SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
Filed by the Registrant |_|
Filed by a Party other than the Registrant |X|
Check the appropriate box:
|_| Preliminary Proxy Statement |_| Confidential, for Use of the
|_| Definitive Proxy Statement Commission Only (as permitted by
|X| Definitive Additional Materials Rule 14a-6(e)(2))
| | Soliciting Material Pursuant to
Rule 14a-11(c) or Rule 14a-12
PROMETHEUS INCOME PARTNERS, a California limited partnership
(Name of Registrant as Specified in Its Charter)
PROMETHEUS DEVELOPMENT CO., INC., a California corporation
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
|X| No fee required.
|_| Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total Fee Paid:
|_| Fee paid previously with preliminary materials:
|_| Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the form or schedule and the date of its filing.
(1) Amount previously paid:
(2) Form, Schedule or Registration Statement no.:
(3) Filing Party:
(4) Date Filed:
PROMETHEUS DEVELOPMENT CO., INC.
350 Bridge Parkway
Redwood City, CA 94065-1517
(650) 596-5393
July 13, 2002
To the Limited Partners:
As you now know, we received a non-binding letter of intent from Aspen Square
Management, Inc. (Aspen) regarding a possible acquisition of the Partnership's
real estate properties. We have now discussed this proposal with Aspen and had
the opportunity to evaluate it as a potential alternative to the proposed
all-cash merger. In light of what we consider to be the relevant factors, we
have concluded that the merger continues to be in the best interests of the
limited partners. Accordingly, YOUR GENERAL PARTNER AND ITS AFFILIATED PARTIES
CONTINUE TO RECOMMEND YOU VOTE FOR THE MERGER.
Everest substantially overstates the premium you would be likely to receive
under Aspen's suggested terms, even if construed in a manner most favorable to
the limited partners. While the actual amounts you would receive cannot be
determined until the partnership is liquidated and dissolved, the following are
some of the factors that would reduce the amount of net proceeds that would be
realized by you:
o significant additional taxes that would be incurred by you in the
current year in respect of the Partnership's receipt of settlement
proceeds due to the structuring of the transaction as an asset purchase
that would not be incurred by you at any time if the merger is
consummated;
o additional transaction costs to be incurred in effecting a sale of
the Properties and obtaining the approval of such a transaction by the
limited partners, each of which would be significant;
o the costs of maintaining the Partnership pending final liquidation
and dissolution, including the costs of continuing compliance with the
Partnership's reporting obligations under applicable securities laws,
audit expenses and the costs of tax return preparation;
o the costs of effecting the liquidation and dissolution of the
Partnership and the final distribution of its assets; and
o any liabilities that arise under an agreement pursuant to which
the Partnership sells its properties.
In addition, the limited partners' ability to take a current year deduction for
their positive capital accounts would be delayed until the final liquidation of
the Partnership.
-2-
In any case, any transaction with Aspen remains speculative and subject to
significant contingencies. Their letter of intent is not an offer or contract to
buy and includes contingencies that allow them to walk away at any time. These
contingencies include completion of due diligence. In addition, Aspen has
informed us that they were not aware that the mortgages on these properties are
not assumable. While Aspen has indicated to us and has begun to provide
financial information that purports to demonstrate their ability to complete an
all cash transaction, we are continuing to work with them to confirm their
ability to do so. Because PIP Partners--General has current and liquid financial
resources to complete the merger, it has now waived the financing condition to
the merger.
As noted in our last letter, you should consider the following in evaluating the
merger proposal:
o Aspen's proposed letter of intent is subject to significant and
substantial conditions. First, the transaction would be subject to Aspen's
completion of due diligence on the Properties. Second, the letter of
intent may be subject to Aspen being able to finance the transaction.
Third, any purchase of the properties would be subject to the parties'
negotiation of definitive documentation. There can be no assurance that
any transaction would ever be consummated. The merger is subject to
minimal conditions and is no longer subject to any financing condition.
o It is unlikely you would receive Aspen's proposed purchase price
in full or in the immediate future. Because the letter of intent is
structured as an acquisition of the Partnership's properties, liquidating
distributions to you would be subject to, and be reduced by, the
liabilities, expenses and commitments of the Partnership, including any
liabilities arising in connection with the sale of the Properties
themselves. Cash available for distribution would be reduced by these
liabilities, as well as the additional costs of completing a sale. Your
final distribution would be delayed for a substantial period of time, and
you would accrue currently taxable income with respect to the deferred
distribution. The timing of a final distribution would be subject to the
prior satisfaction or settlement of all liabilities, known or unknown, of
the Partnership, including contingent liabilities. Contrary to Everest's
assertions, final settlement of these amounts is not within the exclusive
control of the general partner in the absence of an assumption of these
liabilities by a third party. The merger could be completed as early as
the day following the partners' meeting and would provide you with a
complete cash payout promptly following the meeting.
o A sale of the Partnership's properties would take significant time
to complete. A sale of the Properties requires the approval of limited
partners holding a majority of the Units. Such approval would require a
proxy solicitation to be commenced, which requires that proxy materials be
submitted for review to the Securities and Exchange Commission. We believe
it may take at least two months to complete a sale. Pending completion of
a sale, you would continue to bear the risk of loss in respect of the
Partnership's operations and properties.
o If a sale of the Partnership's properties ultimately were not
consummated, there can be no assurance that an affiliate of the general
partner or any unaffiliated party would be willing to effect a transaction
in the future that would result in consideration to you in excess of the
cash being offered to you in the merger.
We are continuing to explore the possibility of a transaction with Aspen that
would be more favorable than the merger. For your consideration and evaluation,
we have enclosed Aspen's conditional letter of intent and our recent formal
response to them as well as a response to Everest's most recent correspondence.
PLEASE NOTE THAT NEITHER ASPEN NOR EVEREST IS OFFERING TO ACQUIRE YOUR UNITS.
-3-
If you wish to vote in favor of the merger, please return the blue proxy card
previously provided to you marked FOR. If you have already done so, you do not
have to do anything further to vote in favor of the merger. On behalf of your
general partner, I thank you for your reasoned consideration of this matter.
Prometheus Development Co., Inc.,
a California corporation
/s/ John J. Murphy
------------------
By: John J. Murphy
Title: Vice President
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PROMETHEUS INCOME PARTNERS
350 Bridge Parkway
Redwood City, CA 94065-1517
(650) 596-5393
July 12, 2002
SENT VIA FACSIMILE (626) 585-5929
W. Robert Kohorst
Everest Properties II, LLC
Everest Investors 12,LLC
199 S. Los Robles Avenue, Suite 440
Pasadena, California 91101
Re: Prometheus Income Partners
Dear Mr. Kohorst:
We received your letter dated July 12, 2002. Your letter demonstrates a
significant lack of understanding of Aspen's conditional letter of intent and
the economic realities (including tax consequences) of the impact of that letter
of intent on our limited partners. We are disappointed that you would make the
assertions set forth in your letter on the basis of incomplete analysis and on
the basis thereof have reached what we believe are erroneous conclusions. It is
unfortunate that communications by you to the limited partners reflect the
factual inaccuracies upon which your letter is premised. We take very seriously
attempts by you to mislead the limited partners and to coerce them or us into a
course of action on the basis of false and misleading statements by you.
Contrary to your July 12 letter, our letter to limited partners dated July 3,
2002 was not false or misleading, whether taken as a whole or in the particular
respects you have attempted to identify. Rather, our letter was an accurate
portrayal of the attendant circumstances. As this is an ongoing process, we
continue to provide the requisite information to the limited partners and advise
them of material developments. For your information, we have included a copy of
our letter to our limited partners dated July 13, 2002 that furthers this
process.
Under applicable law and the partnership's limited partnership agreement, we
alone are entrusted with the management of the affairs of the partnership.
Throughout this process we have discharged, and continue to discharge, our
fiduciary duties to the limited partners in accordance with this responsibility.
In so doing, it has been, and continues to be, our objective to act in good
faith in the best interests of the limited partners as a whole. Towards this
end, we have approached Aspen in a constructive manner with a view to securing
for the limited partners a transaction that is more favorable than the merger.
Your letter makes reference to discussions with Aspen that, in fact, occurred
subsequent to our letter to limited partners dated July 3, 2002. As of the date
hereof, our discussions with Aspen are ongoing. For the reasons we have
presented to the limited partners, we do not believe the Aspen letter of intent
as currently constituted is more favorable to the limited partners than the
merger. Nevertheless, we are continuing to negotiate with Aspen to determine
whether there may be a viable framework for such a more favorable transaction.
-5-
Regardless of your reasons, we appreciate your efforts in attempting to identify
an opportunity for the partnership to secure for the limited partners a
transaction even more favorable than the merger. If such a transaction were
available, we would pursue it. For the reasons we have disclosed to the limited
partners, we do not believe the current Aspen letter of intent is such a
transaction. In fact, no more favorable transaction has been presented in the
more than two years since our pursuit of a transaction in the nature of the
merger was first publicly disclosed.
Of course, we have no way of divining your motivation in embarking on the course
of conduct you have chosen to take in this matter. We note that, to our
knowledge, your most recent actions were taken only after we rejected your
attempt to secure for yourselves financial benefits unavailable to the other
limited partners.
We can understand that there may be circumstances personal to you that may be
different than other limited partners; it would be unusual indeed if there were
not significant differences among the limited partners as to investment
objectives, risk tolerances and other factors material to the evaluation of any
significant course of action. However, in evaluating any potential transaction
(or in choosing to forego any merger, sale or similar transaction at this time),
we must consider the impact on all our limited partners. We will continue to do
so.
Very truly,
PROMETHEUS INCOME PARTNERS, a California
limited partnership
By: PROMETHEUS DEVELOPMENT CO., INC., a
California corporation, its general partner
By: /s/ John J. Murphy
--------------------------------
John J. Murphy, Vice President
PROMETHEUS INCOME PARTNERS
350 Bridge Parkway
Redwood City, CA 94065-1517
(650) 596-5393
July 12, 2002
SENT VIA FACSIMILE (413) 788-9207
(Original sent by Overnight Mail)
John Mnich
Aspen Square Management, Inc.
380 Union Street, Suite 300
West Springfield, MA 01089
Re: Prometheus Income Partners
Dear John,
Thank you for the information you sent by fax today. As the general partner of
the Partnership we take our fiduciary responsibility to all of our limited
partners very seriously. It is our obligation, and desire, to obtain the best
transaction for our limited partners.
First off, we would like to explain why we continue to believe time is of the
essence. As we all know there is a great deal of uncertainty in the economy and
in our markets. Given the current uncertainties and the time and cost involved,
we believe it is our fiduciary responsibility to present the limited partners
the opportunity for a viable exit strategy as quickly as possible (and our
merger proposal was prompted by their request for such an exit in the first
place) and continue to move forward with the meeting on July 24, 2002. Our first
call to you was on Friday June 28, 2002. As of today, two weeks later, we are
still without some of the information we need from you to evaluate your letter
of intent.
While your letter today stated that you would not purchase the Partnership but
rather continue to pursue the Properties themselves, we would ask you to please
reconsider. A purchase of the Partnership units as planned under the current
merger proposal leaves no "trailing liabilities" or costs and has potential
significant tax advantages to the limited partners compared to an asset sale. A
purchase of the Properties is materially less advantageous than an acquisition
of the Partnership units and, as such, would have to involve a significantly
higher purchase price than your letter of intent suggests to put the limited
partners in a comparable position to what they would receive in the proposed
merger.
Since you are not willing to purchase the Partnership, it is not an unreasonable
request, and in fact more important than ever, that we see your proposed
purchase and sale agreement. Any warrantees, indemnities or trailing liabilities
to the partners in a purchase and sale agreement may be a significant decision
point for a seller before any letter of intent could be executed. You indicated
that you would be willing to use the purchase and sale agreement used in your
Del Cano purchase. Could you please send us a copy of that contract so we can
evaluate what representations, warranties and indemnifications you would
require? As we previously have stated, any purchase of the Properties in lieu of
the proposed merger would have to be
free of any material conditions to closing, absent any uninsured material loss
to the Properties, to ensure the limited partners that a closing will occur.
The bank statements faxed today appear to show significant cash to proceed with
a purchase. However, it is unclear who controls the funds since some of the
accounts are not in the name of any entity we recognize. A simple and expedited
resolution would be for you to send us a letter from the financial institutions
that these funds are unrestricted and available for Aspen's use in the purchase
of these properties. If this is not possible, we would be open to any other
reasonable method of verification you can suggest.
You have asked about liabilities that may exist related to the Properties and/or
the Partnership. We would suggest, as a matter of convenience and timing, that
you look at the current SEC filings for disclosure of information related to
these Properties and the Partnership. We believe that these disclosures are
quite detailed in the SEC filings, and, as we communicated to you on July 8,
2002, you can obtain this information at www.sec.gov. Please advise us if you
would like us to send you a hard copy of these documents or if you have any
questions you would like us to answer. Further, we would recommend that you
discuss liability issues associated with real estate transactions, including
those that contain construction defects, with your legal counsel. It is our
understanding from our conference call that you have in-house counsel capable of
addressing these issues.
In the interest of time, your offer to disclose to us a list of properties and
locations that Aspen has bought in the past 12 months is sufficient. Please
ensure the list includes the name, address, and telephone number of the Seller
and Seller's attorney.
In your most recent letter you stated the purchasing entity would be responsible
for any indemnifications to be made by you. Given that your proposed owner is to
be a newly-formed entity, we are concerned about whether or not these
indemnities would have adequate backing. For example, the last property we sold
that was owned by this type of syndicated partnership was sold to a
sophisticated REIT buyer with significant assets to ensure that this was not an
issue. Additionally, there were no known construction defects. We would ask that
you reconsider your position on this matter. Indemnification with respect to the
Properties must be provided by a well-capitalized entity with sufficient
liquidity to meet its indemnification obligations.
We informed you on July 8th, that the loan documents prohibit an assumption of
the current loans until the hardboard siding problem is fixed to the Lender's
satisfaction. Further, we informed you that the merger transaction was now
proceeding with this knowledge as well. The loan assumption issue was again
addressed in my letter to you dated July 10, 2002. I am unclear as to what
further clarification you need as to this issue.
Please note that any transaction involving a sale of the Properties would
require approval of our limited partners, which would include preliminary review
of proxy materials by the SEC, and therefore could not close for sometime after
mutual execution of a definitive agreement. In attempting to evaluate whether
such a disposition alternative is in the best interest of the limited partners,
we must necessarily consider the passage of time and additional costs in
bringing any transaction to a close.
Please promptly submit the requested information to our attention. Upon receipt
and evaluation of the sufficiency of such documentation, we will continue to
consider the merit and adequacy of the terms and conditions of your letter of
intent and the status of the Partnership at the time. By indicating our
willingness to consider future discussions with you, we are not waiving our
rights to pursue appropriate remedies to protect the interests of the partners
and the Partnership, or our interests. We reserve the right to engage in
discussions or negotiations with other parties at any time, and to withdraw or
modify in any respect our willingness to discuss these matters with you, and to
modify the conditions under which we would be willing to discuss these matters
with you.
If you have any thoughts on the above please call me at (650) 596-5302 or Vicki
Mullins at (650) 596-5365 in my absence should you wish to discuss any matters
with us.
Very truly,
PROMETHEUS INCOME PARTNERS, a California
limited partnership
By: PROMETHEUS DEVELOPMENT CO., INC., a
California corporation, its general partner
By: /s/ John J. Murphy
------------------------------------
John J. Murphy, Vice President
Aspen Square Management, Inc.
380 Union Street, Suite 300
West Springfield, Massachusetts, 01089
Phone: 413-781-0712
Fax: 413-789-9207
June 24, 2002
Sanford Diller
Prometheus Income Partners
3500 Bridge Parkway
Redwood City, CA 94065
Dear Sanford:
Reference is made to the real estate located at 2147 Newhall Street, Santa
Clara, California, and the real estate located at 900 Pepper Tree Lane, Santa
Clara, California, which respectively consist of 124 units commonly known as
Timberleaf Apartments, and 234 units commonly known as Alderwood Apartments. For
all parcels of real estate, 358 apartments, personal property and other
improvements we are willing to pay Fifty-Four Million Five Hundred Thousand
Dollars ($54,500,000). We are willing to structure this transaction as either an
all-cash transaction, which we would pay from our existing cash reserves, or as
a cash to the mortgage transaction, whereby we would assume the existing loan of
approximately $25,500,000 and contribute the required equity amount of
$29,000,000 from our existing cash reserves. Buyer shall be credited $3.389
million dollars for any potential mortgage prepayment/payoff costs associated
with this transaction.
This offer is made on a principal-to-principal basis, there are no real estate
brokers who have acted as a procuring cause of this sale on our behalf, and thus
this offer would be net of any real estate brokerage commissions.
Our offer is subject to the negotiation of a mutually agreeable Purchase and
Sale Agreement. Buyer shall have fifteen (15) business days to complete its due
diligence, and closing will occur within thirty (30) days from the end of the
due diligence period, or within fifteen (15) days from final notice of loan
assumption approval from the lender, whichever is later. Upon expiration of the
due diligence period, we are willing to submit an earnest money deposit of three
million dollars. This deposit shall be non-refundable, except that in the event
we attempt to assume the loan and are denied, we will have the option of
proceeding immediately with the purchase on an all-cash basis or receiving a
refund of our deposit.
Until such time as said agreement has been executed, this letter shall create no
legal liabilities for either party. This offer will become null and void and
expire on Monday, July 1,2002.
Please sign the enclosed copy of this letter indicating your agreement to the
provisions contained herein and return the signed copy to the attention of Fred
Anthony or myself, John Mnich, here at Aspen Square Management. We look forward
to working with you to complete this transaction.
Sincerely,
/s/ John Mnich
- ------------------------------- -----------------------------------
Buyer: Aspen Square Management, Inc. Seller: Prometheus Income Partners
By: John Mnich By: Sanford Diller
Its: Vice President Its: General Partner
& Acquisitions Director