SCHEDULE 14C
INFORMATION REQUIRED IN INFORMATION STATEMENT
SCHEDULE 14C
Information Statement Pursuant to Section 14(c) of the Securities Exchange
Act of 1934
Check the appropriate box:
[ ] Preliminary Information Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule 14c-5(d)
(2))
[X] Definitive Information Statement
MULTI-BENEFIT REALTY FUND '87-1
A CALIFORNIA LIMITED PARTNERSHIP
(Name of Registrant as Specified in Its Charter)
Payment of Filing Fee (Check the appropriate box):
[ ] No fee required
[X] Fee computed on table below per Exchange Act Rules 14c-5(g) and 0-11
(1) Title of each class of securities to which transaction applies: Limited
Partnership Units
(2) Aggregate number of securities to which transaction applies: 171,436 Limited
Partnership Units
(3) Per unit price or other underlying value of transaction computed pursuant to
Exchange Act Rule 0-11 (set forth the amount on which the filing fee is
calculated and state how it was determined): $4,551,500
(4) Proposed maximum aggregate value of transaction: $4,551,500
(5) Total fee paid: $535.71
[X] 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:
INFORMATION STATEMENT
FOR
MULTI-BENEFIT REALTY FUND '87-1
A CALIFORNIA LIMITED PARTNERSHIP
c/o THE ALTMAN GROUP, INC.
1200 Wall Street
3rd Floor
Lyndhurst, NJ 07071
Dear Limited Partner:
We are sending you this information statement to inform you that Concap
Equities, Inc., a Delaware corporation, the general partner (the "General
Partner") of Multi-Benefit Realty Fund '87-1, a California limited partnership
(the "Partnership"), has agreed to sell the Partnership's apartment complex
known as Hunt Club Apartments, in Indianapolis, Indiana (the "Property") to
Prime Quest Management, LLC, an Illinois limited liability company (the
"Buyer"), an unaffiliated third party, for $4,551,500 (less lender fees and
penalties required to prepay the existing loan encumbering the Property). The
transaction will involve the payment in full, out of the purchase price, of
approximately $3,438,602 (estimated balance as of September 30, 2005)
outstanding principal balance of the loan encumbering the Property. As more
fully described below, the General Partner and holders of greater than 50% of
the limited partnership units intend to consent to the sale. After the sale
closes, we estimate that there will be approximately $0 per class "A" unit and
$8 per class "B" unit in pre-tax distributions to distribute to the holders of
class "A" and class "B" limited partnership units, respectively. These estimates
assumes that the sale of the Property is consummated as of September 30, 2005.
This is an estimate, and as explained below, it is based upon a number of
assumptions.
We expect the distribution to the to holders of class "B" limited
partnership units will occur approximately 90 days after the sale closes. This
information statement contains information about the sale and the reasons that
the General Partner has decided that the sale is in the best interests of the
limited partners. The General Partner has conflicts of interest in the sale as
described in greater detail herein.
WE ARE NOT ASKING YOU FOR A PROXY AND YOU
ARE REQUESTED NOT TO SEND US A PROXY.
The date of this information statement is November 1, 2005.
This information statement is being mailed on or about the date hereof to
all holders of the limited partnership units of the Partnership at the close of
business on October 31, 2005.
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SUMMARY OF THE TRANSACTION
The following is a brief summary of certain terms of the Partnership's
proposed sale of the Property pursuant to the terms of a purchase and sale
agreement, dated as of August 16, 2005, as amended October 16, 2005, terminated
September 23, 2005 and reinstated and amended October 11, 2005, among the Buyer,
the Partnership, and four affiliates of the General Partner (the "Agreement").
For a more complete description of the terms of the Agreement, see "Summary of
the Purchase and Sale Agreement" in this information statement.
Buyer........................... Prime Quest Management, LLC, an Illinois
limited liability company.
Property to Be Sold by the
Partnership..................... Hunt Club Apartments, in Indianapolis,
Indiana, together with all the improvements
located on the Property and certain associated
property. See "Summary of the Purchase and
Sale Agreement - The Purchased Assets."
Additional Properties to Be
Sold Pursuant to the Agreement
by Affiliates of the
Partnership..................... The Agreement also provides for the sale to
the Buyer by affiliates of the Partnership of
the following four additional properties: (i)
Abington I Apartments, (ii) Abington II
Apartments, (iii) Williamsburg on the Lake
Apartments, and (iv) Pickwick Place
Apartments. See "Summary of the Purchase and
Sale Agreement - The Purchased Assets."
Related Purchase and Sale
Agreements ..................... Concurrently with the Agreement, two other
affiliates of the General Partner executed
separate purchase and sale agreements which
were similarly terminated and reinstated like
the Purchase Agreement (collectively, the
"Related Agreements") pursuant to which such
affiliates will sell the following two
additional properties: (i) Salem Courthouse
Apartments, and (ii) Wyckford Commons
Apartments. The sales of these properties
under the Related Agreements are contemplated
to close on November 30, 2005, but the
Partnership and the other sellers under the
Agreement and the Related Agreements have the
right to require that all properties under
both the Agreement and the Related Agreements
close simultaneously. See "Summary of the
Purchase and Sale Agreement - Related
Transactions."
Purchase Price and Deposit...... $4,551,500 (less lender fees and penalties
required to prepay the existing loan
encumbering the property), subject to certain
adjustment as provided in the Agreement. The
purchase price for the Property is payable as
follows: (i) approximately $37,918 was paid by
the Buyer as an initial deposit upon the
execution of the Agreement, (ii) approximately
$53,085 was paid by Buyer as an additional
deposit following the reinstatement of the
Agreement, and (iii) the balance of the
purchase price is to be paid in cash at the
closing. See "Summary of the Purchase and Sale
Agreement - Purchase Price and Deposit" and "
- Payoff of Existing Loan on the Property."
The Related Agreements contain similar
provisions, and collectively the Agreement and
the Related Agreements required an aggregate
initial deposit of $500,000 and an aggregate
additional deposit of $700,000. Each property
in the disposition pool was allocated a
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portion of the initial deposit and the
additional deposit based upon the ratio that
such property's respective purchase price
bears to the aggregate $60,000,000 purchase
price for all seven properties. See "Summary
of the Purchase and Sale Agreement - Purchase
Price and Deposit."
Closing......................... The closing of the Agreement, including the
sale of the Property, is scheduled to occur on
November 30, 2005. The closing date is subject
to extension pursuant to the terms of the
Agreement. See "Summary of the Purchase and
Sale Agreement - Closing."
Closing Conditions.............. Each seller's, including the Partnership's,
obligation to complete the sale of its
respective property is subject to certain
customary conditions, including obtaining (i)
the applicable lender approval of the loan
assumption and release for Williamsburg on the
Lake Apartments (the "Williamsburg Loan
Assumption Approval"), and (ii) the applicable
housing authority approval of the Buyer's
assumption of the housing assistance program
agreements for Williamsburg on the Lake
Apartments, Abington I Apartments, and
Abington II Apartments (the "HAP Assumption
Approvals"). The Buyer's obligation to close
the sale of the properties is also subject to
certain customary conditions. See "Summary of
the Purchase and Sale Agreement - Conditions
to the Parties' Obligation to Close."
Representations and The Agreement contains certain customary
Warranties...................... representations and warranties by the Buyer
and each seller under the Agreement, including
the Partnership. The Partnership's
representations and warranties survive for a
period of nine months after the closing on the
Property. See "Summary of the Purchase and
Sale Agreement - Representations and
Warranties."
Covenants....................... The Agreement contains certain customary
covenants by each seller under the Agreement,
including the Partnership. See "Summary of the
Purchase and Sale Agreement - Covenants."
Termination..................... The Agreement contains certain customary
termination rights on behalf of the Buyer and
the Partnership and the other sellers,
including the failure of certain closing
conditions, events of default, and certain
other material matters with respect to a
property. The Agreement provides that in
certain circumstances it may be terminated
either in whole or in part with respect to the
Property and the other properties to be sold
pursuant to the Agreement. See "Summary of the
Purchase and Sale Agreement - Closing", "-
Conditions to the Parties' Obligation to
Close" and "- Certain Other Termination
Rights."
Indemnification................. The sellers under the Agreement and the
Related Agreements, including the Partnership,
negotiated an aggregate maximum liability of
$1,000,000 for breaches of all representations
and warranties by all of the sellers under the
Agreement and the Related Agreements. As a
result, it is possible that the Partnership
could be liable for up to $1,000,000 for a
breach of the Partnership's representations
and warranties under the Agreement, subject to
certain reductions as provided in the
Agreement. See "Summary of the Purchase and
Sale Agreement - Representations and
Warranties."
Use of Proceeds................. The Partnership intends to use the gross
proceeds from the sale of the Property to pay
the outstanding indebtedness and other
liabilities of the Partnership, including
certain indebtedness owed to the General
Partner and its affiliates. See "Use of
Proceeds" and "Interests of
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Certain Persons in the Sale."
Plans After the Sale............ Upon the completion of the sale of the
Property and after the payment of the
transaction related costs and other
outstanding obligations of the Partnership,
including costs associated with the litigation
the Partnership will be dissolved and its
affairs wound up as required by Section 9.01
of the Partnership's Amended and Restated
Agreement of Limited Partnership, dated
December 7, 1986, as amended on October 23,
1990 (the "Partnership Agreement"). See "Plans
After the Sale," "Legal Proceedings" and
"Federal Income Tax Consequences."
REASONS FOR THE SALE
The General Partner has determined that the sale is in the best interests
of the limited partners after considering a number of factors, including the
following:
- The Property was completed in 1972, and given its age, the Property
probably will require substantial capital expenditures in the future
for which existing reserves will not be adequate.
- Market conditions are currently favorable for selling properties of
this type because of the availability of favorable financing terms
and the general withdrawal of capital from the stock markets and
into alternative investments such as real estate.
- Any future economic downturn or increase in interest rates may make
it difficult to find a buyer for the Property at as favorable a
price in the future.
For these reasons, the General Partner has approved the sale and the
Agreement, and, as described more fully below, it is anticipated that limited
partners holding a majority of the limited partnership units also will approve
the sale and the Agreement.
THE SALES PROCESS
In March 2005, we hired Marcus & Millichap, a national real estate
brokerage firm to market the Property nationally and 6 properties located in
Indiana. They marketed the property nationally to prospective buyers known to be
interested in the acquisition of multifamily housing projects similar to the
Property. The broker received offers from 12 potential purchasers. We evaluated
prospective purchasers and offers in terms of price offered, feasibility of the
proposed transaction, credibility of the prospective purchaser and ability of
the prospective purchaser to close. We chose to accept the offer by the Buyer
described in this letter based on these criteria. Neither the General Partner
nor its affiliates bid on the Property.
Apartment Investment and Management Company ("AIMCO"), an affiliate of the
General Partner, has varying ownership interests in each of the seven properties
being sold to the Buyer pursuant to the Agreement and the Related Agreements.
Only two of the seven properties being sold are 100% owned by AIMCO (the two
properties are Abington I Apartments and the Abington II Apartments). AIMCO's
ownership interest in Hunt Club is approximately 65.60% as to the Partnership's
"A" Units and 53.43% of the Partnership's "B" Units. (With respect to the other
properties in which AIMCO does not own 100%, AIMCO owns approximately 75% of
Pickwick Place, 62% of Williamsburg on the Lake, 43% of Salem Courthouse, and
76% of any capital transactions, including a sale, with respect to Wyckford
Commons). For purposes of
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allocating the total disposition pool purchase price being paid by the Buyer to
the various properties within the disposition pool, AIMCO is relying on the
Buyer's allocations, which AIMCO has not influenced and which AIMCO and the
General Partner believe to reflect fair market value. The purchase price
allocations, including that allocated to the Property, may be changed by the
Buyer before closing, based on third-party appraisals obtained by the Buyer or
the Buyer's lenders or as a result of further negotiations of the total purchase
price to be paid by the Buyer for the disposition pool.
THE BUYER
Prime Quest Management, LLC, which is not affiliated with the Partnership
or any other seller, agreed to acquire all properties to be sold pursuant to the
Agreement (and the Related Agreements), including the Property, through an
arms-length negotiation. Prime Quest Management, LLC has an office located at
2824 West Coyle, Chicago, Illinois 60645. The phone number for Prime Quest
Management, LLC is (773) 508-9104.
THE PROPERTY
The Partnership has owned and operated the Property, a 200-unit apartment
complex located in Indianapolis, Indiana, since May 1987. The Property
constitutes 100% of the Partnership's outstanding assets. There is a first
mortgage loan on the Property with an unpaid balance of approximately $3,438,602
as of September 30, 2005. The loan encumbering the Property will be pre-paid in
full at the closing, with the penalties and premiums associated with such
prepayment to be paid by Buyer and deducted from the purchase price. The
Partnership has other indebtedness of approximately $996,551, including $419,749
of indebtedness to the General Partner and its affiliates.
APPROVAL OF THE SALE
The General Partner approved the sale and determined that it is in the
best interests of the Partnership and the limited partners.
Section 2.02(b) of the Partnership Agreement permits the Partnership to
sell all or substantially all of its assets if the sale is approved by the
limited partners holding a majority of the limited partnership units entitled to
vote thereon.
As of October 19, 2005, the Partnership has approximately 858 limited
partners who collectively own 171,436 outstanding limited partnership units.
Each limited partnership unit represents approximately 0.00058% of the
outstanding limited partnership units. Affiliates of the General Partner
currently own approximately 63,163 class "A" limited partnership units, or
65.60% of the outstanding class "A" limited partnership units, and approximately
40,151 class "B" limited partnership units, or 53.43% of the outstanding class
"B" limited partnership units. It is anticipated that the holders of these
65.60% of the outstanding class "A" limited partnership units and 53.43% of the
outstanding class "B" limited partnership units will give their written consent
approving and adopting the sale and the Agreement. The following limited
partners are expected to execute such written consent:
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NUMBER OF CLASS PERCENT OF NUMBER OF CLASS PERCENT OF
NAME AND ADDRESS "A" LIMITED CLASS "A" "B" LIMITED CLASS "B"
OF BENEFICIAL OWNER PARTNERSHIP UNITS UNITS PARTNERSHIP UNITS UNITS
- -------------------------------- ----------------- ---------- ----------------- ----------
AIMCO Properties, L.P.
4582 S. Ulster St. Parkway
Suite 1100
Denver, CO 80237 34,280 35.60% 21,711 28.89%
AIMCO IPLP, LP
55 Beattie Place 2,243 2.33% 210 0.28%
Greenville, SC 29601
Madison River Properties, L.L.C.
55 Beattie Place 21,457 22.29% 13,822 18.39%
Greenville, SC 29601
Cooper River Properties, L.L.C.
55 Beattie Place 5,183 5.38% 4,408 5.87%
Greenville, SC 29601
TOTAL: 63,163 65.60% 40,151 53.43%
Upon the execution of such written consent, the holders of a majority of
the class "A" and "B" limited partnership units will have approved the sale and
the Agreement, and, as a result, no vote of any other limited partnership unit
holder will be necessary to approve the sale and the Agreement. Accordingly, the
Partnership is not soliciting any other votes. Such written consent will have an
effective date of November 21, 2005, which is 20 days after the mailing of
this information statement. This information statement shall constitute notice
to the limited partners of the Partnership with respect to this matter as
required by Sections 13.02 and 13.04 of the Partnership Agreement.
INTEREST OF CERTAIN PERSONS IN THE SALE
The General Partner has conflicts of interest with respect to the sale. A
general partner generally is liable for all recourse debts and other liabilities
of a partnership when the partnership's assets are insufficient. A sale of the
Property reduces the General Partner's liability for existing and future
Partnership debt and liabilities. As noted above, AIMCO, an affiliate of the
General Partner, has varying ownership interests in each of the seven properties
being sold to the Buyer pursuant to the Agreement and the Related Agreements,
including a 100% ownership interest in the Abington I Apartments and the
Abington II Apartments.
In addition, a portion of the proceeds from the sale of the Property,
after payment of certain transaction costs but before distribution of any
proceeds, will be used to repay indebtedness of the Partnership owed to the
General Partner and its affiliates, including accrued interest thereon,
estimated to be $419,749 as of September 30, 2005. This amount includes advances
to the Partnership from affiliates of the General Partner as well as unpaid
reimbursements of accountable administrative expenses.
USE OF PROCEEDS
We estimate that we will use the gross proceeds from the sale as follows
(subject, however, to such reductions in the purchase price and reallocations in
the proceeds as determined
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by the General Partner, in its reasonable discretion, to address objections made
by the Buyer to the condition of the Property):
Gross purchase price $ 4,551,500
Plus: Cash and cash equivalents 29,241
Plus: Other Partnership assets 222,628
Plus: General Partner deficit restoration obligation 1,534,322
Less: Mortgage debt, including accrued interest (3,438,602)
Less: Debt Prepayment penalty (1,000,077)
Less: Loans from partners (349,576)
Less: Other amounts due to the General Partner or its affiliates (70,173)
Less: Accounts payable, accrued expenses and other liabilities (576,802)
Less: Reserves for contingencies (136,545)
Less: Closing costs/sales commissions (136,545)
---------------
TOTAL $ 629,372
===============
Net proceeds $ 629,372
Percentage of proceeds allocable to class "A" limited partners 0%
---------------
Net proceeds distributable to class "A" limited partners $ 0
Net proceeds $ 629,372
Percentage of proceeds allocable to class "B" limited partners 100%
---------------
Net proceeds distributable to class "B" limited partners $ 629,372
Number of class "B" limited partnership units outstanding 75,152
---------------
Distributable net proceeds per class "B" limited partnership unit $ 8
===============
In addition, the sale of the Property may require the General Partner to
escrow part of the proceeds from the sale for some period of time if the General
Partner agrees with the Buyer to do so.
These estimates assume that the closing of the sale occurs as of September
30, 2005 and is based on information known to the General Partner at this time.
These figures will adjust based upon the fact that closing will occur after
September 30, 2005. Of course, many factors could cause the actual use of
proceeds to vary from these estimates, including delays or unforeseen
complications with the closing or contingent liabilities of the Partnership.
FEDERAL INCOME TAX CONSEQUENCES
The tax consequences to you of a sale of the Property may be significant.
The following discussion briefly summarizes the typical material aspects of the
federal income tax consequences for the limited partners that should be
considered in connection with the sale; however, the tax consequences to you
could be materially different for a variety of reasons. The discussion is based
on current law, which is subject to change (possibly with retroactive effect),
and does not consider state, local and foreign income tax aspects of the sale.
For purposes of this tax discussion, references to "I.R.C. Section" are to
sections of the Internal Revenue Code of 1986, as amended. THIS DISCUSSION DOES
NOT ADDRESS SPECIAL CONSIDERATIONS AND RULES APPLICABLE TO LIMITED PARTNERS THAT
ARE TAX-EXEMPT OR FOREIGN ENTITIES.
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EACH LIMITED PARTNER SHOULD CONSULT AND MUST RELY UPON HIS, HER OR ITS OWN
TAX ADVISOR IN ORDER TO UNDERSTAND FULLY THE FEDERAL, STATE, LOCAL AND FOREIGN
INCOME AND ESTATE AND GIFT TAX CONSEQUENCES TO HIM, HER OR IT ARISING FROM THE
SALE.
TAX CONSEQUENCES IF THE PROPERTY IS SOLD. The General Partner believes
that a typical limited partner will recognize gain from the sale of the Property
of approximately $4 per class "A" unit and $3 per class "B" unit. This gain will
constitute "unrecaptured I.R.C. Section 1250 gain" that will be taxed at a
maximum 25% rate to an individual limited partner. A typical individual limited
partner will recognize an ordinary loss of $0 per class "A" unit and $6 per
class "B" unit related to the prepayment penalty on the loan encumbering the
Property. When the Partnership completely terminates (which should occur at the
conclusion of the Nuanes action), a typical limited partner (the tax bases in
whose units have not been adjusted on account of a sale or death) could
recognize a capital loss of approximately $11 per class "A" unit and $12 per
class "B" unit on account of syndication fees that are nondeductible at the
Partnership level.
The Partnership will recognize gain from a sale of the Property to the
extent that the amount the Partnership realizes from that sale exceeds its
adjusted basis in the Property. The Partnership's amount realized from the sale
includes the sum of cash it receives from Buyer plus the fair market value of
any property it receives other than money. If Buyer assumes or takes the
Property subject to liabilities which encumber the Property, the face amount of
those liabilities also is included in the Partnership's amount realized as
though Buyer had made a cash payment to the Partnership in the same amount.
Selling expenses of the Partnership, such as brokerage commissions, legal fees
and title costs, reduce the Partnership's amount realized. Any gain recognized
by the Partnership will be allocated to the partners, including the limited
partners, in accordance with the Partnership Agreement.
To the extent that a partnership is not a "dealer" with respect to a
property, any gain in excess of "depreciation recapture gain" (discussed below)
and "unrecaptured I.R.C. Section 1250 gain" (discussed below) generally will be
taxed as gain arising from the sale of property used in the Partnership's trade
or business under I.R.C. Section 1231 ("I.R.C. Section 1231 gain"). Each limited
partner will be allocated its share of the Partnership's I.R.C. Section 1231
gain, if any. In general, if the combination of all I.R.C. Section 1231 gains
and losses of a particular limited partner for a taxable year results in a net
gain, all of such gains and losses will be characterized as long-term capital
gains and losses. If the combination results in a net loss, all of such gains
and losses will be characterized as ordinary gains and losses. However,
notwithstanding the foregoing, gains from the sale or exchange of I.R.C. Section
1231 property, if any, will be treated as ordinary gains to the extent of a
limited partner's unrecaptured net I.R.C. Section 1231 losses for the five most
recent prior years. As a result, all or a portion of any I.R.C. Section 1231
gain, if any, from the sale of the Partnership's property allocated to a limited
partner may be treated as ordinary income, rather than long-term capital gain,
if the limited partner has had net I.R.C. Section 1231 losses in prior years.
Under I.R.C. Section 1245, gain, if any, recognized by the Partnership
from the sale of any of its depreciable or amortizable personal property and
certain statutorily designated real property, i.e., "depreciation recapture
gain," is re-characterized as ordinary income and will be allocated to the
partners as such. The amount of the Partnership's depreciation recapture gain
equals the amount by which the lower of the (i) amount realized, or (ii)
recomputed basis (i.e.,
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the property's basis plus all amounts allowed for depreciation) of the
transferred property exceeds that property's adjusted basis.
Under I.R.C. Section 1250, no portion of the gain recognized by the
Partnership upon the disposition of its residential rental real property
generally is re-characterized as ordinary income because such property is
depreciated using the straight-line method. However, under I.R.C. Section
291(a)(1), a portion of a corporation's capital gain from the disposition of
residential rental real property is re-characterized as ordinary income. The
portion that is re-characterized equals 20% of the amount that would have been
treated as ordinary income under I.R.C. Section 1245 if the transferred property
were I.R.C. Section 1245 property (which generally would be all depreciation
deductions previously claimed). Therefore, under I.R.C. Section 291(a)(1),
corporate limited partners of the Partnership may recognize ordinary income upon
a disposition of the Partnership's residential rental real property.
In the case of limited partners that are individuals, estates or trusts,
the application of I.R.C. Section 1250 will not require those taxpayers to
recognize gain taxable as ordinary income; however, those limited partners may
be allocated gain from the Partnership's sale of the Property that is taxed as
"unrecaptured I.R.C. Section 1250 gain." Unrecaptured I.R.C. Section 1250 gain
generally is equal to the gain on the sale of real property that is attributable
to straight-line depreciation. The maximum federal tax rate applicable to
unrecaptured I.R.C. Section 1250 gain currently is 25%. Generally, the
unrecaptured Section 1250 gain tax rate applies only to individuals, trusts, and
estates.
In the case of limited of limited partners that are individuals, estates
or trusts, gain from the sale of the Partnership's property that is not taxed as
ordinary income or as unrecaptured I.R.C. Section 1250 gain generally is taxed
at a current maximum capital gains tax rate of 15%. Gain from the sale of the
Partnership's property that is allocated to limited partners that are
corporations is not subject to preferential capital gains tax rates.
The General Partner believes that in addition to the $0 per class "A" unit
and $6 per class "B" unit of ordinary loss related to the prepayment penalty, a
typical limited partner will recognize gain from the sale of the Property of
approximately $4 per class "A" unit and $3 per class "B" unit as "unrecaptured
I.R.C. Section 1250 gain" that will be taxed at a minimum 25% rate to an
individual limited partner. The General Partner believes that note of this gain
will constitute "depreciation recapture gain" or I.R.C. Section 1231 gain.
If a limited partner possesses suspended tax losses, tax credits or other
items of tax benefit, such items may be used to reduce any tax liability that
arises with respect to any gain resulting from the sale of the Partnership's
property and allocated to that limited partner. The determination of whether a
limited partner possesses suspended tax losses, tax credits or other items of
tax benefit that may reduce any gain resulting from the sale will depend upon
each
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limited partner's individual circumstances. Limited partners are urged to
consult with their tax advisors in this regard.
DISTRIBUTIONS OF CASH. A distribution of cash by the Partnership to a
limited partner will be treated as an amount realized from a sale of the limited
partner's interest in the Partnership and will result in taxable gain only to
the extent that the distribution exceeds the limited partner's adjusted tax
basis in his, her or its Partnership interest. Otherwise, distributions will be
tax free, and the adjusted basis of the limited partner's Partnership interest
will be decreased, but not below zero.
Generally, any gain recognized by a limited partner arising from a cash
distribution by the Partnership will be capital gain. Nevertheless, to the
extent that a portion of that gain is attributable to "unrealized receivables"
of the Partnership, including depreciation recapture, or to certain inventory
items described in I.R.C. Section 751, such gain will be taxed as ordinary
income. The General Partner does not believe that any portion of a limited
partner's gain will be taxable as ordinary income under I.R.C. Section 751.
PROCEEDS AVAILABLE FOR DISTRIBUTION TO THE LIMITED PARTNERS FROM THE SALE
OF THE PROPERTY AFTER REPAYMENT OF THE PARTNERSHIP'S DEBTS MAY BE LESS THAN THE
GAIN RECOGNIZED BY THE PARTNERSHIP (AS A RESULT OF THE SALE) THAT IS ALLOCABLE
TO THE PARTNERS, GAIN RECOGNIZED BY THE PARTNERS AS A RESULT OF ANY CASH
DISTRIBUTIONS FROM THE PARTNERSHIP, AND ANY TAX LIABILITY RESULTING FROM THE
FOREGOING. ACCORDINGLY, LIMITED PARTNERS MAY BE REQUIRED TO USE FUNDS FROM
SOURCES OTHER THAN THE PARTNERSHIP IN ORDER TO PAY ANY TAX LIABILITIES THAT MAY
ARISE AS A RESULT OF THE RECOGNITION OF GAIN.
TAX CONSEQUENCES IF THE PROPERTY IS NOT SOLD. The Property has depreciated
approximately 65% for United States federal income tax purposes. As a result, it
is possible that continued operation of the Property will generate taxable
income to the limited partners, since it is unlikely that there will be adequate
depreciation and other deductions equal to or greater than the income generated
from the Property. However, it is anticipated that there will not be any cash
available for distribution since it is expected that all or substantially all of
the Property's cash flow will be used to service the Partnership's liabilities.
As of September 30, 2005, the General Partner and its affiliates have made loans
to the Partnership in the aggregate principal amount, plus interest, of
$349,576. Accordingly, limited partners may be required to use funds from
sources other than the Partnership in order to pay any tax liabilities that may
arise as a result of the Partnership's continued operation of the Property. The
Partnership also will continue to incur the administrative costs of operating
the Partnership, including the cost of preparing and filing a Partnership tax
return, and it will continue to receive management fees. If a limited partner
possesses suspended tax losses, tax credits or other items of tax benefit, such
items may potentially be used to reduce any tax liability that arises with
respect to any taxable net income as a result of the continued operation of the
Property by the Partnership. Limited partners are urged to consult their tax
advisors in this regard.
NO APPRAISAL RIGHTS
Limited partners are not entitled to dissenters' appraisal rights under
applicable law or the partnership agreement in connection with the sale of the
Property.
11
REGULATORY APPROVALS
Other than the filing and distribution of this information statement and
the HAP Assumption Approvals, no regulatory approvals are required for the sale.
PLANS AFTER THE SALE
Upon the completion of the sale of the Property and after the payment of
the transaction related costs and other outstanding obligations of the
Partnership, including costs associated with the litigation the Partnership will
be dissolved and its affairs wound up. The Partnership intends to hold back
approximately $30,000 to pay for costs associated with certain outstanding
litigation involving the Partnership. In addition, the Partnership will reserve
approximately $107,000 from the proceeds of the sale of the Property to cover
the administrative costs of operating the Partnership until its liquidation and
dissolution, including management fees, taxes, the cost of audits, printing and
mailing and the preparation and filing of the Partnership's tax returns. Lastly,
the Partnership will reserve approximately $2,000 from the proceeds of the sale
of the Property to cover costs associated with the dissolution and liquidation
of the Partnership. A more detailed summary of the litigation involving the
Partnership can be found in this information statement under the heading "Legal
Proceedings." See also "Use of Proceeds - Less: Accounts payable, accrued
expenses and other liabilities" and "Federal Income Tax Consequences" for a
discussion of the tax consequences of the sale of the Property and the
liquidation of the Partnership.
PARTNERSHIP BUSINESS
The Partnership is a publicly-held limited partnership organized under the
California Revised Limited Partnership Act on October 8, 1986. Upon the
Partnership's formation in 1986, Consolidated Capital Equities Corporation, a
Colorado corporation, was the sole general partner of the Partnership and the
corporate limited partner, a wholly-owned subsidiary of Consolidated Capital
Equities Corporation, was the sole limited partner. In 1988, through a series of
transactions, Southmark Corporation acquired a controlling interest in
Consolidated Capital Equities Corporation. In December 1988, Consolidated
Capital Equities Corporation filed for reorganization under Chapter 11 of the
United States Bankruptcy Code. In 1990, as part of Consolidated Capital Equities
Corporation's reorganization plan, the General Partner acquired Consolidated
Capital Equities Corporation's general partner interest in the Partnership,
acquired the stock of the corporate limited partner, and the General Partner
replaced Consolidated Capital Equities Corporation as managing general partner
of the Partnership. The selection of the General Partner as the sole managing
general partner was approved by a majority of the unit holders in the
Partnership pursuant to a solicitation of the unit holders dated August 10,
1990. All of the General Partner's outstanding stock was owned by Insignia
Properties Trust, which acquired the stock through two transactions in December
1994 and October 1995. Effective February 26, 1999, Insignia Properties Trust
was merged into Apartment Investment and Management Company, a publicly traded
real estate investment trust. Thus, the General Partner is now a wholly-owned
subsidiary of Apartment Investment and Management Company. The Partnership
Agreement provides that the Partnership is to terminate on December 31, 2036,
unless terminated before such date.
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The Partnership's primary business is to operate and hold real estate
properties for investment. Funds obtained during the public offering were
invested in three existing apartment properties. The Partnership has since sold
two of these investment properties. See below for a description of the
Partnership's remaining property.
The Partnership, through its public offering of limited partnership units,
sold 172,436 limited partnership units aggregating $17,244,000. The units were
sold in two different classes, class "A" units and class "B" units, which are
entitled to different rights and priorities as to cash distributions and
Partnership allocations. The General Partner contributed capital in the amount
of $1,000 for a 1% interest in the Partnership. Since its initial offering, the
General Partner has not received, nor are the limited partners required to make,
additional capital contributions. The General Partner intends to maximize the
operating results and, ultimately, the net realizable value of the Partnership's
property in order to achieve the best possible return for the limited partners.
Such results may best be achieved by holding and operating the property or
through property sales or exchanges, refinancings, debt restructurings or
relinquishment of the assets. The Partnership evaluates each of its holdings
periodically to determine the most appropriate strategy for each of the assets.
The Partnership is engaged in the business of operating and holding real
estate property for investment. The Partnership originally acquired three
apartment properties, one of which was sold prior to calendar year 2002. On
October 28, 2003, the Partnership sold another of its investment properties,
Shadow Brook Apartments. The Partnership continues to hold, own and operate one
investment, which is the Property.
The Partnership has no employees. Management and administrative services
are performed by the General Partner and by agents retained by the General
Partner. An affiliate of the General Partner provides such property management
services.
For information on certain pending and ongoing litigation and governmental
investigations, please refer to the Partnership's most recent report on Form
10-QSB (for the quarterly period ended June 30, 2005) filed with the Securities
and Exchange Commission.
PARTNERSHIP PROPERTIES
The following table sets forth the Partnership's current investment in real
property:
PROPERTY DATE OF PURCHASE TYPE OF OWNERSHIP USE
- ----------------------- ---------------- -------------------------- ---------------------
Hunt Club Apartments May 1987 Fee ownership subject to a Apartment - 200 units
Indianapolis, Indiana first mortgage (1)
(1) The Property is held indirectly by the Partnership through a limited
partnership, Hunt Club Associates, Ltd.
LEGAL PROCEEDINGS
In March 1998, several putative unit holders of limited partnership units
of the Partnership commenced an action entitled Rosalie Nuanes, et al. v.
Insignia Financial Group, Inc., et al. (the "Nuanes action") in the Superior
Court of the State of California for the County of San Mateo. The plaintiffs
named as defendants, among others, the Partnership, its General Partner and
several of their affiliated partnerships and corporate entities. The action
purported to assert claims on behalf of a class of limited partners and
derivatively on behalf of a number of
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limited partnerships (including the Partnership) that are named as nominal
defendants, challenging, among other things, the acquisition of interests in
certain General Partner entities by Insignia Financial Group, Inc. ("Insignia")
and entities that were, at one time, affiliates of Insignia; past tender offers
by the Insignia affiliates to acquire limited partnership units; management of
the partnerships by the Insignia affiliates; and the series of transactions
which closed on October 1, 1998 and February 26, 1999 whereby Insignia and
Insignia Properties Trust, respectively, were merged into AIMCO. The plaintiffs
sought monetary damages and equitable relief, including judicial dissolution of
the Partnership. In addition, during the third quarter of 2001, a complaint
captioned Heller v. Insignia Financial Group (the "Heller action") was filed
against the same defendants that are named in the Nuanes action. On or about
August 6, 2001, plaintiffs filed a first amended complaint. The Heller action
was brought as a purported derivative action, and asserted claims for, among
other things, breach of fiduciary duty, unfair competition, conversion, unjust
enrichment, and judicial dissolution. On January 28, 2002, the trial court
granted defendants motion to strike the complaint. Plaintiffs took an appeal
from this order.
On January 8, 2003, the parties filed a Stipulation of Settlement in
proposed settlement of the Nuanes action and the Heller action. On June 13,
2003, the court granted final approval of the settlement and entered judgment in
both the Nuanes and Heller actions. On August 12, 2003, an objector ("Objector")
filed an appeal (the "Appeal") seeking to vacate and/or reverse the order
approving the settlement and entering judgment thereto. On May 4, 2004, the
Objector filed a second appeal challenging the court's use of a referee and its
order requiring Objector to pay those fees.
On March 21, 2005, the Court of Appeals issued opinions in both pending
appeals. With regard to the settlement and judgment entered thereto, the Court
of Appeals vacated the trial court's order and remanded to the trial court for
further findings on the basis that the "state of the record is insufficient to
permit meaningful appellate review". With regard to the second appeal, the Court
of Appeals reversed the order requiring the Objector to pay referee fees. On
April 26, 2005, the Court of Appeals lifted the stay of a pending appeal related
to the Heller action and the trial court's order striking the complaint. On
April 28, 2005, the Objector filed a Petition for Review with the California
Supreme Court in connection with the opinion vacating the order approving
settlement and remanding for further findings. On June 10, 2005, the California
Supreme Court denied Objector's Petition for Review and the Court of Appeals
sent the matter back to the trial court on June 21, 2005. The parties intend to
ask the trial court to make further findings in connection with settlement
consistent with the Court of Appeal's remand order. With respect to the related
Heller appeal, on July 28, 2005, the Court of Appeal reversed the trial court's
order striking the first amended complaint. The General Partner does not
anticipate that any costs to the Partnership, whether legal or settlement costs,
associated with these cases will be material to the Partnership's overall
operations.
SUMMARY OF THE PURCHASE AND SALE AGREEMENT
The following summarizes the material terms and conditions of the
Agreement. Nothing in this information statement is intended to modify the terms
of the written Agreement.
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THE PURCHASED ASSETS
The Partnership has agreed to sell all of the Partnership's interest in
and to the Property, together with all the improvements located on the Property
and certain associated property. The Agreement also provides for the sale of the
four other properties that are owned by affiliates of the Partnership. Certain
of the Partnership's assets are excluded from the sale. Subject to the Buyer's
right to elect to exclude certain items pursuant to the terms and conditions of
the Agreement, the Buyer has agreed to assume the Partnership's liabilities and
obligations under the Property's contracts, equipment leases, purchase orders,
maintenance, service and utility contracts (to the extent assignable) and the
Property's tenant leases after the closing.
The four other properties being sold pursuant to the Agreement by
affiliates of the Partnership are as follows:
PROPERTY BUYER SELLER PRICE
- ------------------------- --------------------------- -------------------------------------- -----------
Abington I Apartments Prime Quest Management, LLC Abington-Oxford Associates, L.P. (1) $ 2,947,716
Abington II Apartments Prime Quest Management, LLC Abington-Oxford II Associates, L.P. (1) 6,030,533
Williamsburg on the Lake Prime Quest Management, LLC National Property Investors 8, a 11,759,500
Apartments (2) California Limited Partnership
Pickwick Place Apartments Prime Quest Management, LLC Pickwick Place AP XII, LP 13,212,000
(1) Although Abington I Apartments and Abington II Apartments are treated
separately under the Agreement, the Agreement does provide that neither
seller of either Abington I nor Abington II shall be obligated to sell
their respective property unless simultaneously therewith both properties
are acquired by the Buyer, and the Buyer shall not be obligated to
purchase either Abington I or Abington II unless simultaneously therewith
both properties are sold to the buyer by their respective sellers.
(2) A portion of the consideration for the purchase price of this property
will be paid by the Buyer assuming the existing first mortgage loan on the
property.
RELATED AGREEMENTS
Concurrently with the Agreement, two other affiliates of the General
Partner each have executed the Related Agreements with the Buyer providing,
respectively, for the sale of the following properties:
PROPERTY BUYER SELLER PRICE
- --------------------------- --------------------------- --------------------- -----------
Salem Courthouse Apartments Prime Quest Management, LLC Salem Courthouse, L.P. $12,473,250
Wyckford Commons Apartments Prime Quest Management, LLC Wyckford Commons, L.P. $ 9,025,500
The sales of the properties under the Related Agreements are contemplated
to close on November 30, 2005, but the Partnership and the other sellers under
the Agreement and the Related Agreements have the right to require that all
properties under both the Agreement and the Related Agreements close
simultaneously.
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PURCHASE PRICE AND DEPOSIT
The purchase price for the Property is $4,551,500, payable as follows: (i)
the Property's pro rata allocation of the $320,748 initial deposit made upon the
execution of the Agreement (such pro rata allocation is approximately $37,918),
to be held in escrow until the closing, (ii) the Property's pro rata allocation
of an additional $449,047 deposit made following the reinstatement of the
Agreement (such pro rata allocation is approximately $(53,085) to be held in
escrow until the closing, and (iii) the balance of the purchase price in cash at
the closing. The Related Agreements contain similar provisions, and collectively
the Agreement and the Related Agreements require an aggregate initial deposit of
$500,000 and an aggregate additional deposit of $700,000. Each property in the
disposition pool has been allocated a portion of the initial deposit and the
additional deposit based upon the ratio that such property's respective purchase
price bears to the aggregate $60,000,000 purchase price for all seven
properties.
The Buyer may receive a credit at the closing equal to the product of (i)
the number of tenant units at such property that, as of the closing date, have
been vacant for more than seven days and are not in a rent-ready condition, and
(ii) $400. This credit is available with respect to each of the properties,
including the Property.
The initial deposit, along with the additional deposit, are
non-refundable, subject to certain circumstances under which the Agreement
provides that the aggregate deposit, or a portion thereof, is to be returned to
the Buyer (subject to certain escrow provisions set forth in the Agreement).
Even if the Buyer is entitled to a return of the deposit, the Agreement
provides that a portion of the deposit be withheld pending the Buyer's return of
certain due diligence materials provided by the sellers. The Related Agreements
contain substantially similar provisions regarding return of the deposit
thereunder.
PAYOFF OF THE EXISTING LOAN ON THE PROPERTY
The existing loan from Arcs Commercial Mortgage Co., L.P., which has been
assigned to Federal Home Loan Mortgage Corporation, in the original principal
amount of $3,900,000 will be paid in full from the proceeds of the purchase
price upon the closing of the sale of the Property. The fees, costs, and
penalties incurred in connection with this pay off will be paid by the Buyer and
the purchase price shall be reduced by the amount of such fees, costs and
penalties.
CLOSING
The sale of the Property is scheduled to occur on November 30, 2005. The
Partnership and the sellers of the Abington I Apartments and Abington II
Apartments have the option, by delivering notice to the Buyer no later than 9
days prior to the closing, to extend the closing date to any date on or before
December 30, 2005, if any of these sellers determine that such extension is
desirable in connection with the prepayment of the loans encumbering their
respective properties. Further, the Partnership, and any other seller under the
Agreement, may extend the closing (i) for up to 30 days to satisfy a condition
to be satisfied by the Partnership or any other seller, (ii) in order to
finalize the drafting with lender and lender's counsel of all documents
necessary or desirable to accomplish a loan assumption and release, or (iii)
such later date as is mutually acceptable to the sellers and the Buyer.
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In the event that either the Williamsburg Loan Assumption Approval or the
HAP Assumption Approvals have not been obtained by November 30, 2005, then the
sellers may (a) terminate the Agreement in its entirety, in which case the
deposit shall be returned to the Buyer (except if the Buyer is in default), (b)
terminate the Agreement with respect solely to (i) Williamsburg on the Lake if
the Williamsburg Loan Assumption Approval has not been obtained, and/or (ii)
Williamsburg on the Lake, Abington I and II, as applicable, if the HAP
Assumption Approval has not been obtained, in which case the Buyer and the
remaining sellers (including the Partnership) shall proceed to close the other
properties, and a pro rata portion of the deposit shall be returned to the Buyer
(based on the proportion that the purchase prices of the terminated properties
bear to the aggregate purchase price of all properties under the Agreement),
unless the Buyer is in default, or (c) extend the date for closing on all of the
properties until December 15, 2005. If the sellers elect to extend the closing
date and either the Williamsburg Loan Assumption Approval or the HAP Assumption
Approvals have not been obtained by December 15, 2005, then the sellers again
shall have the options set forth under (a) and (b) above, and if the sellers
elect to proceed with closing on the properties for which all conditions have
been satisfied, then the closing shall be December 22, 2005, subject to
extension to any date on or before December 30, 2005 as described in the
preceding paragraph.
Further, because the Agreement has been prepared and executed in
conjunction with the Related Agreements, and all such respective sales are
dependant upon each other, the sellers may extend the closing date of the
Agreement to accommodate a simultaneous closing of Agreement and the Related
Agreements.
REPRESENTATIONS AND WARRANTIES
The Agreement contains certain customary representations and warranties by
each seller under the Agreement, including the Partnership, which
representations and warranties include, without limitation, representations and
warranties regarding corporate existence and qualification; corporate authority;
non-contravention of existing contracts; validity and enforceability of the
Agreement; possessory interest in the applicable property; "non-foreign person"
status; litigation; governmental violations; material defaults under property
contracts; accuracy of each property's rent roll; absence of bankruptcy and
dissolution events; intentional omission or elimination of due diligence
materials; occupancy of apartments by employees; collective bargaining and other
employment agreements; the application of the Indiana Responsible Property
Transfer Law; and hazardous or toxic materials. The Partnership's
representations and warranties survive for a period of nine months after the
closing on the Property. The sellers under the Agreement and the Related
Agreements negotiated an aggregate maximum liability of $1,000,000 for breaches
of all representations and warranties by all of the sellers under the Agreement
and the Related Agreements. As a result, it is possible that the Partnership
could be liable for up to $1,000,000 for a breach of the Partnership's
representations and warranties under the Agreement. The aggregate $1,000,000 cap
is subject to a pro rata reduction (based upon a property's allocated purchase
price) if the Agreement or the Related Agreements are terminated with respect to
one or more of the properties.
The Agreement also contains certain customary representations and
warranties by the Buyer.
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COVENANTS
Each seller under the Agreement, including the Partnership, has agreed
that from the effective date of the Agreement through the closing of the
Agreement, each will continue to operate its respective property in the ordinary
course of business. Each seller under the Agreement, including the Partnership,
also has agreed to certain additional covenants which may affect the operation
of the Partnership prior to closing, including: restrictions on entering into
new property contracts and leases, requirements to materially comply with
property contracts, a commitment to provide the Buyer with updated rent rolls at
various points between the execution of the Agreement and the closing, a
covenant to maintain existing insurance, a covenant to make necessary reasonable
repairs and to keep the properties in substantially the same condition as of the
expiration of the Buyer's feasibility review period, ordinary wear and tear,
casualty and condemnation excepted and subject to certain provisions of the
Agreement regarding casualty and condemnation (provided, however, that the
foregoing covenant does not obligate a seller in any manner to upgrade or make
capital improvements to its property), and restrictions on disposition of
fixtures and tangible personal property, material alterations, and creation of
liens and encumbrances.
CONDITIONS TO THE PARTIES' OBLIGATION TO CLOSE
Sellers' Conditions to Closing
Each seller's, including the Partnership's, obligation to complete the
sale of its respective property is subject to certain customary conditions. Such
conditions include, among other things, the following:
- Each seller shall have received all consents, documentation and
approvals necessary to consummate and facilitate the transactions
contemplated by the Agreement, including, without limitation, a tax
free exchange (and the amendment of any such seller's (or such
seller's affiliates' partnership or other organizational documents
in connection therewith) (i) from such seller's unaffiliated
partners, members, managers, shareholders or directors to the extent
required by such seller's (or such seller's affiliates')
organizational documents, and (ii) as required by law;
- The Williamsburg Loan Assumption Approval has been obtained; and
- The HAP Assumption Approvals have been obtained.
If the conditions to closing fail with respect to a particular property,
then except as set forth above with respect to the Williamsburg Loan Assumption
Approval and the HAP Assumption Approval, the applicable seller of such property
may elect to either waive such condition or terminate the Agreement with respect
to such property; provided that if a seller so elects to terminate the Agreement
with respect to its property, then the other sellers also may elect to terminate
the Agreement with respect to their properties, or proceed to closing. In such
instance, the deposit may or may not be returned to the Buyer, depending on the
circumstances surrounding the failure of the specific condition.
In addition, the sellers have the right to condition the closing of the
sale of the Property, and all properties, upon the closing of the sale of the
other two properties being sold under the Related Agreements. If the Buyer
terminates either of the Related Agreements, sellers have the
18
option to terminate the Agreement it its entirety. If the respective sellers
under either of the Related Agreements terminate such agreement, or if both
sellers so terminate, the sellers shall have right to terminate the Agreement in
its entirety.
If a seller fails to obtain any consents from such seller's unaffiliated
partners, members, managers, shareholders or directors to the extent required by
such seller's (or such seller's affiliates') organizational documents, and the
Agreement is terminated with respect to such seller's property and such property
is not conveyed to the Buyer because of such failures, then the seller is
required to pay the Buyer its direct and actual out-of-pocket expenses and costs
(documented by paid invoices to third parties) in connection with the property
for which the Agreement has been so terminated, which damages shall not exceed
$25,000 (individually) for each property so terminated.
Buyer's Conditions to Closing
The Buyer's obligation to complete the sale of all properties, including
the Property, also is subject to certain customary conditions. If such
conditions fail with respect to a particular property, then, subject to the
terms of the Agreement, Buyer has the option of either waiving such condition or
terminating the Agreement with respect to such property and receiving a pro rata
portion of the deposit (based on the proportion that the purchase price for such
property bears to the aggregate purchase price of all properties under the
Agreement); provided that if the Buyer elects to terminate the Agreement with
respect to a particular property, the sellers have the right to require that the
Buyer must purchase all five properties subject to the Agreement or terminate
the Agreement in its entirety.
DEFAULT
If the Buyer defaults in its obligations under the Agreement and does not
cure the same within the cure period, if any, provided therein, then sellers may
terminate the Agreement and retain the deposit; provided, however, if the
Buyer's default is not capable of being cured, does not preclude Buyer from
closing (and the Buyer is ready, willing and able to timely close), and does not
materially adversely affect the sellers or the ownership, operation or
maintenance of any property (or create any liability or loss for any seller or
any property), then such default shall not permit sellers to retain the deposit
if they terminate the Agreement because of such default.
If a seller, including the Partnership, defaults in its obligations under
the Agreement and does not cure the same within the cure period, if any,
provided therein, then Buyer may either seek specific performance of such
seller's obligations under the Agreement (but not damages), or terminate the
Agreement with respect to such property; provided that if the Buyer elects to
terminate the Agreement with respect to a particular property, the sellers have
the right to require that the Buyer must purchase all five properties subject to
the Agreement or terminate the Agreement in its entirety. If the Buyer elects to
terminate the contract with respect to a property, then a pro rata portion of
the deposit (based on the proportion the purchase price of the terminated
property bears to the purchase price of all properties under the Agreement) is
to be returned to the Buyer. Additionally, Buyer may recover direct and actual
out-of-pocket expenses and costs (documented by paid invoices to third parties)
in connection with the properties for which the Agreement has been terminated,
subject to a negotiated aggregate maximum of $200,000 for all of the properties
under both the Agreement and the Related Agreements. As a result, it is possible
that the Partnership could be liable for up to $200,000 for out-of-pocket
19
expenses incurred by the Buyer. The aggregate $200,000 cap is subject to a pro
rata reduction (based upon a property's allocated purchase price) if the
Agreement or the Related Agreements are terminated with respect to one or more
of the properties.
In addition to the foregoing, if the Agreement is terminated in its
entirety because of either (i) a default by a seller, or (ii) the failure of a
seller to obtain all consents, documentation and approvals necessary to
consummate and facilitate the transactions contemplated by the Agreement,
including, without limitation, a tax free exchange (and the amendment of such
seller's (or such seller's affiliates' partnership or other organizational
documents in connection therewith) from such seller's unaffiliated partners,
members, managers, shareholders or directors to the extent required by a
seller's (or a seller's affiliates') organizational documents, then, in addition
to any other payments due by sellers to the Buyer under the Agreement, sellers
collectively are required to pay the Buyer its actual and documented fees paid
to third-party prospective lenders (in conjunction with potential financing
associated with the Buyer's acquisition of the properties) for application fees,
rate-lock fees, and third-party reports in an amount not to exceed (in aggregate
for all sellers under the Agreement) $32,000. The Related Agreements contain a
similar provision requiring the sellers thereunder to pay an aggregate of
$18,000 (for both Related Agreements) to the Buyer. These figures were derived
based on an aggregate negotiated cap of $50,000 for all seven properties in the
pool.
CERTAIN OTHER TERMINATION RIGHTS
The Buyer has the right to terminate the Agreement with respect to a
particular property upon major property damage (cost of repairs exceed $300,000)
or condemnation of a material portion of the property; provided that if the
Buyer elects to terminate the Agreement with respect to a particular property,
the sellers have the right to require that the Buyer must purchase all five
properties subject to the Agreement or terminate the Agreement in its entirety.
In such instance, the deposit (or a pro rata portion thereof based on the
purchase prices of the terminated properties) is to be returned to the Buyer.
The Buyer has the right to terminate the Agreement if, after the
expiration of the Buyer's feasibility review period, any update to the
commitment to insure title to any property under the Agreement discloses a
material matter affecting the title to such property that (a) was not caused by
the Buyer or its consultants, (b) was not reflected on the original commitment
to insure title of such property delivered during the Buyer's feasibility review
period, and (c) the applicable seller, in such seller's sole discretion, does
not agree to cure such matter. In such instance, the deposit is to be returned
to the Buyer.
EXPENSES AND CLOSING COSTS
The Buyer shall pay any transfer, mortgage assumption (to the extent
applicable to a property), sales, use, gross receipts or similar taxes, the cost
of recording any instruments required to discharge any liens or encumbrances
against any property, any premiums or fees required to be paid by the Buyer with
respect to its title policy for the properties and one-half of the customary
closing costs of the escrow agent for the sale of all properties. Each seller,
including the Partnership, shall pay the base premium for the title policy and
one-half of the customary closing costs of the escrow agent. To the extent that
the Buyer desires that a new survey of any property be prepared (or that an
existing survey be updated), and the Buyer requests the same in accordance with
the Agreement, the Buyer shall pay to the applicable seller
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75% of the costs of the applicable existing survey and any new or updated survey
and the applicable seller shall pay the remaining 25% of such costs.
In addition, the sellers shall pay any fees, commissions, and expenses due
and owing to the transaction broker, Marcus and Millichap, pursuant to a
separate agreement.
WHERE YOU CAN FIND MORE INFORMATION
We are subject to the informational requirements of the Exchange Act and
are required to file annual and quarterly reports, proxy statements and other
information with the SEC. You can inspect and copy reports and other information
filed by us with the SEC at the SEC's Public Reference Room at 450 Fifth Street,
N.W., Washington, D.C. 20549. You may also obtain information on the operation
of the Public Reference Room by calling the SEC at 1-800-SEC-0300. The SEC also
maintains an Internet site at http:\\www.sec.gov that contains reports, proxy
and information statements regarding issuers, including us, that file
electronically with the SEC.
You should only rely on the information incorporated by reference or
provided in this information statement or any supplement. We have not authorized
anyone else to provide you with information. You should not assume that the
information in this information statement or any supplement is accurate as of
any date other than the date on the front of this information statement or the
supplement.
We are "incorporating by reference" into this information statement
certain information we have filed with the SEC, which means that we are
disclosing important information to you by referring you to those documents. The
information incorporated by reference is deemed to be part of this information
statement, except for any information superseded by information contained
directly in this information statement. These documents contain important
information about us and our finances. This information statement incorporates
by reference:
- Our annual report on Form 10-KSB for the year ended December 31,
2004.
- Our quarterly report on Form 10-QSB for the period ended March 31,
2005.
- Our quarterly report on Form 10-QSB for the period ended June 30,
2005.
All documents we file with the SEC pursuant to Section 13(a), 13(c), 14 or
15(d) of the Securities Exchange Act from the date of this information statement
shall also be deemed to be incorporated herein by reference and will
automatically update information in this information statement.
You may request a copy of these filings, at no cost, by writing or calling
us at the following address or telephone number:
c/o THE ALTMAN GROUP, INC.
1200 Wall Street
3rd Floor
Lyndhurst, NJ 07071
Telephone: (800) 217-9608
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DELIVERY OF DOCUMENTS TO SECURITY HOLDERS SHARING AN ADDRESS
Only one information statement is being delivered to multiple limited
partners sharing an address unless the Partnership has received contrary
instructions from one or more of the limited partners.
The Partnership will undertake to deliver promptly upon written or oral
request a separate copy of this information statement to a limited partner at a
shared address to which the Partnership delivered a single copy of the
information statement. If a limited partner wishes to notify the Partnership
that he or she wishes to receive a separate copy of this information statement,
the limited partner may contact the Partnership as follows:
By mail: c/o THE ALTMAN GROUP, INC.
1200 Wall Street
3rd Floor
Lyndhurst, NJ 07071
By telephone: (800) 217-9608
By facsimile: (201) 460-0050
A limited partner may also use the above telephone number, facsimile
number or mailing address to notify the Partnership that limited partners
sharing an address request delivery of a single copy of this information
statement if they are receiving multiple copies of information statements.
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