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SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
Filed by the Registrant [x]
Filed by a party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] CONFIDENTIAL, FOR USE
OF THE COMMISSION ONLY
(AS PERMITTED BY RULE
14a-6(e)(2))
[x] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
Decade Companies Income Properties--A Limited Partnership
(Name of Registrant as Specified In Its Charter)
Filed By Registrant
(Name of Person(s) Filing Proxy Statement,
if Other Than Registrant)
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January 4, 1997
Re: Decade Companies Income Properties ("DCIP")
Dear Limited Partner:
Enclosed you will find a statement relating to a proposed amendment to
DCIP's limited partnership agreement. We request your vote to the proposed
amendment.
The proposed amendment is designed to grant partners additional rights
to receive cash for their DCIP partnership interests ("Interests") subject to
certain terms and conditions discussed in detail in the enclosed proxy
statement. If approved by a majority of the outstanding Interests, the
proposed Fair Price Provision amendment would become Section 8.6 of DCIP's
limited partnership agreement.
The enclosed proxy statement contains a more complete description of
the terms of the proposed amendment and other important information. You are
urged to read the proxy statement carefully.
VOTING ONLY TAKES A FEW MINUTES--PLEASE RESPOND PROMPTLY. THE GENERAL
PARTNER PROPOSES THIS AMENDMENT TO THE LIMITED PARTNERSHIP AGREEMENT AND
RECOMMENDS THAT YOU VOTE FOR IT.
Please complete and return your consents in the enclosed
self-addressed postage paid envelope as soon as possible to DCIP.
Very truly yours,
Michael G. Sweet
Partnership Manager
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INTRODUCTION
This Proxy Statement, dated as of January 4, 1997, is in connection
with the proposed adoption of a new section 8.6 to its limited partnership
agreement. Decade Companies requests that you please complete and return the
enclosed Consent (an extra copy is enclosed) at your first convenience to:
Decade Companies Income Properties--A Limited Partnership
250 Patrick Boulevard, Suite 140
Brookfield, Wisconsin 53045
This Proxy Statement and the enclosed Consent are being sent to all
limited partners of DCIP as of December 23, 1996. DCIP will accumulate signed
consents until February 4, 1997, unless extended by the General Partner. The
Proposed Amendment will become effective once Consents for a majority of the
outstanding Interests are received (and not revoked) by DCIP.
BACKGROUND
Decade Companies believes that the values of DCIP's properties (and
therefore the Interests) will likely increase over time, although no assurances
can be provided.
While Decade Companies cannot provide assurances of future
performance, the General Partner believes that the economy and the current
state of the real estate market make it more likely than not that the value of
DCIP's properties will continue to increase. For example, if a capital gains
tax reduction is enacted (as is being discussed), the General Partner believes
the real estate market will continue to improve.
Decade Companies has appreciated and valued your past confidence and
looks forward to the eventual sale of DCIP's properties at prices that justify
the wait. As part of this process and because the General Partner believes the
properties will more likely than not increase in value, Decade Companies wants
to provide a means for partners who support the General Partner to receive cash
for their Interests in the event Decade Companies is ever removed as General
Partner and proposes the adoption of a Fair Price Provision, described below.
Decade Companies hopes to and intends to remain as General Partner of DCIP
through the liquidation of the Partnership.
The General Partner desires to provide a way for partners to obtain
the greater of (1) original investment with a 6% per annum, noncompounded
return less all cash distributions received to date, or (2) fair value ("Put
Price") if a Different General Partner is appointed without Decade Companies
consent or if Decade Companies is removed as the Existing General Partner
(collectively "Different General Partner"). The General Partner believes that
any partner who does not vote for the removal of the Existing General Partner
should have the right to sell their Interests and receive the Put
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Price in cash. Upon the occurrence of a Triggering Event (described below), a
partner can choose whether to exercise the Put and receive the Put Price in
cash for their Interests. Accordingly, the General Partner proposes to amend
the Limited Partnership Agreement to provide the partners with such a right, on
the terms and conditions specified below.
THE GENERAL PARTNER BELIEVES THAT THIS IS THE BEST WAY TO BALANCE THE
INTERESTS OF ALL OF THE PARTNERS SO THAT A PARTNER CANNOT BE FORCED TO ACCEPT A
DIFFERENT GENERAL PARTNER WITHOUT HAVING A RIGHT TO RECEIVE CASH FOR THEIR
INTERESTS.
This proposed amendment arises from the General Partner's awareness
that Wellington Management Corporation has taken some steps to attempt to
remove Decade Companies as DCIP's General Partner. The General Partner wants
to provide partners with a right to receive cash for their Interests if they
disagree with the removal of the Existing General Partner or the addition of a
Different General Partner. The Proposed Fair Price Provision Amendment is
intended to ensure that persons seeking to acquire control of DCIP have
sufficient funds to pay Interest holders for their Interests, if they do not
consent to the Different General Partner. Decade Companies intends to remain
as General Partner, but wants to allow certain rights to its partners in the
event a Different General Partner is added.
THE PROPOSED AMENDMENT
DCIP proposes to add Section 8.6 to its Limited Partnership Agreement
and provide:
SECTION 8.6 FAIR PRICE PROVISION
UPON EITHER (1) THE REMOVAL OF THE GENERAL PARTNER (THE "EXISTING
GENERAL PARTNER") OR (2) THE ADDITION OF A REPLACEMENT OR ANOTHER
GENERAL PARTNER (THE "DIFFERENT GENERAL PARTNER") WITHOUT THE CONSENT
OF THE EXISTING GENERAL PARTNER (THE "TRIGGERING EVENT"), ANY LIMITED
PARTNER OR EXISTING GENERAL PARTNER WHO DID NOT VOTE FOR OR CONSENT TO
THE DIFFERENT GENERAL PARTNER SHALL HAVE THE RIGHT TO SELL THEIR
PARTNERSHIP INTERESTS TO THE DIFFERENT GENERAL PARTNER AT THE GREATER
OF (A) THE ORIGINAL PURCHASE PRICE INCREASED BY SIX PERCENT PER ANNUM
(NONCOMPOUNDING) LESS CASH DISTRIBUTIONS PREVIOUSLY RECEIVED BY THE
PARTNER OR (B) THE FAIR VALUE OF THE PARTNERSHIP INTEREST (THE "PUT").
WITHIN 15 DAYS OF THE OCCURRENCE OF THE TRIGGERING EVENT, THE
DIFFERENT GENERAL PARTNER MUST SEND A NOTICE VIA CERTIFIED MAIL TO ALL
PARTNERS WHO DID NOT CONSENT TO THE REMOVAL OF THE EXISTING GENERAL
PARTNER OR ADDITION OF A DIFFERENT GENERAL PARTNER THAT THE PUT HAS
BECOME EFFECTIVE AND MUST ALLOW ALL PARTNERS AT LEAST 30 DAYS (AND NOT
MORE THAN 60 DAYS) TO DECIDE WHETHER TO EXERCISE THE PUT. WITHIN 20
DAYS OF THE RECEIPT OF A NOTICE OF EXERCISE OF THE PUT, THE DIFFERENT
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GENERAL PARTNER MUST PAY THE PUT PRICE IN CASH TO ALL PARTNERS SO
ELECTING TO EXERCISE THE PUT.
FOR PURPOSES OF THIS SECTION, FAIR VALUE SHALL MEAN THE VALUE OF THE
PARTNERSHIP INTERESTS, WHETHER LIMITED OR GENERAL, IMMEDIATELY BEFORE
THE EFFECTIVE DATE OF THE TRIGGERING EVENT. IN CONNECTION WITH
VALUING THE GENERAL PARTNER INTERESTS, THE SAME VALUATION APPROACH SET
FORTH IN SECTION 8.5 OF THE LIMITED PARTNERSHIP AGREEMENT SHALL BE
FOLLOWED.
IF A PARTNER DISAGREES WITH THE FAIR VALUE DETERMINATION MADE BY THE
DIFFERENT GENERAL PARTNER, AND A RESOLUTION CANNOT BE EFFECTED WITHIN
30 DAYS OF RECEIPT OF THE PUT PAYMENT, THE DIFFERENT GENERAL PARTNER
SHALL BRING A SPECIAL PROCEEDING AND PETITION THE COURT TO DETERMINE
THE FAIR VALUE OF THE INTERESTS AND PAY ACCRUED INTEREST (AT 6%
ANNUALLY) ON THE DETERMINED FAIR VALUE AMOUNT. THE DIFFERENT GENERAL
PARTNER SHALL BEAR ALL THE EXPENSES AND COSTS OF THE PROCEEDING
(INCLUDING A PARTNER'S ATTORNEYS' FEES), WHICH EXPENSES AND COSTS
SHALL NOT BE PASSED THROUGH TO OR PAID BY THE PARTNERSHIP UNLESS THE
COURT DETERMINES IT IS MANIFESTLY INEQUITABLE AND PROVIDES OTHERWISE.
FAIR PRICE
If adopted, the Fair Price Provision would allow partners who do not
vote for a Different General Partner to receive the greater of (1) original
cost plus 6% per annum noncompounded return less the amount of prior cash
distributions or (2) fair value. The General Partner selected 6% because it
represents the rate of return a Limited Partner would be entitled to receive
before the General Partner could participate in profits upon a winding up of
the Partnership. To date, DCIP has not earned such a return.
Under the first prong of this Fair Price, limited partners would
receive their original investment, plus 6% per annum return (or $60 for each
year for each Interest), less any cash distributions. Assuming a limited
partner invested $1,000 on the investment date specified below and assuming a
January 1, 1997 trigger date, the value under the first prong would be:
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January 31, January 1, January 1,
1986 1987 1988
---------- ---------- ----------
Invested Amount $1,000 $1,000 $1,000
Plus 6% Per Annum Return 656 600 540
Less Cash Distributed (704) (642) (554)
------ ------ ------
$ 952 $ 958 $ 986
====== ====== ======
Under the second prong of the proposed Fair Price Provision, the
Different General Partner will have to determine the "fair value" of the
Interest. This definition in proposed Section 8.6 is based upon the definition
of "fair value" under Wisconsin corporate law for dissenters rights (Section
180.1301(4), Wis. Stats.) and the General Partner believes that anyone who
determines or challenges the fair value would look to that precedent on how to
determine fair value. Accordingly, the General Partner has not and cannot
determine the fair value under the second prong of this Fair Price Provision.
However, purely for demonstrative purposes and using the appraisals in the
recently completed tender offer, DCIP notes that the current net asset value
(including costs of liquidation) is approximately $630 per Interest, and
therefore, the current fair value amount would likely bear some relation to
that net asset value amount.
The first prong of this Fair Value test provides a sum certain amount
and, therefore, the General Partner proposes that the Partner adopt this
Amendment, even if it does exceed the then fair market value of an Interest.
The Put Price also has no relationship to the $402 price per Interest
offered by the Partnership in the recently completed voluntary tender offer
price. Based upon the above estimated price and assuming the fair value was
less or equal to the amount under the first prong of the proposal, the General
Partner believes that it either has or could obtain financing to repurchase all
of the Put Interests, if it was required to do so. It is also possible that
the Fair Price could result in a Different General Partner having to pay
amounts for Put Interests that are in excess of the total net asset value of
DCIP. DCIP believes that this provision is fair and should be adopted, as
partners who do not approve the General Partner should have the right to a cash
amount for their Interests and decided a fixed formula would result in less
difficulties and mathematical accuracy, but wanted to provide that if the fair
market value is higher, such amount would be paid.
EFFECTS OF THE AMENDMENT
DCIP believes that anyone who proceeds to attempt to become a
Different General Partner will need to be well financed and have sufficient
funds to purchase the Put Interests. If adopted, this
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proposed amendment could make it more difficult to replace the Existing General
Partner. This arises because a person who proposes to remove DCIP's General
Partner or become a Different General Partner must have sufficient funds to
purchase the Put Interests and any costs incurred in a challenge contesting the
fair value determination. Because of the first prong of the Fair Price
determination, this could exceed the fair market value of the Interests. The
adoption of the proposed amendment may have significant effects, positive or
negative, on the ability of partners to benefit from certain transactions which
are opposed by the Existing General Partner. These provisions could be
considered to be anti-takeover devices that could deter a takeover attempt and
entrench the Existing General Partner even if the terms of the proposed
Different General Partner could have been desirable or beneficial to limited
partners. The General Partner believes, after having considered the above
factors, that the benefits of the proposed Fair Price Provision Amendment
outweigh any possible disadvantage resulting from the additional difficulties
associated with removing or replacing the Existing General Partner. The
addition of another General Partner or the substitution of a Different General
Partner for the General Partner would not be considered a "Triggering Event"
under the proposed Amendment if the General Partner consented to such action.
The General Partner has no present plans to propose other amendments to the
partnership agreement.
CONFLICTS OF INTEREST
In proposing the Fair Price Provision Amendment, the General Partner
may be viewed as having a conflict of interest in that adoption of the proposal
would make it less likely that the General Partner could be removed and
replaced and/or that a different property manager would be selected for the
Partnership's properties. As reported in periodic information and financial
statements provided to the Limited Partners, and as disclosed in the
Partnership's offering prospectus and Limited Partnership Agreement, the
General Partner and certain of its affiliates derive certain fees in return for
providing specified services to the Partnership including a property management
fee of 5% of the cash rental receipts and one half of the first month's rent in
newly leased apartments (and reimbursed costs). In addition, depending upon
the financial success of the Partnership, the General Partner may be entitled
to a portion of the profits upon the winding up of the Partnership and sale of
its properties ("Back-end Fee"). Any such Back-end Fees to the General Partner
are subordinated to a return to the Limited Partners of their initial capital
investment plus six or ten percent per annum (for certain fees), less cash
distributions previously received.
In addition, if the proposal is adopted and the General Partner is
subsequently removed and replaced, the General Partner may be entitled
immediately to receive an amount from the Different General Partner that is in
excess of that to which the General Partner would be entitled if the proposal
were not adopted.
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Likewise, any Limited Partner who exercised a Put right after enactment of the
proposal could receive an amount greater that to which the Limited Partner
would be entitled if the proposal were not adopted. As the Different General
Partner would determine the amount, the General Partner is not able to estimate
the amount it would receive, but believes it would follow the valuation method
set forth in the limited partnership agreement.
CERTAIN TAX CONSIDERATIONS
As with any sale of Interests, the receipt of cash for Interests plus,
if applicable, the release of a proportionate share of DCIP's liabilities to
which DCIP's assets are subject in exchange for the Put Price would be a
taxable transaction for federal income tax purposes and could also be a taxable
transaction under applicable state, local and other tax laws. Partners are
urged to seek specific tax advice on their particular circumstances before
exercising the Put, if it is adopted and triggered.
POSSIBLE TERMINATION OF DCIP FOR FEDERAL INCOME TAX PURPOSES
In general, the Internal Revenue Code, as amended, provides that if
50% or more of the total capital and profits interests in a partnership are
sold or exchanged within a single twelve-month period, that partnership would
terminate for tax purposes. Thus, if 50% or more of the Interests are sold or
exchanged within a twelve-month period (excluding successive transfers of the
same Interests), including as a result of the Put, DCIP would technically
terminate for federal income tax purposes. If a termination occurred, the
assets of DCIP would be deemed to be constructively distributed to the partners
and then recontributed by them to DCIP. In general, the adverse tax effects of
a tax termination are as follows:
(i) The tax basis of assets in the hands of DCIP after
termination may be different from (either greater or less than) DCIP's
basis in such assets immediately before the termination. Accordingly,
a limited partner's allocable share of taxable income or loss of DCIP
may be greater or less than his share of such income would have been
if DCIP did not terminate. Due to accounting and administrative
complexities and expenses, the limited partnership agreement does not
provide for special allocations which otherwise would minimize this
result;
(ii) If the allocable portion of DCIP cash constructively
distributed to a limited partner exceeds the adjusted tax basis of his
Interests at the time of the constructive distribution, a limited
partner will be required to recognize gain to the extent of such
excess. The gain will be treated as gain from the sale or exchange of
Interests; and
(iii) DCIP's taxable year will end upon termination and, if a
limited partner's taxable year differs from DCIP's
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calendar taxable year, the termination could result in the "bunching"
of more than one year of DCIP income or loss in the limited partner's
income tax return for the taxable year in which DCIP terminates.
It is impossible to advise whether a termination could occur if the
proposed amendment is adopted, because the results would depend upon factors
outside of DCIP's control. If DCIP was purchasing the Put Interests this
liquidation consequence could have been avoided, and the General Partner has
purposely proposed that the Different General Partner be solely responsible to
paying the costs of this Proposed Amendment as it believes DCIP should not have
to pay such amounts.
VOTING MATTERS
Under Wisconsin law and Section 14.1 of DCIP's limited partnership
agreement, approval of the proposed amendment requires the affirmative vote of
a majority of Interests. As of December 30, 1996, approximately 1,428 limited
partners hold 13,400.274 Interests, and, therefore, the affirmative vote of
6,700.138 Interests is required to adopt this proposed amendment. Jeffrey
Keierleber, an individual General Partner in Decade Companies, directly and
indirectly, holds 193.04 Interests (approximately 1.4% of the outstanding
Interests) and intends to vote for adoption of the Amendment. Michael Sweet,
an officer in Decade 80, Inc. and DCIP's Partnership Manager, holds 3.05
Interests and also intends to vote for the proposed Amendment. Neither Jeffrey
Keierleber nor Michael Sweet has purchased or sold any Interests in the last
two years and neither are a party to any contract, arrangements or
understanding with respect to any DCIP Interests.
Each limited partner is entitled to one vote for each Interest held of
record by such holder. No meeting of the Limited Partners is required or will
be held and the General Partner intends to accept consents until February 4,
1997, unless extended. DCIP is not required to and has not had annual meetings
of the limited partners. A consent is also revocable by any limited partner
until the above date by sending notice to DCIP that the limited partner intends
to revoke the consent at:
Decade Companies Income Properties--A Limited Partnership
250 Patrick Boulevard, Suite 140
Brookfield, Wisconsin 53045
NO MATTER HOW MANY INTERESTS YOU MAY OWN WE URGE YOU TO SUPPORT DCIP
IN ADOPTING THE FAIR PRICE PROVISION.
There are no dissenter's rights for limited partners who disagree with
adoption of this proposed amendment.
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SOLICITATION EXPENSES
The expenses of preparing, printing and mailing these proxy materials
and the costs of soliciting consents (which are estimated at $10,000, exclusive
of any expenses associated with salaries or wages of officers who may
participate in the solicitation efforts) will be paid by DCIP. Proxies are
being solicited principally by mail, but proxies may also be solicited
personally by telephone, telecopy, telegraph and similar means by DCIP and
employees of its affiliates. DCIP may also reimburse brokerage firms and
others for their expense in forwarding proxy solicitation materials to the
beneficial owners of the Interests.
It is anticipated that any solicitation for this proposal will be
undertaken by Jeffrey Keierleber and Michael G. Sweet, General Partner of
Decade Companies and Partnership Manager of DCIP, respectively. Jeffrey
Keierleber is also the sole director and shareholder of Decade 80 Inc., the
General Partner of Decade Companies and both maintain offices at Decade
Companies, 250 Patrick Boulevard, Brookfield, WI 53045. It is not anticipated
that any specially engaged employees, representatives, or other persons will be
employed. To date DCIP estimates that it has incurred $3,000 in costs and
expenses in connection with this solicitation and preparing the proxy
statement.
No participant in the solicitation has been convicted in a criminal
proceeding.
THE LIMITED PARTNERS CAN HELP DCIP AVOID THE NECESSITY AND ADDITIONAL
EXPENSE OF FURTHER SOLICITATIONS BY PROMPTLY RETURNING THE EXECUTED CONSENT.
THE ENCLOSED ADDRESSED ENVELOPE REQUIRES NO POSTAGE IF MAILED IN THE U.S. AND
IS INTENDED FOR YOUR CONVENIENCE.
SECURITY OWNERSHIP
No person of record is known by DCIP to own more than 5% of the
outstanding Interests.
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DECADE COMPANIES INCOME PROPERTIES
CONSENT
THIS CONSENT IS SOLICITED ON BEHALF OF
DECADE COMPANIES INCOME PROPERTIES
The undersigned hereby appoints Michael G. Sweet and Jeffrey
Keierleber with the power to act alone and with full power of substitution and
revocation to represent and vote, as specified below, all Interests which the
undersigned is entitled to vote.
The Interests represented by the proxy will be voted concerning the
adoption of the proposed amendment as indicated below. The undersigned hereby
acknowledges receipt of the proxy statement.
Proposed Amendment To adopt the Proposed Fair Price Provision
(Section 8.6)
For Abstain Against
[ ] [ ] [ ]
THE GENERAL PARTNER RECOMMENDS THAT YOU VOTE FOR THE PROPOSED AMENDMENT.
[Name of Owner and Number of Interests Owned]
Date _______________ ______________________________
*Signature
Date _______________ ______________________________
*Signature (if jointly held)
Please check a box and sign, date and return this consent to:
Decade Companies Income Properties
Suite 140
250 North Patrick Boulevard
Brookfield, WI 53045
*Please sign as name appears herein. Joint owners should each sign.
When signing as attorney, executor, administrator, trustee or guardian, please
give full title as such and sign. If a corporation, please sign in full
corporate name by authorized officer. If a partnership, please sign in
partnership name by authorized person.