.
Under the agreements entered into in connection with the merger, Equity
Resources, which following the merger will own approximately 25% of the
Purchaser, may require the managing members of the Purchaser to cause the
Purchaser to attempt to sell the Properties at any time during the six-month
period following the fifth anniversary of the completion of the merger. See
"Related Agreements."
FINANCING OF THE MERGER
SOURCE OF FUNDS
The aggregate consideration to be paid to Unitholders is approximately
$37.5 million. Of this amount, up to $16 million will be in the form of a
capital contribution from KR5 Company, L.L.C. to the Purchaser and the remainder
will be obtained from the anticipated refinancing of existing mortgage
indebtedness of the Partnership. The Purchaser has had discussions with several
lenders regarding this mortgage-indebtedness, but no loan commitment has
17
been obtained from any lender. In addition, Equity Resources will contribute
3,985.5 Units currently held by them in the Partnership as a capital
contribution to the Purchaser. KRF Company will finance its capital
contributions to the Purchaser through capital contributions from an
affiliate of the General Partners which has available sufficient amounts of
liquid capital necessary to fund the obligations of KRF Company to the
Purchaser in respect of the merger consideration.
COSTS BORNE BY THE PURCHASER
It is expected that approximately $66 million will be required to
finance the merger, and approximately $672,000 will be required to pay
related fees and expenses. The following is an itemized statement of the
approximate amount of all expenses incurred or to be incurred by the
Purchaser in connection with the merger:
Financing costs............................. $ 500,000
Legal fees.................................. 100,000
Appraisal and related expenses.............. 25,000
Printing and mailing costs.................. 15,000
Proxy solicitation fees..................... 22,000
Other, including filing fees................ 10,000
--------------
Total......................................... $ 672,000
==============
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
The following summary is a general discussion of material federal
income tax consequences of a sale of Units under the merger 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. This summary is based on the Internal Revenue Code,
applicable Treasury Regulations under it, administrative rulings, practice and
procedures and judicial authority as of the date of this proxy statement. All of
the foregoing are subject to change, and any 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 Unitholder in light of the
Unitholder's specific circumstances or to specific types of Unitholders subject
to special treatment under the federal income tax laws, for example, foreign
persons, dealers in securities, banks, insurance companies and tax-exempt
organizations. This summary also does not discuss any aspect of state, local,
foreign or other tax laws. Sales of Units under the merger 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 UNITHOLDER SHOULD CONSULT ITS TAX ADVISOR AS TO THE PARTICULAR TAX
CONSEQUENCES TO THE UNITHOLDER OF SELLING UNITS UNDER THE MERGER.
CONSEQUENCES TO UNITHOLDERS
A Unitholder will recognize gain or loss on a sale of Units under the
merger equal to the difference between (1) the Unitholder's "amount realized" on
the sale and (2) the Unitholder's adjusted tax basis in the Units sold. The
"amount realized" with respect to Units sold under the
18
merger will be a sum equal to the amount of cash received by the Unitholder for
the Units plus the amount of Partnership liabilities allocable to the Units, as
determined under Internal Revenue Code Section 752. A Unitholder's adjusted tax
basis in Units sold under the merger will vary depending upon the Unitholder's
particular circumstances, and will be affected by allocations of Partnership
income, gain or loss, and by any cash distributions made by the Partnership to a
Unitholder with respect to its Units. In this regard, Unitholders will be
allocated a pro rata share of the Partnership's taxable income or loss with
respect to Units sold under the merger through the effective date of the sale.
In general, the character, as capital or ordinary, of a Unitholder's
gain or loss on a sale of Units under the merger will be determined by
allocating the Unitholder's amount realized on the sale and the Unitholder's
adjusted tax basis in the Units sold between "Section 751 items," which are
"inventory items" and "unrealized receivables" (including depreciation
recapture) as defined in Internal Revenue Code Section 751, and non-Section 751
items. The difference between the portion of the Unitholder's amount realized
that is allocable to Section 751 items and the portion of the Unitholder's
adjusted tax basis in the Units sold that is so allocable will be treated as
ordinary income or loss. The difference between the Unitholder's remaining
amount realized and remaining adjusted tax basis will be treated as capital gain
or loss assuming the Units were held by the Unitholder as capital assets.
A Unitholder's capital gain or loss, if any, on a sale of Units under
the merger will be treated as long-term capital gain or loss if the Unitholder's
holding period for the Units exceeds one year. Under current law, which is
subject to change, long-term capital gains of individuals and other
non-corporate taxpayers generally are taxed at a maximum marginal federal income
tax rate of 20%, or 25% on recapture of the amount of accelerated depreciation
on real property, whereas the maximum marginal federal income tax rate for other
income of these 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 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 generally allowed to carry
back excess capital losses to the three preceding taxable years.
Under Internal Revenue Code Section 469, a non-corporate taxpayer or
personal service corporation can deduct passive activity losses in any year,
other than the year in which the taxpayer's entire interest in the activity is
disposed of, only to the extent of such person's passive activity income for
such year, and closely held corporations may not offset these losses against
so-called "portfolio" income. A Unitholder with "suspended" passive activity
losses (i.e., net tax losses in excess of statutorily provided "phase-in"
amounts) from the Partnership generally will be entitled to offset these losses
against any income or gain recognized by the Unitholder on a sale of his Units
under the merger.
Gain realized by a foreign Unitholder on a sale of a Unit under the
merger will be subject to federal income tax. Under Section 1445 of the Internal
Revenue Code, the transferee of a partnership interest held by a foreign person
generally is 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 foreign Unitholder from the price payable to the foreign
Unitholder.
19
Amounts withheld would be creditable against a foreign Unitholder's federal
income tax liability and, if in excess of the liability, a refund could be
obtained from the Internal Revenue Service by filing a U.S. income tax return.
Unless an exemption applies under applicable law and regulations
concerning "backup withholding" of U.S. federal income tax, the Purchaser will
be required to withhold, and will withhold, 31% of the gross proceeds otherwise
payable to a Unitholder or other payee pursuant to the merger unless the
Unitholder or other payee provides its taxpayer identification number (social
security number or employee identification number) and certifies that this
number is correct, or certifies that it is awaiting a taxpayer identification
number. To prevent the imposition of backup federal income tax withholding on
payments made to certain Unitholders with respect to the purchase price of Units
purchased under the merger, a tendering Unitholder must provide the Purchaser
with the holder's correct taxpayer identification number and certify that the
Unitholder is not subject to backup federal income tax withholding by completing
the Substitute Form W-9 included in the letter of transmittal.
THE SPECIAL MEETING
SPECIAL MEETING; RECORD DATE
Under Massachusetts partnership law and the partnership agreement, the
merger and the amendment requires approval of a majority of the holders of each
class of outstanding investor limited partnership units. A special meeting of
the Unitholders will be held on , 2000, at , at
local time, to consider and vote upon the merger and the amendment
to the Partnership's partnership agreement. In accordance with the partnership
agreement, the close of business on , 2000 has been established as
the record date for the special meeting. Under the terms of the partnership
agreement, only the Unitholders of record on the record date are eligible to
vote those Units on the proposals set forth in this proxy statement. A
Unitholder of record as of the record date will retain the right to vote on the
proposals set forth in this document even if the Unitholder sells or
transfers its Units after the record date. As of the record date, the
Partnership had 35,200 Units outstanding and entitled to vote, held of record
by approxmiately 1,870 Unitholders. A list of the Unitholders entitled to
vote at the special meeting will be available for inspection at the executive
offices of the Partnership at One Beacon Street, Suite 1500, Boston,
Massachusetts 02108. Under the partnership agreement, valid voting requires a
quorum constituted by a majority in interest of the Unitholders voting at the
special meeting in person or by proxy.
Even if a Unitholder intends to attend the special meeting in person,
they are requested to complete and return the enclosed proxy card promptly.
PROCEDURES FOR COMPLETING PROXIES
Accompanying this proxy statement is a proxy card solicited by the
General Partners for use at the special meeting. When a proxy card is returned,
properly executed, the Units represented by it will be voted at the special
meeting by the General Partners in the manner specified on the proxy card. It is
important that Unitholders mark, sign and date their proxy card and return it
either in the enclosed, postage-prepaid envelope or by facsimile as instructed
below to Krupp Funds Group Limited Partnership as soon as possible. When voting
a proxy by facsimile, both sides of the proxy must be transmitted. Delivery of a
proxy does not prohibit Unitholders from attending the special meeting. To be
properly executed, the proxy card must be signed by
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and bear the date of signature of the Unitholder voting the Units represented by
the card. All questions as to the form of documents and the validity of consents
will be determined by the General Partners, which determinations shall be final
and binding. The General Partners reserve the right to waive any defects or
irregularities in any proxy.
Each Unit entitles the holder thereof to one vote with respect to the
proxies solicited by this document. Only Unitholders of record on the record
date may grant a proxy with respect to their Units.
IF UNITS STAND OF RECORD IN THE NAMES OF TWO OR MORE PERSONS, ALL PERSONS MUST
SIGN THE PROXY CARD. WHEN SIGNING AS AN ATTORNEY, EXECUTOR, ADMINISTRATOR,
TRUSTEE OR GUARDIAN, PLEASE GIVE THE FULL TITLE OF THE POSITION HELD. IF A
CORPORATION, THE PROXY SHOULD BE SIGNED BY THE PRESIDENT OR OTHER AUTHORIZED
OFFICER. IF A PARTNERSHIP, PLEASE SIGN IN THE PARTNERSHIP'S NAME BY AN
AUTHORIZED PERSON. IF A UNITHOLDER'S UNITS ARE HELD IN THE NAME OF A BROKERAGE
FIRM, BANK, NOMINEE OR OTHER INSTITUTION, ONLY THIS INSTITUTION CAN SIGN A PROXY
WITH RESPECT TO THE UNITS AND CAN DO SO ONLY AT THE UNITHOLDER'S DIRECTION.
ACCORDINGLY, IF ANY UNITS ARE SO HELD, UNITHOLDERS SHOULD CONTACT THEIR ACCOUNT
REPRESENTATIVE AND GIVE INSTRUCTIONS FOR A PROXY TO BE SIGNED WITH RESPECT TO
THEIR UNITS.
A Unitholder in favor of the merger and the amendment to Krupp Realty's
partnership agreement should mark the "for" box on the enclosed proxy card, date
and sign the proxy and either mail it promptly in the enclosed postage-prepaid
envelope or fax a copy to Krupp Funds as instructed below. If a proxy card is
executed but no indication is made as to what action is to be taken, it will be
deemed to constitute a vote "for" the merger and "for" the amendment. By
consenting to the merger and the amendment, the Unitholders irrevocably appoint
the General Partners, or their designee, as their attorney-in-fact to execute
and deliver those documents as are necessary to effect the merger and the
amendment.
Questions and requests for assistance or for additional copies of this
proxy statement and the proxy card may be directed to the Partnership's
Solicitation Agent, Krupp Funds Group Limited Partnership, One Beacon Street,
Suite 1500, Boston, Massachusetts 02108, Attention: Investor Services, or by
telephone at 1-800-25-KRUPP or facsimile at 617-423-8919. Unitholders should
also use this fax number for delivery of their completed proxy cards. In
addition to soliciting proxies by mail, proxies may be solicited in person and
by telephone or telegraph. Unitholders may also contact their broker, dealer,
commercial bank, trust company or other nominee for assistance concerning the
proxy solicitation.
VOTES REQUIRED
Under the terms of the partnership agreement, the vote of the
Unitholders owning a majority of the Units is necessary to approve the amendment
to the partnership agreement. Under Massachusetts law, the vote of the
Unitholders owning a majority of the Units is necessary to approve the merger.
Each Unit entitles the holder thereof to one vote on each matter submitted to a
vote of the Unitholders. If a majority in interest of the Unitholders consent to
the merger and the amendment and certain other conditions are met, the merger
will be completed. If both the merger and the amendment are not approved by the
Unitholders owning a majority of the Units, the merger will not be completed.
Equity Resources, which holds approximately 11% of the Partnership's
outstanding Units, has agreed to vote for the approval of the merger and the
amendment to the Partnership's
21
partnership agreement. In addition, Unitholders representing approximately
4.57% of the Units have previously agreed to vote their interest in the
Partnership in proportion to the votes of all other Unitholders who vote on a
given matter. Therefore, these Unitholders would have to vote 60% of their
Unit holdings in favor of the merger if, for example, other Unitholders
representing 60% percent of the outstanding Units voted for the approval of
the merger. This means that, in total, an additional 39% of the unaffiliated
Unitholders must vote in favor of the merger proposal to ensure its approval.
See "Related Agreements." Units held by Krupp LP, as a limited partner of the
Partnership, will not be voted at the special meeting or included in the
determination of whether a quorum exists.
THE CONSENT OF THE UNITHOLDERS HOLDING A MAJORITY IN INTEREST OF THE OUTSTANDING
UNITS IS NECESSARY TO COMPLETE THE PROPOSED MERGER AND TO ADOPT THE AMENDMENT.
FAILURE TO RETURN A PROXY IN A TIMELY MANNER OR TO VOTE AT THE SPECIAL MEETING,
ABSTENTION FROM VOTING OR A BROKER NON-VOTE WILL EACH HAVE THE SAME EFFECT AS A
VOTE "AGAINST" THE MERGER AND "AGAINST" THE AMENDMENT. THEREFORE, UNITHOLDERS
ARE ASKED TO PLEASE DATE, SIGN AND PROMPTLY RETURN THEIR PROXY CARDS.
SOLICITATION PROCEDURES
The Partnership has retained Krupp Funds to act as Solicitation Agent
and for advisory services in connection with this proxy statement. In connection
therewith, Krupp Funds will be paid reasonable and customary compensation and
will be reimbursed for their reasonable out-of-pocket expenses, as described
above under "Special Factors--Financing of the Merger--Costs Borne by the
Purchaser." The Partnership has also agreed to indemnify Krupp Funds against
specified liabilities and expenses including liabilities and expenses under
federal securities laws.
The Partnership will not pay any fees or commissions to any broker or
dealer or other person, other than to Krupp Funds, for soliciting proxies in
this solicitation. Banks, brokerage houses and other custodians, nominees and
fiduciaries will be requested to forward the solicitation materials to the
customers for whom they hold Units, and the Partnership will reimburse them for
reasonable mailing and handling expenses incurred by them in forwarding proxy
materials to their customers.
REVOCATION OF PROXIES
A proxy executed and delivered by a Unitholder may subsequently be
revoked by submitting written notice of revocation to the Partnership. A
revocation may be in any written form, including a later-dated proxy card,
validly signed by a Unitholder as long as it clearly states that the
Unitholder's proxy previously given is no longer effective. To prevent
confusion, the notice of revocation must be dated. Notices of revocation should
be delivered to Krupp Funds at the address or by facsimile as listed above. A
Unitholder may also revoke its proxy by attending the special meeting and voting
in person. If a Unitholder signs, dates and delivers a proxy to the Partnership
and, thereafter, on one or more occasions, signs and delivers a later-dated
proxy, the latest-dated proxy card is controlling as to the instructions
indicated in that proxy and supersedes the Unitholder's prior proxy as embodied
in any previously submitted proxy card.
22
APPRAISAL RIGHTS
Neither the partnership agreement nor Massachusetts law provides rights
of appraisal or similar rights to Unitholders whether or not Unitholders abstain
or vote for or against the merger. As a result, if Unitholders holding a
majority of the Units approve the merger and if the merger is completed, the
Partnership will be merged with and into the Purchaser and all unaffiliated
Unitholders, including those who do not approve the merger, will receive the
merger price for each of their Units in accordance with the terms of the merger
agreement.
THE MERGER AGREEMENT
The merger agreement between the Partnership and the Purchaser will be
entered into only if the Unitholders approve the amendment to the Partnership's
partnership agreement. Under the merger agreement, the merger of the Partnership
with and into the Purchaser will not take place unless the Unitholders approve
the merger. If the merger is approved at the special meeting, the General
Partners on behalf of the Partnership intend to enter into an agreement
substantially in the form of the merger agreement. The material provisions of
the merger agreement are summarized below. Although complete in all material
respects, this summary is qualified by reference to the full text of the merger
agreement attached to this proxy statement as Annex A. Unitholders are
encouraged to read the merger agreement carefully. If all of the conditions in
the merger agreement are met, principally the approval by the Unitholders of the
merger, at the effective time of the merger, the Partnership will be merged with
and into the Purchaser, with the Purchaser continuing as the surviving entity.
The Purchaser, as the surviving entity, will succeed to and possess all of the
rights, privileges and powers of the Partnership, whose assets shall vest in the
Purchaser, and who will then be liable for all of the liabilities and
obligations of or any claims or judgments against the Partnership.
CLOSING DATE; EFFECTIVE TIME OF THE MERGER
The merger will become effective at 5:00 p.m. on the date on which the
latter of (1) the filing of the certificate of merger with the Office of the
Secretary of State of Delaware and (2) the filing of the certificate of merger
with the Secretary of State of the Commonwealth of Massachusetts.
EFFECTS OF THE MERGER
At the effective time, by virtue of the merger, and without any further
action on the part of anyone, all Partnership interests outstanding immediately
beforehand, including Units, general partnership interests and original limited
partnership interests, will be cancelled. Each Unit owned by the Unitholders,
other than Equity Resources, or those who are not affiliates of the Purchaser or
the General Partners, will be automatically converted into a right to receive,
in exchange for each Unit, $1,200 in cash, without interest. Immediately before
the effective time, 3,985.5 partnership interests (whether general or limited)
will be contributed to the Purchaser for membership interests in the Purchaser.
PAYMENT
The merger price will be paid to unaffiliated Unitholders by the
Purchaser, upon receipt by the Purchaser of a letter of transmittal and any
other required forms which the Purchaser may
23
reasonably request. Promptly after the effective time, the Purchaser will mail
to each unaffiliated Unitholder as of the effective time the form of transmittal
letter, any other required forms and instructions. Until receipt of the
transmittal letter and other required forms, the Units owned by Unitholders
represent only the right to receive the merger price multiplied by the number of
Units owned by the unaffiliated Unitholder. Interest will not accrue on amounts
owed to unaffiliated Unitholders. Payments will be made only to the unaffiliated
Unitholder in whose name Units are registered on the books of the Partnership at
the effective time. Neither the Purchaser nor any other party will be liable to
any Unitholder for any merger consideration or other payments made to a public
official under applicable abandoned property laws. The Purchaser will be
entitled to deduct and withhold from the merger consideration paid to a
Unitholder any taxes or other amounts required by law, including Sections 3406
and 1445 of the Internal Revenue Code of 1986.
Under federal law, to the extent that amounts are withheld, these
amounts will be treated as having been paid to a Unitholder for purposes of the
merger agreement. Beginning at the effective time, there will be no further
transfers of any Units on the books of the Partnership. Each Unitholder whose
Units were converted and cancelled will be deemed to have withdrawn as a limited
partner of the Partnership. Unitholders will then have no further interest in
the Partnership or the Purchaser, including any allocations or distributions of
income, property or otherwise, other than the right to receive the merger price
per Unit.
Following the effective time, the officers of the Purchaser, as the
surviving entity in the merger, will terminate the Partnership's reporting
obligations with the Securities and Exchange Commission.
AUTHORITY AND CONSENT OF THE PURCHASER
The Purchaser has informed the Partnership that the execution, delivery
and performance of the merger agreement by the Purchaser and the completion of
the transactions contemplated by it have been duly authorized by the Purchaser's
members as necessary.
REPRESENTATIONS AND WARRANTIES OF THE PARTIES
The merger agreement contains no representations and warranties.
CONDITIONS TO THE MERGER
Before the merger is completed, the following must occur:
- the holders of a majority of the outstanding Units must approve
the amendment in accordance with the partnership agreement;
- the holders of a majority of the outstanding Units must approve
the merger agreement in accordance with the partnership agreement
and Massachusetts law;
- any consent, approval or waiver of any third party required in
order for the Purchaser or the Partnership to complete the merger
must be obtained.
In addition, unless the relevant condition is waived by the Purchaser
and the Partnership, the merger will not be completed if any of the following
occur:
24
- the enactment, promulgation or enforcement by any governmental
entity of a statute, regulation or injunction which prohibits or
restrains the merger or subjects any party to substantial damage
as a result of the merger; and
- a change or event which has or could be reasonably expected to
either (1) cause a material adverse effect to the business,
condition, financial or otherwise, or result of operations of the
Partnership or (2) prevent or cause a material delay in the
completion of the merger or the performance of the merger
agreement by the Purchaser or the Partnership.
TERMINATION
The merger agreement may be terminated by the mutual agreement of the
Purchaser and the General Partners at any time before the filing of the
certificates of merger.
AMENDMENT
At any time before the filing of the certificates of merger, the merger
agreement may be amended by the joint determination in writing of the Purchaser
and the General Partners. No amendment may be made which would change any term
of the certificate of formation or operating agreement of the surviving entity
in the merger.
WAIVER
At any time before the effective time of the merger, whether before or
after this proxy statement is mailed, any party may waive compliance with any of
the agreements of the other party or conditions to its own obligations contained
in the merger agreement.
THE SURVIVING ENTITY
The certificate of formation, operating agreement and managers and
officers of the Purchaser will be the certificate of formation, operating
agreement and managers and officers utilized by or employed by the Purchaser
before the merger.
RELATED AGREEMENTS
In connection with the merger, the Purchaser and its sole member, KRF
Company, have entered into an investment agreement and voting agreement, each
dated as of December 2, 1999, with Equity Resources. Under the investment
agreement, Equity Resources has agreed to reinvest their Units in the Purchaser
as a capital contribution. KRF Company, on the other hand, will make a cash
contribution to the Purchaser of up to $16 million. The Purchaser and KRF
Company, on the one hand, and Equity Resources on the other hand, further agreed
to indemnify the other in connection with any liability arising out of a breach
of the investment agreement, while the Purchaser agreed to identify the parties
in connection with any liabilities arising out of any Unitholder litigation
relating to the merger. To the extent that the indemnification provisions are
unenforceable, the parties agreed to contribute additional amounts in
satisfaction of any losses to the extent legally permissible.
25
The Purchaser may terminate the investment agreement at any time. The
investment agreement will terminate automatically if the merger is not completed
by August 1, 2000, or, if the members of the Purchaser do not make their capital
contributions before the parties complete the merger.
Under the voting agreement, Equity Resources, which owns approximately
11% of the outstanding Units, has agreed that at any meeting of the partners of
the Partnership, however called, and in any action by consent of the limited
partners of the Partnership, Equity Resources will vote, or cause to be voted,
the Units held of record or beneficially owned by it in favor of the merger and
the amendment to the partnership agreement. Equity Resources further agreed that
at any meeting of the partners of the Partnership, however called, and in any
action by consent of the limited partners of the Partnership, Equity Resources
will vote, or cause to be voted, in person or by proxy, the Units held of record
or beneficially owned by it against approval of any proposal made in opposition
to or in competition with the merger.
In addition, Equity Resources further agreed that, without the consent
of the Purchaser and KRF Company, Equity Resources would not, either directly or
indirectly, offer or otherwise agree to sell, assign, pledge, transfer, exchange
or dispose of any Units or options, warrants or other convertible securities to
acquire or purchase Units, whether now or later acquired. Under the terms of the
voting agreement, if Equity Resources acquires any additional Units, the voting
agreement will be applicable to the additional Units.
In addition, under the terms of the Purchaser's organizational
documents, upon the request of Equity Resources, the managing members of the
Purchaser have agreed to cause the Purchaser to attempt to sell the Properties
at any time during the six-month period following the fifth anniversary of the
completion of the merger.
THE AMENDMENT TO THE PARTNERSHIP AGREEMENT
PURPOSE
The purpose of the amendment is to amend Krupp Realty's partnership
agreement to permit the Partnership to enter into the merger agreement with the
Purchaser. Except for specifically enumerated transactions, the partnership
agreement prohibits the Partnership from selling any property to, or entering
into any agreement or arrangement with, a General Partner or an affiliate of a
General Partner. Because the Purchaser is an affiliate of the General Partners
and the merger agreement is an agreement which may be considered to be an
indirect sale of the Properties, these prohibitions prevent the Partnership from
entering into the merger agreement with the Purchaser.
THE AMENDMENT
The description of the amendment to the partnership agreement
summarized above is qualified in its entirety by reference to the text of the
amendment attached to this proxy statement as Annex B. Unitholders are
encouraged to read the annexed amendment carefully.
In accordance with the amendment, the parties must enter into the
merger agreement after February 1, 2000 and before August 1, 2000. The amendment
adds the merger agreement to the
26
list of the transactions which the Partnership is permitted to compete with an
affiliate of the General Partners; otherwise, the amendment does not alter the
partnership agreement.
INFORMATION ABOUT THE PARTNERSHIP,
ITS GENERAL PARTNERS AND THEIR AFFILIATES
THE PARTNERSHIP
The Partnership was organized on June 16, 1983 as a limited partnership
under Massachusetts law. The Partnership is governed by its partnership
agreement, which vests exclusive management and control over the Partnership in
the General Partners, subject to the rights of the Unitholders to vote on
limited matters. The address of the Partnership's principal executive office is
at One Beacon Street, Suite 1500, Boston, Massachusetts 02108, and the telephone
number is (617) 523-7722.
The Partnership considers itself to be engaged only in the industry
segment of real estate investing. The Partnership issued all of the original
limited partner interests in the Partnership to The Krupp Company Limited
Partnership-II. On September 6, 1983, the Partnership, under a sales agent
agreement, commenced the marketing and sale of Units for $1,000 per Unit, 35,200
of which were sold. The Partnership invested the net proceeds from the Unit
offering in leveraged real estate. The Partnership originally invested in four
multi-family apartment complexes--Century II Apartments, Marine Terrace, the
Fieldcrest Apartments and the Park Place Tower Apartments--and a joint venture
in Lakeview Tower Apartments with Krupp Realty Limited Partnership-IV, an
affiliated limited partnership. The aggregate purchase price of the properties
was approximately $67 million and the Partnership originally funded
approximately $2.3 million to the joint venture.
On March 20, 1989, the General Partners formed Krupp Realty Park
Place-Chicago Limited Partnership, an Illinois limited partnership ("Realty-V"),
as a prerequisite for the refinancing of the Park Place Tower Apartments. At the
same time, the General Partners transferred ownership of the Park Place Tower
Apartments to Realty-V. The General Partner of Realty-V is Krupp Corp. The
limited partner of Realty-V is the Partnership. Krupp Corp has beneficially
assigned its interest in Realty-V to the Partnership. The Partnership and
Realty-V are collectively known as Krupp Realty Limited Partnership-V and
Subsidiary (collectively referred to in this proxy statement as the
"Partnership").
The Partnership sold two of its apartment complexes, the Fieldcrest
Apartments and Marine Terrace, in 1992 and 1995, respectively. The Partnership
also received a distribution of proceeds from the sale of the joint venture in
1992.
The Partnership's real estate investments are subject to seasonal
fluctuations resulting from changes in utility consumption and seasonal
maintenance expenditures. However, the future performance of the Partnership
will depend upon factors which cannot be predicted. These factors include
general economic and real estate market conditions, both on a national basis and
in those areas in which the Partnership's real estate investments are located,
real estate tax rates, operating expenses, energy costs, government regulations
and federal and state income tax laws. The requirements for compliance with
federal, state and local regulations to date have not had an adverse effect on
the Partnership's operations, and no adverse effect from regulatory compliance
is anticipated in the future.
27
As of September 30, 1999, the Partnership did not employ any personnel.
THE GENERAL PARTNERS
The General Partners of the Partnership are Krupp Corp and Krupp LP.
The principal business address of each of the General Partners is at One Beacon
Street, Suite 1500, Boston, Massachusetts 02108. The principal business of each
of the General Partners is to act as a general partner of the Partnership. The
directors and principal executive officers of Krupp Corp are Douglas Krupp,
George Krupp and David Quade, and the sole shareholders of Krupp Corp are
Douglas Krupp and George Krupp. The General Partners of Krupp LP are Douglas
Krupp, George Krupp and Krupp Corp. Krupp LP owns all of the original limited
partnership interests in the Partnership.
Douglas Krupp co-founded and serves as Co-Chairman and Chief Executive
Officer of The Berkshire Companies Limited Partnership ("The Berkshire
Companies"), an integrated real estate financial services firm engaged in real
estate acquisitions, mortgage banking, investment sponsorship, venture capital
investing, financial management, commercial laundry and linen services, and
furniture manufacturing and sales.
Mr. Krupp has held the position of Co-Chairman since The Berkshire
Companies was established as The Krupp Companies in 1969 and he has served as
the Chief Executive Officer since 1992. Mr. Krupp serves as a Director of Krupp
Government Income Trust and Krupp Government Income Trust-II and he is also a
member of the Board of Trustees at Brigham & Women's Hospital. He is a graduate
of Bryant College where he received an honorary Doctor of Science in Business
Administration in 1989 and was elected trustee in 1990. Mr. Krupp's address is
at One Beacon Street, Suite 1500, Boston, Massachusetts 02108
George Krupp is actively involved in the management of The Berkshire
Companies and affiliated entities. Mr. Krupp has been an instructor of history
at the New Jewish High School in Waltham, Massachusetts since September of 1997.
Mr. Krupp attended the University of Pennsylvania and Harvard University and
holds a master's degree in History from Brown University. Mr. Krupp's address is
at One Beacon Street, Suite 1500, Boston, Massachusetts 02108
David Quade is Executive Vice President and Chief Financial Officer
of The Berkshire Group. Prior to joining The Berkshire Group, Mr. Quade was a
principal and Chief Financial Officer for eighteen years at Leggat McCall
Properties. He received a P.A.P. from Northwestern University Graduate
Business School and an M.B.A. and a B.S. from Central Michigan University.
28
DESCRIPTION OF THE ASSETS
As of September 30, 1999, the Partnership had leveraged investments in
two apartment complexes acquired in 1984, which together have an aggregate of
1,369 units. One of the complexes has an additional 18,417 square feet of
leasable commercial space. A summary of the Partnership's real estate
investments is presented below.
Average Occupancy
-----------------------------------------------------------------------
For the Year Ended
Total Units/ For the December 31,
Current Leasable Nine Months Ended ------------------------------------------------
Description Square Footage September 30, 1999 1998 1997 1996 1995 1994
----------- ---------------- ------------------ -------- ------- -------- ------- --------
Century II Apartments
Cockeysville, Maryland 468 Units 96% 100% 100% 96% 92% 92%
Park Place Tower Apartments 901 Units/ 97% 99% 99% 96% 94% 94%
Chicago, Illinois 18,417 Sq. Ft. 86% 64% 64% 76% 83% 83%
CENTURY II APARTMENTS
On December 10, 1997, the Partnership completed the refinancing of the
Century II Apartments mortgage note. The property was refinanced with a
$11,000,000 non-recourse mortgage note payable at the rate of 6.75% per annum
with monthly principal and interest payments of $71,346. The mortgage note,
which is collateralized by the property, matures on January 1, 2008, at which
time the remaining principal of approximately $9,401,537 and the accrued
interest are due. The note may be prepaid, subject to a prepayment penalty, at
any time with 30 days prior notice. The Partnership used the majority of the
proceeds from the refinancing to repay the existing mortgage note of
$10,309,332, to pay closing costs of $236,763 and a prepayment premium of
$210,825, and to establish various escrows. The prepayment premium, as well as
unamortized deferred mortgage costs of $77,331, are reported in the statement of
Operations included in the Partnership's consolidated financial Statements and
appearing elsewhere in this proxy statement as an extraordinary loss from early
extinguishment of debt for the year ended December 31, 1997.
At December 31, 1996, the property was subject to a non-recourse first
mortgage note of $11,000,000, which was payable in equal monthly installments of
principal and interest of $104,844, based on a 25-year amortization schedule.
Based on the borrowing rates currently available to the Partnership for
bank loans with similar terms and average maturities, the fair value of the
long-term debt is approximately $10,898,000 and $10,470,000 for the years ended
December 31, 1998 and 1997, respectively.
PARK PLACE TOWER APARTMENTS
The Park Place Tower Apartments property is subject to a non-recourse
mortgage note in the original amount of $33,000,000, dated September 15, 1993,
held by the U.S. Department of Housing and Urban Development ("HUD"). The note
is payable in equal monthly installments of principal and interest of $212,783,
based on a 31-year amortization. At maturity, all unpaid principal
(approximately $1,457,000) and any accrued interest are due. The note may be
prepaid
29
subject to a prepayment premium. In the event a prepayment of principal occurs,
a prepayment premium will be due, based on a declining premium rate of 5% to 0%
of the outstanding principal balance over a period of 5 years. As stipulated in
the regulatory agreement with HUD, the Partnership makes monthly deposits of
$17,743 in an established reserve for replacements to be used for improvements.
Under the terms of the loan, HUD restricts the distribution of funds to "surplus
cash," as defined by HUD in the regulatory agreement.
DISTRIBUTIONS
One of the objectives of the Partnership is to generate cash available
for distribution to its partners. In 1995, after several years of infrequent
distributions, the General Partners determined that there was sufficient cash
flow, as calculated under the partnership agreement, and working capital
reserves to reinstate distributions. These semiannual distributions, which
commenced in the first quarter of 1996, were paid at an annual rate of $20.00
per Unit. The General Partners believed there was sufficient cash flow and
working capital reserves to increase the annual distribution rate in 1997 to the
current rate of $40.00 per Unit. The table below sets forth the distribution
made by the Partnership to its partners for the nine months ended September 30,
1999 and during the years ended December 31, 1998 and 1997. The Partnership
will make a $20 per Unit distribution to its partners in February 2000.
Nine Months Ended
September 30, 1999 Year Ended December 31,
------------------------------ ------------------------------------------------------
1998 1997
------------------------- -----------------------------
Amount Per Unit Amount Per Unit Amount Per Unit
------------------------------ ------------------------- ---------------------------
Limited Partners:
Investor Limited Partners
(35,200 Units outstanding)....... $1,408,000 $40.00 $1,408,000 $40.00 $1,408,000 $40.00
Original Limited Partner......... 90,838 90,839 90,839
General Partners................. 15,140 15,140 15,140
TOTAL................... $1,513,978 $1,513,979 $1,513,979
Future distributions will be at the discretion of the Partnership and
will be determined after consideration of a number of factors including, among
others, the Partnership's financial condition, cash flows and current and
anticipated cash needs.
OWNERSHIP OF UNITS
The number of Unitholders as of September 30, 1999 was approximately
1,870. As of September 30, 1999, none of the Unitholders beneficially owned more
than 5% of the Partnerships 35,200 outstanding Units. The table below sets forth
the beneficial ownership interests in the Units held by the investment funds
comprising Equity Resources.
NAME AND ADDRESS AMOUNT AND NATURE PERCENT
OF OF OF
TITLE OF CLASS BENEFICIAL OWNER BENEFICIAL OWNER CLASS
- ------------------------------------------------------------------------- ------------------------ ---------
Investor Limited Partner Units Equity Resource Fund XIX L.P. 225.00 Units 0.64%
14 Story Street
Cambridge, MA 02138
30
NAME AND ADDRESS AMOUNT AND NATURE PERCENT
OF OF OF
TITLE OF CLASS BENEFICIAL OWNER BENEFICIAL OWNER CLASS
- ------------------------------------------------------------------------- ------------------------ ---------
Investor Limited Partner Units Equity Resources Bridge Fund 20.00 Units 0.06%
14 Story Street
Cambridge, MA 02138
Investor Limited Partner Units Equity Resource General Fund L.P. 20.00 Units 0.06%
14 Story Street
Cambridge, MA 02138
Investor Limited Partner Units Equity Resource Fund XVII L.P. 1,599.50 Units 4.54%
14 Story Street
Cambridge, MA 02138
Investor Limited Partner Units Equity Resource Boston Fund 1,099.00 Units 3.11%
14 Story Street
Cambridge, MA 02138
Investor Limited Partner Units Equity Resource Cambridge Fund 175.00 Units 0.50%
14 Story Street
Cambridge, MA 02138
Investor Limited Partner Units Equity Resource Fund XXI L.P. 847.00 Units 2.41%
14 Story Street
Cambridge, MA 02138
TOTAL 3,985.50 Units 11.33%
On September 30, 1999, the General Partners or their affiliates owned
106 Units, or .30% of the total outstanding Units, of the Partnership in
addition to their general and original limited partner interests.
MARKET FOR THE UNITS
The Units are not traded on any established trading market and no
market of this type is expected to develop. Thus, limited information is
available as to high and low bid quotations or sales prices. According to The
Partnership Spectrum, an independent third-party industry publication, for the
eight months ended September 30, 1999, a total of 100 Units traded at per Unit
prices between $575 and $651 with a weighted average of $624 per Unit. For the
period between October 1, 1999 and November 30, 1999, a total of 50 Units traded
at per Unit prices between $652 and $655.83 with a weighted average of $653.80
per Unit.
Unitholders are advised, however, that these gross sales prices
reported by The Partnership Spectrum do not necessarily reflect the net sales
proceeds received by sellers of Units, which typically are reduced by
commissions and other secondary market transaction costs to amounts less than
the reported prices. In addition, other measures of the value of the Units may
be relevant to Unitholders.
RELATED PARTY TRANSACTIONS
The Partnership pays property management fees to an affiliate of the
General Partners for management services. Under the management agreements,
management fees are payable monthly
31
at a rate of 5% of the gross receipts from the properties under management. The
Partnership also reimburses affiliates of the General Partners for specified
expenses incurred in connection with the operation of the Partnership and its
properties, including administrative expenses.
Amounts accrued or paid to the General Partners' affiliates for the
nine months ended September 30, 1999 and for the years ended December 31, 1998,
1997 and 1996 were as follows:
1999 1998 1997 1996
--------------------- --------------------- ------------------- -----------------
Property management fees $467,815 $506,198 $475,569 $442,295
Expense reimbursements 275,029 307,468 317,432 288,226
------------ --------- --------- ---------
Charged to operations $742,844 $813,666 $793,001 $730,521
Expense reimbursements due from affiliates of $8,323 and $1,456,
respectively were included in prepaid expenses and other assets for the nine
months ended September 30, 1999 and for the year ended December 31, 1998.
Under the partnership agreements the General Partners are entitled to a
brokerage fee in an amount equal to 3% of the contract sales price of any real
estate sold by the Partnership, subject to specified limitations. No brokerage
fees have been paid to the General Partners of their affiliates for the
three-year period ending December 31, 1998.
In addition to the amounts above, refinancing costs of $110,000 were
paid to the General Partners' affiliates during the year ending December 31,
1997.
SELECTED FINANCIAL DATA
The following table sets forth selected financial information
regarding the Partnership's results of operations and financial position.
This information should be read in conjunction with the Consolidated
Financial Statements and Notes thereto and other financial information
included or incorporated by reference in this document. The historical
financial data as of and for the quarters ended September 30, 1999 and 1998
have been derived from the unaudited financial statements included in the
Partnership's Quarterly Report on Form 10-Q for the quarters ended
September 30, 1999 and 1998, respectively. The historical financial data for
the years ended December 31, 1998, 1997, 1996, 1995 and 1994 have been derived
from audited financial statements included in the Partnership's Annual Report on
Form 10-K for the year ended December 31, 1998. See "Where You Can Find More
Information."
NINE MONTHS ENDED FOR THE
SEPTEMBER 30, YEAR ENDED DECEMBER 31
------------------------ ------------------------------------------------------------------
Unaudited
1999 1998 1998 1997 1996 1995 1994
----------- --------- ------------ ----------- ----------- ------------- -----------
S>
Total revenues.......................... 11,763,548 11,277,451 $15,100,395 $14,523,598 $13,660,261 $13,839,760 $13,652,413
Income (loss) before gain from capital
transactions............................ 1,574,044 1,012,231 692,911 (304,383) (119,075) (795,377) (1,450,214)
Gain on sale of property................ -- -- -- -- -- 3,265,789 --
Income (loss) before extraordinary loss. 1,574,044 1,012,231 692,911 (304,383) (119,075) 2,470,412 (1,450,214)
Extraordinary loss...................... -- -- -- (288,156) -- (93,215) --
Net income (loss)....................... 1,574,044 1,012,231 692,911 (592,539) (119,075) 2,377,197 (1,450,214)
Net income (loss) allocated to:
Investor limited partners............... 1,463,861 941,375 644,407 (586,614) (117,884) 2,353,425 (1,435,712)
per Unit................................ 41.59 26.74 18.31 (16.67) (3.35) 66.86 (40.79)
Original limited partner................ 94,443 60,734 41,575 -- -- -- --
32
NINE MONTHS ENDED FOR THE
SEPTEMBER 30, YEAR ENDED DECEMBER 31
------------------------------ ---------------------------------------------------------------
1999 1998 1998 1997 1996 1995 1994
------------------------------ -------- ------------- -------------------------- -------------
Net income (loss) allocated to:
General partners................. 15,740 10,122 6,929 (5,925) (1,191) 23,772 (14,502)
Total assets..................... 34,014,347 35,077,699 34,721,709 35,457,032 37,162,269 38,555,732 42,604,180
Long-term obligations............ 40,752,418 41,387,711 41,235,548 41,848,811 41,700,453 42,273,669 46,805,538
DISTRIBUTIONS:
Investor limited partners........ 1,408,000 1,408,000 1,408,000 1,408,000 704,000 -- --
Per Unit......................... 40.00 40.00 40.00 40.00 20.00 -- --
Original limited partner......... 90,838 90,839 90,839 90,839 45,419 -- --
General partners................. 15,140 15,140 15,140 15,140 7,570 -- --
The selected financial data results for the periods presented are not
comparable due to the sale of the Marine Terrace multi-family apartment complex
on July 19, 1995.
The per Unit distributions for the years ended December 31, 1998, 1997,
1996, 1995 and 1994 were $40.00, $40.00, $20.00, $0 and $0, respectively, none
of which represented a return of capital for tax purposes.
Historical performance of the Partnership is not necessarily indicative
of its future operations.
INFORMATION CONCERNING THE PURCHASER
AND ITS AFFILIATES
THE PURCHASER
The Purchaser, KR5 Acquisition, L.L.C., is a wholly owned subsidiary of
KRF Company. The Purchaser was organized for the purpose of merging with the
Partnership and has not carried
33
on any activities to date other than those incident to its formation and the
transactions contemplated by the merger agreement. The Purchaser has no assets
and liabilities. The principal office and place of business of the Purchaser is
One Beacon Street, Suite 1500, Boston, Massachusetts 02108.
AFFILIATES OF THE PURCHASER
KRF Company was organized to conduct the business and the operations of
KRF3 Acquisition Company, L.L.C., a Delaware limited liability company whose
principal business is to hold limited partnership interests in Krupp Realty
Fund, Ltd.-III. The principal office and place of business of KRF Company is One
Beacon Street, Suite 1500, Boston, Massachusetts 02108. The sole member of KRF
Company is The Krupp Family Limited Partnership-94 (the "Family Limited
Partnership").
The Family Limited Partnership was formed to hold and manage
investments for its partners. The general partners of the Family Limited
Partnership are Douglas Krupp and George Krupp. See "Information About The
Partnership, Its General Partners and Their Affiliates--The General Partners."
The Family Limited Partnership, KRF Company, the Purchaser and the
General Partners are under the common control of Douglas Krupp and George Krupp.
As a result of the voting and investment agreements entered into among Equity
Resources, the Purchaser and KRF Company, Douglas Krupp and George Krupp may be
deemed to each beneficially own indirectly 4,086.5 Units, which is 11.6% of the
total number of Units.
All information contained in this proxy statement concerning the
Purchaser is based upon statements and representations made by the Purchaser or
its representatives to the Partnership or its representatives.
WHERE YOU CAN FIND MORE INFORMATION
GENERAL
The Partnership files reports with the Securities and Exchange
Commission on a regular basis. Unitholders may read or copy any document that
the Partnership files with the Commission at the Commission's Public Reference
Room at 450 Fifth Street, N.W., Washington, D.C. 20549. You may obtain
information about the Public Reference Room by calling the Commission for
further information at 1-800-SEC-0330. The Partnership's Commission filings are
also available from the Commission's web site at www.sec.gov.
The following documents previously filed by the Partnership with the
Securities and Exchange Commission are incorporated in this proxy statement
by reference:
(a) Annual Report on Form 10-K for the year ended December 31, 1998 as filed
on March 31, 1999; and
(b) Quarterly Report on Form 10-Q for the quarter ended September 30, 1999 as
filed on November 15, 1999.
All documents filed by the Partnership pursuant to Sections 13(a), 13(c), 14
or 15(d) of the Securities Exchange Act after the date of this document and
prior to the date of the special meeting or any adjournment or postponement
of the meeting shall be deemed to be incorporated by reference and made a
part of this document from the date of the filing of these documents. Any
statement contained in a document incorporated or deemed to be incorporated
by reference in this document shall be deemed to be modified or superseded
for purposes of this proxy statement to the extent that a statement contained
in this document or in any other document subsequently filed with the
Commission which also is deemed to be incorporated by reference in this
document modified or supersedes such statement. Any such statement so
modified or superseded shall not be deemed, except as so modified or
superseded, to constitute a part of this proxy statement.
The Purchaser, KRF Company, the Family Limited Partnership and George
and Douglas Krupp, are affiliates of the Partnership. Accordingly, they have
jointly filed with the Commission a Schedule 13E-3. This proxy statement does
not contain all of the information contained in the Schedule 13E-3, some of
which is omitted as permitted by Commission rules. Statements made in this proxy
statement, while complete in all material respects, are qualified by reference
to documents filed as exhibits to the Schedule 13E-3. The Schedule 13E-3,
including exhibits, is available for inspection and copying at the Commission as
described above.
The Purchaser and the General Partners are not public companies and are
not required to file reports of any type with the Commission.
34
INDEPENDENT ACCOUNTANTS
The consolidated financial statements and financial statement
schedule of the Partnership appearing in this proxy statement have been
audited by PricewaterhouseCoopers LLP, independent auditors, as set forth in
their report included in this document. These consolidated financial
statements and financial statement schedule are included in this document and
incorporated in this document by reference. It is expected that
representatives of PricewaterhouseCoopers LLP will be present at the special
meeting, both to respond to appropriate questions of Unitholders and to make
a statement if they so desire.
35
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
----
Annual Audited Financial Statements:
Independent Auditors' Report F-2
Financial Statements:
Balance Sheets, December 31, 1998 and 1997 F-3
Statements of Operations, for the years ended F-4
December 31, 1998, 1997 and 1996
Statements of Changes in Partners' Deficit, for the years ended F-5
December 31, 1998, 1997 and 1996
Statements of Cash Flows, for the years ended F-6
December 31, 1998, 1997 and 1996
Notes to Financial Statements F-7 - F-13
Schedule III - Real Estate and Accumulated Depreciation F-15
F-1
REPORT OF INDEPENDENT ACCOUNTANTS
To the Partners of
Krupp Realty Limited Partnership-V and Subsidiary:
In our opinion, the consolidated financial statements and the financial
statement Schedule listed in the index on page F-1 present fairly, in all
material respects, the financial position of Krupp Realty Limited Partnership-V
and Subsidiary (the "Partnership") at December 31, 1998 and December 31, 1997,
and the results of their operations and their cash flows for each of the three
years in the period ended December 31, 1998, in conformity with generally
accepted accounting principles. These financial statements and financial
statement schedule are the responsibility of the Partnership's management; our
responsibility is to express an opinion on these financial statements and
financial statement schedule based on our audits. We conducted our audits of
these statements in accordance with generally accepted auditing standards, which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
Boston, Massachusetts /s/ PricewaterhouseCoopers LLP
February 10, 1999
F-2
KRUPP REALTY LIMITED PARTNERSHIP-V AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
ASSETS
1998 1997
---- ----
Multi-family apartment complexes, net of accumulated
depreciation of $45,292,687 and $41,602,481, respectively
(Note D) $28,589,655 $30,790,070
Cash and cash equivalents (Note C) 2,101,415 802,726
Cash restricted for tenant security deposits 311,432 294,572
Replacement reserve escrows (Note D) 664,186 399,771
Prepaid expenses and other assets (Note E) 2,572,492 2,662,138
Deferred expenses, net of accumulated amortization of
$82,843 and $48,332, respectively (Note E) 482,529 507,755
-------------- --------------
Total assets $34,721,709 $35,457,032
=========== ===========
LIABILITIES AND PARTNERS' DEFICIT
Liabilities:
Mortgage notes payable (Note D) $41,836,237 $42,400,979
Accrued real estate taxes 2,008,500 1,950,000
Accrued expenses and other liabilities 1,841,074 1,249,087
------------- ------------
Total liabilities 45,685,811 45,600,066
------------ ----------
Contingency (Note F)
Partners' deficit (Note G):
Investor Limited Partners
(35,200 Units outstanding) (10,130,376) (9,366,783)
Original Limited Partner (420,061) (370,797)
General Partners (413,665) (405,454)
------------- -------------
Total Partners' deficit (10,964,102) (10,143,034)
------------- -------------
Total liabilities and Partners' deficit $34,721,709 $35,457,032
=========== ===========
The accompanying notes are an integral part of the consolidated financial
statements.
F-3
KRUPP REALTY LIMITED PARTNERSHIP-V AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
1998 1997 1996
------------ ------------ ------------
Revenue:
Rental (Note H) $ 14,987,931 $ 14,395,306 $ 13,489,627
Interest Income 112,464 128,292 170,634
------------ ------------ ------------
Total revenue 15,100,395 14,523,598 13,660,261
------------ ------------ ------------
Expenses:
Operating (Note E) 3,205,429 3,629,513 3,635,470
Maintenance 961,085 1,136,671 927,736
General and administrative
(Notes E and F) 891,841 324,660 323,652
Real estate taxes (Note I) 2,117,434 2,280,910 1,621,545
Management fees (Note E) 506,198 475,569 442,295
Depreciation and amortization 3,724,717 3,600,639 3,387,658
Interest (Note D) 3,000,780 3,380,019 3,440,980
------------ ------------ ------------
Total expenses 14,407,484 14,827,981 13,779,336
------------ ------------ ------------
Income (loss) before
extraordinary loss 692,911 (304,383) (119,075)
Extraordinary loss (Note D) -- (288,156) --
------------ ------------ ------------
Net income (loss) (Note J) $ 692,911 $ (592,539) $ (119,075)
============ ============ ============
Allocation of net income (loss)(Note G):
Investor Limited Partners
(35,200 Units outstanding):
Income (loss) before
extraordinary loss $ 644,407 $ (301,339) $ (117,884)
Extraordinary loss -- (285,275) --
------------ ------------ ------------
Net income (loss) $ 644,407 $ (586,614) $ (117,884)
============ ============ ============
Investor Limited Partners Per Unit:
Income (loss)
before extraordinary loss $ 18.31 $ (8.56) $ (3.35)
Extraordinary loss -- (8.11) --
------------ ------------ ------------
Net income (loss) $ 18.31 $ (16.67) $ (3.35)
============ ============ ============
Original Limited Partner:
Income (loss)
before extraordinary loss $ 41,575 $ -- $ --
Extraordinary loss -- -- --
------------ ------------ ------------
Net income (loss) $ 41,575 $ -- $ --
============ ============ ============
General Partners:
Income (loss)
before extraordinary loss $ 6,929 $ (3,044) $ (1,191)
Extraordinary loss -- (2,881) --
------------ ------------ ------------
Net income (loss) $ 6,929 $ (5,925) $ (1,191)
============ ============ ============
The accompanying notes are an integral part of the consolidated financial
statements.
F-4
KRUPP REALTY LIMITED PARTNERSHIP-V AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' DEFICIT
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
Total
Investor Original General Partners'
Limited Partners Limited Partner Partners Deficit
------------- --------------- ----------- -------------
Balance at
December 31, 1995 $(6,550,285) $(234,539) $(375,628) $(7,160,452)
Distributions (704,000) (45,419) (7,570) (756,989)
Net loss (117,884) - (1,191) (119,075)
------------- --------------- ----------- -------------
Balance at
December 31, 1996 (7,372,169) (279,958) (384,389) (8,036,516)
Distributions (1,408,000) (90,839) (15,140) (1,513,979)
Early extinguishment
of debt (285,275) - (2,881) (288,156)
Loss before
extraordinary loss (301,339) - (3,044) (304,383)
-------------- ---------------- ------------ --------------
Balance at
December 31, 1997 (9,366,783) (370,797) (405,454) (10,143,034)
Net income (Note G) 644,407 41,575 6,929 692,911
Distributions (Note G) (1,408,000) (90,839) (15,140) (1,513,979)
-------------- ------------- ----------- ---------------
Balance at
December 31, 1998 $(10,130,376) $(420,061) $(413,665) $(10,964,102)
============= ========== ========== =============
The per Unit distributions for the years ended December 31, 1998, 1997 and 1996
were $40.00, $40.00 and $20.00, respectively, none of which represents a return
of capital for tax purposes.
The accompanying notes are an integral part of the consolidated financial
statements.
F-5
KRUPP REALTY LIMITED PARTNERSHIP-V AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
1998 1997 1996
------------ ------------ --------------
Cash flows from operating activities:
Net income (loss) $ 692,911 $ (592,539) $ (119,075)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Interest earned on replacement reserve escrows (14,933) (17,068) (27,713)
Depreciation and amortization 3,724,717 3,600,639 3,387,658
Extraordinary loss from early extinguishment
of debt -- 288,156 --
Changes in assets and liabilities:
Decrease (increase) in cash restricted for
tenant security deposits (16,860) 13,336 130,341
Decrease (increase) in prepaid expenses and
other assets 89,646 (1,284,748) (6,508)
Increase in accrued real estate taxes 58,500 290,000 --
Increase in accrued expenses and other
liabilities 591,492 7,037 21,147
Decrease in due to affiliates -- (26,480) (7,847)
------------ ------------ --------------
Net cash provided by
operating activities 5,125,473 2,278,333 3,378,003
------------ ------------ --------------
Cash flow from investing activities:
Deposits to replacement reserve escrows (306,512) (212,912) (212,912)
Withdrawals from replacement reserve escrows 57,030 519,865 280,477
Additions to fixed assets (1,489,791) (1,728,096) (2,413,114)
Increase in accrued expenses and other liabilities
related to fixed asset additions 495 -- --
------------ ------------ --------------
Net cash used in investing activities (1,738,778) (1,421,143) (2,345,549)
------------ ------------ --------------
Cash flow from financing activities:
Proceeds from mortgage note payable -- 11,000,000 --
Repayment of mortgage notes payable -- (10,309,332) --
Payment of prepayment premium -- (210,825) --
Principal payments on mortgage notes payable (564,742) (559,944) (530,699)
Increase in deferred expenses (9,285) (227,478) --
Distributions (1,513,979) (1,513,979) (756,989)
------------ ------------ --------------
Net cash used in financing activities (2,088,006) (1,821,558) (1,287,688)
------------ ------------ --------------
Net increase (decrease) in cash and cash equivalents 1,298,689 (964,368) (255,234)
Cash and cash equivalents, beginning of year 802,726 1,767,094 2,022,328
------------ ------------ --------------
Cash and cash equivalents, end of year $ 2,101,415 $ 802,726 $ 1,767,094
============== ============== ==============
The accompanying notes are an integral part of the consolidated financial
statements.
F-6
KRUPP REALTY LIMITED PARTNERSHIP-V AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. ORGANIZATION
Krupp Realty Limited Partnership-V ("KRLP-V") was formed on June 16,
1983 by filing a Certificate of Limited Partnership in The Commonwealth of
Massachusetts. KRLP-V terminates on December 31, 2020, unless earlier terminated
upon the sale of the last of KRLP-V's properties or the occurrence of certain
other events as set forth in the Partnership Agreement.
KRLP-V issued all of the General Partner Interests to The Krupp
Corporation ("Krupp Corp.") (a Massachusetts corporation) and The Krupp Company
Limited Partnership-II ("KLCP-II") (a Massachusetts limited partnership), in
exchange for capital contributions aggregating $1,000. Except under certain
limited circumstances upon termination of KRLP-V, the General Partners are not
required to make any additional capital contributions. KRLP-V also issued all of
the Original Limited Partner Interests to KCLP-II in exchange for a capital
contribution of $4,000.
On September 6, 1983, KRLP-V commenced the marketing and sale of units
of Investor Limited Partner Interest ("Units") for $1,000 per Unit. The public
offering was closed on December 2, 1983 at which time a total of 35,200 Units
had been sold for $35,200,000.
On March 20, 1989, the General Partners formed Krupp Realty Park
Place-Chicago Limited Partnership ("Realty-V") as a prerequisite for the
refinancing of Park Place Tower Apartments ("Park Place"). At the same time, the
General Partners transferred ownership of Park Place to Realty-V. The General
Partner of Realty-V is Krupp Corp. The Limited Partner of Realty-V is KRLP-V.
Krupp Corp. has beneficially assigned its interest in Realty-V to KRLP-V. KRLP-V
and Realty-V are collectively known as Krupp Realty Limited Partnership-V and
Subsidiary (collectively referred to herein as the "Partnership").
B. SIGNIFICANT ACCOUNTING POLICIES
The Partnership uses the following accounting policies for financial
reporting purposes, which may differ in certain respects from those
used for federal income tax purposes (see Note J).
BASIS OF PRESENTATION
The consolidated financial statements present the consolidated assets,
liabilities and operations of the Partnership. All intercompany
balances and transactions have been eliminated.
RISKS AND UNCERTAINTIES
The Partnership invests its cash primarily in deposits and money market
funds with commercial banks. The Partnership has not experienced any
losses to date on its invested cash.
F-7
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amount of assets and
liabilities, contingent assets and liabilities and revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
CASH AND CASH EQUIVALENTS
The Partnership includes all short-term investments with maturities of
three months or less from the date of acquisition in cash and cash
equivalents. The cash investments are recorded at cost, which
approximates current market values.
RENTAL REVENUES
Leases require the payment of base rent monthly in advance. Rental
revenues are recorded on the accrual basis.
DEPRECIATION
Depreciation is provided for by the use of the straight-line method
over estimated useful lives of the related assets as follows:
Buildings and improvements 5 to 25 years
Appliances, carpeting and equipment 3 to 8 years
IMPAIRMENT OF LONG-LIVED ASSETS
Real estate assets and equipment are stated at depreciated cost.
Pursuant to Statement of Financial Accounting Standards Opinion No.
121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of," impairment losses are recorded on
long-lived assets used in operations on a property by property basis,
when events and circumstances indicate that the assets might be
impaired and the estimated undiscounted cash flows to be generated by
those assets are less than the carrying amount of those assets. Upon
determination that an impairment has occurred, those assets shall be
reduced to fair value.
DEFERRED EXPENSES
Costs of obtaining and recording mortgages on the properties are
amortized over the term of the related mortgage notes using the
straight-line method which approximates the effective interest method.
INCOME TAXES
The Partnership is not liable for federal or state income taxes as
Partnership income or loss is allocated to the Partners for income tax
purposes. In the event that the Partnership's tax returns are examined
by the Internal Revenue Service or state taxing authority and the
examination results in a change in the Partnership's taxable income or
loss, such change will be reported to the Partners.
F-8
DESCRIPTIVE INFORMATION ABOUT REPORTABLE SEGMENTS
During the fourth quarter of 1998, the Partnership adopted the
Financial Accounting Standards Board's Statement of Financial
Accounting Standards No. 131, "Disclosures About Segments of an
Enterprise and Related Information ("Statement No. 131"). Statement No.
131 superseded FASB Statement No. 14, "Financial Reporting for Segments
of a Business Enterprise." Statement No. 131 establishes standards for
the way that public business enterprises report information regarding
reportable operating segments. The adoption of Statement No. 131 did
not affect the results of operations or financial position of the
Partnership.
The Partnership operates and develops apartment communities which
generate rental and other income through the leasing of apartment
units. The General Partners separately evaluate the performance of each
of the Partnership's apartment communities. However, because each of
the apartment communities have similar economic characteristics,
facilities, services and tenants, the apartment communities have been
aggregated into a single dominant apartment communities segment.
All revenues are from external customers and no revenues are generated
from transactions with other segments. There are no tenants which
contributed 10% or more of the Partnership's total revenue during 1998,
1997 or 1996.
RECLASSIFICATIONS
Certain prior year balances have been reclassified to conform with
current year consolidated financial statement presentation.
C. CASH AND CASH EQUIVALENTS
Cash and cash equivalents consisted of the following:
December 31,
---------------------------
1998 1997
----------- --------
Cash and money market accounts $ 405,431 $802,726
Treasury bills 1,695,984 -
----------- --------
$2,101,415 $802,726
========== ========
F-9
D. MORTGAGE NOTES PAYABLE
The properties owned by the Partnership are pledged as collateral for
the non-recourse mortgage notes outstanding at December 31, 1998 and 1997.
Mortgage notes payable consisted of the following:
Principal Annual
------------------------------- Interest
1998 1997 Rate Maturity Date
------------ ------------ --------- ---------------
Century II Apartments $10,882,768 $11,000,000 6.75% January 1, 2008
Park Place Tower Apartments 30,953,469 31,400,979 6.75% May 1, 2024
------------ ------------
Total $41,836,237 $42,400,979
=========== ===========
CENTURY II APARTMENTS
On December 10, 1997, the Partnership completed the refinancing of the
Century II Apartments mortgage note. The property was refinanced with a
$11,000,000 non-recourse mortgage note payable at the rate of 6.75% per annum
with monthly principal and interest payments of $71,346. The mortgage note,
which is collateralized by the property, matures on January 1, 2008 at which
time the remaining principal (approximately $9,401,537) and accrued interest are
due. The note may be prepaid, subject to a prepayment penalty, at any time with
30 days notice. The Partnership used the majority of the proceeds from the
refinancing to repay the existing mortgage note on the property of $10,309,332,
pay closing costs of $236,763, to pay a prepayment premium of $210,825 and to
establish various escrows. The prepayment premium as well as unamortized
deferred mortgage costs of $77,331, are reported in the Statement of Operations
as an extraordinary loss from early extinguishment of debt for the year ended
December 31, 1997.
At December 31, 1996, the property was subject to a non-recourse first
mortgage note of $11,000,000, which was payable in equal monthly installments of
principal and interest of $104,844, based on a 25-year amortization schedule.
Based on the borrowing rates currently available to the Partnership for
bank loans with similar terms and average maturities, the fair value of long
term debt is approximately $10,898,000 and $10,470,000 for the years ended
December 31, 1998 and 1997, respectively.
PARK PLACE TOWER APARTMENTS
The property is subject to a non-recourse mortgage note in the original
amount of $33,000,000, dated September 15, 1993, held by the U.S. Department of
Housing and Urban Development ("HUD"). The note is payable in equal monthly
installments of principal and interest of $212,783, based on a 31-year
amortization. At maturity, all unpaid principal (approximately $1,457,000) and
any accrued interest are due. The note may be prepaid subject to a prepayment
premium. In the event prepayment of principal occurs, a prepayment premium shall
be due, based on a declining premium rate of 5% to 0% of the outstanding
principal balance over a period of 5 years. As stipulated in the Regulatory
Agreement with HUD, the Partnership makes monthly deposits of $17,743 in an
established reserve for replacements to be used for improvements. Under the
terms of the loan, HUD restricts the distribution of funds to Surplus Cash, as
defined by HUD in the Regulatory Agreement.
F-10
Based on the borrowing rates currently available to the Partnership for
bank loans with similar terms and average maturities, the fair value of
long-term debt is approximately $31,766,000 at December 31, 1998. At December
31, 1997, the fair market value could not be determined since the mortgage note
could not be prepaid until 1998.
Due to restrictions on transfers and prepayment, the Partnership may be
unable to refinance certain mortgage notes payable at such calculated fair
value.
The aggregate scheduled principal amounts of long-term borrowings due
during the five years ending December 31, 2003 are $600,689, $642,513, $687,250,
$735,102 and $786,286.
During the years ended December 31, 1998, 1997 and 1996, the
Partnership paid $2,844,807, $3,221,886 and $3,280,828 of interest on its
mortgage notes, respectively.
E. RELATED PARTY TRANSACTIONS
The Partnership pays property management fees to an affiliate of the
General Partners for management services. Pursuant to the management agreements,
management fees are payable monthly at a rate of 5% of the gross receipts from
the properties under management. The Partnership also reimburses affiliates of
the General Partners for certain expenses incurred in connection with the
operation of the Partnership and its properties, including administrative
expenses.
Amounts accrued or paid to the General Partners' affiliates during the
years ended December 31, 1998, 1997 and 1996 were as follows:
1998 1997 1996
-------- -------- --------
Property management fees $506,198 $475,569 $442,295
Expense reimbursements 307,468 317,432 288,226
-------- -------- --------
Charged to operations $813,666 $793,001 $730,521
======== ======== ========
Expense reimbursements due from affiliates of $1,456 were included in
prepaid expenses and other assets for the year ended December 31, 1998.
In addition to the amounts above, refinancing costs of $110,000 were
paid to the General Partners' affiliates during the year ended December 31,
1997.
F. LEGAL PROCEEDING
The Partnership is a defendant in a class action suit related to the
practice of giving discounts for the early or timely payments of rent at Park
Place Apartments ("Park Place") and Marine Terrace Apartments, a previously
owned property. The central issue of the complaint is whether the operative
lease violated a Chicago municipal ordinance relating to late fee charges
because it allowed tenants a discount if rent was paid on or before the first of
the month. The allegation was that, notwithstanding the stated rental rate and
printed discount, the practice represented an unlawful means of exacting late
fee charges. In addition to seeking damages for any "forfeited" discounts,
plaintiffs seek statutory damages of two months rent per lease violation
F-11
and reasonable attorneys' fees. To be eligible for such damages plaintiffs must
prove that the defendants deliberately used a provision prohibited by the
ordinance.
During 1994, the Court ruled in favor of the defendants, and
accepted the Partnership's Motion to Dismiss the Plaintiff's Third Amended
Complaint. The plaintiffs filed an appeal with the Appellate Court of Illinois,
First District. During 1996, the decision was reversed on appeal and the case
remanded to trial court for further proceedings. The defendants intend to
vigorously defend this case.
Continued discussions with Plaintiffs' counsel have resulted in a
tentative settlement which was presented to the court in December, 1998.
Although the settlement has not been finalized, the Partnership recorded
provisions totaling $1,015,000 in the 1998 and 1997 consolidated financial
statements of $733,000 and $282,000, respectively.
G. PARTNERS' DEFICIT
Under the terms of the Partnership Agreement, losses from operations
are allocated 99% to the Investor Limited Partners and 1% to the General
Partners and profits from operations are allocated 93% to the Investor Limited
Partners, 6% to the Original Limited Partner and 1% to the General Partners
until such time that the Investor Limited Partners have received a return of
their total invested capital plus a 9% per annum cumulative return thereon and
thereafter, 65% to the Investor Limited Partners, 28% to the Original Limited
Partner and 7% to the General Partners.
Profits from Capital Transactions are allocated first, to the
Investor Limited Partners until they have received a return of their total
invested capital. Thereafter, profits from Capital Transactions are allocated in
accordance with the Partnership Agreement. Losses from Capital Transactions are
allocated 99% to the Investor Limited Partners and 1% to the General Partners.
Notwithstanding anything above, the General Partners shall be allocated at least
1% of all profits and losses from Capital Transactions.
Under the Partnership Agreement, cash distributions are made on the
same basis as the allocations of profits described above. Pursuant to the
Partnership Agreement, proceeds from Capital Transactions shall first be applied
to the payment of all debts and liabilities of the Partnership and second to
fund reserves for contingent liabilities. The remaining net cash proceeds shall
then be distributed in accordance with the Partnership Agreement.
As of December 31, 1998, the following cumulative partner
contributions and allocations have been made since inception of the Partnership:
Investor Limited Original General
Partners Limited Partner Partners Total
---------------- --------------- -------- -----
Capital contributions $35,200,000 $ 4,000 $ 1,000 $ 35,205,000
Syndication costs (4,501,000) - - (4,501,000)
Distributions (7,619,303) (478,576) (79,762) (8,177,641)
Net income (loss)
before capital
transactions (39,885,037) 54,515 (402,327) (40,232,849)
F-12
Investor Limited Original General
Partners Limited Partner Partners Total
------------ --------------- -------- -----
Net gains on capital
transactions 6,674,964 - 67,424 6,742,388
------------ --------- --------- ------------
Balance at December 31, 1998 $(10,130,376) $(420,061) $(413,665) $(10,964,102)
============ ========= ========= ============
H. FUTURE BASE RENTS DUE UNDER COMMERCIAL OPERATING LEASES
Future base rent receivable under commercial operating leases for
the years 1999 through 2003 and thereafter is as follows:
1999 $149,330
2000 93,989
2001 81,653
2002 82,361
2003 71,177
Thereafter 155,981
I. REAL ESTATE TAXES
During the third quarter of 1996, the Partnership successfully
petitioned for the reassessment of prior years' real estate taxes on Park Place
Tower Apartments. The Partnership received tax refunds toward the 1986, 1987,
1988 and 1990 real estate taxes totaling approximately $325,000, which was
reflected as a reduction in the 1996 real estate tax expense.
J. FEDERAL INCOME TAXES
For federal income tax purposes, the Partnership is depreciating
property using the Accelerated Cost Recovery System ("ACRS") and the Modified
Accelerated Cost Recovery System ("MACRS") depending on which is applicable.
The reconciliation of the net income (loss) reported in the
accompanying Consolidated Statement of Operations with the net income (loss)
reported in the Partnership's federal income tax return for the years ended
December 31, 1998, 1997 and 1996 is as follows:
1998 1997 1996
---- ---- ----
Net income (loss) per Consolidated
Statement of Operations $692,911 $(592,539) $(119,075)
Difference between book and tax
depreciation and amortization 414,641 317,863 (30,155)
Difference between book and tax legal
adjustment 733,000 113,526 168,474
------- ------- -------
F-13
Net income (loss) for federal income tax purposes $1,840,552 $(161,150) $19,244
========== ========== =======
The allocation of the net income for federal income tax purposes for 1998 is as
follows:
Portfolio Income Passive Income Total
---------- ------------ ------------
Investor Limited Partners $101,864 $1,609,849 $1,711,713
Original Limited Partner 6,572 103,861 110,433
General Partners 1,096 17,310 18,406
---------- ------------ ------------
$109,532 $1,731,020 $1,840,552
======== ========== ==========
During the years ended December 31, 1998, 1997 and 1996 the per Unit
net income (loss) to the Investor Limited Partners for federal income tax
purposes were $48.63, $(4.58) and $.54, respectively.
The basis of the Partnership's assets for financial reporting
purposes exceeded its tax basis by approximately $7,651,000 and $8,063,500 at
December 31, 1998 and 1997, respectively. The basis of the Partnership's
liabilities for financial reporting purposes exceeded its tax basis by
approximately $1,015,000 and $282,000 at December 31, 1998 and 1997,
respectively.
KRUPP REALTY LIMITED PARTNERSHIP-V AND SUBSIDIARY
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1998
COSTS CAPITALIZED
SUBSEQUENT TO DEPRECIABLE
INITIAL COSTS TO PARTNERSHIP ACQUISITION LIFE
---------------------------- ----------------- -----------
BUILDINGS BUILDINGS
AND AND
DESCRIPTION ENCUMBRANCES LAND IMPROVEMENTS IMPROVEMENTS DEPRECIABLE LIFE
----------- ------------ ---- ------------ ------------ ----------------
Century II
Apartments
Cockeysville,
Maryland $ 10,882,768 $ 1,049,868 $ 13,948,246 $ 5,333,839 3 to 25 years
Park Place Tower
Apartments
Chicago,
Illinois 30,953,469 2,877,561 38,230,448 12,442,380 3 to 25 years
------------- ----------- ------------- -------------
Total $ 41,836,237 $ 3,927,429 $ 52,178,694 $ 17,776,219
============ =========== ============ ============
GROSS AMOUNTS CARRIED AT
END OF YEAR
---------------------------
BUILDINGS YEAR
AND ACCUMULATED YEAR CONSTRUCTION
DESCRIPTION LAND IMPROVEMENTS TOTAL DEPRECIATION ACQUIRED COMPLETED
----------- ---- ------------ ----- ------------ -------- ---------
Century II
Apartments
Cockeysville,
Maryland $ 1,049,868 $ 19,282,085 $ 20,331,953 $ 12,758,634 1984 1971
Park Place Tower
Apartments
Chicago,
Illinois 2,877,561 50,672,828 53,550,389 32,534,053 1984 1973
------------ -------------- ------------ --------------
Total $ 3,927,429 $ 69,954,913 $ 73,882,342 $ 45,292,687
============ ============== ============ ==============
KRUPP REALTY LIMITED PARTNERSHIP-V AND SUBSIDIARY
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION, Continued
December 31, 1998
Reconciliation of Real Estate and Accumulated Depreciation for each of the three
years in the period ended December 31, 1998:
1998 1997 1996
----------- ----------- -----------
REAL ESTATE
Balance at beginning of year $72,392,551 $70,664,455 $68,251,341
Acquisition and improvements 1,489,791 1,728,096 2,413,114
----------- ----------- -----------
Balance at end of year $73,882,342 $72,392,551 $70,664,455
=========== =========== ===========
ACCUMULATED DEPRECIATION 1998 1997 1996
- ---------------------------- ----------- ----------- -----------
Balance at beginning of year $41,602,481 $38,066,263 $34,745,814
Depreciation expense 3,690,206 3,536,218 3,320,449
----------- ----------- -----------
Balance at end of year $45,292,687 $41,602,481 $38,066,263
=========== =========== ===========
Note: The Partnership uses the cost basis for property valuation for both income
tax and financial statement purposes. The aggregate cost for of the
Partnership's real estate for federal income tax purposes was $73,894,392 and
the aggregate accumulated depreciation for federal income tax purposes is
$52,945,211 at December 31, 1998.
Quarterly Financial Statements:
Balance Sheet at September 30, 1999 (unaudited) and December 31, 1998 F-17
Statements of Operations (unaudited) for the three months ended
September 30, 1999 and September 30, 1998; and for the nine months
ended September 30, 1999 and September 30, 1998 F-19
Statements of Cash Flows (unaudited) for the three months ended
September 30, 1999 and September 30, 1998 F-20
Notes to (Unaudited) Financial Statements F-21-F-24
KRUPP REALTY LIMITED PARTNERSHIP-V AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
ASSETS
(Unaudited)
September 30, December 31,
1999 1998
-------------- --------------
Multi-family apartment complexes net of accumulated
depreciation of $47,876,135 and $45,292,687, respectively $27,214,103 $28,589,655
Cash and cash equivalents (Note 2) 3,806,917 2,101,415
Cash restricted for tenant security deposits 320,149 311,432
Replacement reserve escrows 750,758 664,186
Prepaid expenses and other assets (Note 5) 1,465,716 2,572,492
Deferred expenses, net of accumulated amortization of $108,668
and $82,843, respectively 456,704 482,529
----------- -----------
Total assets $34,014,347 $34,721,709
=========== ===========
LIABILITIES AND PARTNERS' DEFICIT
Liabilities:
Mortgage notes payable $41,387,023 $41,836,237
Accrued real estate taxes 1,504,557 2,008,500
Accrued expenses and other liabilities (Note 3) 2,026,803 1,841,074
------------ ------------
Total liabilities 44,918,383 45,685,811
------------ ------------
Contingency (Note 3):
Partners' deficit (Note 4):
Investor Limited Partners
(35,200 Units outstanding) (10,074,515) (10,130,376)
Original Limited Partner (416,456) (420,061)
General Partners (413,065) (413,665)
------------ ------------
Total Partners' deficit (10,904,036) (10,964,102)
------------ ------------
F-17
Total liabilities and Partners' deficit $34,014,347 $34,721,709
=========== ===========
The accompanying notes are an integral part
of the consolidated financial statements.
F-18
KRUPP REALTY LIMITED PARTNERSHIP-V AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
------------------------------ --------------------------------
1999 1998 1999 1998
------------- ------------- -------------- ---------------
Revenue:
Rental $ 3,922,597 $ 3,807,018 $ 11,634,413 $ 11,193,425
Interest income 53,528 28,705 129,135 84,026
----------- ----------- ------------ ------------
Total revenue 3,976,125 3,835,723 11,763,548 11,277,451
----------- ----------- ------------ ------------
Expenses:
Operating (Note 5) 961,011 652,721 2,652,161 2,351,381
Maintenance 292,786 291,869 705,272 658,108
General and administrative (Note 5) 76,592 43,876 196,675 125,223
Real estate taxes 189,102 572,843 1,334,783 1,728,890
Management fees (Note 5) 178,426 140,224 467,815 395,309
Depreciation and amortization 894,245 967,685 2,609,273 2,751,909
Interest 738,374 748,796 2,223,525 2,254,400
----------- ----------- ------------ ------------
Total expenses 3,330,536 3,418,014 10,189,504 10,265,220
----------- ----------- ------------ ------------
Net income $ 645,589 $ 417,709 $ 1,574,044 $ 1,012,231
=========== =========== ============ ============
Allocation of net income (Note 4):
Investor Limited Partners
(35,200 Units outstanding) $ 600,398 $ 388,469 $ 1,463,861 $ 941,375
=========== =========== ============ ============
Investor Limited Partners Per Unit $ 17.06 $ 11.03 $ 41.59 $ 26.74
=========== =========== ============ ============
Original Limited Partner $ 38,735 $ 25,063 $ 94,443 $ 60,734
=========== =========== ============ ============
General Partners $ 6,456 $ 4,177 $ 15,740 $ 10,122
=========== =========== ============ ============
The accompanying notes are an integral part
of the consolidated financial statements.
F-19
KRUPP REALTY LIMITED PARTNERSHIP-V AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the Nine Months Ended September 30,
------------------------------------------
1999 1998
---------- ----------
Cash flows from operating activities:
Net income $1,574,044 $1,012,231
Adjustments to reconcile net income to net cash
provided by operating activities:
Interest earned on replacement reserve escrow (8,842) (9,521)
Depreciation and amortization 2,609,273 2,751,909
Changes in assets and liabilities:
Increase in cash restricted for tenant security
deposits (8,717) (18,382)
Decrease (Increase) in prepaid expenses and other
assets 1,106,776 (601,804)
Increase (Decrease) in accrued real estate taxes (503,943) 660,095
Increase in accrued expenses and other liabilities 185,729 (121,056)
---------- ----------
Net cash provided by operating activities 4,954,320 3,673,472
--------- ---------
Cash flows from investing activities:
Deposits to replacement reserve escrows (229,884) (229,884)
Withdrawals from replacement reserve escrows 152,154 57,030
Additions to fixed assets (1,207,896) (1,002,347)
Increase in accrued expenses and other liabilities
related to fixed asset additions -- 3,349
----------- -----------
Net cash used in investing activities (1,285,626) (1,171,852)
----------- -----------
Cash flows from financing activities:
Principal payments on mortgage notes payable (449,214) (419,973)
Increase in deferred expenses -- (9,285)
Distributions (1,513,978) (1,513,979)
----------- -----------
Net cash used in financing activities (1,963,192) (1,943,237)
----------- -----------
Net increase in cash and cash equivalents 1,705,502 558,383
Cash and cash equivalents, beginning of period 2,101,415 802,726
----------- -----------
Cash and cash equivalents, end of period $3,806,917 $1,361,109
========== ==========
The accompanying notes are an integral part
of the consolidated financial statements.
F-20
KRUPP REALTY LIMITED PARTNERSHIP-V AND SUBSIDIARY
NOTES TO (UNAUDITED) CONSOLIDATED FINANCIAL STATEMENTS
(1) Accounting Policies
--------------------
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted in this report on Form 10-Q pursuant to the Rules
and Regulations of the Securities and Exchange Commission. In the opinion of the
General Partners of Krupp Realty Limited Partnership-V and Subsidiary (the
"Partnership") the disclosures contained in this report are adequate to make the
information presented not misleading. See Notes to Consolidated Financial
Statements included in the Partnership's Annual Report on Form 10-K for the year
ended December 31, 1998 for additional information relevant to significant
accounting policies followed by the Partnership.
In the opinion of the General Partners of the Partnership, the accompanying
unaudited consolidated financial statements reflect all adjustments (consisting
of only normal recurring accruals) necessary to present fairly the Partnership's
consolidated financial position as of September 30, 1999, its results of
operations for the three and nine months ended September 30, 1999 and 1998
and its cash flows for the nine months ended September 30, 1999 and 1998.
The results of operations for the three and nine months ended September 30,
1999 are not necessarily indicative of the results which may be expected for
the full year.
(2) Cash and Cash Equivalents
-------------------------
Cash and cash equivalents consisted of the following:
September 30, December 31,
1999 1998
------------ ------------
Cash and money market accounts $2,436,248 $ 405,431
Treasury bills 1,370,669 1,695,984
--------- ---------
$3,806,917 $2,101,415
========== ==========
(3) Legal Proceeding
----------------
The Partnership is a defendant in a class action suit related to the practice of
giving discounts for the early or timely payments of rent at Park Place
Apartments ("Park Place") and Marine Terrace Apartments, a previously owned
property. The central issue of the complaint was whether the operative lease
violated a Chicago municipal ordinance relating to late fee charges because it
allowed tenants a discount if rent was paid on or before the first of the month.
The allegation was that, notwithstanding the stated rental rate and printed
discount, the practice represented an unlawful means of exacting late fee
charges. In addition to seeking damages for any "forfeited" discounts,
plaintiffs seek statutory damages of two months rent per lease violation and
reasonable
F-21
attorneys' fees. To be eligible for such damages, plaintiffs must prove that the
defendants deliberately used a provision prohibited by the ordinance.
During 1994, the Court ruled in favor of the defendants and accepted the
Partnership's Motion to Dismiss the Plaintiff's Third Amended Complaint. The
plaintiffs filed an appeal with the Appellate Court of Illinois, First District.
During 1996, the decision was reversed on appeal and the case remanded to trial
court for further proceedings. The defendants have continued to vigorously
defend the case.
Continued discussions with Plaintiffs' counsel have resulted in a settlement
which was presented to the court on July 28, 1999. The court granted preliminary
approval of the settlement agreement and a hearing on the fairness of the
settlement has been scheduled for November 18, 1999. Although the settlement has
not received final approval by the court, the Partnership has recorded
provisions totaling $1,015,000 in the consolidated financial statements at
September 30, 1999 and December 31, 1998.
(4) Changes in Partners' Deficit
----------------------------
A summary of changes in Partners' deficit for the nine months ended September
30, 1999 is as follows:
Investor Original Total
Limited Limited General Partners'
Partners Partner Partners Deficit
-------------- ------------ ------------ --------------
Balance at
December 31, 1998 $(10,130,376) $(420,061) $(413,665) $(10,964,102)
Net income 1,463,861 94,443 15,740 1,574,044
Distributions (1,408,000) (90,838) (15,140) (1,513,978)
-------------- ------------ ------------ --------------
Balance at September 30, 1999 $(10,074,515) $(416,456) $(413,065) $(10,904,036)
============= ========== ========== =============
(5) Related Party Transactions
--------------------------
The Partnership pays property management fees to an affiliate of the General
Partners for management services. Pursuant to the management agreements,
management fees are payable monthly at a rate of 5% of the gross receipts from
the properties under management. The Partnership also reimburses affiliates of
the General Partners for certain expenses incurred in connection with the
operation of the Partnership and its properties, including administrative
expenses.
F-22
Amounts accrued or paid to the General Partners' affiliates were as follows:
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
------------------------ ------------------------
1999 1998 1999 1998
--------- ---------- --------- ---------
Property management fees $178,426 $140,224 $467,815 $395,309
Expense reimbursements 100,691 79,283 275,029 201,456
--------- ---------- --------- ---------
Charged to operations $279,117 $219,507 $742,844 $596,765
======== ======== ======== ========
Expense reimbursements due from affiliates of $8,323 and $1,456 were included in
prepaid expenses and other assets at September 30, 1999 and December 31, 1998,
respectively.
F-23
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
This Management's Discussion and Analysis of Financial Condition and Results of
Operations contains forward-looking statements including those concerning
Management's expectations regarding the future financial performance and future
events. These forward-looking statements involve significant risk and
uncertainties, including those described herein. Actual results may differ
materially from those anticipated by such forward-looking statements.
Liquidity and Capital Resources
- -------------------------------
The Partnership's ability to generate cash adequate to meet its needs is
dependent primarily upon the operating performance of its real estate
investments. Such ability would also be impacted by the future availability of
bank borrowing sources as current debt matures. These sources of liquidity will
be used by the Partnership for payment of expenses related to real estate
operations, capital improvements, debt service and other expenses. Cash Flow, if
any, as calculated under Section 8.2(a) of the Partnership Agreement, will then
be available for distribution to the Partners.
Year 2000
- ---------
The General Partners of the Partnership have conducted an assessment of the
Partnership's core internal and external computer information systems and have
taken the further necessary steps to understand the nature and extent of the
work required to make its systems Year 2000 ready in those situations in which
it is required to do so. The Year 2000 readiness issue concerns the inability of
computerized information systems to accurately calculate, store or use a date
after 1999. This could result in a system failure or miscalculations causing
disruptions of operations. The Year 2000 issue affects virtually all companies
and all organizations.
In this regard, the General Partners of the Partnership, along with certain
affiliates, began a computer systems project in 1997 to significantly upgrade
its existing hardware and software. The General Partners completed the testing
and conversion of the financial accounting operating systems in February 1998.
As a result, the General Partners have generated operating efficiencies and
believe their financial accounting operating systems are Year 2000 ready. The
General Partners incurred hardware costs as well as consulting and other
expenses related to the infrastructure and facilities enhancements necessary to
complete the upgrade and prepare for the Year 2000. There are no other
significant internal systems or software that the Partnership is using at the
present time.
The General Partners of the Partnership have evaluated Year 2000 compliance
issues with respect to its non-financial systems, such as computer controlled
elevators, boilers, chillers or other miscellaneous systems. The General
Partners do not anticipate any problems in its non-financial systems.
The General Partners of the Partnership surveyed the Partnership's material
third-party service providers (including but not limited to its banks and
telecommunications providers) and significant vendors and received assurances
that such providers and vendors are to be Year 2000 ready. The General
Partners do not anticipate any problems with such providers and vendors that
would materially impact its results of operations, liquidity or capital
resources.
F-24
In addition, the Partnership is also subject to external forces that might
generally affect industry and commerce, such as utility and transportation
company Year 2000 readiness failures and related service interruptions. However,
the General Partners do not anticipate these would materially impact its results
of operations, liquidity or capital resources.
Operations
- ----------
The following discussion relates to the operations of the Partnership and its
properties (Park Place and Century) for the three and nine months ended
September 30, 1999 and 1998.
Net income increased for the three and nine months ended September 30, 1999 as
compared to the same periods in 1998, as rental revenue increased and total
expenses remained relatively stable.
The increase in rental revenue for the three and nine months ended September 30,
1999 when compared to the same periods in 1998 is attributable to residential
rental rate increases implemented at Park Place and Century during the second
half of 1998 and the first quarter of 1999. Interest income increased as average
cash and cash equivalent balances increased between the periods.
Total expenses remained relatively stable when comparing the three and nine
months ending September 30, 1999 to the same periods of 1998 as the increase in
operating, general and administrative and management fee expenses were offset by
a decrease in real estate taxes and depreciation expenses. Operating expense
increased in the third quarter of 1999, resulting from increases in electricity
expense and an increase in workmen's compensation expense due to an adjustment
to the workmen's compensation reserve in 1998. General and administrative
expense increased due to higher expenses incurred in connection with preparation
and mailing of Partnership reports and other investor communications. Property
management fees increased in conjunction with the increase in rental revenue as
discussed above. Real estate taxes decreased during the third quarter of 1999
due to an abatement, of approximately $245,000, and refund of prior years taxes
received by Park Place. Depreciation expense decreased as fixed asset additions
purchased in previous years at Park Place became fully depreciated.
F-25
TABLE OF CONTENTS
Page #
------
QUESTIONS AND ANSWERS ABOUT THE TRANSACTION
.................................................................... 1
SUMMARY ..................................................................... 2
Parties to the Transaction ......................................... 2
Date, Time and Place of Special Meeting ............................ 3
Purpose of the Special Meeting ..................................... 3
What Unitholders Will Receive in the Merger ........................ 3
Vote Required ...................................................... 3
Independent Appraisals of Properties ............................... 3
Purpose of and Reasons for the Merger .............................. 3
Fairness of the Merger; Conflicts of Interest ...................... 4
Financing of the Merger ............................................ 4
Material Federal Income Tax Consequences ........................... 4
Market Information ................................................. 4
Rights of Appraisal ................................................ 5
Forward-Looking Statements ......................................... 5
Selected Historical Financial Information .......................... 5
SPECIAL FACTORS ............................................................. 7
Background of the Merger; Purpose of the Transaction ............... 7
Alternatives to the Merger ......................................... 8
Fairness of the Merger ............................................. 9
Disadvantages and Risks Associated with the Merger ................. 11
Conflicts of Interest .............................................. 11
Independent Appraisals ............................................. 12
Determination of Merger Price ............................................... 15
Effects of the Transaction .................................................. 16
Failure to Approve the Merger ...................................... 17
Plans or Proposals by Partnership or Affiliates Following the Merger 17
Financing of the Merger ............................................ 17
MATERIAL FEDERAL INCOME TAX CONSEQUENCES ........................... 18
THE SPECIAL MEETING ......................................................... 20
Special Meeting; Record Date ....................................... 20
Procedures for Completing Proxies .................................. 20
Votes Required ..................................................... 21
Solicitation Procedures ............................................ 22
Revocation of Proxies .............................................. 22
Appraisal Rights ................................................... 23
THE MERGER AGREEMENT ........................................................ 23
Closing Date; Effective Time of the Merger ......................... 23
Effects of the Merger .............................................. 23
Payment ............................................................ 23
Authority and Consent of the Purchaser ............................. 24
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Representations And Warranties of the Parties ...................... 24
Conditions to the Merger ........................................... 24
Termination ........................................................ 25
Amendment .......................................................... 25
Waiver ............................................................. 25
The Surviving Entity ............................................... 25
RELATED AGREEMENTS .......................................................... 25
THE AMENDMENT TO THE PARTNERSHIP AGREEMENT .................................. 26
Purpose ............................................................ 26
The Amendment ...................................................... 26
INFORMATION ABOUT THE PARTNERSHIP, ITS GENERAL PARTNERS AND THEIR AFFILIATES 27
The Partnership .................................................... 27
The General Partners ............................................... 28
Distributions ...................................................... 30
Ownership of Units ................................................. 30
Market for the Units ............................................... 31
Related Party Transactions ......................................... 31
SELECTED FINANCIAL DATA ..................................................... 32
INFORMATION CONCERNING THE PURCHASER AND ITS AFFILIATES ..................... 33
The Purchaser ...................................................... 33
Affiliates of the Purchaser ........................................ 34
WHERE YOU CAN FIND MORE INFORMATION ......................................... 34
General ............................................................ 34
Independent Accountants ............................................ 35
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS .................................. F-1
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APPENDIX A - THE MERGER AGREEMENT
APPENDIX B - AMENDMENT NO. 1 TO THE AMENDED AGREEMENT OF LIMITED
PARTNERSHIP OF KRUPP REALTY LIMITED PARTNERSHIP - V
APPENDIC C - FORM OF PROXY CARD
iii
APPENDIX A
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this "AGREEMENT") is made
and entered into as of ______________, 2000 by and between KR5 Acquisition,
L.L.C., a Delaware limited liability company (the "COMPANY" or, after the
Effective Time (as defined in Article V hereof), the "SURVIVING ENTITY"), and
Krupp Realty Limited Partnership-V, a Massachusetts limited partnership (the
"PARTNERSHIP").
W I T N E S S E T H:
-------------------
WHEREAS, the Company is a limited liability company duly
formed and validly existing under the laws of the State of Delaware;
WHEREAS, the Partnership is a limited partnership duly formed
and validly existing under the laws of the Commonwealth of Massachusetts;
WHEREAS, the Massachusetts Revised Uniform Limited Partnership
Act, Mass. Gen. Laws Ann. ch. 109, Sections 1-62 (THE "MASSACHUSETTS LP Act"),
and the Delaware Limited Liability Company Act, 6 DEL. C. Sections 18-101 ET
SEQ. (the "DELAWARE LLC ACT"), each permits a limited partnership formed and
existing under the Massachusetts LP Act to merge with and into a limited
liability company formed and existing under the Delaware LLC Act;
WHEREAS, the members of the Company have authorized and the
general partners and limited partners of the Partnership have duly authorized
the merger of the Partnership with and into the Company pursuant to the terms of
this Agreement; and
WHEREAS, the holders of limited partnership interests of Fund
V have approved an amendment to the Amended Agreement of Limited Partnership,
dated July 27, 1983, authorizing the Partnership to enter into this Agreement;
NOW, THEREFORE, in consideration of the mutual covenants and
agreements herein contained, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, it is agreed that, in
accordance with the applicable statutes of the State of Delaware and the
Commonwealth of Massachusetts, and subject to the conditions precedent contained
herein, the Partnership shall be at the Effective Time, merged with and into the
Company (the "MERGER"), with the Company to be the Surviving Entity. The mode of
carrying the Merger into effect shall be as follows:
ARTICLE I
MERGER
At the Effective Time, the Partnership shall be merged with
and into the Company, the separate existence of the Partnership shall cease, the
Company shall continue in existence and the Merger shall in all respects have
the effects provided for by the Massachusetts LP Act and the Delaware LLC Act.
Prior to the Effective Time, the Company and the Partnership
shall take all such action as shall be necessary or appropriate in order to
effectuate the Merger. If at any time after the Effective Time, the Company
shall consider or be advised that any further assignments, conveyances or
assurances in law are necessary or desirable to carry out the provisions hereof,
the proper members, managers, officers or other agents of the Company, as
authorized agents and attorneys-in-fact for the Partnership (and acting in the
name of the Company or the Partnership), shall execute and deliver any and all
proper deeds, assignments, and assurances in law, and do all such additional
things necessary or proper to carry out the provisions hereof.
ARTICLE II
TERMS OF TRANSACTION
At the Effective Time, by virtue of the Merger and without any
action on the part of the holders thereof, (i) the partnership interests in the
Partnership outstanding immediately prior to the Effective Time, held by (a) the
general partners of the Partnership (the "GENERAL PARTNERS"), (b) the "ORIGINAL
LIMITED PARTNERS" (as defined in the Partnership's Amended Agreement of Limited
Partnership, dated as of July 27, 1983, as amended from time to time (the
"PARTNERSHIP AGREEMENT")) and (c) the limited partners of the Partnership who
are, at the Effective Time, directly or indirectly controlling, controlled by or
under common control with the Company, Equity Resources Group Incorporated or
the General Partners ("the AFFILIATE LIMITED PARTNERS"), shall be canceled and
retired and shall cease to exist, (ii) the partnership interests of limited
partners of the Partnership who are not Affiliate Limited Partners (the
"UNAFFILIATED LIMITED PARTNERS") outstanding immediately prior to the Effective
Time shall be canceled and converted into and represent the right to receive in
exchange therefor $[_____] per "UNIT" (as defined in the Partnership Agreement),
without interest thereon, payable by the Surviving Entity to the holder of such
Unit (as reflected on the records of the Partnership at the Effective Time) upon
receipt by the Surviving Entity of the Proof of Ownership Form hereto, a
Substitute Form W-9 and any other additional documentation necessary or
desirable to complete the conversion of the Units required which the Surviving
Entity shall reasonably request from the holder, (iii) the limited liability
company interests held by the members of the Company outstanding immediately
prior to the Effective Time shall remain the outstanding limited liability
company interests of such members of the Company, and such members shall
continue as the members of the Surviving Entity.
Neither the Surviving Entity nor any other party hereto shall
be liable to a holder of Units for any payments made to a public official
pursuant to applicable abandoned property laws. The Surviving Company shall be
entitled to deduct and withhold from the amounts otherwise payable to a holder
of Units pursuant to the Merger any taxes or other amounts as are required by
applicable law, including without limitation Sections 3406 and 1445 of the
Internal Revenue Code of 1986, as amended. To the extent that amounts are so
withheld by the Surviving Entity, they shall be treated for all purposes of this
Agreement as having been paid to the holder of the Units in respect of which
such deduction and withholding was made.
After the Effective Time, the transfer books of the
Partnership shall be closed and there shall be no further registration of
transfers on the records of the Partnership of the Units that were outstanding
immediately prior to the Effective Time. As of the Effective Time, each holder
of a Unit which was converted into the right to receive cash pursuant to Article
II hereof shall be deemed to have withdrawn as a limited partner and shall have
no further interest in the Partnership or the Surviving Entity or any
allocations or distributions of income, property or otherwise, other than the
right to receive the amount as provided in this Article II.
No appraisal rights shall be available to holders of Units in
connection with the Merger.
ARTICLE III
CERTIFICATE OF FORMATION AND
LIMITED LIABILITY COMPANY AGREEMENT
From and after the Effective Time, and until thereafter
amended as provided by law, the Certificate of Formation and Limited Liability
Company Agreement of the Company as in effect immediately prior to the Effective
Time shall be the Certificate of Formation and Limited Liability Company
Agreement of the Surviving Entity.
ARTICLE IV
MANAGERS AND OFFICERS
From and after the Effective Time, and until their successors
are duly elected or appointed, or until their earlier death, resignation or
removal, the managers and officers of the Surviving Entity shall be the same as
the managers and officers of the Company immediately prior to the Effective
Time.
ARTICLE V
EFFECTIVE TIME
Certificates of merger evidencing the Merger ("CERTIFICATES OF
MERGER") substantially in the form of EXHIBIT A attached hereto shall be filed
by the General Partners and the Company with the Secretary of State of the State
of Delaware and the Secretary of State of the Commonwealth of Massachusetts
pursuant to the applicable requirements of the Delaware LLC Act and the
Massachusetts LP Act. The Merger shall become effective upon the later of the
filing of the Certificates of Merger with the Secretary of State of the
Commonwealth of Massachusetts and the Secretary of State of the State of
Delaware or such other time as shall be agreed by the parties and set forth in
the Certificates of Merger and in accordance with the Massachusetts LP Act and
the Delaware LLC Act (such time of effectiveness, the "EFFECTIVE TIME").
ARTICLE VI
TERMINATION
This Agreement may be terminated at any time prior to the
Effective Time:
(i) by mutual written consent of the Company and the General
Partners;
(ii) by either the Company or the General Partners if the
Merger shall not have been consummated by [_______________]; PROVIDED, HOWEVER,
that the right to terminate this Agreement pursuant to this clause (ii) of
Article VI shall not be available to any party whose failure to perform any of
its obligations under this Agreement has been the cause of, or resulted in, the
failure of the Merger to occur on or before such date.
In the event of a termination of this Agreement by either the
Company or the General Partners, as provided in this Article VI, this Agreement
shall forthwith become void and there shall be no liability or obligation on the
part of the Company or the General Partners or their respective managers or
officers, except with respect to Article IX and this second paragraph of Article
VI. Nothing herein shall relieve any party of liability with respect to any
fraud or intentional breach by any party hereto of this Agreement.
ARTICLE VII
AMENDMENTS
At any time prior to the Effective Time, the Company and the
General Partners may amend, modify or supplement this Agreement in such manner
as they jointly may determine; PROVIDED, HOWEVER, that, such amendment must be
executed in writing by all parties hereto and PROVIDED FURTHER, that no such
amendment, modification, or supplement shall reduce the amount or change the
type of consideration into which each Unit shall be converted upon consummation
of the Merger or alter or change any term of the Certificate of Formation or
Limited Liability Company Agreement of the Surviving Entity.
ARTICLE VIII
CONDITIONS TO CONSUMMATION OF THE MERGER
The respective obligations of each party hereto to effect the
Merger are subject to the satisfaction at or prior to the Effective Time of the
following conditions:
(i) this Agreement shall have been approved and adopted by the
partners of the Partnership in accordance with the Massachusetts LP Act and the
Partnership Agreement;
(ii) this Agreement shall have been approved and adopted by
the members of the Company in accordance with the Delaware LLC Act and the
Limited Liability Company Agreement of the Company;
(iii) no statute, rule, regulation, executive order, decree,
ruling or injunction shall have been enacted, promulgated or enforced by any
governmental entity, and no action, suit, claim or legal, administrative or
arbitral proceeding or investigation shall be pending before any governmental
entity which seeks to prohibit, restrain, enjoin or restrict the consummation of
the transactions contemplated by this Agreement or which seeks to subject any
party to substantial damages as a result of the consummation of the transactions
contemplated by this Agreement;
(iv) each of the parties shall have obtained the consent,
approval or waiver of each non-governmental person whose consent, approval or
waiver shall be required in order for such party to consummate the transactions
contemplated by this Agreement;
(v) since June 30, 1999, no change or event shall have
occurred which has had or could reasonably be expected to result in a Material
Adverse Effect. For purposes of this Agreement, "MATERIAL ADVERSE EFFECT" means
any change, event or effect (a) in, on or relating to the business of the
Partnership that is, or is
reasonably likely to be, materially adverse to the business, assets (including
intangible assets), liabilities (contingent or otherwise), condition (financial
or otherwise), prospects or results of operations of the Partnership and its
subsidiaries taken as a whole, or (b) that may prevent or materially delay the
performance of this Agreement by the Company or the Partnership or the
consummation of the transactions contemplated hereby.
ARTICLE IX
GOVERNING LAW
This Agreement shall be governed by and construed in
accordance with the domestic laws of the State of Delaware without giving effect
to any choice of law or conflict of law provision or rule (whether of the State
of Delaware or any other jurisdiction) that would cause the application of the
laws of any jurisdiction other than the State of Delaware.
ARTICLE X
MISCELLANEOUS
This Agreement may be executed in counterparts, each of which
when so executed shall be deemed to be an original, and such counterparts shall
together constitute but one and the same instrument.
IN WITNESS WHEREOF, the undersigned have duly executed this
Agreement as of the day and year first above written.
KR5 ACQUISITION, L.L.C.
By: KRF Company, L.L.C.,
its managing member
By: The Krupp Family Limited Partnership-94,
its sole member
By: ____________________________
Douglas Krupp
General Partner
KRUPP REALTY LIMITED PARTNERSHIP -V
By: The Krupp Corporation,
its general partner
By: ____________________________
Douglas Krupp
Co-Chairman of the Board of Directors
APPENDIX B
Amendment No. 1 to the Amended Agreement of
Limited Partnership of Krupp Realty Limited Partnership-V
---------------------------------------------------------
THIS AMENDMENT NO. 1 TO THE AMENDED AGREEMENT OF LIMITED
PARTNERSHIP, dated as of July 27, 1983 (the "Partnership Agreement"), OF KRUPP
REALTY LIMITED PARTNERSHIP-V, a Massachusetts limited partnership (the
"Partnership"), by and among The Krupp Corporation, a Massachusetts corporation,
and The Krupp Company Limited Partnership - II, a Massachusetts limited
partnership, as General Partners (together, the "General Partners"), The Krupp
Company Limited Partnership-II, as the Original Limited Partner, and those
persons admitted to the Partnership as Investor Limited Partners and providing
their Consent hereto is made as of , 2000, in accordance with the procedures
of Section 14(a) of the Partnership Agreement. Capitalized terms used herein
and not otherwise defined shall have the meanings ascribed to them in the
Partnership Agreement.
1. The Partnership Agreement is amended by adding the
following prior to the last sentence of Section 6.2(b) thereof:
"At any time after February 1, 2000, the Partnership may enter
into a merger agreement with an Affiliate of the General Partner substantially
in the form of the agreement attached hereto as Annex A and provided that such
merger agreement is executed prior to August 1, 2000.
2. The Partnership Agreement is supplemented by adding the
attached Annex A as Annex A thereto.
3. In all other respects the Partnership Agreement shall
remain in full force and effect in accordance with its terms.
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be executed and delivered by their respective duly authorized
persons as of the date first above written.
The Krupp Corporation,
GENERAL PARTNER
By: ____________________________
Name: Douglas Krupp
Title: CO-CHAIRMAN OF THE BOARD
OF DIRECTORS
The Krupp Company Limited Partnership-II,
GENERAL PARTNER AND ORIGINAL LIMITED PARTNER
By: The Krupp Corporation,
GENERAL PARTNER
By: ____________________________
Name: Douglas Krupp
Title: CO-CHAIRMAN OF THE BOARD
OF DIRECTORS
APPENDIX C
FORM OF PROXY CARD
KRUPP REALTY LIMITED PARTNERSHIP - V
ONE BEACON STREET
SUITE 1500
BOSTON, MASSACHUSETTS 02108
SOLICITED BY THE GENERAL PARTNERS FOR THE SPECIAL MEETING OF UNITHOLDERS TO BE
HELD ON , 2000
The undersigned hereby appoints , or any of them, each
with full power of substitution, as proxies or proxy of the undersigned and
hereby authorizes them to represent and vote as designated below all investor
limited partnership units of Krupp Realty Limited Partnership - V Units (the
"Partnership") held of record by the undersigned at the close of business on
, 2000 at the Special Meeting of Unitholders (the "Special Meeting")
to be held on , 2000 at the Partnership's principal executive
offices located at One Beacon Street, Suite 1500, Boston, Massachusetts,
02108, or any adjournment or postponement thereof, and, in their discretion,
upon all matters incident to the conduct of the Special Meeting and such
other matters as may properly be brought before the Special Meeting.
This signed Voting Form revokes all proxies previously given by the
undersigned to vote at the Special Meeting of Unitholders or any adjournment or
postponement thereof. The undersigned hereby acknowledges receipt of the Notice
of Special Meeting of Unitholders and the Proxy Statement relating to the
Special Meeting.
THE GENERAL PARTNERS RECOMMEND A VOTE FOR THE FOLLOWING PROPOSAL.
To approve the Agreement and Plan of Merger between KR5 Acquisition,
L.L.C. and the Partnership and the amendment to the Partnership's Amended
Agreement of Limited Partnership, dated as of July 27, 1983, allowing the
Partnership to enter into the merger agreement and complete the merger with KR5
Acquisition, L.L.C.
/ / FOR / / AGAINST / / ABSTAIN
WHEN PROPERLY EXECUTED, THIS VOTING FORM WILL BE VOTED AS DIRECTED. IF
NO DIRECTION IS GIVEN, THIS VOTING FORM WILL BE VOTED FOR THE FOREGOING
PROPOSAL.
PLEASE SIGN EXACTLY AS NAME APPEARS BELOW.
Dated __________________________________ 2000
--------------------------------------------
Signature
--------------------------------------------
Signature, if held jointly
Please sign exactly as your name appears on this
Voting Form. If units are registered in more
than one name, the signatures of all such
persons are required. A corporation should sign
in its full corporate name by a duly authorized
officer, stating such officer's title. Trustees,
guardians, executors and administrators should
sign in their official capacity giving their
full title as such. A partnership should sign in
the partnership name by an authorized person,
stating such person's title and relationship to
the partnership.
PLEASE COMPLETE, DATE, SIGN AND RETURN THIS VOTING FORM PROMPTLY, USING
THE ENCLOSED ENVELOPE. ALTERNATIVELY, PLEASE FORWARD BOTH SIDES OF THE
COMPLETED VOTING FORM BY FACSIMILE TO KRUPP FUNDS GROUP LIMITED
PARTNERSHIP AT 617-423-8919.
/ / I HAVE READ THE ABOVE AND WOULD LIKE TO ATTEND THE SPECIAL
MEETING IN PERSON. PLEASE SEND ME A TICKET FOR ADMISSION TO THE MEETING.