UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14D-9
SOLICITATION/RECOMMENDATION STATEMENT UNDER SECTION 14(d)(4)
OF THE SECURITIES EXCHANGE ACT OF 1934
Income Growth Partners, Ltd. X
(Name of Subject Company)
Income Growth Partners, Ltd. X
(Names of Persons Filing Statement)
Original Units of Limited Partnership Interest
(Title of Class of Securities)
000-18528
(CUSIP Number of Class of Securities)
David Maurer
11230 Sorrento Valley Road, Suite 220
San Diego, CA 92121
Telephone (858) 457-2750
(Name, address, and telephone numbers of person authorized to receive
notices and communications on behalf of the persons filing statement)
Copy To:
David A. Fisher
Fisher Thurber LLP
4225 Executive Square, Suite 1600
La Jolla, CA 92037
Telephone (858) 535-9400
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[ ] Check the box if the filing relates solely to preliminary communications
made before the commencement of a tender offer.
TABLE OF CONTENTS
1. Subject Company Information.
2. Identity and Background of Filing Person.
3. Past Contacts, Transactions, Negotiations and Agreements.
4. The Solicitation or Recommendation.
5. Persons/Assets, Retained, Employed, Compensated or Used.
6. Interests in Securities of the Subject Company.
7. Purposes of the Transaction and Plans or Proposals.
8. Additional Information.
9. Exhibits.
ITEM 1. SUBJECT COMPANY INFORMATION.
The name of the subject company is Income Growth Partners, Ltd. X, a
California limited partnership (the "Partnership"). The principal executive
offices of the Partnership are located at 11230 Sorrento Valley Road, Suite 220,
San Diego, California 92121. The telephone number of the Partnership's principal
executive office is (858) 457-2750.
The title of the class of equity securities to which this
Solicitation/Recommendation Statement on Schedule 14D-9 (this "Statement")
relates is original units ("Original Units") of limited partnership interests in
the Partnership. As of June 30, 2003, there are 18,826.5 Original Units and
8,100 Class A Units (not included in the Offer) issued and outstanding, held by
1,874 Unit Holders.
ITEM 2. IDENTITY AND BACKGROUND OF FILING PERSON.
The Partnership, the subject company, is the person filing this
Statement. Its business address and telephone number are set forth above under
item 1.
This Statement relates to the cash tender offer ("Offer") made by
Everest Management, LLC ("Everest" or the "Purchaser"), a California limited
liability company, to purchase up to 940 Original Units of limited partnership
interests in the Partnership at a cash purchase price of $1,000 per Original
Unit, as more fully described in the Tender Offer Statement in Schedule TO filed
by the Purchaser with the Securities and Exchange Commission on September 4,
2003 under file number 005-55927 (the "Purchase Tender Offer Statement").
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Based upon the information in the Purchase Tender Offer Statement, the
Partnership understands the business address of the Purchaser to be located at
155 N. Lake Avenue, Suite 1000, Pasadena, California 91101 and the telephone
number of its principal executive office is (626) 585-5920.
ITEM 3. PAST CONTACTS, TRANSACTIONS, NEGOTIATIONS AND AGREEMENTS.
(1) Certain contracts, agreements, arrangements or understandings and actual or
potential conflicts of interest between the Partnership or its affiliates and
the Partnership, its executive officers, directors or affiliates are described
under item 12 of the Partnership's Annual Report on Form 10-KSB for the year
ended December 31, 2002 ("Form 10-KSB"). To the knowledge of the Partnership and
its General Partner, Income Growth Management, Inc. ("General Partner"), except
as set forth in item 12 of the Form 10-KSB, there exists no material contract,
agreement, arrangement or understanding and no actual or potential conflict of
interest between the Partnership or its affiliates and (i) the Partnership's
executive officers, directors or affiliates or (ii) the Purchasers' executive
officers, directors or affiliates.
(2) To the best of the Partnership's knowledge as of the date hereof, except as
set forth elsewhere in this Statement or the Purchase Tender Offer Statement
there exists no material contract, agreement, arrangement or understanding and
no actual or potential conflict of interest between the Partnership or its
affiliates and the Purchaser, its executive officers, directors or affiliates.
ITEM 4. THE SOLICITATION OR RECOMMENDATION.
(a) Recommendation.
Income Growth Management, Inc., the general partner of the Partnership
(the "General Partner"), has not approved the Offer. The General Partner
believes that the price per Original Unit offered in the Offer to the holders
thereof ("Limited Partners") may not fairly compensate Limited Partners for
their interest in the Partnership, and, therefore, recommends the Limited
Partners not tender Original Units pursuant to the Offer.
(b) Reasons for the Recommendation.
In determining to recommend that Limited Partners not tender their
Original Units in the Offer, the General Partner based its reasons for its
recommendation on the following factors:
(1) Everest states in the Purchase Tender Offer Statement that its
offer of $1,000 per Original Unit exceeds the amount of net proceeds that
Everest estimates would be distributed per Original Unit if the Partnership sold
its two properties for $50 million, the combined estimated sales price projected
in the Partnership's Schedule 14D-9 filing on July 14, 2003.
(2) The $1,000 per Original Unit price offered by the Purchasers is
approximately 52.32% of the General Partner's estimate of the net asset value of
$1,911.10 per Original Unit. This estimated net asset value was calculated based
on the General Partner's projected sale of the Shadowridge Meadows Apartments
("Shadowridge") and the Mission Park Apartments ("Mission Park") for a total
combined sales price of $62.9 million, excluding closing costs and liquidation
and related expenses.
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On or about August 7, 2003, after consultation with Hendricks &
Partners, the General Partner listed the Shadowridge property for sale at
$27,400,000 and the Mission Park property for sale at $35,500,000, for a total
combined sales price of $62.9 million. The General Partner's recent listing of
the properties reflects an increase in its previously projected sale price of
$50 million for both properties, as indicated prior July 14, 2003 in the
Partnership's Schedule 14D-9 filed on July 14, 2003. The estimated realizable
net asset value per Original Unit upon a sale of the Partnership properties and
liquidation of the Partnership would depend on many other factors, including the
actual selling price of the property, closing costs, payment of outstanding
loans and prepayment penalties, and Partnership liquidation expenses, and there
can be no assurance these estimated net asset values per unit will be realized,
or that the properties will be sold at the listing price.
As part of the General Partner's evaluation of the Tender Offer by
Everest, the General Partner consulted with Hendricks & Partners, a prominent
apartment brokerage firm with experience in the apartment sales business. The
General Partner also reviewed sales comparison reports prepared by Hendricks &
Partners detailing sales of 20 comparable apartment buildings in the San Diego
County area from March 28, 2002 through April 1, 2003. The General Partner also
reviewed a rent and sales comparison report, also prepared by Hendricks &
Partners providing a summary study of local sales comparables for 6 apartment
buildings (from March 28, 2002 through May 20, 2003) and rent comparables for 8
apartment buildings. The General Partner also reviewed the Apartment Update
Third Quarter 2003 for the Southern California Region and the Forecast 2003,
both prepared by Hendricks & Partners. These two studies detail the residential
real estate markets on both a local and national level with information and
statistical data regarding rent growth and vacancy rates, rental and sales
figures, as well as other information related to the residential real estate
market.
In addition, the General Partner reviewed a market study prepared for
the Mission Park apartments by Integra Realty Resources - San Diego ("Integra
Report"), a copy of which was attached as Exhibit 3 to the Partnership's
previous Schedule 14D-9 filing, filed on July 14, 2003. The purpose of the
Integra Report was to compare the rental market and "for sale" market in San
Diego County as of February 24, 2003. The Integra Report compares the rental and
sales markets in San Diego and provides supply and demand comparisons, rental
rates, pricing levels, and absorption and competition levels relating to the
Mission Park apartments. Based upon an analysis of supply and demand
comparisons, rental rates, pricing levels, absorption and competition levels,
and general economic conditions, the Integra Report concludes that the Mission
Park apartments have an indicated value of $25,400,000 based upon an overall
capitalization rate of 8.5%. The capitalization rate was derived from comparable
projects that sold in the Vista, San Marcos, and Oceanside areas; the range of
overall capitalization rates was 7.97% to 9.28%. The Integra Report concludes
that based upon the factors referenced above, the demand for housing is expected
to continue at reasonable levels in the San Marcos area as the region is poised
for further growth. Additionally, the Integra Report concludes that the North
County East market and the San Marcos submarket are experiencing strong demand
for apartment units, thereby further supporting the indicated value of
$25,400,000.
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Based on its ongoing review of rental and sales data on comparable
properties in the relevant area, market studies and industry reports, and its
continued consultations with Hendricks & Partners, the General Partner believes
the value of the Partnership's two properties has increased since the filing of
its most recent Schedule 14D-9 on July 14, 2003. As a result, on August 7, 2003,
the General Partner entered into a listing agreement with Hendricks & Partners
and has listed the properties at a combined sales price of $62.9 million. The
estimated net proceeds available for distribution per Original Unit following
sale of the properties for $62.9 million would be approximately $1,911.10. This
would exceed the $1,000 per Original Unit being offered by Everest by
approximately 52.32%, or $911.10 per Original Unit. It cannot be guaranteed that
the properties will be sold for a combined sales price of $62.9 million.
In considering whether to sell the Partnership properties, the General
Partner is taking into consideration its familiarity with and its view of the
Partnership's business, properties, financial condition, the nature of the local
real estate sales market, the historical and current prices for the Original
Units, sales commissions on the sale of the properties, and the mortgage debt
and prepayment penalties on both properties. For additional considerations
affecting the General Partners consideration to sell the properties, see item 7
below.
No assurances can be provided that the General Partner's estimates are
correct, and the actual amount of net proceeds available for distribution that
would be received from the sale of the properties and a liquidation of the
Partnership may differ substantially from the General Partner's estimates.
(2) By tendering Original Units pursuant to the Offer, the Limited
Partners will be giving up the opportunity to participate in any potential
future benefits from the ownership of the Original Units, including
distributions resulting from any future sale of the Partnership's properties.
(3) While the Partnership's Amended and Restated Limited Partnership
Agreement allows for a $200 transfer fee, the General Partner has imposed a $40
fee in the past two fiscal years, and a $40 per transaction fee will apply to
any transfers of Original Units pursuant to the Offer. Therefore, net proceeds
to each Limited Partner will be reduced by at least $40.
(4) The tender of Original Units pursuant to the Offer may constitute a
taxable event to the participating Limited Partner. See item 8--Certain Federal
Income Tax Considerations.
The General Partner did not assign relative weights to the foregoing
factors or determine that any factor was of particular importance. Rather, the
General Partner viewed its position and recommendations as being based on the
totality of information presented to and considered by it.
To the knowledge of the General Partner, none of the Partnership's
executive officers, directors or affiliates who own Original Units intend to
sell any of such Units owned by them prior to the expiration of the Offer or
tender such Units in the Offer.
The Limited Partners should consult with their respective advisors
about the financial, tax, legal and other implications of accepting or rejecting
the Offer.
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ITEM 5. PERSON/ASSETS, RETAINED, EMPLOYED, COMPENSATED OR USED.
Neither the Partnership, the General Partner nor any person acting on
their behalf has retained any person to make solicitations or recommendations to
Limited Partners on the Partnership's behalf concerning the Offer.
ITEM 6. INTEREST IN SECURITIES OF THE SUBJECT COMPANY.
No transaction in Original Units has been effected during the past 60
days by the Partnership or the General Partner or, to the best of the
Partnership's knowledge, by any executive officer, director, affiliate or
subsidiary of the Partnership.
ITEM 7. PURPOSES OF THE TRANSACTION AND PLANS OR PROPOSALS.
Other than as described below, the Partnership is not currently
undertaking or engaging in any negotiations in response to the Offer that relate
to (i) a tender offer for or other acquisition of securities by or of the
Partnership or any other person; (ii) an extraordinary transaction, such as a
merger, reorganization or liquidation, involving the Partnership or its
subsidiaries; or (iii) any material change in the indebtedness, present
capitalization or dividend policy of the Partnership.
The Partnership, through its subsidiaries, presently owns the following
two properties:
(i) Mission Park. This property is a 264 unit apartment complex in San
Marcos, California. The property was purchased in 1989 for $17,000,000.
(ii) Shadowridge Meadows. This property is a 184 unit apartment complex
in Vista, California. The property was purchased in 1988 for $12,700,000.
The Partnership has been investigating the possible sale of both of the
Partnership's properties and the subsequent dissolution of the Partnership for
several months. The General Partner has consulted a prominent apartment
brokerage firm, Hendricks & Partners, in connection with listing the properties
for sale. After consultation with Hendricks & Partners and consideration of the
current real estate market and sales figures for comparable apartments, on
August 7, 2003, the General Partner listed the properties with Hendricks &
Partners for sale at a combined sales price of $62.9 million.
Among the many factors considered in listing the properties for sale,
the General Partner evaluated prepayment penalties on both properties. The
mortgage on the Shadowridge Meadows property contains a prepayment penalty that
would require a penalty to be paid to the lender in the event the property is
sold prior to the maturity date of the loan in November 2007. Based upon its
review of the relevant loan documents, this prepayment penalty is estimated to
be approximately $1,629,500. The amount of the prepayment penalty will vary
depending upon a number of factors, including without limitation when the
property is sold and the U.S. Treasury yield rates. Therefore the amount of the
prepayment penalty will vary depending upon when the property is sold.
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The General Partner has also taken into consideration a prepayment
penalty on the Mission Park property. The mortgage on the Mission Park property
contains a prepayment penalty that would require a penalty to be paid to the
lender in the event the property is sold prior to January 2006. Based upon its
review of the relevant loan documents, this prepayment penalty is estimated to
be approximately $306,000. The amount of the prepayment penalty is calculated,
in part, upon a percentage of the principal amount to be prepaid. Therefore the
amount of the prepayment penalty will vary depending upon when the property is
sold.
In considering whether to sell the Partnership's properties, the
General Partner studied the impact of these issues upon the proposed sale of the
two properties and their possible financial effect on the Partnership and the
Limited Partners. The prepayment penalties referenced above are estimates only.
There can be no assurance that the prepayment penalties will be in the amounts
indicated above.
In considering whether to sell the Partnership properties, the General
Partner studied the impact of these issues upon the proposed sale of the two
properties and their possible financial effect on the Partnership and the
Limited Partners. The prepayment penalties referenced above are estimates only.
There can be no assurance that the prepayment penalties will be in the amounts
indicated above.
There can be no assurance that the Partnership's properties can be sold
at the projected sales price of $62.9 million, or that the estimated prepayment
penalties are accurate.
ITEM 8. ADDITIONAL INFORMATION.
(a) Certain Federal Income Tax Considerations.
The Federal Income Tax Discussion set forth below is included herein
for general information only and does not purport to address all aspects of
taxation that may be relevant to a particular Limited Partner. For example, this
discussion does not address the effect of any applicable foreign state, local or
other tax law other than federal income tax laws. Certain Limited Partners
(including trusts, foreign persons, tax-exempt organizations or corporations)
may be subject to special rules not discussed below. This discussion is based on
the Internal Revenue Code of 1986, as amended (the "Code"), existing
regulations, court decisions and Internal Revenue Service rulings and other
pronouncements.
Each Limited Partner should consult their own tax advisor as to the
particular tax consequences to such Limited Partner of the Offer, including the
application of alternative minimum tax and federal, foreign, state, local, and
other tax laws.
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The following general discussion is based upon the assumption that the
Partnership is treated as a partnership for federal income tax purposes and is
not a "publicly traded partnership," as that term is defined in the Code.
Gain or Loss. A taxable Limited Partner will recognize a gain or loss
on the sale of such Limited Partner's Units in the amount equal to the
difference between (i) the amount realized by such Limited Partner on the sale
and (ii) such Limited Partner's adjusted tax basis in the Units sold. The amount
realized by a Limited Partner will include the Limited Partner's share of the
Partnership's liabilities, if any (as determined under Section 752 of the Code
and the regulations thereunder). If the Limited Partner reports a loss on the
sale, such loss generally will not be currently deducted by such Limited Partner
except against such Limited Partner's capital gains from other investments.
However, non-corporate taxpayers may deduct up to $3,000 of capital losses per
year in excess of the amount of their capital gains against ordinary income.
The adjusted tax basis in the Units of a Limited Partner will depend
upon each Limited Partner's individual circumstances. Each Limited Partner who
plans to tender Units pursuant to the Offer should consult with a tax advisor as
to such Limited Partner's adjusted tax basis in such Limited Partner's Units and
the resulting consequences of a sale.
(b) Certain Restrictions on the Transfer of Limited Partnership Interests.
Pursuant to the Amended and Restated Agreement of Limited Partnership
of Income Growth Partners, Ltd. X, dated October 15, 1994, any transfer,
assignment, or conveyance of a Unit must satisfy certain conditions, including
without limitation, the determination by the General Partner, with advice of
counsel, that the proposed transfer will not cause (i) the Units to be deemed
"readily tradable on a secondary market (or the substantial equivalent
therefore)" under the provisions of the Internal Revenue Code relating to
publicly traded partnerships, or (ii) cause the Partnership to be treated as a
publicly traded partnership.
ITEM 9. EXHIBITS.
Exhibit 1 Item 12 of Income Growth Partners, Ltd. X Annual Report on Form 10KSB
for the year ended December 31, 2002.
Exhibit 2 Letter to Limited Partners dated September 17, 2003.
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SIGNATURE
After due inquiry and to the best of my knowledge and belief, I certify
that the information set forth in this statement is true, complete and correct.
Income Growth Partners, Ltd. X, a California limited partnership
By: Its General Partner
Income Growth Management, Inc., a California corporation
/David W. Maurer/
- --------------------------------------------------------------------------------
(Signature)
David W. Maurer, President
- --------------------------------------------------------------------------------
(Name and title)
September 17, 2003
- --------------------------------------------------------------------------------
(Date)
INSTRUCTION TO SIGNATURE: The statement must be signed by the filing person or
that person's authorized representative. If the statement is signed on behalf of
a person by an authorized representative (other than an executive officer of a
corporation or general partner of a partnership), evidence of the
representative's authority to sign on behalf of the person must be filed with
the statement. The name and any title of each person who signs the statement
must be typed or printed beneath the signature. See ss. 240.14d-1(f) with
respect to signature requirements.
Exhibit Index
Exhibit 1 Item 12 of Income Growth Partners, Ltd. X Annual Report on
Form 10KSB for the year ended December 31, 2002.
Exhibit 2 Letter to Limited Partners dated September 17, 2003.
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Exhibit 1
Item 12 of Annual Report on Form 10KSB
of Income Growth Partners, Ltd. X
December 31, 2002
Item 12. Certain Relationships and Related Transactions
The Partnership is entitled to engage in various transactions involving its
general partners and its affiliates as described in the Partnership Agreement.
The table below reflects amounts paid to the general partner or its affiliates
during the following years:
2002 2001
---- ----
Management Fees $284,000 $245,000
Administrative Costs $192,000 $115,000
Administrative Fees $ 20,000 $ 17,000
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Exhibit 2
Letter to Limited Partners dated September 17, 2003
2
September 17, 2003
Re: Income Growth Partners, Ltd. X
Dear Investor:
On September 4, 2003, Income Growth Partners, Ltd. X ("Partnership")
received a tender offer statement on Schedule TO and exhibits from Everest
Management, LLC, a California limited liability company, to purchase for cash up
to 940 original units of limited partnership interests in the Partnership
("Original Units"). The purchase price offered is $1,000 per Original Unit,
without interest, less the amount of distributions per unit, if any, made to the
unit holders by the Partnership after the date of the offer, and less any
Partnership transfer fees, on the terms and conditions described in the Offer to
Purchase dated September 4, 2003 and the related Agreement of Transfer and
Letter of Transmittal which are exhibits to the Schedule TO.
The referenced tender offer for the units of the Partnership has not
been approved by the General Partner. On September 17, 2003, the General Partner
caused to be filed Schedule 14D-9 with the Securities and Exchange Commission.
The Schedule 14D-9 states that the General Partner believes that the price per
Original Unit offered in the Offer to the holders thereof ("Limited Partners")
may not fairly compensate Limited Partners for their interest in the
Partnership, and, therefore, recommends the Limited Partners not tender Original
Units pursuant to the Offer.
A copy of the Schedule 14D-9 as filed with the Securities and Exchange
Commission on September 17, 2003 is enclosed for your information.
Sincerely,
Income Growth Management, Inc.
General Partner
/s/ David W. Maurer
David W. Maurer
President
Enclosure
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