UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE
SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [__]
Check the appropriate box:
[_] Preliminary Proxy Statement
[_] CONFIDENTIAL, FOR USE OF THE COMMISSION ONLY (AS PERMITTED BY RULE
14A-6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to ss. 240.14a-12
INCOME GROWTH PARTNERS, LTD. X
________________________________________________
(Name of Registrant as Specified in Its Charter)
________________________________________________
(Name of Person(s) Filing Proxy Statement, if other than Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and O-11.
1. Title of each class securities to which transaction applies:
2. Aggregate number of securities to which transaction applies:
3. Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule O-11(c)(2):
4. Proposed maximum aggregate value of transaction:
5. Total fee paid:
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange Act Rule
O-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
1. Amount Previously Paid:
2. Form, Schedule or Registration Statement No.:
3. Filing Party:
4. Date Filed:
1
INCOME GROWTH PARTNERS, LTD. X
11230 SORRENTO VALLEY ROAD, SUITE 220
SAN DIEGO, CALIFORNIA 92121
March 11, 2004
SOLICITATION OF VOTE OF LIMITED PARTNERS
Dear Limited Partner:
As discussed more fully in the attached Solicitation Statement, we are
soliciting the vote of Limited Partners to authorize the sale of the
Partnership's Shadow Ridge Meadows Property and the subsequent liquidation and
dissolution of the Partnership. Please read the Solicitation Statement carefully
before filling out the enclosed Ballot.
The Partnership Agreement provides that Holders of more than 50% of the
outstanding Units must approve the sale of all or substantially all of the
Partnership's assets. This Solicitation Statement is soliciting the vote of
Limited Partners in connection with the sale of the Partnership's only remaining
property and the subsequent liquidation and dissolution of the Partnership. Only
Limited Partners of record at the close of business on February 15, 2004 will be
entitled to notice of, and to participate in, the vote.
If Limited Partners holding a majority of outstanding Units approve the sale, we
will move forward with the sale of the Shadow Ridge Meadows Property and
anticipate that escrow will close in or about June, 2004 upon the terms
discussed in the Solicitation Statement. There can be no assurance that the
escrow for the sale of the Shadow Ridge Meadows Property will close by the
estimated time, or even that the Shadow Ridge Meadows Property will be sold at
all.
YOUR VOTE IS VERY IMPORTANT. The General Partner believes it is important to
receive as many Ballots as possible with respect to such an important decision.
Please sign and date the enclosed Ballot and return it promptly to the
Partnership in the enclosed return envelope or via fax to (858) 457-3104.
RETURNING A SIGNED BALLOT WITHOUT INDICATING YOUR VOTE ON THE PROPOSED
TRANSACTION WILL BE CONSIDERED A VOTE FOR THE PROPOSED TRANSACTION. FAILURE OF A
LIMITED PARTNER TO RETURN A BALLOT BY APRIL 1, 2004 WILL CONSTITUTE A VOTE
AGAINST THE PROPOSED TRANSACTION.
Very truly yours,
INCOME GROWTH PARTNERS, LTD. X
a California limited partnership
By its General Partner:
INCOME GROWTH MANAGEMENT, INC.
a California corporation
By: /s/ David W. Maurer
-------------------------------
David W. Maurer, President
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INCOME GROWTH PARTNERS, LTD. X
11230 SORRENTO VALLEY ROAD, SUITE 220
SAN DIEGO, CALIFORNIA 92121
SOLICITATION STATEMENT
March 11, 2004
This Solicitation Statement is being furnished to the Limited Partners of Income
Growth Partners, Ltd. X, a California limited partnership (the "Partnership"),
in connection with the Partnership's solicitation of the votes of the Limited
Partners to approve the sale of the Partnership's Shadow Ridge Meadows Property
and to subsequently liquidate and dissolve the Partnership (the "Proposed
Transaction"). This authorization is the only authorization that will be
solicited by the General Partner in connection with the sale of the Shadow Ridge
Meadows Property (as defined herein below) and the subsequent liquidation and
dissolution of the Partnership. No meeting will be held in connection with this
solicitation of votes from the Limited Partners. To be counted, a properly
completed Ballot must be received by the General Partner at 11230 Sorrento
Valley Road, Suite 220, San Diego, California 92121 on or before APRIL 1, 2004.
RETURNING A SIGNED BALLOT WITHOUT INDICATING YOUR VOTE ON THE PROPOSED
TRANSACTION WILL BE CONSIDERED A VOTE FOR THE PROPOSED TRANSACTION. FAILURE OF A
LIMITED PARTNER TO RETURN A BALLOT BY APRIL 1, 2004 WILL CONSTITUTE A VOTE
AGAINST THE PROPOSED TRANSACTION. Ballots will not be deemed to have been
returned until actually received by the General Partner at the foregoing
address.
This Solicitation Statement is made by the General Partner, Income Growth
Management, Inc., a California corporation (the "General Partner"), on behalf of
the Partnership. Solicitation of votes other than by mail may be made by
telephone, facsimile, or in person by regularly employed officers, agents and
employees of the General Partner who will not receive additional compensation
for their efforts. The total cost of soliciting votes will be borne by the
Partnership.
The General Partner has set February 15, 2004 as the record date for determining
the Limited Partners entitled to a Ballot and to vote on the Proposed
Transaction. Only the Limited Partners of record at the close of business on
February 15, 2004 will be entitled to vote on the Proposed Transaction.
As of February 15, 2004, the total number of outstanding Class A Units ("Class A
Units") was 8,100 held by 719 Class A Unit holders, and the total number of
outstanding Original Units ("Original Units") was 18,826.5 held by 1,044
Original Unit holders. The total number of Class A and Original Units as of
February 15, 2004 was 26,926.5 ("Units") held by a total of 1,763 Class A Unit
holders and Original Unit holders (collectively "Limited Partners"). Each
Limited Partner is entitled to cast one vote for each Unit owned of record on
the record date.
The General Partner is the owner of 10 Original Units. Additionally, Robert
Green, the Vice President of the General Partner, is the owner of 37 Original
Units. Other than the General Partner and Robert Green, none of the General
Partner's directors or other officers, are the beneficial owner of any Units.
There is no established trading market for the Units.
A Limited Partner may revoke its Ballot at any time prior to April 1, 2004 by
mailing a properly executed Ballot bearing a later date or by mailing a signed,
written notice of revocation to the attention of the General Partner. Revocation
of a Ballot will be effective upon receipt by the General Partner.
This Solicitation Statement and Ballot were first mailed to Limited Partners on
or about March 11, 2004. Votes will be tallied on or about April 2, 2004 and the
General Partner will notify each of the Limited Partners of the outcome of the
vote by mail on or about April 2, 2004.
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INTRODUCTION
GENERAL INFORMATION
On February 20, 2004, the Limited Partners approved the sale of the Mission Park
Property for $36 million.
The General Partner now proposes to sell the Shadow Ridge Meadows Property, its
only remaining property. On August 7, 2003, the Partnership listed the Shadow
Ridge Meadows Property for sale for a sales price of $27.4 million. On or about
December 8, 2003, the Partnership entered into a Purchase and Sale Agreement and
Escrow Instructions with Mark Gosselin, as Trustee of the Mark Gosselin Trust
Dated October 31, 2001 ("Buyer"), for the sale of the Shadow Ridge Meadows
Property for $27.6 million. On January 8, 2004, the Partnership entered into the
First Amendment to the Purchase and Sale Agreement and Escrow Instructions to
extend the contingency period through January 16, 2004. On February 18, 2004,
the Partnership entered into the Second Amendment to the Purchase and Sale
Agreement and Escrow Instructions to resolve certain issues and claims raised by
the Buyer, including the negotiation of a $100,000 reduction of the sale price
from $27.6 million to $27.5 million and a $200,000 credit for certain repairs
and improvements to the property. For more information on the foregoing
amendments to the Purchase Agreement and the negotiations between Shadow Ridge
Meadows and the Buyer, see "Negotiations with Buyer over the Sale of the Shadow
Ridge Meadows Property" below. The purchase and sale agreement and escrow
instructions, as amended, is referred to herein as the "Purchase Agreement."
If the Partnership is successful in selling the Shadow Ridge Meadows Property
for the anticipated sales price of $27.5 million, it will result in a sales
price that exceeds the listing price by approximately $100,000 before deducting
any expenses incurred to close the transaction, or any credits provided to the
Buyer for repairs and improvements to the property. See "Terms and Conditions"
for the terms and conditions of the Proposed Transaction. The General Partner is
entitled to receive a sales commission in connection with the sale of the Shadow
Ridge Meadows Property in accordance with the Amended and Restated Agreement of
Limited Partnership ("Partnership Agreement"). Provided certain conditions as
set forth in the Partnership Agreement are satisfied, the General Partner
anticipates receiving up to 0.5% of the sale price of the Shadow Ridge Meadows
Property.
There can be no assurance that the Shadow Ridge Meadows Property will be sold at
the projected sales price of $27.5 million, or that the Shadow Ridge Meadows
Property will be sold at all. The sale of the Shadow Ridge Meadows Property is
conditioned upon a number of factors, including without limitation the approval
of a majority of the outstanding Units, as well as the satisfaction of the terms
and conditions by the Partnership and by the Buyer of the Purchase Agreement.
If the Shadow Ridge Meadows Property is not sold, the Partnership will not be
liquidated and dissolved but will continue to operate and look for another
suitable buyer for the remaining Property. In such event, the General Partner
shall have the authority to pursue other suitable buyers without having to
obtain the consent of the Limited Partners, provided that the terms of any
subsequent sale of the Shadow Ridge Meadows Property is substantially similar to
the terms of the Proposed Transaction as set forth herein.
The Partnership Agreement provides in Section 5.3.2 that the General Partner may
not sell or dispose of all, or substantially all, of the Partnership's assets
without the approval of a majority of the outstanding Units. For purposes
hereof, "Shadow Ridge Meadows Property" means the Shadow Ridge Meadows Property,
including without limitation the real estate, together with the buildings,
improvements, equipment, furniture, fixtures, and personal property associated
therewith.
There can be no assurance that the estimated amounts, figures or dates presented
above are accurate and the actual amounts, figures or dates may differ
substantially.
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FORWARD-LOOKING STATEMENTS
This Solicitation Statement contains forward-looking statements. Discussions
containing such forward-looking statements may be found in the material set
forth under "Description of the Proposed Transaction" and "Unaudited Pro Forma
Consolidated Financial Data," as well as within this Solicitation Statement
generally. In addition, when used in this Solicitation Statement, the words
"believe," "anticipate," "expect," "may," "will," "estimate," "plan," "should,"
"intend," or the negation thereof and similar expressions are intended to
identify forward-looking statements; however, not all forward-looking statements
will contain such expressions. Such statements are subject to a number of risks
and uncertainties. Actual results or events in the future could differ
materially from those described in the forward-looking statements as a result of
the inability of the General Partner to find a suitable buyer for the Shadow
Ridge Meadows Property, the inability to agree on acceptable purchase price or
contract terms, the inability of the Partnership to comply with the terms of the
Purchase Agreement, the failure of the Buyer to go through with the purchase of
the Shadow Ridge Meadows Property, a decrease in the financial performance of
the Shadow Ridge Meadows Property, the discovery of an environmental or other
condition impacting the Shadow Ridge Meadows Property, an economic downturn in
the market in which the Shadow Ridge Meadows Property is located, and other
factors set forth in this Solicitation Statement. These risks and uncertainties
are beyond the ability of the General Partner to control. In many cases, the
General Partner cannot predict the risk and uncertainties that could cause
actual results to differ materially from those indicated by the forward-looking
statements. The Partnership undertakes no obligation to publicly release any
revisions to these forward-looking statements to reflect any future events or
circumstances.
DESCRIPTION OF THE PROPOSED TRANSACTION
BACKGROUND AND RECOMMENDATION OF THE GENERAL PARTNER
The Partnership was formed in 1988 with the primary purpose of acquiring,
developing, investing in, holding, managing, selling, disposing of and otherwise
acting with respect to residential real property. The Partnership's investment
objectives at formation were to acquire, hold and operate for the production of
income and distributable cash, and sell, exchange, or otherwise dispose of
parcels of income-producing multi-family, residential real property. In 1988,
the Partnership purchased the Shadow Ridge Meadows Property for a purchase price
of $12.7 million. See "The Shadow Ridge Meadows Property" below.
The Partnership Agreement provides the term of the Partnership will, unless
previously terminated, continue until February 25, 2021.
The General Partner has periodically evaluated the desirability of sale of the
Shadow Ridge Meadows Property. The potential to sell the Shadow Ridge Meadows
Property generally has been enhanced by recent improvements in the national and
local real estate investment markets. Pension funds, real estate investment
trusts and other institutional buyers are now actively seeking new investment
properties, as compared to the early 1990's, when these same institutional
buyers were fewer and less active. The emergence of securitized mortgage
financing and lower mortgage interest rates have also contributed to an improved
market for real estate such as the Shadow Ridge Meadows Property, as
entrepreneurial buyers who require debt financing to purchase properties are
able to borrow funds at attractive rates.
More specifically, improvements in the real estate capital markets and in the
operating performance of the Shadow Ridge Meadows Property have enhanced the
prospects for selling the Shadow Ridge Meadows Property at an attractive price.
Further, a resurgence in development in the San Diego County area has also
increased the marketability of the Shadow Ridge Meadows Property. During the
early 1990's, the Shadow Ridge Meadows Property experienced devaluation due to a
nationwide slump in real estate values. Although future economic conditions are
difficult to predict, the General Partner believes that it is unlikely that
continuing to hold the Shadow Ridge Meadows Property would significantly enhance
the Partnership's ultimate realization on sale of the Shadow Ridge Meadows
Property, or that the relative economic benefits of continued ownership would
justify the risks of such continued ownership.
5
On August 7, 2003, the Partnership listed the Shadow Ridge Meadows Property for
sale for a sales price of $27.4 million. On or about December 8, 2003, the
Partnership entered into Purchase Agreement with Mark Gosselin, as Trustee of
the Mark Gosselin Trust Dated October 31, 2001, for the sale of the Shadow Ridge
Meadows Property for $27.6 million. On January 8, 2004, the Partnership entered
into the First Amendment to the Purchase and Sale Agreement and Escrow
Instructions to extend the contingency period through January 16, 2004. On
February 18, 2004, the Partnership entered into the Second Amendment to the
Purchase and Sale Agreement and Escrow Instructions to resolve certain issues
and claims raised by the Buyer, including the negotiation of a reduction of the
sale price from $27.6 million to $27.5 million and a $200,000 credit for certain
repairs and improvements to the property.
If the Partnership is successful in selling the Shadow Ridge Meadows Property
for the anticipated sales price of $27.5 million, it will result in a sales
price that exceeds the listing price of the Shadow Ridge Meadows Property by
approximately $100,000 and the original purchase price of the Shadow Ridge
Meadows Property by approximately $14.8 million, before deducting any expenses
incurred to close the transaction or any credits provided to the Buyer for
repairs and improvements to the property. See "Terms and Conditions" for the
terms and conditions of the Proposed Transaction.
Copies of the Purchase Agreement for the sale of the Shadow Ridge Meadows
Property will be made available to the Limited Partners upon request.
It should be noted that the sale of the Shadow Ridge Meadows Property will
eliminate future liability of the General Partner for Partnership liabilities
and risks to the Partnership which could arise from continued ownership of the
Shadow Ridge Meadows Property. Additionally, upon the consummation of the
Proposed Transaction, the General Partner will no longer receive its
compensation for the administration and management of the Partnership as
provided in the Partnership Agreement. However, the General Partner may be
reimbursed for any expenses incurred in connection with the Partnership as
provided in the Partnership Agreement. The General Partner is entitled to
receive a sales commission in connection with the sale of the Shadow Ridge
Meadows Property in accordance with the Partnership Agreement. Provided certain
conditions as set forth in the Partnership Agreement are satisfied, the General
Partner anticipates receiving up to 0.5% of the sale price of the Shadow Ridge
Meadows Property.
THE SHADOW RIDGE MEADOWS PROPERTY
Shadow Ridge Meadows apartments is a 184 unit apartment complex located at 1515
S. Melrose Drive, Vista, California. It is an apartment building, with 114
two-bedroom units and 70 three-bedroom units. The Property had an appraised
value of $19 million as of May 8, 2002.
In 1988, the Partnership purchased the Shadow Ridge Meadows Property for a
purchase price of $12.7 million. The Property is subject to a security interest
securing a loan with a balance of approximately $9,189,567 as of September 30,
2003 and a loan balance of approximately $9,141,000 as of February 29, 2004. The
amount of the loan balance as estimated on September 30, 2003 and February 29,
2004 represent estimates. The actual amount of the loan balance will vary
depending upon the date the Property is sold and the loan is paid off. The loan
terms require monthly payments in the amount of $68,107, including interest at
7.49% until paid in full. The loan terms also contain a prepayment penalty that
will 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 the
relevant loan documents, this prepayment penalty was estimated to be
approximately $1,771,611, as of February 29, 2004. 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. The
amount of any prepayment penalty is an estimate only and the actual prepayment
penalty may vary. It should be noted that the prepayment penalty estimate is as
of February 29, 2004 and therefore the amount indicated could be substantially
different from the actual amount.
The occupancy rate and average annual base rent per square foot at December 31
for the past two years were as follows:
2003 2002
Occupancy Rate 94.4% 96.5%
Average Rent Per Square Foot $13.34 $13.71
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TERMS AND CONDITIONS
The buyer for the Shadow Ridge Meadows Property is Mark Gosselin, as Trustee of
the Mark Gosselin Trust Dated October 31, 2001. The principal executive offices
of the Buyer are located at 1322 Scott Street, Suite 102, San Diego, California
92106. To the knowledge of the General Partner, the Buyer and its affiliates are
unrelated to the Partnership and its affiliates.
Pursuant to the terms and conditions of the Purchase Agreement, the Partnership
has agreed to sell the Shadow Ridge Meadows Property to the Buyer upon approval
of a majority of the outstanding Units. Subject to the anticipated adjustments
described herein, the purchase price for the Shadow Ridge Meadows Property is
anticipated to be $27.5 million.
All income and expenses of the Shadow Ridge Meadows Property shall be
apportioned between the Buyer and the Partnership as of the closing date. The
prorated items include without limitation, rents for the month in which the
closing takes place, taxes and assessments on the Shadow Ridge Meadows Property,
utility charges, and other operating expenses. At closing, all principal and
interest on indebtedness relating to the Shadow Ridge Meadows Property will be
repaid, which is estimated to total approximately $9,144,000. See "Distribution
Upon Liquidation of the Partnership."
Upon closing, a sales commission will be paid to Hendrix & Partners (the
"Broker"), the Partnership's exclusive listing agent for the sale of the Shadow
Ridge Meadows Property. Under the listing agreement, the Broker will be paid
approximately 2.5% of the purchase price. Based upon the estimated $27.5 million
purchase price of the Shadow Ridge Meadows Property, the sales commission is
anticipated to be approximately $687,500. The Broker is unrelated to the
Partnership or its affiliates. The General Partner is entitled to receive a
sales commission in connection with the sale of the Shadow Ridge Meadows
Property in accordance with the Partnership Agreement, as amended. Provided
certain conditions as set forth in the Partnership Agreement are satisfied, the
General Partner anticipates receiving up to 0.5% of the sale price of the Shadow
Ridge Meadows Property. Based upon the estimated $27.5 million purchase price of
the Shadow Ridge Meadows Property, the General Partner's anticipated commission,
if the conditions for receiving one as set forth in the Partnership Agreement
are satisfied, will be in an amount up to $137,500.
In accordance with the Purchase Agreement the Buyer deposited $500,000 into
escrow as of February 3, 2004. The Buyer completed its due diligence review of
the Property and according to the terms of the Purchase Agreement, its earnest
money deposit became "non-refundable" on or about February 18, 2004, unless the
Purchase Agreement is terminated for (i) a failure of a condition precedent to
the Buyer's obligation, (ii) or a failure of other conditions specified in the
Purchase Agreement.
Because the closing of the Purchase Agreement is conditioned upon, among other
factors, the approval of a majority of the outstanding Units, there can be no
assurance that the proposed sale of the Shadow Ridge Meadows Property will
occur. The Buyer's further obligations under the Purchase Agreement, are subject
to, among other things, approval of the transaction by a majority of the
outstanding Units, and the Buyer's payment of the purchase price for the Shadow
Ridge Meadows Property.
GENERAL
If the Proposed Transaction is consummated for the Partnership's Shadow Ridge
Meadows Property as is anticipated and described above, the consideration is
anticipated to be approximately $27.5 million, before deducting all closing fees
and costs, sales commissions, credits to Buyer for repairs and improvements to
the property, necessary expenses, repayment of certain indebtedness of the
Shadow Ridge Meadows Property, payment of prepayment penalties on the Shadow
Ridge Meadows Property mortgage and payment of certain accounts payable and
accrued liabilities of the Partnership, the sum of which is estimated at
approximately 44% of the sales price or approximately $12,108,000.
Following the consummation of the Proposed Transaction, the Partnership will
incur additional expenses associated with winding up the Partnership's affairs
and liquidating its assets. Those expenses may include, without limitation: (i)
wind-up costs and fees, (ii) legal fees, (iii) accounting fees, (iv) tax
preparation and audit fees, (v) investor servicing fees, (vi) taxes, and (vii)
management fees and costs.
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If the Proposed Transaction is approved, the General Partner has established the
following estimated time-line goals for completion of the Proposed Transaction:
April 1, 2004 - Deadline for receipt of Ballots
June 30, 2004 - Closing of Proposed Transactions
September 30, 2004 - Initial distributions to Limited Partners (less the
contingency and capital allowance reserves)
June 30, 2005 to October 31 , 2005 - Final distributions to Limited Partners
The foregoing are the General Partner's goals for and estimates of the time
required for each step of the Proposed Transaction. Various delays may be
encountered which could result in a later closing date or distribution dates.
There can be no assurance that (i) the Shadow Ridge Meadows Property can be sold
at the projected sales price of $27.5 million, or that it will be sold at all,
(ii) that if sold, the escrow for the sale of the Shadow Ridge Meadows Property
will close by the estimated time, or (iii) that the estimated amount of the
prepayment penalties and other costs associated with the sale of the Shadow
Ridge Meadows Property are accurate. The actual figures, numbers and dates
regarding the foregoing may differ substantially.
ADVANTAGES TO THE LIMITED PARTNERS
THE GENERAL PARTNER REASONABLY BELIEVES THE PROPOSED TRANSACTION IS FAIR TO THE
LIMITED PARTNERS AND RECOMMENDS ITS APPROVAL. On May 8, 2002, an appraisal of
the Shadow Ridge Meadows Property was obtained appraising its value at
approximately $19 million. The anticipated sales price of the Shadow Ridge
Meadows Property is approximately $8,500,000 million higher than the May 8, 2002
appraised value. Additionally, the anticipated sale price for the Shadow Ridge
Meadows Property exceeds the listing price by approximately $100,000 and the
original purchase price by approximately $14.8 million. It should be noted,
however that the May 8, 2002 appraisal is almost two years old and therefore the
appraised value could be drastically different from the actual value. The
General Partner has not done a recent appraisal on the Shadow Ridge Meadows
Property.
No independent evaluation of the fairness of the Proposed Transaction to Limited
Partners has been made.
In reaching its conclusion to recommend approval of the Proposed Transaction,
the General Partner considered the following factors:
(1) the Shadow Ridge Meadows Property has now been held for
substantially longer than its originally anticipated holding
period, which militates in favor of a sale of the Shadow Ridge
Meadows Property at this time;
(2) increased availability of investor capital, increased
purchasing activity and a favorable interest rate environment,
which may not continue in the future, also militate in favor
of sale;
(3) improved occupancies and revenues in recent years, which
contribute to realization of a higher sale price for the
Shadow Ridge Meadows Property than the prior appraisal would
indicate and which may not be sustained militate in favor of
sale;
(4) the potential for future operating performance increases and a
possible increase in the value of the Shadow Ridge Meadows
Property, due to increasing development activity in the San
Marcos area might militate in favor of holding the Shadow
Ridge Meadows Property, but also might enhance its current
marketability and sales price;
(5) the current physical condition of the Shadow Ridge Meadows
Property and the increasing likelihood there may be a higher
need for expenditures for repairs, replacements and
improvements to be incurred in the future, which militates in
favor of a sale now;
8
(6) the presence of competition and the possibility of increased
future competition, which suggest a sale now may be advisable;
(7) the relative illiquidity of the Units, which militates in
favor of sale;
(8) the potential for additional distributions by continuing to
hold the Shadow Ridge Meadows Property, which might otherwise
militate in favor of holding the Shadow Ridge Meadows
Property, if such future distributions would represent a rate
of return equivalent to that available in other investments;
(9) it is anticipated aggregate distributions from the
Partnership, including proceeds from the Proposed Transaction
and any eventually remaining reserves may equal or exceed the
capital contributions of the Limited Partners, which might
militate in favor of holding the Shadow Ridge Meadows Property
for additional future appreciation, but which might also
militate in favor of a current sale in order to mitigate the
potential for losses;
(10) the sale of the Shadow Ridge Meadows Property will eliminate
certain risks inherent in the ownership of real property,
including, among other things, the decline in value that could
occur as a result of rising interest rates, increasing real
estate investor expectations and changing competition factors
in local rental markets; and
(11) the sale of the Shadow Ridge Meadows Property will eliminate
the Partnership's ability to benefit from possible future
improvements in economic and market conditions, which possibly
could produce increased cash flow and enhance the market value
of the Shadow Ridge Meadows Property.
Neither California law nor the Partnership Agreement afford dissenter's or
appraisal rights to the Limited Partners in connection with the Proposed
Transaction. If the Proposed Transaction is approved by the Limited Partners
holding a majority of the outstanding Units, the Limited Partners will receive a
distribution in accordance with the procedures prescribed by the Partnership
Agreement.
NEGOTIATIONS WITH BUYER OVER THE SALE OF THE SHADOW RIDGE MEADOWS PROPERTY
On August 7, 2003, the Partnership listed its Shadowridge Meadows property
("Shadowridge Meadows Property") for sale. On December 8, 2003, the Partnership,
subject to the approval of a majority of the outstanding Units, entered into the
Purchase Agreement. Pursuant to the terms and conditions of the Purchase
Agreement, the Partnership had agreed to sell the Shadowridge Meadows Property
to the Buyer upon approval of a majority of the outstanding Units.
The Buyer subsequently raised a number of issues relating to the condition of
the Shadowridge Meadows Property and whether certain disclosures were properly
made by the Partnership in accordance with the Purchase Agreement. The Buyer
also identified a number of repairs and improvements to the Shadow Ridge Meadows
Property that needed to be made and requested a $200,000 credit to account for
the repairs and improvements to the property.
The Buyer also initially requested a reduction in the sale price of $1 million.
In addition to the requested reduction in the purchase price, the Buyer also
threatened to bring a lawsuit against the Partnership and the General Partner
for an unknown amount of damages to address the issues it had raised about the
condition of the Shadow Ridge Meadows Property and representations made
regarding such conditions.
In accordance with the Purchase Agreement, the Buyer deposited $250,000 into
escrow as of December 29, 2003. An additional $250,000 was to have been
deposited by Buyer no later than February 2, 2004 for a total earnest money
deposit of $500,000. The Buyer did not make the second deposit on February 2,
2004. The deposit of the additional $250,000 was a condition precedent to the
seller's obligation. As a result, the General Partner, upon advice of counsel,
terminated the Purchase Agreement and notified Buyer of the termination. The
Buyer subsequently deposited the additional $250,000 on or about February 3,
2004 and the parties continued negotiations to resolve the issues raised by the
Buyer.
9
Notwithstanding the termination of the Purchase Agreement, the Buyer and the
General Partner continued to discuss resolving the issues raised by the Buyer as
to the condition of the Shadow Ridge Meadows Property and the representations
made by the General Partner. Further negotiations between the parties resulted
in the reduction of the purchase price from $1 million to $500,000 and
ultimately to $100,000. The parties were eventually able to resolve all the
issues raised by the Buyer to the satisfaction of the Buyer and the Partnership.
Based upon the parties' resolution of the issues which had been raised, the
Partnership revoked its termination of the Purchase Agreement. On February 18,
2004, the parties entered into the Second Amendment to Purchase and Sale
Agreement and Escrow Instructions whereby they agreed to a purchase price of
$27.5 million (a reduction of $100,000 from the previous purchase price of $27.6
million) and a credit to be provided to Buyer in the amount of $200,000 for
certain repairs and improvements to the Shadow Ridge Meadows Property. In
exchange, the parties agreed to waive and release each other and their
affiliates and representatives from any and all claims arising from or related
to the Purchase Agreement.
For the reasons stated above, the General Partner reasonably believes the
Proposed Transaction is fair to the Limited Partners and recommends its
approval. Any sale of the Shadowridge Meadows Property will be contingent upon
the approval of a majority of the outstanding Units.
FEDERAL INCOME TAX CONSEQUENCES OF THE PROPOSED TRANSACTION
The purpose of the following discussion of the income tax consequences of the
Proposed Transaction is to inform the Limited Partners of the Partnership of the
federal and state income tax consequences to the Partnership and to its Limited
Partners arising from the sale of the Shadow Ridge Meadows Property and the
liquidation and dissolution of the Partnership. The tax information included
herein was prepared by the General Partner. The tax information is taken from
tax data compiled by the General Partner in its role as the Partnership's tax
administrator and is not based upon the advice or formal opinion of counsel. The
tax discussion that follows is merely intended to inform the Limited Partners of
factual information and should not be considered tax advice. The following
information should not be viewed as a substitute for careful tax planning,
particularly since the income tax consequences of an investment in a limited
partnership such as the Partnership are often uncertain and complex. Also, the
tax consequences will not be the same for all Limited Partners. You should be
aware that the following information is condensed and eliminates many details
that might adversely affect some Limited Partners who are subject to special tax
treatment. The General Partner recommends that the Limited Partners consult with
their own tax advisor.
The following discussion of tax consequences is based on laws and regulations
presently in effect. You should be aware that new administrative, legislative,
or judicial action could significantly change the tax aspects of the
Partnership. In addition to the federal income tax consequences described
herein, you should consider the state tax consequences of the Proposed
Transaction.
PASSIVE ACTIVITY LOSSES
Application of the passive activity loss limitation may have limited deductible
losses in prior years and created passive loss carryovers to the year of sale.
The sale will trigger the deduction of all prior passive losses disallowed under
the loss limitations.
10
SALE OF PROPERTY
Any gain or loss on sale generally will constitute Section 1231 gain or Section
1231 loss (i.e., gains or losses from disposition of real property or
depreciable personal property used in a trade or business and held for more than
one year, other than property held for sale to customers in the ordinary course
of business). A Limited Partner's share of the gains or losses from the sale
would be combined with any other Section 1231 gains or Section 1231 losses of
the Limited Partners for the year. Net Section 1231 gains or net Section 1231
losses generally would be treated as long-term capital gain or ordinary loss, as
the case may be. However, a Limited Partner's net Section 1231 gains would be
treated as ordinary income rather than capital gain to the extent of his or her
net Section 1231 losses, if any, incurred in the five preceding years.
Furthermore, in the event that the Shadow Ridge Meadows Property is sold at a
gain, the depreciation expense may be recaptured as ordinary income under
Section 1245 or Section 1250 of the Internal Revenue Code of 1986, as amended
(the "Code"), to the extent of the realized gain. In general, under Section
1250, if real property is depreciated on an accelerated basis rather than on a
straight-line basis, then the lessor of (i) any gain realized on disposition of
the property or (ii) the excess of accelerated depreciation over straight-line
depreciation as of the date of sale will be treated as ordinary income in the
year the Shadow Ridge Meadows Property is sold. The Partnership does not expect
to have any gain from the sale of the Shadow Ridge Meadows Property subject to
recapture under Section 1250 of the Code. Limited Partners classified as
corporations for federal income tax purposes may be required, under Section
291(a) of the Code, to treat 20% of the gain from the sale of the Shadow Ridge
Meadows Property attributable to depreciation expense not subject to recapture
under Section 1250 as ordinary income instead of Section 1231 gain.
Under Section 702(a)(3) of the Code, a Partnership is required to state
separately, and the Partners are required to account separately for, their
distributive share of all gains and losses of their Partnership. Accordingly,
each Limited Partner's allocable share of the gains or losses from the sale
(including each Limited Partner's allocable share of Section 291(a) gain,
Section 1245 gain, Section 1231 gain or Section 1231 loss) will be separately
stated and reflected on the applicable Schedule K-1 forms provided to the
Limited Partners by the Partnership.
CAPITAL GAINS TAX
Any net Section 1231 gain not treated as ordinary income as discussed above will
be taxed at the capital gains tax rate. With respect to individuals, trusts and
estates, the Jobs and Growth Tax Relief Reconciliation Act of 2003 ("EGTRRA")
generally reduces the maximum tax rate on net capital assets held for more than
12 months to 15%. EGTRRA does not affect the taxation of capital gains realized
by corporations. Substantially all of the Partnership's assets have been held
for longer than 12 months. Accordingly, a substantial portion of any Section
1231 gains of the Partnership realized on the sale of assets and allocable to
Limited Partners who are individuals, trusts and estates may be taxed at a
maximum federal income tax rate of 15% (if such gains are not recharacterized as
ordinary income as described above under "Sale of Property," or are not subject
to the special tax rate described in the next paragraph).
Individuals, trusts and estates are taxed on unrecaptured Section 1250 gain at a
maximum federal income tax rate of 25%. Unrecaptured Section 1250 gain generally
equals the excess of (i) the lesser of the gain realized on disposition of
depreciable real property or depreciation allowed or allowable on the property
through the date of disposition, over (ii) the amount of depreciation recapture
realized upon the disposition (as described above under "Sale of Property").
Limited Partners who are non-resident aliens or foreign corporations ("foreign
persons") are subject to a withholding tax on their share of the Partnership's
income from the sale of the Shadow Ridge Meadows Property. The tax withheld will
be remitted to the Internal Revenue Service and the foreign person will receive
a credit on their U.S. tax return for the amount of the tax withheld by the
Partnership. The tax withheld will be treated as a distribution to the Limited
Partner.
Limited Partners classified as corporations are taxed on capital gains at the
same rates as ordinary income on taxable income below $10,000,000. A corporate
Limited Partner can deduct capital losses only to the extent of capital gains,
with any unused capital losses generally being carried back three years and
forward five years.
11
CALIFORNIA INCOME TAX WITHHOLDING
Because the Shadow Ridge Meadows Property is located in the State of California,
Limited Partners who are not resident in California are required to report their
allocable gain to California. California law requires the Partnership to
withhold a portion of a nonresident partner's distribution and to remit such
amounts withheld to the California Franchise Tax Board. The amount withheld will
be separately stated on the stub of the distribution check and the General
Partner will provide additional documentation of the amount of the withheld
California taxes by January 31 following the year of sale. The amount of tax
withheld will be treated as a distribution to the Limited Partner. The withheld
taxes will be allowed as a credit against any California income tax. Limited
Partners may or may not have a tax refund after the filing of the required
California tax return.
FINAL PARTNERSHIP RETURNS AND FUTURE TAX ISSUES
Following the termination of the Partnership, the General Partner, on behalf of
the Partnership, will file a final tax return for the Partnership, and on a
timely basis will provide Schedule K-1 forms to all Limited Partners setting
forth their allocable shares of the Partnership's items of income, gain, loss,
deduction and credit. The General Partner will also have full responsibility and
authority for any other tax-related matter arising after the termination of the
Partnership, including acting as the "tax matters partner" representing the
Partnership in any federal or other audit of returns of the Partnership for its
final year or any prior year.
Limited Partners should understand that while the Partnership will be
terminated, such termination will not eliminate the possibility that the
Internal Revenue Service could challenge the tax treatment of the Partnership's
activities for the year of termination or any prior year for which the statute
of limitations for making adjustments has not elapsed. If any adjustments are
made to the Partnership's income tax return, the General Partner will so notify
the Limited Partners. Any tax audit or adjustments could result in assessment of
additional tax liabilities upon the Limited Partners which would be payable from
their own funds and would not be reimbursable by the General Partner or the
Partnership.
THE FOREGOING ANALYSIS CANNOT BE, AND IS NOT INTENDED AS, A SUBSTITUTE FOR
CAREFUL TAX PLANNING. LIMITED PARTNERS ARE URGED TO CONSULT THEIR OWN TAX
ADVISORS WITH RESPECT TO THEIR OWN TAX SITUATIONS AND THE EFFECTS OF THE
PROPOSED TRANSACTION AS TO FEDERAL, STATE, LOCAL AND FOREIGN TAXES, INCLUDING
WITHOUT LIMITATION, INCOME AND ESTATE TAXES.
DISTRIBUTION UPON LIQUIDATION OF THE PARTNERSHIP
Upon completion of the Proposed Transaction, the Partnership will be dissolved
and its business wound up in accordance with the Partnership Agreement.
The General Partner estimates that if the Shadow Ridge Meadows Property is sold
at the anticipated sales price of $27.5 million, after deducting certain
expenses associated with this solicitation and the sale of the Shadow Ridge
Meadows Property, certain other liabilities, and credits to the Buyer for
repairs and improvements to the property, the sale will result in an initial
distribution to the Original Unit Holders of approximately $935 per Original
Unit which will be distributed to the Limited Partners in accordance with the
Partnership Agreement. For additional information regarding the calculation of
the estimated distributions, if any, upon the sale of the Shadow Ridge Meadows
Property at the sale price of $27.5 million, see the "Notes to Unaudited Pro
Forma Consolidated Financial Data" below.
12
With the exception of the contingency reserve which is expected to be
approximately $1,000,000 and the capital allowance reserve which is expected to
be approximately $52,300 (from the sale of the Mission Park Property approved by
the Limited Partners on February 20, 2004), the General Partner anticipates
distributing the net proceeds available for distribution to the Limited Partners
within approximately ninety (90) days after the closing of the sale of the
Shadow Ridge Meadows Property. The $1,000,000 contingency reserve will be used
to cover any remaining liabilities and unexpected claims, including deferred
management fees owed to the General Partner which are estimated to be $73,000;
any remaining amounts after remaining liabilities and unexpected claims have
been paid will be distributed to the Limited Partners. Depending upon the
outcome of any other issues which may arise, the General Partner anticipates
that the remaining amount of the sale proceeds, if any, will be distributed to
the Limited Partners within approximately twelve (12) to sixteen (16) months
after the close of the sale of the Shadow Ridge Meadows Property. There can be
no assurance that there will be any funds available from the contingency reserve
or the capital allowance reserve or that if funds are available that they will
be distributed to the Limited Partners within the time frame indicated above.
Upon completion of the distribution of the Partnership's funds and the
liquidation of the Partnership, the General Partner will execute and record a
Certificate of Cancellation and Certificate of Dissolution of the Partnership
and the legal existence of the Partnership will cease. Approval of the Proposed
Transaction shall also include approval of the General Partner's filing of the
Certificate of Cancellation and Certificate of Dissolution.
AVAILABLE INFORMATION
The Units are registered pursuant to Section 12(g) of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"). As such, the Partnership is
subject to the informational filing requirements of the Exchange Act, and in
accordance therewith, is obligated to file reports and other information with
the SEC relating to its business, financial condition and other matters.
Comprehensive financial information is included in the Partnership's Annual
Report on Form 10-KSB, Quarterly Reports on Form 10-QSB and other documents
filed by the Partnership with the SEC, including the 2002 Annual Report on Form
10-KSB and the Quarterly Report on Form 10-QSB for the quarter ended September
30, 2003. Such reports and other information should be available for inspection
and copying at the public reference facilities of the SEC at 450 Fifth Street,
N.W., Washington, D.C. 20549. Copies should be available by mail upon payment of
the SEC's customary charges by writing to the SEC's principal offices at 450
Fifth Street, N.W., Washington D.C. 20549. In addition, the SEC maintains an
Internet Web site that contains reports, proxy and information statements and
other information regarding registrants that file electronically with the SEC.
The Partnership's electronic filings are publicly available on the Internet at
http://www.sec.gov/. Limited Partners may also request copies of such reports
and other information by contacting the General Partner at 11230 Sorrento Valley
Road, Suite 220, San Diego, California 92121, (858) 457-2750.
The General Partner, Income Growth Management, Inc., is a privately held company
and is not subject to the reporting requirements of the Exchange Act.
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA
The following unaudited pro forma consolidated balance sheet assumes that as of
September 30, 2003, the Partnership had sold the Mission Park Property for a
sales price of $36,000,000 (This transaction was approved by the Limited
Partners by a majority vote on February 20, 2004) and had sold the Shadow Ridge
Meadows Property for a sales price of $27,500,000. Such funds will be used to
repay certain indebtedness, make any prepayment penalties, and pay off other
liabilities. The balance of such funds will be distributed pursuant to the terms
of the Partnership Agreement, which generally will be as follows: First, each
Class A Unit is to receive a 12% cumulative noncompounded annual return on the
balance of actual funds invested in Class A Units; Second, each Class A Unit is
to receive a total return of original invested capital; Third, each Class A unit
is to receive a $500 bonus; Fourth, each Original Unit holder is to receive an
amount equal to the adjusted balance of original invested capital; Fifth, the
general partner is to receive any non-subordinated debts payable to it; Sixth,
each Original Unit holder is to receive a 10% cumulative return on the adjusted
balance of original invested capital (the "Preferred Return"); and thereafter,
distributions of cash from sale or refinancing is to be made 85% to the Original
Units holders and 15% to the General Partner.
13
ALL OF THE FOLLOWING UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION IS
BASED UPON AMOUNTS AS OF SEPTEMBER 30, 2003 AND CERTAIN ESTIMATES OF LIABILITIES
AT THE CLOSING OF THE MISSION PARK AND SHADOW RIDGE MEADOWS PROPERTIES. FINAL
RESULTS MAY BE SUBSTANTIALLY DIFFERENT FROM SUCH INFORMATION, INCLUDING WITHOUT
LIMITATION THE AMOUNT OF ANY LOAN BALANCES AND PREPAYMENT PENALTIES ON THE
MISSION PARK AND SHADOW RIDGE MEADOWS PROPERTIES, AND THE AMOUNTS, IF ANY, OF
DISTRIBUTIONS MADE TO LIMITED PARTNERS SINCE SEPTEMBER 30, 2003.
Pro forma adjustments giving effect to the approved sale of the Mission Park
Property (approved February 20, 2004) and the sale of the Shadow Ridge Meadows
Property in the unaudited pro forma consolidated balance sheet at September 30,
2003 reflect the following:
The following table sets forth our:
1. actual balance sheet as of September 30, 2003;
2. as adjusted balance sheet as of September 30, 2003 giving effect to:
a. the sale of the Mission Park Property for $36,000,000 and
payment of all costs associated with the sale of the Mission
Park Property;
b. the repayment of all indebtedness of the Mission Park
Property, payment of the prepayment penalty on the Mission
Park Property mortgage and payment of all accounts payable and
accrued liabilities of the Mission Park Property;
c. the sale of the Shadow Ridge Meadows Property for $27,500,000
and payment of all costs and application of all credits
associated with the sale of the Shadow Ridge Meadows Property;
d. the repayment of all indebtedness of the Shadow Ridge Meadows
Property, payment of the prepayment penalty on the Shadow
Ridge Meadows Property mortgage and payment of all accounts
payable and accrued liabilities of the Shadow Ridge Meadows
Property;
e. the establishment of capital allowance reserves in the amount
of approximately $52,300 on the sale of the Mission Park
Property;
f. the establishment of a contingency reserve in the amount of
approximately $1,000,000;
g. estimated available amounts for the initial distribution from
the sale of the Mission Park Property of approximately
$22,582,400; and
h. estimated available amounts for the initial distribution from
the sale of the Shadow Ridge Meadows Property of approximately
$17,609,300.
14
Income Growth Partners, Ltd. X and subsidiaries
Unaudited pro forma consolidated balance sheet
September 30, 2003
Proforma adjustments
------------------------------
Mission Shadow
September 30, 2003 Park sale Ridge sale September 30, 2003
Actual Adjustments Adjustments As Adjusted
------------- ------------- ------------- -------------
Rental Properties:
Land $ 7,078,365 $ (4,484,105) $ (2,594,260) $ --
Buildings and improvements 23,205,083 (8,692,763) (14,512,320) --
------------- ------------- ------------- -------------
30,283,448 (13,176,868) (17,106,580) --
Less accumulated depreciation (13,591,958) 3,368,054 10,223,904 --
------------- ------------- ------------- -------------
16,691,490 (9,808,814) (6,882,676) --
Cash and cash equivalents 782,374 25,103,010 15,376,547 41,261,931
Deferred loan fees 293,421 (81,989) (211,432) --
Prepaid expenses and other assets 345,417 (161,217) (184,200) --
------------- ------------- ------------- -------------
$ 18,112,702 $ 15,050,990 $ 8,098,239 $ 41,261,931
============= ============= ============= =============
Mortgage notes payable $ 18,490,268 $ (9,300,701) $ (9,189,567) $ --
Other liabilities:
Accounts payable
and accrued liabilities 283,486 (109,727) (155,818) 17,941
Accrued interest payable 122,317 (61,790) (60,527) --
Contingency and
capital allowance reserve -- 1,052,300 -- 1,052,300
Security deposits 303,119 (197,989) (105,130) --
------------- ------------- ------------- -------------
Total liabilities 19,199,190 (8,617,907) (9,511,042) 1,070,241
------------- ------------- ------------- -------------
Partners' capital:
Limited partners' (deficit)
capital (396,823) 22,979,232 17,609,281 40,191,690
General partners' deficit (679,665) 679,665 -- --
Note receivable
from general partner (10,000) 10,000 -- --
------------- ------------- ------------- -------------
Total partners' (deficit)
capital (1,086,488) 23,668,897 17,609,281 40,191,690
------------- ------------- ------------- -------------
Total liabilities
and partners' capital $ 18,112,702 $ 15,050,990 $ 8,098,239 $ 41,261,931
============= ============= ============= =============
15
Pro forma adjustments giving effect to the approved sale of the Mission Park
Property and the proposed sale of the Shadow Ridge Meadows Property in the
unaudited pro forma consolidated statements of operations for the nine months
ended September 30, 2003 and the year ended December 31, 2002 reflect the sale
of the Mission Park and Shadow Ridge Meadows Property as of the first day of the
period presented resulting in only general partnership administrative expenses,
in such period.
Income Growth Partners, Ltd. X and subsidiaries
Unaudited pro forma consolidated statement of operations
For the nine months ended September 30, 2003
Proforma adjustments
------------------------------
Mission Shadow
September 30, 2003 Park sale Ridge sale September 30, 2003
Actual Adjustments Adjustments As Adjusted
------------- ------------- ------------- -------------
Revenues
Rents $ 4,212,938 $ (2,363,784) $ (1,849,154) $ --
Other 232,333 (130,090) (101,219) 1,024
------------- ------------- ------------- -------------
Total revenues 4,445,271 (2,493,874) (1,950,373) 1,024
------------- ------------- ------------- -------------
Expenses
Operating expenses 2,016,399 (1,083,228) (836,637) 96,534
Depreciation and
amortization 750,204 (297,423) (452,781) --
Interest 1,071,569 (544,996) (526,573) --
------------- ------------- ------------- -------------
Total expenses 3,838,172 (1,925,647) (1,815,991) 96,534
------------- ------------- ------------- -------------
Net income $ 607,099 $ (568,227) $ (134,382) $ (95,510)
============= ============= ============= =============
BASIC AND DILUTED PER LIMITED PARTNERSHIP UNIT DATA
Net income per limited
partnership unit $ 19.16 $ (17.94) $ (4.24) $ (3.02)
============= ============= ============= =============
Distributions per Class A
limited unit holder $ 90.00 $ (85.00) $ (5.00) $ --
============= ============= ============= =============
Weighted average limited
partnership units 26,926 26,926 26,926 26,926
============= ============= ============= =============
16
Income Growth Partners, Ltd. X and subsidiaries
Unaudited pro forma consolidated statement of operations
For the year ended December 31, 2002
Proforma adjustments
------------------------------
Mission Shadow
December 31, 2002 Park sale Ridge sale December 31, 2002
Actual Adjustments Adjustments As Adjusted
------------- ------------- ------------- -------------
Revenues
Rents $ 5,355,976 $ (2,998,159) $ (2,357,817) $ --
Other 306,113 (166,868) (126,513) 12,732
------------- ------------- ------------- -------------
Total revenues 5,662,089 (3,165,027) (2,484,330) 12,732
------------- ------------- ------------- -------------
Expenses
Operating expenses 2,427,176 (1,350,059) (1,047,433) 29,684
Depreciation and
amortization 966,308 (344,378) (621,930) --
Interest 1,445,424 (736,532) (708,892) --
------------- ------------- ------------- -------------
Total expenses 4,838,908 (2,430,969) (2,378,255) 29,684
------------- ------------- ------------- -------------
Net income $ 823,181 $ (734,058) $ (106,075) $ (16,952)
BASIC AND DILUTED PER LIMITED PARTNERSHIP UNIT DATA
Net income per limited
partnership unit $ 25.98 $ (23.17) $ (3.35) $ (0.54)
============= ============= ============= =============
Distributions per Class A
limited unit holder $ 100.00 $ (89.00) $ (11.00) $ --
============= ============= ============= =============
Weighted average limited
partnership units 26,926 26,926 26,926 26,926
============= ============= ============= =============
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA
(1) Basis of Presentation
The pro forma financial statements have been prepared under the assumption that
the Limited Partners have approved the Proposed Transaction. Accordingly, the
realized amounts of assets and settlement amounts of liabilities have been
estimated by management. The preparation of these unaudited pro forma financial
statements include significant assumptions by management, including assumptions
regarding the amount that creditors would agree to accept in settlement of
obligations due them, and the resolution of certain contingent liabilities. The
amount and timing of distributions will depend upon a variety of factors
including, but not limited to, the actual proceeds from the realization of the
Company's assets, the ultimate settlement amounts of certain of the Company's
liabilities and obligations and actual costs incurred in connection with the
contingency and capital allowance reserves for the proposed transaction as well
as for the sale of the Mission Park Property which was approved by a majority of
the Unit Holders on February 20, 2004. There may be differences between the
assumptions and the actual results because events and circumstances frequently
do not occur as expected. Upon the consummation of the Proposed Transaction
management does not believe the Partnership will continue to incur operating
expenses for the Shadow Ridge Meadows Property except as in accordance with the
Partnership Agreement.
17
(2) The following table presents the estimated effect to the Limited Partners'
capital account of the adjustments described above for both the approved sale of
the Mission Park Property and the proposed sale of the Shadow Ridge Meadows
Property:
Limited partners' deficit at September 30, 2003 $ (396,823)
Write off of Mission Park deferred loan fees as
of September 30, 2003 (81,989)
Estimated gain to Limited Partners from
sale of Mission Park Property 24,113,521
Estimated initial distribution to Limited Partners
from sale of Mission Park Property (22,582,409)
Write off of Shadow Ridge deferred loan fees as
of September 30, 2003 (211,432)
Estimated gain to Limited Partners from
sale of Shadow Ridge Meadows Property 17,820,713
Establish contingency and capital allowance reserves (1,052,300)
-------------
Estimated Limited Partners' capital available
for initial distribution $ 17,609,281
=============
(3) The following table presents the estimated effect to cash and cash
equivalents of the adjustments described above:
Cash and cash equivalents balance at September 30, 2003 $ 782,374
Estimated proceeds from the sale of the Mission
Park Property after settlement of escrow adjustments
for prepaid rent, security deposits, insurance,
taxes and other operational items, commissions and
closing costs and loan prepayment penalty 34,575,228
Payoff of Mission Park Property mortgage balance as of
September 30, 2003 (9,300,701)
Payoff of accounts payable and estimated interest payable
on Mission Park Property as of September 30, 2003 (171,517)
Estimated proceeds from the Proposed Transaction after
settlement of escrow adjustments for prepaid rent,
security deposits, insurance, taxes and other
operational items, commissions and closing costs, credits
to the Buyer for repairs and improvements to the property
and loan prepayment penalty (See Note (4) below) 24,782,459
Payoff of Shadow Ridge Meadows Property mortgage balance as
of September 30, 2003 (9,189,567)
Payoff of accounts payable and estimated interest payable
on Mission Park Property as of September 30, 2003 (216,345)
-------------
Estimated cash and cash equivalents balance
after Proposed Transaction $ 41,261,931
=============
(4) The following table presents the estimated proceeds from the Proposed
Transaction:
Estimated selling price of the Shadow Ridge Meadows Property $ 27,500,000
Buyer's credits (200,000)
Estimated commission (687,500)
Estimated closing costs (137,500)
Estimated loan prepayment penalty (1,771,611)
Estimated escrow adjustments for operational items 79,070
-------------
Estimated proceeds to the Partnership from
the Proposed Transaction $ 24,782,459
=============
18
VALID ONLY WHEN SIGNED AND DATED
INCOME GROWTH PARTNERS, LTD. X
11230 SORRENTO VALLEY ROAD, SUITE 220
SAN DIEGO, CALIFORNIA 92121
BALLOT
The undersigned Limited Partner acknowledges receipt of the Solicitation
Statement dated March 11, 2004 respecting the proposed sale of the Partnership's
Shadow Ridge Meadows Property and the subsequent liquidation and dissolution of
the Partnership. The undersigned Limited Partner understands that the General
Partner is seeking the approval of the Limited Partners to a sale of the
Partnership's Shadow Ridge Meadows Property and the subsequent liquidation and
dissolution of the Partnership upon the terms and conditions as described in the
Solicitation Statement. The General Partner RECOMMENDS a vote FOR sale of the
Partnership's Shadow Ridge Meadows Property.
THE PROPOSED SALE OF THE SHADOW RIDGE MEADOWS PROPERTY AND THE SUBSEQUENT
LIQUIDATION AND DISSOLUTION OF THE PARTNERSHIP REQUIRES THE APPROVAL OF A
MAJORITY OF THE OUTSTANDING UNITS.
PLEASE CHECK THE APPROPRIATE BLANK BOX BELOW IN BLUE OR BLACK INK TO INDICATE
YOUR VOTE ON THIS MATTER.
Vote regarding the sale of the Shadow Ridge Meadows Property. Proposal to
authorize the General Partner to sell the Shadow Ridge Meadows Property as
described in the Solicitation Statement. Approval of the sale of the Shadow
Ridge Meadows Property will also be deemed a vote for the termination,
liquidation and dissolution of the Partnership (upon completion of the sale).
FOR [ ] AGAINST [ ] ABSTAIN [ ]
Date:______________________ _____________________________________________
Signature of Unit Holder
_____________________________________________
Print Name
Date:______________________ _____________________________________________
Signature of Unit Holder (joint owner)
_____________________________________________
Print Name
When properly signed, this Ballot will be voted in the manner directed herein by
the undersigned Limited Partner with regard to all Units held by the
undersigned.
THIS BALLOT MUST BE RECEIVED BY THE GENERAL PARTNER ON OR BEFORE APRIL 1, 2004.
RETURNING A SIGNED BALLOT WITHOUT INDICATING YOUR VOTE ON THE PROPOSED
TRANSACTION WILL BE CONSIDERED A VOTE FOR THE PROPOSED TRANSACTION. ALL BALLOTS
NOT RECEIVED, OR RECEIVED AFTER APRIL 1, 2004, SHALL BE CONSIDERED A VOTE
AGAINST THE PROPOSED TRANSACTION.
Please sign exactly as your name appears on the above label representing your
partnership interest(s) and return this Ballot in the enclosed envelope or via
fax to (858) 457-3104. When such interest(s) are held by joint tenants, both
should sign. When signing as an attorney, executor, administrator, trustee, or
guardian, please give full titles as such. If signing as a corporation, please
have signed in full corporate name by the President or other authorized officer.
If signing as a partnership, please have signed in the partnership's name by an
authorized person.