OFFER TO PURCHASE FOR CASH
11,000 UNITS
of Limited Partnership Interest in
SECURED INVESTMENT RESOURCES FUND, L.P. II
by
MILLENIUM MANAGEMENT, LLC
at a Cash Purchase Price of
$100 per Unit
THE OFFER, WITHDRAWAL RIGHTS AND PRORATION PERIOD WILL EXPIRE AT 5:00 P.M., LOS
ANGELES TIME, ON TUESDAY, NOVEMBER 15, 2005, UNLESS THE OFFER IS EXTENDED.
Millenium Management, LLC ("Millenium" or the "Purchaser"), a California
limited liability company, is offering to purchase 11,000 Units of SECURED
INVESTMENT RESOURCES FUND, L.P. II (the "Partnership"), at a cash purchase price
of $100 per Unit, without interest. No transfer fees will be deducted. The Offer
(as defined below) is subject to certain terms and conditions set forth in this
Offer to Purchase, as it may be supplemented from time to time (the "Offer to
Purchase") and in the related Agreement of Transfer and Letter of Transmittal,
as it may be supplemented or amended from time to time (the "Letter of
Transmittal," which together with the Offer to Purchase, constitutes the
"Offer"). This Offer is not subject to brokerage commissions or and is not
conditioned upon financing. To the knowledge of the Purchaser, a Unit Holder
will not incur any fees, such as selling broker commissions or depositary fees,
to sell Units in response to this Offer; unless such Unit Holder holds Units in
a manner that involves fees particular to such Unit Holder.
The enclosed Letter of Transmittal may be used to tender Units for the
Offer. Please read all Offer materials completely before completing and
returning the Letter of Transmittal (blue form).
------------------
For More Information or for Further Assistance,
Please Call or Contact the Purchaser at:
Millenium Management, LLC
199 South Los Robles Avenue
Suite 200
Pasadena, California 91101
(626) 585-5920
(800) 611-4613 (toll free)
October 13, 2005
TABLE OF CONTENTS
Page
INTRODUCTION..................................................................1
SUMMARY OF THE OFFER..........................................................1
BACKGROUND OF THE OFFER.......................................................3
DETAILS OF THE OFFER..........................................................4
1. Terms of the Offer; Expiration Date; Proration....................4
2. Acceptance for Payment and Payment of Purchase Price..............4
3. Procedure to Accept the Offer.....................................5
4. Determination of Validity; Rejection of Units; Waiver of
Defects; No Obligation to Give Notice of Defects..................5
5. Withdrawal Rights.................................................6
6. Extension of Tender Period; Amendment.............................7
7. Conditions of the Offer...........................................7
8. Backup Federal Income Tax Withholding.............................8
9. FIRPTA Withholding................................................8
CERTAIN INFORMATION CONCERNING THE PARTNERSHIP................................8
General................................................................9
Outstanding Units......................................................9
Trading History of the Units...........................................9
Selected Financial and Property Related Data...........................9
DETERMINATION OF OFFER PRICE..................................................9
CERTAIN INFORMATION CONCERNING THE PURCHASER..................................14
The Purchaser..........................................................14
General................................................................14
Prior Acquisitions of Units and Prior Contacts.........................14
Source of Funds........................................................15
FUTURE PLANS OF THE PURCHASER.................................................15
EFFECTS OF THE OFFER..........................................................16
Future Benefits of Unit Ownership......................................16
Limitations on Resales.................................................16
Influence Over Future Voting Decisions.................................16
FEDERAL INCOME TAX MATTERS....................................................16
CERTAIN LEGAL MATTERS.........................................................18
General................................................................18
State Takeover Statutes................................................18
Fees and Expenses......................................................18
Miscellaneous..........................................................18
SCHEDULE I - EXECUTIVE OFFICERS
APPENDIX A - PARTNERSHIP INFORMATION
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INTRODUCTION
The Purchaser hereby offers to purchase 11,000 Units of limited partnership
interest in the Partnership at a cash purchase price of $100 per Unit, without
interest. No transfer fees will be deducted. To the knowledge of the Purchaser,
a Unit Holder will not incur any other fees, such as selling broker commissions
or depositary fees, to sell Units in response to this Offer; unless such Unit
Holder holds Units in a manner that involves fees particular to such Unit
Holder.
SUMMARY OF THE OFFER.
The purpose of the Offer is for the Purchaser to acquire an equity interest
in the Partnership for investment purposes.
In considering the Offer, Unit Holders are urged to consider the following:
o The price offered for the Units is $100 in CASH. See "Details of the
Offer - Acceptance for Payment and Payment of Purchase Price."
o Purchaser calculated a current estimated liquidation value of the
Partnership of $120 per Unit, considering the estimated property
values and the other assets and liabilities of the Partnership. See
"Determination of Offer Price."
o Millenium is the general partner of the Partnership and therefore has
a conflict of interest in making this Offer. Millenium became the sole
general partner of the Partnership, assuming control from the prior
general partners: James R. Hoyt and Secured Investment Resources II,
Inc. (the "Former General Partners"), pursuant to the vote of limited
partners holding a majority of the units of limited partnership
interest.
o The offer price is speculative due to the substantial uncertainties
and risks that exist at this time. See "Determination of the Offer
Price."
o One of the Partnership's three remaining properties, the Sunwood
Village Apartments, is still tied up in litigation. At this time the
Purchaser, as the new general partner, cannot predict whether or not
we will succeed in preventing a loss of the property at a price that
we believe does not represent its full value. See "Background of the
Offer" and "Appendix A."
o The Former General Partners have not obtained audited financials for
over five (5) years. The financial information described herein
relating to periods prior to the replacement of the Former General
Partners is based on unaudited information received from the Former
General Partners, which is the only historical information available
to Millenium. See "Certain Information Concerning the Partnership -
Selected Financial and Property Related Data," and "Appendix A."
o There is no current plan to sell the Partnership's properties or
liquidate the Partnership. Millenium, as general partner, has not yet
determined a plan for managing each property held by the Partnership
that Millenium believes to be in the best interests of the
Partnership.
o The Partnership will not be required to terminate before the year
2046, unless a majority of the limited partners approve an earlier
dissolution or an event occurs that would require a dissolution,
according to the Partnership's limited partnership agreement.
o The Units are illiquid - trades of only 338 Units have been reported
over the last 12 months, according to Direct Investment Spectrum, an
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independent industry publication. Such trades occurred between August
1, 2004 and July 31, 2005 at the average price of $127.16 per Unit,
before commissions. The Offer allows Unit Holders to dispose of their
Units without incurring the sales commissions (typically up to 8% with
a minimum of $150-$200) associated with sales arranged through brokers
or other intermediaries. See "Certain Information Concerning the
Partnership - Trading History of the Units."
o Unit Holders who sell all of their Units will also eliminate the need
to file Form K-1 information for the Partnership with their federal
tax returns for years after 2005. Also, Unit Holders may obtain a tax
benefit from accumulated passive losses that can be used upon the
disposition of their interests in the Partnership. Each Unit Holder
should consult his tax advisor about this possibility.
o Due to its conflict of interest, Millenium is unable to make a
recommendation regarding the Offer.
o The Purchaser is making the Offer with a view to making a profit for
itself. Accordingly, the desire of the Purchaser to purchase Units at
a low price conflicts with the desire of the Unit Holders to sell
their Units at a high price.
o The Offer is an immediate opportunity for Unit Holders to liquidate
their investment in the Partnership, but Unit Holders who tender their
Units will be giving up the opportunity to participate in any
potential future benefits from ownership of Units, including
distributions resulting from any future sale of the Partnership's
properties. Unit Holders may have a more immediate need to use the
cash now tied up in the Units, and may consider the Offer more certain
to achieve a prompt liquidation of their investment in the Units. See
"Details of the Offer - Acceptance for Payment and Payment of Purchase
Price."
o The Offer allows Unit Holders the option to sell "All or None" of
their Units, thereby allowing Unit Holders the option to avoid
proration if more than 11,000 Units are tendered. See "Details of the
Offer - Terms of the Offer; Expiration Date; Proration" and "-
Withdrawal Rights - Automatic Withdrawal Option."
Each Unit Holder must make his own decision, based on the Unit Holder's
particular circumstances, whether to tender Units. Unit Holders should consult
with their respective advisors about the financial, tax, legal and other
implications of accepting the Offer.
The above statements are intended only as a brief overview of the principal
terms and considerations regarding the Offer. The entire Offer to Purchase,
which follows, provides substantially greater detail about the Offer, and all of
the statements above are qualified by the entire Offer to Purchase. You should
read it completely and carefully before deciding whether or not to tender your
Units. The Offer is subject to certain terms and conditions set forth in this
Offer to Purchase, and in the related Agreement of Transfer and Letter of
Transmittal, that are not summarized above.
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BACKGROUND OF THE OFFER
The Partnership, though subject to the public reporting requirements of the
Securities Exchange Act of 1934, has not filed any periodic reports with the
Securities and Exchange Commission since the quarterly report for its fiscal
quarter ended September 30, 1999, and has not otherwise published or provided
Unit Holders with audited financial statements reporting on the Partnership's
operations and financial condition.
In October 2003, Everest Management, LLC and KM Investments, LLC,
affiliates of the Purchaser, filed suit against the Former General Partners, the
Partnership and another partnership for which James Hoyt and his affiliate
served as general partners, Secured Investment Resources Fund, L.P. ("SIRF I")
seeking access to the books and records of the Partnership and SIRF I.
In April 2004, the Purchaser commenced solicitations of Unit Holders in the
Partnership and SIRF I to obtain their written consents to the removal of the
Former General Partners as general partner of the Partnership.
In June 2004, the Purchaser's affiliates sought, and subsequently obtained,
the appointment of a receiver for the assets of the Partnership and SIRF I.
In August 2004, the Former General Partners filed suit against the
Purchaser and its affiliates alleging that the proxy statements and solicitation
sent by them to Unit Holders of the Partnership and SIRF I contained materially
false and misleading information; and requesting a declaration that the voting
procedures set forth in the proxy solicitation violated the respective
partnership agreements and that any resulting votes were void and of no effect.
In January 2005, the Purchaser and the Former General Partners entered
into a Settlement Agreement which resolved the foregoing litigation and allowed
Millenium to take over as the new general partner of the Partnerships on March
3, 2005. See "Certain Information Concerning the Purchaser - Prior Acquisitions
of Units and Prior Contacts."
In March 2005, Millenium engaged new, unaffiliated property management
companies which, as of the date of this Offer, have just recently taken over the
actual operation of the properties. Millenium has taken possession of most of
the books and records of the Partnership, but the material is voluminous and
Millenium has not been able to review such information. From the materials that
have been reviewed so far, it appears that there are potentially significant
gaps in information.
In March 2005, the Partnership received notice that the foreclosure process
for the Sunwood Apartments property had been recommenced. Millenium was able to
reach an agreement with the lender by which the lender accepted a partial
payment of the total overdue amount on the loan, thereby saving the property
from the threat of foreclosure. To perform that agreement, the Partnership
borrowed approximately $800,000 from affiliates of Millenium and the property's
independent management company that were willing to make such a loan.
A company called Mega Ventures has sued to try to enforce an agreement to
sell Sunwood signed by the Former General Partners. Millenium believes the
contract was terminated or is otherwise not enforceable and believes it is in
the best interest of the Partnership not to sell Sunwood for the price to which
the Former General Partners agreed. Mega Ventures filed a motion for summary
judgment which asked the Court to decide the case in their favor even though the
case is only in the early stages. That motion was denied in August 2005.
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Discovery in that case is ongoing. We cannot predict the outcome of that
litigation, however, it is possible for adverse rulings or decisions in that
case to have a materially adverse effect on the financial condition of the
Partnership.
DETAILS OF THE OFFER
1. Terms of the Offer; Expiration Date; Proration. On the terms and subject
to the conditions of the Offer, the Purchaser will accept and purchase up to
11,000 validly tendered, and not withdrawn, Units in accordance with the
procedures set forth in this Offer to Purchase ("Properly Tendered"). For
purposes of the Offer, the term "Expiration Date" means 5:00 p.m., Los Angeles
time, on Tuesday, November 15, 2005, unless the Purchaser extends the period of
time during which the Offer is open, in which event the term "Expiration Date"
shall mean the latest time and date to which the Offer is extended by the
Purchaser.
If, prior to the Expiration Date, the Purchaser increases the price offered
to the Unit Holders pursuant to the Offer, the increased price will be paid for
all Units accepted for payment pursuant to the Offer, whether or not the Units
were tendered prior to the increase in consideration.
If more than 11,000 Units are Properly Tendered the Purchaser will, upon
the terms and subject to the conditions of the Offer, accept for payment and pay
for an aggregate of 11,000 Units, pro rata, according to the number of Units
that are Properly Tendered by each Unit Holder, with appropriate adjustments to
avoid purchases of fractional Units. Subject to its obligation to pay for Units
promptly after the Expiration Date, the Purchaser intends to pay for any Units
accepted for payment pursuant to the Offer after determining the final proration
or other adjustments. The Purchaser does not believe it would take any longer
than five business days to determine the effects of any proration required. If
the number of Units that are Properly Tendered is less than or equal to 11,000
Units, the Purchaser will purchase all Units that are Properly Tendered, upon
the terms and subject to the other conditions of the Offer. See "Effects of the
Offer - Limitations on Resales."
Unit Holders may indicate, by checking a box on the Letter of Transmittal
(the "All or None Box"), that they only wish to sell their Units if they will be
able to sell all of their Units, without any proration. See "Details of the
Offer - Withdrawal Rights." If more than 11,000 Units have been Properly
Tendered without checking the All or None Box, then the above description of
proration will apply only to tenders of such Units that do not have the All or
None Box checked.
If prior to the Expiration Date any or all of the conditions of the Offer
have not been satisfied, or waived by the Purchaser, the Purchaser reserves the
right to: (i) decline to purchase any of the Units tendered, terminate the Offer
and return all tendered Units, (ii) waive the unsatisfied conditions and,
subject to complying with applicable rules and regulations of the Securities and
Exchange Commission (the "Commission"), purchase all Units that are Properly
Tendered, (iii) extend the Offer and, subject to the right of Unit Holders to
withdraw Units until the Expiration Date, retain previously tendered Units for
the period or periods for which the Offer is extended, and (iv) amend the Offer.
2. Acceptance for Payment and Payment of Purchase Price. On the terms and
subject to the conditions of the Offer, the Purchaser will purchase and will pay
for up to 11,000 Properly Tendered Units, promptly following the Expiration
Date. In all cases, payment for Units purchased pursuant to the Offer will be
made only after timely receipt by the Purchaser of: (i) a properly completed and
duly executed and acknowledged Letter of Transmittal, and (ii) any other
documents required in accordance with the Letter of Transmittal.
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No transfer fees will be deducted. UNDER NO CIRCUMSTANCE WILL INTEREST ON
THE PURCHASE PRICE BE PAID, REGARDLESS OF ANY EXTENSION OF THE OFFER OR ANY
DELAY IN MAKING SUCH PAYMENT.
If any tendered Units are not purchased for any reason (other than
proration adjustments), the Purchaser may destroy the original Letter of
Transmittal with respect to the Units. If for any reason acceptance for payment
of, or payment for, any Units tendered pursuant to the Offer is delayed or the
Purchaser is unable to accept for payment, purchase or pay for Units tendered,
then, without prejudice to the Purchaser's rights under Section 4 herein, the
Purchaser may, nevertheless, retain documents concerning tendered Units, and
those Units may not be withdrawn except to the extent that the tendering Unit
Holders are otherwise entitled to withdrawal rights as described in Section 5
herein, subject, however, to the Purchaser's obligation under Rule 14e-1(c)
under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), to
pay Unit Holders the purchase price in respect of Units tendered or return
documents, if any, representing those Units promptly after termination or
withdrawal of the Offer.
3. Procedure to Accept the Offer. For the tender of any Units to be valid,
the Purchaser must receive, at the address listed on the back page of this Offer
to Purchase on or prior to the Expiration Date, a properly completed and duly
executed Letter of Transmittal and all documents required by the Instructions.
The method of delivery of the Letter of Transmittal and all other required
documents is at the option and risk of the tendering Unit Holder, and delivery
will be deemed made only when actually received by the Purchaser. If delivery is
by mail, registered mail with return receipt requested, properly insured, is
recommended. In all cases, sufficient time should be allowed to assure timely
delivery.
By executing and delivering a Letter of Transmittal, a tendering Unit
Holder irrevocably appoints the Purchaser and its officers and any other
designee of the Purchaser, and each of them, the attorneys-in-fact and proxies
of the Unit Holder, in the manner set forth in the Letter of Transmittal, each
with full power of substitution, to the full extent of the Unit Holder's rights
with respect to the Units tendered by the Unit Holder and accepted for payment
by the Purchaser (and with respect to any and all distributions, other Units,
rights or other securities issued or issuable in respect thereof (collectively,
"Distributions")), including without limitation the right to direct any IRA
custodian, trustee or other record owner to execute and deliver the Letter of
Transmittal, the right to accomplish a withdrawal of any previous tender of the
Unit Holder's Units and the right to complete the transfer contemplated thereby.
All such proxies will be considered coupled with an interest in the tendered
Units, are irrevocable and are granted in consideration of, and are effective
upon, the acceptance for payment of the Units by the Purchaser in accordance
with the terms of the Offer. Upon acceptance for payment, all prior powers of
attorney and proxies given by the Unit Holder with respect to the Units and
Distributions will, without further action, be revoked, and no subsequent powers
of attorney or proxies may be given (and, if given, will be without force or
effect). The officers and designees of the Purchaser will, with respect to the
Units for which the appointment is effective, be empowered to exercise all
voting and other rights of the Unit Holder as they in their discretion may deem
proper at any meeting of the Partnership or any adjournment or postponement
thereof.
4. Determination of Validity; Rejection of Units; Waiver of Defects; No
Obligation to Give Notice of Defects. All questions about the validity, form,
eligibility (including time of receipt) and acceptance for payment of any tender
of Units pursuant to the Offer will be determined by the Purchaser, which
determination will be final and binding. The Purchaser reserves the right to
reject any or all tenders of any particular Units determined by it not to be in
proper form or if the acceptance of or payment for those Units may, in the
opinion of Purchaser's counsel, be unlawful. The Purchaser also reserves the
5
right to waive or amend any of the conditions of the Offer that it is legally
permitted to waive and to waive any defect in any tender with respect to any
particular Units. The Purchaser's interpretation of the terms and conditions of
the Offer (including the Letter of Transmittal) will be final and binding. No
tender of Units will be deemed to have been validly made until all defects have
been cured or waived. Neither the Purchaser nor any other person will be under
any duty to give notification of any defects in the tender of any Units or will
incur any liability for failure to give any such notification.
A tender of Units pursuant to the procedure described above and the
acceptance for payment of such Units will constitute a binding agreement between
the tendering Unit Holder and the Purchaser on the terms set forth in the Offer.
For purposes of the Offer, the Purchaser will be deemed to have accepted
for payment pursuant to this Offer, and thereby purchased, Properly Tendered
Units if, as and when the Purchaser gives written notice to the Partnership or
its Transfer Agent of the Purchaser's acceptance of those Units for payment
pursuant to the Offer. Upon the terms and subject to the conditions of the
Offer, payment for Units accepted for payment pursuant to the Offer will be made
and transmitted directly to Unit Holders whose Units have been accepted for
payment.
5. Withdrawal Rights. Tenders of Units made pursuant to the Offer are
irrevocable, except that Units tendered pursuant to the Offer may be withdrawn
at any time on or prior to the Expiration Date and, unless already accepted for
payment by the Purchaser pursuant to the Offer, may also be withdrawn at any
time after December 12, 2005. If purchase of, or payment for, Units is delayed
for any reason, including extension by the Purchaser of the Expiration Date, or
if the Purchaser is unable to purchase or pay for Units for any reason (for
example, because of proration adjustments) then, without prejudice to the
Purchaser's rights under the Offer, tendered Units may be retained by the
Purchaser and may not be withdrawn, except to the extent that tendering Unit
Holders are otherwise entitled to withdrawal rights as set forth in this Section
5; subject, however, to the Purchaser's obligation, pursuant to Rule 14e-1(c)
under the Exchange Act, to pay Unit Holders the purchase price in respect of
Units tendered promptly after termination or withdrawal of the Offer.
For withdrawal to be effective, a written notice of withdrawal must be
timely received by the Purchaser at its address listed on the back cover of this
Offer to Purchase. Any notice of withdrawal must specify the name of the
person(s) who tendered the Units to be withdrawn and must be signed by the
person(s) who signed the Letter of Transmittal in the same manner as the Letter
of Transmittal was signed. Any Units properly withdrawn will be deemed not
validly tendered for purposes of the Offer. Withdrawn Units may be re-tendered,
however, by following the procedures described in Section 3 herein at any time
prior to the Expiration Date.
All questions about the validity and form (including time of receipt) of
notices of withdrawal will be determined by the Purchaser, which determination
shall be final and binding. Neither the Purchaser nor any other person will be
under any duty to give notice of any defects in any notice of withdrawal or
incur any liability for failure to give any such notice.
Automatic Withdrawal Option. Unit Holders may indicate, by checking a box
on the Letter of Transmittal (the "All or None Box"), that they only wish to
sell their Units if they will be able to sell all of their Units, without any
proration. If at any time during the day of the Expiration Date more than 11,000
Units have been Properly Tendered, unless the Purchaser amends the Offer to
increase the number of Units to be purchased, the Purchaser will deem all Units
from Unit Holders that checked the All or None Box to be withdrawn and not
validly tendered for purposes of the Offer. Neither the Purchaser nor any other
person will be under any duty to give any notice that such automatic withdrawal
will occur. Unit Holders may change their election whether or not to check the
All or None Box at any time on or prior to the Expiration Date by submitting a
new Letter of Transmittal with their preferred election, in the manner described
in Section 3 herein.
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6. Extension of Tender Period; Amendment. The Purchaser expressly reserves
the right at any time:
o to extend the period of time during which the Offer is open and
thereby delay acceptance for payment of, and the payment for, any
Units;
o to delay for a reasonable period the acceptance for payment of, or
payment for, any Units not already accepted for payment or paid for,
if the Purchaser reasonably anticipates the prompt receipt of any
authorization, consent, order of, or filing with, or the expiration of
waiting periods imposed by, any court, government, administrative
agency or other governmental authority, necessary for the consummation
of the transactions contemplated by the Offer;
o to amend the Offer in any respect (including, without limitation, by
increasing or decreasing the price, increasing or decreasing the
number of Units being sought, or both).
Notice of any such extension or amendment will promptly be disseminated to Unit
Holders in a manner reasonably designed to inform Unit Holders of such change in
compliance with Rule 14d-4(c) under the Exchange Act. In the case of an
extension of the Offer, the extension will be followed by a press release or
public announcement which will be issued no later than 9:00 a.m., New York City
time, on the next business day after the scheduled Expiration Date, in
accordance with Rule 14e-1(d) under the Exchange Act. If the Purchaser makes a
material change in the terms of the Offer or waives a condition that constitutes
a material change in the terms of the Offer, the Purchaser will extend the Offer
and disseminate additional tender offer materials to the extent required by
Rules 14d-4(c) and 14d-6(d) under the Exchange Act. If a Distribution occurs
before the Expiration Date and the Purchaser reduces its Offer price as a
result, the Purchaser will provide notice thereof to Unit Holders and extend the
Expiration Date in accordance with Rule 14e-1(b) under the Exchange Act.
7. Conditions of the Offer. Notwithstanding any other term of the Offer,
the Purchaser will not be required to accept for payment or, subject to any
applicable rules and regulations of the Commission, including Rule 14e-1(c)
under the Exchange Act (relating to a bidder's obligation to pay for or return
tendered securities promptly after the termination or withdrawal of such
bidder's offer), to pay for any Units tendered, may delay the acceptance for
payment of the Units tendered, or may withdraw the Offer if, at any time on or
after the date of the Offer and before the Expiration Date, any of the following
conditions exists:
(a) a preliminary or permanent injunction or other order of any federal or
state court, government, administrative agency or other governmental authority
shall have been issued and shall remain in effect which: (i) makes illegal,
delays or otherwise directly or indirectly restrains or prohibits the making of
the Offer or the acceptance for payment, purchase of or payment for any Units by
the Purchaser; (ii) imposes or confirms limitations on the ability of the
Purchaser effectively to exercise full rights of both legal and beneficial
ownership of the Units; (iii) requires divestiture by the Purchaser of any
Units; (iv) materially adversely affects the business, properties, assets,
liabilities, financial condition, operations, results of operations or prospects
of the Purchaser, or the Partnership; or (v) seeks to impose any material
condition to the Offer unacceptable to the Purchaser;
7
(b) there shall be any action taken, or any statute, rule, regulation or
order proposed, enacted, enforced, promulgated, issued or deemed applicable to
the Offer by any federal or state court, government, administrative agency or
other governmental authority which, directly or indirectly, results in any of
the consequences referred to in paragraph (a) above;
(c) there shall be any authorization, consent, order of, or filing with, or
expiration of waiting periods imposed by, any court, government, administrative
agency or other governmental authority, necessary for the consummation of the
transactions contemplated by the Offer and requested by Purchaser, that shall
not have occurred or been filed or obtained, including a resolution to the
satisfaction of any such authority of any comments or inquiries made concerning
the Offer;
(d) any event shall have occurred or been disclosed, or shall have been
threatened, regarding the business, properties, assets, liabilities, financial
condition, operations, or results of operations of the Partnership, which event
is materially adverse, or which threatened event, if fulfilled, would be
materially adverse, to the Partnership or its business or properties, or there
shall be any material lien not disclosed in the Partnership's financial
statements, or the Purchaser shall have become aware of any previously
undisclosed fact that has or with the passage of time would have a material
adverse effect on the value of the Units or the Partnership's properties;
(e) there shall have been threatened, instituted or pending any action or
proceeding before any court or governmental agency or other regulatory or
administrative agency or commission or by any other person, challenging the
acquisition of any Units pursuant to the Offer or otherwise directly or
indirectly relating to the Offer, or otherwise, in the reasonable judgment of
the Purchaser, adversely affecting the Purchaser, the Partnership or its
properties or the value of the Units;
The foregoing conditions are for the sole benefit of the Purchaser and may
be (but need not be) asserted by the Purchaser regardless of the circumstances
giving rise to such conditions or may be waived by the Purchaser in whole or in
part at any time prior to the Expiration Date, subject to the requirement to
disseminate to Unit Holders, in a manner reasonably designed to inform them of,
any material change in the information previously provided. Any determination by
the Purchaser, in its reasonable judgment, concerning the events described above
will be final and binding upon all parties.
8. Backup Federal Income Tax Withholding. To prevent the possible
application of backup federal income tax withholding with respect to payment of
the purchase price, a tendering Unit Holder must provide the Purchaser with the
Unit Holder's correct taxpayer identification number in the space provided in
the Letter of Transmittal.
9. FIRPTA Withholding. To prevent the withholding of federal income tax in
an amount equal to ten percent of the amount of the purchase price plus
Partnership liabilities allocable to each Unit purchased, the Letter of
Transmittal includes FIRPTA representations certifying the Unit Holder's
taxpayer identification number and address and that the Unit Holder is not a
foreign person.
CERTAIN INFORMATION CONCERNING THE PARTNERSHIP
As noted above, the Partnership is subject to the information reporting
requirements of the Exchange Act and is required to file reports and other
information with the Commission relating to its business, financial results and
other matters. However, the Partnership has not complied with its periodic
reporting requirements since filing its quarterly report on Form 10-Q for the
quarter ended September 30, 1999 in January of 2002. Since that date, the only
public filings regarding the Partnership have been preliminary and definitive
proxy soliciting materials and the Current Report on Form 8-K reporting that
Millenium has become the new general partner of the Partnership, and the Tender
Offer Statement and amendments filed by Millenium for its offer dated April 20,
2005. All such filed documents may be examined and copies may be obtained from
the offices of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549,
8
or electronically at http://www.sec.gov. Copies should be available by mail upon
payment of the Commission's customary charges by writing to the Commission's
principal offices at 450 Fifth Street, N.W., Washington, D.C. 20549.
General. Attached as Part I of Appendix A to this Offer to Purchase is
information excerpted from the last Annual Report on Form 10-K filed by the
Partnership with the Commission, which was filed for the year ended December 31,
1998 (the "Last Form 10-K"), and additional information obtained by Millenium
regarding the Partnership, which describe the business and operations of the
Partnership.
Outstanding Units. There are currently 53,661 Units issued and outstanding.
The Units are held by approximately 1,962 Unit Holders.
Trading History of the Units. There is no established trading market for
the Units other than limited and sporadic trading through matching services or
privately negotiated sales. At present, privately negotiated sales and sales
through intermediaries (such as through the American Partnership Board) are the
only means available to a Unit Holder to liquidate an investment in Units (other
than this Offer or other occasional offers by other partnership investors, if
any) because the Units are not listed or traded on any exchange or quoted on any
NASDAQ list or system.
According to Direct Investment Spectrum, an independent third party
publication, between August 1, 2004 and July 31, 2005 (the most recent published
information): 338 Units traded at the average price of $127.16 per Unit. Sales
may be conducted which are not reported in the Direct Investment Spectrum and
the prices of sales through other channels may differ from those reported by the
Direct Investment Spectrum. The reported gross sales prices may not reflect the
net sales proceeds received by sellers of Units, which typically are reduced by
commissions (typically up to 8% with a minimum of $150-$200) and other secondary
market transaction costs. The Purchaser does not know whether the information
provided by the Direct Investment Spectrum is accurate or complete. Except for
the purchases described below in "Certain Information Concerning the Purchaser -
Prior Acquisitions of Units and Prior Contacts" the Purchaser is not aware of
any trades of units that were not reported in the Direct Investment Spectrum.
Selected Financial and Property Related Data. Attached as Part II of
Appendix A is certain financial information with respect to the Partnership and
its properties. This information has been obtained by the Purchaser as a result
of taking over as the new general partner of the Partnership. Such information
includes unaudited financial information and other data as to which the
Purchaser has no independent means to verify its accuracy, completeness or basis
of presentation. More comprehensive financial and other information generally
available for public companies in periodic reports and other documents filed
with the Commission is not available for the Partnership. The Purchaser, as the
new general partner, intends to obtain an audit of the Partnership's financial
statements, but such audit has not yet been commenced. The Purchaser does not
currently know when such an audit will be commenced or completed, and does not
know if such audit will result in material changes to the financial information
set forth in Appendix A. Unit Holders should refer to any documents filed with
the Commission after the date of this Offer for more recent information relating
to the business and operations of the Partnership.
DETERMINATION OF OFFER PRICE
Before establishing the Offer price, the Purchaser reviewed certain
information including among other things: (i) the Partnership's limited
partnership agreement (the "Partnership Agreement"), and (ii) the financial
9
information provided by the Former General Partners, and (iii) the operating
results of the Partnership's properties since the Partnership was taken over by
the Purchaser. The Former General Partners had obtained appraisals of the
Partnership's properties; however, the Purchaser does not consider the
appraisals to be relevant any longer given their age and given the Purchaser's
experience managing the Partnership. However, information about the appraisals
is provided below.
Appraisal of Sunwood Village Apartments. The Former General Partner
obtained an appraisal of the Sunwood Village Apartments property on or about
April 13, 2004, from Cushman & Wakefield of Arizona, Inc. ("Cushman"). The
appraisal is a "Restricted Use Appraisal Report" and is made subject to numerous
limiting conditions and assumptions, including without limitation: it assumes
the Partnership has good and marketable fee simple title to the property free
and clear of all liens; the opinion of value is only as of the date of the
appraisal; it assumes responsible ownership and competent management of the
property; it assumes there are no hidden or unapparent conditions of the
property, subsoil or structures that render the property more or less valuable;
and Cushman may have relied on some information provided to it by the Former
General Partners. Subject to the limiting conditions and assumptions therein,
the appraisal estimates that the fair market value of the property was
$10,700,000, as of the valuation date. The Purchaser has not received any
representations or assurances from the Former General Partner, Cushman or any
other party regarding such appraisal or the continuing accuracy thereof; and has
not independently investigated the accuracy of such appraisal. The Purchaser
disclaims responsibility for the contents of the appraisal except to the extent
prohibited by law. A copy of the appraisal is filed as an Exhibit to the
Schedule TO filed with the Commission relating to the Offer, and may be obtained
in the manner described in "Certain Information Concerning the Partnership."
Potential Sale of Sunwood Village Apartments. The Former General Partner
entered into a contract to sell Sunwood Village to a company named Mega
Ventures, for a purchase price of $12.6 Million, subject to certain conditions.
The purchase contract was signed in March 2004. Although Millenium believes the
contract was terminated or is otherwise not enforceable, Mega Ventures has sued
to try to enforce the agreement, which Millenium believes indicates that the
fair market value of the property is probably higher than the contract price,
although Millenium has not made any other estimate of its value. Millenium
believes it is in the best interest of the Partnership not to sell Sunwood for
the contract price, but we cannot predict the outcome of that litigation.
Appraisal of Oak Terrace Retirement Apartments. The Former General Partner
obtained an appraisal of the Oak Terrace Retirement Apartments property on or
about April 16, 2004, from Cushman & Wakefield of Illinois, Inc. ("Cushman").
The appraisal is a "Restricted Use Appraisal Report" and is made subject to
numerous limiting conditions and assumptions, including without limitation: it
assumes the Partnership has good and marketable fee simple title to the property
free and clear of all liens; the opinion of value is only as of the date of the
appraisal; it assumes responsible ownership and competent management of the
property; it assumes there are no hidden or unapparent conditions of the
property, subsoil or structures that render the property more or less valuable;
and Cushman may have relied on some information provided to it by the Former
General Partners. Subject to the limiting conditions and assumptions therein,
the appraisal estimates that the fair market value of the property was $12.5
Million, as of the valuation date, which includes $4.1 Million of going concern
value for the business operated at the property. However, because the property
has bond financing that is favorable, the appraisal also estimates a value based
on such financing of $16.1 Million. The Purchaser has not received any
representations or assurances from the Former General Partner, Cushman or any
other party regarding such appraisal or the continuing accuracy thereof; and has
not independently investigated the accuracy of such appraisal. The Purchaser
disclaims responsibility for the contents of the appraisal except to the extent
prohibited by law. A copy of the appraisal is filed as an Exhibit to the
Schedule TO filed with the Commission relating to the Offer, and may be obtained
in the manner described in "Certain Information Concerning the Partnership."
10
Appraisal of Bayberry Crossing Shopping Center. The Former General Partner
obtained an appraisal of the Bayberry Crossing Shopping Center property on or
about June 20, 2004, from Cushman & Wakefield of Illinois, Inc. ("Cushman"). The
appraisal is a "Restricted Use Appraisal Report" and is made subject to numerous
limiting conditions and assumptions, including without limitation: it assumes
the Partnership has good and marketable fee simple title to the property free
and clear of all liens; the opinion of value is only as of the date of the
appraisal; it assumes responsible ownership and competent management of the
property; it assumes there are no hidden or unapparent conditions of the
property, subsoil or structures that render the property more or less valuable;
and Cushman may have relied on some information provided to it by the Former
General Partners. Subject to the limiting conditions and assumptions therein,
the appraisal estimates that the fair market value of the property was $3.2
Million, as of the valuation date. The Purchaser has not received any
representations or assurances from the Former General Partner, Cushman or any
other party regarding such appraisal or the continuing accuracy thereof; and has
not independently investigated the accuracy of such appraisal. The Purchaser
disclaims responsibility for the contents of the appraisal except to the extent
prohibited by law. A copy of the appraisal is filed as an Exhibit to the
Schedule TO filed with the Commission relating to the Offer, and may be obtained
in the manner described in "Certain Information Concerning the Partnership."
The appraisals described above expressly disclaim responsibility to any
party other than the original recipient and expressly disallow use for any
purpose other than the original purpose, which purpose was not for Unit Holders
to estimate the value of their Units. Therefore, Purchaser believes that the
Unit Holders are not entitled to rely on Cushman's appraisals in any manner
whatsoever.
Purchaser's Estimate of Property Values. In order to estimate the proceeds
that limited partners would receive if the Partnership were liquidated promptly,
the Purchaser estimated a value for each of the Partnership's properties.
Purchaser calculated an initial value for each property using a capitalization
rate analysis. On the apartment properties, the actual Net Operating Income
("NOI") of the properties from January to July 2005 was used, adjusted to
annualize such results and to deduct assumed recurring replacements of $400. For
the Bayberry retail property, a pro forma NOI amount was used because the
Purchaser believes that the historical revenues have been significantly lower
than they should be because the Former General Partners signed leases that did
not require tenants to pay for common area maintenance charges, which are
normally passed through to tenants. Purchaser annualized the NOI budget for
September-December 2005 because that portion of the budget reflects the
Partnership's new leases, which have the normal pass-through of common area
maintenance charges. Purchaser deducted 5% of pro forma NOI for assumed
recurring replacements. Purchaser's calculation is set forth below.
Sunwood Oak Terrace Bayberry
Village Apts.(1) Apts.(2) Shopping Ctr.(3)
NOI $897,470 $1,163,578 $444,000
Recurring replacements (100,800) (51,600) (22,200)
Adjusted NOI 796,670 1,111,978 421,800
Capitalization rate 7.70% 9.20% 8.20%
Calculated value $10,346,364 $12,086,717 $5,143,902
<FN>
----------
(1) Capitalization Rate per National Real Estate Index for "B"
apartments in Las Vegas, NV, 2Q05.
(2) Capitalization Rate per National Real Estate Index for "B"
apartments in St. Louis, MO, 2Q05, plus 1% for Springfield
location.
(3) Capitalization Rate per National Real Estate Index for retail
property in Kansas City, MO, 2Q05.
</FN>
11
The selection of a capitalization rate for an analysis such as Purchaser's
is a matter of subjective judgment. The Purchaser used rates reported in an
independent third-party publication, the National Real Estate Index ("NREI"),
for the Second Quarter of 2005. However, because NREI does not report rates for
Springfield, the Purchaser made a subjective adjustment to the capitalization
rate for a nearby market to estimate a rate for Oak Terrace. Purchaser believes
the capitalization rates used in its calculation are reasonable, but also
believes that NREI rates are often on the higher end of the range of reasonable
capitalization rates, thereby yielding lower value estimates than lower
capitalization rates would yield. To assist Unit Holders in understanding the
effect of using a different capitalization rate, the Purchaser has calculated
that each 1% decrease in the selected capitalization rate would result in an
increase in the calculated value of approximately $1,544,233 for Sunwood,
$1,473,990 for Oak Terrace, and $714,431 for Bayberry.
After making the foregoing calculations, Purchaser decided to use, as the
estimated value for the Sunwood Village Apartments, the price in the purported
March 2004 contract with Mega Ventures, which is the subject of the current
litigation described previously in the Offer. Based on its view of the current
market in Las Vegas, Nevada, the Purchaser believes that if the Partnership
prevails in the litigation, which cannot be predicted, then Sunwood could
potentially be sold at a significantly higher price; however, the Purchaser has
not made an estimate of such price since that option is not currently available
to the Partnership. The Purchaser did not attempt to estimate the effect of the
favorable bond financing that Oak Terrace has, although the last appraisal
(described above) estimated that the such financing, if assumed, would increase
the value of the property by $3.6 Million. The Purchaser does not know and has
not determined if the appraiser's opinion was reasonable.
12
Liquidation Value Calculation. Purchaser calculated a current estimated
liquidation value of the Partnership of $120 per Unit, considering the estimated
property values described above and the other assets and liabilities of the
Partnership. In estimating such liquidation value, Purchaser attributed no value
to certain intangible assets and receivables: i.e., a promissory note from James
Hoyt, a Former General Partner, in the amount of approximately $2.7 Million, a
receivable from another partnership, Secured Investment Resources Fund, L.P. of
$808,946, and the unamortized portion of debt issuance costs and leasing
commissions that have already been spent by the Partnership and would have no
value in a liquidation. Purchaser's calculation, including the other estimates
and assumptions made by Purchaser in attempting to estimate the results of a
current liquidation, is set forth below.
Estimated Values(1):
Sunwood $12,600,000
Oak Terrace 12,086,717
Bayberry 5,143,902
-----------
Total 29,830,619
-----------
Cash at 7/31/05 2,046,055
Mortgage/Bond Debt at 7/31/05 (21,177,887)
Other Liabilities (705,292)
Repay Sunwood Class A Units(2) (1,201,500)
------------
$ 8,791,995
Purchaser's Deductions and Reserves
Assumed commissions, closing and wind-up cost (5% (1,491,531)
of estimated value)
Reserve for Deferred Maintenance and Capital (530,666)
Expenditures
Reserve for loan prepayment or assumption fees (308,814)
------------
Estimated liquidation proceeds $ 6,460,984
===========
Units outstanding 53,661
Per Unit estimated liquidation proceeds $120/Unit
<FN>
----------
(1) See "Purchaser's Estimate of Property Values" above.
(2) In order to reinstate the mortgage loan on Sunwood Village
Apartments, the Partnership negotiated to pay the lender
$800,000 to compromise and settle the default interest and
penalty charges accumulated as a result of the
Partnership's loan default. To fund such amount, Class A
limited partner interests were issued by the Sunwood
Village Joint Venture, L.P. to affiliates of Millenium and
the property's independent management company, on terms
that require a preferential repayment and preferred return
before the Partnership receives any proceeds as a limited
partner of the Sunwood Village Joint Venture, L.P., which
owns the property.
</FN>
In determining its Offer price, the Purchaser considered the foregoing
calculation. The Purchaser also considered its opinion that, under the present
circumstances of the Partnership, a purchase of Units at this time is a highly
speculative investment with a substantial risk of a significant or total loss,
because of the lawsuit with Mega Ventures, the lack of reliable historical
financial information, the possibility of unknown liabilities incurred by the
Former General Partners, and the anticipated high operating costs that the
13
Partnership is likely to incur to complete the transition from the Former
General Partners to Millenium as the new general partner and to resolve
litigation that has resulted and may be commenced over the conduct of the Former
General Partners. Furthermore, the Purchaser believes that any third party would
offer only a fraction of such net asset value range to purchase the Units, if
any third party were willing to make any offer at all, because of the foregoing
risks, the inability of third party purchasers to control the Partnership, and
the illiquidity of the Units. The Purchaser did not ascribe any specific values
or discounts to the foregoing risk considerations. In view of all of the
considerations described above in this Section, the Purchaser determined its
Offer price by selecting a price that Purchaser is willing to pay, given the
risks of its investment compared to the potential return, and that Purchaser
believes is sufficiently high to motivate Unit Holders to sell their Units in
order to dispose of their investment under the circumstances of the Partnership.
CERTAIN INFORMATION CONCERNING THE PURCHASER
The Purchaser. The Purchaser is a California limited liability company that
was formed in 1998. The principal office of the Purchaser is 199 South Los
Robles Avenue, Suite 200, Pasadena, CA 91101. The Purchaser's manager is Everest
Properties II, LLC, a California limited liability company ("EPII"). Both the
Purchaser and its manager have the same executive officers. For certain
information concerning the executive officers of the Purchaser and its manager,
see Schedule I to this Offer to Purchase.
The Purchaser and EPII and their affiliates invest in limited partnerships
such as the Partnership, and in other forms of real estate oriented investments,
and conduct activities incident thereto.
General. Except as set forth elsewhere in this Offer to Purchase: (i) the
Purchaser does not beneficially own or have a right to acquire, and, to the best
knowledge of the Purchaser, no associate or majority-owned subsidiary of
Purchaser or the persons listed in Schedule I hereto, beneficially owns or has a
right to acquire any Units or any other equity securities of the Partnership;
(ii) the Purchaser has not, and to the best knowledge of the Purchaser, none of
the persons and entities referred to in clause (i) above or any of their
executive officers, directors or subsidiaries has, effected any transaction in
the Units or any other equity securities of the Partnership during the past 60
days other than as stated in this Offer to Purchase; (iii) the Purchaser does
not have and, to the best knowledge of the Purchaser, none of the persons listed
in Schedule I hereto has, any contract, arrangement, understanding or
relationship with any other person with respect to any securities of the
Partnership, including, but not limited to, the transfer or voting thereof,
joint ventures, loan arrangements, puts or calls, guarantees of loans,
guarantees against loss or the giving or withholding of proxies, consents or
authorizations; (iv) since December 31, 2002, there have been no transactions
which would require reporting under the rules and regulations of the Commission
between the Partnership or any of its affiliates and the Purchaser or any of its
subsidiaries or, to the best knowledge of the Purchaser, any of its executive
officers, directors or affiliates; and (v) since December 31, 2002, except as
otherwise stated in this Offer to Purchase, there have been no contacts,
negotiations or transactions between the Purchaser, or any of its subsidiaries
or, to the best knowledge of the Purchaser, any of the persons listed in
Schedule I hereto, on the one hand, and the Partnership or its affiliates, on
the other hand, concerning a merger, consolidation or acquisition, tender offer
or other acquisition of securities, an election of directors, or a sale or other
transfer of a material amount of assets of the Partnership.
Prior Acquisitions of Units and Prior Contacts. On March 3, 2005, Millenium
became the sole general partner of the Partnership , assuming control from the
prior general partners: James R. Hoyt and Secured Investment Resources II, Inc.;
pursuant to the vote of limited partners holding a majority of the units of
limited partnership interest and the approval of the Court and court-appointed
14
receiver in the case captioned Everest Management, LLC, et al. v. James R. Hoyt,
et al., (District Court, Johnson County, Kansas, Case No. 03CV07056) (the
"Litigation"). The Litigation involved the Partnership and another limited
partnership controlled by Mr. Hoyt, and certain terms of the settlement are
related to the foregoing change of control.
The principal terms of the Settlement Agreement were as follows. All Unit
Holders have been admitted as substitute limited partners with respect to the
units they currently hold, and the Former General Partners were removed and
Millenium became the successor general partner of the Partnership, in accordance
with the Partnership Agreement and the majority vote received by Millenium. Mr.
Hoyt signed a Promissory Note to repay all advances taken from the Partnership,
which amount is initially set at $2.5 Million but shall be adjusted by auditors
to ensure that Mr. Hoyt must repay all unrepaid loans or advances made to him
and any other amounts taken in contravention of the Partnership's limited
partnership agreement. The Promissory Note provides for repayment to be made
over ten (10 ) years, with interest being charged at a variable rate of the
Prime Rate plus one percent (1%).
Millenium owns 14,646 limited partnership units. EPII owns 194 Units (62 of
which were acquired pursuant to the Settlement Agreement for $100 per Unit), and
other affiliates, Everest Management, LLC, and KM Investments, LLC, own 20 and
32 Units which were acquired several years ago. Millenium acquired its units
pursuant to a tender offer dated April 20, 2005, at $100 per Unit, and in
private purchases for $100 per Unit. The foregoing Units together represent
27.8% of the 53,661 limited partnership units outstanding. The foregoing Unit
Holders do not intend to tender their Units to the Purchaser.
Except as set forth above and below in this Offer document, neither the
Purchaser nor its affiliates are party to any past, present or proposed material
contracts, arrangements, understandings, relationships, or negotiations with the
Partnership or with the Former General Partner concerning the Partnership. See
also, "Background of the Offer."
Source of Funds. Based on the Offer price of $100 per Unit, the Purchaser
estimates that the total amount of funds necessary to purchase all Units sought
by this Offer and to pay related fees and expenses, will be approximately
$1,125,000. The Purchaser expects to obtain these funds by means of equity
capital contributions from its members at the time the Units tendered pursuant
to the Offer are accepted for payment. Such members will fund their capital
contributions through existing cash and other financial assets which in the
aggregate are sufficient to provide the funds required in connection with the
Offer without any borrowings. Such members have irrevocably agreed and are
obligated to make such capital contributions available to the Purchaser on
demand.
FUTURE PLANS OF THE PURCHASER
The Purchaser is seeking to acquire Units pursuant to the Offer to obtain a
substantial equity interest in the Partnership, for investment purposes.
Following the completion of the Offer, the Purchaser and persons related to or
affiliated with the Purchaser may acquire additional Units, although there is no
current intention to do so. Any such acquisition may be made through private
purchases, through one or more future tender or exchange offers or by any other
means deemed advisable by the Purchaser. Any such acquisition may be at a price
higher or lower than the price to be paid for the Units purchased pursuant to
the Offer, and may be for cash or other consideration. The Purchaser also may
consider selling some or all of the Units it acquires pursuant to the Offer,
either directly or by a sale of one or more interests in the Purchaser itself,
depending upon liquidity, strategic, tax and other considerations.
15
Millenium's goals as the new general partner of the Partnership are: resume
sending financial reports to the Unit Holders; resume making required filings
with the Commission; investigate and pursue any further claims to be brought
against the Former General Partners, if warranted; reduce property management
fees and other expenses; and consider selling the properties and liquidating the
Partnership if Millenium deems it to be in the best interest of the Partnership
and the Unit Holders.
Other than as set forth above, the Purchaser does not currently intend to
change current management, indebtedness, capitalization, corporate structure or
business operations of the Partnership, and does not have current plans for any
extraordinary transaction such as a merger, reorganization, liquidation or sale
or transfer of assets involving the Partnership. However, these plans could
change at any time in the future. If any transaction is effected by the
Partnership and financial benefits accrue to the Unit Holders, the Purchaser and
its affiliates will participate in those benefits to the extent of their
ownership of the Units.
EFFECTS OF THE OFFER
Future Benefits of Unit Ownership. Tendering Unit Holders shall receive
cash in exchange for their Units purchased by the Purchaser and will forego all
future distributions and income and loss allocations from the Partnership with
respect to such Units.
Limitations on Resales. The Partnership Agreement prohibits a transfer of
Units if the transfer would result in 50% or more of the Units being transferred
in a 12 month period (a "Tax Termination"). This provision may limit sales of
Units on the secondary market and in private transactions following completion
of the Offer. Accordingly, the Partnership may not recognize any requests for
recognition of a transferee Unit Holder upon a transfer of Units if the transfer
would result in a Tax Termination. Because the Units of the Partnership are not
traded in any readily available market, the Purchaser believes it is highly
improbable that the Partnership would receive requests to transfer 50% or more
of the Units in any 12 month period, even after including transfers resulting
from the Offer. See "Details of the Offer - Terms of the Offer; Expiration Date;
Proration."
Influence Over Future Voting Decisions. Under the Partnership Agreement,
Unit Holders holding a majority of the Units are entitled to take action with
respect to a variety of matters, including removal of the General Partner,
dissolution and termination of the Partnership, and approval of most types of
amendments to the Partnership Agreement. The influence of Purchaser and its
affiliates on taking or preventing such actions may be significantly increased
after the Offer is completed.
FEDERAL INCOME TAX MATTERS
This summary is based on the Internal Revenue Code of 1986, as amended (the
"Code"), applicable Treasury regulations thereunder, administrative rulings, and
judicial authority, all as of the date of the Offer. All of the foregoing is
subject to change, and any such change could affect the continuing accuracy of
this summary. This summary does not discuss all aspects of federal income
taxation that may be relevant to a particular Unit Holder in light of such Unit
Holder's specific circumstances, nor does it describe any aspect of state,
local, foreign or other tax laws. Sales of Units pursuant to the Offer may be
taxable transactions under applicable state, local, foreign and other tax laws.
UNIT HOLDERS SHOULD CONSULT THEIR RESPECTIVE TAX ADVISORS AS TO THE PARTICULAR
TAX CONSEQUENCES TO THE UNIT HOLDER OF SELLING UNITS PURSUANT TO THE OFFER.
16
In general, a Unit Holder will recognize gain or loss on a sale of Units
pursuant to the Offer equal to the difference between (i) the Unit Holder's
"amount realized" on the sale and (ii) the Unit Holder's adjusted tax basis in
the Units sold. The amount of a Unit Holder's adjusted tax basis in a Unit will
vary depending upon the Unit Holder's particular circumstances, and it will
include the amount of the Partnership's liabilities allocable to the Unit (as
determined under Code Section 752). The "amount realized" with respect to a Unit
will be a sum equal to the amount of cash received by the Unit Holder for the
Unit pursuant to the Offer (that is, the purchase price), plus the amount of the
Partnership's liabilities allocable to the Unit (as determined under Code
Section 752).
The gain or loss recognized by a Unit Holder on a sale of a Unit pursuant
to the Offer generally will be treated as a capital gain or loss if the Unit was
held by the Unit Holder as a capital asset. Gain with respect to Units held for
more than one year will be taxed, for federal income tax purposes, at a maximum
long-term capital gain rate of 15 percent. Gain with respect to Units held one
year or less will be taxed at ordinary income rates. It should also be noted
that the Taxpayer Relief Act of 1997 imposed depreciation recapture of
previously deducted straight-line depreciation with respect to real property at
a rate of 25 percent (assuming eligibility for long-term capital gain
treatment). A portion of the gain realized by a Unit Holder with respect to a
disposition of the Units may be subjected to this 25 percent rate to the extent
that the gain is attributable to depreciation recapture inherent in the
properties of the Partnership.
If any portion of the amount realized by a Unit Holder is attributable to
such Unit Holder's share of "unrealized receivables" or "substantially
appreciated inventory items" as defined in Code Section 751, a corresponding
portion of such Unit Holder's gain or loss will be treated as ordinary gain or
loss. It is possible that the basis allocation rules of Code Section 751 may
result in a Unit Holder's recognizing ordinary income with respect to the
portion of the Unit Holder's amount realized on the sale of a Unit that is
attributable to such items while recognizing a capital loss with respect to the
remainder of the Unit.
Capital losses are deductible only to the extent of capital gains, except
that taxpayers who are natural persons may deduct up to $3,000 per year of
capital losses in excess of the amount of their capital gains against ordinary
income. Excess capital losses generally can be carried forward to succeeding
years (a "C" corporation's carry-forward period is five years and an individual
taxpayer can carry forward such losses indefinitely).
Under Code Section 469, individuals, S corporations and certain
closely-held corporations generally are able to deduct "passive activity losses"
in any year only to the extent of the person's passive activity income for that
year. Substantially all post-1986 losses of Unit Holders from the Partnership
are passive activity losses. Unit Holders may have "suspended" passive activity
losses from the Partnership (i.e., post-1986 net taxable losses in excess of
statutorily permitted "phase-in" amounts and which have not been used to offset
income from other passive activities).
If a Unit Holder sells less than all of its interest in the Partnership
pursuant to the Offer, a passive loss recognized by that Unit Holder can be
currently deducted (subject to the other applicable limitations) to the extent
of the Unit Holder's passive income from the Partnership for that year plus any
other net passive activity income for that year, and any gain recognized by a
Unit Holder upon the sale of Units can be offset by the Unit Holder's current or
"suspended" passive activity losses (if any) from the Partnership and other
sources. If, on the other hand, a Unit Holder sells 100 percent of its interest
in the Partnership pursuant to the Offer, any "suspended" passive activity
losses from the Partnership and any passive activity losses recognized upon the
17
sale of the Units will be offset first against any net passive activity income
from the Unit Holder's other passive activity investments, and the balance of
any net passive activity losses attributable to the Partnership will no longer
be subject to the passive activity loss limitation and, therefore, will be
deductible by such Unit Holder from its other "ordinary" income (subject to any
other applicable limitations). If more than the number of Units sought in the
Offer are Properly Tendered, some tendering Unit Holders may not be able to sell
100 percent of their Units pursuant to the Offer because of proration of the
number of Units to be purchased by the Purchaser, unless the Purchaser amends
the Offer to increase the number of Units to be purchased.
A tendering Unit Holder will be allocated the Unit Holder's pro rata share
of the annual taxable income and losses from the Partnership with respect to the
Units sold for the period through the date of sale, even though such Unit Holder
will assign to the Purchaser its rights to receive certain cash distributions
with respect to such Units. Such allocations and any Partnership distributions
for such period would affect a Unit Holder's adjusted tax basis in the tendered
Units and, therefore, the amount of gain or loss recognized by the Unit Holder
on the sale of the Units.
Unit Holders (other than tax-exempt persons, corporations and certain
foreign individuals) who tender Units may be subject to 28 percent backup
withholding unless those Unit Holders provide a taxpayer identification number
("TIN") and are certain that the TIN is correct or properly certify that they
are awaiting a TIN. A Unit Holder may avoid backup withholding by properly
completing and signing the Letter of Transmittal. If a Unit Holder who is
subject to backup withholding does not include its TIN, the Purchaser will
withhold 28 percent from payments to such Unit Holder.
CERTAIN LEGAL MATTERS
General. Except as set forth herein, the Purchaser is not aware of any
filings, approvals or other actions by any domestic or foreign governmental or
administrative agency that would be required prior to the acquisition of Units
by the Purchaser pursuant to the Offer. The Purchaser's obligation to purchase
and pay for Units is subject to certain conditions, including conditions related
to the legal matters discussed herein.
State Takeover Statutes. The Partnership was formed under the laws of the
State of Delaware, which currently does not have any takeover statute applicable
to limited partnerships. However, it is a condition to the Offer that no state
or federal statute impose a material limitation on the Purchaser's right to vote
the Units purchased pursuant to the Offer. If this condition is not met,
Purchaser may terminate or amend the Offer.
If any person seeks to apply any state takeover statute, the Purchaser will
take such action as then appears desirable, which action may include challenging
the validity or applicability of any such statute in appropriate court
proceedings. If there is a claim that one or more takeover statutes apply to the
Offer, and it is not determined by an appropriate court that such statutes do
not apply or are invalid as applied to the Offer, the Purchaser might be
required to file certain information with, or receive approvals from, the
relevant state authorities. This could prevent the Purchaser from purchasing or
paying for Units tendered pursuant to the Offer, or cause delay in continuing or
consummating the Offer. In such case, the Purchaser may not be obligated to
accept for payment or pay for Units tendered.
Fees and Expenses. Purchaser will not pay any fees or commissions to any
broker, dealer or other person for soliciting tenders of Units pursuant to the
Offer. Employees of the Purchaser's managing member may solicit tenders of Units
without any additional compensation. The Purchaser will pay all costs and
expenses of printing and mailing the Offer and its legal fees and expenses.
Miscellaneous. The Offer is not made to (nor will tenders be accepted on
behalf of) Unit Holders residing in any jurisdiction in which the making of the
18
Offer or the acceptance thereof would not be in compliance with the securities
or other laws of such jurisdiction. However, the Purchaser may take such action
as it deems necessary to make the Offer in any jurisdiction and extend the Offer
to Unit Holders in such jurisdiction.
In any jurisdiction where the securities or other laws require the Offer to
be made by a licensed broker or dealer, the Offer will be deemed to be made on
behalf of the Purchaser by one or more registered brokers or dealers that are
licensed under the laws of such jurisdiction.
The Purchaser has filed with the Securities and Exchange Commission a
Tender Offer Statement on Schedule TO pursuant to Rule 14d-3 under the Exchange
Act, furnishing certain additional information with respect to the Offer, and
may file amendments thereto. The Schedule TO and any amendments thereto,
including exhibits, may be inspected and copies may be obtained at the same
places and in the same manner as set forth under the caption "Certain
Information Concerning The Partnership -- General."
No person has been authorized to give any information or to make any
representation on behalf of the Purchaser not contained herein or in the Letter
of Transmittal and, if given or made, such information or representation must
not be relied upon as having been authorized.
MILLENIUM MANAGEMENT, LLC
October 13, 2005
19
SCHEDULE I
EXECUTIVE OFFICERS
The Purchaser's manager is Everest Properties II, LLC, a California limited
liability company. The Purchaser has no employees of its own. Both the Purchaser
and its manager have the same executive officers and no directors. The business
address of each executive officer of Everest Properties II, LLC is 199 South Los
Robles Avenue, Suite 200, Pasadena, California 91101. Each executive officer is
a United States citizen. The name and principal occupation or employment of each
executive officer of the Purchaser and Everest Properties II, LLC ("EPII"), are
set forth below.
Present Principal Occupation or Employment
Name Position and Five-Year Employment History
W. Robert Kohorst President of EPII from 1996 - present. President
and Director of Everest Properties, Inc. from
1994 - present. President and Director of KH
Financial, Inc. from 1994 - present.
David I. Lesser Executive Vice President and Secretary of EPII
from 1996 - present. Executive Vice President of
Everest Properties, Inc. from 1995 - present.
Christopher K. Davis Vice President and the General Counsel of EPII
since 1998. Senior Staff Counsel and then
Director of Corporate Legal of Pinkerton's, Inc.
from 1995 - 1998.
Peter J. Wilkinson Vice President and the Chief Financial Officer
of EPII since 1996. Chief Financial Officer and
Director of Everest Properties, Inc. since 1996.
APPENDIX A
The Partnership is subject to the reporting requirements of the Securities
Exchange Act of 1934, but has not complied with its public reporting
requirements since the filing of its Quarterly Report on Form 10-Q for the
quarter ended September 30, 1999. The last Annual Report on Form 10-K filed by
the Partnership was for the year ended December 31, 1998 (the "Last Form 10-K").
The following information has been copied from the Last Form 10-K and
supplemented by information that the Purchaser has obtained in the course of
becoming the successor general partner of the Partnership. Although the
Purchaser has no information that any statements contained in this Appendix A
are untrue, the Purchaser has not independently investigated the accuracy of
statements, cannot verify, and therefore takes no responsibility for, the
accuracy, inaccuracy, completeness or incompleteness of any of the information
taken from the Last Form 10-K.
PART I
Item 1. Business
Secured Investment Resources Fund, L.P. II ("Partnership") is a Delaware limited
partnership formed pursuant to the Delaware Revised Uniform Limited Partnership
Act on July 1, 1986. According to the Last Form 10-K, the Partnership was formed
with the intent to engage in the business of acquiring, improving, developing,
operating and holding for investment, income-producing real properties with the
objectives of (i) preserving and protecting the Partnership's capital; (ii)
providing cash distributions from operations; (iii) providing capital growth
through property appreciation; and (iv) increasing equity in property ownership
by the reduction of mortgage loans on Partnership properties. The term of the
partnership is sixty (60) years from the date of the Partnership Agreement or
the date of which all the assets acquired by the partnership are sold or
converted to cash. According to the Last Form 10-K, on September 24, 1988, the
Partnership closed its offering, having received gross proceeds of $26,830,500
from the sale of 53,661 units of limited partnership interests. According to the
Last Form 10-K, the Partnership originally acquired eight properties, which
included four apartment communities, three shopping centers and a health care
facility. According to the Last Form 10-K, as of December 31, 1998, the
Partnership had made cash distributions to Limited Partners of $5,046,241 for
the period April 1, 1987 through December 31, 1998.
PART II
Item 2. Properties
The Partnership owns three properties:
Sunwood Village Apartments in Las Vegas, Nevada, which has 252 units and, as of
June 30, 2005, had gross scheduled rents of $2,173,944 per annum;
Oak Terrace Retirement Apartments in Springfield, Illinois, which has 129 units
and, as of June 30, 2005, was 85.3% occupied and had gross scheduled rents of
$1,258,980 per annum; and,
Bayberry Crossing Shopping Center in Lee's Summit, Missouri, which has 56,113
Sq.Ft. and, as of June 30, 2005, had 20 tenants, occupying approximately 87% of
the rentable square feet, with an average rent of $10.08 per Sq. Ft.
A-1
In March 2005, the Partnership received notice that the foreclosure process for
the Sunwood Apartments property had been recommenced. Millenium was able to
reach an agreement with the lender by which the lender accepted a partial
payment of the total overdue amount on the loan, thereby saving the property
from the threat of foreclosure. To perform that agreement, the Partnership
borrowed approximately $800,000 from affiliates of Millenium and the property's
independent management company that were willing to make such a loan.
A company called Mega Ventures has sued to try to enforce an agreement to sell
Sunwood signed by the former general partners, for $12.6 Million. Millenium
believes the contract was terminated or is otherwise not enforceable and
believes it is in the best interest of the Partnership not to sell Sunwood for
the price to which the Former General Partners agreed; therefore, Millenium
intends to cause the Partnership to vigorously defend the lawsuit, which is
filed in the District Court, Clark County, Nevada, Case No. A500656, and
captioned Mega Ventures, LLC v. Sunwood Village Joint Venture, LP, et al.
The Partnership's properties have suffered from years of neglect and have
substantial deferred maintenance. All three of the remaining properties in the
Partnership are in dire need of significant repairs and replacements that will
require a substantial investment of new capital, if it is determined that such
an investment would be justified in lieu of or as a predicate to selling the
properties.
FINANCIAL DATA
The Former General Partners had not filed any current reports or sent updated
financial information to the Limited Partners for periods after the third
quarter of 1999. The following financial data has been copied or derived from
information obtained by the Purchaser as a result of taking over as the new
general partner of the Partnership, except information for periods after March
2005 is obtained through the Purchaser's role as the successor general partner
of the Partnership. The information is not audited and at this time the
Purchaser has no means to verify the accuracy or completeness or compliance with
generally accepted accounting principles of any information obtained from the
Former General Partners. Nevertheless, it represents the most current available
information.
A-2
SECURED INVESTMENT RESOURCES FUND, LP II
CONSOLIDATED BALANCE SHEETS
June 30, December 31, December 31,
2005 2004 2003
(unaudited) (unaudited) (unaudited)
ASSETS
INVESTMENT PROPERTIES
Land and Buildings $24,515,510 $24,491,742 $27,368,719
Furniture ,Fixtures
and equipment 2,112,914 2,041,809 2,156,054
--------------------------------------
26,628,424 26,533,551 29,524,773
Less accumulated depreciation 13,846,147 13,607,054 14,804,685
--------------------------------------
$12,782,277 $12,926,497 $14,720,088
--------------------------------------
CURRENT ASSETS
Cash 610,217 $1,448,605 ($116,817)
Rent and other receivables
less allowance
of $54,945 in 2004,
$60,600 in 2003,
$57,646 in 2002 3,400,518 572,193 237,118
Debt issuance costs, net of accumulated 626,953 645,835 580,080
Amortization of $642,568
in 2004,$567,040 in
2003,and $491,512 in 2002
Commercial commissions, deposits and other 580,187 348,663 432,721
Due from related parties 808,946 3,660,840 3,549,152
Sinking Fund 639,745 568,143 439,535
Restricted deposits 792,518 613,764 525,798
--------------------------------------
$7,459,084 $7,858,043 $5,647,587
--------------------------------------
--------------------------------------
TOTAL ASSETS $20,241,361 $20,784,540 $20,367,675
--------------------------------------
LIABILITIES AND PARTNERSHIP CAPITAL
Mortgage debt $12,149,487 $12,337,352 $12,393,479
Bond debt 9,037,800 9,000,000 $9,611,709
Accrued interest 76,669 1,109,471 153,258
Accounts payable and accrued expenses 513,787 442,890 589,113
Due to related parties 0 0 0
Unearned revenue 14,340 16,525 7,981
Tenant security deposits 144,511 139,174 136,514
--------------------------------------
TOTAL LIABILITIES $21,936,594 $23,045,412 $22,892,054
--------------------------------------
PARTNERS CAPITAL (DEFICIT)
Capital Contribution $16,755,667 $15,955,667 $15,955,667
Partnership deficit (18,450,750) (18,216,539) (18,480,046)
--------------------------------------
TOTAL PARTNER CAPITAL (DEFICIT) ($1,695,083) ($2,260,872) ($2,524,379)
--------------------------------------
--------------------------------------
TOTAL LIABILITIES AND
PARTNERSHIP CAPITAL $20,241,511 $20,784,540 $20,367,675
--------------------------------------
A-3
SECURED INVESTMENT RESOURCES FUND, LP II
CONSOLIDATED STATEMENTS OF OPERATIONS
Six Months
Ended June 30, Years ended December 31,
2005 2004 2003
(unaudited) (unaudited) (unaudited)
REVENUES
Rents $2,532,236 $5,163,866 $5,197,166
Interest 11,882 6,459 225,157
Maintenance escalations 41,522 80,557 0
-------------------------------------
TOTAL REVENUE $2,585,640 $5,250,882 $5,422,323
-------------------------------------
OPERATING AND ADMINISTRATIVE EXPENSES
Repairs and maintenance $129,034 $419,947 $247,138
Payroll 316,152 725,669 725,430
Utilities 184,097 311,513 283,282
Other operating expenses 340,171 765,198 764,536
General and administrative expenses 433,874 333,736 246,289
Management fees 104,539 248,354 348,347
Insurance 69,574 207,754 204,674
Property Tax 203,849 424,660 395,034
------------------------------------
TOTAL OPERATING EXPENSES $1,781,290 $3,436,831 $3,214,730
------------------------------------
NET OPERATING INCOME (LOSS) $804,350 $1,814,051 $2,207,593
NON OPERATING EXPENSES
Interest expense $780,589 $1,904,772 $1,450,771
Depreciation and amortization 257,976 776,158 983,176
Profit on sale of property 0 (1,130,387) 0
------------------------------------
PARTNERSHIP INCOME (LOSS) ($234,215) $263,508 ($226,354)
------------------------------------
Allocation of income (loss):
General partners ($2,342) $2,635 ($2,264)
Limited partners (231,873) 260,873 (224,090)
------------------------------------
($234,215) $263,508 ($226,354)
------------------------------------
Partnership income (loss)
per limited partner unit ($4.38) $4.92 ($4.23)
A-4
SECURED INVESTMENT RESOURCES FUND, LP II
CONSOLIDATED STATEMENT OF CASH FLOWS
Six Months
Ended June 30, Years ended December 31,
2005 2004 2003
(unaudited) (unaudited) (unaudited)
OPERATING ACTIVITIES
Partnership loss ($234,215) $263,508 ($226,354)
Adjustments to
reconcile loss to
net cash
provided by operating
activities:
Depreciation and
amortization 257,976 776,158 983,176
Profit on sale of
property 0 (1,130,387) 0
Change in assets and
liabilities:
Rents and other
receivables (113,260) (335,075) (221,994)
Commercial commissions,
deposits and other (231,524) 84,058 (17,899)
Accrued interest (1,032,802) 956,213 (254,383)
Accounts payable
and accrued expenses 70,897 (146,223) 22,408
Unearned revenue (2,185) 8,544 (9,891)
Tenant security deposits 5,337 2,660 464
-------------------------------------
NET CASH PROVIDED BY
OPERATING ACTIVITIES $(1,279,776) $479,456 $275,527
-------------------------------------
INVESTING ACTIVITIES
Improvement to
investment properties ($94,873) ($33,313) ($160,792)
Sale of property 0 1,503,669 0
Restricted deposits (178,754) (87,966) (112,914)
-------------------------------------
NET CASH USED IN
INVESTING ACTIVITIES ($273,627) $1,382,390 ($273,706)
-------------------------------------
FINANCING ACTIVITIES
Avances to related parties $136,829 ($111,688) $577,921
Advances from related parties 0 0 0
Principal payments on mortgage debt (188,012) (56,128) (212,745)
Principal payments on bond debt 37,800 0 (72,552)
Capital contributed 800,000 0 0
Increase in sinking fund (71,602) (128,608) (117,324)
-------------------------------------
NET CASH PROVIDEDBY (USED IN)
INVESTING ACTIVITIES $715,015 ($296,424) $175,300
-------------------------------------
INCREASE IN CASH ($838,388) $1,565,422 $177,121
CASH AT BEGINNING OF YEAR 1,448,605 (116,817) (293,938)
-------------------------------------
CASH AT END OF YEAR $610,217 $1,448,605 ($116,817)
-------------------------------------
A-5
The Letter of Transmittal, and any other required documents should be sent
or delivered by each Unit Holder or his broker, dealer, commercial bank, trust
company or other nominee to the Purchaser at its address set forth below.
Questions and requests for assistance may be directed to the Purchaser at
its address and telephone number listed below. Additional copies of this Offer
to Purchase, the Letter of Transmittal, and other tender offer materials may be
obtained from the Purchaser as set forth below, and will be furnished promptly
at the Purchaser's expense.
October 13, 2005 MILLENIUM MANAGEMENT, LLC
Millenium Management, LLC
199 South Los Robles Avenue
Suite 200
Pasadena, California 91101
(800) 611-4613 or (626) 585-5920
Facsimile: (626) 585-5929