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 INCOME PARTNERS
350 Bridge Parkway
Redwood City, CA 94065-1517
(650) 596-5393
July 22, 2002
To the Limited Partners:
We wanted to take this last opportunity prior to our meeting on Wednesday to
update you. We previously communicated to you that we were in discussions with
Aspen Square Management, Inc. regarding a possible acquisition of the
Partnership or its Properties. While we have made every attempt to engage Aspen
in a constructive manner, these attempts have not resulted in any kind of
commitment by Aspen to consummate a transaction on terms more favorable to the
limited partners than the merger. We do not believe Aspen has acted as we
believe a serious buyer would act in these matters and, as such, do not believe
the possibility of obtaining a transaction that may be economically preferable
to the proposed merger outweighs the risks to the limited partners of foregoing
the merger at this time. Therefore, YOUR GENERAL PARTNER AND ITS AFFILIATED
PARTIES CONTINUE TO RECOMMEND YOU VOTE FOR THE MERGER.
How did we get here? On June 24, 2002, Aspen delivered a non-binding proposal
regarding a possible purchase of the Partnership's properties. Several aspects
of this proposal, including the actual purchase price being proposed, were
unclear and subject to interpretation. However, we believed it was important to
pursue this opportunity diligently with Aspen in order to identify whether there
might be a better opportunity available to the limited partners. We have
addressed the shortcomings of Aspen's original approach in our letters to you
dated July 3, 2002 and July 12, 2002.
We have continued to engage Aspen with respect to matters we believed to be
critical to evaluating any alternative to the merger. We provided Aspen with
materials responsive to their initial diligence requests, and they provided
certain information responsive to our requests in order to evaluate their
interest and capabilities. In fact, on July 18, 2002, we believed we had reached
agreement on a possible framework for moving forward with Aspen with completion
of their diligence. This framework contemplated, among other things, an
acquisition of the limited partnership units at a price of $1,859, but provided
no binding obligation at such price on either side. We had expressed our
willingness to postpone the meeting to be held on July 24 in order to allow
Aspen to complete its diligence, which they would agree to complete by August 1,
2002. Despite our expectation that an agreement providing for the conduct by
Aspen of diligence and the postponement of the meeting, the form of which we
believed to have been negotiated during the course of the day on the 19th, we
were informed that the principals involved had left the office early without
signing that agreement. We extended the previously
-2-
agreed upon date for them to do so until the 20th, and still no executed copy
was forthcoming. We believed that Aspen's neglect in addressing this transaction
further of an absence on the part of Aspen of a seriousness and sense of
priority in acquiring the Partnership. Therefore, we advised Aspen by letter
this morning that we would not be pursuing a transaction with them any further,
despite their purported attempts to resurrect the transaction.
Why did we cease discussions with Aspen? Since we first began speaking with
them, Aspen approached the possibility of a transaction in a manner that we do
not believe reflected a true interest in completing a transaction, despite
having been told by us on several occasions that time was of the essence. As set
forth in our July 12 letter, we do not believe the chance of a transaction
involving greater proceeds to the limited partners justifies the attendant risks
to the limited partners in waiting for such an opportunity to materialize. In
particular, you should consider the following:
o At no time has Aspen made a binding offer for the Properties or
the units. All discussions with Aspen have been subject to their conduct
of their due diligence of the properties (which they have been slow to
commence and continue, despite being offered several opportunities to do
so). As such, any agreement to proceed on such basis would, in essence,
give Aspen an option to acquire the Partnership, without any firm
obligation as to the price they would pay.
o Experts are professing grave uncertainties about economic
conditions in general and capital markets in particular. Already, as
reflected in our historical and proxy filings, these conditions have
adversely impacted the value of the Partnership's properties. As these
clouds continue to prevail, we do not believe we could justify continuing
to subject the limited partners to these risks to pursue the mere
possibility of obtaining a transaction that might yield a premium to the
limited partners. This is particularly true because the merger presents an
attractive liquidity opportunity that may not be available in the future.
o The merger presents an attractive liquidity opportunity that is
free from any significant conditions and can be completed in a matter of
days from this writing, but only if approved by the limited partners at
the meeting to be held on July 24.
Information you should know. You likely have received correspondence from
Everest asking you to oppose the merger. As we've discussed in our prior
letters, we do not believe that Everest has been forthright with you about the
facts. In any case, their attempts to besmirch the Partnership and your General
Partner with wild accusations that
-3-
are not grounded in the facts are an unfortunate attempt on their part to blur
the facts. Of course, we cannot know Everest's motivations and criteria. We do
know that prior to commencing its solicitation in opposition to the merger,
Everest sought to have us acquire their units at a very substantial premium over
the merger price, a benefit that would not be available to the other limited
partners. We were also advised by Aspen that Everest had sought a transaction
fee from Aspen for bringing the Properties to Aspen's attention.
In any case, regardless of its motives, Everest may be willing to take on the
risks we have identified in delaying the merger in hopes of obtaining a
higher-priced deal at a later date, but we do not believe that most limited
partners would so opt. WE BELIEVE IT IS IMPORTANT THAT THE LIMITED PARTNERS BE
GIVEN THE OPPORTUNITY TO DECIDE THE MATTER. THEREFORE, IN ORDER TO GIVE THE
LIMITED PARTNERS THE OPPORTUNITY TO EXPRESS THEIR WISHES, THE MEETING WILL BE
HELD ON JULY 24 AS PLANNED.
If you would like to vote or change your vote please call MacKenzie Partners,
Inc. at (800) 322-2885 for a ballot. Votes can be submitted via facsimile to
MacKenzie Partners, Inc. at (212) 929-0308.
So that you may have a better understanding of the matters referred to above, we
include the following:
July 22, 2002
- -------------
o The General Partner's response to Aspen's letter of July 22
o The General Partner's letter rejecting Aspen's counter proposal letter
July 19, 2002
- -------------
o Second revision to the letter of intent sent by the General Partner to
Aspen
o Hand written revisions to the letter of intent sent by Aspen to the
General Partner
o First revision to the letter of intent sent by the General Partner to
Aspen
-4-
July 18, 2002
- -------------
o Original letter of intent to Aspen, Entry and Indemnity Agreement and
Sample Insurance Certificate on July 18, 2002 sent by the General Partner
On behalf of your General Partner, I thank you for your reasoned consideration
of this matter.
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
-5-
Prometheus Income Partners
350 Bridge Parkway
Redwood City, CA 94065-1517
(650) 596-5393
SENT VIA FACSIMILE (413) 788-9207
July 22, 2002
Mr. Jeffrey M. Strole
Aspen Square Management, Inc.
380 Union Street, Suite 300
West Springfield, Massachusetts 01089
Dear Jeff,
We received your letter of July 22, 2002, attached hereto. As we have
communicated to you in previous correspondence, we take our fiduciary
responsibilities seriously. It is for this very reason that we are making the
recommendation to the limited partners to move forward with the merger. As a
fiduciary, we believe that the current uncertain economic climate requires us to
continue to act in a manner where time is of the essence. Any deadlines
established by us were set with our fiduciary responsibilities in mind. We have
continually communicated to you verbally and in writing that time was of the
essence.
Regarding the timing of the letter of intent on Friday, July 19, 2002, I should
remind you that earlier in the day, you were not responsive to our attorney
Craig Seligman. As a result, I had to call and page you, Fred Anthony and John
Mnich in order to get Aspen to respond to our attorney. We also believe that any
buyer who was serious about purchasing properties would not have left the office
on Friday before finalizing a letter of intent for a major transaction after
arbitrarily changing the deadline date for its execution without at least a
telephone call. We found this extremely surprising since you claimed on
Thursday, July 18, 2002, in our telephone conversation that you wanted to start
your due diligence on Monday, July 22, 2002. Additionally, on July 18, 2002, in
order to expedite the due diligence process, I sent to you our standard Entry
and Indemnity Agreement. We did not received an executed copy of this agreement
from you.
During our discussion, we communicated to you the amount of records you were
requesting was voluminous and you agreed to come to our offices to review the
documents and determine which should be copied. We are very concerned about a
buyer who claims to understand litigation on construction defects but requests
to have all of the files copied and overnighted the same day (this was in direct
conflict with the letter of intent attached to your facsimile.) There are
literally thousands of pages of material
-6-
relating to the construction defect litigation, some of which is in the
possession of the Partnership's counsel. The review of these numerous documents,
some of which are highly technical, could take a substantial period of time.
These documents are voluminous as they represent over five years of
correspondence, court filings, depositions, etc. some of which were part of a
global settlement as well as other related hardboard siding/construction defect
cases.
I trust this will explain our concerns on behalf of the Partnership.
Sincerely,
PROMETHEUS INCOME PARTNERS, a
California limited partnership
By: PROMETHEUS DEVELOPMENT CO., INC., a
California corporation, its general partner
By: /s/ Vicki R. Mullins
---------------------------------------
Vicki R. Mullins, Vice President
Original sent by overnight mail
-7-
FACSIMILE SENT: Jul-22-2002 02:41PM FROM: Aspen Square Management
Aspen Square Management, Inc.
380 Union Street, Suite 300
West Springfield, Massachusetts 01089
Phone: 413-781-0712
FAX 413-788-9207
July 22, 2002 Via Facsimile & Federal Express
Ms. Vicki R. Mullins
Vice President
Prometheus Income Partners
350 Bridge Parkway
Redwood City, CA 94065-1517
Re: Timberleaf & Alderwood Apartments, Santa Clara, CA
Dear Ms. Mullins.
I am in receipt of your letter to my attention dated as of today. We at Aspen
Square Management are both surprised & disappointed that you have elected not to
deal with us even though our offer is significantly higher than that put forth
by PIP Partners - General, LLC/PIP Acquisition, LLC ("PIP"). I would point out
that when discussing the principal detriments to a transaction with PIP, the
notice of meeting prepared by Prometheus and distributed to the limited partners
states, "No representative unaffiliated with Prometheus Development Co. (the
general partner) has been retained to act solely on behalf of limited partners
for the purposes of negotiating the terms of the merger. Prometheus Income
Partners, PIP Partners and Prometheus Development Co. are all under the common
control of Sanford Diller, who is also the principal beneficial owner of these
entities. The interests of these entities are different from and in substantial
conflict with those of the unaffiliated limited partners. Because of the
relationship among Prometheus Development Co., PIP Partners and PIP Acquisition,
the merger and all of the proposed transactions related to the merger as
discussed in this document are not the product of arm's length negotiation
between unaffiliated parties. PIP Acquisition and PIP Partners are making this
offer with a view to ultimately making a profit and, therefore, there is a
conflict. between their desire to acquire your units at a relatively lower price
and your desire to sell your units at a relatively higher price."
We had hoped that your fiduciary duty to the limited partners would supersede
your desire to see one of your affiliated entities be the successful bidder for
these partnership units. We have done everything that you have asked of us as we
sought to proceed with this transaction. Among other things, we offered a price
substantially higher than PIP; at your request, we agreed to purchase the
partnership interests as opposed to the properties; and finally, we agreed to
pay Prometheus Development Co., Inc. $1.5 million for its general partnership
interest, three times the amount being paid to the limited partners for
equivalent interests, even though no justification for said $1.5 million price
was ever offered.
Given your fiduciary responsibility to the limited partners, we were very
surprised to receive your letter informing us that our offer was rejected. We
were particularly disturbed that after negotiating the letter of intent
extensively with you and your counsel last Friday, July 19, that you would fax
us a revised copy late on Friday
-8-
the 19th and include an arbitrary deadline for execution of Saturday, July 20.
Had we known that you would make Saturday the deadline, we could have had
someone available in our office to execute said letter or had the letter faxed
to one of our homes for execution. However, we didn't receive notice that we
were expected to sign the letter on Saturday the 20th until we arrived in our
offices this morning, Monday the 22nd. We think your actions in this regard are
unfair and clearly fail to adequately discharge your duties to the limited
partners.
We faxed to you a fully executed letter of intent this morning and had expected
it to be accepted. However, as has been evidenced by your conduct throughout
this transaction, you wish to make our purchase of the partnership interests as
difficult as possible. You have consistently set arbitrary deadlines with no
explanation. In addition, you have asked for information related to our company
that we have never been asked by a seller to provide before - even though we
have been in existence for nearly 50 years and have done transactions much
larger than the one at issue. Such conduct does not indicate that advancing the
interests of the limited partners is your paramount consideration in this
transaction.
Therefore, we ask that you reconsider your decision and properly discharge your
fiduciary duties to the limited partners. Please advise us of your decision.
I look forward to hearing from you.
Sincerely,
/s/ Jeffrey M. Strole
- ---------------------
Jeffrey M. Strole
cc: Craig Seligman, Esq.
-9-
PROMETHEUS INCOME PARTNERS
350 Bridge Parkway
Redwood City, CA 94065-1517
(650) 596-5393
July 22, 2002
Mr. Jeff Strole
Aspen Square Management, Inc.
380 Union Street, Suite 300
West Springfield, Massachusetts 01089
Dear Jeff:
This is to confirm that we did not receive your signed letter by July 20, 2002
at 12:00 noon California time. As we have consistently communicated to you from
the beginning, time was of the essence. Accordingly, your counter proposal of
July 22, 2002, is rejected.
PROMETHEUS INCOME PARTNERS
By: Prometheus Development Co., Inc.,
a California corporation, its general partner
By: /s/ Vicki Mullins
-----------------
Name: Vicki Mullins
Title: Vice President
cc: Craig Seligman
FACSIMILE SENT: Jul-22-2002 08:44AM FROM: Aspen Square Management
ASPEN SQUARE MANAGEMENT, INC.
380 Union Street
Suite 300
West Springfield, MA 01089
Phone (413) 781-0712
Fax (413) 781-1277
facsimile cover sheet
To: Ms. Vicki Mullins
Craig Seligman, Esq.
From; Jeff Strole
No. of Pages (including cover page) - 19
Date: 7/22/02
Message:
Ms. Mullins:
Attached please find a fully executed copy of the July 19, 2002 letter of intent
related to Timberleaf & Alderwood Apartments. I will overnight the originals to
your attention.
As we begin our due diligence review, I would appreciate it if you could
overnight to me for delivery tomorrow copies of operating statements for the
properties for 1998, 1999, 2000, 2001 & YTD as well as any and all information
related to the construction defects and litigation at the properties (including
copies of the settlement agreements). This will help us to begin our due
diligence.
Thank you,
Jeff Strole
__ 11
FACSIMILE SENT: Jul-22-2002 09:43AM FROM: Aspen Square Management
PROMETHEUS INCOME PARTNERS
350 Bridge Parkway
Redwood City, CA 94065-1517
(650) 596-5393
July 19, 2002
Aspen Square Management, Inc.
380 Union Street, Suite 300
West Springfield, Massachusetts 01089
Ladies and Gentlemen:
This letter sets forth the essential terms of your proposed due diligence
review ("Diligence Review") on the basis of which we are willing to continue to
consider your possible acquisition of Prometheus Income Partners, a California
limited partnership (the "Partnership"). Our understanding of your proposal is
embodied in the following:
1. You (or an entity to be formed by you) would acquire (i) each of the
Partnership's issued and outstanding limited partnership units for $1,859 in
cash per unit and (ii) the general partner interest in the Partnership now held
by Prometheus Development Co., Inc. (the "General Partner") for $1,500,000 in
cash, in each case payable in full upon consummation of the acquisition of the
limited Partner's units and General Partner's interest, collectively referred to
as "Proposed Acquisition".
2. Except as expressly set forth herein, you have proposed substantively
all of the terms included in the definitive Agreement and Plan of Merger (the
"Definitive Agreement") attached hereto as Exhibit A, with the following
modifications:
(a) mutual covenants of cooperation to obtain the approval of
Proposed Acquisition by the Partnership's limited partners (including
preparation of proxy materials) and such other approvals (if any) as may
be required to complete the transaction;
(b) no closing condition in respect of financing, refinancing or
assumption of existing mortgages;
(c) mutual representations that no broker, finder's, agency or
similar fees to be paid;
(d) with your proposed contract for the Proposed Acquisition, you
shall deposit $3,000,000 into escrow with a mutually acceptable escrow
agent on mutually acceptable terms. If no Proposed Acquisition is
consummated, the $3,000,000 will be disbursed to the Partnership unless
the Proposed Acquisition was not consummated as a result of either a
breach by the Partnership or the rejection of the Proposed Acquisition by
the Partnership's limited partners, in which case it will be returned to
you; and
(e) the executed contract would be terminable by either party if the
Proposed Acquisition has not been consummated on or prior to December 31,
2002, other than as a result of a breach by such party.
__ 12
3. You agree to commence at your expense your Diligence Review of the
Partnership and its properties promptly after execution of this letter. We agree
to reasonably provide to you and your representatives access to the properties,
books, records, documents, contracts and other records of the Partnership and
shall furnish you with copies of such documents and with such information with
respect to the affairs of the Partnership, as you reasonably deem necessary for
the purpose of conducting the Diligence Review. We will endeavor to make a
reasonable search to provide you with the records requested. It is agreed that
the items requested on Exhibit C hereto shall be made available to you, to the
extent that they are within our possession and control, except that (i) you
acknowledge that we are unable to provide you with employee's personnel files
and (ii) you and we shall agree in good faith to limit certain of such
information temporally, including, e.g., that bank statements, etc., need only
be made available for the previous three years. Because the records you are
requesting are so numerous, we are only obligated to make reasonable efforts to
assist your inspection. Upon your designating the records you wish copied, we
will send them to an outside service at your expense. You agree that you will
complete the Diligence Review not later than August 1, 2002 (the "Diligence
Cut-off Date").
4. In consideration of the foregoing and of your previous representations
to us as to your ability to pay all cash pursuant to the Proposed Acquisition
with currently available liquid funds, we agree to postpone the taking of any
vote on the currently proposed merger until after the Diligence Cut-off Date.
5. You acknowledge that (i) we will have to advise our limited partners
appropriately and from time to time regarding the matters set forth herein and
(ii) at any time prior to any written acceptance of your proposed offer (which
you agree to deliver prior to the Due Diligence Cut-off Date), the General
Partner has fiduciary duties to the Partnership and its limited partners in the
discharge of which it is obligated to consider alternatives that may be more
favorable to the limited partners. If on or prior to December 31, 2002 the
General Partner shall present and recommend to the limited partners any
transaction involving an acquisition of the limited partner units at a price in
excess of $1859 per unit in which the acquiror, directly or indirectly, is an
affiliate of the General Partner, PIP Partners - General, LLC, PIP Acquisition,
LLC, or is affiliated with or controlled by Sanford Diller and your proposal is
not accepted, the Partnership shall reimburse you for all reasonable
out-of-pocket costs incurred by you in conducting the Diligence Review up to an
aggregate maximum amount of $50,000.
6. This letter supersedes all previous correspondence, discussions,
understandings and agreements between you and us or our respective officers,
directors, agents and representatives, provided that the letter agreement
regarding confidentiality and related matters attached hereto as Exhibit B shall
remain in full force and effect (and, for the avoidance of doubt, shall apply
with respect to the information provided in the course of the Diligence Review).
Except for the express terms of paragraphs 3, 4 and 6 hereof, each of
which shall and hereby does constitute a binding agreement: it is expressly
understood that this letter is non-binding and is intended to include part of
the basic terms and conditions under which the Partnership may enter into a
formal agreement with Aspen for the Proposed Acquisition; this letter shall only
serve to form part of the basis for a possible agreement which must be agreed
upon and executed by all parties prior to having any binding effect; this
non-binding letter is not intended to be contractual in nature and neither party
shall be obligated to proceed in good faith, or by any other standard, to enter
into an agreement based upon the terms set forth above; and a binding agreement
will only exist when the agreement is executed by duly authorized
representatives from all parties. Additionally, the Partnership reserves the
right to negotiate and enter into a binding agreement with another party until a
mutually acceptable agreement is fully executed (subject to the last sentence of
paragraph 5 above.)
__ 13
If the foregoing is in accordance with your understanding, please so
indicate by signing the enclosed copy of this letter in the space provided and
returning it to us on or prior to [INTERPOLATED WRITTEN MATERIAL: "12:00 noon
California time, July 22, 2002" inserted, "6:00 P.M. E.D.T., July 22, 2002"
deleted]. Please fax a signed copy to the attention of Vicki Mullins at (650)
596-5377 and send the original via overnight mail.
THE PRECEDING PARAGRAPH INITIALED BY FRED ANTHONY OF ASPEN
----------------------------------------------------------
PROMETHEUS INCOME PARTNERS
By: Prometheus Development Co., Inc.,
a California corporation, its general partner
By: /s/ Vicki Mullins
--------------------------
Name: Vicki Mullins
Title: Vice President
AGREED AND ACCEPTED:
ASPEN SQUARE MANAGEMENT, INC.
By: /s/ Fred Anthony
--------------------------
Name: Fred Anthony
Title: Vice President
__ 14
FACSIMILE SENT: Jul-22-2002 08:44AM FROM: Aspen Square Management
EXHIBIT A
AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER
This Amended and Restated Agreement and Plan of Merger (this "Agreement")
is entered into as of May 22, 2002, by and among Prometheus Income Partners, a
California limited partnership (the "Partnership"), PIP Partners - General, LLC,
a California limited liability company ("PIP General"), and PIP Acquisition,
LLC, a California limited liability company and a wholly-owned subsidiary of PIP
General ("Acquisition").
WHEREAS, the parties desire to merge Acquisition with and into the
Partnership (the "Merger") on the terms and conditions hereinafter set forth and
in accordance with the provisions of Sections 15678.1-.9 of the California
Revised Uniform Limited Partnership Act, as amended (the "Act") and Sections
17550-17556 of the Beverly-Killea Limited Liability Company Act (the "LLC Act");
WHEREAS, Acquisition has been formed for such purpose.
WHEREAS, the parties have entered into that certain Agreement and Plan of
Merger dated as of March 6, 2002 (the "Original Agreement"); and
WHEREAS, the parties have reviewed the financial statements of the
Partnership as of and for the quarter ended March 31, 2002 and based thereupon
wish to increase the merger consideration of $1,714 per limited partner unit
provided for in the Original Agreement to $1,736 per unit.
NOW THEREFORE, BE IT RESOLVED, that in consideration of the mutual
covenants and agreements contained herein and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties agree, and the Original Agreement is hereby amended and restated in its
entirety to read, as follows:
ARTICLE I
TERMS OF MERGER
Acquisition shall be merged with and into the Partnership in a statutory
merger in accordance with the Act and the LLC Act on the terms and subject to
the conditions set forth in this Agreement.
ARTICLE II
EFFECT OF MERGER
On the "Effective Date" (as defined below):
(1) Acquisition shall be merged with and into the Partnership;
(2) the Partnership shall possess all the rights, privileges, immunities
and franchises of Acquisition, and all property, real, personal and mixed, and
debts due on whatever account, and every other interest belonging to or due to
Acquisition (including, but not limited to, liability for any fees or franchise
taxes due and owing to the Secretary of State of California as of the Effective
Date) shall be deemed to be transferred to and vested in the Partnership,
without further act, deed or transfer;
(3) the Partnership shall thenceforth be responsible for and subject to
all of the debts, liabilities and obligations of Acquisition in the same manner
as if the Partnership had itself incurred them;
(4) any claim, existing action, or proceeding pending by or against
Acquisition may be prosecuted to judgment by the Partnership; and
(5) neither the rights of creditors nor any liens upon the property of
Acquisition shall be impaired by the Merger.
The "Effective Date" shall be the date following the satisfaction of the
conditions set forth in Article VIII hereof on which a Certificate of Merger is
filed with the Secretary of State of the State of California in accordance with
the Act and the LLC Act, which date shall be not greater than twenty days
following the approval of the Merger by the limited partners of the Partnership
(the "Limited Partners").
ARTICLE III
MANNER AND BASIS OF CONVERTING INTERESTS
As of the Effective Date, by virtue of the Merger and without any action
on the part of any party hereto:
(1) Each limited partner interest in the Partnership (each, a "Unit")
outstanding immediately prior to the Effective Date (other than any such Unit
held by PIP General) shall be converted into and shall become the right to
receive cash (without interest thereon) in an amount equal to $1,736.00 (the
"Merger Consideration") upon surrender of a duly executed letter of transmittal
by the holder of such Unit in form and substance reasonably satisfactory to PIP
General. As of the Effective Date, each such Unit shall no longer be outstanding
and shall automatically be cancelled and retired and
16
shall cease to exist, and the holder of such Unit shall cease to have any rights
with respect thereto, except the right to receive the Merger Consideration.
(2) As of the Effective Date, each member interest in Acquisition issued
and outstanding as of the Effective Date shall be converted into one
newly-issued Unit.
ARTICLE IV
CHARTER DOCUMENTS; GENERAL PARTNER
(1) The Certificate of Limited Partnership and Second Amended and
Restated Limited Partnership Agreement of the Partnership dated October 1, 1992
(the "Partnership Agreement"), each as in effect on the Effective Date, shall be
the charter documents of the Partnership until duly amended or changed in
accordance with the Partnership Agreement and the Act.
(2) Subject to and in accordance with the Partnership Agreement,
Prometheus Development Co., Inc. will continue as the general partner of the
Partnership.
ARTICLE V
PARTNERSHIP REPRESENTATIONS AND WARRANTIES
The Partnership hereby represents and warrants that:
(1) The Partnership has been duly organized and is existing as a limited
partnership in good standing under the laws of the State of California with full
power and authority to own and lease its properties and to conduct its business
as currently conducted.
(2) The Partnership has the power and authority to execute and deliver
this Agreement, to consummate the transactions contemplated hereby and to
perform its obligations under this Agreement. The execution and delivery by it
of this Agreement, and the consummation of the transactions contemplated hereby,
have been duly authorized by all necessary action by the Partnership other than
the approval of Limited Partners holding at least 50% of the issued and
outstanding Units. This Agreement (assuming the due authorization, execution and
delivery hereof by the other parties hereto) constitutes the legal, valid and
binding obligation of the Partnership, enforceable against it in accordance with
the terms hereof.
(3) Other than as follows, the execution, delivery and performance of
this Agreement and the consummation of the transactions will not (i) conflict
with or result in a breach or violation of any terms or provision of, or
constitute a default under (with or without notice or passage of time, or both),
or otherwise give any person a basis for accelerated or increased rights or
termination or nonperformance under, any indenture,
17
mortgage, deed of trust, loan or credit agreement, lease, license or other
agreement or instrument to which the Partnership is a party or by which the
Partnership or its assets is bound or affected, (ii) result in the violation of
the provisions of the formation documents of the Partnership or any legal
requirement applicable to or binding upon the Partnership, (iii) result in the
creation or imposition of any lien upon any property or asset of the
Partnership, (iv) require the consent of any person to the transactions
contemplated hereby that has not heretofore been obtained other than the consent
of the Limited Partners and of The Prudential Insurance Company of America or
(v) otherwise adversely affect the contractual or other legal rights or
privileges of the Partnership:
(a) Deed of Trust, Security Agreement and Fixture Filing with
Assignment of Rents and Proceeds dated as of December 23, 1997, with
respect to Alderwood; and
(b) Deed of Trust, Security Agreement and Fixture Filing with
Assignment of Rents and Proceeds dated as of December 23, 1997, with
respect to Timberleaf.
(4) Other than as follows, or as otherwise disclosed in this Agreement
as of the date of this Agreement, the Partnership has good and marketable title
to all of the Partnership's assets free and clear of all liens:
Mortgages and liens not yet due and payable, covenants,
conditions and restrictions of record
(5) Other than the hardboard siding litigation discussed in the
Partnership's Annual Report on Form 10-K/A for the year ended December 31, 2001
and its Quarterly Report on Form 10-Q for the period ended March 31, 2002, as of
the date of this Agreement, neither the Partnership nor its assets is involved
in material litigation.
(6) The Partnership has received the opinion (the "Opinion") of Houlihan
Lokey Howard & Zukin that the Merger Consideration is fair, from a financial
point of view, to the Limited Partners other than PIP General and its
affiliates.
ARTICLE VI
VOTING OF UNITS
(1) The Partnership hereby covenants and represents that as promptly as
practicable following the date hereof it shall hold a meeting (the "Meeting") of
the Limited Partners at which the Limited Partners will have the opportunity to
vote their Units for or against the transactions contemplated by this Agreement.
18
(2) At the Meeting, PIP General hereby covenants and represents that it
shall vote its Units for or against the transactions contemplated by this
Agreement in the same proportion as the total number of Units voted by Limited
Partners unaffiliated with PIP General or the General Partner.
(3) The Partnership shall use reasonable commercial efforts to obtain
the approval of the Merger by the Limited Partners at the Meeting.
ARTICLE VII
PIP GENERAL AND ACQUISITION REPRESENTATIONS AND WARRANTIES
Each of PIP General and Acquisition hereby represents and warrants that:
(1) Such party has been duly organized and is existing as a limited
liability company in good standing under the State of California with full power
and authority to own and lease its properties and to conduct its business as
currently conducted.
(2) Such party has the power and authority to execute and deliver this
Agreement, to consummate the transactions contemplated hereby and to perform its
obligations under this Agreement. The execution and delivery by such party of
this Agreement, and the consummation by it of the transactions contemplated
hereby, have been duly authorized by all necessary limited liability company
action. This Agreement (assuming the due authorization, execution and delivery
hereof by the other parties hereto) constitutes the legal, valid and binding
obligation of such party, enforceable against it in accordance with the terms
hereof.
(3) Such party's execution, delivery and performance of this Agreement
and the consummation by it of the transactions contemplated hereby will not (i)
conflict with or result in a breach or violation of any terms or provision of,
or constitute a default under (with or without notice or passage of time, or
both), or otherwise give any person a basis for accelerated or increased rights
or termination or nonperformance under, any indenture, mortgage, deed of trust,
loan or credit agreement, lease, license or other agreement or instrument to
which such party is a party or by which it or its assets is bound or affected,
(ii) result in the violation of the provisions of the formation documents of
such party or any legal requirement applicable to or binding upon such party,
(iii) result in the creation or imposition of any lien upon any property or
asset of such party, (iv) require the consent of any person to the transactions
contemplated hereby that has not heretofore been obtained or (v) otherwise
adversely affect the contractual or other legal rights or privileges of such
party.
(4) Acquisition, PIP General and their affiliates have adequate funds
available out of current resources to pay the Merger Consideration to all
holders of Units (other than PIP General and its affiliates).
19
ARTICLE VIII
CONDITIONS
(1) The obligations of each party hereto to effect the Merger shall be
subject to the fulfillment (or waiver by each party hereto) at or prior to the
Effective Date of the following conditions:
(a) No court or other governmental entity of competent
jurisdiction shall have enacted, issued, promulgated, enforced or
entered any statute, rule, regulation, judgment, decree, injunction
or other order (whether temporary, preliminary or permanent) (i)
that is in effect and prohibits consummation of the Merger or any
other transactions with respect to any party hereto expressly
contemplated by this Agreement, or (ii) that is enacted, issued,
promulgated, enforced or entered after the date of this Agreement
and, in any such case, is in effect and imposes restrictions on any
party hereto with respect to the business operations thereof that
would result in a material adverse effect on the assets, business,
financial condition or prospects thereof (clauses (i) and (ii),
collectively, and "Order"), and no governmental entity shall have
instituted any proceeding or threatened to institute any proceeding
seeking any such Order, and no other person shall have instituted
any proceeding seeking any such Order which is reasonably likely to
succeed.
(b) All material actions by, and all consents, approvals,
orders or authorizations from, or filings with, governmental
entities of competent authority necessary for the consummation of
the Merger or any other transactions expressly contemplated by this
Agreement shall have been obtained or made, as the case may be.
(c) The Opinion shall not have been withdrawn.
(2) The obligations of the Partnership to effect the Merger and the
other transactions relating to the Partnership which are contemplated by this
Agreement to be performed by it are further subject to the condition (or waiver
by the Partnership) that:
(a) the representations and warranties of PIP General and
Acquisition set forth herein shall be true and correct at and as of
the closing date; and
(b) this agreement and the transactions contemplated hereby
shall have been approved and adopted by the requisite approval of
the Limited Partners.
20
(3) The obligations of PIP General and Acquisition to effect the Merger
and the other transactions contemplated by this Agreement which are to be
performed by it are further subject to the conditions (or waiver by PIP General
and Acquisition) that:
(a) the representations and warranties of the Partnership set
forth herein shall be true and correct at and as of the closing
date;
(b) the holders of the deeds of trust referred to in Article
V, Section 3 above consent (if necessary) to the Merger on terms
acceptable to PIP General and Acquisition;
(c) there is no material adverse change, from and after the
date hereof, in the assets, business, financial condition or
prospects of the Partnership; and
(d) the outstanding indebtedness with respect to the
Partnership's properties shall have been refinanced on terms
satisfactory to PIP General in its sole and absolute discretion.
ARTICLE IX
TERMINATION
This Agreement may be terminated at any time prior to the Effective Date
(regardless of whether or not the requisite approvals of the Limited Partners
have been obtained) as follows:
(1) by the mutual written consent of the Partnership, PIP General and
Acquisition;
(2) by the Partnership, on the one hand, or PIP General and Acquisition,
on the other hand, upon written notice given to the other if any judgment,
injunction, order, decree or action by any governmental entity of competent
authority preventing the consummation of the transactions contemplated by this
Agreement shall have become final and nonappealable;
(3) by PIP General or Acquisition upon written notice given to the
Partnership, upon a material breach on the part of the Partnership of any
representation, warranty, covenant, obligation or agreement of the Partnership
set forth herein that is not curable or, if curable, is not cured within thirty
(30) days after written notice of such breach is given by PIP General or
Acquisition to the Partnership;
(4) by the Partnership upon written notice given to PIP General or
Acquisition, upon a material breach on the part of PIP General or Acquisition of
any
21
representation, warranty, covenant, obligation or agreement of PIP General or
Acquisition set forth herein that is not curable or, if curable, is not cured
within thirty (30) days after written notice of such breach is given by the
Partnership to PIP General or Acquisition; or
(5) by PIP General, Acquisition or the Partnership if the Merger has not
yet been consummated on or before July 31, 2002.
ARTICLE X
MISCELLANEOUS
(1) The parties hereto each agree to do, execute, acknowledge and
deliver all such further acts, instruments and assurances, and to take all such
further action, including, without limitation, the execution and filing of such
instruments in the State of California and any other State as should be
necessary or desirable to carry out this Agreement and to consummate and effect
the Merger.
(2) This Agreement shall be governed by and construed in accordance with
the laws of California.
(3) All of the representations, warranties, covenants, agreements and
undertakings set forth in this Agreement or in any instrument delivered pursuant
to this Agreement confirming the representations, warranties, covenants,
agreements and undertakings set forth in this Agreement shall terminate as of
the Effective Date, and shall have no further force or effect.
(4) Whether or not the transactions contemplated by this Agreement are
consummated, all costs and expenses incurred in connection with this Agreement,
including, without limitations, the fees, expenses and disbursements of counsel,
financial advisors and accountants, shall be paid by PIP General and/or
Acquisition.
(5) None of the General Partner, PIP General, Acquisition or any payment
agent retained in connection herewith, nor any of their respective affiliates,
will be liable to any Limited Partner for any Merger Consideration delivered to
a public official pursuant to any applicable abandoned property, escheat or
similar law.
22
IN WITNESS WHEREOF, the Partnership, PIP General and Acquisition have each
caused this Agreement to be effective as of the date and the year first written
above.
PROMETHEUS INCOME PARTNERS,
a California Limited Partnership
By: PROMETHEUS DEVELOPMENT CO.,
INC., a California Corporation, its General
Partner
By: __________________________________________
Name: John J. Murphy
Title: Vice President
PIP ACQUISITION, LLC, a California Limited
Liability Company
By: PROMHILL, INC., a California Corporation,
its Manager
By: __________________________________________
Name: John J. Murphy
Title: Vice President
PIP PARTNERS - GENERAL, LLC, a California
Limited Liability Company
By: PROMHILL, INC., a California Corporation,
its Manager
By: __________________________________________
Name: John J. Murphy
Title: Vice President
23
FACSIMILE SENT: Jul-22-2002 08:44AM FROM: Aspen Square Management
PROMETHEUS INCOME PARTNERS
350 Bridge Parkway
Redwood City, CA 94065-1517
(650) 596-5393
July 23, 2002
EXHIBIT B
SENT VIA FACSIMILE (413)788-9207
Aspen Square Management, Inc.
380 Union Street, Suite 300
West Springfield, Massachusetts 01089
Attn: Mr. John Mnich
Re: Confidentiality Agreement
-------------------------
Dear Mr. Mnich:
Aspen Square Management, Inc. (together with its subsidiaries and
affiliates, "Recipient"), has requested Prometheus Income Partners, a California
limited partnership (the "Company") to furnish Recipient with certain
information, materials and documents deemed by the Company to be confidential
and/or proprietary, regarding the Company (collectively, the "Evaluation
Material") in connection with a possible transaction with the Company (as
applicable, the "Transaction"), with reference to which Recipient hereby agrees,
on behalf of itself and its "Representatives" (as hereinafter defined), as
follows:
1. All Evaluation Material heretofore or hereafter furnished to
Recipient, as well as the existence of the discussions between the parties
hereto, shall be deemed confidential and shall be kept in strict confidence
under appropriate safeguards. The term Evaluation Material, as used herein, does
not include any information which (i) as shown by written records, was lawfully
in Recipient's possession prior to any disclosure by the Company, provided that
the source of such information was not prohibited from transmitting the
information to Recipient or its Representatives by a contractual, legal,
fiduciary or other obligation, or (ii) is generally available to the public
other than as a result of disclosure by Recipient or Recipient's employees,
agents or Representatives or others acting on Recipient's behalf or others
acquiring such information through Recipient.
2. Without the Company's prior written consent, Recipient shall not,
directly or indirectly: (i) disclose or reveal any Evaluation Material to any
person, firm or entity except to an appropriately limited group of Recipient's
directors, officers, employees, who are actively and
directly participating in the evaluation of the Transaction (collectively,
"Representatives"), each of whom shall be informed by Recipient of the
confidential nature of the Evaluation Material, be provided with a copy of this
letter agreement and agree to observe the same terms and conditions set forth
herein as if specifically named a party hereto; (ii) use the Evaluation Material
for any purpose other than in connection with the Transaction; or (iii) disclose
to any person or entity the terms, conditions or other facts with respect to the
Transaction (including the existence, whether actual or prospective, and status
thereof) or that Evaluation Material has been made available to Recipient. In
any event, Recipient shall be responsible for any disclosure by its
Representatives (other than pursuant to the terms and subject to the conditions
of this letter agreement) of the Evaluation Material, or the existence, content
or status of negotiations relating to the Transaction, and Recipient shall be
responsible for enforcing the confidentiality of the Evaluation Material and
will take such action as is necessary to prevent any disclosure thereof by any
of its Representatives.
3. Upon written notice from the Company, Recipient will deliver
promptly to the Company all copies of Evaluation Material and all written or
tangible material containing or reflecting any information contained in the
Evaluation Material without retaining any copies, summaries, analyses or
extracts thereof. All documents, memoranda, analyses, compilations, studies,
notes and other writings prepared by Recipient or its Representatives based on
or containing any information contained in the Evaluation Material shall be
destroyed.
4. If Recipient is requested or required in a judicial, administrative
or governmental proceeding, or required by law to disclose any Evaluation
Material or the existence, content or status of negotiations relating to the
Transaction, Recipient shall provide the Company with prompt notice of such
circumstance and all related proceedings and information so that the Company may
seek an appropriate protective order, take other action deemed advisable by the
Company or, in the Company's sole discretion , waive Recipient's compliance with
the confidentiality provisions of this letter agreement. If, as a result of any
such request or requirement, Recipient is, in the opinion of its outside
counsel, compelled to disclose Evaluation Material or the existence, content or
status of negotiations relating to the Transaction (i) to any tribunal or else
stand liable for contempt or other censure or penalty, or (ii) pursuant to
applicable law, Recipient may disclose, without liability hereunder, that
portion of the Evaluation Material to such tribunal or pursuant to such law
which Recipient's outside counsel advises it in writing that it is legally
compelled to disclose, provided that Recipient has complied with the notice
provisions of this Section 4.
5. Recipient agrees on behalf of itself and its Representatives that
without the prior approval of the Company, neither Recipient nor its
Representatives (i) will approach employees of the Company, its customers, its
suppliers or any competitor of the Company to discuss any potential transaction
with the Company (other than a transaction in the ordinary course of the
Company's and Recipient's respective businesses) or (ii) approach the employees
of the Company to discuss any information with respect to the Company or its
business or otherwise receive or try to obtain information from any employee of
the Company.
6. Until the earlier of (i) the execution by Recipient of the
Transaction Agreement or (ii) two years from the date of this letter agreement,
Recipient, on behalf of itself and its affiliates, agrees not to solicit the
employment of, hire, or otherwise interfere with the relationship of the Company
or its affiliates with, any individual, partnership, firm, corporation or other
business organization which is employed by or otherwise engaged to perform
services for the
2
Company or any of its affiliates on an exclusive basis, including but not
limited to any independent contractors or organizations.
7. Except as may be specifically provided in a definitive written
agreement providing for the Transaction (a "Transaction Agreement"), the Company
shall not be deemed to make or have made any representation or warranty, express
or implied, as to the accuracy or completeness of any Evaluation Material which
the Company or any of its affiliates or other person acting on its behalf may
furnish to Recipient, and the Company and its affiliates shall have no liability
to Recipient or any of its Representatives resulting from the use of any
Evaluation Material by Recipient or its Representatives (which shall be limited
to evaluating the Transaction).
8. Recipient acknowledges and agrees that in the event of any breach of
this Agreement by it the Company may suffer irreparable harm and that money
damages would not be a sufficient remedy for such breach, and without prejudice
to any rights and remedies otherwise available to the Company, the Company shall
be entitled (i) to equitable relief by way of injunction and (ii) to compel
specific performance without the need of proof of actual damages. Recipient
further agrees to waive, and to cause its Representatives to waive, any
requirement for the securing or posting of any bond in connection with such
remedies. No failure or delay by the Company in exercising any right, power or
privilege hereunder shall operate as a waiver thereof, nor shall any single or
partial exercise thereof preclude any other or further exercise hereunder.
9. Recipient acknowledges and agrees to advise its Representatives that
the Evaluation Material and the matters that are the subject of this letter
agreement constitute material, non-public information and that the United States
securities laws prohibit any person who has received such information from an
issuer from purchasing or selling securities of that issuer or from
communicating such information to any other person under circumstances in which
it is reasonably foreseeable that such person is likely to purchase or sell such
securities.
10. In consideration of being furnished the Evaluation Material and in
view of the fact that the Evaluation Material consists of confidential and
non-public information, Recipient agrees that for a period of two years from the
date of this letter agreement, and other than pursuant to the terms of a
Transaction Agreement between Recipient and the Company, Recipient and its
Representatives shall not, nor shall Recipient permit any person or entity
controlled by Recipient, directly or indirectly, without the prior written
invitation or approval of the general partner (it being understood and agreed
that the entering into of this letter agreement shall not constitute such
invitation or approval), to:
(i) Acquire or offer, seek or agree to acquire, or in any manner
advise, induce, encourage or assist any other person to acquire, directly
or indirectly, by purchase or otherwise, 2% or more of the partnership
units ("units") of the Company; or
(ii) Initiate, or in any manner advise, induce, encourage or assist
any other person to initiate, any tender or exchange offer for units of
the Company, any merger, business combination, change in control, sale of
assets, liquidation or other extraordinary transaction of or involving the
Company or any other transaction between Recipient or its affiliates, on
the one hand, and the Company and/or its unit holders, on the other hand,
unless such offer or transaction is approved by the general partner;
3
11. Recipient agrees that unless and until a Transaction Agreement
between the Company and Recipient has been executed and delivered, the Company
has no legal obligation of any kind whatsoever with respect to any transaction
by virtue of this letter agreement or otherwise except, in the case of this
letter agreement, for the matters specifically agreed to herein.
12. This letter agreement shall be binding upon Recipient's successors
and assigns and shall inure to the benefit of and be enforceable by the
Company's successors and assigns.
13. In the event that any provision of this letter agreement is
determined to be partially or wholly invalid, illegal or unenforceable, then
such provision shall be deemed to be modified or restricted to the extent
necessary to make such provision valid, binding and enforceable, or, if such
provision cannot be modified or restricted in a manner so as to make such
provision valid, binding and enforceable, then such provision shall be deemed to
be excised from this letter agreement and the validity, binding effect and
enforceability of the remaining provisions of this letter agreement shall not be
affected or impaired in any manner.
14. This letter agreement constitutes the complete agreement of the
parties and terminates and supersedes any and all prior agreements, arrangements
and understandings, oral or written, between the parties concerning the subject
matter of this letter agreement.
15. This letter agreement shall be construed (both as to validity and
performance) and enforced in accordance with, and governed by, the laws of the
State of California applicable to agreements made and to be performed wholly
within such jurisdiction, notwithstanding any choice of law principles, statutes
or rules to the contrary.
16. This letter agreement may be waived, amended or modified only by an
instrument in writing signed by the party against which such waiver, amendment
or modification is sought to be enforced, and such written instrument shall set
forth specifically the provisions of this letter agreement that are to be so
waived, amended or modified.
Please indicate your agreement with the foregoing by executing the
accompanying copy of this letter agreement and returning it to us,
whereupon it shall constitute a binding agreement as of the date first
above written.
Very truly yours,
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
4
READ, ACCEPTED AND AGREED TO:
ASPEN SQUARE MANAGEMENT, INC.
By: /s/ Jeremy Pava
---------------
Its:___Treasurer
Original sent by overnight mail
5
FACSIMILE SENT: Jul-22-2002 08:44AM FROM: Aspen Square Management
Aspen Square Management Inc.
180 Union Street, Suite 300
West Springfield Massachusetts 07088
Phone: 413-587-0772
FAX 413-786-9207
July 18, 2002 Via Facsimile and Federal Express
EXHIBIT C
Vicki Mullins
Prometheus Income Partners
350 Bridge Parkway
Redwood City, CA 94065
Dear Vicki
We appreciate your willingness to quickly provide us with any pertinent
documents and other information that we require as part of our due diligence
review regarding the partnership interests and the underlying apartment
communities. In regards to this matter, we will require the following
information:
1. Copies of all mortgages, loan documents, bond documents, regulatory
agreements. and all other documents pertaining to any current financing on each
property.
2. A.L.T.A. Survey for each property.
3. Title Insurance commitment and all documents constituting exceptions to
title.
4. Copies of outstanding third-party service contracts and other agreements
affecting the. properties, including any assignable warranties.
5. Copies of any engineering information and inspection reports, including Phase
I environmental studies and updated reports, plats, zoning ordinances and
compliance, business licenses, availability of utilities, or any other related
data.
6. Copies of the municipal, state and federal Certificates of Occupancy, or the
equivalent, issued to date for each property.
7. Copies of the original operating income, expense and capital expenditures
records for each property from 1998, 1999, 2000, 2001 and the latest available
for 2002.
8. A current rent roll for each property identifying and listing in detail
therein by tenant and by vacant area, as applicable; tenants, square footage
monthly rent, deposits, all concessions (financial and other), lease terms,
6
lease term extension options, defaulted tenant leases (financial or otherwise),
and tenant lease obligations of Seller, if any, and all legal matters as it
relates to the collection of rent.
9. Copies of any termite inspections, and notice of violations including but not
limited to those regarding building and fire codes.
10. Disclosure of any legal matters affecting the properties or collection, of
rents or deposits.
11. All available plans and specifications; real estate and personal property
tax statements and valuation notices, all certificates of insurance and copies
of insurance policies. and all building permits.
12. Al1 licenses and permits. liens and lawsuits.
13. Copies of all ledger cards, general ledger (year-to-date cash disbursement
journal}, year-to-date vendor files, bank statements/deposit slips, and all open
invoices.
14. Insurance loss runs, rate history, occupancy percentage by month covering
1998-2002 to date.
15. Aging of accounts receivable and current staffing schedu1e.
16. Inventory of personal property.
17. True and complete copies of all tenant lease files and amendments thereto,
as well as any other agreement incident or related thereto which affect the
obligations of Seller and the affected tenant with respect to such leases.
18. Copies of any reports. structural, legal or other in nature, relating to the
damaged siding on each property.
Vicki, we request that you provide this information to us via overnight
delivery. Once we receive all such requested information, we assume our due
diligence review will begin.
Yours truly,
/s/ Jeff Strole
- ---------------
Jeff Strole
7
FACSIMILE
PROMETHEUS
350 Bridge Parkway
Redwood City, CA 94065-1517
Telephone: 650/596-5300 Facsimile: 650/596-5377
DATE: July 23, 2002
To: Jeff Strole From: Vicki Mullins
Co.: Aspen Square Management Tel: 650/596-5365
Fax: 413-788-9207 (Direct Line)
Re: Prometheus Income Partners
NO. OF PAGES (Including Cover Sheet) 19
----
================================================================================
COMMENTS:
Attached is the revised letter dated July 19, 2002. We have made all of the
changes you have requested, except the deletion of the phrase "and enter into a
binding agreement". Fiducially, we are unable to make this change. Additionally,
we have extended your time for acceptance to 12:00 noon California time, on July
20, 2002. No further extensions will be granted.
Attach.
1
PROMETHEUS INCOME PARTNERS
350 Bridge Parkway
Redwood City, CA 94065-1517
(650) 596-5393
July 19, 2002
Aspen Square Management, Inc.
380 Union Street, Suite 300
West Springfield, Massachusetts 01089
Ladies and Gentlemen:
This letter sets forth the essential terms of your proposed due diligence
review ("Diligence Review") on the basis of which we are willing to continue to
consider your possible acquisition of Prometheus Income Partners, a California
limited partnership (the "Partnership"). Our understanding of your proposal is
embodied in the following:
1. You (or an entity to be formed by you) would acquire (i) each of the
Partnership's issued and outstanding limited partnership units for $1,859 in
cash per unit and (ii) the general partner interest in the Partnership now held
by Prometheus Development Co., Inc. (the "General Partner") for $1,500,000 in
cash, in each case payable in full upon consummation of the acquisition of the
limited Partner's units and General Partner's interest, collectively referred to
as "Proposed Acquisition".
2. Except as expressly set forth herein, you have proposed substantively
all of the terms included in the definitive Agreement and Plan of Merger (the
"Definitive Agreement") attached hereto as Exhibit A, with the following
modifications:
(a) mutual covenants of cooperation to obtain the approval of
Proposed Acquisition by the Partnership's limited partners (including
preparation of proxy materials) and such other approvals (if any) as may
be required to complete the transaction;
(b) no closing condition in respect of financing, refinancing or
assumption of existing mortgages;
(c) mutual representations that no broker, finder's, agency or
similar fees to be paid;
(d) with your proposed contract for the Proposed Acquisition, you
shall deposit $3,000,000 into escrow with a mutually acceptable escrow
agent on mutually acceptable terms. If no Proposed Acquisition is
consummated, the $3,000,000 will be disbursed to the Partnership unless
the Proposed Acquisition was not consummated as a result of either a
breach by the Partnership or the rejection of the Proposed Acquisition by
the Partnership's limited partners, in which case it will be returned to
you; and
-2-
(e) the executed contract would be terminable by either party if the
Proposed Acquisition has not been consummated on or prior to December 31,
2002, other than as a result of a breach by such party.
3. You agree to commence at your expense your Diligence Review of the
Partnership and its properties promptly after execution of this letter. We agree
to reasonably provide to you and your representatives access to the properties,
books, records, documents, contracts and other records of the Partnership and
shall furnish you with copies of such documents and with such information with
respect to the affairs of the Partnership, as you reasonably deem necessary for
the purpose of conducting the Diligence Review. We will endeavor to make a
reasonable search to provide you with the records requested. It is agreed that
the items requested on Exhibit C hereto shall be made available to you, to the
extent that they are within our possession and control, except that (i) you
acknowledge that we are unable to provide you with employee's personnel files
and (ii) you and we shall agree in good faith to limit certain of such
information temporally, including, e.g., that bank statements, etc., need only
be made available for the previous three years. Because the records you are
requesting are so numerous, we are only obligated to make reasonable efforts to
assist your inspection. Upon your designating the records you wish copied, we
will send them to an outside service at your expense. You agree that you will
complete the Diligence Review not later than August 1, 2002 (the "Diligence
Cut-off Date").
4. In consideration of the foregoing and of your previous representations
to us as to your ability to pay all cash pursuant to the Proposed Acquisition
with currently available liquid funds, we agree to postpone the taking of any
vote on the currently proposed merger until after the Diligence Cut-off Date.
5. You acknowledge that (i) we will have to advise our limited partners
appropriately and from time to time regarding the matters set forth herein and
(ii) at any time prior to any written acceptance of your proposed offer (which
you agree to deliver prior to the Due Diligence Cut-off Date), the General
Partner has fiduciary duties to the Partnership and its limited partners in the
discharge of which it is obligated to consider alternatives that may be more
favorable to the limited partners. If on or prior to December 31, 2002 the
General Partner shall present and recommend to the limited partners any
transaction involving an acquisition of the limited partner units at a price in
excess of $1859 per unit in which the acquiror, directly or indirectly, is an
affiliate of the General Partner, PIP Partners - General, LLC, PIP Acquisition,
LLC, and your proposal is not accepted, the Partnership shall reimburse you for
all reasonable out-of-pocket costs incurred by you in conducting the Diligence
Review up to an aggregate maximum amount of $25,000.
6. This letter supersedes all previous correspondence, discussions,
understandings and agreements between you and us or our respective officers,
directors, agents and representatives, provided that the letter agreement
regarding confidentiality and related matters attached hereto as Exhibit B shall
remain in full force and effect (and, for the avoidance of doubt, shall apply
with respect to the information provided in the course of the Diligence Review).
Except for the express terms of paragraphs 3, 4 and 6 hereof, each of
which shall and hereby does constitute a binding agreement: it is expressly
understood that this letter
-3-
is non-binding and is intended to include part of the basic terms and conditions
under which the Partnership may enter into a formal agreement with Aspen for the
Proposed Acquisition; this letter shall only serve to form part of the basis for
a possible agreement which must be agreed upon and executed by all parties prior
to having any binding effect; this non-binding letter is not intended to be
contractual in nature and neither party shall be obligated to proceed in good
faith, or by any other standard, to enter into an agreement based upon the terms
set forth above; and a binding agreement will only exist when the agreement is
executed by duly authorized representatives from all parties. Additionally, the
Partnership reserves the right to negotiate and enter into a binding agreement
with another party until a mutually acceptable agreement is fully executed
(subject to the last sentence of paragraph 5 above.)
If the foregoing is in accordance with your understanding, please so
indicate by signing the enclosed copy of this letter in the space provided and
returning it to us on or prior to [INTERPOLATED WRITTEN MATERIAL:"6:00 P.M.
E.D.T." deleted, "12:00 noon" inserted], California time, July [INTERPOLATED
WRITTEN MATERIAL: "20" deleted, "22" inserted], 2002. Please fax a signed copy
to the attention of Vicki Mullins at (650) 596-5377 and send the original via
overnight mail.
PROMETHEUS INCOME PARTNERS
By: Prometheus Development Co., Inc.,
a California corporation, its general partner
By: /s/ Vicki Mullins
-----------------------------------------------
Name: Vicki Mullins
Title: Vice President
AGREED AND ACCEPTED:
ASPEN SQUARE MANAGEMENT, INC.
By:
--------------------
Name:
Title:
-4-
EXHIBIT A
AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER
This Amended and Restated Agreement and Plan of Merger (this "Agreement")
is entered into as of May 22, 2002, by and among Prometheus Income Partners, a
California limited partnership (the "Partnership"), PIP Partners - General, LLC,
a California limited liability company ("PIP General"), and PIP Acquisition,
LLC, a California limited liability company and a wholly-owned subsidiary of PIP
General ("Acquisition").
WHEREAS, the parties desire to merge Acquisition with and into the
Partnership (the "Merger") on the terms and conditions hereinafter set forth and
in accordance with the provisions of Sections 15678.1-.9 of the California
Revised Uniform Limited Partnership Act, as amended (the "Act") and Sections
17550-17556 of the Beverly-Killea Limited Liability Company Act (the "LLC Act");
WHEREAS, Acquisition has been formed for such purpose.
WHEREAS, the parties have entered into that certain Agreement and Plan of
Merger dated as of March 6, 2002 (the "Original Agreement"); and
WHEREAS, the parties have reviewed the financial statements of the
Partnership as of and for the quarter ended March 31, 2002 and based thereupon
wish to increase the merger consideration of $1,714 per limited partner unit
provided for in the Original Agreement to $1,736 per unit.
NOW THEREFORE, BE IT RESOLVED, that in consideration of the mutual
covenants and agreements contained herein and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties agree, and the Original Agreement is hereby amended and restated in its
entirety to read, as follows:
ARTICLE I
TERMS OF MERGER
Acquisition shall be merged with and into the Partnership in a statutory
merger in accordance with the Act and the LLC Act on the terms and subject to
the conditions set forth in this Agreement.
ARTICLE II
EFFECT OF MERGER
On the "Effective Date" (as defined below):
(1) Acquisition shall be merged with and into the Partnership;
(2) the Partnership shall possess all the rights, privileges, immunities
and franchises of Acquisition, and all property, real, personal and mixed, and
debts due on whatever account, and every other interest belonging to or due to
Acquisition (including, but not limited to, liability for any fees or franchise
taxes due and owing to the Secretary of State of California as of the Effective
Date) shall be deemed to be transferred to and vested in the Partnership,
without further act, deed or transfer;
(3) the Partnership shall thenceforth be responsible for and subject to
all of the debts, liabilities and obligations of Acquisition in the same manner
as if the Partnership had itself incurred them;
(4) any claim, existing action, or proceeding pending by or against
Acquisition may be prosecuted to judgment by the Partnership; and
(5) neither the rights of creditors nor any liens upon the property of
Acquisition shall be impaired by the Merger.
The "Effective Date" shall be the date following the satisfaction of the
conditions set forth in Article VIII hereof on which a Certificate of Merger is
filed with the Secretary of State of the State of California in accordance with
the Act and the LLC Act, which date shall be not greater than twenty days
following the approval of the Merger by the limited partners of the Partnership
(the "Limited Partners").
ARTICLE III
MANNER AND BASIS OF CONVERTING INTERESTS
As of the Effective Date, by virtue of the Merger and without any action
on the part of any party hereto:
(1) Each limited partner interest in the Partnership (each, a "Unit")
outstanding immediately prior to the Effective Date (other than any such Unit
held by PIP General) shall be converted into and shall become the right to
receive cash (without interest thereon) in an amount equal to $1,736.00 (the
"Merger Consideration") upon surrender of a duly executed letter of transmittal
by the holder of such Unit in form and substance reasonably satisfactory to PIP
General. As of the Effective Date, each such Unit shall no longer be outstanding
and shall automatically be cancelled and retired and shall cease to exist, and
the holder of such Unit shall cease to have any rights with respect thereto,
except the right to receive the Merger Consideration.
(2) As of the Effective Date, each member interest in Acquisition issued
and outstanding as of the Effective Date shall be converted into one
newly-issued Unit.
ARTICLE IV
CHARTER DOCUMENTS; GENERAL PARTNER
2
(1) The Certificate of Limited Partnership and Second Amended and Restated
Limited Partnership Agreement of the Partnership dated October 1, 1992 (the
"Partnership Agreement"), each as in effect on the Effective Date, shall be the
charter documents of the Partnership until duly amended or changed in accordance
with the Partnership Agreement and the Act.
(2) Subject to and in accordance with the Partnership Agreement,
Prometheus Development Co., Inc. will continue as the general partner of the
Partnership.
ARTICLE V
PARTNERSHIP REPRESENTATIONS AND WARRANTIES
The Partnership hereby represents and warrants that:
(1) The Partnership has been duly organized and is existing as a limited
partnership in good standing under the laws of the State of California with full
power and authority to own and lease its properties and to conduct its business
as currently conducted.
(2) The Partnership has the power and authority to execute and deliver
this Agreement, to consummate the transactions contemplated hereby and to
perform its obligations under this Agreement. The execution and delivery by it
of this Agreement, and the consummation of the transactions contemplated hereby,
have been duly authorized by all necessary action by the Partnership other than
the approval of Limited Partners holding at least 50% of the issued and
outstanding Units. This Agreement (assuming the due authorization, execution and
delivery hereof by the other parties hereto) constitutes the legal, valid and
binding obligation of the Partnership, enforceable against it in accordance with
the terms hereof.
(3) Other than as follows, the execution, delivery and performance of this
Agreement and the consummation of the transactions will not (i) conflict with or
result in a breach or violation of any terms or provision of, or constitute a
default under (with or without notice or passage of time, or both), or otherwise
give any person a basis for accelerated or increased rights or termination or
nonperformance under, any indenture, mortgage, deed of trust, loan or credit
agreement, lease, license or other agreement or instrument to which the
Partnership is a party or by which the Partnership or its assets is bound or
affected, (ii) result in the violation of the provisions of the formation
documents of the Partnership or any legal requirement applicable to or binding
upon the Partnership, (iii) result in the creation or imposition of any lien
upon any property or asset of the Partnership, (iv) require the consent of any
person to the transactions contemplated hereby that has not heretofore been
obtained other than the consent of the Limited Partners and of The Prudential
Insurance Company of America or (v) otherwise adversely affect the contractual
or other legal rights or privileges of the Partnership:
3
(a) Deed of Trust, Security Agreement and Fixture Filing with
Assignment of Rents and Proceeds dated as of December 23, 1997, with
respect to Alderwood; and
(b) Deed of Trust, Security Agreement and Fixture Filing with
Assignment of Rents and Proceeds dated as of December 23, 1997, with
respect to Timberleaf.
(4) Other than as follows, or as otherwise disclosed in this Agreement as
of the date of this Agreement, the Partnership has good and marketable title to
all of the Partnership's assets free and clear of all liens:
Mortgages and liens not yet due and payable, covenants,
conditions and restrictions of record
(5) Other than the hardboard siding litigation discussed in the
Partnership's Annual Report on Form 10-K/A for the year ended December 31, 2001
and its Quarterly Report on Form 10-Q for the period ended March 31, 2002, as of
the date of this Agreement, neither the Partnership nor its assets is involved
in material litigation.
(6) The Partnership has received the opinion (the "Opinion") of Houlihan
Lokey Howard & Zukin that the Merger Consideration is fair, from a financial
point of view, to the Limited Partners other than PIP General and its
affiliates.
ARTICLE VI
VOTING OF UNITS
(1) The Partnership hereby covenants and represents that as promptly as
practicable following the date hereof it shall hold a meeting (the "Meeting") of
the Limited Partners at which the Limited Partners will have the opportunity to
vote their Units for or against the transactions contemplated by this Agreement.
(2) At the Meeting, PIP General hereby covenants and represents that it
shall vote its Units for or against the transactions contemplated by this
Agreement in the same proportion as the total number of Units voted by Limited
Partners unaffiliated with PIP General or the General Partner.
(3) The Partnership shall use reasonable commercial efforts to obtain the
approval of the Merger by the Limited Partners at the Meeting.
ARTICLE VII
PIP GENERAL AND ACQUISITION REPRESENTATIONS AND WARRANTIES
Each of PIP General and Acquisition hereby represents and warrants that:
4
(1) Such party has been duly organized and is existing as a limited
liability company in good standing under the State of California with full power
and authority to own and lease its properties and to conduct its business as
currently conducted.
(2) Such party has the power and authority to execute and deliver this
Agreement, to consummate the transactions contemplated hereby and to perform its
obligations under this Agreement. The execution and delivery by such party of
this Agreement, and the consummation by it of the transactions contemplated
hereby, have been duly authorized by all necessary limited liability company
action. This Agreement (assuming the due authorization, execution and delivery
hereof by the other parties hereto) constitutes the legal, valid and binding
obligation of such party, enforceable against it in accordance with the terms
hereof.
(3) Such party's execution, delivery and performance of this Agreement and
the consummation by it of the transactions contemplated hereby will not (i)
conflict with or result in a breach or violation of any terms or provision of,
or constitute a default under (with or without notice or passage of time, or
both), or otherwise give any person a basis for accelerated or increased rights
or termination or nonperformance under, any indenture, mortgage, deed of trust,
loan or credit agreement, lease, license or other agreement or instrument to
which such party is a party or by which it or its assets is bound or affected,
(ii) result in the violation of the provisions of the formation documents of
such party or any legal requirement applicable to or binding upon such party,
(iii) result in the creation or imposition of any lien upon any property or
asset of such party, (iv) require the consent of any person to the transactions
contemplated hereby that has not heretofore been obtained or (v) otherwise
adversely affect the contractual or other legal rights or privileges of such
party.
(4) Acquisition, PIP General and their affiliates have adequate funds
available out of current resources to pay the Merger Consideration to all
holders of Units (other than PIP General and its affiliates).
ARTICLE VIII
CONDITIONS
(1) The obligations of each party hereto to effect the Merger shall be
subject to the fulfillment (or waiver by each party hereto) at or prior to the
Effective Date of the following conditions:
(a) No court or other governmental entity of competent
jurisdiction shall have enacted, issued, promulgated, enforced or
entered any statute, rule, regulation, judgment, decree, injunction
or other order (whether temporary, preliminary or permanent) (i)
that is in effect and prohibits consummation of the Merger or any
other transactions with respect to any party hereto expressly
contemplated by this Agreement, or
5
(ii) that is enacted, issued, promulgated, enforced or entered
after the date of this Agreement and, in any such case, is in
effect and imposes restrictions on any party hereto with respect to
the business operations thereof that would result in a material
adverse effect on the assets, business, financial condition or
prospects thereof (clauses (i) and (ii), collectively, and
"Order"), and no governmental entity shall have instituted any
proceeding or threatened to institute any proceeding seeking any
such Order, and no other person shall have instituted any
proceeding seeking any such Order which is reasonably likely to
succeed.
(b) All material actions by, and all consents, approvals,
orders or authorizations from, or filings with, governmental
entities of competent authority necessary for the consummation of
the Merger or any other transactions expressly contemplated by this
Agreement shall have been obtained or made, as the case may be.
(c) The Opinion shall not have been withdrawn.
(2) The obligations of the Partnership to effect the Merger and the other
transactions relating to the Partnership which are contemplated by this
Agreement to be performed by it are further subject to the condition (or waiver
by the Partnership) that:
(a) the representations and warranties of PIP General and
Acquisition set forth herein shall be true and correct at and as of
the closing date; and
(b) this agreement and the transactions contemplated hereby
shall have been approved and adopted by the requisite approval of
the Limited Partners.
(3) The obligations of PIP General and Acquisition to effect the Merger
and the other transactions contemplated by this Agreement which are to be
performed by it are further subject to the conditions (or waiver by PIP General
and Acquisition) that:
(a) the representations and warranties of the Partnership
set forth herein shall be true and correct at and as of the closing
date;
(b) the holders of the deeds of trust referred to in Article
V, Section 3 above consent (if necessary) to the Merger on terms
acceptable to PIP General and Acquisition;
(c) there is no material adverse change, from and after the
date hereof, in the assets, business, financial condition or
prospects of the Partnership; and
6
(d) the outstanding indebtedness with respect to the
Partnership's properties shall have been refinanced on terms
satisfactory to PIP General in its sole and absolute discretion.
ARTICLE IX
TERMINATION
This Agreement may be terminated at any time prior to the Effective Date
(regardless of whether or not the requisite approvals of the Limited Partners
have been obtained) as follows:
(1) by the mutual written consent of the Partnership, PIP General and
Acquisition;
(2) by the Partnership, on the one hand, or PIP General and Acquisition,
on the other hand, upon written notice given to the other if any judgment,
injunction, order, decree or action by any governmental entity of competent
authority preventing the consummation of the transactions contemplated by this
Agreement shall have become final and nonappealable;
(3) by PIP General or Acquisition upon written notice given to the
Partnership, upon a material breach on the part of the Partnership of any
representation, warranty, covenant, obligation or agreement of the Partnership
set forth herein that is not curable or, if curable, is not cured within thirty
(30) days after written notice of such breach is given by PIP General or
Acquisition to the Partnership;
(4) by the Partnership upon written notice given to PIP General or
Acquisition, upon a material breach on the part of PIP General or Acquisition of
any representation, warranty, covenant, obligation or agreement of PIP General
or Acquisition set forth herein that is not curable or, if curable, is not cured
within thirty (30) days after written notice of such breach is given by the
Partnership to PIP General or Acquisition; or
(5) by PIP General, Acquisition or the Partnership if the Merger has not
yet been consummated on or before July 31, 2002.
ARTICLE X
MISCELLANEOUS
(1) The parties hereto each agree to do, execute, acknowledge and deliver
all such further acts, instruments and assurances, and to take all such further
action, including, without limitation, the execution and filing of such
instruments in the State of California and any other State as should be
necessary or desirable to carry out this Agreement and to consummate and effect
the Merger.
7
(2) This Agreement shall be governed by and construed in accordance with
the laws of California.
(3) All of the representations, warranties, covenants, agreements and
undertakings set forth in this Agreement or in any instrument delivered pursuant
to this Agreement confirming the representations, warranties, covenants,
agreements and undertakings set forth in this Agreement shall terminate as of
the Effective Date, and shall have no further force or effect.
(4) Whether or not the transactions contemplated by this Agreement are
consummated, all costs and expenses incurred in connection with this Agreement,
including, without limitations, the fees, expenses and disbursements of counsel,
financial advisors and accountants, shall be paid by PIP General and/or
Acquisition.
(5) None of the General Partner, PIP General, Acquisition or any payment
agent retained in connection herewith, nor any of their respective affiliates,
will be liable to any Limited Partner for any Merger Consideration delivered to
a public official pursuant to any applicable abandoned property, escheat or
similar law.
8
IN WITNESS WHEREOF, the Partnership, PIP General and Acquisition have each
caused this Agreement to be effective as of the date and the year first written
above.
PROMETHEUS INCOME PARTNERS,
a California Limited Partnership
By: PROMETHEUS DEVELOPMENT CO.,
INC., a California Corporation, its General
Partner
By:
------------------------------------------
Name: John J. Murphy
Title: Vice President
PIP ACQUISITION, LLC, a California Limited
Liability Company
By: PROMHILL, INC., a California Corporation,
its Manager
By:
------------------------------------------
Name: John J. Murphy
Title: Vice President
PIP PARTNERS - GENERAL, LLC, a California
Limited Liability Company
By: PROMHILL, INC., a California Corporation,
its Manager
By:
------------------------------------------
Name: John J. Murphy
Title: Vice President
9
12
PROMETHEUS INCOME PARTNERS
350 Bridge Parkway
Redwood City, CA 94065-1517
(650) 596-5393
July 23, 2002
EXHIBIT B
SENT VIA FACSIMILE (413)788-9207
Aspen Square Management, Inc.
380 Union Street, Suite 300
West Springfield, Massachusetts 01089
Attn: Mr. John Mnich
Re: Confidentiality Agreement
-------------------------
Dear Mr. Mnich:
Aspen Square Management, Inc. (together with its subsidiaries and
affiliates, "Recipient"), has requested Prometheus Income Partners, a California
limited partnership (the "Company") to furnish Recipient with certain
information, materials and documents deemed by the Company to be confidential
and/or proprietary, regarding the Company (collectively, the "Evaluation
Material") in connection with a possible transaction with the Company (as
applicable, the "Transaction"), with reference to which Recipient hereby agrees,
on behalf of itself and its "Representatives" (as hereinafter defined), as
follows:
1. All Evaluation Material heretofore or hereafter furnished to Recipient,
as well as the existence of the discussions between the parties hereto, shall be
deemed confidential and shall be kept in strict confidence under appropriate
safeguards. The term Evaluation Material, as used herein, does not include any
information which (i) as shown by written records, was lawfully in Recipient's
possession prior to any disclosure by the Company, provided that the source of
such information was not prohibited from transmitting the information to
Recipient or its Representatives by a contractual, legal, fiduciary or other
obligation, or (ii) is generally available to the public other than as a result
of disclosure by Recipient or Recipient's employees, agents or Representatives
or others acting on Recipient's behalf or others acquiring such information
through Recipient.
2. Without the Company's prior written consent, Recipient shall not,
directly or indirectly: (i) disclose or reveal any Evaluation Material to any
person, firm or entity except to an appropriately limited group of Recipient's
directors, officers, employees, who are actively and directly participating in
the evaluation of the Transaction (collectively, "Representatives"), each of
whom shall be informed by Recipient of the
confidential nature of the Evaluation Material, be provided with a copy of this
letter agreement and agree to observe the same terms and conditions set forth
herein as if specifically named a party hereto; (ii) use the Evaluation Material
for any purpose other than in connection with the Transaction; or (iii) disclose
to any person or entity the terms, conditions or other facts with respect to the
Transaction (including the existence, whether actual or prospective, and status
thereof) or that Evaluation Material has been made available to Recipient. In
any event, Recipient shall be responsible for any disclosure by its
Representatives (other than pursuant to the terms and subject to the conditions
of this letter agreement) of the Evaluation Material, or the existence, content
or status of negotiations relating to the Transaction, and Recipient shall be
responsible for enforcing the confidentiality of the Evaluation Material and
will take such action as is necessary to prevent any disclosure thereof by any
of its Representatives.
3. Upon written notice from the Company, Recipient will deliver promptly
to the Company all copies of Evaluation Material and all written or tangible
material containing or reflecting any information contained in the Evaluation
Material without retaining any copies, summaries, analyses or extracts thereof.
All documents, memoranda, analyses, compilations, studies, notes and other
writings prepared by Recipient or its Representatives based on or containing any
information contained in the Evaluation Material shall be destroyed.
4. If Recipient is requested or required in a judicial, administrative or
governmental proceeding, or required by law to disclose any Evaluation Material
or the existence, content or status of negotiations relating to the Transaction,
Recipient shall provide the Company with prompt notice of such circumstance and
all related proceedings and information so that the Company may seek an
appropriate protective order, take other action deemed advisable by the Company
or, in the Company's sole discretion , waive Recipient's compliance with the
confidentiality provisions of this letter agreement. If, as a result of any such
request or requirement, Recipient is, in the opinion of its outside counsel,
compelled to disclose Evaluation Material or the existence, content or status of
negotiations relating to the Transaction (i) to any tribunal or else stand
liable for contempt or other censure or penalty, or (ii) pursuant to applicable
law, Recipient may disclose, without liability hereunder, that portion of the
Evaluation Material to such tribunal or pursuant to such law which Recipient's
outside counsel advises it in writing that it is legally compelled to disclose,
provided that Recipient has complied with the notice provisions of this Section
4.
5. Recipient agrees on behalf of itself and its Representatives that
without the prior approval of the Company, neither Recipient nor its
Representatives (i) will approach employees of the Company, its customers, its
suppliers or any competitor of the Company to discuss any potential transaction
with the Company (other than a transaction in the ordinary course of the
Company's and Recipient's respective businesses) or (ii) approach the employees
of the Company to discuss any information with respect to the Company or its
business or otherwise receive or try to obtain information from any employee of
the Company.
6. Until the earlier of (i) the execution by Recipient of the Transaction
Agreement or (ii) two years from the date of this letter agreement, Recipient,
on behalf of
11
itself and its affiliates, agrees not to solicit the employment of, hire, or
otherwise interfere with the relationship of the Company or its affiliates with,
any individual, partnership, firm, corporation or other business organization
which is employed by or otherwise engaged to perform services for the Company or
any of its affiliates on an exclusive basis, including but not limited to any
independent contractors or organizations.
7. Except as may be specifically provided in a definitive written
agreement providing for the Transaction (a "Transaction Agreement"), the Company
shall not be deemed to make or have made any representation or warranty, express
or implied, as to the accuracy or completeness of any Evaluation Material which
the Company or any of its affiliates or other person acting on its behalf may
furnish to Recipient, and the Company and its affiliates shall have no liability
to Recipient or any of its Representatives resulting from the use of any
Evaluation Material by Recipient or its Representatives (which shall be limited
to evaluating the Transaction).
8. Recipient acknowledges and agrees that in the event of any breach of
this Agreement by it the Company may suffer irreparable harm and that money
damages would not be a sufficient remedy for such breach, and without prejudice
to any rights and remedies otherwise available to the Company, the Company shall
be entitled (i) to equitable relief by way of injunction and (ii) to compel
specific performance without the need of proof of actual damages. Recipient
further agrees to waive, and to cause its Representatives to waive, any
requirement for the securing or posting of any bond in connection with such
remedies. No failure or delay by the Company in exercising any right, power or
privilege hereunder shall operate as a waiver thereof, nor shall any single or
partial exercise thereof preclude any other or further exercise hereunder.
9. Recipient acknowledges and agrees to advise its Representatives that
the Evaluation Material and the matters that are the subject of this letter
agreement constitute material, non-public information and that the United States
securities laws prohibit any person who has received such information from an
issuer from purchasing or selling securities of that issuer or from
communicating such information to any other person under circumstances in which
it is reasonably foreseeable that such person is likely to purchase or sell such
securities.
10. In consideration of being furnished the Evaluation Material and in
view of the fact that the Evaluation Material consists of confidential and
non-public information, Recipient agrees that for a period of two years from the
date of this letter agreement, and other than pursuant to the terms of a
Transaction Agreement between Recipient and the Company, Recipient and its
Representatives shall not, nor shall Recipient permit any person or entity
controlled by Recipient, directly or indirectly, without the prior written
invitation or approval of the general partner (it being understood and agreed
that the entering into of this letter agreement shall not constitute such
invitation or approval), to:
(i) Acquire or offer, seek or agree to acquire, or in any manner
advise, induce, encourage or assist any other person to acquire, directly
or indirectly, by purchase or otherwise, 2% or more of the partnership
units ("units") of the Company; or
12
(ii) Initiate, or in any manner advise, induce, encourage or assist
any other person to initiate, any tender or exchange offer for units of
the Company, any merger, business combination, change in control, sale of
assets, liquidation or other extraordinary transaction of or involving the
Company or any other transaction between Recipient or its affiliates, on
the one hand, and the Company and/or its unit holders, on the other hand,
unless such offer or transaction is approved by the general partner;
11. Recipient agrees that unless and until a Transaction Agreement between
the Company and Recipient has been executed and delivered, the Company has no
legal obligation of any kind whatsoever with respect to any transaction by
virtue of this letter agreement or otherwise except, in the case of this letter
agreement, for the matters specifically agreed to herein.
12. This letter agreement shall be binding upon Recipient's successors and
assigns and shall inure to the benefit of and be enforceable by the Company's
successors and assigns.
13. In the event that any provision of this letter agreement is determined
to be partially or wholly invalid, illegal or unenforceable, then such provision
shall be deemed to be modified or restricted to the extent necessary to make
such provision valid, binding and enforceable, or, if such provision cannot be
modified or restricted in a manner so as to make such provision valid, binding
and enforceable, then such provision shall be deemed to be excised from this
letter agreement and the validity, binding effect and enforceability of the
remaining provisions of this letter agreement shall not be affected or impaired
in any manner.
14. This letter agreement constitutes the complete agreement of the
parties and terminates and supersedes any and all prior agreements, arrangements
and understandings, oral or written, between the parties concerning the subject
matter of this letter agreement.
15. This letter agreement shall be construed (both as to validity and
performance) and enforced in accordance with, and governed by, the laws of the
State of California applicable to agreements made and to be performed wholly
within such jurisdiction, notwithstanding any choice of law principles, statutes
or rules to the contrary.
16. This letter agreement may be waived, amended or modified only by an
instrument in writing signed by the party against which such waiver, amendment
or modification is sought to be enforced, and such written instrument shall set
forth specifically the provisions of this letter agreement that are to be so
waived, amended or modified.
Please indicate your agreement with the foregoing by executing the
accompanying copy of this letter agreement and returning it to us,
whereupon it shall constitute a binding agreement as of the date first
above written.
13
Very truly yours,
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
READ, ACCEPTED AND AGREED TO:
ASPEN SQUARE MANAGEMENT, INC.
By: /s/ Jeremy Pava____________________________
Its:___Treasurer
Original sent by overnight mail
14
FACSIMILE SENT: Jul-22-2002 08:44AM FROM: Aspen Square Management
Aspen Square Management Inc.
180 Union Street, Suite 300
West Springfield Massachusetts 07088
Phone: 413-587-0772
FAX 413-786-9207
July 18, 2002 Via Facsimile and Federal Express
EXHIBIT C
Vicki Mullins
Prometheus Income Partners
350 Bridge Parkway
Redwood City, CA 94065
Dear Vicki
We appreciate your willingness to quickly provide us with any pertinent
documents and other information that we require as part of our due diligence
review regarding the partnership interests and the underlying apartment
communities. In regards to this matter, we will require the following
information:
1. Copies of all mortgages, loan documents, bond documents, regulatory
agreements. and all other documents pertaining to any current financing on each
property.
2. A.L.T.A. Survey for each property.
3. Title Insurance commitment and all documents constituting exceptions to
title.
4. Copies of outstanding third-party service contracts and other agreements
affecting the. properties, including any assignable warranties.
5. Copies of any engineering information and inspection reports, including
Phase I environmental studies and updated reports, plats, zoning ordinances and
compliance, business licenses, availability of utilities, or any other related
data.
6. Copies of the municipal, state and federal Certificates of Occupancy, or the
equivalent, issued to date for each property.
7. Copies of the original operating income, expense and capital expenditures
records for each property from 1998, 1999, 2000, 2001 and the latest available
for 2002.
-15-
8. A current rent roll for each property identifying and listing in detail
therein by tenant and by vacant area, as applicable; tenants, square footage
monthly rent, deposits, all concessions (financial and other), lease terms,
lease term extension options, defaulted tenant leases (financial or otherwise),
and tenant lease obligations of Seller, if any, and all legal matters as it
relates to the collection of rent.
9. Copies of any termite inspections, and notice of violations including but
not limited to those regarding building and fire codes.
11. Disclosure of any legal matters affecting the properties or collection, of
rents or deposits.
11. All available plans and specifications; real estate and personal property
tax statements and valuation notices, all certificates of insurance and copies
of insurance policies. and all building permits.
12. Al1 licenses and permits. liens and lawsuits.
13. Copies of all ledger cards, general ledger (year-to-date cash disbursement
journal}, year-to-date vendor files, bank statements/deposit slips, and all open
invoices.
14. Insurance loss runs, rate history, occupancy percentage by month covering
1998-2002 to date.
15. Aging of accounts receivable and current staffing schedu1e.
16. Inventory of personal property.
19. True and complete copies of all tenant lease files and amendments thereto,
as well as any other agreement incident or related thereto which affect the
obligations of Seller and the affected tenant with respect to such leases.
20. Copies of any reports. structural, legal or other in nature, relating to the
damaged siding on each property.
Vicki, we request that you provide this information to us via overnight
delivery. Once we receive all such requested information, we assume our due
diligence review will begin.
Yours truly,
/s/ Jeff Strole
Jeff Strole
-16-
PROMETHEUS INCOME PARTNERS
350 Bridge Parkway
Redwood City, CA 94065-1517
(650) 596-5393
July 19, 2002
Aspen Square Management, Inc.
380 Union Street, Suite 300
West Springfield, Massachusetts 01089
Ladies and Gentlemen:
This letter sets forth the essential terms of your proposed due diligence
review ("Diligence Review") on the basis of which we are willing to continue to
consider your possible acquisition of Prometheus Income Partners, a California
limited partnership (the "Partnership"). Our understanding of your proposal is
embodied in the following:
1. You (or an entity to be formed by you) would acquire (i) each of the
Partnership's issued and outstanding limited partnership units for $1,859 in
cash per unit and (ii) the general partner interest in the Partnership now held
by Prometheus Development Co., Inc. (the "General Partner") for $1,500,000 in
cash, in each case payable in full upon consummation of the acquisition of the
limited partner's units and general partner's interest, collectively referred to
as "Proposed Acquisition".
2. Except as expressly set forth herein, you have proposed substantively
all of the terms included in the definitive Agreement and Plan of Merger (the
"Definitive Agreement") attached hereto as Exhibit A, with the following
modifications:
(a) mutual covenants of cooperation to obtain the approval of
Proposed Acquisition by the Partnership's limited partners (including
preparation of proxy materials) and such other approvals (if any) as may
be required to complete the transaction;
(b) no closing condition in respect of financing, refinancing or
assumption of existing mortgages;
(c) mutual representations that no broker, finder's, agency or
similar fees to be paid;
(d) with your proposed contract for the Proposed Acquisition, you
shall deposit $3,000,000 into escrow with a mutually acceptable escrow
agent on mutually acceptable terms. If no Proposed Acquisition is
consummated, the $3,000,000 will be disbursed to the Partnership unless
the Proposed Acquisition was not consummated as a result of either a
breach by the Partnership or the rejection of the Proposed Acquisition by
the Partnership's limited partners, in which case it will be returned to
you; and
-17-
(e) the executed contract would be terminable by either party if the
Proposed Acquisition has not been consummated on or prior to December 31,
2002, other than as a result of a breach by such party.
3. You agree to commence at your expense your Diligence Review of the
Partnership and its properties promptly after execution of this letter. We agree
to reasonably provide to you and your representatives access to the properties,
books, records, documents, contracts and other records of the Partnership and
shall furnish you with copies of such documents and with such information with
respect to the affairs of the Partnership, as you reasonably deem necessary for
the purpose of conducting the Diligence Review. We will endeavor to make a
reasonable search to provide you with the records requested. It is agreed that
the items requested on Exhibit C [INTERPOLATED WRITTEN MATERIAL: "needs to be
attached" inserted] hereto shall be made available to you, to the extent that
they are within our possession and control, except that (i) you acknowledge that
we are unable to provide you with employee's personnel files and (ii) you and we
shall agree in good faith to limit certain of such information temporally,
including, e.g., that bank statements, etc., need only be made available for the
previous three years. Because the records you are requesting are so numerous, we
are only obligated to make reasonable efforts to assist your inspection. Upon
your designating the records you wish copied, we will send them to an outside
service at your expense. You agree that you will complete the Diligence Review
not later than August 1, 2002 (the "Diligence Cut-off Date").
PARAGRAPH AS WRITTEN BY PROMETHEUS INCOME PARTNERS
3. You agree to commence at your expense your Diligence Review of the
Partnership and its properties promptly after execution of this letter. We agree
to reasonably provide to you and your representatives access to the properties,
books, records, documents, contracts and other records of the Partnership and
shall furnish you with copies of such documents and with such information with
respect to the affairs of the Partnership, as you reasonably deem necessary for
the purpose of conducting the Diligence Review. We will endeavor to make a
reasonable search to provide you with the records requested. It is agreed that
the items requested on Exhibit C hereto shall be made available to you, to the
extent that they are within our possession and control, except that (i) you
acknowledge that we are unable to provide you with employee's personnel files
and (ii) you and we shall agree in good faith to limit certain of such
information temporally, including, e.g., that bank statements, etc., need only
be made available for the previous three years. Because the records you are
requesting are so numerous, we are only obligated to make reasonable efforts to
assist your inspection. Upon your designating the records you wish copied, we
will send them to an outside service at your expense. You agree that you will
complete the Diligence Review not later than August 1, 2002 (the "Diligence
Cut-off Date").
4. In consideration of the foregoing and of your previous representations
to us as to your ability to pay all cash pursuant to the Proposed Acquisition
with currently
-18-
available liquid funds, we agree to postpone the taking of any vote on the
currently proposed merger until after the Diligence Cut-off Date.
5. You acknowledge that (i) we will have to advise our limited partners
appropriately and from time to time regarding the matters set forth herein and
(ii) at any time prior to any written acceptance of your proposed offer (which
you agree to deliver prior to the Due Diligence Cut-off Date), the General
Partner has fiduciary duties to the Partnership and its limited partners in the
discharge of which it is obligated to consider alternatives that may be more
favorable to the limited partners. If on or prior to December 31, 2002 the
General Partner shall present and recommend to the limited partners any
transaction involving an acquisition of the limited partner units at a price in
excess of $1,859 per unit in which the acquiror, directly or indirectly, is an
affiliate of the General Partner, PIP Partners - General, LLC or PIP
Acquisition, LLC, [INTERPOLATED WRITTEN MATERIAL: "or is affiliated with or
controlled by Sanford Diller" inserted] and your proposal is not accepted, the
Partnership shall reimburse you for all reasonable out-of-pocket costs incurred
by you in conducting the Diligence Review up to an aggregate maximum amount of
[INTERPOLATED WRITTEN MATERIAL: "$50,000" inserted, "$25,000" deleted"].
6. This letter supersedes all previous correspondence, discussions,
understandings and agreements between you and us or our respective officers,
directors, agents and representatives, provided that the letter agreement
regarding confidentiality and related matters attached hereto as Exhibit B shall
remain in full force and effect (and, for the avoidance of doubt, shall apply
with respect to the information provided in the course of the Diligence Review).
-19-
Except for the express terms of paragraphs 3, 4 and 6 hereof, each of
which shall and hereby does constitute a binding agreement: it is expressly
understood that this letter is non-binding and is intended to include part of
the basic terms and conditions under which the Partnership may enter into a
formal agreement with Aspen for the Proposed Acquisition; this letter shall only
serve to form part of the basis for a possible agreement which must be agreed
upon and executed by all parties prior to having any binding effect; this
non-binding letter is not intended to be contractual in nature and neither party
shall be obligated to proceed in good faith, or by any other standard, to enter
into an agreement based upon the terms set forth above; and a binding agreement
will only exist when the agreement is executed by duly authorized
representatives from all parties. Additionally, the Partnership reserves the
right to negotiate [INTERPOLATED WRITTEN MATERIAL: "and enter into a binding
agreement" deleted] with another party until a mutually acceptable agreement is
fully executed (subject to the last sentence of paragraph 5 above.)
If the foregoing is in accordance with your understanding, please so
indicate by signing the enclosed copy of this letter in the space provided and
returning it to us on or prior to [INTERPOLATED WRITTEN MATERIAL: "12:00 P.M.,
E.D.T., July 22, 2002" inserted, "6:00 P.M., E.D.T., July 19, 2002" deleted].
Please fax a signed copy to the attention of Vicki Mullins at (650) 596-5377 and
send the original via overnight mail.
-20-
PROMETHEUS INCOME PARTNERS
By: Prometheus Development Co., Inc.,
a California corporation, its general partner
By: _/s/ Vicki Mullins_________________________
Name: Vicki Mullins
Title: Vice President
AGREED AND ACCEPTED:
ASPEN SQUARE MANAGEMENT, INC.
By: __________________________
Name:
Title:
cc: Craig Seligman
attach
-21-
FACSIMILE SENT: Jul-19-2002 05:11PM FROM: Aspen Square Management
Aspen Square Management
380 Union Street, Suite 300
West Springfield, MA 01089
(413) 781-0712
(413) 781-1277 (fax]
Fax
To: Vicki Mullins From: J. Strole
Company: Pages: 4
Fax: Date: 7/19/02
Re: cc:
CC:
[] Urgent [] For Review [] Please Comment [] Please Reply [] Please Recycle
Attached please find requested changes.
-22-
PROMETHEUS INCOME PARTNERS
350 Bridge Parkway
Redwood City, CA 94065-1517
(650) 596-5393
July 19, 2002
Aspen Square Management, Inc.
380 Union Street, Suite 300
West Springfield, Massachusetts 01089
Ladies and Gentlemen:
This letter sets forth the essential terms of your proposed due diligence
review ("Diligence Review") on the basis of which we are willing to continue to
consider your possible acquisition of Prometheus Income Partners, a California
limited partnership (the "Partnership"). Our understanding of your proposal is
embodied in the following:
1. You (or an entity to be formed by you) would acquire (i) each of the
Partnership's issued and outstanding limited partnership units for $1,859 in
cash per unit and (ii) the general partner interest in the Partnership now held
by Prometheus Development Co., Inc. (the "General Partner") for $1,500,000 in
cash, in each case payable in full upon consummation of the acquisition of the
limited partner's units and general partner's interest, collectively referred to
as "Proposed Acquisition".
2. Except as expressly set forth herein, you have proposed substantively
all of the terms included in the definitive Agreement and Plan of Merger (the
"Definitive Agreement") attached hereto as Exhibit A, with the following
modifications:
(a) mutual covenants of cooperation to obtain the approval of
Proposed Acquisition by the Partnership's limited partners (including
preparation of proxy materials) and such other approvals (if any) as may
be required to complete the transaction;
(b) no closing condition in respect of financing, refinancing or
assumption of existing mortgages;
(d) mutual representations that no broker, finder's, agency or
similar fees to be paid;
(d) with your proposed contract for the Proposed Acquisition, you
shall deposit $3,000,000 into escrow with a mutually acceptable escrow
agent on mutually acceptable terms. If no Proposed Acquisition is
consummated, the $3,000,000 will be disbursed to the Partnership unless
the Proposed Acquisition was not consummated as a result of either a
breach by the Partnership or the rejection of the Proposed Acquisition by
the Partnership's limited partners, in which case it will be returned to
you; and
-23-
(e) the executed contract would be terminable by either party if the
Proposed Acquisition has not been consummated on or prior to December 31,
2002, other than as a result of a breach by such party.
3. You agree to commence at your expense your Diligence Review of the
Partnership and its properties promptly after execution of this letter. We agree
to reasonably provide to you and your representatives access to the properties,
books, records, documents, contracts and other records of the Partnership and
shall furnish you with copies of such documents and with such information with
respect to the affairs of the Partnership, as you reasonably deem necessary for
the purpose of conducting the Diligence Review. We will endeavor to make a
reasonable search to provide you with the records requested. It is agreed that
the items requested on Exhibit C hereto shall be made available to you, to the
extent that they are within our possession and control, except that (i) you
acknowledge that we are unable to provide you with employee's personnel files
and (ii) you and we shall agree in good faith to limit certain of such
information temporally, including, e.g., that bank statements, etc., need only
be made available for the previous three years. Because the records you are
requesting are so numerous, we are only obligated to make reasonable efforts to
assist your inspection. Upon your designating the records you wish copied, we
will send them to an outside service at your expense. You agree that you will
complete the Diligence Review not later than August 1, 2002 (the "Diligence
Cut-off Date").
4. In consideration of the foregoing and of your previous representations
to us as to your ability to pay all cash pursuant to the Proposed Acquisition
with currently available liquid funds, we agree to postpone the taking of any
vote on the currently proposed merger until after the Diligence Cut-off Date.
5. You acknowledge that (i) we will have to advise our limited partners
appropriately and from time to time regarding the matters set forth herein and
(ii) at any time prior to any written acceptance of your proposed offer (which
you agree to deliver prior to the Due Diligence Cut-off Date), the General
Partner has fiduciary duties to the Partnership and its limited partners in the
discharge of which it is obligated to consider alternatives that may be more
favorable to the limited partners. If on or prior to December 31, 2002 the
General Partner shall present and recommend to the limited partners any
transaction involving an acquisition of the limited partner units at a price in
excess of $1,859 per unit in which the acquiror, directly or indirectly, is an
affiliate of the General Partner, PIP Partners - General, LLC or PIP
Acquisition, LLC, and your proposal is not accepted, the Partnership shall
reimburse you for all reasonable out-of-pocket costs incurred by you in
conducting the Diligence Review up to an aggregate maximum amount of $25,000.
6. This letter supersedes all previous correspondence, discussions,
understandings and agreements between you and us or our respective officers,
directors, agents and representatives, provided that the letter agreement
regarding confidentiality and related matters attached hereto as Exhibit B shall
remain in full force and effect (and, for the avoidance of doubt, shall apply
with respect to the information provided in the course of the Diligence Review).
Except for the express terms of paragraphs 3, 4 and 6 hereof, each of
which shall and hereby does constitute a binding agreement: it is expressly
understood that this letter
-24-
is non-binding and is intended to include part of the basic terms and conditions
under which the Partnership may enter into a formal agreement with Aspen for the
Proposed Acquisition; this letter shall only serve to form part of the basis for
a possible agreement which must be agreed upon and executed by all parties prior
to having any binding effect; this non-binding letter is not intended to be
contractual in nature and neither party shall be obligated to proceed in good
faith, or by any other standard, to enter into an agreement based upon the terms
set forth above; and a binding agreement will only exist when the agreement is
executed by duly authorized representatives from all parties. Additionally, the
Partnership reserves the right to negotiate and enter into a binding agreement
with another party until a mutually acceptable agreement is fully executed
(subject to the last sentence of paragraph 5 above.)
If the foregoing is in accordance with your understanding, please so
indicate by signing the enclosed copy of this letter in the space provided and
returning it to us on or prior to 6:00 P.M., E.D.T., July 19, 2002. Please fax a
signed copy to the attention of Vicki Mullins at (650) 596-5377 and send the
original via overnight mail.
PROMETHEUS INCOME PARTNERS
By: Prometheus Development Co., Inc.,
a California corporation, its general partner
By: _/s/ Vicki Mullins________
Name: Vicki Mullins
Title: Vice President
AGREED AND ACCEPTED:
ASPEN SQUARE MANAGEMENT, INC.
By: __________________________
Name:
Title:
cc: Craig Seligman
attach
-25-
PROMETHEUS INCOME PARTNERS
350 Bridge Parkway
Redwood City, CA 94065-1517
(650) 596-5393
July 18, 2002
Aspen Square Management, Inc,
380 Union Street, Suite 300
West Springfield, Massachusetts 01089
Ladies and Gentlemen:
This letter sets forth the essential terms of your proposed due diligence
review ("Diligence Review") on the basis of which we are willing to continue to
consider your possible acquisition of Prometheus Income Partners, a California
limited partnership (the "Partnership"). Our understanding of your proposal is
embodied in the following:
1. You (or an entity to be formed by you) would acquire (i) each of the
Partnership's issued and outstanding limited partnership units for $1,859 in
cash per unit and (ii) the general partner interest in the Partnership now held
by Prometheus Development Co., Inc. (the "General Partner") for $1,500,000 in
cash, in each case payable in full upon consummation of the acquisition of the
limited Partner's units and General Partner's interest, collectively referred to
as "Proposed Acquisition".
2. Except as expressly set forth herein, you have proposed substantively
all of the terms included in the definitive Agreement and Plan of Merger (the
"Definitive Agreement") attached hereto as Exhibit A, with the following
modifications:
(a) indemnification of the existing General Partner for operation of
the Partnership from and after the closing. Without limiting any
indemnifications in the Partnership Agreement, with regard to any matters
arising out of or relating to the construction defects which were the
subject of the prior litigation against Weyerhaeuser et. al., the
indemnity shall extend to pre-closing demands and claims;
(b) mutual covenants of cooperation to obtain the approval of
Proposed Acquisition by the Partnership's limited partners (including
preparation of proxy materials) and such other approvals (if any) as may
be required to complete the transaction;
(c) no closing condition in respect of financing, refinancing or
assumption of existing mortgages;
(d) mutual representations that no broker, finder's, agency or
similar fees to be paid;
-26-
(e) with your proposed contract for the Proposed Acquisition, you
shall include a check for $3,000,000 payable to the Partnership. The check
will be cashed by the Partnership upon execution of a binding contract by
the Partnership. The $3,000,000 will be non-refundable to you unless the
Proposed Acquisition was not consummated as a result of either a breach by
the Partnership or the rejection of the Proposed Acquisition by the
Partnership's limited partners; and
(f) the executed contract would be terminable by either party if the
Proposed Acquisition has not been consummated on or prior to December 31,
2002, other than as a result of a breach by such party.
3. You agree to commence, at your expense, your Diligence Review of the
Partnership and its properties promptly after execution of this letter. We agree
to reasonably provide to you and your representatives access to the properties,
books, records, documents, contracts and other records of the Partnership and
shall furnish you with copies of such documents and with such information with
respect to the affairs of the Partnership as is reasonably deemed necessary for
the purpose of conducting the Diligence Review. Upon your designating the
records you wish copied, we will send them to an outside service at your
expense. You agree that you will complete the Diligence Review not later than
August 1, 2002 (the "Diligence Cut-off Date").
4. In consideration of the foregoing and of your previous representations
to us as to your ability to pay all cash pursuant to the Proposed Acquisition
with currently available liquid funds, we agree to postpone the taking of any
vote on the currently proposed merger until after the Diligence Cut-off Date.
5. You acknowledge that (i) we will have to advise our limited partners
appropriately and from time to time regarding the matters set forth herein and
(ii) at any time prior to any written acceptance of your proposed offer (which
you agree to deliver prior to the Diligence Cut-off Date), the General Partner
has fiduciary duties to the Partnership and its limited partners in the
discharge of which it is obligated to consider alternatives that may be more
favorable to the limited partners.
6. This letter supersedes all previous correspondence, discussions,
understandings and agreements between you and us or our respective officers,
directors, agents and representatives, provided that the letter agreement
regarding confidentiality and related matters attached hereto as Exhibit B shall
remain in full force and effect (and, for the avoidance of doubt, shall apply
with respect to the information provided in the course of the Diligence Review).
Except for the express terms of paragraphs 3, 4 and 6 hereof, each of
which shall and hereby does constitute a binding agreement: it is expressly
understood that this letter is non-binding and is intended to include part of
the basic terms and conditions under which the Partnership may enter into a
formal agreement with Aspen for the Proposed Acquisition; this letter shall only
serve to form part of the basis for a possible agreement which must be agreed
upon and executed by all parties prior to having any binding effect; this
non-binding letter is not intended to be contractual in nature and neither party
shall be obligated to proceed in good faith, or by any other standard, to enter
into an agreement based upon the terms set forth above; and a binding agreement
will only exist when the agreement is executed by duly authorized
representatives from all parties. Additionally,
-27-
the Partnership reserves the right to negotiate and enter into a binding
agreement with another party until a mutually acceptable agreement is fully
executed.
If the foregoing is in accordance with your understanding, please so
indicate by signing the enclosed copy of this letter in the space provided and
returning it us on or prior to 12:00 P.M., E.D.T., July 19, 2002.
PROMETHEUS INCOME PARTNERS, a California limited
partnership
By: Prometheus Development Co., Inc.,
a California corporation, its general
partner
By: _/s/ Vicki R. Mullins_____
Name: Vicki R. Mullins
Title: Vice President
AGREED AND ACCEPTED:
ASPEN SQUARE MANAGEMENT, INC.
By: __________________________
Name:
Title:
-28-
Entry and Indemnity Agreement ("Agreement")
In conjunction with the completion of your property due diligence this is to
confirm our understanding of the conditions of your inspections.
Prometheus Income Partners, a California limited partnership, owns the following
properties: Alderwood Apartments located at 900 Pepper Tree Lane, Santa Clara,
California. Timberleaf Apartments located at 2147 Newhall Street, Santa Clara,
California, collectively referred to as "Properties".
In connection with any entry by Aspen Square Management, Inc., ("Aspen") or its
agents, affiliates, employees or contractors onto the Properties, Aspen shall
give Prometheus Income Partners (PIP) reasonable advance notice of such entry
and shall conduct such entry and any inspections in connection therewith so as
to minimize, to the greatest extent possible, interference with PIP's business
and the business of tenants and otherwise in a manner reasonably acceptable to
PIP. Without limiting the foregoing, prior to any entry to perform any on-site
testing, Aspen shall give PIP notice thereof, including the identity of the
company or persons who will perform such testing and the proposed scope of the
testing. In the event that Aspen proposes to perform any destructive or invasive
testing, PIP shall approve or disapprove, in its sole discretion, the proposed
destructive or invasive testing within two (2) business days after receipt of
such notice. PIP's failure to provide such notice shall be deemed disapproval.
If Aspen or its agents, affiliates, employees or contractors take any sample
from the Properties in connection with any such approved testing, at PIP's
request, Aspen shall provide to PIP a portion of such sample being tested to
allow PIP, if it so chooses, to perform its own testing. PIP or its
representative must be present to observe any testing or other inspection
performed on the Properties. Upon PIP's request, Aspen shall promptly deliver to
PIP copies of any reports relating to any testing or other inspection of the
Properties performed by Aspen or its agents, employees or contractors. Aspen
shall maintain, and shall assure that its contractors maintain, public liability
and property damage insurance in amounts and in form and substance acceptable to
PIP, to insure against all liability of Aspen and its agents, affiliates,
employees or contractors, arising out of any entry or inspections of the
Properties pursuant to the provisions hereof, and Aspen shall provide PIP with
evidence of such insurance coverage prior to entry to the Properties. Prometheus
Income Partners, Prometheus Development Co., Inc. and Prometheus Real Estate
Group, Inc. shall be named as an additional insured on such policy. Aspen shall
indemnify, defend with counsel acceptable to PIP, and hold PIP, Prometheus
Development Co., Inc. (PIP general partner), Prometheus Real Estate Group, Inc.
(property management company), its officers, directors, partners, agents,
affiliates, and employees harmless from and against any claim, damage, injury,
demand, cost, loss, liability, expense, penalty, fee, cause of action,
settlement, proceeding (whether civil, criminal, administrative or
investigative), including attorneys' fees, expert witness fees, court costs,
judgments, fines and amounts paid in settlement arising out of or in any way
connected with or relating to any entry on the Properties by Aspen, its agents,
affiliates, employees or contractors in the course of performing the
inspections, testings or inquiries
-29-
provided for in this Agreement. The foregoing indemnity shall survive beyond the
completion of the due diligence period.
If the foregoing meets with your understanding, please countersign a copy of
this letter and return it to me.
PROMETHEUS INCOME PARTNERS, a California limited partnership
By: PROMETHEUS DEVELOPMENT CO., INC., a
California corporation, its general partner
By: /s/ Vicki Mullins
--------------------------------------
Vicki Mullins, Vice President
The foregoing is agreed to:
- -----------------------------------------------
Harold Grinspoon
-30-
- ------------------------------------------------------------------------------------------------ ------------------
CERTIFICATE OF INSURANCE DATE(MM/DD/YY)
Issue Date
- ------------------------------------------------------------------------------------------------
PRODUCER THIS CERTIFICATE IS ISSUED AS A MATTER OF INFORMATION ONLY AND
CONFERS NO RIGHTS UPON THE CERTIFICATE HOLDER. THIS
CERTIFICATE DOES NOT AMEND, EXTEND OR ALTER THE COVERAGE
AFFORDED BY THE POLICIES BELOW.
--------------------------------------------------------------
Vendor's Insurance Agent COMPANIES AFFORDING COVERAGE
Street Address --------------------------------------------------------------
City, State, Zip COMPANY ABC Insurance Company
Phone Number A
- ---------------------------------------------------- ---------- ---------------------------------------------------
INSURED COMPANY DEF Insurance Company
B
---------- ---------------------------------------------------
COMPANY GHI Insurance Company
Vendor Name C
Street Address ---------- ---------------------------------------------------
City, State, Zip COMPANY
D
- ---------------------------------------------------- ---------- ---------------------------------------------------
COVERAGES
THIS IS TO CERTIFY THAT THE POLICIES OF INSURANCE LISTED BELOW HAVE BEEN ISSUED TO THE INSURED NAMED ABOVE FOR THE
POLICY PERIOD INDICATED. NOTWITHSTANDING ANY REQUIREMENT, TERM OR CONDITION OF ANY CONTRACT OR OTHER DOCUMENT WITH
REPSECT TO WHICH THIS CERTIFICATE MAY BE ISSUED OR MAY PERTAIN, THE INSURANCE AFFORDED BY THE POICIES DESCRIBED
HEREIN IS SUBJECT TO ALL THE TERMS, EXCLUSIONS AND CONDITIONS OF SUCH POLICIES. LIMITS SHOWN MAY HAVE BEEN REDUCED
BY PAID CLAIMS.
- -------------------------------------------------------------------------------------------------------------------
CO TYPE OF INSURANCE POLICY NUMBER POLICY POLICY LIMITS
EFFECTIVE EXPIRATION
LTR DATE DATE
(MM/DD/YY) (MM/DD/YY)
- ------ --------------------------- ------------------ ------------- -------------- ------------------ -------------
A GENERAL LIABILITY XXX123 01/01/00 01/01/01 GENERAL AGGREGATE 2,000,000
- ------ --- ------------------ ------------- -------------- ------------------ -------------
X COMMERCIAL GENERAL PRODUCTS-COMP/OP 1,000,000
LIABILITY AGG
- ------ --- --- --- ------------------ ------------- -------------- ------------------ -------------
CLAIMS OCCUR PERSONAL & ADV 1,000,000
MADE INJURY
- ------ --- --- --- ------------------ ------------- -------------- ------------------ -------------
OWNER'S & EACH OCCURRENCE 1,000,000
CONTRACTOR'S PROT
- ------ --- ------------------ ------------- -------------- ------------------ -------------
FIRE DAMAGE (Any 50,000
one fire)
- ------ --- ----------------------- ------------------ ------------- -------------- ------------------ -------------
MED EXP (Any 5,000
one person)
- ------ --------------------------- ------------------ ------------- -------------- ------------------ -------------
B XXX456 01/01/00 01/01/01 COMBINED SINGLE 1,000,000
AUTOMOBILE LIABILITY LIMIT
- ------ --- ------------------ ------------- --------------
ANY AUTO
- ------ --- ------------------ ------------- -------------- ------------------ -------------
ALL OWNED AUTOS BODILY INJURY
- ------ --- ------------------ ------------- -------------- (Per person)
SCHEDULED AUTOS
- ------ --- ------------------ ------------- -------------- ------------------ -------------
HIRED AUTOS BODILY INJURY
- ------ --- ------------------ ------------- -------------- (Per accident)
NON-OWNED AUTOS
- ------ --- ------------------ ------------- -------------- ------------------ -------------
PROPERTY DAMAGE
- ------ --- ----------------------- ------------------ ------------- -------------- ------------------ -------------
AUTO ONLY-EA
GARAGE LIABILITY ACCIDENT
- ------ --- ------------------ ------------- -------------- ------------------ -------------
ANY AUTO OTHER THAN AUTO
ONLY:
- ------ --- ------------------ ------------- -------------- ------------------ -------------
EACH ACCIDENT
- ------ --------------------------- ------------------ ------------- -------------- ------------------ -------------
AGGREGATE
- ------ --------------------------- ------------------ ------------- -------------- ------------------ -------------
EACH OCCURRENCE
EXCESS LIABILITY
- ------ --- ------------------ ------------- -------------- ------------------ -------------
UMBRELLA FORM AGGREGATE
- ------ --- ------------------ ------------- -------------- ------------------ -------------
OTHER THAN UMBRELLA
FORM
- ------ --- ----------------------- ------------------ ------------- -------------- ------------------ -------------
C XXX789 01/01/00 01/01/01 X STATUTORY
WORKERS' COMPENSATION AND LIMITS
EMPLOYER'S LIABILITY
- ------ ------------------ ------------- -------------- ---- ------------- -------------
EACH ACCIDENT 500,000
-31-
- ------ ---- ------------------ ------------- -------------- ------------------ -------------
THE INCL DISEASE-POLICY 500,000
PROPRIETOR/ LIMIT
PARTNERS/ ---- ------------------ -------------
EXECUTIVE EXCL DISEASE-EACH 500,000
OFFICERS ARE: EMPLOYEE
- ------ --------------- ---- ------------------ ------------- -------------- ------------------ -------------
OTHER
- ------ --------------------------- ------------------ ------------- -------------- --------------------------------
DESCRIPTION OF OPERATIONS/LOCATIONS/VEHICLES/SPECIAL ITEMS
Prometheus Real Estate Group, Inc., a California corporation, Prometheus Income Partners, a California limited
partnership, and Prometheus Development Co., Inc., a California corporation are named as additional insureds with
respect to above general liability and auto coverages.
Re: Insured's work/services provided at Alderwood Apartments, 900 Pepper Tree Lane, Santa Clara, CA
- -------------------------------------------------------------------------------------------------------------------
CERTIFICATE HOLDER CANCELLATION
Prometheus Real Estate Group, Inc., SHOULD ANY OF THE ABOVE DESCRIBED POLICIES BE CANCELED
Prometheus Income Partners, and Prometheus Development BEFORE THE EXPIRATION DATE THEREOF, THE ISSUING COMPANY
Co., Inc. WILL [ENDEAVOR TO]* MAIL 30 DAYS WRITTEN NOTICE TO THE
900 Pepper Tree Lane CERTIFICATE HOLDER NAMED TO THE LEFT, [BUT FAILURE TO
Santa Clara, CA 95051 MAIL SUCH NOTICE SHALL IMPOSE NO OBLIGATION OR LIABILITY
OF ANY KIND UPON THE COMPANY, ITS AGENTS OR
REPRESENTATIVES.]*
---------------------------------------------------------
AUTHORIZED REPRESENTATIVE
Signature of Insured's Agent
ACORD 25-S (3/93) ACORD CORPORATION 1993
- --------------------------------------------------------- ---------------------------------------------------------
* Deleted in the original
-32-
- ------------------------------------------------------------------------------------------------ ------------------
CERTIFICATE OF INSURANCE DATE(MM/DD/YY)
Issue Date
- ------------------------------------------------------------------------------------------------
PRODUCER THIS CERTIFICATE IS ISSUED AS A MATTER OF INFORMATION ONLY AND
CONFERS NO RIGHTS UPON THE CERTIFICATE HOLDER. THIS
CERTIFICATE DOES NOT AMEND, EXTEND OR ALTER THE COVERAGE
AFFORDED BY THE POLICIES BELOW.
--------------------------------------------------------------
Vendor's Insurance Agent COMPANIES AFFORDING COVERAGE
Street Address --------------------------------------------------------------
City, State, Zip COMPANY ABC Insurance Company
Phone Number A
- ---------------------------------------------------- ---------- ---------------------------------------------------
INSURED COMPANY DEF Insurance Company
B
---------- ---------------------------------------------------
COMPANY GHI Insurance Company
Vendor Name C
Street Address ---------- ---------------------------------------------------
City, State, Zip COMPANY
D
- ---------------------------------------------------- ---------- ---------------------------------------------------
COVERAGES
THIS IS TO CERTIFY THAT THE POLICIES OF INSURANCE LISTED BELOW HAVE BEEN ISSUED TO THE INSURED NAMED ABOVE FOR THE
POLICY PERIOD INDICATED. NOTWITHSTANDING ANY REQUIREMENT, TERM OR CONDITION OF ANY CONTRACT OR OTHER DOCUMENT WITH
REPSECT TO WHICH THIS CERTIFICATE MAY BE ISSUED OR MAY PERTAIN, THE INSURANCE AFFORDED BY THE POICIES DESCRIBED
HEREIN IS SUBJECT TO ALL THE TERMS, EXCLUSIONS AND CONDITIONS OF SUCH POLICIES. LIMITS SHOWN MAY HAVE BEEN REDUCED
BY PAID CLAIMS.
- -------------------------------------------------------------------------------------------------------------------
CO TYPE OF INSURANCE POLICY NUMBER POLICY POLICY LIMITS
EFFECTIVE EXPIRATION
LTR DATE DATE
(MM/DD/YY) (MM/DD/YY)
- ------ --------------------------- ------------------ ------------- -------------- ------------------ -------------
A GENERAL LIABILITY XXX123 01/01/00 01/01/01 GENERAL AGGREGATE 2,000,000
- ------ --- ------------------ ------------- -------------- ------------------ -------------
X COMMERCIAL GENERAL PRODUCTS-COMP/OP 1,000,000
LIABILITY AGG
- ------ --- --- --- ------------------ ------------- -------------- ------------------ -------------
CLAIMS OCCUR PERSONAL & ADV 1,000,000
MADE INJURY
- ------ --- --- --- ------------------ ------------- -------------- ------------------ -------------
OWNER'S & EACH OCCURRENCE 1,000,000
CONTRACTOR'S PROT
- ------ --- ------------------ ------------- -------------- ------------------ -------------
FIRE DAMAGE (Any 50,000
one fire)
- ------ --- ----------------------- ------------------ ------------- -------------- ------------------ -------------
MED EXP (Any 5,000
one person)
- ------ --------------------------- ------------------ ------------- -------------- ------------------ -------------
B XXX456 01/01/00 01/01/01 COMBINED SINGLE 1,000,000
AUTOMOBILE LIABILITY LIMIT
- ------ --- ------------------ ------------- --------------
ANY AUTO
- ------ --- ------------------ ------------- -------------- ------------------ -------------
ALL OWNED AUTOS BODILY INJURY
- ------ --- ------------------ ------------- -------------- (Per person)
SCHEDULED AUTOS
- ------ --- ------------------ ------------- -------------- ------------------ -------------
HIRED AUTOS BODILY INJURY
- ------ --- ------------------ ------------- -------------- (Per accident)
NON-OWNED AUTOS
- ------ --- ------------------ ------------- -------------- ------------------ -------------
PROPERTY DAMAGE
- ------ --- ----------------------- ------------------ ------------- -------------- ------------------ -------------
AUTO ONLY-EA
GARAGE LIABILITY ACCIDENT
- ------ --- ------------------ ------------- -------------- ------------------ -------------
ANY AUTO OTHER THAN AUTO
ONLY:
- ------ --- ------------------ ------------- -------------- ------------------ -------------
EACH ACCIDENT
- ------ --------------------------- ------------------ ------------- -------------- ------------------ -------------
AGGREGATE
- ------ --------------------------- ------------------ ------------- -------------- ------------------ -------------
EACH OCCURRENCE
EXCESS LIABILITY
- ------ --- ------------------ ------------- -------------- ------------------ -------------
UMBRELLA FORM AGGREGATE
- ------ --- ------------------ ------------- -------------- ------------------ -------------
OTHER THAN UMBRELLA
FORM
- ------ --- ----------------------- ------------------ ------------- -------------- ------------------ -------------
C XXX789 01/01/00 01/01/01 X STATUTORY
WORKERS' COMPENSATION AND LIMITS
EMPLOYER'S LIABILITY
-33-
- ------ ------------------ ------------- -------------- ---- ------------- -------------
EACH ACCIDENT 500,000
- ------ ---- ------------------ ------------- -------------- ------------------ -------------
THE INCL DISEASE-POLICY 500,000
PROPRIETOR/ LIMIT
PARTNERS/ ---- ------------------ -------------
EXECUTIVE EXCL DISEASE-EACH 500,000
OFFICERS ARE: EMPLOYEE
- ------ --------------- ---- ------------------ ------------- -------------- ------------------ -------------
OTHER
- ------ --------------------------- ------------------ ------------- -------------- --------------------------------
DESCRIPTION OF OPERATIONS/LOCATIONS/VEHICLES/SPECIAL ITEMS
Prometheus Real Estate Group, Inc., a California corporation, Prometheus Income Partners, a California limited
partnership, and Prometheus Development Co., Inc., a California corporation are named as additional insureds with
respect to above general liability and auto coverages.
Re: Insured's work/services provided at Timberleaf Apartments, 2l47 Newhall Street, Santa Clara, CA
- -------------------------------------------------------------------------------------------------------------------
CERTIFICATE HOLDER CANCELLATION
Prometheus Real Estate Group, Inc., SHOULD ANY OF THE ABOVE DESCRIBED POLICIES BE CANCELED
Prometheus Income Partners, and Prometheus BEFORE THE EXPIRATION DATE THEREOF, THE ISSUING COMPANY
Development Co., Inc. WILL [ENDEAVOR TO]* MAIL 30 DAYS WRITTEN NOTICE TO THE
2l47 Newhall Street CERTIFICATE HOLDER NAMED TO THE LEFT, [BUT FAILURE TO
Santa Clara, CA 95050 MAIL SUCH NOTICE SHALL IMPOSE NO OBLIGATION OR LIABILITY
OF ANY KIND UPON THE COMPANY, ITS AGENTS OR
REPRESENTATIVES.]*
---------------------------------------------------------
AUTHORIZED REPRESENTATIVE
Signature of Insured's Agent
ACORD 25-S (3/93) ACORD CORPORATION 1993
- --------------------------------------------------------- ---------------------------------------------------------
* Deleted in the original