OFFER TO PURCHASE
LIMITED PARTNERSHIP INTERESTS
IN
SPRINGHILL LAKE INVESTORS
LIMITED PARTNERSHIP
FOR CASH CONSIDERATION AGGREGATING
$36,000 PER UNIT
(INCLUDING, IN CERTAIN CIRCUMSTANCES, THE PROCEEDS OF A NON-RECOURSE
SECURED LOAN FROM THE PURCHASER)
BY
AQUARIUS ACQUISITION, L.P.
THIS OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE
AT 5:00 P.M., NEW YORK TIME, ON MARCH 2, 1995, UNLESS EXTENDED.
Aquarius Acquisition, L.P., a newly formed Delaware limited partnership
(the "Purchaser"), hereby offers to purchase outstanding limited partnership
interests in Springhill Lake Investors Limited Partnership, a Maryland
limited partnership (the "Partnership"), for consideration per Unit (as such
term is defined in the partnership agreement of the Partnership, as in effect
on the date hereof) of $36,000 (the "Cash Consideration") in cash (including,
in certain circumstances described below, the proceeds of a non-recourse
secured loan from the Purchaser), such Cash Consideration to be pro rated in
respect of fractional Units, upon the terms and subject to the conditions set
forth in this Offer to Purchase (including the annexes hereto, the "Offer to
Purchase") and in the related Letter of Transmittal, as each may be
supplemented or amended from time to time (which together constitute this
"Offer"). This Offer is made to limited partners of the Partnership (the
"Limited Partners") of record as of February 1, 1995 (the "Record Date").
This Offer is not conditioned upon any minimum number of Units being
tendered. A Limited Partner may tender all or any portion of the Units owned
by it. Each Limited Partner who has delivered its consent pursuant to consent
solicitation materials delivered by Greenbelt Residential Limited Partnership
("Greenbelt"), an affiliate of Theodore N. Lerner ("Lerner"), may
nevertheless still tender all or any portion of its Units in this Offer.
The Purchaser is an affiliate of the general partners of the Partnership.
See "THE OFFER--Interests of Certain Person and Certain Transactions."
Pursuant to Section 7.2(D) of the Amended and Restated Limited Partnership
Agreement of the Partnership (the "Partnership Agreement"), a transfer of
Units may not be made if, after giving effect to such transfer, a termination
of the Partnership would occur for tax purposes. Such a tax termination would
occur if 50% or more of the outstanding interests in the Partnership (limited
and general) were transferred in any 12-month period. In order to prevent a
violation of Section 7.2(D) of the Partnership Agreement while, at the same
time, providing to each tendering Limited Partner at the consummation of this
Offer an amount of Cash Consideration per Unit equal to $36,000, the
Purchaser has structured this Offer to include a non-recourse loan in the
event that more than 50.5% of the Units are tendered. In such event, each
tendering Limited Partner will be paid, at the consummation of this Offer,
Cash Consideration of $36,000 for each Unit (pro rated in respect of
fractional Units) validly tendered and not withdrawn. A portion of the Cash
Consideration will represent the purchase proceeds payable in respect of the
transfer by such Limited Partner to the Purchaser of a portion of such
Limited Partner's Units. The balance of the Cash Consideration will represent
the proceeds of a non-recourse loan to such Limited Partner (each, a "Loan")
secured only by the portion of such Limited Partner's tendered Units that is
not transferred at the consummation of this Offer (the "Retained Portion").
THE ACCEPTANCE OF A LOAN WILL NOT IMPOSE ANY PERSONAL LIABILITY ON A
TENDERING LIMITED PARTNER FOR THE PAYMENT OF ANY PRINCIPAL OR INTEREST IN
RESPECT OF ITS LOAN.
THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE FAIRNESS OR
MERITS OF SUCH TRANSACTION NOR UPON THE ACCURACY OR ADEQUACY OF THE
INFORMATION CONTAINED IN THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS
UNLAWFUL.
The Purchaser expressly reserves the right, in its sole discretion, at any
time and from time to time: (i) to extend the period of time during which
this Offer is open and thereby delay acceptance for payment of, and the
payment for, any Units; (ii) to terminate this Offer and not accept for
payment any Units not theretofore accepted for payment or paid for; (iii)
upon the occurrence of any of the conditions specified in Section 11, to
delay the acceptance for payment of, or payment for, any Units not
theretofore accepted for payment or paid for; and (iv) to amend this Offer in
any respect (including, without limitation, by increasing or changing the
terms of the consideration offered, decreasing the percentage of Units being
sought, or both). Notice of any such extension, termination or amendment will
promptly be disseminated to Limited Partners in a manner reasonably designed
to inform Limited Partners of such change in compliance with Rule 14d-4(c)
under the Securities Exchange Act of 1934 (the "Exchange Act"). In the case
of an extension of this Offer, such extension will be followed by a press
release or public announcement which will be issued no later than 9:00 a.m.,
New York time, on the next business day after the scheduled Expiration Date,
in accordance with Rule 14e-1(d) under the Exchange Act.
EACH LIMITED PARTNER IS URGED TO READ CAREFULLY THE ENTIRE OFFER TO
PURCHASE, THE LETTER OF TRANSMITTAL AND RELATED DOCUMENTS.
February 1, 1995
TABLE OF CONTENTS
PAGE
--------
INTRODUCTION ............................................................... 1
SPECIAL FACTORS ............................................................ 6
Background of this Offer ............................................... 6
Determination of the Cash Consideration ................................ 9
Purpose and Effects of this Offer ...................................... 14
Future Plans ........................................................... 15
THE OFFER .................................................................. 17
Section 1. Terms of this Offer ....................................... 17
Section 2. Proration; Acceptance of and Payment for Units ........... 18
Section 3. Procedures for Tendering Units ............................ 18
Section 4. Withdrawal Rights ......................................... 19
Section 5. Extension of Tender Period; Termination; Amendments ...... 20
Section 6. Certain Federal and State Income Tax Consequences ........ 21
Section 7. Certain Information Concerning the Partnership ........... 24
Section 8. Certain Information Concerning the Purchaser .............. 25
Section 9. Interests of Certain Persons and Certain Transactions .... 25
Section 10. Source of Funds ........................................... 27
Section 11. Conditions of this Offer .................................. 27
Section 12. Certain Legal Matters ..................................... 28
Section 13. Fees and Expenses ......................................... 29
Section 14. Other Matters ............................................. 29
Schedule I -- Information Regarding Directors and Executive Officers of
Nomura Asset
Capital Corporation ....................................... S-1
Annex I Annual Report of the Partnership on Form 10-K for the fiscal year
ended December 31, 1993
Annex II Quarterly Report of the Partnership on Form 10-Q for the quarter
ended September 30, 1994
Annex III Form of Secured Non-recourse Note and Security Agreement
TO THE LIMITED PARTNERS OF
SPRINGHILL LAKE INVESTORS LIMITED PARTNERSHIP
INTRODUCTION
The Purchaser hereby offers to purchase outstanding Units for Cash
Consideration per Unit of $36,000 (pro rated in respect of fractional Units)
(including, in certain circumstances described below, the proceeds of a
non-recourse secured loan from the Purchaser), upon the terms and subject to
the conditions set forth in this Offer to Purchase and in the related Letter
of Transmittal, as each may be supplemented or amended from time to time.
Limited Partners who tender Units in this Offer will not be obligated to pay
any partnership transfer fees, which fees, if any, will be borne by the
Purchaser. The Purchaser will also pay all charges and expenses of D.F. King
(the "Information Agent") and IBJ Schroder (the "Depository") in connection
with this Offer.
Purpose of This Offer. This Offer has been made as an alternative to (a)
the proposal made by Lerner, in which Lerner has offered to purchase the
Partnership's 90% ownership interest in First, Second, Third, Fourth, Fifth,
Sixth, Seventh, Eighth and Ninth Springhill Lake Limited Partnerships and
Springhill Commercial Limited Partnership (collectively, the "Operating
Partnerships") that own Springhill Lake Apartments located in Greenbelt,
Maryland (the "Project"), and (b) the liquidation of the Partnership and a
sale of the Project to a third party. The terms of Lerner's proposal (the
"Lerner Proposal") are set forth in the Greenbelt Residential Limited
Partnership Consent Solicitation Statement, a copy of which is filed as an
exhibit to the Tender Offer Statement on Schedule 14D-1 filed with the SEC in
connection with this Offer, and you are directed to those materials for the
complete terms of the Lerner Proposal, which proposal is incorporated herein
by reference in its entirety. Lerner currently holds a 10% ownership interest
in the Project as limited partner of the Operating Partnerships and has
certain rights of first refusal to purchase the Project and the Partnership's
interest in the Operating Partnerships in the event that a bona fide
third-party offer is received by the general partners of the Partnership and
such proposal is submitted to the Limited Partners for their consideration.
Conditions. This Offer is not conditioned upon any minimum number of Units
being tendered. A Limited Partner may tender all or any portion of its Units.
If a Limited Partner has already delivered a consent to the Lerner Proposal,
such Limited Partner may nevertheless still tender all or any portion of its
Units.
Fractional Interests. A Limited Partner may tender all or any portion of
the Units owned by it. If a Limited Partner chooses to tender a portion of a
Unit and retain a portion of a Unit, the Purchaser will pay a Cash
Consideration for the portion of the Unit so tendered in this Offer. All
references herein to Units shall include fractions of Units, unless the
context otherwise requires.
Cash Consideration. If 50.5% or less of the outstanding Units are validly
tendered and not withdrawn, each tendering Limited Partner will receive, upon
consummation of this Offer, $36,000 in Cash Consideration for each Unit so
tendered in consideration for the purchase of such Unit. If more than 50.5%
of the outstanding Units are validly tendered and not withdrawn, each
tendering Limited Partner will receive the same amount of Cash Consideration
with respect to each Unit so tendered, but will receive part of such Cash
Consideration in purchase proceeds (such portion, the "Purchase Proceeds")
and the balance of such Cash Consideration as proceeds of a Loan (the "Loan
Proceeds").
Reasons for and Terms of the Loan. Pursuant to Section 7.2(D) of the
Partnership Agreement, a transfer of Units may not be made if, after giving
effect to such transfer, a termination of the Partnership would occur for tax
purposes. Such a tax termination would occur if 50% or more of the
outstanding interests (limited and general) in the Partnership were
transferred in any 12-month period. To prevent a violation of Section 7.2(D)
of the Partnership Agreement while, at the same time, providing to each
tendering Limited Partner at the consummation of this Offer Cash
Consideration per Unit equal to $36,000, the Purchaser has structured this
Offer to include a non-recourse loan feature in the event that more than
50.5% of the Units are tendered. The percentage of Units to be purchased was
established at 50.5% (or 48.275% of the total outstanding interests in the
Partnership) to take into account transfers of Units during the 12 months
prior to the closing of this Offer. If more than 50.5% of the outstanding
Units
1
are validly tendered and not withdrawn, each tendering Limited Partner will
be paid, subject to the terms of this Offer, at the consummation of this
Offer, Cash Consideration per Unit of $36,000. A portion of the Cash
Consideration will represent the Purchase Proceeds for the transfer by such
Limited Partner to the Purchaser of the pro rata portion of such Limited
Partner's tendered Units such that the Purchaser purchases 50.5% of all of
the outstanding Units pursuant to this Offer. The balance of the Cash
Consideration will be paid in Loan Proceeds. The Loan will be a non-recourse
loan to such Limited Partner secured only by the Retained Portion of such
Limited Partner's tendered Units that is not transferred at the consummation
of this Offer. Each Loan may be satisfied, at its maturity, by surrendering
to the Purchaser the Retained Portion or, at the sole option of the tendering
Limited Partner, by a payment in cash equal to the then outstanding balance
of principal and accrued interest in respect of such Loan. THE ACCEPTANCE OF
A LOAN WILL NOT IMPOSE ANY PERSONAL LIABILITY ON A TENDERING LIMITED PARTNER
FOR THE PAYMENT OF ANY PRINCIPAL OR INTEREST IN RESPECT OF ITS LOAN.
The portion of the Cash Consideration payable at the consummation of this
Offer to each tendering Limited Partner which will constitute Purchase
Proceeds will be $36,000 per Unit multiplied by the quotient of (A) 50.5%
divided by (B) a fraction, the numerator of which is the number of Units
validly tendered and not withdrawn and the denominator of which is the number
of outstanding Units on the date of consummation of this Offer. The balance
of the Cash Consideration payable to each tendering Limited Partner at the
consummation of this Offer will constitute the Loan Proceeds payable to such
tendering Limited Partner. The following table sets forth the per Unit
consideration to be paid pursuant to this Offer based on the indicated
percentage of Units being validly tendered and not withdrawn:
PERCENTAGE OF
UNITS VALIDLY CASH CONSIDERATION PURCHASE PROCEEDS LOAN PROCEEDS
TENDERED PER UNIT PER UNIT PER UNIT
- ---------------- ------------------ ----------------- ---------------
50.5% or
less $36,000 $36,000 $ -0-
75% 36,000 24,240 11,760
100% 36,000 18,180 17,820
As described in the table above, the amount of Cash Consideration per Unit
paid to each Limited Partner upon consummation of this Offer will be $36,000
irrespective of the number of Limited Partners who validly tender Units.
Each Loan will bear interest at the rate of 9% per annum. Interest and
principal will not be due and payable prior to the scheduled maturity date of
the Loan. Each Loan will mature by its terms on the date that is one year and
one day after the purchase of Units pursuant to this Offer, and will be
payable, at the election of the Limited Partner, either by surrender to the
Purchaser of the Retained Portion or, at the sole option of the Limited
Partner party thereto, by payment of cash in the principal amount of its Loan
plus accrued interest thereon. In the event the provisions of Section 7.2(D)
of the Partnership Agreement (which currently prohibits transfers of Units in
excess of the amount which would cause a tax termination of the Partnership)
are eliminated from the Partnership Agreement, then the Loan will become due
on demand of the Purchaser. Distributions on the Retained Portion will be
credited first against accrued interest and principal and any remaining
amount will be remitted to the Limited Partner.
If the Purchaser acquires, pursuant to the Offer, more than 50% of all
outstanding Units, it may seek to amend the Partnership Agreement to
eliminate Section 7.2 (D) thereof. The primary impact of a tax termination on
non-tendering Limited Partners and tendering Limited Partners who retain a
portion of their Units subject to a Loan would be a lengthening of the period
of time over which the Partnership recognizes depreciation deductions for tax
purposes. A tax termination in 1995 would cause a reduction in such
deductions by approximately $4,500 per Unit per year over the next eight
years and an increase in such deduction by approximately $1,800 per Unit per
year for the following nineteen years.
The Purchaser. The Purchaser is a newly formed entity controlled by Nomura
Asset Capital Corporation ("NACC"). On December 22, 1994, NACC acquired
indirect control of Three Winthrop Properties, Inc. ("Three Winthrop"), the
managing general partner of the Partnership, and on January 27, 1995,
acquired indirect control of (but no economic interests in)
Linnaeus-Lexington Associates Limited Partnership ("Linnaeus-Lexington"), the
other general partner of the Partnership. (See "THE OFFER--
2
Certain Information Concerning the Purchaser.") Because of affiliations
between the Purchaser, Three Winthrop and Linnaeus-Lexington, the Partnership
has indicated in its statement on Schedule 14D-9 filed with the Securities
and Exchange Commission (the "SEC") that it makes no recommendation and is
remaining neutral as to whether a Limited Partner should tender its Units in
this Offer. (See "THE OFFER--Interests of Certain Persons and Certain
Transactions" and "SPECIAL FACTORS--Background of this Offer.") Due to the
foregoing relationship, this Offer is being made in compliance with the
provisions of Rule 13e-3 under the Exchange Act.
Some Factors to Be Considered by Limited Partners. The Purchaser believes
that Limited Partners may find this Offer an attractive way to liquidate
their investment in the Partnership and a more attractive alternative than
the Lerner Proposal, or a possible sale of the Project to a third party, for
the following reasons:
o THIS OFFER PROVIDES MORE CASH PER UNIT TO LIMITED PARTNERS THAN THE
CASH ESTIMATED BY LERNER TO BE AVAILABLE TO LIMITED PARTNERS PURSUANT TO THE
LERNER PROPOSAL. This Offer will provide those Limited Partners who choose to
tender their Units to the Purchaser with a cash payment at the consummation
of this Offer in the amount of $36,000 per Unit. The Lerner Proposal
estimates that it will provide all Limited Partners (including those who
prefer to retain their Units as opposed to selling them today) with an
eventual cash payment of $32,200 per Unit, consisting of $30,200 per Unit
from the sale to Lerner of the Partnership's interest in the Operating
Partnerships that own the Project and a distribution of $2,000 per Unit from
1994 Partnership operations. The Lerner Proposal estimates are subject to
certain contingencies and based on certain assumptions which are discussed in
more detail below. See "SPECIAL FACTORS--Determination of Cash Consideration"
and "--Offers from Non-Affiliates and Appraisals Rendered by Third Parties."
o IN THE PURCHASER'S OPINION, THIS OFFER IS MORE LIKELY TO CLOSE THAN
EITHER THE LERNER PROPOSAL OR A POSSIBLE SALE OF THE PROJECT TO A THIRD PARTY
PURSUANT TO A PLAN OF LIQUIDATION OF THE PARTNERSHIP. The Lerner Proposal is
and any possible sale to a third party would be subject to certain
contingencies, including, in the case of the Lerner Proposal and any other
proposal that requires the assumption of the existing mortgage loans on the
Project (the "New Mortgage Loans"), the approval of the Project's mortgage
lender (the "Lender") for the assumption of the New Mortgage Loans, and the
approval of a sale transaction by Limited Partners owning more than 50% of
the Units. The Purchaser has been informed by Three Winthrop that the Lender
has told Lerner that at this time it would only consider an assumption
request from the Partnership. Even if the Lender were to agree to consider
Lerner's request or a similar request from a prospective third party
purchaser, it is possible that the Lender would seek to impose certain
additional terms or conditions on the consummation of any transaction
involving Lerner or a third party. Any such terms or conditions could affect
the ability of a prospective purchaser to conclude a purchase of the Project.
In addition, there is presently no basis for determining whether Limited
Partners holding more than 50% of the Units are interested in liquidation of
the Partnership or a sale of the Project on the terms described in the Lerner
Proposal or any other terms.
By contrast, this Offer does not require any approval from the Lender
and does not require any minimum level of participation by Limited Partners.
o EVEN IF THE LERNER PROPOSAL OR A THIRD-PARTY OFFER FOR THE PROJECT WERE
TO BE ACCEPTED BY THE PARTNERSHIP AND THE LENDER, IT IS LIKELY THAT SUCH A
TRANSACTION WOULD REQUIRE SIGNIFICANTLY MORE TIME TO NEGOTIATE AND CLOSE THAN
THIS OFFER. The Purchaser estimates that it would take at least three months
to sell the Project to Lerner because any such sale will require the
completion of a consent solicitation process in respect of the Limited
Partners and a negotiation period with the Lender to obtain its consent to
the sale, which consent may be conditioned upon the receipt of a new
appraisal of the Project. A sale to a third party will take even longer
because the Partnership will be required to market the Project for a
reasonable time, to provide each prospective purchaser adequate opportunity
to conduct a "due diligence" review and investigation of the
3
Project, to negotiate sale documentation for the Project with a person who is
initially unfamiliar with the Project and to provide Lerner with an
opportunity to match the terms of such a sale pursuant to his existing right
of first refusal arrangement. By contrast, this Offer will be consummated
immediately after its expiration date, which is presently set for March 2,
1995.
o THIS OFFER PROVIDES MORE FLEXIBILITY THAN THE LERNER PROPOSAL OR A
POSSIBLE SALE OF THE PROJECT TO A THIRD PARTY BECAUSE IT GIVES EACH
INDIVIDUAL LIMITED PARTNER THE OPTION TO: (A) RETAIN ITS UNITS; (B) RETAIN A
PORTION OF ITS UNITS WHILE ALSO TENDERING A PORTION OF ITS UNITS; OR (C) TO
TENDER ALL OF ITS UNITS. Thus, Limited Partners who believe that now is not
the right time to liquidate their investment in the Partnership may retain
all or any portion of their Units, while those who are seeking liquidity for
their investment may tender all or a portion of their Units and receive cash
equal to $36,000 per Unit. Neither the Lerner Proposal nor a possible sale of
the Project to a third party offers these options to Limited Partners. In
either such case, the determination by the holders of the requisite number of
Units would result in Limited Partners either retaining their entire interest
or liquidating their entire interest.
o THIS OFFER PROVIDES THAT EACH LIMITED PARTNER WILL RECEIVE $36,000 IN
CASH FOR EACH UNIT VALIDLY TENDERED AND NOT WITHDRAWN (PRO RATED IN RESPECT
OF FRACTIONAL UNITS). The $36,000 per Unit purchase price of this Offer is
not subject to reduction or contingencies if this Offer is consummated. By
contrast, because of certain contingencies inherent in the Lerner Proposal,
the actual per Unit distribution amount which would result from the sale of
the Project pursuant to the Lerner Proposal could be even less than the
$32,200 per Unit amount estimated by Lerner. If the Lender does not approve
assumption of the New Mortgage Loans by Greenbelt or any new purchaser and
insists on receiving the prepayment penalty set forth in the mortgage
documentation (estimated to be as much as $5,000,000), the Lerner Proposal
provides that the sale proceeds could be reduced by $5,890 per Unit,
resulting in a total per Unit distribution of only $26,310. In addition, the
proposed form of contract provided by Lerner in connection with the Lerner
Proposal (the "Lerner Purchase Agreement") would require the Partnership to
make certain representations and warranties to the buyer and to provide
certain indemnities to the buyer which could cause the Partnership to reserve
a portion of the sale proceeds and thereby delay, and possibly reduce, the
cash distribution to Limited Partners. Finally, any sale of the Project to a
third party would have to take into account Lerner's right of first refusal,
which could discourage buyers from aggressively pursuing a purchase of the
Project, knowing that Lerner has the option to purchase the Project simply by
matching the highest offer made by prospective buyers.
Acceptance by Limited Partners of this Offer will not in any event (i)
cause any prepayment penalty to become due on the New Mortgage Loans, (ii)
require the establishment of Partnership reserves of any kind, (iii) be
subject to the Purchaser's obtaining adequate funds, or (iv) be subject to
Lerner's right of first refusal. The $36,000 per Unit consideration specified
in this Offer will, upon consummation of this Offer, promptly be paid to
tendering Limited Partners, subject to the terms of this Offer, without any
offsets or deductions of any kind.
Tax Considerations. A Limited Partner who decides to tender its Units
pursuant to this Offer will receive cash of $36,000 per Unit and be allocated
certain tax items. The resulting federal tax liability or benefit that a
Limited Partner will experience will depend on its personal tax situation.
Assuming a Limited Partner is subject to a 28% tax rate on capital gains and
a 39.6% tax rate on ordinary income, the federal tax consequences generally
could range from a benefit of approximately $2,204 per Unit to a liability of
approximately $14,240 per Unit, depending on the amount of passive
carryforward losses that a Limited Partner currently holds from the
Partnership. EACH LIMITED PARTNER SHOULD CONSULT ITS OWN TAX ADVISOR AS TO
THE PARTICULAR TAX CONSEQUENCES TO SUCH LIMITED PARTNER OF SELLING UNITS AND
RECEIVING A LOAN PURSUANT TO THIS OFFER. See "THE OFFER--Certain Federal and
State Income Tax Consequences."
For those Limited Partners who tender their Units and possess the maximum
possible amount of carryforward passive losses available, the Partnership
will have provided cumulative after-tax benefits of
4
approximately $61,161 for each Unit initially acquired for an investment of
$74,965 (which consisted of capital contributions of $62,500 plus interest on
deferred contributions of $12,465). The after-tax benefits are comprised of:
(i) the cash received from this Offer of $36,000 per Unit; (ii) prior cash
distributions from operations of $3,072 per Unit; and (iii) a net federal tax
benefit of $22,089 per Unit, taking into account the estimated tax benefit
resulting from this Offer. The cumulative federal tax benefit (on a nominal
basis) is approximately $3,540 per Unit lower for those Limited Partners who
have no carryforward passive losses available but were instead able to
utilize passive losses from the Partnership in previous years. This
investment analysis assumes a Limited Partner: (i) was admitted to the
Partnership on the initial closing date of the offer of Units in February
1985; and (ii) selected the installment method of payments to make capital
contributions to the Partnership.
Distributions. The Purchaser has been advised that the Partnership does
not intend to make its cash distribution for 1994 until after this Offer has
been consummated or terminated. Thus, the Purchaser will receive the full
1994 distribution for those whole Units, and a proportionate distribution for
those fractional Units, that it purchases in this Offer. Three Winthrop
presently estimates that the distribution for 1994 will be approximately
$2,000 per Unit. The 1994 distribution was considered by the Purchaser when
establishing the Cash Consideration. Limited Partners who do not tender any
Units in this Offer will receive the full 1994 distribution and Limited
Partners who retain Units and/or a Retained Portion after this Offer will
receive their proportionate share of the 1994 distribution. If more than
50.5% of the Units are validly tendered and not withdrawn, the distributions
made on a Limited Partner's Retained Portion will, pursuant to the written
direction of each tendering Limited Partner contained in the Letter of
Transmittal, be applied first to the payment of accrued interest on such
Limited Partner's Loan, then to the repayment of principal of such Limited
Partner's Loan and any remaining amounts will be remitted to such Limited
Partner.
Outstanding Units. According to information supplied by the Partnership,
there are 649 Units issued and outstanding held by 679 Limited Partners as of
the Record Date. The Purchaser does not directly or indirectly own Units or
fractions thereof.
Certain information contained in this Offer to Purchase which relates to
the Partnership, or consists of statements made by Three Winthrop, has been
derived from information which has been made publicly available by the
Partnership or has been provided to the Purchaser by Three Winthrop.
LIMITED PARTNERS WHO DESIRE LIQUIDITY MAY WISH TO CONSIDER THIS OFFER.
HOWEVER, EACH LIMITED PARTNER MUST MAKE ITS OWN DECISION WHETHER TO TENDER
ITS UNITS PURSUANT TO THIS OFFER BASED UPON ITS PARTICULAR CIRCUMSTANCES,
INCLUDING ITS OWN FINANCIAL NEEDS, OTHER INVESTMENT OPPORTUNITIES AND TAX
POSITION. EACH LIMITED PARTNER SHOULD CONSULT WITH ITS OWN ADVISORS, TAX,
FINANCIAL OR OTHERWISE, IN EVALUATING THIS OFFER.
LIMITED PARTNERS ARE URGED TO READ THIS OFFER TO PURCHASE AND THE
ACCOMPANYING LETTER OF TRANSMITTAL CAREFULLY BEFORE DECIDING WHETHER TO
TENDER THEIR UNITS.
5
SPECIAL FACTORS
BACKGROUND OF THIS OFFER
The Partnership. The Partnership was organized as a Maryland limited
partnership under the Maryland Revised Uniform Limited Partnership Act on
December 28, 1984, for the purpose of investing as a general partner in the
ten Operating Partnerships, each of which is a Maryland limited partnership
owning a section of the Project. The Partnership is the sole general partner
of each Operating Partnership. The limited partner of each Operating
Partnership is Lerner, a former general partner of the Operating Partnerships
whose interest was converted to that of a limited partner on January 16,
1985.
The Partnership's interest in the Operating Partnerships entitles it to
90% of profits and losses for tax purposes, 90% of the Operating
Partnerships' cash flow (after certain priority distributions), and 85% of
the proceeds of a sale or disposition of the Project (after certain priority
distributions).
In April 1985, the Partnership completed an offering of 649 Units at
$62,500 per Unit pursuant to Regulation D under the Securities Act of 1933.
The Partnership raised $40,562,500 in capital contributions from investors
who were admitted to the Partnership as Limited Partners.
The Partnership purchased its interest in the Operating Partnerships on
January 16, 1985, for $73,514,921, of which $58,000,000 was financed by means
of a mortgage loan (the "Original Mortgage Loan"). The Original Mortgage Loan
had a term of ten years and bore interest at 13.625%. The balance of the
purchase price was funded initially by a loan from a financial institution,
which was subsequently repaid with capital contributions from the Limited
Partners.
In April 1993, the Original Mortgage Loan was refinanced with the New
Mortgage Loans in the amounts of $58,000,000 and $5,000,000. The New Mortgage
Loans each bear interest at 9.3% and have a term of ten years. Monthly
payments of principal and interest total $541,696 (based on a 25-year
amortization schedule) for the first two years of the New Mortgage Loans and
increase to $566,137 (based on a 20-year amortization schedule) for the third
through tenth years of the loans. A final payment of $49,016,500 is due on
May 1, 2003. In addition to monthly payments of principal and interest, the
New Mortgage Loans require the Partnership to make payments into various
escrow accounts, including escrows for real estate taxes and capital
improvements. As of December 31, 1994, the outstanding principal amount of
the New Mortgage Loans was $61,848,601.
The New Mortgage Loans impose a penalty on the consensual prepayment of
the outstanding principal balance and accrued and unpaid interest and other
charges thereunder in an amount equal to the greater of (i) the present value
of the loss in yield that the Lender would incur if it invested the prepaid
amount in a specified Treasury security or (ii) 1% of the outstanding
principal balance under the New Mortgage Loans immediately prior to the
prepayment, except that no penalty is due if the prepayment occurs at any
time within 6 months prior to maturity.
Lerner's Role as Project Management Agent. Since January 16, 1985, Lerner
Corporation, a Maryland corporation of which Lerner is president and majority
stockholder ("Lerner Corp."), has acted as the property manager and exclusive
leasing agent for the Project under a Management and Leasing Agreement,
entered into by Three Winthrop acting on behalf of the Operating Partnerships
(the "Lerner Agreement"). Pursuant to the Lerner Agreement, since January 16,
1985 Lerner Corp. has received 4% of the gross rents from the Project
actually collected, payable monthly (or an aggregate of approximately
$8,600,000 through December 31, 1994). Lerner was also paid $800,000 in other
fees in 1985. The Lerner Agreement may not be terminated in accordance with
its terms prior to January 31, 1995, except for cause or upon a sale of the
Project. On or about October 17, 1994, Three Winthrop sent to Lerner Corp.
written notice (the "Notice") of its intent to terminate the Lerner
Agreement, pursuant to its terms, as of January 31, 1995. By letter dated
October 25, 1994, Lerner Corp. disputed the termination date set forth in the
Notice stating that the termination date could not be earlier than 90 days
following January 31, 1995 and indicated that it was prepared to bid
competitively for the ongoing management agreement when the Lerner Agreement
is terminated in accordance with its terms, as those terms are viewed by
Lerner Corp. On November 18, 1994, Three Winthrop, as managing general
partner of the Partnership and as general partner of the Operating
Partnerships, filed an action in the Circuit Court for Montgomery County,
6
Maryland (Case No. 129192-V) seeking declaratory judgment to enforce the
termination provision of the Lerner Agreement. That case is pending as of the
date hereof.
Lerner's Proposal to Purchase the Project. By letter dated December 2,
1994 (the "December 2 Letter"), Lerner invited representatives of Three
Winthrop and Winthrop Financial Associates ("WFA") to meet with Lerner and
representatives of Greenbelt, to discuss an offer to purchase all of the
Partnership's interest in the Operating Partnerships. The December 2 Letter
enclosed a copy of a letter on the letterhead of Greenbelt dated December 2,
1994 (the "Cohen Letter") to Three Winthrop and WFA from Edward L. Cohen, an
associate of Lerner ("Cohen"), enclosing a form of the Lerner Purchase
Agreement. Cohen also sent to Three Winthrop and WFA a letter dated December
16, 1994 requesting prompt consideration of Lerner's offer.
The December 2 Letter also enclosed preliminary copies of consent
solicitation materials dated December 2, 1994 from Lerner (the "December 2
Solicitation"), stated to have been sent to the Limited Partners and filed
with the SEC. The December 2 Solicitation contemplated seeking the approval
of Limited Partners holding more than 50% of the Units to a dissolution of
the Partnership.
The Lerner Purchase Agreement, subject to its terms and conditions,
essentially would provide for the sale of the Partnership's interest in the
Operating Partnerships for $19,797,778 plus the payment of an assumption fee
(the "Assumption Fee") equal to 1% of the outstanding principal amount of the
New Mortgage Loans outstanding on the date of assumption of the New Mortgage
Loans by Greenbelt, subject to certain adjustments. Closing under the Lerner
Purchase Agreement would be conditioned on (i) approval by Limited Partners
holding more than 50% of the Units and (ii) approval of the Lender of the
assumption of the New Mortgage Loans. The Lerner Purchase Agreement also
would require the Partnership to make certain representations and warranties
to Greenbelt and to indemnify Greenbelt and the Operating Partnerships
against certain liabilities for a period of one year after closing.
Pursuant to Section 5.6 of the Partnership Agreement, the approval of the
Limited Partners holding more than 50% of the Units is required for the
disposition of all or substantially all of the Partnership assets.
Under the terms of the New Mortgage Loans, transfer of the Partnership's
interest in the Operating Partnerships is subject to the consent of the
Lender. The Lender may not withhold or unreasonably delay its consent, if all
of the following conditions are met: (i) the ratio of net cash flow to debt
service is at least 1.325; (ii) the outstanding principal balance of the New
Mortgage Loans shall be no more than 70% of the fair market value of the
Project; (iii) the proposed transferee is a single purpose entity whose sole
asset shall be its interest in the Project; (iv) a substitute indemnitor, who
meets the Lender's requirements of minimum net worth, assumes the
indemnification obligations under the New Mortgage Loans; (v) the Partnership
pays a transfer fee equal to 1% of the outstanding principal balance of the
New Mortgage Loans to the Lender; and (vi) no more than one such transfer
occurs during the term of the New Mortgage Loans. The Lerner Proposal states
that if the Lender does not consent to Greenbelt's assumption of the New
Mortgage Loans, Greenbelt may withdraw its offer to purchase the Project,
seek a price reduction equal to the amount of any prepayment penalty charged
by the Lender for a full or partial prepayment of the New Mortgage Loans, or
agree to pay the prepayment penalty charged by the Lender. The prepayment
penalty could be as large as $5,000,000 upon a full prepayment of the New
Mortgage Loans, based on interest rates prevailing on or about January 26,
1995. The amount of the prepayment penalty will fluctuate based on the amount
of the New Mortgage Loans prepaid, the remaining term of the New Mortgage
Loans and changes in interest rates.
A dissolution of the Partnership, as contemplated in the Lerner Proposal,
would require a forced sale of the Project at an uncertain price. The Lerner
Proposal states that Greenbelt will leave open its offer to purchase the
Partnership's interest in the Operating Partnerships which own the Project
for only 30 days. Pursuant to Section 3.2 of the partnership agreements of
each of the Operating Partnerships, Lerner has certain rights of first
refusal, which may discourage other potential purchasers from making offers
to purchase the Project. Moreover, the Lender may treat a dissolution of the
Partnership as a default on the New Mortgage Loans, or may be unwilling to
approve an assumption of the New Mortgage Loans by a
7
potential purchaser, either of which would result in acceleration of the New
Mortgage Loans (at the option of the Lender) and a prepayment penalty. Lerner
has indicated that he will not seek a dissolution of the Partnership unless
the Lender waives its right to accelerate the New Mortgage Loans.
By letter dated December 2, 1994, the Purchaser believes that Lerner
requested the Lender to approve an assumption of the New Mortgage Loans by
Greenbelt, and to agree not to accelerate the New Mortgage Loans if Lerner
obtained the approval of the Limited Partners to cause a dissolution of the
Partnership. The Lender's response, by letter dated December 12, 1994, was
that although it would be happy to consider Lerner's request for assumption
of the New Mortgage Loans, any such request must be made by Three Winthrop,
on behalf of the Partnership, in accordance with the loan documents (which
requires the Partnership, among other actions, to deposit $100,000 with the
Lender). In the same letter, the Lender also stated that it was not prepared
at this time to waive its rights to accelerate the New Mortgage Loans upon a
dissolution of the Partnership. Three Winthrop has informed the Purchaser
that it has decided not to seek the approval of the Lender for Greenbelt's
assumption of the New Mortgage Loans while this Offer is outstanding.
By a memorandum dated December 19, 1994 to the Limited Partners, Three
Winthrop stated that it was studying the Lerner Proposal and would respond
within the next several weeks.
By letter dated December 20, 1994, counsel for Lerner advised NACC of the
Lerner Proposal and Greenbelt's intention to seek consent of the Limited
Partners to liquidate and dissolve the Partnership if Three Winthrop does not
accept the Lerner Proposal or "negotiate in good faith." By letter dated
December 28, 1994, Three Winthrop responded to counsel for Lerner, stating
that Lerner should direct all inquiries and correspondence regarding the
Lerner Proposal to Three Winthrop as general partner of the Partnership.
On December 27, 1994, Lerner commenced an action against Three Winthrop in
the United States District Court for the District of Maryland, Southern
Division (DK(94-3601)). The complaint alleges that the Partnership is
obligated to distribute to Lerner a percentage of the revenues of the
Operating Partnerships and that Three Winthrop, in breach of its fiduciary
duty, has not made distributions that were due and owing to Lerner and
requests an accounting and award of damages Lerner believes to be "well in
excess of $50,000." Three Winthrop has advised the Purchaser that prior to
filing this lawsuit, Lerner had not challenged the Partnership distribution
policy, which has been consistently applied by the Partnership since 1987.
Three Winthrop has advised the Purchaser that it is preparing a response to
the complaint. If Lerner is successful in this claim, the Partnership will be
required to make a cash distribution to Lerner, which distribution will
reduce the amount available for distribution to Limited Partners.
On January 9, 1995, Three Winthrop met with representatives of Lerner at
his request. At that meeting Lerner's representatives reiterated Lerner's
interest in purchasing the Partnership's interest in the Operating
Partnerships and requested that Three Winthrop recommend such a sale to
Limited Partners. Three Winthrop responded by stating that it was studying
the Lerner Proposal, and thus was not ready to make a recommendation to
Limited Partners. Lerner's representatives then inquired as to how Three
Winthrop would go about evaluating the Lerner Proposal, how long it would
take Three Winthrop to complete its evaluation and whether Three Winthrop
believed it necessary to market the Project to third parties in order to
determine if the price offered by Lerner was fair. Three Winthrop's response
was that it was evaluating the Lerner Proposal based on its independent
analysis of the Project's current value, the prospects for its future
appreciation in value and the impact that a sale of the Project, both today
and in the future, may have on Limited Partners. Three Winthrop also
requested copies of two appraisals recently commissioned by Lerner to assist
in Three Winthrop's analysis, and stated that its analysis should be
completed in two weeks. As to the question concerning marketing the Project
to third parties, Three Winthrop expressed its belief that such a marketing
program would be difficult given Lerner's right of first refusal on a sale of
the Project, but could be appropriate under certain circumstances. Finally,
Lerner's representatives requested a copy of the appraisal commissioned by
Three Winthrop in 1992 while pursuing a refinancing of the Project's mortgage
loan, and an up-to-date list of the names and addresses of Limited Partners.
Three Winthrop agreed to consider providing this information to Lerner in
exchange for Lerner providing his two recent appraisals to Three Winthrop.
Such an exchange of information occurred on January 11, 1995.
8
On January 19, 1995, Lerner mailed definitive consent solicitation
materials to Limited Partners seeking their approval for a dissolution of the
Partnership. On January 21, 1995 Lerner sent to the Limited Partners a
follow-up letter to such consent solicitation materials. On January 24, 1995,
Three Winthrop advised the Limited Partners by letter that it would shortly
advise the Limited Partners of its response to the consent solicitation.
Subsequently, Three Winthrop decided, and so advised the Purchaser, that it
is not currently taking a position with respect to the Lerner Proposal.
Similarly, Three Winthrop has advised the Purchaser that it is not expressing
an opinion or taking a position with respect to this Offer.
Certain Matters Relevant to the Consent Solicitation. As indicated in the
"INTRODUCTION," the purpose of this Offer is to provide the Limited Partners
with an alternative to the Lerner Proposal or liquidation of the Partnership
and a sale of the Project to a third party. The Purchaser believes that
Limited Partners may find this Offer an attractive way to liquidate their
investment in the Partnership and a more attractive alternative than the
Lerner Proposal or a possible liquidation of the Partnership and a sale of
the Project to a third party. As indicated in the "INTRODUCTION," the
Purchaser believes that this Offer compares favorably to the Lerner Proposal
because it provides higher Cash Consideration per Unit, more flexibility, and
greater price certainty to each individual Limited Partner and is more likely
to close on a timely basis.
DETERMINATION OF THE CASH CONSIDERATION
The Cash Consideration represents the total price at which the Purchaser
is willing to purchase Units and was established after considering the
factors described below. No independent person has been retained to evaluate
or render any opinion with respect to the fairness of the Cash Consideration
and Three Winthrop has advised the Purchaser that no special committee of the
Partnership or the General Partners has approved this Offer and no such
special committee or independent person has been retained to act on behalf of
the Partnership or the Limited Partners in connection with this Offer. The
Purchaser believes the Cash Consideration is fair to the Limited Partners for
the reasons set forth below. Other measures of value of Units may be relevant
to Limited Partners. Limited Partners are urged to consider carefully all of
the information contained in this Offer to Purchase and to consult with their
own advisors, including tax and financial advisors, in evaluating the terms
of this Offer before deciding whether to tender their Units.
Offers from Non-Affiliates.. The Purchaser is not aware of any offers
being made to purchase Units in the last eighteen months. The Purchaser is,
however, familiar with the Lerner Proposal in which Lerner made an offer to
purchase the Partnership's 90% general partnership interest in the Operating
Partnerships. The price offered in the Lerner Proposal is $19,797,778 plus 1%
of the outstanding balance of the New Mortgage Loans (approximately $618,486)
for the Assumption Fee payable to the Lender. The consummation of the Lerner
Proposal would result in the liquidation of the Partnership and a cash
distribution to Limited Partners, which Lerner estimates to be approximately
$30,200 per Unit. The Lerner Proposal also contemplates that Limited Partners
would receive the cash distribution from 1994 Partnership operations, which
Three Winthrop has estimated to be $2,000 per Unit. Thus, the Lerner Proposal
estimates the total value of such proposal per Unit to be approximately
$32,200, assuming the satisfaction of all contingencies to such proposal.
One contingency contained in the Lerner Proposal is for the Lender's
approval of the assumption of the New Mortgage Loans. If the Lender does not
grant such approval, the Lerner Proposal indicates that Lerner may seek a
price reduction in an amount equal by any prepayment penalty charged by the
Lender upon the prepayment of the New Mortgage Loans. If the Lender required
the prepayment of the entire New Mortgage Loans today, the prepayment penalty
would equal approximately $5,000,000 in the aggregate, which would reduce the
total value of the Lerner Proposal by approximately $5,890 per Unit. Given
the conditions specified in the loan documents governing the New Mortgage
Loans for evaluating an assumption request and the performance of the Project
in recent periods, the Purchaser believes that the Lender might be able to
argue that the Lender is not required to act reasonably in respect of any
assumption request relating to the Lerner Proposal. If the Lender does not
approve the Lerner Proposal or a third-party purchase transaction, any such
transaction would require that a new source of mortgage or other financing be
found and that the Lender receive a prepayment penalty of up to $5,000,000.
9
Appraisals Rendered by Third Parties. The Purchaser has not engaged an
appraiser to estimate the current fair market value of the Units or the
Project in connection with this Offer. In addition, the Purchaser is not
aware of any third-party appraisals of the Units or the Project being
completed in the past twelve months at the request of the Partnership. The
Purchaser has, however, reviewed three independent appraisals of the Project,
two of which Lerner obtained in September 1994 in connection with the Lerner
Proposal and one of which was obtained by the Partnership in August 1992 in
connection with obtaining the New Mortgage Loans. One appraisal obtained by
Lerner was performed by Price Waterhouse LLP and estimated the Project's
value, as of September 12, 1994, at: (a) $88,500,000, assuming an all cash
transaction and a market level management fee; and (b) $84,600,000, assuming
the assumption of the New Mortgage Loans and the existing management fee
arrangements. The second appraisal obtained by Lerner was performed by Lipman
Frizzell & Mitchell LLC and estimates the Project's value, as of September 8,
1994, at: (a) $85,430,000, assuming an all cash transaction and a market
level management fee; and (b) $78,410,000, assuming the assumption of the New
Mortgage Loans and the existing management fee arrangements. Selected pages
of these two appraisals are attached to the Tender Offer Statement on
Schedule 14D-1 filed by the Purchaser with the SEC, and full copies of these
appraisals are available upon request made to the Information Agent.
The appraisal obtained by the Partnership was performed by Arthur Andersen
& Co. and estimated the Project's value, as of August 1992, at $97,000,000,
assuming an all cash transaction and a market level management fee. The
Purchaser believes that the $97,000,000 value estimated by Arthur Andersen &
Co. in such appraisal is not a reasonable estimate of the current fair market
value of the Project because such appraisal was performed in 1992 and,
consequently, the Purchaser believes that the assumptions made by Arthur
Andersen & Co. in determining the appraised value no longer reflect the
underwriting criteria which would be used by prospective buyers.
The Lerner Proposal claims that its projected cash distribution to Limited
Partners is approximately equal to the distribution that would result from a
sale of the Project to a third party for $88,505,500, and a subsequent
liquidation of the Partnership. The Lerner Proposal makes this assertion
based on an assumed sale price of the Project of $88,505,500, subtracting the
outstanding balance of the New Mortgage Loans of $62,000,000 and assumed
closing costs of $3,814,589, and distribution of the remaining balance of
$22,690,911 according to the sharing arrangements of the Operating
Partnerships ($2,893,091 to Lerner and $19,797,820 to the Partnership). The
amount distributed to the Partnership under these assumptions ($19,797,820)
equals the price offered in the Lerner Proposal. The assumed closing costs of
$3,814,589 consist of: (a) an Assumption Fee payable to the Lender of
$620,000 (1% of $62,000,000); (b) a sale commission of $885,055 (1% of
$88,505,500); (c) transfer and recording taxes of $2,159,534; and (d) legal
and other out-of-pocket costs to the Partnership of $150,000.
The Purchaser believes that the $88,500,000 value estimated by Price
Waterhouse LLP and the $85,430,000 value estimated by Lipman Frizzell &
Mitchell LLC are reasonable appraisals of the current fair market value of
the Project. The Purchaser believes that the discounted values estimated by
each of these appraisers relating to the existing financing and management
arrangements are not relevant to the price that a third party would pay for
the Project because a third-party buyer would not assume the existing fee
arrangements, and because the New Mortgage Loans bear interest at a rate that
is no longer higher than current market levels. The Purchaser also believes
that a sale of the Project to a third party for $88,505,500 may actually
produce a higher cash distribution (a total of $40,444 per Unit assuming
that, consistent with the Lerner Proposal, such a buyer could assume the New
Mortgage Loans upon payment of a 1% assumption fee) to Limited Partners than
the distribution estimated by the Lerner Proposal (a total of $32,200 per
Unit). The difference is due to two items. First, it is the Purchaser's
belief that, while Lerner has proposed otherwise, a third-party buyer would
be willing to: (a)(i) purchase interests in the Operating Partnerships
instead of fee simple title to the Project and thus avoid certain transfer
and recording taxes (estimated in the Lerner Proposal to be $2,159,534) and
(ii) pass on at least half of the savings ($1,079,767) to the Partnership;
and (b) agree to closing adjustments which are more favorable to the
Partnership than those specified in the Lerner Purchase Agreement (these
include (i) the difference between the December 31, 1994 balance of the New
Mortgage Loans ($61,848,601) and the amount used by Lerner ($62,000,000) and
(ii) $2,800,000 of escrows held by the Lender which Lerner proposes to
10
assume but for which he would not make a payment to the Partnership). By
reason of these adjustments, the Purchaser believes that the cash
distribution to the Limited Partners following such a third-party sale could
be approximately $3,520,000 in total or approximately $5,417 per Unit more
than the cash distribution estimated by Lerner in connection with the Lerner
Proposal. Second, the Purchaser believes that unrestricted cash reserves of
the Operating Partnerships, escrows held by the Operating Partnerships and
other miscellaneous adjustments could result in a larger cash distribution to
the Limited Partners following such a third-party sale of approximately
$1,835,000 in total or approximately $2,827 per Unit.
The Purchaser's Pro Forma Liquidation Analysis. The Purchaser is offering
to purchase Units and is not offering to purchase the Project. Because the
Units are a relatively illiquid investment, the Purchaser does not believe
that the potential value produced by a sale of the Project and a subsequent
liquidation of the Partnership reflects the current fair market value of the
Units. Conversely, the projected value to be realized upon liquidation is
clearly a relevant factor in determining the price that a prudent purchaser
would offer for the Units. Set forth below is the Purchaser's pro forma
analysis of the value each Limited Partner might receive upon an orderly
liquidation.
For the pro forma liquidation analysis, the Purchaser first estimated the
current market value of the Project. The Purchaser did this by capitalizing,
at a 9.75% rate, the Project's estimated operating cash flow (prior to debt
service payments) for calendar year 1994 as adjusted for underwriting
standards generally used by buyers of apartment properties. This measure of
operating cash flow, estimated to be $8,670,000, was constructed by (i)
annualizing the actual net operating income of the Project for the eleven
months ended November 30, 1994 (approximately $9,170,000, which includes
approximately $429,000 for carpeting expenditures, but excludes approximately
$330,000 in fees payable to Three Winthrop for providing asset management
services and administering the affairs of the Operating Partnerships and the
Partnership), (ii) increasing such amount by (a) $140,000 per year to adjust
recurring carpeting expenditures to $100 per apartment unit, and (b) $230,000
per year to reflect projected cost savings which result from replacing the
Lerner Corporation as property management agent and (iii) reducing such
amount by estimated recurring non-revenue generating capital improvements of
$870,000 per year ($300 per apartment unit). The value obtained by
capitalizing operating cash flow was then reduced by $1,000,000, the
estimated cost to cure the Project's deferred maintenance, to obtain the
$87,890,000 estimate of current market value.
The Purchaser then estimated the cash distribution that Limited Partners
would receive if the Project were sold for such a market value and the
Partnership were subsequently liquidated. The Purchaser did this by taking
the $87,890,000 estimated market value, adjusting it for the impact of
standard closing adjustments between buyer and seller (estimated to produce a
$3,070,000 credit to the Partnership, consisting of $2,800,000 of escrows
held by the Lender and $270,000 of prepaid real estate taxes net of accrued
expenses), and subtracting from such amount the following items: (a) the
outstanding balance of the New Mortgage Loans as of December 31, 1994
($61,848,601); (b) the 1% Assumption Fee payable to the Lender ($618,486);
(c) a brokerage commission of 1% of the sale price ($878,900); (d) half the
transfer tax liability ($1,070,000, based on the assumption that the tax
savings enjoyed as a result of the transfer of partnership interests instead
of realty interests would be shared equally with the buyer); and (e) $150,000
for the estimated legal and other out-of-pocket costs associated with
negotiating a purchase and sale contract, completing consent solicitation
materials and winding up the affairs of the Operating Partnerships. The
remaining balance of $26,390,000 was combined with the $3,170,000 in
unrestricted cash reserves held by the Operating Partnerships (which reserves
included the cash available for distribution from 1994 Partnership
operations, which Three Winthrop estimates to be $2,000 per Unit) and was
allocated to Lerner ($3,770,000) and the Partnership ($25,790,000) in
accordance with the sharing arrangements specified in the partnership
agreements for each of the Operating Partnerships. The $25,790,000 of
proceeds allocated to the Partnership was assumed to be distributed to the
Limited Partners, Three Winthrop and Linnaeus-Lexington in accordance with
the Partnership Agreement. The resulting cash distribution to Limited
Partners was estimated to be $39,640 per Unit if the Project were sold and an
orderly liquidation conducted.
Limited Partners should note that these estimates do not take into account
a contingent asset and a contingent liability of the Partnership. The
contingent asset consists of a potential refund of $870,000 of
11
transfer taxes paid under protest by the Partnership in connection with
obtaining the New Mortgage Loans. The Partnership has appealed this payment,
which, if refunded, would increase the proceeds available upon a liquidation
by approximately $1,170 per Unit. The contingent liability consists of over
$50,000 of cash distributions made by the Partnership, which Lerner has
alleged in a complaint filed against Three Winthrop should have been
distributed to him. If Lerner's claim is successful it would have the effect
of reducing the cash distribution to Limited Partners in the liquidation
analysis by over $70 per Unit. Finally, the above does not consider any
reserve that the Partnership would have to maintain for any representations,
warranties or indemnities that a buyer may require the Partnership to make.
The Purchaser's pro forma liquidation analysis is merely theoretical and
does not in itself reflect the value of Units because: (a) there is no
assurance any such liquidation in fact will occur in the foreseeable future;
and (b) any liquidation in which the estimated value described above might be
realized would take an extended period of time (at least three and up to
twelve months), during which time the Partnership and its partners would
continue to be exposed to the risk of fluctuation in the Project's value
because of changing market conditions and other factors. Any sale of the
Project to a third party would have to take into account: (a) the size of the
Project, which could make it a less marketable property, as there are a
limited number of buyers who have the financial means to purchase apartment
properties containing 2,899 units; and (b) the existence of Lerner's right of
first refusal which is an encumbrance that may have a negative effect on
marketability because buyers may be reluctant to pursue an acquisition of a
property for which another party has such an option.
Based on the foregoing, the Purchaser believes that the current market
value of Units is probably less than the hypothetical liquidating
distribution. Conversely, there is the possibility that the value realized in
an orderly liquidation may be higher than the amounts referred to above, and
possibly substantially higher. The value could increase if the operating cash
flow of the Project improves or if a buyer applies a lower capitalization
rate to reflect its willingness to accept a lower initial rate of return.
There are many factors which could cause either, or both, of these events to
occur. A 5% increase or decrease in the Project's value would produce a
corresponding $5,780 per Unit increase or decrease in the cash distribution
to Limited Partners. Furthermore, the liquidation analysis is based on a
series of assumptions, some of which may not be correct. Accordingly, this
analysis should be viewed as merely indicative of the Purchaser's approach to
valuing Units and not as in any way predictive of the likely result of any
future transactions.
Finally, on a limited and sporadic basis, Three Winthrop has provided
valuation estimates of Units for divorce settlements, and to estates and
tax-exempt investors that own Units. According to information obtained from
Three Winthrop, during 1993 and 1994 Three Winthrop provided a value of
$23,400 per Unit. This estimate is probably not a reliable measure of value
because Three Winthrop has indicated that, in estimating such a value, it
performs only a rough estimate of a liquidation analysis and applies a
discount factor for the lack of liquidity associated with Units.
The Purchaser's Going Concern Analysis. The Purchaser has performed a
going concern analysis of the Partnership for the purpose of estimating the
cash available for distribution and the total pre-tax return that may accrue
to the benefit of Limited Partners. These amounts are then compared with
dividend distributions and total pre-tax returns available from alternative
equity investments in real estate to arrive at an estimated value for the
Units. Cash available for distribution is defined by the Purchaser as the
Limited Partner's allocable share of the Operating Partnerships' actual
operating cash flow (after debt service payments). This measure of operating
cash flow of the Operating Partnerships equals the net operating income of
the Project minus asset management and partnership administration fees
payable to Three Winthrop and its affiliates, capital improvements, interest
and principal payments on the New Mortgage Loans and additions to
(withdrawals from) reserves. The total pre-tax return to Limited Partners is
their allocable share of cash available for distribution plus principal
payments on the New Mortgage Loans and additions to (withdrawals from)
reserves.
The table below shows the Purchaser's estimates for cash available for
distribution and total pre-tax returns for Limited Partners for the period
1994 through 1996. The estimates for 1995 and 1996 reflect the Purchaser's
prediction of future operating results which may or may not prove to be
accurate. The
12
estimates are also not intended to predict the actual cash distributions
which the Partnership will make to Limited Partners in any particular year.
The Partnership may choose to suspend distributions in any one year, or
distribute more or less than the cash available for distribution from any one
year of Partnership operations. Three Winthrop has advised the Purchaser that
it anticipates making a distribution from 1994 operations to Limited Partners
of $2,000 per Unit, which will not be made until after the expiration of this
Offer. If actual distributions to Limited Partners are more or less than the
cash available for distribution from any one year, the amount of the reserves
held by the Partnership will change. The following table uses the Cash
Consideration being offered by the Purchaser to acquire Units, $36,000 per
Unit, when calculating percentage returns.
ESTIMATED PROJECTED PROJECTED
1994 1995 1996
------------ ------------ ------------
Net Operating Income ............................... $9,170,000 $9,712,000 $9,731,000
Minus:
Asset Management Fee .............................. 227,000 240,000 240,000
Administration Fee ................................ 100,000 100,000 100,000
Capital Improvements .............................. 767,000 1,500,000 1,000,000
Mortgage Interest ................................. 5,788,000 5,714,000 5,611,000
Mortgage Principal ................................ 712,000 982,000 1,182,000
Additions to (Withdrawals from) Reserves ......... (23,000) (145,000) 105,000
------------ ------------ ------------
Equals: Operating Cash Flow of Operating
Partnerships ...................................... $1,599,000 $1,321,000 $1,493,000
Cash Available for Distribution to Limited Partners
(per Unit) ........................................ $ 2,207 $ 1,627 $ 1,892
As a % of $36,000 .................................. 6.13% 4.52% 5.26%
Total Pre-Tax Return to Limited Partners (per Unit) $ 3,024 $ 2,797 $ 3,623
As a % of $36,000 .................................. 8.40% 7.77% 10.06%
The Purchaser believes that dividend yields and total pre-tax returns
available for alternative equity investments in real estate are generally
higher than those which the Purchaser expects to realize in 1995 and 1996
from the Partnership. Based on available information, the Purchaser believes
that dividend yields for publicly traded equity real estate investment trusts
("Equity REITs") averaged approximately 8.0% per year as of December 30,
1994, and Wall Street analysts generally project Equity REITs to provide
total pre-tax returns (dividends plus appreciation in share price) of 12% to
15% per year. Less liquid real estate securities and direct equity
investments in real estate generally offer higher pre-tax total returns than
REITs. Projected returns for such investments range from 10% to in excess of
30% per year, depending on the level of risk associated with such investment.
Based on the high degree of risk and illiquidity of investments similar to
the purchase of Units, investors generally expect to receive returns at the
higher end of such range. The Purchaser is willing to accept a lower return
on its investment because, if the Lerner Proposal is not approved and/or if
the Project is not sold, Three Winthrop and its affiliates (which are
affiliates of the Purchaser) (i) would continue to receive their asset
management and partnership administration fees (approximately $340,000 in
1994) and (ii) plan to replace Lerner as the property manager for the Project
and receive a 3% property management fee (estimated at $680,000 per year
based on 1994 revenues).
Trading History of Units. Secondary sales activity for Units has been
limited and sporadic. According to information obtained from Three Winthrop,
there have been only two arm's-length sales of Units in the past three years.
One sale took place in 1992 at an undisclosed price. The other sale was of
one-half Unit on December 1, 1994 at a price of $13,500 per Unit. The 1994
sale is probably not a reliable measure of value because of the limited and
inefficient nature of the market for Units. At present, however, privately
negotiated sales are the only means available to Limited Partners to
liquidate their investment because the Units are not listed or traded on any
exchange or quoted on any NASDAQ list or system.
Net Book Value of Units. The net book value of the Units at September 30,
1994 was approximately $9,738 per Unit. The Purchaser did not consider net
book value a meaningful figure in determining the
13
Cash Consideration because the depreciation expense recognized since the
original acquisition of the Project, in accordance with generally accepted
accounting principles, overstates the actual deterioration of its physical
condition.
The Purchaser did not assign any specific or relative weights to the
particular factors discussed above and each factor was considered as part of
the whole in reaching a conclusion as to the fairness of the Cash
Consideration. Based on the analyses described above and the Purchaser's
belief that this Offer compares favorably to the Lerner Proposal for the
reasons discussed in the "INTRODUCTION" to this Offer to Purchase, the
Purchaser believes the Cash Consideration is fair to the Limited Partners.
PURPOSE AND EFFECTS OF THIS OFFER
As indicated in the "INTRODUCTION," the purpose of this Offer is to
provide the Limited Partners with an alternative to the Lerner Proposal or a
liquidation of the Partnership and a sale of the Project to a third party.
The Purchaser believes that Limited Partners may find this Offer an
attractive way to liquidate their investment in the Partnership and a more
attractive alternative than the Lerner Proposal or a possible sale of the
Project to a third party. As indicated in the "INTRODUCTION," the Purchaser
believes that this Offer compares favorably to the Lerner Proposal because it
provides higher Cash Consideration per Unit, more flexibility, and greater
price certainty to each Limited Partner and is more likely to close on a
timely basis.
Limitations on Resales. Section 7.2(D) of the Partnership Agreement
prohibits transfers of Units where the transfer, when considered with all
other transfers during any twelve-month period, would cause a termination of
the Partnership for federal income tax purposes (such a termination would
occur when 50% or more of the outstanding interests in the Partnership
(limited and general) are transferred in a twelve-month period).
Consequently, sales of Units on the secondary market in private transactions
for the twelve-month period following completion of this Offer may be
limited. Unless and until Section 7.2(D) is eliminated, the Partnership will
not process any requests for recognition of substitution of Limited Partners
upon an attempted transfer of Units during such twelve-month period and such
attempted transfers will be deemed void if any such transfer would cause a
termination of the Partnership for federal income tax purposes. See "THE
OFFER -Section 6. Certain Federal and State Tax Consequences." In determining
the structure of this Offer, including the number of Units which may be
purchased upon consummation of this Offer and the terms of the Loan, the
Purchaser took the restriction into account so as to permit normal historical
levels of transfers to occur. Under certain conditions, the Purchaser may
seek to amend the Partnership Agreement to permit resales which would cause a
termination of the Partnership for federal income tax purposes. See "SPECIAL
FACTORS--Future Plans."
Based on information provided by Three Winthrop, since January 1, 1992,
there have only been two transfers of Units to non-affiliates in arm's-length
transactions. All other transfers have been made by reason of death, divorce
settlements or to relatives or affiliates of the Limited Partners. During
1992, there were 20 transfers involving a total of 20 Units. During 1993,
there were 22 transfers involving a total of 18.3 Units. Through December 31,
1994, there were 17 transfers, involving a total of 14 Units.
Certain Effects on Trading Market; Exchange Act Registration. There is no
established public or other trading market for the Units and, therefore, a
mere reduction in the number of Limited Partners should not materially
further restrict the Limited Partners' ability to find purchasers for their
Units. The Units are currently registered under the Exchange Act.
Registration of the Units under the Exchange Act may be terminated upon
application of the Partnership to the SEC if there are fewer than 300 holders
of Units of record. Termination of registration of the Units under the
Exchange Act would eliminate the requirement to make periodic filings with
the SEC and would make certain provisions of the Exchange Act, such as the
short-swing profit recovery provisions of Section 16(b), the requirement of
furnishing a proxy or information statement pursuant to Section 14(a) and the
requirements of Rule 13e-3 with respect to "going private" transactions, no
longer applicable to the Partnership. It is the present intention of the
Purchaser to seek to cause the Partnership to make such an application for
termination of registration of the Units as soon as possible if the
requirements for termination of registration are met. Based on information
furnished to the Purchaser by the Partnership, if between 47.15% and 50.5% of
the Units are
14
validly tendered pursuant to this Offer, consummation of this Offer could
result in termination of the requirements for registration of the Partnership
and, if more than 50.5% of the Units are tendered pursuant to the Offer, the
requirements for registration of the Partnership could be met upon repayment
of Loans by the transfer of Retained Portions.
Influence on Limited Partner Voting Decisions by the Purchaser; Effect of
Affiliation with Three Winthrop. The Purchaser will have the right to vote
the Units purchased. As a result, the Purchaser could be in a position to
significantly influence all voting decisions with respect to the Partnership.
This could (i) prevent nontendering Limited Partners from taking action they
desire but that the Purchaser opposes and (ii) enable the Purchaser to take
action desired by the Purchaser but opposed by nontendering Limited Partners.
Pursuant to the Partnership Agreement, the consent of the holders of a
majority of the Units is required to, among other things, (a) approve the
removal of any general partner, or the admission of any person as an
additional or substitute general partner, (b) approve certain transactions,
including the sale, exchange, liquidation or other disposition of all or
substantially all of the assets of the Partnership, (c) dissolve the
Partnership and (d) subject to certain limitations, amend the Partnership
Agreement. When voting on such matters, the Purchaser will vote the Units
acquired pursuant to this Offer in its interest, which, because of its
affiliation with Three Winthrop, may also be in the interest of Three
Winthrop.
FUTURE PLANS
The Purchaser is acquiring Units pursuant to this Offer for investment
purposes. Subject to the limitation on resales discussed in the preceding
section, following the completion of this Offer, the Purchaser may acquire
additional Units. Any such acquisition may be made through private purchases,
upon repayment of a Loan by surrender of the Retained Portion, through one or
more future tender offers, or by any other means deemed advisable. Any such
acquisition may be at a price higher or lower than the price to be paid for
the Units purchased pursuant to this Offer. The Purchaser does not have any
present plans or intentions with respect to a liquidation or sale of assets
of the Partnership or refinancing of the Project.
If the Purchaser acquires, pursuant to the Offer, more than 50% of all
outstandingUnits, it may seek to amend the Partnership Agreement to permit
transfers of Units in excess of the amount which would cause a tax
termination of the Partnership. If any such amendment becomes effective, the
Loan will become due upon demand of the Purchaser. See "THE OFFER--Certain
Federal and State Income Tax Consequences."
Three Winthrop has advised the Purchaser that possible transactions Three
Winthrop may consider in the future on behalf of the Partnership include (i)
refinancing or reduction of existing indebtedness of the Partnership; (ii)
increasing the frequency of cash distributions to Limited Partners or
reducing the amount of unrestricted reserves held by the Partnership through
a cash distribution to Limited Partners; (iii) sales of assets, individually
or as part of a complete liquidation; and (iv) mergers or other consolidation
transactions involving the Partnership. If any such transaction is effected
by the Partnership and financial benefits accrue to the Limited Partners in
the Partnership, the Purchaser will participate in those benefits to the
extent of its ownership of Units.
Three Winthrop has advised the Purchaser that it anticipates that upon
termination of the Lerner Agreement, it will engage an affiliate of the
Purchaser, Winthrop Management ("Winthrop Management"), to act as exclusive
leasing agent and property manager of the Project as successor to Lerner
Corp. Three Winthrop has advised the Purchaser that it expects that the
management contract with such affiliate will provide for a fee of 3.0% of
gross collections (plus customary expense reimbursement). Three Winthrop
anticipates that the change in management agent will reduce the Project's
operating expenses. Further, Three Winthrop has advised the Partnership that
the Lender has already granted its approval for Three Winthrop or one of its
affiliates to assume the property management responsibilities.
The Purchaser believes that the management of the Project will become more
effective once Winthrop Management assumes the property management functions,
which have been performed by Lerner Corp. since the Partnership acquired its
90% interest in the Project in 1985. Lerner Corp. is
15
presently responsible for property management functions, which include
managing employees, attracting new tenants, completing repairs and
improvements to the Project, managing revenues and expenses and preparing
financial statements and reports. Winthrop Management is responsible for the
asset management function, which involves approving major decisions that
impact the Project's performance or its financial condition. The Purchaser
believes that combining these two functions will result in better
communication and decision-making, and improved performance. Winthrop
Management employees who will assume property management responsibilities are
currently located at the Project and are familiar with all aspects of its
operations.
Three Winthrop has advised the Purchaser that it intends to terminate the
Lerner Agreement as of the earliest date possible, which Three Winthrop
believes to be January 31, 1995. Lerner Corp. has contested Three Winthrop's
right to terminate the contract effective January 31, 1995, causing Three
Winthrop to seek a declaratory judgment in court affirming such termination
date. The court has yet to rule on the matter.
16
THE OFFER
SECTION 1. TERMS OF THIS OFFER. Under the terms of this Offer, the
Purchaser will pay for Units validly tendered on or prior to the Expiration
Date and not withdrawn in accordance with Section 4 of this Offer to
Purchase. The term "Expiration Date" shall mean 5:00 p.m., New York time, on
March 2, 1995, unless the Purchaser shall have extended this Offer and, in
such event, the term "Expiration Date" shall mean the latest time and date on
which this Offer, as so extended, shall expire.
If, prior to the Expiration Date, the Purchaser shall increase the Cash
Consideration offered to Limited Partners pursuant to this Offer, such
increased Cash Consideration will be delivered in respect of all Units
accepted pursuant to this Offer, whether or not they were tendered prior to
such increase.
This Offer is conditioned on satisfaction of certain conditions. See
Section 11, which sets forth in full the conditions of this Offer. The
Purchaser reserves the right (but shall not be obligated), in its sole
discretion, to waive any or all of such conditions.
This Offer to Purchase and the related Letter of Transmittal are being
mailed by the Purchaser to Limited Partners or beneficial owners (in the case
of Individual Retirement Accounts and qualified plans) of Units of record as
of February 1, 1995.
If 50.5% or less of the outstanding Units are validly tendered and not
withdrawn, each tendering Limited Partner will receive, upon consummation of
this Offer, $36,000 per Unit in Cash Consideration for each Unit (or a pro
rata portion thereof for each fractional Unit) so tendered. If more than
50.5% of the outstanding Units are validly tendered and not withdrawn, each
tendering Limited Partner will receive the same amount of Cash Consideration
with respect to each Unit or fractional Unit so tendered, but will receive a
portion of the Cash Consideration in Purchase Proceeds and the balance of the
Cash Consideration as Loan Proceeds.
The portion of the Cash Consideration payable at the consummation of this
Offer to each tendering Limited Partner which will constitute Purchase
Proceeds will be $36,000 multiplied by the quotient of (A) 50.5% divided by
(B) a fraction, the numerator of which is the number of Units validly
tendered and not withdrawn and the denominator of which is the number of
outstanding Units on the date of consummation of this Offer. The balance of
the Cash Consideration payable to each tendering Limited Partner at the
consummation of this Offer will constitute the Loan Proceeds payable to such
tendering Limited Partner.
Each Loan will bear interest at the rate of 9% per annum. Interest and
principal will not be due and payable prior to the scheduled maturity date of
the Loan, except that the Loan shall become due upon certain bankruptcy
events of the Limited Partner and, in certain circumstances, on the demand of
the Purchaser and any distributions in respect of a Retained Portion are
required to be applied to pay outstanding amounts of interest and principal.
Each Loan will mature by its terms on the date that is one year and one day
after the purchase of Units pursuant to this Offer, and will be payable, at
the election of the Limited Partner, either by surrender to the Purchaser of
the Retained Portion or, at the sole option of the Limited Partner party
thereto, by payment of cash in the principal amount of its Loan plus accrued
interest thereon.
Each Loan may be prepaid in cash at any time by the Limited Partner party
thereto and prepayment will be mandatory upon the demand of the Purchaser if
and when the restrictions on transfer of Units set forth in Section 7.2(D)
have been eliminated by an amendment to the Partnership Agreement. Any
distribution payable to a Limited Partner in respect of its Retained Portion
will be applied at the time such distribution is made first to accrued
interest on its Loan and then to the principal amount of such Loan and any
amounts remaining after such application will be remitted to such Limited
Partner. Each Limited Partner will agree not to exercise its voting rights in
favor of a dissolution of the Partnership or for any purpose inconsistent
with the terms or purpose of the Loan or in a manner which may have an
adverse effect on the value of the Retained Portion or the Purchaser's rights
under the Loan. Each Limited Partner who tenders Units in accordance with
this Offer, and does not withdraw such tender in accordance with the terms of
this Offer, shall have irrevocably elected to receive the proceeds of the
Loan if more
17
than 50.5% of the outstanding Units are validly tendered and not withdrawn
and to be bound by the terms of the Loan, including the repayment thereof,
the pledge of such Limited Partner's Retained Portion to secure such
repayment, the application of distributions made in respect of the Retained
Portion and the limitation on voting rights as described above.
The terms and conditions for each of the Loans are set forth in the form
of Note and Security Agreement attached hereto as Annex III, which Annex is
incorporated by reference herein in its entirety.
This Offer does not give rise to appraisal rights and such rights will not
be voluntarily afforded to the Limited Partners.
SECTION 2. PRORATION; ACCEPTANCE OF AND PAYMENT FOR UNITS. The Purchaser
will pay for Units validly tendered and not withdrawn in accordance with
Section 4, as promptly as practicable following the Expiration Date by
deposit of the aggregate Cash Consideration therefor (including the proceeds
of the Loans, if applicable) with the Depository. Under no circumstances will
interest be paid on the Cash Consideration by reason of any delay in making
such payment.
In all cases, payment for Units purchased pursuant to this Offer will be
made only after timely receipt by the Depository of a properly completed and
duly executed Letter of Transmittal (or facsimile thereof), and duly executed
signature pages for the Note and Security Agreement and any other documents
required by the Letter of Transmittal. (See Section 3, "Procedures for
Tendering Units.")
If any tendered Units are not purchased for any reason, such Units not
purchased will be retained by the Limited Partners, except that the Retained
Portion of each Limited Partner will be held subject to the terms of such
Limited Partner's Loan. If for any reason acceptance of, or payment for, any
Units tendered is delayed or if the Purchaser is unable to accept, purchase
or pay for Units tendered, then the Purchaser may retain tendered Units and
such Units may not be withdrawn except to the extent that the tendering
Limited Partners are entitled to withdrawal rights as described in Section 4;
provided, however, that the Purchaser is required, pursuant to Rule 14e-1(c)
under the Exchange Act, to pay Limited Partners the Cash Consideration in
respect of Units tendered or return such Units promptly after termination or
withdrawal of this Offer.
SECTION 3. PROCEDURES FOR TENDERING UNITS.
Valid Tender. In order for a tendering Limited Partner to participate in
this Offer, Units must be validly tendered and not withdrawn on or prior to
the Expiration Date. A valid tender requires that a properly completed and
duly executed Letter of Transmittal and duly executed signature pages for the
Note and Security Agreement and any other documents required by the Letter of
Transmittal be actually received by the Depository on or prior to the
Expiration Date.
A Limited Partner may tender all or any portion of its Units held as of
the Record Date. Pursuant to Article VII of the Partnership Agreement, the
Managing General Partner of the Partnership has agreed in writing to permit
the transfer of Units pursuant to this Offer and has approved the admittance
of the Purchaser as a substitute limited partner.
THE OFFER AND THE WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK
TIME, ON MARCH 2, 1995, UNLESS EXTENDED.
Signature Requirements. The Letter of Transmittal must be signed by the
registered holder of the Units, exactly as the name appears on the register
of the Partnership, and payment is to be made directly to that holder at the
address indicated on the register. The Note and Security Agreement must also
be signed by the registered holder exactly as the name appears on the
register of the Partnership.
THE METHOD OF DELIVERY OF THE LETTER OF TRANSMITTAL, THE SIGNATURE PAGE TO
THE NOTE AND SECURITY AGREEMENT AND ALL OTHER REQUIRED DOCUMENTS IS SOLELY AT
THE OPTION AND RISK OF THE TENDERING LIMITED PARTNER, AND DELIVERY WILL BE
DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE DEPOSITORY. THUS, OVERNIGHT
COURIER SERVICE IS RECOMMENDED.
Backup Federal Income Tax Withholding. To prevent the possible application
of backup federal income tax withholding with respect to payment of the Cash
Consideration, a tendering Limited Partner
18
must provide its correct taxpayer identification number by completing the
Substitute Form W-9 included in the Letter of Transmittal. (See the
Instructions to the Letter of Transmittal and Section 6, "Certain Federal and
State Income Tax Consequences.")
FIRPTA Withholding. To prevent the withholding of federal income tax in an
amount equal to 10% of the amount of the Cash Consideration plus Partnership
liabilities allocable to the Units purchased, each Limited Partner must
complete the FIRPTA Affidavit included in the Letter of Transmittal
concerning its taxpayer identification number and address and stating that it
is not a foreign person. (See the Instructions to the Letter of Transmittal
and Section 6, "Certain Federal and State Income Tax Consequences.")
Other Requirements. By executing a Letter of Transmittal, a Limited
Partner irrevocably constitutes and appoints the Purchaser as the true and
lawful agent and attorney-in-fact of such Limited Partner with respect to
Units tendered by such Limited Partner, with full power of substitution (such
power of attorney being deemed to be an irrevocable power coupled with an
interest) to deliver such Units and transfer ownership thereof on the
Partnership books maintained by Three Winthrop, together with all
accompanying evidences of transfer and authenticity, to or upon the order of
the Purchaser and upon receipt by the Depository, as such Limited Partner's
agent, of the purchase price in respect of such Units, to receive all
benefits and otherwise exercise all rights of beneficial ownership of such
Units, all in accordance with the terms of this Offer. Upon the purchase of
such Units pursuant to this Offer, all prior proxies and consents given by
such Limited Partner with respect thereto will be revoked and no subsequent
proxies or consents may be given (and if given will not be deemed effective).
By executing a Letter of Transmittal, a Limited Partner irrevocably agrees
to accept the proceeds of a Loan in respect of its Retained Portion on the
terms and conditions set forth in the Note and Security Agreement. Such
Limited Partner also directs the Partnership to deliver any and all
distributions payable on the Retained Portion to the Purchaser for credit
against amounts outstanding in respect of the Loan, and the Purchaser may, in
the name and on behalf of such Limited Partner, execute and deliver to the
Partnership a written confirmation of such direction.
In addition, by executing a Letter of Transmittal, a Limited Partner
appoints the designees of the Purchaser as its attorneys-in-fact (such
appointment being coupled with an interest, and irrevocable) to execute and
cause to be filed and recorded any and all documents on behalf of the Limited
Partner and to take any and all other actions reasonably deemed necessary by
the Purchaser to perfect or continue the perfection of the security interest
in the Retained Portion that secures any Loan made to such Limited Partner.
Determination of Validity; Rejection of Units; Waiver of Defects; No
Obligation to Give Notice of Defects. All questions as to the validity, form,
eligibility (including time of receipt) and acceptance for payment of any
tender of Units pursuant to the procedures described above will be determined
by the Purchaser, in its sole discretion, which determination shall be final
and binding. The Purchaser reserves the absolute right to reject any or all
tenders if not in proper form (including, without limitation, the proper
execution of the Note and Security Agreement) or if the acceptance of, or
payment for, the Units tendered may, in the opinion of the Purchaser's
counsel, be unlawful. The Purchaser also reserves the right to waive any
defect or irregularity in any tender with respect to any particular Unit of
any particular Limited Partner, and the Purchaser's interpretation of the
terms and conditions of this Offer (including the Letter of Transmittal and
the Instructions thereto) will be final and binding. No tender will be deemed
validly made until all defects and irregularities have been cured or waived.
Neither the Purchaser, the Information Agent, the Depository nor any other
person will be under any duty to give notification of any defects or
irregularities in the tender of any Units or will incur any liability for
failure to give any such notification.
A tender of Units pursuant to any of the procedures described above and
the acceptance for payment of such Units will constitute a binding agreement
between the tendering Limited Partner and the Purchaser on the terms and
conditions of this Offer.
SECTION 4. WITHDRAWAL RIGHTS. Except as otherwise provided in this Section
4, all tenders of Units pursuant to this Offer are irrevocable, provided that
Units tendered pursuant to this Offer may be withdrawn at any time prior to
the Expiration Date and, unless already accepted for payment as provided in
this Offer to Purchase, may also be withdrawn at any time after April 2,
1995.
19
For withdrawal to be effective, a written or facsimile transmission notice
of withdrawal must be timely received by the Depository at the address set
forth on the back cover of this Offer to Purchase. Any such notice of
withdrawal must specify the name of the person(s) who tendered the Units to
be withdrawn and must be signed by the person(s) who signed the Letter of
Transmittal in the same manner as the Letter of Transmittal was signed.
If purchase of, or payment for, Units is delayed for any reason or if the
Purchaser is unable to purchase or pay for Units for any reason, then,
without prejudice to the Purchaser's rights under this Offer, tendered Units
may be retained by the Purchaser and may not be withdrawn except to the
extent that tendering Limited Partners are entitled to withdrawal rights as
set forth in this Section 4; provided, however, that the Purchaser is
required, pursuant to Rule 14e-1(c) under the Exchange Act, to pay Limited
Partners the Cash Consideration in respect of Units tendered or return such
Units promptly after termination or withdrawal of this Offer.
Any Units properly withdrawn will be deemed not to be validly tendered for
purposes of this Offer. Withdrawn Units may be retendered, however, by
following any of the procedures described in Section 3 at any time prior to
the Expiration Date.
All questions as to the form and validity (including time of receipt) of
notices of withdrawal will be determined by the Purchaser, in its sole
discretion, whose determination will be final and binding. Neither the
Purchaser, the Information Agent, the Depository nor any other person will be
under any duty to give notification of any defects or irregularities in any
notice of withdrawal or incur any liability for failure to give such
notification.
SECTION 5. EXTENSION OF TENDER PERIOD; TERMINATION; AMENDMENTS. The
Purchaser expressly reserves the right, in its sole discretion, at any time
and from time to time, (i) to extend the period of time during which this
Offer is open and thereby delay acceptance for payment of, and the payment
for, any Units, (ii) to terminate this Offer and not accept for payment any
Units not already accepted for payment or paid for, (iii) upon the occurrence
of any of the conditions specified in Section 11, to delay the acceptance for
payment of, or payment for, any Units not already accepted for payment or
paid for, and (iv) to amend this Offer in any respect (including, without
limitation, by increasing the consideration offered, increasing or decreasing
the number of Units being sought, or both). Notice of any such extension,
termination or amendment will promptly be disseminated to the Limited
Partners in a manner reasonably designed to inform Limited Partners of such
change in compliance with Rules 14d-4(c) and 14d-6(d) under the Exchange Act.
In the case of an extension of this Offer, such extension will be followed by
a press release or public announcement which will be issued no later than
9:00 a.m., New York time, on the next business day after the scheduled
Expiration Date, in accordance with Rule 14e-1(d) under the Exchange Act.
If the Purchaser makes a material change in the terms of this Offer or the
information concerning this Offer or waives a material condition of this
Offer, the Purchaser will extend this Offer and disseminate additional tender
offer materials to the extent required by Rules 14d-4(c) and 14d-6(d) under
the Exchange Act. The minimum period during which an offer must remain open
following a material change in the terms of the offer or information
concerning the offer will depend upon the facts and circumstances, including
the relative materiality of the change in the terms or information. The SEC
has stated that in its view, an offer should remain open for a minimum of
five business days from the date the material change is first published, sent
or given to Limited Partners, and, if material changes are made with respect
to information that approaches the significance of price or the percentage of
securities sought, a minimum of ten business days may be required to allow
for adequate dissemination to Limited Partners and for Limited Partner
response. The requirement to extend the offer will not apply to the extent
that the number of business days remaining between the occurrence of the
change and the then-scheduled expiration date equals or exceeds the minimum
extension period that would be required because of such amendment. With
respect to a change in price or a change in percentage of securities sought,
a minimum ten-business-day period generally is required by regulation to
allow for adequate dissemination to Limited Partners and response. As used in
this Offer to Purchase, "business day" means any day other than a Saturday,
Sunday or a federal holiday, and consists of the time period from 12:01 a.m.
through 12:00 midnight, New York time.
20
SECTION 6. CERTAIN FEDERAL AND STATE INCOME TAX CONSEQUENCES. The
following summary is a general discussion of certain federal income tax
consequences of a sale of Units and receipt of a Loan pursuant to this Offer.
This summary is based on the Internal Revenue Code of 1986, as amended (the
"Code"), applicable Treasury regulations thereunder, administrative rulings,
practice and procedures and judicial authority as of the date of this Offer.
All of the foregoing are subject to change, and any such change could affect
the continuing accuracy of this summary. This summary does not discuss all
aspects of federal income taxation that may be relevant to a particular
Limited Partner in light of such Limited Partner's specific circumstances or
to certain types of Limited Partners subject to special treatment under the
federal income tax laws (for example, foreign persons, dealers in securities,
banks, and insurance companies), nor does it discuss any state, local,
foreign or other tax laws (except Maryland income tax on nonresidents). Sales
of Units and/or fractional Units pursuant to this Offer will be taxable
transactions for federal income tax purposes and may also be taxable
transactions under applicable state, local, foreign and other tax laws. EACH
LIMITED PARTNER SHOULD CONSULT ITS TAX ADVISOR AS TO THE PARTICULAR TAX
CONSEQUENCES TO SUCH LIMITED PARTNER OF SELLING UNITS AND/OR FRACTIONAL UNITS
AND RECEIVING A LOAN PURSUANT TO THIS OFFER.
In general, a taxable Limited Partner will recognize gain or loss on a
sale of Units and/or fractional Units pursuant to this Offer equal to the
difference between (i) the Limited Partner's "amount realized" on the sale
and (ii) the Limited Partner's adjusted tax basis in the Units sold. The
amount of a Limited Partner's adjusted tax basis will vary depending upon
such Limited Partner's particular circumstances. The "amount realized" with
respect to a Unit sold will be a sum equal to the amount of cash received by
the Limited Partner for such Unit pursuant to this Offer plus the amount of
Partnership liabilities allocable to such Unit (as determined under Code
Section 752).
In addition to the allocation of the Partnership's taxable income or loss
for 1994, a tendering Limited Partner will be allocated a pro rata share of
the Partnership's taxable income or loss for the year of sale with respect to
the Units sold in accordance with the provisions of the Partnership Agreement
concerning transfers of Units. Such allocation, the allocation for 1994 and
any cash distributed by the Partnership to or for the benefit of such Limited
Partner for such years will affect the Limited Partner's adjusted tax basis
in its Units and, therefore, the amount of such Limited Partner's taxable
gain or loss upon a sale of Units pursuant to this Offer. In the case of a
Limited Partner that sells less than 100% of its interest in the Partnership
pursuant to the Offer, it is unclear whether the allocation of Partnership
income or loss for 1995 will affect the basis of the portion sold or instead
only the basis in the Retained Portion. IF THE TENDERING LIMITED PARTNERS
RECEIVE LOANS, THEY WILL BE ALLOCATED PRO RATA SHARES OF THE PARTNERSHIP'S
TAXABLE INCOME OR LOSS AS OWNERS OF THE RETAINED PORTIONS ALTHOUGH THEY MAY
NEVER RECEIVE CASH PAYMENTS RELATED TO ANY SUCH TAXABLE INCOME. SUCH TAXABLE
INCOME MAY NOT BE OFFSET BY DECREASED GAIN ON SALE OF THE RETAINED PORTIONS
OR BY INTEREST DEDUCTIONS IF CASH DISTRIBUTIONS ARE MADE AND APPLIED TO PAY
INTEREST THAT MAY BE NONDEDUCTIBLE AS PERSONAL INTEREST.
The gain or loss recognized by a Limited Partner on a sale of a Unit sold
pursuant to this Offer generally will be treated as a capital gain or loss.
Such capital gain or loss will be treated as long-term capital gain or loss
if the tendering Limited Partner's holding period for such Unit exceeds one
year. Under current law, long-term capital gains of individuals and other
noncorporate taxpayers are taxed at a maximum marginal federal income tax
rate of 28%, whereas the maximum marginal federal income tax rate for other
income of such persons is 39.6%. Capital losses are deductible only to the
extent of capital gains, except that non-corporate taxpayers may deduct up to
$3,000 of capital losses in excess of the amount of their capital gains
against ordinary income. Excess capital losses generally can be carried
forward to succeeding years (a corporation's carryforward period is five
years and a noncorporate taxpayer can carry forward such losses
indefinitely); in addition, corporations are allowed to carry back excess
capital losses to the three preceding taxable years, provided such carryback
does not increase or produce a net operating loss for any such year.
21
If any portion of the amount realized by a Limited Partner on a sale of
Units pursuant to this Offer is attributable to "unrealized receivables"
(which term includes depreciation recapture) or "substantially appreciated
inventory" as defined in Code Section 751, then a portion of the Limited
Partner's gain or loss may be ordinary rather than capital. Based on the
results of Partnership operations through December 31, 1994, it is estimated
that the portion of the amount realized attributable to such Section 751
items will be approximately $5,254 per Unit. The actual amount of such
Section 751 items will be identified in a statement provided by the
Partnership to the Limited Partner on or before January 31, 1996. It is
possible that the basis allocation rules of Code Section 751 may result in a
Limited Partner's recognizing ordinary income with respect to such items
while recognizing a larger capital loss with respect to the remainder of the
Units sold, even though such Limited Partner has an overall loss on the sale.
Under Code Section 469, a noncorporate taxpayer or personal service
corporation can deduct passive activity losses in any year only to the extent
of such person's passive activity income for such year, and closely held
corporations may not offset such losses against so-called "portfolio" income.
A loss recognized by a Limited Partner upon a sale of less than 100% of its
Units pursuant to this Offer can be currently deducted (subject to other
applicable limitations) to the extent of such Limited Partner's passive
income from the Partnership for that year or to the extent of any other
passive activity income from that year, and a gain recognized by a Limited
Partner upon such sale can be offset by such Limited Partner's current or
carryover passive activity losses (if any) from the Partnership or from other
sources. If a Limited Partner disposes of 100% of its Units pursuant to this
Offer, such Limited Partner generally will be able to deduct its remaining
passive activity losses (if any) from the Partnership that could not
previously be deducted by such Limited Partner due to the foregoing
limitation.
Based on the estimated results of Partnership operations through December
31, 1994, it is estimated that a Limited Partner who tenders Units that were
acquired by such Limited Partner on February 15, 1985, utilized the deferred
payment method for making capital contributions to the Partnership, and is
subject to federal income tax at the rate of 28% on long-term capital gains
and 39.6% on other income, will recognize income and gain per Unit sold, and
incur federal income tax per Unit sold, as indicated in the following chart.
Separate figures are provided assuming that the Limited Partner has no
"suspended" passive activity losses from the Partnership (i.e., post-1986 net
taxable losses in excess of statutorily provided "phase-in" amounts) and
assuming that the Limited Partner has the maximum amount of "suspended"
passive activity losses from the Partnership. The figures in the chart are
shown on a per Unit basis and are based on the assumption that the Limited
Partner sells 100% of its Units, so that its remaining "suspended" passive
activity losses should be deductible from other income subject to any other
applicable limitations. If more than 50.5% of the outstanding Units are
tendered, no tendering Limited Partner will be able to sell 100% of its Units
upon consummation of this Offer because of proration of the amount of Units
to be purchased by the Purchaser. Therefore, if more than 50.5% of the Units
are tendered, any Limited Partner with "suspended" passive activity losses
will not be able to deduct such amount until its Retained Portion is
transferred to the Purchaser upon the maturity of its Loan or otherwise sold.
TAX
TAX LIABILITY
AMOUNT RATE (BENEFIT)
---------- ------- -----------
Passive Ordinary Income .................. $ 5,254 39.6% $ 2,081
Net Passive Long Term Capital Gain ...... 43,421 28.0% 12,158
Taxes Due upon Sale Assuming No Passive
Losses .................................. $ 14,239
Deduction of Maximum Potential Passive
Activity Carryforward Losses from the
Partnership ............................. (41,522) 39.6% (16,443)
-----------
Net Taxes Due (Benefit) Assuming Maximum
Passive Activity Carryforward Losses ... $ (2,204)
22
A taxable Limited Partner (other than corporations and certain foreign
individuals) who tenders Units may be subject to 31% backup withholding
unless the Limited Partner provides a taxpayer identification number ("TIN")
and certifies that the TIN is correct or properly certifies that he is
awaiting a TIN. A Limited Partner may avoid backup withholding by properly
completing and signing the Substitute Form W-9 included as part of the Letter
of Transmittal. If a Limited Partner who is subject to backup withholding
does not properly complete and sign the Substitute Form W-9, the Purchaser
will withhold 31% from payments to such Limited Partner.
Gain realized by a foreign Limited Partner on a sale of Units pursuant to
this Offer will be subject to federal income tax. Under Section 1445 of the
Code, the transferee of a partnership interest held by a foreign person is
generally required to deduct and withhold a tax equal to 10% of the amount
realized on the disposition. The Purchaser will withhold 10% of the amount
realized by a tendering Limited Partner unless the Limited Partner properly
completes and signs the FIRPTA Affidavit included as part of the Letter of
Transmittal certifying the Limited Partner's TIN, that such Limited Partner
is not a foreign person, and the Limited Partner's address. Amounts withheld
would be creditable against a foreign Limited Partner's federal income tax
liability, and if in excess thereof, a refund could be obtained from the
Internal Revenue Service by filing a U.S. income tax return.
If the percentage of Units validly tendered and not withdrawn exceeds
50.5% of the outstanding Units, only a pro rata portion of each tendered Unit
will be treated by the Purchaser as purchased pursuant to this Offer. The
excess of the Purchaser's payments to each tendering Limited Partner over the
amounts attributable to the purchased portions of the Units shall be received
as the proceeds of nonrecourse Loans secured by a pledge of the Retained
Portion. The Purchaser intends to treat the Loans as debt instruments for
federal income tax purposes. Nevertheless, a taxing authority may assert that
100% of the tendered Units must be treated as sold pursuant to this Offer. If
such an assertion were to prevail, the foregoing discussion of the income tax
consequences of sales of Units would be applicable to all Units tendered in
their entirety. The remainder of this discussion of the income tax
consequences of the Loans assumes that they will be respected as loans.
The extent to which Limited Partners may be entitled to deductions for
interest payable on the Loans is unclear. Personal interest is generally
nondeductible, and there are limitations on the deductibility of investment
interest. Further, the Loans may be treated as contingent payment
instruments. There are no currently effective regulations governing
computation of interest or original issue discount on contingent payment debt
instruments, and the recently proposed regulations provide that they will
apply only to debt instruments issued at least 60 days after adoption of
final regulations. Limited Partners should consult their tax advisors with
respect to the potential deductibility of interest or original issue discount
on the Loans.
If a Loan is treated as indebtedness incurred by a tax-exempt Limited
Partner in acquisition or improvement of property, income from such property
may be taxed to the tax-exempt Limited Partner as unrelated debt-financed
income within the meaning of Code Section 514. Tax-exempt Limited Partners
should consult their tax advisors with respect to the tax consequences of
tendering Units pursuant to this Offer.
A taxable Limited Partner who repays Loans by surrender of its Retained
Portion will recognize gain or loss with respect to such Retained Portion
under the rules discussed above. The unpaid balance (including interest) of
the Loans so repaid would be treated as an amount realized for this purpose.
Certain State Income Tax Consequences. Under Maryland law, nonresident
individuals are taxable in Maryland on that portion of their federal adjusted
gross income that is derived from tangible property, real or personal,
permanently located in Maryland and on income from a business, trade,
profession or occupation carried on in Maryland. Nonresident partners of a
partnership with the above described income must report their distributive or
pro rata share of income from the partnership on a nonresident Maryland
return. The partnership is required to withhold Maryland tax based on 5% of
the total distributive or pro rata shares of its nonresident individual
partners attributable to income from Maryland sources. Any withholding by the
partnership is a credit against the balance due on the individual nonresident
return.
23
The Lerner Proposal would require the Partnership to withhold tax in the
amount of approximately, $2,975 per Unit for the Limited Partners who are
non-residents of Maryland. Sales of Units pursuant to this Offer will not
give rise to a Maryland income tax withholding requirement by the
Partnership. However, gain from the disposition may be considered "derived
from" Maryland sources for purposes of determining nonresident taxable
income. The Purchaser advises Limited Partners to consult their tax advisors
concerning the tax effects of participation in this Offer.
Certain Tax Consequences of a Tax Termination. If Section 7.2(D) of the
Partnership Agreement were amended to eliminate the prohibition on a transfer
that would cause a tax termination, such a transfer and termination might
occur. It is also possible that a taxing authority might assert that the
Loans must be recharacterized as sales and that the Partnership therefore is
terminated for income tax purposes on the date of the Loans. While the
Purchaser intends to treat the Loans as loans, there can be no assurance that
a contrary assertion by a taxing authority would not be sustained. The effect
of a tax termination on non-tendering Limited Partners and tendering Limited
Partners who retain a portion of their Units subject to a Loan should be a
lengthening of the period of time over which the Partnership recognizes
depreciation deductions for tax purposes. A tax termination in 1995 would
cause a reduction in such deductions by approximately $4,500 per Unit per
year over the next eight years and an increase in such deductions by
approximately $1,800 per Unit per year for the following nineteen years. A
termination of the Partnership for income tax purposes could have the adverse
effect on Limited Partners who continue to own Units after such termination
and whose tax year differs from that of the Partnership of the inclusion of
more than one year of the Partnership's tax items in one tax return of the
Limited Partner.
SECTION 7. CERTAIN INFORMATION CONCERNING THE PARTNERSHIP. The Partnership
was formed in 1985 to own and manage the Project through the Operating
Partnerships.
Limited Partners are referred to "SPECIAL FACTORS--Background of this
Offer" and to the financial and other information included in the
Partnership's Annual Report on Form 10-K for the fiscal year ended December
31, 1993, and the Partnership's Quarterly Report on Form 10-Q for the nine
months ended September 30, 1994, which are attached as annexes to this Offer
to Purchase and are incorporated herein by reference in their entirety. Such
reports and other documents (including the Partnership's Current Report on
Form 8K with respect to an event occurring on December 3, 1994) may also be
examined, and copies may be obtained at prescribed rates from the main office
of the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
regional offices of the SEC located at 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661 and 7 World Trade Center, Suite 1300, New York, New
York 10048.
The following table reflects aggregate cash distributions from the
Partnership from its inception.
AGGREGATE PER UNIT
YEAR DISTRIBUTION* DISTRIBUTION
- ------ --------------- --------------
1986 -0- -0-
1987 68,315 100
1988 300,589 440
1989 478,211 700
1990 751,474 1,100
1991 250,038 366
1992 250,038 366
1993 -0- -0-
1994 -0- -0-
1995 1,366,318** 2,000
<FN>
* Pursuant to the Partnership Agreement, Partnership cash distributions
are allocated 95% to Limited Partners and 5% to the General Partners.
** Estimated. The Purchaser has been advised that a distribution of
approximately $2,000 per Unit will be available from 1994 operations.
The Purchaser has been advised that Three Winthrop expects that this
amount will be distributed immediately following the consummation of
this Offer. Therefore, as noted in the "INTRODUCTION," Limited Partners
who tender in this Offer will not receive this anticipated distribution
in respect of the Units tendered in this Offer.
24
Limited Partners should consider the impact of the closing of the New
Mortgage Loans which occurred in 1993, which has lowered the Project's debt
service payments and enabled the Partnership to re-institute cash
distributions to Limited Partners. See "Special Factors--Background of this
Offer."
The Partnership has filed a petition of appeal in the Maryland Tax Court,
naming the Director of Finance for Prince George's County, Maryland, as
respondent, and seeking a refund of $870,000, which was paid as a transfer
tax in connection with the 1993 funding of the New Mortgage Loans. The
Purchaser cannot estimate what amount, if any, may be recovered by the
Partnership in connection with this action. Should the Partnership recover
any amount in connection with this action after the expiration of this Offer,
Limited Partners who sell Units pursuant to this Offer will not receive any
distribution from these proceeds in respect of such Units.
SECTION 8. CERTAIN INFORMATION CONCERNING THE PURCHASER. The Purchaser is
a Delaware limited partnership whose general partner is Partnership
Acquisition Trust I, a Delaware business trust ("GP"). GP is owned and
controlled by NACC. NACC is a wholly owned subsidiary of Nomura Holding
America, Inc., a Delaware corporation which is a wholly owned subsidiary of
Nomura Securities Company, Ltd., a Japanese corporation. The address of the
principal office of the Purchaser is c/o Nomura Asset Capital Corporation,
Two World Financial Center, New York, New York 10281.
Copies of a Current Report on Form 8-K filed by the Partnership with the
SEC on December 17, 1994 to report an agreement dated December 3, 1994, among
NACC, Linnaeus Associated Limited Partnership ("Linnaeus"), Arthur J.
Halleran, Jr. and certain individuals who comprise WFA's senior management
(the "Investment Agreement"), previously have been provided to the Limited
Partners by the Partnership. On December 22, 1994 the parties to the
Investment Agreement consummated certain of the transactions contemplated
therein, which resulted in NACC controlling WFA, Three Winthrop, Linnaeus,
Winthrop Management and the Partnership. On January 27, 1995 NACC acquired
indirect control of (but no economic interest in) Linnaeus-Lexington. The
Purchaser has no officers or directors. See Schedule I annexed hereto for
certain information concerning the executive officers and directors of NACC.
Except as otherwise set forth in this Offer to Purchase, (i) neither the
Purchaser, NACC, Three Winthrop or, to the best of the Purchaser's knowledge,
any of the persons listed on Schedule I nor any affiliate of the foregoing
beneficially owns or has a right to acquire any Units; (ii) neither the
Purchaser, NACC or, to the best of the Purchaser's knowledge, any of the
persons listed on Schedule I nor any affiliate thereof or director, executive
officer or subsidiary of NACC has effected any transaction in the Units;
(iii) neither the Purchaser, NACC or, to the best of the Purchaser's
knowledge, any of the persons listed on Schedule I nor any director or
executive officer of NACC has any contract, arrangement, understanding or
relationship with any other person with respect to any Units, including, but
not limited to, contracts, arrangements, understandings or relationships
concerning the transfer or voting thereof, joint venture, loan or option
arrangements, puts or calls, guarantees or loans, guarantees against loss or
the giving or withholding of proxies; (iv) there have been no transactions or
business relationships which would be required to be disclosed under the
rules and regulations of the SEC between any of the Purchaser or NACC or, to
the best of the Purchaser's knowledge, the persons listed on Schedule I, on
the one hand, and the Partnership or its affiliates, on the other hand; and
(v) there have been no contracts, negotiations or transactions between the
Purchaser, NACC or, to the best of the Purchaser's knowledge, the persons
listed on Schedule I, on the one hand, and the Partnership or its affiliates,
on the other hand, concerning a merger, consolidation or acquisition, tender
offer or other acquisition of securities, an election of directors or a sale
or other transfer of a material amount of assets.
SECTION 9. INTERESTS OF CERTAIN PERSONS AND CERTAIN TRANSACTIONS. On
December 22, 1994, NACC acquired indirect control of Three Winthrop and on
January 27, 1995 NACC acquired indirect control of (but no economic interest
in) Linnaeus-Lexington (together, the "General Partners"). The Purchaser is
also indirectly controlled by NACC. (See Section 8, "Certain Information
Concerning the Purchaser.") In addition, NACC will be providing to the
Purchaser the funds necessary to consummate this Offer and will obtain a
pledge of the Units acquired by the Purchaser in this Offer and a collateral
assignment of the pledge to the Partnership of any Retained Portions to
secure the repayment of such funds. See
25
"-Financing Arrangements" below. Because of such affiliations between the
Purchaser, Three Winthrop and Linnaeus-Lexington, the Partnership has
indicated in its statement on Schedule 14D-9 filed with the Securities and
Exchange Commission (the "SEC") that it makes no recommendation and is
remaining neutral as to whether a Limited Partner should accept this Offer.
(See "SPECIAL FACTORS--Background of this Offer.") Three Winthrop may also
have a conflict of interest in evaluating certain alternatives available to
the Partnership, such as the sale or liquidation of the Partnership assets,
in that such transactions may result in a reduction or termination of fees
payable to Three Winthrop's affiliates pursuant to the Partnership Agreement
or otherwise.
Voting by the Purchaser. If, as a result of this Offer, the Purchaser
acquires a substantial number of Units, the Purchaser may be in a position to
significantly influence or control the result of any vote by Limited
Partners. (See "SPECIAL FACTORS--Purposes and Effects of this Offer.")
Financing Arrangements. The Purchaser expects to obtain all of the funds
necessary for this Offer (including for the purchase of tendered Units, the
funding of the Loans and the out of pocket costs of this Offer) through a
10-year credit facility for an amount up to $25,000,000 (the "Facility") to
be provided to the Purchaser by NACC, an affiliate of the Purchaser. The
terms of the Facility are set forth in the form of Acquisition Loan Agreement
between NACC, as lender, and the Purchaser, as borrower, which is attached as
an exhibit to the Schedule 14D-1 filed with the SEC in respect of this Offer,
which is incorporated herein by reference in its entirety. The Facility
provides that the Purchaser may draw funds thereunder from time to time prior
to, on and after the date of consummation of this Offer to pay the Cash
Consideration payable in respect of tendered Units and fees and expenses in
connection with this Offer.
Amounts outstanding under the Facility will bear interest at a variable
rate equal to 3.00% above the 30-day London interbank offered rate, reset
monthly (6.125% as of January 31, 1995). Interest will be payable monthly in
arrears. The Purchaser's only source of funds with which to meet its debt
service requirements and to make principal payment will be distributions from
the Partnership in respect of Units owned by the Purchaser and prepayments of
Loans (including prepayments funded with the distributions paid on Retained
Portions). To the extent that the Purchaser is unable to make any interest
payment in cash because of insufficient available cash flow, such interest
shall accrue and compound at the applicable floating rate. The Facility will
be secured by all of the assets of the Purchaser, which upon consummation of
this Offer will consist solely of Units purchased pursuant to this Offer, the
notes evidencing the Loans made in connection with this Offer and the
Purchaser's security interest in the Remaining Portion.
The Facility will be prepayable by the Purchaser at any time, without
premium or penalty. The Purchaser will be required to make mandatory
prepayments of amounts borrowed under the Facility from the proceeds of any
disposition of assets, including Units, or any capital distributions received
by the Purchaser. Events of default under the Facility will include
bankruptcy, insolvency or other similar events involving the Purchaser,
failure of the Purchaser to make any payment of principal when required and
failure (after customary cure periods) by the Purchaser to comply with any
other agreement of the Purchaser contained in the Facility. In the event of
an event of default under the Facility, NACC would be entitled, among other
things, to foreclose upon the collateral securing the Facility, including the
Units acquired by the Purchaser the pledge of the Retained Portion in favor
of the Purchaser and the notes evidencing the Loans made by the Purchaser.
There can be no assurance that the Purchaser will have sufficient funds to
repay the Facility at maturity or otherwise.
Transactions with Affiliates. Pursuant to the Partnership Agreement and
the Operating Partnership Agreements, Three Winthrop and its affiliates
receive various fees from the Partnership and the Operating Partnerships. The
Partnership is required to pay $10,000 annually to Winthrop Financial for the
administration of the Partnership (the "Partnership Administration Fee"). In
each of the last ten years, Winthrop Financial received the Partnership
Administration Fee. The Operating Partnerships are required to pay $100,000
annually to Winthrop Financial, an affiliate of the Purchaser, for services
rendered for the administration of the Operating Partnerships (the "Operating
Partnership Administration Fee"). In each of the last ten years, Winthrop
Financial received the Operating Partnership Administration Fee. In addition,
the Operating Partnerships are required to pay to Winthrop Financial an
26
annual asset management fee (the "Asset Management Fees") equal to 1% of the
Project's gross revenues. During 1991, 1992, 1993 and 1994, Winthrop
Financial received $230,463, $230,845, $223,382 and approximately $227,000,
respectively, as Asset Management Fees.
In addition, WP Management Co., Inc. ("WP Management"), an affiliate of
Three Winthrop, will receive a contingent incentive management fee equal to
20% of any excess of actual net distributable cash flow in any year over
forecasted net distributable cash flow of the Partnership for that year. (The
forecasted amounts for any year are the amounts forecasted for such year
using the same assumptions and principles as were employed in preparing the
financial forecast.) This fee has never been paid.
Three Winthrop and Linnaeus-Lexington, as general partners, receive a
total of 5.0% of net profits, losses and cash flow of the Partnership, and
29.4% of residuals, after payment of priority items (the "Cash
Distributions"). During 1991 and 1992, Three Winthrop received $250 and $250,
respectively, in Cash Distributions and Linnaeus-Lexington received $12,250
and $12,250, respectively, in Cash Distributions. During 1993 and 1994, both
Three Winthrop and Linnaeus-Lexington did not receive any Cash Distributions.
During 1991, 1992 and 1993, Linnaeus-Lexington was allocated $165,313,
$199,918 and $245,277, respectively, of taxable losses by the Partnership in
accordance with its partnership interests in the Partnership. During 1991,
1992 and 1993, Three Winthrop was allocated $3,374, $4,083 and $5,004,
respectively, of taxable losses by the Partnership in accordance with its
partnership interests in the Partnership.
Item 11 of the Partnership's Annual Report on Form 10-K for 1993 and Note
9 of Notes to Financial Statements of the Partnership for the year ended
December 31, 1993, included in that Report, contain descriptions of the fees
and other compensation paid by the Partnership and the Operating Partnerships
to the General Partners and their affiliates. Except as so disclosed or
described above, there were no other material transactions between the
General Partners or their affiliates and the Partnership or the Operating
Partnerships during 1991, 1992, 1993 or 1994.
See "SPECIAL FACTORS--Future Plans," for information about Three
Winthrop's intention to engage an affiliate to provide exclusive leasing and
property management services to the Project.
As of December 31, 1994, five limited partners of Linnaeus-Lexington who
are no longer employed by WFA or its affiliates beneficially own Units. One
person owns a one-half Unit and the other four own one Unit each (less than
1% in the aggregate). No other officer or director or partner of the General
Partners owns any Units.
SECTION 10. SOURCE OF FUNDS. The Purchaser expects that approximately
$23,364,000 in Cash Consideration would be required in connection with this
Offer if all of the outstanding Units are tendered, $11,798,820 in Purchase
Proceeds and $11,565,180 in Loan Proceeds. The Purchaser will obtain such
funds from NACC and none of the required funds will be paid by the
Partnership. (See Section 9, "Interests of Certain Persons and Certain
Transactions.")
SECTION 11. CONDITIONS OF THIS OFFER. Notwithstanding any other term of
this Offer, the Purchaser shall not be required to accept for payment or to
pay for any Units tendered if all authorizations, consents, orders or
approvals of, or declarations or filings with, or expirations of waiting
periods imposed by, any court, administrative agency or commission or other
governmental authority or entity, domestic or foreign, necessary for the
consummation of the transactions contemplated by this Offer shall not have
been filed, occurred or been obtained. Furthermore, notwithstanding any other
term of this Offer, the Purchaser shall not be required to accept for payment
or pay for any Units not theretofore accepted for payment or paid for, and
may terminate or amend this Offer as to such Units if, at any time on or
after the date of this Offer and before the acceptance of such Units for
payment or the payment therefor, any of the following conditions exists:
(a) a preliminary or permanent injunction or other order of any
federal or state court, government or governmental authority or agency
shall have been issued and shall remain in effect which (i) makes illegal,
delays or otherwise directly or indirectly restrains or prohibits the
making of this Offer or the acceptance for payment of or payment for any
Units by the Purchaser, (ii) imposes or confirms limitations on the
ability of the Purchaser effectively to exercise full rights of ownership
27
of any Units purchased; including, without limitation, the right to vote
any Units acquired by the Purchaser pursuant to this Offer or otherwise on
all matters properly presented to the Partnership's Limited Partners,
(iii) requires divestiture by the Purchaser of any Units, (iv) causes any
material diminution of the benefits to be derived by the Purchaser as a
result of the transactions contemplated by this Offer, or (v) might
materially adversely affect the business, properties, assets, liabilities,
financial condition, operations, results of operations or prospects of the
Purchaser or the Partnership;
(b) there shall be any action taken, or any statute or rule,
regulation or order proposed, enacted, enforced, promulgated, issued or
deemed applicable to this Offer by any federal or state court, government
or governmental authority or agency, which might, directly or indirectly,
result in any of the consequences referred to in clauses (i) through (v)
of paragraph (a) above;
(c) any change or development shall have occurred or been threatened
since the date hereof, in the business, properties, assets, liabilities,
financial condition, operations, results of operations or prospects of the
Partnership which, in the sole judgment of the Purchaser, is or may be
materially adverse to the Partnership, or the Purchaser shall have become
aware of any fact that, in the sole judgment of the Purchaser, does or may
have a material adverse effect on the value of the Units;
(d) there shall have occurred (i) any general suspension of trading
in, or limitation on prices for, securities on any national securities
exchange or in the over-the-counter market in the United States, (ii) a
declaration of a banking moratorium or any suspension of payments in
respect of banks in the United States, (iii) any limitation by any
governmental authority on, or other event which might affect, the
extension of credit by lending institutions or result in any imposition of
currency controls in the United States, (iv) a commencement of a war or
armed hostilities or other national or international calamity directly or
indirectly involving the United States, (v) a material change in United
States or other currency exchange rates or a suspension of a limitation on
the markets thereof, or (vi) in the case of any of the foregoing existing
at the time of the commencement of this Offer, a material acceleration or
worsening thereof; or
(e) it shall have been publicly disclosed or the Purchaser shall have
otherwise learned that (i) more than five percent of the outstanding Units
have been or are proposed to be acquired by another person (including a
"group" within the meaning of Section 13(d)(3) of the Exchange Act), or
(ii) any person or group that prior to such date had filed a Statement
with the SEC pursuant to Section 13(d) or (g) of the Exchange Act, has
increased or proposes to increase the number of Units beneficially owned
by such person or group as disclosed in such Statement by two percent or
more of the outstanding Units.
The foregoing conditions are for the sole benefit of the Purchaser and may
be asserted by the Purchaser regardless of the circumstances giving rise to
such conditions, or may be waived by the Purchaser in whole or in part at any
time and from time to time in its sole discretion. Any determination by the
Purchaser concerning the events described above will be final and binding
upon all parties.
SECTION 12. CERTAIN LEGAL MATTERS.
General. Except as set forth in this Section 12, the Purchaser is not
aware of any filings, approvals or other actions by any domestic or foreign
governmental or administrative agency that would be required prior to the
acquisition of Units by the Purchaser pursuant to this Offer. Should any such
approval or other action be required, it is the Purchaser's present intention
that such additional approval or action would be sought. While there is no
present intent to delay the purchase of Units tendered pursuant to this Offer
pending receipt of any such additional approval or the taking of any such
action, there can be no assurance that any such additional approval or
action, if needed, would be obtained without substantial conditions or that
adverse consequences might not result to the Partnership's business, any of
which could cause the Purchaser to elect to terminate this Offer without
purchasing Units thereunder. The Purchaser's obligation to purchase and pay
for Units is subject to certain conditions, including conditions related to
the legal matters discussed in this Section 12.
Antitrust. The Purchaser does not believe that the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended, is applicable to the
acquisition of Units contemplated by this Offer.
28
Margin Requirements. The Units are not "margin securities" under the
regulations of the Board of Governors of the Federal Reserve System and,
accordingly, such regulations are not applicable to this Offer.
State Takeover Laws. A number of states have adopted anti-takeover laws
which purport, to varying degrees, to be applicable to attempts to acquire
securities of corporations which are incorporated in such states or which
have substantial assets, security holders, principal executive offices or
principal places of business therein. Although the Purchaser has not
attempted to comply with any state anti-takeover statutes in connection with
this Offer, the Purchaser reserves the right to challenge the validity or
applicability of any state law allegedly applicable to this Offer and nothing
in this Offer to Purchase nor any action taken in connection herewith is
intended as a waiver of such right. If any state anti-takeover statute is
applicable to this Offer, the Purchaser might be unable to accept for payment
or purchase Units tendered pursuant to this Offer or be delayed in continuing
or consummating this Offer. In such case, the Purchaser may not be obligated
to accept for purchase or pay for any Units tendered.
SECTION 13. FEES AND EXPENSES. The Purchaser has retained D.F. King & Co.
Inc. to act as Information Agent, and IBJ Schroder Bank & Trust Company to
act as Depository, in connection with this Offer. The Purchaser will pay the
Information Agent and Depository reasonable and customary compensation for
their respective services in connection with this Offer, plus reimbursement
for out-of-pocket expenses, and will indemnify the Information Agent and the
Depository against certain liabilities and expenses in connection therewith,
including liabilities under the federal securities laws. The Purchaser will
also pay all costs and expenses of printing and mailing this Offer and its
legal and accounting fees and expenses. The Partnership will not pay for any
of these costs. The Purchaser will not pay any fees or commissions to any
broker, dealer or other person for soliciting tenders of Units pursuant to
this Offer.
SECTION 14. OTHER MATTERS. The Purchaser is not aware of any jurisdiction
in which the making of this Offer is not in compliance with applicable law.
If the Purchaser becomes aware of any jurisdiction in which the making of
this Offer would not be in compliance with applicable law, the Purchaser will
make a good faith effort to comply with any such law. If, after such good
faith effort, the Purchaser cannot comply with any such law, this Offer will
not be made to (nor will tenders be accepted from or on behalf of) Limited
Partners residing in such jurisdiction. In those jurisdictions whose
securities or blue sky laws require this Offer to be made by a licensed
broker or dealer, this Offer is being made on behalf of the Purchaser by
Nomura Securities International, Inc., a registered broker dealer.
The Partnership has advised the Purchaser that it is not making any
recommendation to any Limited Partners as to whether to tender Units pursuant
to this Offer. No person has been authorized to make any recommendation or
representation on behalf of the Purchaser, the Partnership or any of their
affiliates or to provide any information other than as contained herein or in
the Letter of Transmittal and, if given or made, such information or
representation must not be relied upon as having been authorized.
The Purchaser has filed with the SEC a Tender Offer Statement on Schedule
14D-1 (including exhibits thereto), pursuant to Rule 14d-3 under the Exchange
Act, and a Rule 13e-3 Transaction Statement on Schedule 13E-3 (including
exhibits thereto) furnishing certain additional information with respect to
this Offer, and may file amendments thereto. The Schedules 14D-1 and 13E-3
and any amendments thereto, including exhibits, may be inspected and copies
may be obtained from the main office of the SEC in the manner set forth in
Section 7 hereof.
Facsimile copies of the Letter of Transmittal, properly completed and duly
executed, will be accepted. The Letter of Transmittal, properly executed
signature pages to the Note and Security Agreement and any other required
documents should be sent or delivered to the Depository at its address set
forth below.
Any questions or requests for assistance or for additional copies of this
Offer to Purchase, the Letter of Transmittal and other tender offer materials
may be directed to the Information Agent at the telephone number and address
below. You may also contact the Information Agent or your broker for
assistance concerning this Offer. To confirm delivery of your Letter of
Transmittal, please contact the Depository.
29
SCHEDULE I
INFORMATION REGARDING THE DIRECTORS AND EXECUTIVE OFFICERS OF NACC
DIRECTORS AND EXECUTIVE OFFICERS OF NACC. Set forth in the table below are
the name and the present principal occupation or employment and the name,
principal business and address of any corporation or other organization in
which such occupation or employment is conducted, and the five-year
employment history of each of the directors and executive officers of NACC.
NACC owns its interest in the Purchaser through the GP, which has no
significant operations of its own. Unless otherwise indicated, each person
identified below is employed by NACC. The principal business address of NACC
and, unless otherwise indicated, each person identified below is Two World
Financial Center, New York, New York 10005. Directors are identified by an
asterisk. Except for Messrs. Junichi Ujiie and Kazuo Wakairo, who are
citizens of Japan, all persons identified below are United States citizens.
NAME PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT AND FIVE-YEAR EMPLOYMENT HISTORY
- ------------------------- -------------------------------------------------------------------------------
Michael A. Berman* Since October 1994, Mr. Berman has been Chief Operating Officer of Nomura Holding
America Inc., and its subsidiaries. From May 1992 through October 1994, Mr. Berman
was a Co-head of Nomura's Fixed Income unit. Mr. Berman originally joined Nomura
in January 1990 from Merrill Lynch, where he was Director of Financial Futures and
Options. Prior to that, he worked in financial futures at Kidder, Peabody & Co.,
Inc.
Max C. Chapman, Jr.* Since October 1989, Mr. Chapman has been a Co-chairman of Nomura Securities International,
Inc. and Nomura Holding America Inc. In July 1994, Mr. Chapman was additionally named
as a Director of Nomura International plc. Prior to joining Nomura, Mr. Chapman was
President and Chief Operating Officer of Kidder, Peabody Group Inc., the holding
company, and President and Chief Executive Officer of Kidder, Peabody and Co. Inc.,
its investment banking and broker-dealer subsidiary. He also served as a member of
the board of directors and vice chairman of the management committee of Kidder, Peabody
Group, Inc.
Ethan Penner* Since December 1994, Mr. Penner has been the Executive Managing Director responsible
for the Real Estate Division at Nomura Securities International, Inc. (NSI). From
April 1993 through December 1994, Mr. Penner was the Managing Director of the Real
Estate Division at NSI. Additionally, Mr. Penner is President of Nomura Asset Capital
Corporation as well as Nomura Asset Securities Corporation and Asset Securitization
Corporation. Prior to his tenure with Nomura, Mr. Penner was President of Magellan
Financial Services, which he found in 1992. Earlier, he was a Principal at Morgan
Stanley, heading the firm's mortgage activities in the western United States.
Junichi Ujiie* Since June 1992, Dr. Ujiie has been Co-chairman of Nomura Securities International,
Inc. (NSI) and Nomura Holding America, Inc. (NHA). In June 1994, Dr. Ujiie was additionally
named Co-Chief Executive Officer of both entities. Previously, Dr. Ujiie was President
and Chief Operating Officer of NSI. Since 1989, Dr. Ujiie has been a member of the
Board of Directors of Nomura Securities Co., Ltd., Japan. Prior to his assignments
at NSI and NHA, Dr. Ujiie, who joined Nomura Securities, Co. Ltd. in 1975, held the
following positions: General Manager of the Corporate Planning Department, President
of Nomura (Switzerland) Co., Ltd., Manager of the Bond Department and Analyst in
the Institutional Research and Advisory Department.
S-1
NAME PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT AND FIVE-YEAR EMPLOYMENT HISTORY
- ------------------------- -------------------------------------------------------------------------------
Kazuo Wakairo* Since 1989, Mr. Wakairo has been the Executive Managing Director of Nomura Holding
America, Inc. (NHA). From July 1987 until his 1989 promotion, Mr. Wakairo was an
Executive Vice President (EVP) of NHA. In July 1984, Mr. Wakairo became a Senior
Vice President, a position he held until he was named EVP in 1987. He has been with
Nomura since 1963.
William M. Daugherty* Since November 1994, Mr. Daugherty has been Managing Director of the Residential
Whole Loan Trading Group at Nomura Securities International, Inc. Prior to joining
Nomura, Mr. Daugherty worked for Goldman Sachs for seven years, heading Private Label
MBS trading, subordinated trading, and new product development. Mr. Daugherty has
also served as a Vice President at Paine Webber and Farmers Savings Bank.
Benjamin S. Butcher Since April 1994, Mr. Butcher has been a Vice President in the Real Estate Division
of Nomura Securities International, Inc. and a Vice President of Nomura Asset Capital
Corporation. Prior to that, from May 1991 to April 1994, Mr. Butcher was President
of Greencastle Development. In February 1986, Mr. Butcher became the President of
Derex Development, a position he held until his move to Greencastle.
Boyd W. Fellows Since March 1994, Mr. Fellows has been a Director of Fixed Income Whole Loan Trading
in the Real Estate Division of Nomura Securities International, Inc. as well as a
Vice President of Nomura Asset Capital Corporation. From May 1988 to March 1994,
Mr. Fellows held various positions at Morgan Stanley. At the time of his departure
from Morgan Stanley, Mr. Fellows held the position of Co-head of Non-Agency Mortgage
Trading. Mr. Fellows has also worked as a trader at Bank America.
Perry Gershon Since May 1994, Mr. Gershon has been a Vice President--Fixed Income Whole Loan Trading
in the Real Estate Division of Nomura Securities International, Inc. and a Vice President
of Nomura Asset Capital Corporation. Mr. Gershon joined Nomura upon his graduation
from the University of California--Berkely where he received an MBA in Finance. Prior
to attending Business School, Mr. Gershon was the Owner and Manager of The Polo Grounds,
an eating establishment in New York City.
Daniel S. Abrams Since August 1993, Mr. Abrams has been a Vice President in the Real Estate Division
of Nomura Securities International, Inc. and a Vice President of Nomura Asset Capital
Corporation. Prior to joining Nomura, Mr. Abrams was a Partner at the law firm Rosenman
& Colin. Mr. Abrams joined Rosenman & Colin in 1978.
Brian F. Pilcher Since May 1994, Mr. Pilcher has been a Director of Fixed Income Whole Loan Trading
in the Real Estate Division of Nomura Securities International, Inc. (NSI) and a
Director of Nomura Asset Capital Corporation. Since April 1993, Mr. Pilcher has been
a Commercial Mortgage Trader at NSI. From 1992 until joining Nomura, Mr. Pilcher
was employed at Magellan Financial Services. Previously, Mr. Pilcher worked as a
sole proprietor on the Pacific Stock Exchange.
S-2
NAME PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT AND FIVE-YEAR EMPLOYMENT HISTORY
- ------------------------- -------------------------------------------------------------------------------
Kathleen F. Corton Since June 1993, Ms. Corton has been a Vice President--Fixed Income Whole Loan Trading
in the Real Estate Division of Nomura Securities International, Inc. and a Vice President
of Nomura Asset Capital Corporation. Prior to this, from September 1985 through May
1993, Ms. Corton worked in investment banking at Mabon Securities Corporation.
S-3
ANNEX I
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the fiscal year ended December 31, 1993 Commission File
----------------- Number 0-14569
SPRINGHILL LAKE INVESTORS LIMITED PARTNERSHIP
(Exact name of registrant as specified in its charter)
Maryland 04-2848939
(State of Organization) (I.R.S. Employer Identification No.)
One International Place, Boston, Massachusetts 02110
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (617) 330-8600
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Units of Limited Partnership Interest
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No___
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ X ]
No market exists for the limited partnership interests
of the registrant, and, therefore, no aggregate
market value can be computed.
-1-
DOCUMENTS INCORPORATED BY REFERENCE
Part Document
Part I Pages 37-41 and 42-44 of the Confidential Memorandum
attached as Exhibit 28(a) to the Registrant's Registration
Statement on Form 10 filed on April 20, 1986, including all
Exhibits thereto (the "Confidential Memorandum")
Part III Pages 18-19 of the Confidential Memorandum
-2-
PART I
Item 1. Business.
Organization
Springhill Lake Investors Limited Partnership (the "Registrant") was
organized as a Maryland limited partnership under the Maryland Revised Uniform
Limited Partnership Act on December 28, 1984, for the purpose of investing as a
general partner in First, Second, Third, Fourth, Fifth, Sixth, Seventh, Eighth
and Ninth Springhill Lake Limited Partnerships and Springhill Commercial Limited
Partnership (collectively, the "Operating Partnerships"), each of which is a
Maryland limited partnership owning a section of a garden apartment complex in
Greenbelt, Maryland (the "Project"). The Registrant is the sole general partner
of each Operating Partnership. The limited partner of each Operating Partnership
is Theodore N. Lerner ("Lerner"), a former general partner of the Operating
Partnerships whose interest was converted to that of a limited partner on
January 16, 1985.
The general partners of the Registrant are Three Winthrop Properties, Inc.
("Three Winthrop") and Linnaeus-Lexington Associates Limited Partnership
("Linnaeus") (collectively, the "General Partners"). Three Winthrop is a
Massachusetts corporation which is a wholly owned subsidiary of First Winthrop
Corporation, a Delaware corporation which is wholly owned by Winthrop Financial
Associates, A Limited Partnership ("WFA"). WFA is a Maryland public limited
partnership organized in 1984 to acquire all of the outstanding stock of First
Winthrop Corporation. Linnaeus is a Massachusetts limited partnership whose
general partners are Arthur J. Halleran, Jr. and Jonathan W. Wexler. Mr.
Halleran is the managing general partner of Linnaeus. The other partners of
Linnaeus are present and former officers of WFA and First Winthrop Corporation.
Messrs. Halleran and Wexler are directors of First Winthrop Corporation and
Three Winthrop, and Mr. Halleran is the sole general partner of the general
partner of WFA. Three Winthrop is the Registrant's Managing General Partner.
Development
The Registrant was initially capitalized with nominal capital
contributions from its General Partners. In April 1985, the Registrant completed
a non-public offering of 649 units of limited partnership interest (the "Units")
pursuant to Regulation D under the Securities Act of 1933 and to the terms of
the Confidential Memorandum dated January 16, 1985 (the "Confidential
Memorandum"), selected portions of which were filed as Exhibits 28(a) - (d) to
the Registration Statement on Form 10, filed on April 20, 1986. The Registrant
raised $40,562,500 in capital contributions from investors who were admitted to
the Registrant as limited partners ("Limited Partners"). The Limited Partners
financed a portion of their capital contributions by promissory notes ("Investor
Notes"). As of March 1988, the Investor Notes were paid in full.
-3-
The Registrant purchased its interest in the Operating Partnerships on
January 16, 1985, for $73,514,921, of which $58,000,000 was financed by means of
a mortgage loan (the "Original Mortgage Loan"). The Original Mortgage Loan had a
term of ten years and bore interest at 13.625%. For a further description of the
Original Mortgage Loan, see pages 42 through 44 of the Confidential Memorandum,
which description is attached hereto as an exhibit and incorporated herein by
reference. The balance of the purchase price was funded initially by a loan from
a major financial institution which was repaid from the proceeds of lines of
credit provided by a commercial bank in the aggregate amount of $23,800,000 (the
"Commercial Loan"). As of March 1988, the Commercial Loan was repaid in full
from the capital contribution payments under the Investor Notes.
In April 1993, the Original Mortgage Loan was refinanced with two new
loans (the "New Mortgage Loans") in the amounts of $58,000,000 and $5,000,000.
In order to consummate the refinancing, a prepayment penalty of $2,833,074 was
paid on the Original Mortgage Loan. The New Mortgage Loans bear interest at 9.3%
and have a term of ten years. Monthly payments of principal and interest total
$541,696 (based on a 25-year amortization schedule) for the first two years of
the New Mortgage Loans and increase to $566,137 (based on a 20-year amortization
schedule) for the third through tenth years of the loans. A final payment of
$49,016,500 is due on May 1, 2003. In addition to monthly payments of principal
and interest, the New Mortgage Loans require the Registrant to make payments
into various escrow accounts, including escrows for real estate taxes and
capital improvements.
The Registrant's interest in the Operating Partnerships entitles it to
90% of profits and losses for tax purposes, 90% of the Operating Partnerships'
cash flow (after certain priority distributions), and 85% of the proceeds of a
sale or disposition of the Project (after certain priority distributions).
Description of Business
The only business of the Registrant is investing as a general partner
in the Operating Partnerships, and as such, to cause the Operating Partnerships
to own and operate the Project, until such time as a sale, if any, of all or a
portion of the Project appears to be advantageous to the Registrant and is
permitted under the terms of the Operating Partnerships' partnership agreements.
Please see pages 37-41 of the Confidential Memorandum for a description of the
Project and its rental market, which description is attached hereto as an
exhibit and incorporated herein by reference.
The Registrant's business plan for the Operating Partnerships has been
to increase rental rates to the extent the market permits while maintaining
occupancy. Average occupancy was 92.5% in 1989, 91% in 1990, 92% in 1991 and 91%
in 1992 and 1993. Average street rents increased by 3.8% in 1989, by 8.2% in
1990, by 4.5% in 1991 and by 2.2% in 1992. Street rents were not increased
during 1993. The rental market for the
-4-
Project began to soften in 1988 as a result of weakening general economic
conditions. In 1990, the rental market became, and has remained, very
competitive. While the Operating Partnerships were able to implement rent
increases through 1992, it became necessary to offer rent concessions to attract
new tenants as leases expired. As a result, effective rents did not increase
during 1993.
Upon the acquisition of its interests in the Operating Partnerships,
the Registrant established a capital improvement program for the Project, which
was estimated to cost approximately $12,550,000. Among other improvements to the
grounds and buildings, the planned improvements included the renovation of each
of the 2,899 apartment units. As of December 31, 1993, approximately 2,721 units
had been renovated. Since 1987, unit renovations have been carried out as units
are vacated. Accordingly, it could be a few years before the remainder of the
units are renovated. In addition, due to the age of the Project and in order to
effectively compete in the rental market, the scope of the improvements has
expanded over the years. Through December 31, 1993, the Operating Partnerships
have expended $16,595,892 on capital improvements -- $12,550,000 was funded from
Limited Partners' capital contributions, and the balance was funded through
operations. The Registrant expects to spend approximately $1.6 million on
capital improvements in 1994.
Employees
The Registrant does not have any employees. Services are performed for
the Registrant by the General Partners and agents retained by them. The
Operating Partnerships have retained Winthrop Management, a Massachusetts
general partnership whose general partners are affiliated with WFA, to be
primarily responsible for the management of the Project, including the
establishment of leasing policies, the setting of rental rates, the
implementation of capital improvements and the supervision of the Project's
property manager. Prior to January 1, 1990, another affiliate of WFA performed
these services. Winthrop Management is entitled to a fee equal to 1% of gross
rents actually collected, payable monthly, and it may also receive a contingent
incentive management fee, contingent on the Registrant exceeding certain amounts
forecasted in the Confidential Memorandum. Lerner Corporation is the property
manager for the Project. Lerner Corporation, a Maryland corporation whose
principal stockholder is Lerner, performs the day-to-day management and
administrative functions for the Project. Under the terms of its management
agreement, Lerner Corporation is entitled to receive a fee equal to 4% of
monthly income. The Lerner Corporation's management agreement cannot be
terminated without cause by the Operating Partnerships for 10 years from the
effective date of the management agreement, which effective date was January 16,
1985. Thereafter, termination by the Operating Partnerships is permitted upon 90
days' notice.
Item 2. Properties.
The Registrant owns no property other than its interest in the
Operating Partnerships.
-5-
For a description of the properties of the Operating Partnerships, see Item 1
hereof.
Item 3. Legal Proceedings.
To the best of the Registrant's knowledge, there are no material
pending legal proceedings to which it is a party or to which its properties are
subject.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters.
There is no established public trading market for the Units of limited
partnership interest in the Registrant. Trading in the Units is sporadic and
occurs solely through private transactions. In addition, transfers of Units are
subject to limitations set forth in the Registrant's partnership agreement which
require the prior written consent of the Managing General Partner to any such
transfer. The Registrant's partnership agreement was filed as Exhibit 3 to the
Registrant's Registration Statement on Form 10 dated April 30, 1986, as
thereafter amended (the "Partnership Agreement"). As of December 31, 1993, there
were 674 holders of Units.
The Partnership Agreement requires that Cash Flow (as defined therein) be
distributed to the partners in specified proportions at reasonable intervals
during the fiscal year and, in any event, no later than 60 days after the close
of each fiscal year. The Registrant's ability to make distributions of Cash Flow
is limited by the extent to which the Operating Partnerships earn more than
sufficient rental and investment income to (a) pay all expenses of the Project,
and (b) distribute sufficient Cash Flow to the Registrant to meet the debt
service requirements of the Mortgage Loan and other expenses and current
obligations. Cash distributions of $237,502 and $237,502 were paid to the
Limited Partners in 1992 and 1991, respectively, representing the Cash Flow
available for distribution from the preceding year's operations. None of the
cash that was distributed represented a return of Limited Partners' capital. No
distribution was made in 1993 from 1992 operations because the property operated
at a deficit in 1992, which was funded from the Partnership's reserves. As of
March 15, 1994, no distributions have been made to the Limited Partners in 1994.
Item 6. Selected Financial Data.
The following table summarizes certain selected consolidated financial
information concerning the Registrant and the Operating Partnerships and should
be read in conjunction with the financial statements and the related notes
attached hereto:
-6-
For the Period Ended as of December 31,
--------------------------------------------------------------------------------
1993 1992 1991 1990 1989
----------- ----------- ----------- ----------- --------
Operating Statement Data:
Rental Income $22,272,861 $22,550,895 $23,035,380 $22,656,120 $22,193,339
----------- ----------- ----------- ----------- -----------
Total Income $23,308,176 $23,618,683 $24,267,594 $23,837,953 $23,493,106
----------- ----------- ----------- ----------- -----------
Total Expenses $27,973,576 $27,067,983 $27,021,409 $26,497,878 $25,243,681
----------- ----------- ----------- ----------- -----------
Net Loss Before
Minority Interest $ 4,665,400 $ 3,449,300 $ 2,753,815 $ 2,659,925 $ 1,750,575
Net Loss $ 4,543,225 $ 3,437,284 $ 2,821,786 $ 2,748,284 $ 1,900,218
=========== =========== =========== =========== ===========
Net Loss per Unit
Outstanding $ 6,650 $ 5,031 $ 4,131 $ 4,023 $ 2,782
=========== =========== =========== =========== ===========
As of December 31,
--------------------------------------------------------------------------------
1993 1992 1991 1990 1989
----------- ----------- ----------- ----------- --------
Balance Sheet Data:
Total Assets $ 69,211,320 $ 68,013,802 $ 71,997,261 $ 75,557,290 $ 79,212,035
========== ========== ========== ========== ==========
Mortgages Payable $ 62,560,654 $ 56,764,812 $ 57,144,888 $ 57,476,809 $ 57,766,673
---------- ---------- ---------- ---------- ----------
Total Liabilities $ 63,841,624 $ 57,978,706 $ 58,262,863 $ 58,819,075 $ 59,062,421
========== ========== ========== ========== ==========
Cash Distributions
per Unit
Outstanding $ -- $ 366 $ 366 $ 1,100 $ 700
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operation.
Liquidity and Capital Resources.
The principal anticipated expenditures of the Registrant consist of (i)
interest payable on the New Mortgage Loans and (ii) fees payable to affiliates
of the General Partners. The General Partners believe that cash flow generated
by the Operating Partnerships will be sufficient to pay such expenditures.
In April 1993, the Registrant completed the refinancing of the $58 million
Original Mortgage Loan by obtaining two new loans in the amounts of $58,000,000
and $5,000,000. The proceeds of the New Mortgage Loans along with $500,000 of
the Registrant's reserves were used to (i) retire the Original Mortgage Loan;
(ii) pay the original mortgage lender a prepayment penalty of $2,833,074; (iii)
establish $1,770,000 in various escrows and
-7-
reserves; and (iv) pay third-party closing costs of approximately $2.3 million.
The New Mortgage Loans bear interest at 9.3% and have a term of ten years.
Monthly payments of principal and interest on the New Mortgage Loans total
$541,696 (based on a 25-year amortization schedule) for the first two years of
the New Mortgage Loans and increase to $566,137 (based on a 20-year amortization
schedule) for the third through tenth years of the loans. A final payment of
$49,016,500 is due on May 1, 2003. These payments represent a significant
savings relative to the $678,576 monthly payment required by the Original
Mortgage Loan.
Initially, the savings will be used to fund various reserves required by
the New Mortgage Loans. These reserve requirements total approximately $1.5
million in the first year and approximately $1.5 million in each of the
remaining nine years of the loan term. The reserves are being used to complete
capital projects identified by the lender, including drainage improvements and
structural repairs, as well as ongoing capital improvements and major
replacements, like carpets and appliances. These reserves will be released to
the Registrant as capital improvements are completed and reserve requests are
made, which can be done on a quarterly basis. On March 11, 1994, the Registrant
requested that $841,000 of the reserves be released by the lender to the
Registrant for capital improvements and replacements completed from May through
December 1993. As of December 31, 1993, the Registrant had cash reserves of
$1,558,211 plus escrows and reserves of $2,770,371.
Results of Operations
Operating results of the properties owned by the Operating Partnerships
declined in 1992 but improved in 1993. The Registrant's net loss increased in
1992, from $2,821,786 to $3,437,284. The Registrant's net loss increased to
$4,543,225 in 1993, but the net loss in 1993 includes the $2,833,074 prepayment
penalty on the Original Mortgage Loan that was required to complete the April
1993 refinancing.
1992 Compared to 1991. Consolidated net operating income (revenue less
operating expenses, which excludes Depreciation and Amortization, Interest
Expense and Abandonment Loss) decreased by $730,291, or 8.2%, in 1992 to
$8,172,346 from $8,902,637 in 1991. While management was able to implement a
2.2% rental rate increase during 1992, demand in the Greenbelt, Maryland area
apartment market weakened considerably through 1992. As a result, the Project's
aggregate loss from vacancy and concession increased and total revenue decreased
by $648,911, or 2.7%, in 1992 to $23,618,683 from 1991 revenue of $24,267,594.
Occupancy for 1992 averaged 91%. While revenue was down, 1992 operating expenses
remained flat at $15,446,337, relative to 1991 expenses of $15,364,957.
Non-operating expenses (i.e., Depreciation and Amortization, Interest Expense
and Abandonment Loss) also remained flat.
1993 Compared to 1992. In 1993 consolidated net operating income improved
by 7.3%
-8-
to $8,772,063, primarily as a result of lower operating expenses. Revenue
declined slightly (1.3%) to $23,308,176 because of management's inability to
increase rental rates. Average occupancy remained at 91% for 1993. Operating
expenses declined by 5.9% to $14,536,113 because management was able to
significantly reduce operating expenses at the properties by spending less on
repairs and maintenance and by reducing staff. Non-operating expenses increased,
primarily as a result of the $2,833,074 prepayment penalty associated with the
refinancing discussed above. This amount is included in interest expense in
1993. As a result of this prepayment penalty, the Registrant's net loss
increased to $4,543,225 in 1993.
Capital expenditures in 1993 were $379,199, compared to $424,998 in 1992
and $668,465 in 1991. Unit renovations, including appliance replacement and
painting of apartment units, comprised the bulk of the 1993 capital
expenditures.
Inflation and economic conditions could affect vacancy levels, rental
payment defaults and operating expenses, and thus, could affect the
Partnership's revenues and net income. The Greenbelt, Maryland apartment
market, where the Project is located, has become increasingly competitive. This
increased competition has been caused primarily by a lower demand for apartments
in the Greenbelt area. As additional on-campus student housing has become
available at the University of Maryland, occupancy levels have been affected. In
addition, affordable housing costs and low interest rates have converted many
apartment clients into homeowners.
Item 8. Financial Statements and Supplementary Data.
The Consolidated Financial Statements listed on the accompanying Index to
Consolidated Financial Statements are filed as a part of this Report and
incorporated herein by this reference.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
PART III
Item 10. Directors and Executive Officers of the Registrant.
The Registrant does not have directors or officers. Three Winthrop and
Linnaeus are the General Partners of the Registrant. Three Winthrop is the
Managing General Partner.
(a) and (b) Identification of Directors and Executive Officers.
The following table sets forth the names and ages of the directors and
executive officers
-9-
of the Managing General Partner and the position held by each of them.
Name Managing General Partner Age
Arthur J. Halleran, Jr .................. Director and President 46
Jonathan W. Wexler ...................... Director, Vice President, Assistant 43
Clerk and Treasurer
Richard J. McCready ..................... Director, Vice President and Clerk 35
Mr. Halleran has served in an executive capacity with the Managing
General Partner since its organization in 1978, Mr. Wexler was elected an
officer in 1983 and Mr. McCready in 1990. All of these individuals will continue
to serve in such capacities until their successors are duly elected and
qualified.
(c) Identification of Certain Significate Employees. None.
(d) Family Relationships. None.
(e) Business Experience.
The background and experience of the executive officers and directors of
the Managing General Partner, described in Items 10(a) and 10(b) above, are as
follows:
Arthur J. Halleran, Jr. is the Chairman of WFA. He is also Director and
President of the Managing General Partner and other subsidiaries of WFA. In
such capacities he is responsible for all aspects of the business of WFA and
its subsidiaries, with special emphasis on the evaluation, acquisition and
structuring of real estate investments. Mr. Halleran joined the Winthrop
organization in 1977. He is a graduate of Villanova University and holds an
M.B.A. degree from the Harvard Business School.
Jonathan W. Wexler is a Vice Chairman and Vice President of WFA and a
Director, Vice President, Assistant Clerk and Treasurer of the Managing General
Partner and other subsidiaries of WFA. His primary responsibility is the
evaluation, acquisition and structuring of real estate investments. Mr. Wexler
joined the Winthrop organization in 1977. He is a graduate of the Massachusetts
Institute of Technology and holds a Master of Science degree from the Sloan
School of Management of the Massachusetts Institute of Technology.
Richard J. McCready is a Vice President and Clerk of WFA and a Director,
Vice President and Clerk of the Managing General Partner and all other
subsidiaries of WFA. He also has responsibility for all the legal affairs of
WFA and its affiliates. Mr. McCready joined the Winthrop organization in 1990.
He is a graduate of the University of New Hampshire and holds a J.D. degree
from Boston College Law School.
-10-
One or more of the above persons are also directors or officers of a
general partner (or general partner of a general partner) of the following
limited partnerships which either have a class of securities registered pursuant
to Section 12(g) of the Securities and Exchange Act of 1934, or are subject to
the reporting requirements of Section 15(d) of such Act: Winthrop Partners 79
Limited Partnership; Winthrop Partners 80 Limited Partnership; Winthrop Partners
81 Limited Partnership; Winthrop Residential Associates I, A Limited
Partnership; Winthrop Residential Associates II, A Limited Partnership; Winthrop
Residential Associates III, A Limited Partnership; 1626 New York Associates
Limited Partnership; 1999 Broadway Associates Limited Partnership; Indian River
Citrus Investors Limited Partnership; Nantucket Island Associates Limited
Partnership; One Financial Place Limited Partnership; Presidential Associates I
Limited Partnership; Sixty-Six Associates Limited Partnership; Riverside Park
Associates Limited Partnership; Twelve AMH Associates Limited Partnership;
Winthrop California Investors Limited Partnership; Winthrop Growth Investors I
Limited Partnership; Winthrop Interim Partners I, A Limited Partnership;
Winthrop Financial Associates, A Limited Partnership; Southeastern Income
Properties Limited Partnership; Southeastern Income Properties II Limited
Partnership; Winthrop Miami Associates Limited Partnership; Winthrop Apartment
Investors Limited Partnership; and Winthrop Partners 93 Limited Partnership.
(f) Involvement in Certain Legal Proceedings. None.
Item 11. Executive Compensation.
The General Partners and their affiliates are entitled to receive certain
cash distributions from and allocations of taxable profits and losses of the
Registrant. In addition, the General Partners and their affiliates receive
certain fees and compensation paid by the Registrant and the Operating
Partnerships for services rendered in connection with the operations of the
Registrant and the Operating Partnerships. A description of these compensation
arrangements is set forth on pages 18-19 of the Confidential Memorandum
attached as Exhibit 28(c) to the Registration Statement and which is attached
hereto as an exhibit and incorporated herein by reference.
The following table sets forth the amounts of the fees and cash
distributions which the Registrant and the Operating Partnerships paid to or
accrued for the account of the General Partners or their affiliates for the
years ended December 31, 1991, 1992 and 1993. Also, see Note 9 of Notes to
Consolidated Financial Statements of the Registrant for the year ended December
31, 1993.
NAME FEE 1993 1992 1991
- ---- --- --------- --------- -------
Winthrop Management Asset Management Fee $100,000 $100,000 $100,000
Winthrop Management Investor Administration Fee 10,000 10,000 10,000
Winthrop Management Property Management Fee 223,382 230,845 230,463
Three Winthrop Cash Distributions -- 250 250
Linnaeus-Lexington Associates Cash Distributions -- 12,250 12,250
-11-
During 1991, 1992 and 1993, Linnaeus was allocated $165,313, $199,918 and
$245,277 respectively, of taxable losses by the Registrant in accordance with
its respective partnership interests in the Registrant. During 1991, 1992 and
1993, Three Winthrop was allocated $3,374, $4,083 and $5,004, respectively, of
taxable losses by the Registrant in accordance with its respective partnership
interests in the Registrant.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
(a) Security Ownership of Certain Beneficial Owners.
The tabular data requested by Item 403 of Regulation S-K is
inapplicable.
Three Winthrop and Linnaeus own all the outstanding general
partnership interests in the Registrant. As General Partners, they are entitled
in the aggregate to 5% of the Registrant's net income or loss for tax purposes,
and, after certain priority distributions, 5% of cash flow and 29.4% of the
proceeds of a capital transaction in connection with the liquidation or
termination of the Registrant. No other person or group is known by the
Registrant to be the beneficial owner of more than 5% of the outstanding
partnership interests as of the date hereof.
(b) Security Ownership of Management.
As of December 31, 1993, four limited partners of Linnaeus, who are
no longer employed by WFA or its affiliates, beneficially own Units of limited
partnership interest in the Registrant. One person owns a one-half Unit and the
other three own one Unit each (less than .01%). No other officer or director or
partner of the General Partners own any Units.
(c) Changes in Control.
There exists no arrangement known to the Registrant the operation
of which may at a subsequent date result in a change in control of the
Registrant.
Item 13. Certain Relationships and Related Transactions.
(a) Transactions with Management and others.
Item 11 of this Report, which contains a description of the fees and
other compensation paid by the Registrant and the Operating Partnerships to the
General Partners and their affiliates, is incorporated herein by reference.
Also, see Note 9 of Notes to Financial Statements of the Registrant for the year
ended December 31, 1993. There were no other material transactions between the
General Partners or their affiliates and the Registrant or the Operating
Partnerships during 1991, 1992 and 1993.
-12-
(b) Certain Business Relationships.
The Registrant's response to Item 13(a) hereof is incorporated herein by
reference. The Registrant has no business relationship with entities of which
the officers, directors or partners of the General Partners or their affiliates
are officers, directors or 10 percent shareholders other than as set forth in
the response to Item 13(a) and as discussed above in Item 11.
(c) Indebtedness of Management.
There is no indebtedness to the Registrant by Three Winthrop, Linnaeus or
any of their officers, directors or partners.
Part IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
(a) The following documents are filed as part of this Report:
1. Financial Statements --- The Consolidated Financial Statements
listed on the accompanying Index to Consolidated Financial Statements are filed
as a part of this Report.
2. Financial Statement Schedules --- There are no Financial
Statement Schedules required to be filed.
3. Exhibits --- The exhibits listed in the accompanying Index
to Exhibits are filed as part of this Report.
(b) Reports on Form 8-K. The Registrant did not file any Current Reports
on Form 8-K during the fourth quarter of fiscal 1993.
-13-
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has caused this Report on Form 10-K to be
signed on its behalf by the undersigned, thereunto duly authorized.
SPRINGHILL LAKE INVESTORS LIMITED
PARTNERSHIP
By: THREE WINTHROP PROPERTIES, INC.
Managing General Partner
Date: March __, 1994 By: /s/ Arthur J. Halleran, Jr.
--------------------------------
Arthur J. Halleran, Jr.
President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report on Form 10-K has been signed below by the following persons on behalf of
the Registrant and in the capacities and on the dates indicated.
/s/ Arthur J. Halleran, Jr. Director and President of the Managing General
Arthur J. Halleran, Jr. Partner (Principal Executive Officer)
Date: March __, 1994
/s/ Jonathan W. Wexler Director, Vice President, Treasurer and
Jonathan W. Wexler Assistant Clerk of Managing General Partner
Date: March __, 1994
/s/ Richard J. McCready Director, Vice President and Clerk of Managing
Richard J. McCready General Partner
Date: March __, 1994
-14-
SPRINGHILL LAKE INVESTORS LIMITED PARTNERSHIP
Index to Consolidated Financial Statements
For the Years Ended December 31, 1993 and 1992
Page
Independent Auditors' Report................................................................... 16
Consolidated Balance Sheets as of December 31, 1993 and 1992................................... 17
Consolidated Statements of Operations for the Years Ended
December 31, 1993, 1992 and 1991............................................................. 18
Consolidated Statements of Changes in Partners' Equity (Deficit) for
the Years Ended December 31, 1993, 1992 and 1991............................................. 19
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1993, 1992 and 1991............................................................. 20
Notes to Consolidated Financial Statements..................................................... 21
-15-
[REZNICK FEDDER & SILVERMAN LETTERHEAD]
INDEPENDENT AUDITORS' REPORT
To the Partners of
Springhill Lake Investors Limited Partnership
We have audited the accompanying consolidated balance sheets of Springhill Lake Investors
Limited Partnership as of December 31, 1993 and 1992 and the related consolidated
statements of operations, changes in partners' equity (deficit) and cash flows for the
years then ended. These financial statements are the responsibility of the Partnership's
management. Our responsibility is to express an opinion on these financial statements
based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those
standards require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above, present fairly,
in all material respects, the consolidated financial position of Springhill Lake Investors
Limited Partnership as of December 31, 1993 and 1992, and the consolidated results of
their operations and their consolidated cash flows for the years then ended, in conformity
with generally accepted accounting principles.
/s/ REZNICK FEDDER & SILVERMAN
Bethesda, Maryland
March 16, 1994
SPRINGHILL LAKE INVESTORS LIMITED PARTNERSHIP
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1993 and 1992
ASSETS
1993 1992
INVESTMENT IN REAL ESTATE
(Notes 2, 4 and 6):
Land. . . . . . . . . . . . . . . . . . . . . . . . $ 5,833,466 $ 5,833,466
Buildings, improvements and personal property . . . 85,866,567 85,565,963
91,700,033 91,399,429
Less accumulated depreciation . . . . . . . . . . . 30,490,781 26,859,141
61,209,252 64,540,288
OTHER ASSETS:
Cash and cash equivalents (Note 2). . . . . . . . . 1,558,211 841,988
Tenant accounts receivable (Note 2) . . . . . . . . 322,263 261,400
Due from affiliates (Note 9). . . . . . . . . . . . - 96,755
Tenant security deposits-funded . . . . . . . . . . 300,000 500,000
Escrows and Reserves. . . . . . . . . . . . . . . . 2,770,371 -
Prepaid expenses and other assets . . . . . . . . . 864,913 932,958
Deferred costs, less accumulated amortization of
$241,705 and $818,923 (Notes 2 and 3) . . . . . . 2,186,310 840,413
TOTAL ASSETS. . . . . . . . . . . . . . . . . . . . $ 69,211,320 $ 68,013,802
LIABILITIES AND PARTNERS' EQUITY
MORTGAGES PAYABLE (NOTE 6) . . . . . . . . . . . . . . $ 62,560,654 $ 56,764,812
OTHER LIABILITIES:
Bank overdraft. . . . . . . . . . . . . . . . . . . - 357,820
Accounts payable and accrued expenses . . . . . . . 977,545 588,418
Due to affiliates (Note 9). . . . . . . . . . . . . 23,547 -
Tenant security deposits payable. . . . . . . . . . 279,878 267,656
63,841,624 57,978,706
MINORITY INTEREST (NOTES 1 AND 2). . . . . . . . . . . 1,415,942 1,538,117
PARTNERS' EQUITY:
Investor Limited Partners, Units of Investor
Limited Partnership Interest, 649 units
authorized and outstanding (Note 1) . . . . . . . 6,615,479 10,931,543
General Partners (Note 1) . . . . . . . . . . . . . (2,661,725) (2,434,564)
3,953,754 8,496,979
TOTAL LIABILITIES AND PARTNERS' EQUITY . . . . . . . . $ 69,211,320 $ 68,013,802
SPRINGHILL LAKE INVESTORS LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1993, 1992, and 1991
1993 1992 1991
REVENUES
Rental income . . . . . . . . . . . . $ 22,272,861 $ 22,550,895 $ 23,035,380
Laundry income. . . . . . . . . . . . 313,958 316,626 346,913
Interest income . . . . . . . . . . . 65,001 104,113 199,137
Other income. . . . . . . . . . . . . 656,356 647,049 686,164
23,308,176 23,618,683 24,267,594
EXPENSES
Utilities . . . . . . . . . . . . . . 3,891,412 3,582,967 3,392,813
Repairs and maintenance . . . . . . . 2,012,100 2,644,551 3,269,949
Taxes . . . . . . . . . . . . . . . . 1,876,190 1,974,726 1,741,513
Salaries. . . . . . . . . . . . . . . 2,204,983 2,787,390 2,719,783
Operating expenses. . . . . . . . . . 961,117 700,790 830,653
Abandonment loss. . . . . . . . . . . 15,719 39,297 90,570
Administrative expenses . . . . . . . 435,990 403,034 326,986
Bad debt expense. . . . . . . . . . . 716,214 811,353 447,467
Advertising and rental expenses . . . 777,161 800,368 830,187
Insurance . . . . . . . . . . . . . . 434,035 476,932 543,290
Asset and property management
fees (Note 9) . . . . . . . . . . . 1,226,911 1,264,226 1,262,316
Interest expense (Note 6) . . . . . . 9,324,446 7,762,837 7,810,994
Depreciation and amortization (Note 2) 4,097,298 3,819,512 3,754,888
27,973,576 27,067,983 27,021,409
Net Loss before minority interest . . (4,665,400) (3,449,300) (2,753,815)
Minority Interest in (Net Earnings)
Loss of Operating Partnerships
(Note 2). . . . . . . . . . . . . . 122,175 12,016 (67,971)
NET LOSS (Note 1). . . . . . . . . . . . $ (4,543,225) $ (3,437,284) $ (2,821,786)
Net Loss allocated to general partners
(Note 1). . . . . . . . . . . . . . . $ (227,161) $ (171,864) $ (141,089)
Net Loss allocated to investor limited
partners (Note 1). . . . . . . . . . $ (4,316,064) $ (3,265,420) $ (2,680,697)
Net loss per unit of investor limited
partnership interest outstanding. . . $ (6,650) (5,031) (4,131)
Weighted average units of investor
limited partnership interest
outstanding . . . . . . . . . . . . . $ 649 649 649
SPRINGHILL LAKE INVESTORS LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' EQUITY (DEFICIT)
YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
Investor
Limited General
Partners Partners Total
Balance, December 31, 1990. . . . . 17,352,664 (2,096,611) 15,256,053
Distributions to partners . . . . . (237,502) (12,500) (250,002)
Net loss. . . . . . . . . . . . . . (2,680,697) (141,089) (2,821,786)
Balance, December 31, 1991. . . . . $ 14,434,465 $ (2,250,200) $ 12,184,265
Distributions to partners . . . . . (237,502) (12,500) (250,002)
Net loss. . . . . . . . . . . . . . (3,265,420) (171,864) (3,437,284)
Balance, December 31, 1992. . . . . $ 10,931,543 $ (2,434,564) $ 8,496,979
Net loss. . . . . . . . . . . . . . (4,316,064) (227,161) (4,543,225)
Balance, December 31, 1993. . . . . $ 6,615,479 $ (2,661,725) $ 3,953,754
SPRINGHILL LAKE INVESTORS LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
1993 1992 1991
Cash flows from operating activities:
Net loss. . . . . . . . . . . . . . . . . . . $(4,543,225) $(3,437,284) $(2,821,786)
Adjustments to reconcile net loss to net
cash provided by (used in) operating
activities:
Minority Interest in Net (Loss) Earnings of
Operating Partnerships . . . . . . . . . . (122,175) (12,016) 67,971
Depreciation. . . . . . . . . . . . . . . . 3,694,516 3,680,919 3,657,698
Amortization. . . . . . . . . . . . . . . . 402,782 138,593 97,190
Abandonment loss. . . . . . . . . . . . . . 15,719 39,297 90,570
Changes in assets and liabilities:
Decrease (increase) in tenant accounts
receivable. . . . . . . . . . . . . . . (60,863) 96,794 (145,117)
Decrease (increase) in due from affiliates 96,755 96,983 (91,864)
Increase in escrows and reserves. . . . . (2,770,371) - -
Decrease (increase) in prepaid expenses
and other assets. . . . . . . . . . . . 68,045 276,444 (294,482)
Increase in deferred costs. . . . . . . . - (679,336) -
Increase (decrease) in related parties
notes and fees. . . . . . . . . . . . . - - (317,455)
Increase (decrease) in accounts payable
and accrued expenses. . . . . . . . . . 389,127 129,873 (166,559)
Increase in due to affiliates . . . . . . 23,547 - -
Net security deposits (paid) received . . 212,222 166,262 (123,261)
Net cash provided by (used in) operating
activities. . . . . . . . . . . . . . . . . . (2,593,921) 496,529 (47,095)
Cash flows from investing activities:
Purchase of fixed assets. . . . . . . . . . . (379,199) (424,998) (668,465)
Net cash used in investing activities . . . . . (379,199) (424,998) (668,465)
Cash flows from financing activities:
Principal payments on mortgages . . . . . . . (57,204,158) (380,076) (331,921)
Proceeds from mortgage. . . . . . . . . . . . 63,000,000 - -
Refinancing deposit received. . . . . . . . . 545,000 - -
Deferred financing and legal costs. . . . . . (2,293,679) - -
Distributions to Partners . . . . . . . . . . - (250,002) (250,002)
Bank overdraft. . . . . . . . . . . . . . . . - 357,820 356,096
Repayment of bank overdraft . . . . . . . . . (357,820) (356,096) -
Net cash provided by (used in) financing
activities. . . . . . . . . . . . . . . . . . 3,689,343 (628,354) (225,827)
Net increase (decrease) in cash and
cash equivalents . . . . . . . . . . . . . . . 716,223 (556,823) (941,387)
Cash and cash equivalents, beginning of year. . 841,988 1,398,811 2,340,198
Cash and cash equivalents, end of year. . . . . $ 1,558,211 $ 841,988 $ 1,398,811
SPRINGHILL LAKE INVESTORS LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1993 AND 1992
1. ORGANIZATION
Springhill Lake Investors Limited Partnership (the "Partnership"), a Maryland limited
partnership, was formed on December 28, 1984 to acquire and own a 90% general partnership
interest in Springhill Lake Limited Partnerships I through IX and Springhill Commercial
Limited Partnership (the "Operating Partnerships"). The Operating Partnerships own and
operate the Springhill Lake Apartments complex in Greenbelt, Maryland. The complex
consists of 2,899 apartment and townhouse units and an eight-store shopping center. The
Partnership and Operating Partnerships will terminate on December 31, 2035, or earlier
upon the occurrence of certain events specified in the Partnership Agreement.
The general partners of the Partnership are Three Winthrop Properties, Inc. ("Three
Winthrop") and Linnaeus-Lexington Associates ("Linnaeus"). Theodore N. Lerner is the
limited partner of the Operating Partnerships.
In accordance with the limited partnership agreement, profits, losses and cash flow
distributions are allocated 95% to the investor limited partners, 4.9% to Linnaeus and .1%
to Three Winthrop.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the partnerships' significant accounting policies consistently applied in the
preparation of the accompanying consolidated financial statements follows.
Basis or Presentation
The accompanying consolidated financial statements include the accounts of the
Partnership and the Operating Partnerships prepared on the accrual basis of accounting.
Theodore N. Lerner's ownership in the Operating Partnerships has been reflected as a
minority interest in the accompanying consolidated balance sheets and statements of
operations. All significant intercompany accounts and transactions have been eliminated
in consolidation.
Cash and Cash Equivalents
Cash and cash equivalents consist of certificates of deposit commercial paper and
U.S. Government investments, valued at cost which approximates market value. Investments
with an original maturity of three months or less are considered to be cash equivalents.
Accounts Receivable
Management considers accounts receivable to be fully collectible; accordingly, no
allowance for doubtful accounts is required. If amounts become uncollectible, they will
be charged to operations when that determination is made.
Investment in Real Estate
Investment in real estate is carried at cost. The projects are depreciated on a
straight-line basis using estimated useful lives of 25 years for real property and 10
years for personal property. For income tax reporting, accelerated methods and lives are
used.
Deferred Costs
Amortization of deferred costs is computed using the straight-line method over the
amortization period of the assets as discussed in Note 3.
Income Taxes
No provision for income taxes is reflected in the accompanying consolidated financial
statements. Each partner is required to report on his individual tax return his allocable
share of income, gains, losses, deductions and credits.
Rental Income
Rental income is recognized as rentals become due. Rental payments received in
advance are deferred until earned. Leases between the partnerships and tenants of the
property are operating leases.
Net Loss Per Unit of Investor Limited Partnership Interest Outstanding
Net loss per unit of investor limited partnership interest outstanding is calculated
based upon the weighted average number of units outstanding.
3. DEFERRED COSTS
The following is a summary of deferred costs and the unamortized balances at December
31, 1993 and 1992:
Amortization Unamortized Unamortized
Period Cost Balance 1993 Balance 1992
Original Mortgage Costs *. . 1/85 - 4/93 $ 980,000 $ 0 $ 202,480
Attorney Fees. . . . . . . . 1/92 - 12/94 124,210 41,405 82,808
Refinancing Costs. . . . . . 5/93 - 5/03 1,244,386 1,161,426 555,125
Attorney Fees. . . . . . . . 5/93 - 4/95 114,419 76,279 -
Other Deferred Costs . . . . 5/93 - 12/09 945,000 907,200 -
$3,408,015 $ 2,186,310 $ 840,413
*These deferred costs were written off upon refinancing on April 30, 1993.
4. INVESTMENT IN REAL ESTATE
Buildings, improvements and personal property are stated at cost and consist of the
following:
December 31,
Category Useful Life 1993 1992
Buildings 25 $ 68,640,167 $ 68,640,167
Building improvements 25 12,754,031 12,404,867
Building equipment 10 4,374,776 4,423,336
Furniture and fixtures 10 97,593 97,593
85,866,567 85,565,963
Less accumulated depreciation (30,490,781) (26,859,141)
$ 55,375,786 $ 58,706,822
5. INVESTMENT IN OPERATING PARTNERSHIPS
The condensed, summarized financial statements of the Operating Partnerships as of
December 31, 1993 and 1992 and for the years then ended are as follows:
SUMMARIZED BALANCE SHEET
ASSETS
1993 1992
Buildings, improvements and personal property
net of accumulated depreciation of $30,490,781
and $26,859,141 . . . . . . . . . . . . . . . . $ 55,375,786 $ 58,706,822
Land. . . . . . . . . . . . . . . . . . . . . . . 5,833,466 5,833,466
Other assets. . . . . . . . . . . . . . . . . . . 2,116,596 2,114,253
TOTAL ASSETS . . . . . . . . . . . . . . . . $ 63,325,848 $ 66,654,541
LIABILITIES AND PARTNERS' EQUITY
1993 1992
Liabilities:
Accounts payable and accrued expenses . . . . . . $ 976,676 $ 588,418
Other liabilities . . . . . . . . . . . . . . . . 303,425 625,476
1,280,101 1,213,894
Partners' Equity:
Springhill Lake Investors Limited
Partnership. . . . . . . . . . . . . . . . . . . $ 60,629,805 $ 63,902,530
Other partners. . . . . . . . . . . . . . . . . . 1,415,942 1,538,117
62,045,747 65,440,647
TOTAL LIABILITIES AND PARTNERS' EQUITY. . . . . . $ 63,325,848 $ 66,654,541
SUMMARIZED STATEMENTS OF OPERATIONS
1993 1992 1991
Revenues:
Rental income . . . . . . . . . . . . . $ 22,272,861 $ 22,550,895 $ 23,035,380
Interest and other income . . . . . . . 999,558 1,007,742 1,123,289
23,272,419 23,558,637 24,158,669
Expenses:
Depreciation . . . . . . . . . . . . . 3,694,516 3,680,919 3,657,698
Operating expenses. . . . . . . . . . . 12,201,756 13,006,145 13,154,139
Taxes and insurance . . . . . . . . . . 2,310,225 2,497,883 2,284,803
18,206,497 19,184,947 19,096,640
Net Earnings . . . . . . . . . . . . . . . . $ 5,065,922 $ 4,373,690 $ 5,062,029
6. MORTGAGES PAYABLE
The partnership had a mortgage loan in the amount of $58,000,000, which had a ten-
year term and bore interest at the rate of 13.625% per annum. Monthly payments of
interest only of $658,542 were to be made for the first four years and principal and
interest payments of $678,576 during years five through ten. A final payment was due on
January 31, 1995 in the amount of $55,786,561.
On April 30, 1993, the mortgages was refinanced with two new mortgage loans having
original principal balances of $58,000,000 and $5,000,000. The notes bear interest at a
rate of 9.3% and a final payment of $49,016,500 is due on May 1, 2003. The partnership
paid prepayment penalties on the original mortgage of $2,833,074 during 1993 which is
included in interest expense on the consolidated statements of operations. The monthly
principal and interest installments are as follows:
*Mortgage
Period Term Monthly Installment
Years 1-2 25 yrs. $ 541,696
Years 3-10 20 yrs. $ 566,137
* Mortgage term represents the period over which monthly principal and interest
payments are based upon.
The Partnership expensed interest on the mortgage loans totalling $6,491,372,
$7,762,837 and $7,810,994 in 1993, 1992 and 1991, respectively.
Aggregate principal payments required under the mortgage notes at December 31, 1993
are as follows:
1994 $ 712,053
1995 982,085
1996 1,182,622
1997 1,297,418
1998 1,423,356
Thereafter 56,963,120
$62,560,654
The mortgage loans are secured by a pledge of the Investor Partnership's interest in
the Operating Partnerships, and joint and several guarantees by the Operating Partnerships
which, in turn, are secured by an indemnity first mortgage on the Operating Partnerships
and a pledge of the stock of Springfield Facilities, Inc., an affiliate.
7. TAXABLE LOSS
The Partnership's taxable losses for 1993, 1992 and 1991 differ from the net losses
for financial reporting purposes primarily due to the difference in the recognition of
depreciation. The taxable losses for 1993, 1992 and 1991 are as follows:
1993 1992 1991
Net loss for financial reporting purposes $(4,543,225) $(3,437,284) $(2,821,786)
Plus: Excess of accelerated
depreciation on real and
personal property over
book depreciation (533,128) (554,732) (552,052)
Other 70,693 (87,942) -
Taxable loss $(5,005,660) $(4,079,958) $(3,373,838)
8. STATEMENTS OF CASH FLOWS
The following details supplemental cash flow information:
1993 1992 1991
Cash paid for interest $ 9,324,446 $ 7,762,837 $ 7,810,994
The Operating Partnerships abandoned personal property with an undepreciated cost of
$62,876, $39,297 and $90,570 in 1993, 1992 and 1991, respectively.
9. RELATED PARTY TRANSACTIONS
The property is managed by Lerner Corporation, whose principal stockholder is a
limited partner of the partnerships. The management agreement provides for a
management fee equal to 4% of monthly income. The amount charged to operations
during 1993, 1992 and 1991 amounted to $893,529, $923,381 and $921,853 respectively,
of which $107,011 remains payable at December 31, 1993, and is included in accounts
payable and accrued expenses. In addition, Lerner Corporation pays expenses of the
partnerships from a central operating account. At December 31, 1993 and 1992, Lerner
Corporation advanced the partnerships $16,067 and $88,653, respectively, in excess of
recorded expenditures.
Winthrop Management, an affiliate of the general partner, supervises the management
agent in the performance of its duties. In addition, Winthrop Management supervises
the capital improvement program. The management fee for these services is equal to
1% of monthly income which amounted to $223,382, $230,845 and $230,463 in 1993, 1992
and 1991, respectively.
The partnerships paid Springfield Facilities, Inc., an affiliate, a rental fee for
the use of the recreational facilities. This fee is based on the affiliate's cost of
operating these facilities. Rent expense charged to operations for the years ended
December 31, 1993, 1992 and 1991 was $292,026, $367,752 and $370,755 respectively.
In addition, at December 31, 1993 and 1992, the partnerships owe Springfield
Facilities, Inc. $7,480 and $8,102, respectively, for unreimbursed expenses.
Winthrop Financial, an affiliate of the general partner, receives an annual asset
management fee of $100,000, which was charged to operations for each of the three
years ended December 31, 1993.
Expenses for 1993, 1992 and 1991 include a fee of $10,000 paid annually by the
investor partnership to Winthrop Financial Co., Inc., an affiliate of the general
partner, for the administration of the investor partnership.
10. OPERATING LEASES
The Operating Partnerships lease retail space to tenants in the shopping center under
the terms of operating leases expiring in various years through July 31, 1997. Minimum
future rental payments to be received subsequent to December 31, 1993 are as follows:
Year ending December 31, 1994 $105,921
1995 83,041
1996 72,988
1997 31,758
$293,708
ANNEX II
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended September 30, 1994 Commission File Number 0-14569
------------------ -------
SPRINGHILL LAKE INVESTORS LIMITED PARTNERSHIP
Maryland 04-2848939
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
One International Place, Boston, MA 02110
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (617) 330-8600
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO_________
PART I - FINANCIAL INFORMATION
ITEM 1. - FINANCIAL STATEMENTS
STATEMENTS OF OPERATIONS
- ---------------------------------------------------------------------------------------------------------------------------------
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------- -----------------
1994 1993 1994 1993
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
- ---------------------------------------------------------------------------------------------------------------------------------
Revenues:
Rental income....................................... $ 5,219,353 $ 5,298,938 $16,547,277 $16,506,907
Laundry income...................................... 79,088 79,174 236,067 235,754
Interest income..................................... 54,183 16,911 138,808 50,901
Other income........................................ 514,651 512,589 637,223 627,420
----------- ----------- ----------- -----------
5,867,275 5,907,612 17,559,375 17,420,982
----------- ----------- ----------- -----------
EXPENSES:
Utilities........................................... 1,177,249 1,167,155 3,150,964 3,045,603
Repairs and maintenance............................. 481,543 369,671 1,193,546 1,221,612
Taxes ......................................... 372,824 429,514 1,245,214 1,296,321
Salaries............................................ 616,393 529,695 1,761,876 1,731,944
Advertising and rental expense...................... 83,648 79,711 217,465 299,839
Administrative expenses............................. 135,324 85,442 402,966 380,119
Bad debt expense.................................... 80,340 263,917 440,820 609,438
Operating expense................................... 267,050 258,217 739,672 655,914
Insurance........................................... 192,603 105,555 407,566 324,068
Asset and property management fees................. 310,865 308,755 933,798 919,569
Interest expense.................................... 1,445,062 1,487,802 4,347,455 7,867,300
Depreciation and amortization....................... 988,800 929,469 2,966,400 3,090,612
----------- ----------- ----------- -----------
6,151,701 6,014,903 17,807,742 21,442,339
----------- ----------- ----------- -----------
Net loss before minority interest...................... (284,426) (107,291) (248,367) (4,021,357)
----------- ----------- ----------- -----------
Minority Interest in Net Earnings of
Operating Partnerships.............................. (17,941) (21,803) (63,045) (62,425)
----------- ----------- ----------- -----------
NET LOSS (Note 2)...................................... (302,367) (129,094) (311,412) (4,083,782)
=========== =========== =========== ===========
Net Loss allocated to general
partners............................................. (15,118) (6,455) (15,571) (204,189)
=========== =========== =========== ===========
Net Loss allocated to investor
limited partners.................................... (287,249) (122,639) (295,841) (3,879,593)
=========== =========== =========== ===========
Net Loss per unit of limited
partnership interest................................ (443) (189) (456) (5,978)
=========== =========== =========== ===========
The accompanying notes are an integral part of these consolidated
financial statements.
BALANCE SHEETS
- --------------------------------------------------------------------------------------------------------------------------------
September 30, December 31,
1994 1993
(Unaudited) (Audited)
- ---------------------------------------------------------------------------------------------------------------------------------
ASSETS:
Investment in Real Estate - At Cost
Land................................................................... $ 5,833,466 $ 5,833,466
Buildings, improvements and personal property.......................... 86,121,083 85,866,567
------------ ------------
91,954,549 91,700,033
Less: accumulated depreciation........................................ 33,261,668 30,490,781
------------ ------------
58,692,881 61,209,252
Other Assets:
Cash and cash equivalents.............................................. 2,733,116 1,558,211
Tenant accounts receivable............................................. 6,687 322,263
Tenant security deposits - funded...................................... 300,000 300,000
Escrows and reserves................................................... 2,706,160 2,770,371
Prepaid expenses and other assets...................................... 2,037,997 864,913
Due from affiliates.................................................... 17,887 -
Deferred costs, less accumulated amortization
of $437,218 and $241,705 as of September
30, 1994 and December 31, 1993 respectively.......................... 1,990,797 2,186,310
------------ ------------
TOTAL ASSETS........................................................... $ 68,485,525 $ 69,211,320
============ ============
LIABILITIES:
Mortgage payable....................................................... $ 62,032,845 $ 62,560,654
Other Liabilities:
Due to affiliate.................................................. - 23,547
Accounts payable and accrued expenses............................. 1,049,885 977,545
Tenant security deposits payable.................................. 281,466 279,878
------------ ------------
$ 63,364,196 $ 63,841,624
------------ ------------
MINORITY INTEREST (Note 1)................................................ $ 1,478,987 $ 1,415,942
------------ ------------
PARTNERS' EQUITY:
Investor Limited Partners, Units of Investor
Limited Partnership Interest, 649 units
authorized and outstanding ....................................... 6,319,638 6,615,479
General Partners....................................................... (2,677,296) (2,661,725)
------------ ------------
3,642,342 3,953,754
------------ ------------
TOTAL LIABILITIES AND PARTNERS' EQUITY.................................... $ 68,485,525 $ 69,211,320
============ ============
The accompanying notes are an integral part of these consolidated
financial statements.
STATEMENTS OF CASH FLOWS
- ---------------------------------------------------------------------------------------------------------------------------------
Nine Months Ended Nine Months Ended
September 30, 1994 September 30, 1993
(Unaudited) (Unaudited)
- ---------------------------------------------------------------------------------------------------------------------------------
Cash flow from operating activities:
Net loss.................................................................. $ (311,412) $ (4,083,782)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Minority Interest in Net Earnings of
Operating Partnerships............................................. 63,045 62,425
Depreciation........................................................ 2,770,887 2,760,689
Amortization........................................................ 195,513 329,923
Changes in assets and liabilities:
Decrease in accounts receivable-tenants.............................. 315,576 170,724
Net Decrease (Increase) in escrows and
reserves......................................................... 64,211 (2,461,323)
Increase in prepaid expenses and other
assets........................................................... (1,173,084) (478,243)
Net decrease (increase) in due to/from
affiliates....................................................... (41,434) 96,755
Increase in related parties notes
and fees......................................................... - 253,278
Increase (decrease) in accounts payable
and accrued expenses ............................................ 72,340 (16,191)
Net security deposits received.................................... 1,588 212,302
------------- -----------
Net cash provided by (used in) operating
activities............................................................ 1,957,230 (3,153,443)
------------- -----------
Cash flow from investing activities:
Purchase of fixed assets................................................... (254,516) -
------------- ----------
Cash flows from financing activities:
Principal payments on mortgage............................................. (527,809) (57,036,215)
Proceeds from mortgage note................................................ - 63,000,000
Refinancing deposit received............................................... - 545,000
Deferred financing and legal costs......................................... - (2,223,581)
Bank overdraft............................................................. - (357,820)
------------- -----------
Net cash provided by (used in) financing
activities................................................................. (527,809) 3,927,384
------------- -----------
Net increase in cash and cash equivalents................................... 1,174,905 773,941
Cash and cash equivalents, beginning of period................................ 1,558,211 841,988
------------- -----------
Cash and cash equivalents, end of period...................................... 2,733,116 1,615,929
------------- -----------
Cash paid for interest........................................................ $ 4,347,455 $ 7,867,300
============= ===========
The accompanying notes are an integral part of these consolidated
financial statements.
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
- --------------------------------------------------------------------------------------------------------------------------------
Units of
For the Nine Months Ended Limited General Limited
September 30, 1994 and 1993 Partnership Partners' Partners' Total
(Unaudited) (Note 1) Interest Capital Capital Capital
- --------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1993.................. 649 $(2,661,725) $ 6,615,479 $ 3,953,754
Net loss.................................... - (15,571) (295,841) (311,412)
----------- ----------- ----------- -----------
Balance, September 30, 1994................. 649 $(2,677,296) $ 6,319,638 $ 3,642,342
----------- ----------- ----------- -----------
Balance, December 31, 1992.................. 649 $(2,434,564) $ 10,931,543 $ 8,496,979
Net loss.................................... (204,189) (3,879,593) (4,083,782)
----------- ----------- ------------ -----------
Balance, September 30, 1993................. 649 $(2,638,753) $ 7,051,950 $ 4,413,197
----------- ----------- ------------ -----------
The accompanying notes are an integral part of these consolidated
financial statements.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1994
(Unaudited)
1. ACCOUNTING AND FINANCIAL REPORTING POLICIES
The consolidated financial statements included herein have been
prepared by the Registrant, without audit, pursuant to the rules and regulations
of the Securities and Exchange Commission. The Registrant's accounting and
financing reporting policies are in conformity with generally accepted
accounting principles and include all adjustments in interim periods considered
necessary for a fair presentation of the results of operations. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations. It is suggested
that these consolidated financial statements be read in conjunction with the
financial statements and the notes thereto included in the Registrant's latest
annual report on Form 10-K.
The accompanying consolidated financial statements include the accounts
of the Partnership and the Operating Partnerships prepared on the accrual basis
of accounting. Theodore N. Lerner's ownership in the Operating Partnerships has
been reflected as a minority interest in the accompanying consolidated balance
sheets and statements of operations. All significant intercompany accounts and
transactions have been eliminated in consolidation.
The accompanying consolidated financial statements reflect the
Partnership's results of operations for an interim period and are not
necessarily indicative of the results of operations for the year ending December
31, 1994.
2. TAXABLE LOSS
The Partnership's taxable loss for 1994 is expected to differ from that
for financial reporting purposes primarily due to accounting differences in the
recognition of depreciation incurred by the Operating Partnerships.
3. INVESTMENT IN OPERATING PARTNERSHIP
The following summarizes the results of operations for the Operating
Partnerships:
Three Months Ended Nine Months Ended
September 30, September 30,
1994 1993 1994 1993
Income:
Rental income................................. $ 5,219,353 $ 5,298,938 $16,547,277 $16,506,907
Interest and other income..................... 614,898 600,216 906,392 883,994
----------- ----------- ----------- -----------
$ 5,834,251 $ 5,899,154 $17,453,669 $17,390,901
----------- ----------- ----------- -----------
Expenses:
Depreciation and amortization................. $ 923,629 $ 850,933 $ 2,770,887 $ 2,760,689
Operating expenses............................ 3,149,116 3,059,607 8,826,976 8,848,205
Taxes and insurance........................... 565,427 535,069 1,652,780 1,620,389
----------- ----------- ----------- -----------
$ 4,638,172 $ 4,445,609 $13,250,643 $13,229,283
----------- ----------- ----------- -----------
Net income....................................... $ 1,196,079 $ 1,453,545 $ 4,203,026 $ 4,161,618
=========== =========== =========== ===========
ITEM 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Partnership's net loss for the quarter ended September 30, 1994, increased
to $302,367 from $129,094 for the same period in 1993. Total revenue for the
quarter was essentially flat, and expenses increased by 2.3%. Through the first
nine months of 1994, the Partnership's net loss was $311,412 compared to a net
loss through the first nine months of 1993 of $4,083,782.
The Partnership continues to be unable to increase revenue as a result of the
continued competitiveness of the local apartment market. The Property's
occupancy has remained in the low-90% range, which is consistent with
market-wide occupancy.
The Partnership's expenses increased during the quarter, primarily in the areas
of repairs and maintenance, salaries, administrative expenses and insurance.
These increases offset decreases in taxes and bad debt expense. The
Partnership's expenses have declined significantly through the first nine months
of the year as a result of lower interest expense. As previously reported, the
Partnership completed the refinancing of the debt encumbering the property on
April 30, 1993. As a result of the refinancing, the Partnership's debt service
requirements, and therefore its interest expense, were dramatically reduced. In
addition, the interest expense for the nine months ended September 30, 1993,
includes certain costs associated with completing the refinancing.
The Partnership continues to generate sufficient net operating income to fund
its debt service requirements and capital expenditures. As of September 30,
1994, the Partnership had approximately $2.7 million in unrestricted reserves
and approximately $1.0 million that is being held by the lender to complete
capital improvements. In addition to monthly debt service payments, the terms of
the Partnership's loan require the Partnership to deposit additional amounts
into various escrow and reserve accounts on a monthly basis. The Partnership can
make quarterly withdrawals from these restricted reserves to the extent it
provides documentation to the lender that evidence that capital improvements
have been completed.
The Partnership completed $254,516 of capital improvements during the first nine
months of 1994, consisting of replacing appliances and ceramic tiling in
apartment units, replacing some hot water heaters and air conditioning units,
repairing exterior woodwork and landscaping.
The results of operations in future quarters may differ from those of the
quarter ended September 30, 1994, due to inflation and changing economic
conditions which could affect occupancy levels, rental rates and operating
expenses.
PART II - OTHER INFORMATION
All items are inapplicable
SIGNATURE
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
SPRINGHILL LAKE INVESTORS
LIMITED PARTNERSHIP
By: Three Winthrop Properties, Inc.
Managing General Partner
Date: November 15, 1994 By: _________________________________
Jonathan W. Wexler
Chief Financial Officer
Date: November 15, 1994 By: _________________________________
Richard J. McCready
Vice President
ANNEX III
SECURED NON-RECOURSE NOTE AND SECURITY AGREEMENT
, 1995
Loan # [ ]
The undersigned borrower (the "Borrower"), for value received, promises to
pay to Aquarius Acquisition, L.P., a Delaware limited partnership (the
"Lender"), the Principal Amount of this Note as determined pursuant to
Section 1 below, on the terms and conditions herein set forth.
This Note evidences a non-recourse loan (the "Loan") made by the Lender to
the Borrower in connection with the offer to purchase (the "Offer") units or
fractional units ("Units") of limited partnership interests ("L.P.
Interests") of Springhill Lake Investors Limited Partnership, a Maryland
limited partnership (the "Partnership") made by the Lender pursuant to that
certain Offer to Purchase dated , 1995 and the accompanying Letter of
Transmittal. The Borrower tendered Units and/or fractional Units in the
Offer, a portion of which were accepted for payment in cash (the "Purchased
Portion") and the remaining portion (the "Retained Portion") of which are
pledged hereby as collateral for this Note.
1. PRINCIPAL AMOUNT. The principal amount (the "Principal Amount") of this
Note shall be that amount equal to (i) the number of Units validly tendered
by the Borrower in the Offer (and not withdrawn prior to the expiration of
the Offer) multiplied by (ii) $36,000 less the amount received by the
Borrower per Unit in respect of the Purchased Portion of such Unit. The
Principal Amount of this Note shall be paid on the date which is one year and
one day from the date on which the Offer is consummated (the "Maturity
Date"), unless required to be prepaid prior to the Maturity Date in
accordance with the terms of this Note.
2. INTEREST. This Note shall bear interest at a rate per annum of 9%.
Interest on this Note shall accrue from the date of this Note and shall be
payable in arrears on the Maturity Date, unless required to be prepaid prior
to the Maturity Date in accordance with the terms of this Note. Interest on
overdue principal and, to the extent permitted by law, on overdue interest,
shall be paid at the rate specified above. Interest will be computed on the
basis of a 365-day year and the actual number of days elapsed.
3. PAYMENT OF PRINCIPAL AND INTEREST. The Principal Amount of this Note,
and accrued interest hereon, may be paid, at the election of the Borrower,
either (i) by delivery of an amount in cash equal to the Principal Amount
then due and accrued interest thereon less the Distribution Amount (as
defined below) applied on or prior to such date in the manner set forth in
Section 6, or (ii) by transfer to the Lender of the Retained Portion and by
applying on or prior to such date the Distribution Amount in the manner
described in Section 6. In order to elect to make payment pursuant to the
preceding clause (i), the Lender must receive from the Borrower written
notice of such election (a "Cash Election Notice"), at least five business
days prior to the Maturity Date. If no Cash Election Notice is so received by
the Lender, the Borrower shall be deemed to have elected the payment option
set forth in clause (ii) above.
4. NON-RECOURSE. Anything contained herein to the contrary
notwithstanding, no recourse shall be had for the payment of the non-recourse
loan evidenced by this Note or for any claim based thereon or otherwise in
respect thereof or for the payment or performance of any other obligation
based on or in respect of the Loan, and no personal liability shall be
asserted or enforceable, against (i) the Borrower or (ii) any officer,
director, partner, shareholder or affiliate of the Borrower, and the
enforcement of any judgment for breach by the Borrower of its obligations
hereunder shall be made only against the Collateral. The foregoing provisions
of this Section shall not prevent recourse to the Collateral or constitute a
waiver, release or discharge of the loan evidenced by this Note or impair in
any manner any right, remedy or recourse Lender may have against Borrower for
actual fraud.
5. SECURITY INTEREST. In order to secure the due and punctual payment of
all amounts due hereunder and performance of all other obligations of the
Borrower under this Note, the Borrower hereby grants to the Lender a first
priority security interest in all of such Borrower's right, title and
interest in and to the Retained Portion and all proceeds thereof (together,
the "Collateral"). The Borrower represents and warrants that it owns and has
full power and authority to pledge the Collateral and that, other than this
pledge, the Collateral is free and clear of all liens, restrictions, charges,
encumbrances, conditional sales agreements or other obligations relating to
the sale or transfer thereof and is not subject to any adverse claims. The
Lender will have all the rights of a secured party under the Uniform
Commercial Code (as in effect in all applicable jurisdictions) with respect
to the Collateral. The Borrower irrevocably appoints the designees of the
Lender as the Borrower's attorney-in-fact to execute and cause to be filed or
recorded any and all documents on behalf of the Borrower as may be necessary
to perfect or continue the perfection of the security interest herein
granted, including, without limitation, filing Uniform Commercial Code
financing statements with respect to the Collateral on behalf of the
Borrower, or without the signature of the Borrower, to the extent permitted
by law.
6. DELIVERY AND TRANSFER OF COLLATERAL. Letters of Transmittal regarding
the tendered Units and/or fractional Units have heretofore been delivered to
the depository for the Offer (the "Depository") and the Depository has been
instructed to deliver such Letters of Transmittal to the Lender. The Lender
shall have the right at any time upon the occurrence of a failure by Borrower
to make any payments hereunder when due (a "Default") to endorse, assign or
otherwise transfer to or register in the name of the Lender any or all of the
Collateral. If the Lender has not received a Cash Election Notice from the
Borrower as provided in Section 3 then, on the Maturity Date, the Lender may
endorse, assign or otherwise transfer to or register in the name of the
Lender all of the Retained Portion and the full Distribution Amount, if any,
paid or payable on such date. The Borrower hereby agrees with the Lender that
the Partnership shall make an appropriate notation on the register evidencing
the delivery and, when applicable, the transfer, of the Collateral. If
requested by the Lender, the Borrower will execute and deliver any assignment
or other instrument reasonably requested by the Lender to confirm the
validity of any action taken by the Lender pursuant to the provision of this
Section 5. The Borrower hereby agrees promptly to notify the Lender in
writing prior to changing its address, principal place of business or chief
executive office or name.
7. DISTRIBUTIONS. The Borrower agrees that all dividends, distributions,
income, profits or proceeds paid or payable to the Borrower in respect of the
Collateral (the "Distribution Amount") shall be delivered to the Lender first
to reduce the amounts owing hereunder in respect of accrued interest hereon
and second, if any Distribution Amount remains unapplied, to reduce the
Principal Amount hereof. The Lender shall remit any amounts remaining after
such applications to the Borrower.
8. VOTING RIGHTS. So long as no Default has occurred hereunder, the
Borrower shall be entitled to exercise any and all voting and other
consensual rights pertaining to the Collateral for any purpose not
inconsistent with the terms or purpose of this Note and the Borrower shall
not in any event exercise such rights in any manner will cause or would cause
a dissolution of the Partnership or which otherwise may have an adverse
effect on the value of the Collateral or on the Lender's rights hereunder.
9. DEFAULT; ACCELERATION. Upon the occurrence of a Default, all rights of
the Borrower to exercise voting and other consensual rights shall cease
without any action or the giving of any notice and such rights shall be
vested in the Lender. Upon the commencement of any bankruptcy or similar
proceeding (whether voluntary or involuntary) with respect to the Borrower,
the insolvency of the Borrower or any assignment by the Borrower for the
benefit of its creditors, the Principal Amount and all accrued interest
thereon shall automatically and immediately become due and payable by the
Borrower.
10. PREPAYMENT. (a) This Note may not be prepaid prior to maturity without
the prior written consent of the Lender in its sole discretion, provided that
the Note may be prepaid in full at any time at the option of the Borrower
upon delivery of cash in accordance with clause (i) of Section 3.
(b) In the event that the provisions of Section 7.2(D) of the Partnership
Agreement shall no longer be in full force and effect, the Loan shall be
prepaid in full (in either the manner specified in clause (i) or clause (ii)
of Section 3 above), on the demand of the Lender. The Lender may make such a
demand upon 15 days written notice delivered to the Borrower.
11. JOINT AND SEVERAL LIABILITY. If this Note is signed by more than one
Borrower, the obligations of each such Borrower hereunder shall be joint and
several obligations of each such Borrower.
12. NOTICES. Except as otherwise expressly provided herein, all notices
and other communications provided for hereunder shall be in writing and shall
be delivered personally, by telecopier or by express courier service or sent
by registered or certified mail, return receipt requested, postage prepaid,
as follows:
(a) If to the Lender:
Aquarius Acquisition, L.P.
c/o Nomura Asset Capital Corporation
Two World Financial Center
New York, New York 10005
(b) If to the Borrower, to the same address to which copies of the Offer were
sent, unless another address is specified in a notice delivered to the Lender
pursuant to Section 5.
All such notices and communications shall, when mailed or personally
delivered, be effective upon receipt, or when telegraphed, telexed, or
cabled, be effective upon confirmation of receipt by addressee or when sent
by overnight courier, be effective one day after delivery to such courier,
except that notices and communications to the Lender shall not be effective
until received by the Lender.
13. MISCELLANEOUS.
(a) The Borrower hereby waives diligence, presentment, demand, protest,
notice of the acceptance of this Note and all other notices of any kind
relating to the enforcement of this Note. No delay or omission on the part of
the Lender in exercising any right hereunder shall operate as a waiver of any
such right or of any other right hereunder and a waiver of any such right on
any one occasion shall not be construed as a bar to or waiver of any such
right on any future occasion.
(b) The Borrower agrees to pay on demand all costs and expenses (including
legal costs and attorneys' fees) incurred or paid by the Lender in enforcing
this Note.
(c) This Note shall be governed by and construed in accordance with the
laws of the State of New York, without giving effect to the conflict of laws
provisions thereof.
(d) If any one or more of the provisions contained in this Note shall be
invalid, illegal or unenforceable in any respect under any applicable law,
the validity, legality and enforceability of the remaining provisions
contained herein shall not in any way be affected or impaired.
(e) The provisions of this Note may, from time to time, be amended, or
compliance with any agreement or condition contained herein waived, with the
written consent of the Lender and the Borrower.
(f) This Note shall inure to the benefit of any successor or assign of the
Lender and any other holder of this Note.
(g) The Borrower will execute and deliver all such documents and do all
such other things as the Lender may request to carry out the intent of this
Note.
(h) This Note may be executed in counterparts. All of such counterparts
together shall constitute a single instrument.
(i) Nothing set forth in this Note shall be construed as a commitment by
the Lender to make any advance to or for the benefit of any Borrower.
NOTE AND SECURITY AGREEMENT SIGNATURE PAGE
WITNESSETH, the undersigned hereby executes this Note as of the date first
above written.
BORROWER(1)
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(1) Each Borrower must sign exactly as such Borrower's name appears on the
face of the Letter of Transmittal.
The Information Agent for this Offer is:
D.F. KING & CO., INC.
77 Water Street
New York, New York 10005
(212) 269-5550
(Call Collect)
or Call Toll-Free (800) 659-5550
The Depository is:
IBJ SCHRODER BANK & TRUST COMPANY
1 State Street
New York, New York 10004
(212) 858-2103
February 1, 1995