EVEREST
199 S. LOS ROBLES AVE., #200
PASADENA, CA 91101
TEL: 626-585-5920
FAX: 626-585-5929
December 23, 2005
Via Facsimile: (202) 772-9203
and submitted via EDGAR
Abby Adams
Office of Mergers and Acquisitions
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549-3628
Re: Wilder Richman Historic Properties II (the "Partnership")
Schedule TO-T filed by Everest Properties II, LLC
on November 14, 2005
Dear Ms. Adams:
This letter responds to the Staff's comments conveyed in your letter of
December 19, 2005. Numbered paragraphs below correspond to the numbered
paragraphs in your letter.
1. Your comment cites two specific facts that make it difficult for the
Staff to believe that the bidder group is not an affiliate of the Partnership:
(1) ownership (as a group and with affiliates of the group members) of 49% of
the outstanding Units; and (2) "one of the bidders is controlled by persons who
control the operating general partner of the partnership." The latter statement
is not factually correct, although we recognize that the description in the
Offer to Purchase and our prior response letter has confused the issue, for
which we apologize. The Partnership (the registrant) has only one general
partner, Wilder Richman Historic Corporation ("WRHC"). The Partnership is the
sole limited partner of three other partnerships, referred to as "Operating
Partnerships." Dixon Venture Corp. (the "Operating General Partner") is the
general partner of the Operating Partnerships, and has no control over, and no
partnership interest whatsoever, in the Partnership or in WRHC. It is actually
the Operating Partnerships that own the properties inexactly described as "the
Partnership's properties." We described the activities of the Operating General
Partner in a prior response; basically, it has a substantially similar role to
that of a third-party professional property manager.
The Offer to Purchase is being amended to clarify the references to the
Operating General Partner and the Partnership's properties.
The definition of affiliate in Rule 13e-3(a)(1) is a person who, at the
commencement of the offer, "directly or indirectly through one or more
intermediaries controls, is controlled by, or is under common control with such
issuer." The Partnership is controlled by WRHC. For a Purchaser, or the group of
Purchasers, to be an affiliate of the Partnership, it would have to be WRHC, to
control WRHC, to be controlled by WRHC, or to be under common control with WRHC.
None of the individual Purchasers is WRHC. None of the individual Purchasers has
any direct, indirect or de facto control over WRHC; and WRHC has no direct,
indirect or de facto control over any Purchaser. None of the individual
Purchasers owns or is owned by WRHC. None of the individual Purchasers is under
common control with WRHC or shares any equity owners, officers, directors or
control persons with WRHC. Accordingly, there is no basis for any of the
Purchasers, individually, to be deemed an affiliate of the Partnership.
The foregoing conclusion does not change when the Purchasers are viewed as
a group. The only difference for the group is the increased percentage of
Partnership units owned by the group (49%), compared to any individual
Purchaser. Ownership of 49% of the Partnership units cannot be direct or
indirect control of WRHC, which is an entirely separate legal entity. Therefore,
the only basis upon which the group could be found to be an affiliate is the
argument that ownership of 49% of the Partnership units constitutes direct or
indirect control of the Partnership itself.
However, the fundamental legal nature of a limited partnership is that it
is controlled exclusively by its general partner, which in this case is WRHC.
Ownership of even 100% of the limited partner interest does not give a limited
partner any legal control over a limited partnership - the general partner
retains such control.
If a limited partner (or a group of limited partners), by virtue of the
partnership agreement and its percentage ownership, has the right to replace the
general partner, then such limited partner or group could be considered to have
potential control of the partnership. We note that Rule 13e-3 does not include
"potential control" in the definition of "affiliate." Potential control could be
argued to be a form of indirect control, but the language of the Rule makes
clear that "indirect control" refers to situations where the control is
exercised through intermediary legal entities - not to situations where an
additional affirmative step (a valid removal and replacement) must be taken
before the potential control becomes actual control.
If a limited partner (or a group of limited partners), by virtue of the
limited partnership agreement and its percentage ownership, has the right to
take actions without the concurrence of the general partner, or can withhold
approval of certain actions and thereby prohibit the general partner from taking
such actions, then such limited partner or group could be considered to have
partial control of the partnership. We note that Rule 13e-3 does not include
"partial control" in the definition of "affiliate."
More importantly, in this case, the Purchasers do not even have such
"potential control" or such "partial control" because, as we previously
explained, the Partnership's limited partnership agreement requires any approval
by limited partners to be made by 51% of the outstanding Units, not 49%. There
are no provisions in this Partnership's limited partnership agreement that allow
a 49% limited partner vote to authorize action without the concurrence of WRHC,
or to satisfy any limited partner approval requirement. Furthermore, the
Purchasers and their affiliates would have to own more than 392 Units to block a
proposal that requires limited partner approval, however, the Purchasers and
their affiliates own only 391.5 Units.
Obviously, 49% is close to 51%, but the difference is critical; especially
because the Staff's apparent position (i.e., that a limited partner (or group)
owning 51% of the Partnership units is an affiliate), relies on an
interpretation of Rule 13e-3 beyond its express terms, expanding Rule
13e-3(a)(1) to include "potential control" or "partial control."
To then go another step, to the position that a group owning less than 51%
of the Partnership units, which group does not even have "potential control" or
"partial control," is nonetheless an affiliate, expands the Rule 13e-3
definition of affiliate in a manner that is not supportable without clear
authority or precedent. The Staff's position seeks to expand the definition of
affiliate to include "potential, potential control," and "potential, partial
control." The Staff's position is not only well beyond the language of Rule
13e-3(a)(1), but it also conflicts with the express terms of such definition
that specify that the analysis is to be applied as of the commencement of the
offer. That clause clarifies that the probability of obtaining control as a
result of the offer does not create affiliate status, regardless of how high
such probability may seem.
Referring to the definition of "control" in Rule 12b-2 should not change
the conclusion. For the reasons stated above, the Purchasers do not possess
direct or indirect "power to direct or cause the direction of the management and
policies of" the Partnership. The management and policies of the Partnership are
directed exclusively by WRHC. For this Partnership, as with most limited
partnerships, "control" in the form of directing the management and policies of
the Partnership is an all-or-nothing proposition: either you are the general
partner or not. If the Purchasers had the ability to elect one or more of the
directors of WRHC, then the prevailing view would dictate that an affiliate
relationship exists; but the Purchasers have no such ability.
We have found no applicable authority that addresses what constitutes
"control" based on ownership of the voting securities of a limited partnership.
The Staff might reasonably interpret, as the requisite control for affiliate
status, voting power thresholds such as (1) the power to replace the general
partner, (2) the power to approve proposals to the limited partners, or (3) the
power to block approvals by the limited partners. However, the Purchasers do not
meet any of those thresholds, and given the express language of Rule 13e-3 that
the analysis must be made at the commencement of the offer, the Purchasers
cannot be penalized for being close to such thresholds. The Purchasers, by
themselves, have no legal ability to cause the Partnership to take any action,
prevent it from taking any action, approve any proposal WRHC makes to the
limited Partnership, replace WRHC as general partner, direct the management or
policies of the Partnership, elect a Board member of WRHC or otherwise insert
themselves into WRHC's management authority over the Partnership. Therefore, the
Purchasers are not an affiliate by virtue of their ownership of a large
percentage of the voting securities of the Partnership.
We also submit that requiring the Purchasers to comply with Rule 13e-3, if
they could, would not serve the purposes of the rule. The basic point of the
rule is to give security holders additional safeguards when the people who are
normally supposed to protect their interests might have a direct or indirect
stake in the success of the transaction under consideration. In this case, the
limited partners still have the unbiased guidance of WRHC. None of WRHC or its
directors or officers has any direct or indirect financial interest or other
stake in the offer's success, or has any reason to encourage the limited
partners to tender their securities, other than their independent view of the
merits of the offer.
2. Based on previous experience with this Partnership, we would expect to
pay for all Units accepted for payment within ten (10) business days.
3. In any future communications, we will remind Unit Holders of the risk
that they may not receive a year-end transfer.
4. In response to the comment, the conditions are being amended.
We are filing an amendment concurrently with this letter. We do not believe
that the amendment materially changes the information already provided to the
Unit Holders. Please contact the undersigned if you have any questions regarding
our responses to the Staff's comments and to advise us if the Staff has any
further comments.
Very truly yours,
/S/ CHRISTOPHER K. DAVIS
------------------------
Christopher K. Davis
Vice President and General Counsel
CKD:ckd
Enclosures with fax copy
cc w/e: Mark Bava (Dixon)
Gerald Guarcini (Ballard Spahr)
Chip Patterson (MPF)