EXHIBIT 2.2
RECEIVED
MAR 17 1999
PEABODY & BROWN
IN THE UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF FLORIDA
CASE NO 98-8030-CIV-HURLEY
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LEONARD ROSENBLUM, J/B INVESTMENT PARTNERS, SMALL AND REBECCA BARMACK, PARTNERS,
BARBARA HALL, HENRY R. GRAHAM, ANNE R. GRAHAM, MARGO CORTELL, PATRICK M. RHODES,
BERNICE M. HUELS, GARRETT N. VOIGHT, CLAIRE E. FULCHER, MARCELLA LEVY RICHARD
HODGSON, CITY PARTNERSHIPS, HELMAN PARSONS AND CLEVA PARSONS, on behalf of
themselves and all others similarly situated and derivatively on behalf of the
Nominal Defendants,
Plaintiffs,
vs.
EQUIS FINANCIAL GROUP LIMITED PARTNERSHIP, a Massachusetts, Limited Partnership,
EQUIS CORPORATION, a Massachusetts Corporation, GDE ACQUISITION LIMITED
PARTNERSHIP, a Massachusetts Limited Partnership, AFG LEASING INCORPORATED, a
Massachusetts Corporation, AFG LEASING IV INCORPORATED, a Massachusetts
Corporation, AFG LEASING VI INCORPORATED, a Massachusetts Corporation, AFG
AIRCRAFT MANAGEMENT CORPORATION, a Massachusetts Corporation, AFG ASIT
CORPORATION, a Massachusetts Corporation, AF/AIP PROGRAMS LIMITED PARTNERSHIP, a
Massachusetts Limited Partnership, GARY D. ENGLE and GEOFFREY A. MACDONALD,
Defendants,
AIRFUND I INTERNATIONAL LIMITED PARTNERSHIP, a Massachusetts Limited
Partnership, AIRFUND II INTERNATIONAL LIMITED PARTNERSHIP, a Massachusetts
Limited Partnership, AMERICAN INCOME 4 LIMITED PARTNERSHIP, a Massachusetts
Limited Partnership, AMERICAN INCOME 5 LIMITED PARTNERSHIP, a Massachusetts
26
Limited Partnership, AMERICAN INCOME 6 LIMITED PARTNERSHIP, a Massachusetts
Limited Partnership. AMERICAN INCOME 7 LIMITED PARTNERSHIP, a Massachusetts
Limited Partnership, AMERICAN INCOME 8 LIMITED PARTNERSHIP, a Massachusetts
Limited Partnership, AMERICAN INCOME PARTNERS III-A LIMITED PARTNERSHIP, a
Massachusetts Limited Partnership, AMERICAN INCOME PARTNERS III-B LIMITED
PARTNERSHIP, a Massachusetts Limited Partnership, AMERICAN INCOME PARTNERS III-C
LIMITED PARTNERSHIP, a Massachusetts Limited Partnership, AMERICAN INCOME
PARTNERS III-D LIMITED PARTNERSHIP, a Massachusetts Limited Partnership,
AMERICAN INCOME PARTNERS IV-A LIMITED PARTNERSHIP, a Massachusetts Limited
Partnership, AMERICAN INCOME PARTNERS IV-B LIMITED PARTNERSHIP, a Massachusetts
Limited Partnership, AMERICAN INCOME PARTNERS IV-C LIMITED PARTNERSHIP, a
Massachusetts Limited Partnership, AMERICAN INCOME PARTNERS IV-D LIMITED
PARTNERSHIP, a Massachusetts Limited Partnership, AMERICAN INCOME PARTNERS V-A
LIMITED PARTNERSHIP, a Massachusetts Limited Partnership, AMERICAN INCOME
PARTNERS V-B LIMITED PARTNERSHIP, a Massachusetts Limited Partnership, AMERICAN
INCOME PARTNERS V-C LIMITED PARTNERSHIP, a Massachusetts Limited Partnership,
AMERICAN INCOME PARTNERS V-D LIMITED PARTNERSHIP, a Massachusetts Limited
Partnership, AMERICAN INCOME FUND I-B, a Massachusetts Limited Partnership,
AMERICAN INCOME FUND I-C, a Massachusetts Limited Partnership, AFG INVESTMENT
TRUST A, a Delaware business trust, AFG INVESTMENT TRUST B, a Delaware business
trust, AFG INVESTMENT TRUST C, a Delaware business trust, and AFG INVESTMENT
TRUST D, a Delaware business trust,
Nominal Defendants.
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27
PLAINTIFFS' AND DEFENDANTS' JOINT MEMORANDUM IN SUPPORT
OF JOINT MOTION TO MODIFY ORDER PRELIMINARILY
APPROVING SETTLEMENT, CONDITIONALLY CERTIFYING SETTLEMENT
CLASS AND PROVIDING FOR NOTICE OF, AND HEARING ON,
THE PROPOSED SETTLEMENT
Plaintiffs ("Plaintiffs" or "Class Counsel") and Defendants submit this
Joint Memorandum in support of their Joint Motion To Modify Order Preliminarily
Approving Settlement, Conditionally Certifying Settlement Class and Providing
For Notice of, And Hearing On, The Proposed Settlement.
Background
By Order dated August 20, 1998, this Court preliminarily approved the
original Stipulation of Settlement dated July 16, 1998, conditionally certified
the Settlement Class, and three sub-classes,(1) and provided for Notice of, and
Hearing on, the proposed Settlement (the "Settlement"). A true and complete copy
of the Court's August 20, 1998 Order (the "Order") is attached to the Motion as
Exhibit 1.
As part of the settlement of the claims brought by the Operating
Partnership Sub-Class, the Settlement provides for Defendants to pursue and
cause the consummation of an exchange transaction (the "Exchange"), pursuant to
which eleven (11) of the limited partnerships named as Nominal Defendants (the
"Operating Partnerships") would be restructured, and converted into a
publicly-traded entity ("Newco") whose securities would be listed and traded on
the NASDAQ National Market System or other national securities exchange. The
Exchange, however, does not affect the terms of the Settlement with respect to
the RSL and Trust Sub-Classes.
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(1) The three sub-classes are referred to as: (a) the "RSL Sub-Class"; (b) the
"Operating Partnership Sub-Class"; and (c) the "Trust Sub-Class".
28
On or about August 24, 1998, four days after the Court's entry of the
Preliminary Approval Order, Defendants filed a Consent Solicitation Statement
(Form 14A) to be used in connection with the solicitation of the Operating
Partnership Sub-Class' consent to the Exchange for review with the U.S.
Securities and Exchange Commission (the "SEC"). The parties had anticipated that
the SEC would be able to complete the review within several months, and
thereafter the Notice of the Settlement and fairness hearing would be sent to
all Class members, with the Consent Solicitation Statement inlcuded only with
the Notice sent to the Operating Partnership Sub-Class members. However, there
have been numerous unanticipated delays in completing the regulatory review of
the Consent Solicitation Statement, and that process is still not yet complete.
Because Class Notice to the Operating Partnership Sub-Class members must be
accompanied by the Consent Solicitation Statement, the Defendants have been
unable to mail the Notice and to begin the 45 day notice period required by the
Stipulation before the fairness hearing on the Final Approval of the Settlement.
However, the parties are, and have been for some time, ready to seek Final
Approval of the Settlement with respect to the RSL and Trust Sub-Classes.
Accordingly, in order to complete the Settlement while also accommodating the
SEC's ongoing review, the parties agreed to amend the Stipulation to permit the
separate settlement of the claims of the RSL and Trust Sub-Classes to go forward
now, and to enable the Notice of Settlement of the claims of the Operating
Partnership Sub-Class and the Consent Solicitation Statement to be completed
separately. Therefore, the parties now move this Court to grant certain relief,
set forth in detail below, in order to (a) promptly seek Final Approval of the
Settlement with respect to the RSL and Trust Sub-Classes, and entry of a
separate Final Judgment on the
29
claims brought by the RSL and Trust Sub-Classes; and (b) permit the Operating
Partnerships to conduct business in a manner consistent with the objectives of
the Exchange during and after the ongoing SEC review and prior to entry of Final
Judgment relating to the claims brought by the Operating Partnership Sub-Class.
The Proposed Amendments
The following is a description of the proposed amendments to the
Settlement that were negotiated on an arm's-length basis by Class Counsel and
the Defendants. The vast majority of the original Stipulation has not been
altered, and the sub-classes, which were conditionally certified by the Court in
its August 20, 1998 Order, remain the same.
A. Amendments Pertaining to the Bifurcation of the Settlement
In order for the RSL Sub-Class and the Trust Sub-Class portions of the
Settlement, already preliminarily approved by the Court, to proceed to Final
Approval and entry of Final Judgment without the delay caused by the SEC's
review of the Consent Solicitation Statement, the parties seek to bifurcate the
consummation of the Settlement. Specifically, the parties have agreed to the
following changes to the Stipulation:
(a) amend Section 4.2 to bifurcate the Class Notice process so that
a Class Notice may be sent to the RSL and Trust Sub-Classes before
and separate from a Class Notice to the Operating Partnership
Sub-Class;
(b) amend Sections 4.1(j) and 4.4 to bifurcate the Final Approval
process so that a Final Approval Hearing on the Settlement as it
pertains to the RSL and Trust Sub-Classes may take place before and
separate from a Final Approval Hearing on the Settlement as it
pertains to the Operating Partnership Sub-Class;
30
(c) amend Section 4.5 to bifurcate the entry of Final Judgments so
that Final Judgment may enter on the claims brought by the RSL and
Trust Sub-Classes before and separate from the claims brought by the
Operating Partnership Sub-Class; and
(d) amend Article III to permit bifurcation of the discharge of the
claims so that the claims brought by the RSL and Trust Sub-Classes
can be discharged separately from the claims brought by the
Operating Partnership Sub-Class.
Correspondingly, the parties request that this Court issue an Amended
Order Preliminarily Approving Settlement, Conditionally Certifying Settlement
Class and Providing For Notice of, and Hearing on, The Proposed Settlement, in a
form substantially similar to that set forth as Exhibit A to the Amended
Stipulation. Under the terms of this Order, two Final Approval hearings will
take place: the first will address only the provisions of the Settlement
pertaining to the RSL and Trust Sub-Classes, and the second will pertain only to
the Exchange and the Operating Partnership Sub-Class. The parties also propose
to revise the original Notice of Class Action Determination, Proposed
Settlement, and Fairness Hearing to reflect that it pertains only to the RSL and
Trust Sub-Classes, and issue a second Notice of Class Action Determination,
Proposed Settlement, and Fairness Hearing pertaining only to the Operating
Partnership Sub-Class. Copies of the proposed Notices are attached as Exhibits B
and C to the Amended Stipulation.
B. Amendments Pertaining To Operating Partnership Sub-Class
When the original Stipulation was executed, the parties were optimistic
that a definitive Consent Solicitation Statement would be completed and
distributed to the Limited Partners within several months and that the Exchange
could be consummated
31
soon thereafter. That timetable was not met because the SEC review process has
taken longer than anticipated. As a result of the delay, the General Partners of
the Operating Partnerships must now, among other things, update the Partnership
financial statements that were originally provided to the SEC. The audit of
these updated financials is not yet complete and the Exchange, if approved, may
be delayed for several more months.
As a result, the parties now seek to amend Article IV of the Stipulation
to include certain provisions that will minimize any potential loss of value in
the Exchange and Settlement caused by the delay in the review of the Consent
Solicitation Statement. These provisions are intended to maintain and maximize
the projected value of the Shares in the new public company, Newco, that will be
given to the Operating Partnership Sub-Class members by allowing Newco to
receive the benefit of ongoing reinvestments by the Partnerships.
The proposed amendments will permit the Operating Partnerships, pending
the completion of the SEC review process and ultimately the Exchange, to
reinvest a certain portion of the money (40% of the total aggregate net asset
value of the Partnerships) they have received from the sales of equipment.
Currently, each partnership has been selling, and will continue to sell,
equipment as favorable opportunities may arise. However, in their current
status, the Operating Partnerships cannot reinvest the cash received from the
sales under the terms of the Partnership Agreements.(2) Class Counsel and
Defendants believe the inability to reinvest cash during the ongoing review
process of the SEC will likely cause the Operating Partnerships to lose business
opportunities that could be extremely beneficial to
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(2) The Partnership Agreements prohibit the reinvestment of cash except in
limited circumstances.
32
the new public company. The flexibility that reinvestment will provide will
enable the Operating Partnerships to take advantage of the investment
opportunities as they arise that will likely yield a higher rate of return for
the partnerships than the investment of such cash in short term investment
vehicles, such as Treasury Bills. Had the Exchange not been delayed, such moneys
would be reinvested by Newco in new assets as a matter of course. This approach,
therefore, is consistent with the business plan of Newco, and will be beneficial
to the members of the Operating Partnership Sub-Class.
In addition, in the absence of reinvestment by the Operating Partnerships
in advance of the Exchange, Newco will be forced after the Exchange to invest
all of the cash accumulated by the Operating Partnerships in an accelerated
fashion, whether or not the market conditions are favorable at such time. The
parties believe it is preferable for investments to be made currently and on an
ongoing basis rather than all at once, to allow the Partnerships to take
advantage of favorable pricing and financing opportunities.
Moreover, the amendments contain provisions to return Operating
Partnerships Sub-Class members to the pre-Exchange status quo in the event that
either an Operating Partnership does not participate in the Exchange or the
Exchange itself is not consummated. For example, the amendments provide that any
Operating Partnership that elects not to participate in the Exchange shall be
returned to its present position by providing that Newco will acquire any new
investments of such non-participating Operating Partnerships for the amount of
its net equity investment, plus an annualized return of 7.5%. The amendments
also provide, in the event that the Exchange is not consummated, that the
General Partners shall (1) use their best efforts to divest all such
33
new investments in an orderly and timely fashion, and (2) cancel or return any
acquisition or management fees relating to the new investments.
Specifically, the parties have agreed to a new Section 4.1(i) which has
been inserted into the Amended Stipulation to allow for a Preliminary Approval
Order containing the following provisions.(3)
i. Provide that, effective March 19, 1999, the Operating
Partnerships may collectively invest up to forty percent (40%), to be
increased only upon agreement of the parties, of the total aggregate net
asset values of all the Operating Partnerships, in any investment,
including, but not limited to additional equipment and other business
activities, that the General Partner and the Manager reasonably believe to
be consistent with the operating objectives and business interests of
Newco after the Exchange (the "New Investments"), subject to the following
limitations:
a. Under no circumstances may the Operating Partnership reduce
its cash balance to an amount less than the amount required to
pay the Operating Partnership's share of the $10 Million Cash
Distribution provided for herein, plus such additional amount
as the General Partner reasonably
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(3) Paragraph 11 of the proposed Amended Order Preliminarily Approving
Settlement, Conditionally Certifying Settlement Class and Providing For Notice
Of, And Hearing On, The Proposed Settlement, attached as Exhibit A to the
Amended Stipulation, has also been amended to incorporate these changes.
34
believes to be necessary to meet working capital and other
cash reserve requirements of the Operating Partnership.
b. To the extent that New Investments are made in additional
equipment, the Manager will (i) defer, until the earlier of
the effective date of the Exchange or December 31, 1999, any
Acquisition Fees resulting therefrom and (ii) limit its
Management Fee on all such assets to 2% of rental income. In
the event the Exchange is consummated, all such Acquisition
and Management Fees relating to the New Investments will be
paid to Newco.
c. To the extent that New Investments are not represented by
equipment (i.e.: business acquisitions), the Manager will
forego any Acquisition Fees and Management Fees related to
such assets.
d. Except for permitting New Investments, or as otherwise
provided for herein, all other provisions of the Partnership
Agreements governing the investment objectives and policies of
the Partnership shall remain in full force and effect.
e. In the event that an Operating Partnership has acquired New
Investments pursuant to Section 4.1(i)(a) through (d)
35
above, and is not a party to the Exchange, Newco shall acquire
all such New Investments from such Operating Partnership for
an amount equal to the Operating Partnership's net equity
investment in such New Investments plus an annualized return
thereon of 7.5%;
f. In the event that an Operating Partnership has acquired New
Investments pursuant to Section 4.1(i)(a) through (d) above
and the Exchange is not consummated, the General Partner(s)
shall (i) use its (their) best efforts to divest all such New
Investments in an orderly and timely fashion, and (ii) cancel
or return to each Operating Partnership any accumulated or
deferred fees on New Investments.
In addition, Section 4.1(h) has been amended to exclude from the current
injunction against the transfer of units, any transfers to family members or in
the cases of divorce, death or incapacity of a Unitholder. This amendment has
been incorporated to facilitate certain transfers for the benefit of the
Operating Partnership Sub-Class members during the prolonged delay expected to
be caused by the SEC's continued review of the Consent Solicitation Statement.
2. Amendment to Permit More Flexibility Concerning Listing on NASDAQ
National Market
In the original Stipulation, the consummation of the Exchange was
contingent on and subject to several conditions, including the acceptance of the
Shares for listing on the
36
NASDAQ National Market or another national exchange or market.(4) The original
Stipulation did not take into account the fact that the Defendants may need
flexibility in meeting this condition in order to meet certain requirements and
preconditions to listing. As set forth below, the Amended Stipulation corrects
this situation.
The parties anticipate a possible delay in listing the Newco Shares on the
NASDAQ National Market or another national exchange for two reasons. First, the
Shares must be registered pursuant to Section 12 of the Securities Exchange Act
of 1934 (the "Exchange Act"). Generally, where registration of the offering of
securities is also required under the Securities Act of 1933, as amended (the
"Securities Act"), registration under the Exchange Act can be accomplished by
filing a simplified registration statement that describes the
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(4) Another condition to the consummation of the Exchange is the approval of the
Limited Partners of at least seven (7) Operating Partnerships. The Staff of the
SEC has inquired whether this Court has carefully considered the method of
approval by the Operating Partnerships under the Settlement since, in the SEC's
view, it represents a change from the voting procedures described in the
Partnership Agreements regarding votes to liquidate the Partnership. As is
specifically set forth in the Stipulation and Notice that was preliminarily
approved by the Court on August 20, 1998, the Limited Partners of an Operating
Partnership will be deemed to have consented to participation in the Exchange by
their consent to the Settlement and, therefore, unless more than one-third (1/3)
of the outstanding Units of such Partnership object to the Exchange, the
Partnership's Limited Partners will be deemed to have consented to
participation. This method for inclusion of the Operating Partnerships in Newco
was adopted after Class Counsel and Counsel for the Defendants had considered an
identical voting procedure that was part of the settlement in the case of In re
Prudential Securities Incorporated Limited Partnerships Litigation, MDL Docket
No. 1005M-21-67(MP)(S.D.N.Y.) (the "Related Class Action Settlement") as
precedent for the use of this type of procedure and had reviewed the law,
regulations and the Partnership Agreements and prospectuses of the Operating
Partnerships with respect to its use. As here, the parties to the Related Class
Action, relying upon the ss.3(a)(10) exemption, requested a no-action letter
from the SEC to confirm the availability of the exemption. The no-action letter
of inquiry specifically described the voting procedure. Similarly, the
Defendants in the present action filed a no-action letter of inquiry with the
SEC concerning the ss.3(a)(1O) exemption, modeled in part on the Related
no-action inquiry letter, and describing the voting procedure. In both the
Related action and the present action, the SEC Staff reply stated that it would
not recommend enforcement action. (For the Court's convenience, copies of
memoranda concerning the voting procedure prepared by Defendants' counsel in
response to the SEC are attached hereto as Exhibit 1). In the event that the
Court wishes additional information at this time or in connection with the
fairness hearing, the parties will submit a more detailed memorandum addressing
the voting procedure.
37
securities being registered and becomes effective at the same time as the more
detailed Securities Act registration statement. In this situation, however,
where Newco is exempt from registration under ss.3(a)(l0) of the Securities
Act, a detailed Exchange Act registration statement must be filed and cleared by
the SEC before Newco can be listed on the NASDAQ National Market or another
national exchange.
Second, in addition to registration under the Exchange Act, NASDAQ will
impose additional conditions that Newco must satisfy, including the requirements
that Newco must provide (a) information supporting its compliance with NASDAQ's
minimum bid price criteria ($5.00) given the absence of a current market or
quotation medium for the Shares, including the projected and/or anticipated bid
price per Share and the basis for the valuation of the Shares, and (b)
indications from at least four market makers of their intentions to make a
market in the Shares upon the commencement of trading on NASDAQ. As a result,
although all other conditions may be met for the consummation of the Exchange,
Newco may nevertheless need to delay the listing of its Shares until it has
satisfied both the NASDAQ listing and the Exchange Act registration
requirements.
Therefore, Class Counsel and the Defendants request that the Court amend
Sections 2.2(b) and 5.2(b) of the Stipulation to read in its entirety as
follows:
Newco shall use its best efforts to list the Shares on the NASDAQ
National Market or another national exchange or market as soon after
the Exchange as Newco deems that its business operations and market
conditions are suitable for the listing of the Shares and (i) has
filed a registration statement pursuant to Section 12 of the
Securities Exchange Act of 1934 covering the Shares which the SEC
has declared effective, and (ii) can satisfy the other listing
requirements of NASDAQ National Market or another national exchange.
3. Amendments to Clarify (a) Accounting Procedure for Determining
Target Net Income; and (b) Distribution of Escrowed Shares to Equis
if Newco is Sold
38
The parties seek to amend Section 2.2(i)(ii) of the Stipulation to make
clear that the Target Net Income will be determined using pooling of interest
accounting, as follows:
Target Net Income has been determined assuming Newco uses pooling of
interest accounting and therefore, notwithstanding the accounting
method actually used by Newco, Actual Net Income will be determined
with pooling of interest accounting. If Newco does not use pooling
of interest accounting, Newco will separately disclose Actual Net
Income in the footnotes to its annual financial statements.
In addition, the parties seek to clarify the Stipulation to make clear
that, in the event Newco is sold, they will agree to establish a method for the
distribution of the Escrowed Shares, if any, to the Equis Owners. Accordingly,
Section 2.2(i)(ii) has been amended to expressly provide that the parties agree
to establish a method for the distribution of the Escrowed Shares to the Equis
Owners in the event that Newco is sold.
Conclusion
For the foregoing reasons, Plaintiffs and Defendants request that this
Court grant the Joint Motion To Modify Order Preliminarily Approving Settlement,
Conditionally Certifying Settlement Class and Providing For Notice of, And
Hearing On, The Proposed Settlement.
Respectfully submitted,
this 15 day of March, 1999,
ATTORNEYS FOR DEFENDANTS:
/s/ Joseph F. Hession
--------------------------------
RICHMAN GREER WEIL BRUMBAUGH
MIRABITO & CHRISTENSEN, P.A.
Gerald F. Richman
Joseph F. Hession
Phillips Point - East Tower
777 South Flager Drive - Suite 1100
West Palm Beach, Florida 33401
(561) 803-3500
39
PEABODY & BROWN
Deborah L. Thaxter, P.C.
Gregory P. Deschenes
101 Federal Street
Boston, MA 02110-1832
(617) 345-1000
ATTORNEYS FOR PLAINTIFFS:
/s/ Allan Lerner By ADF
-------------------------------
LERNER & PEARCE, P.A.
Allan M. Lerner
2888 East Oakland Park Boulevard
Ft. Lauderdale, FL 33306
(954) 563-8111
40
/s/ Andrew D. Friedman
-------------------------------
WECHSLER HARWOOD HALEBIAN &
FEFFER LLP
Andrew D. Friedman
468 Madison Avenue, 8th Floor
New York, NY 10022
(212) 985-7400
LAW OFFICES OF VINCENT T.
GRESHAM
Vincent T. Gresham
6065 Roswell Road, Ste. 1445
Atlanta, GA 30328
(770) 552-5270
GILMAN AND PASTOR
Peter A. Lagorio
One Boston Place
Boston. MA 02108-4400
(617) 589-3750
BENJAMIN S. SCHWARTZ,
CHARTERED
Benjamin S. Schwartz
4600 Olympic Way
Evergreen, CO 80439
(303) 670-5941
LAW OFFICES OF LIONEL Z. GLANCY
Lionel Z. Glancy
1801 Avenue of the Stars, Suite 306
Los Angeles, CA 90067
(310) 201-9150
LAW OFFICES OF JAMES V. BASHIAN
500 Fifth Avenue, Ste. 2700
New York, NY 10110
(212) 921-4100
THOMAS A. HOADLEY. PA
310 Australian Avenue
Palm Beach, FL 33480
(561) 792-9006
41
GOODKIND, LABATAN, RUDOFF &
SUCHAROW, LLP
Lynda J. Grant
Robert N. Cappucci
100 Park Avenue
New York, NY 10017
(212) 907-0700
LASKY & RIFKIND, LTD.
Leigh Lasky
30 North LaSalle Street, Ste. 2140
Chicago, IL 60602
(312) 759-7670
HAROLD B. OBSTFELD, P.C.
Harold B. Obstfeld
260 Madison Avenue
New York, NY 10116
(212) 696-1212
42
Case No.: 98-8030-CIV-HURLEY
WE HEREBY CERTIFY that a true and correct copy of the foregoing
Plaintiffs' and Defendants' Memorandum in Support of Joint Motion to Modify
Order Preliminarily Approving Settlement, Conditionally Certifying Settlement
Class and Providing for Notice of and Hearing on the Proposed Settlement has
been furnished via U.S. Mail to: all parties listed on the attached service list
this 15th day of March, 1999.
RICHMAN GREER WEIL BRUMBAUGH
MIRABITO & CHRISTENSEN, PA.
Co-Counsel for Defendants
Phillips Point East Tower
777 South Flagler Drive, Suite 1100
West Palm Beach, Florida 33401
Telephone: (561) 803-3500
Facsimile: (561) 820-1608
By: /s/ Joseph F. Hession
--------------------------------
GERALD F. RICHMAN
Florida Bar No.: 0066457
JOSEPH F. HESSION
Florida Bar No.: 061476
43
Case No.: 98-8030-CIV-HURLEY
SERVICE LIST:
PEABODY & BROWN
Deborah L. Thaxter, P.C.
Gregory P. Deschenes
101 Federal Street
Boston, MA 02110-1832
(617) 345-1000
WECHSLER HARWOOD HALEBIAN & FEFFER, LLP
Andrew D. Friedman
488 Madison Avenue, 8th Floor
New York, NY 10022
(212) 935-7400
LAW OFFICE OF VINCENT T. GRESHAM
Vincent T. Gresham
6065 Roswell Road, Suite 1445
Atlanta, GA 30328
(770) 552-5270
GILMAN AND PASTOR
Peter A. Lagorio
One Boston Place
Boston, MA 02108-4400
(617) 589-3750
BENJAMIN S. SCHWARTZ, CHARTERED
Benjamin S. Schwartz
4600 Olympic Way
Evergreen, CO 80439
(303) 670-5941
LAW OFFICES OF LIONEL Z. GLANCY
Lionel Z. Glancy
1801 Avenue of the Stars, Suite 306
Los Angeles, CA 90067
(310) 201-9150
LERNER & PEARCE
Allan Lerner
2888 East Oakland Park Boulevard
Fort Lauderdale, FL 33306
(954) 563-8111
LAW OFFICES OF JAMES V. BASHIAN
500 Fifth Avenue, Suite 2700
New York, NY 10110
THOMAS A. HOADLEY, P.A.
310 Australian Avenue
Palm Beach, FL 33480
(561) 792-9006
GOODKIND, LABATAN, RUDDOFF & SUCHAROW, LLP
Lynda J. Grant
Robert N. Cappucci
100 Park Avenue
New York, NY 10017
(212) 907-0700
LASKY & RIFKIND, LTD.
Leigh Lasky
30 North LaSalle Street, Suite 2140
Chicago, IL 60602
(312) 759-7670
HAROLD B. OBSTFELD, P.C.
Harold B. Obstfeld
260 Madison Avenue
New York, NY 10116
(212) 696-1212
44
[LETTERHEAD OF PEABODY & BROWN]
MEMORANDUM
To: United States Securities and Exchange Commission
From: Peabody & Brown
Date: November 24, 1998
Re Voting on the Equis Financial Group, Inc., Consolidation
- --------------------------------------------------------------------------------
You have asked us, in your comment letter dated October 30, 1998, to
provide you with our analysis under state and federal law of the validity of the
voting procedure being used in connection with the proposed Consolidation of
eleven Partnerships into a new entity, Equis Financial Group, Inc. A Partnership
will participate in the Consolidation (assuming that the Consolidation is
approved by the Court and the other conditions to effecting the Consolidation
are satisfied or waived) unless limited partners holding more than 33 1/3% of
the outstanding Units in such Partnership Object to the Consolidation.
I. Applicable Voting Requirements
A. Massachusetts Statutes
All of the Partnerships were formed under the Massachusetts Uniform
Limited Partnership Act (Massachusetts General Laws, c. 109).
Section 18 of the Act provides that a partnership agreement may
grant to limited partners the right to vote: it does not require
that the limited partners be given the right to vote, nor does it
mandate the particular form that a vote must take if the limited
partners are given the right to vote.
B. Federal Statutes and Regulations, SEC Releases and Policy Statements
There is nothing in Section 14 of the Securities Exchange Act of
1934 or the related proxy rules (Rule 14a (17 CFR ss.240.14(a)), or
in SEC releases or policy statements, that specifies that a vote
must be obtained from the limited partners of a partnership in
connection with a partnership transaction, nor is there anything
that mandates the particular form a vote
45
EXHIBIT 1
Memorandum to United States
Securities and Exchange Commission
November 24, 1998
Page 2
must take when limited partners are voting directly on a matter on
which they have been given the right to vote. Further. the
definition of "proxy" in Rule 14a-1(f) under the '34 Act provides
that "The consent or authorization may take the form of failure to
object or to dissent."
Although the Partnerships believe that the Objection Notice that is
Appendix B to the Solicitation Statement is already clear on this
point, they would be willing to revise the Notice to add the
statement that a Notice not returned will be counted as a vote in
favor.
C. Securities Regulation Treatises
We found nothing in the treatise Fundamentals of Securities
Regulation, 3rd ed., Loss and Seligman, or in Clark Boardman
Callaghan's Securities Law Series that addresses this issue.
D. Case Law
We did not find any decision on this issue in a Westlaw search of
the Delaware, Massachusetts and New York case law databases.
E. Partnership Agreements
None of the partnership agreements of the eleven Partnerships
mandates a specific form a vote must take when limited partners are
voting directly on a matter on which the have been given the right
to vote.
Each of the partnership agreements states, in a Section captioned
"Other Amendments" and numbered Section 11.2 or Section 12.2,
depending upon the agreement, that the General Partner shall not
amend the agreement without "Majority Consent" or the "Consent of a
Majority in Interest" to "(iii) sell all or substantially all of the
[Equipment] [Aircraft] and the other assets of the Partnership in a
single sale or multiple sales in the same 12-month period, except in
the ordinary liquidation and winding up of the Partnership upon its
termination and dissolution." "Consent" is defined in the agreements
as "either the consent given by vote at a meeting called and held in
accordance with the provisions of Section [10.1] [11.1] or the
written consent of a Person to do the act or thing for which the
consent is solicited. or the act of granting such consent, as the
context may require." In the case of the Consolidation, consent is
granted by not objecting, and unless the effective approval of
two-thirds of the limited partners of a Partnership is obtained,
that Partnership will not participate in the Consolidation.
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Memorandum to United States
Securities and Exchange Commission
November 24, 1998
Page 3
F. Prospectuses
The Prospectuses for the eleven Partnerships contain the same
language as that contained under the caption "Other Amendments" in
Section 11.2 or Section 12.2 of the partnership agreements cited
above.
II. Court's Authority To Revise Contract Terms in Approving Settlements
While we found no case which explicitly says that a court may revise
the terms of a contract in approving a settlement, this has been
done in a number of cases. In addition, the treatise Newberg on
Class Actions expressly states that a court has the power to revise
the plaintiffs' obligations to the defendant in approving
settlements. Newberg on Class Actions, 3rd ed., Vol. 2. n. 263 ("The
court has the authority to approve settlements abrogating
preexisting contractual obligations of class members with the
defendant.")
Following are examples of some of the cases in which courts have
approved settlements which revise the parties' contractual
obligations to one another.
Rievman v. Burlington Northern Railroad Co., 118 F.R.D. 29 (S.D.N.Y.
1987) (class settlement authorized cash payment to bond holders in
return for bond holders release of lien on collateral even though
terms of bond mortgages did not provide for cash payment)
Ventre v. Datronic Rental Corp., 1995 WL 25308 (N.D. Ill.) (class
action settlement agreement amended limited partnership agreements
to restructure partnerships and substitute new general partner)
In re Clark Oil & Refining Corporation Antitrust Litigation, 422
F.Supp. 503 (E.D. Wisc. 1976) (class action settlement agreement
revised terms of lease agreements)
Diamond v. Fogelman, 1992 WL 245680 (E.D.N.Y. 1992) (limited
partnership units reorganized under terms of class action settlement
agreement)
Liddell v. Bd. of Educ. of City of St. Louis, 867 F.2d 1153 (8th
Cir. 1989) (court approved settlement revised terms of earlier
settlement agreement in providing defendant with additional time to
comply with desegregation plan)
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Memorandum to United States
Securities and Exchange Commission
November 24, 1998
Page 4
Robertson v. National Basketball Association, 72 F.R.D. 64 (S.D.N.Y.
1976), affd. 556 F.2d 682 (1977) (settlement agreement radically
modified draft practices, eliminated option clauses, and modified
compensation rule)
American Basketball Association v. National Basketball Association,
72 F.R D. 594 (S.D.N.Y. 1976) (modification of contractual rights of
basketball players)
Conclusion. We found nothing under either state or federal law to question
the validity of permitting a vote in favor of the Consolidation by means of not
returning the Objection Notice. There also is precedent for the voting procedure
being used in the consolidation: the same procedure was used, for example, in
the consolidation of the several Summit limited partnerships into Aegis Realty,
Inc. We know of no case law or statute or regulations prohibiting its use in
this transaction. Accordingly, while it is our view that such a procedure would
be valid in any case because the Court so ordered, our analysis does not rely
only on that view. We do not agree, nor was the Court specifically advised,
"that such a procedure appears to violate both state and federal law governing
solicitations" as asserted in your comment letter.
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[LETTERHEAD OF PEABODY & BROWN]
MEMORANDUM
To: United States Securities and Exchange Commission
From: Peabody & Brown
Date: December 16, 1998
Re: Voting on the Equis Financial Group. Inc., Consolidation
- --------------------------------------------------------------------------------
This Memorandum supplements our Memorandum dated November 24, 1998, and
provides further analysis of the validity of the voting procedure being used in
connection with the proposed Consolidation. Specifically, this Memorandum
supplements the analysis under the heading "I. Applicable Voting Requirements --
E. Partnership Agreements" in the November Memorandum.
As we noted in the November Memorandum, each of the partnership agreements
states, in a Section captioned "Other Amendments" and numbered Section 11.2 or
Section 12.2. depending upon the agreement, that the General Partner shall not
amend the agreement without "Majority Consent" or the "Consent of a Majority in
Interest" to "(iii) sell all or substantially all of the [Equipment] [Aircraft]
and the other assets of the Partnership in a single sale or multiple sales in
the same 12-month period, except in the ordinary liquidation and winding up of
the Partnership upon its termination and dissolution."
As we further noted in the November Memorandum, "Consent" is defined in
the agreements as "either the consent given by vote at a meeting called and held
in accordance with the provisions of Section [10.1] [11.1] or the written
consent of a Person to do the act or thing for which the consent is solicited,
or the act of granting such consent, as the context may require."
The definition of "Consent" provides for three different ways to evidence
consent, separated by the disjunctive "or." In our view, the third of these,
"the act of granting such consent," covers the procedure that the Partnerships
propose to use in the Consolidation. As proposed, a Partnership will participate
in the Consolidation unless limited partners holding more than 33 1/3% of the
outstanding Units in such Partnership object to the Consolidation by returning
an objection notice. By not returning an objection notice,
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Memorandum to United States
Securities and Exchange Commission
December 16, 1998
Page 2
limited partners will be acting in a manner that grants consent. Furthermore,
unless limited partners holding at least 66 2/3% of the of the outstanding Units
in a Partnership so act, that Partnership will not participate in the
Consolidation.
50