OFFER TO PURCHASE FOR CASH
940 Original Units of
Limited Partnership Interests in
Income Growth Partners, Ltd. X
by
EVEREST MANAGEMENT, LLC
at a Cash Purchase Price of
$1,000 per Original Unit
THE OFFER, WITHDRAWAL RIGHTS AND PRORATION PERIOD WILL EXPIRE AT 5:00 P.M., LOS
ANGELES TIME, ON FRIDAY, OCTOBER 3, 2003, UNLESS THE OFFER IS EXTENDED.
Everest Management, LLC ("Everest" or the "Purchaser"), a California
limited liability company, is offering to purchase up to 940 Original Units of
Income Growth Partners, Ltd. X (the "Partnership"), at a cash purchase price of
$1,000 per Original Unit, without interest, less the amount of the Distributions
(as defined below) per Unit, if any, made to the Unit Holders by the Partnership
after the date of this Offer, and less any transfer fees imposed by the
Partnership for each transfer, which the Partnership advises us are $40 per
transfer (regardless of the number of units transferred). The Offer (as defined
below) is subject to certain terms and conditions set forth in this Offer to
Purchase, as it may be supplemented from time to time (the "Offer to Purchase")
and in the related Agreement of Transfer and Letter of Transmittal, as it may be
supplemented or amended from time to time (the "Letter of Transmittal," which
together with the Offer to Purchase, constitutes the "Offer"). This Offer is not
subject to brokerage commissions and is not conditioned upon financing.
The enclosed Letter of Transmittal may be used to tender Units for the
Offer. Please read all Offer materials completely before completing and
returning the Letter of Transmittal (yellow form).
------------------
For More Information or for Further Assistance,
Please Call or Contact the Purchaser at:
Everest Properties II, LLC
(Manager)
155 North Lake Avenue
Suite 1000
Pasadena, California 91101
(626) 585-5920
(800) 611-4613 (toll free)
September 4, 2003
TABLE OF CONTENTS
Page
INTRODUCTION...................................................................1
SUMMARY OF THE OFFER...........................................................1
DETAILS OF THE OFFER...........................................................2
1. Terms of the Offer; Expiration Date; Proration.....................2
2. Acceptance for Payment and Payment of Purchase Price...............3
3. Procedure to Accept the Offer......................................4
4. Determination of Validity; Rejection of Units; Waiver of Defects;
No Obligation to Give Notice of Defects............................4
5. Withdrawal Rights..................................................5
6. Extension of Tender Period; Termination; Amendment.................5
7. Conditions of the Offer............................................6
8. Backup Federal Income Tax Withholding..............................7
9. FIRPTA Withholding.................................................7
CERTAIN INFORMATION CONCERNING THE PARTNERSHIP.................................7
General.................................................................8
Outstanding Units.......................................................8
Trading History of the Units............................................8
Selected Financial and Property Related Data............................8
DETERMINATION OF OFFER PRICE...................................................8
CERTAIN INFORMATION CONCERNING THE PURCHASER...................................9
The Purchaser...........................................................9
General.................................................................9
Prior Acquisitions of Units and Prior Contacts.........................10
Source of Funds........................................................10
FUTURE PLANS OF THE PURCHASER.................................................11
EFFECTS OF THE OFFER..........................................................11
Future Benefits of Unit Ownership......................................11
Limitations on Resales.................................................11
Influence on Voting Decisions by the Purchaser.........................11
CERTAIN FEDERAL INCOME TAX MATTERS............................................12
CERTAIN LEGAL MATTERS.........................................................13
General................................................................13
State Takeover Statutes................................................14
Fees and Expenses......................................................14
Miscellaneous..........................................................14
i
INTRODUCTION
The Purchaser hereby offers to purchase up to 940 Original Units of limited
partnership interests ("Original Unit(s)" or "Unit(s)") in the Partnership at a
cash purchase price of $1,000 per Original Unit, without interest, less the
amount of Distributions (defined below) per Unit, if any, made to Unit Holders
by the Partnership after the date of this Offer, and less any transfer fees
imposed by the Partnership for each transfer, which the Partnership advises us
are $40 per transfer (regardless of the number of units transferred).
SUMMARY OF THE OFFER.
The purpose of the Offer is for the Purchaser to acquire a substantial
equity interest in the Partnership for investment purposes.
In considering the Offer, Unit Holders are urged to consider the following:
o The price offered for the Original Units is $1,000 in CASH, less any
Distributions made after the date of this Offer and any transfer fees
($40/transfer) imposed by the Partnership. See "Details of the Offer -
Acceptance for Payment and Payment of Purchase Price."
o $1,000 per Original Unit equals the original investment amount for the
Original Units. Unit Holders who invested in the Partnership when it
was organized in 1988 are finally able to recover the full amount of
their investment in such units.
o $1,000 per Original Unit exceeds the General Partner's estimate of the
net proceeds that would be distributed if the Partnership's properties
were sold for the price at which the General Partner recently
considered listing them: $50 Million. In a filing with the SEC on July
14, 2003, the General Partner stated that it might list the properties
for a combined price of $50 Million and that the net proceeds to Unit
Holders from a sale at that list price was estimated at $979.63 per
Original Unit, although there were no assurances that the properties
could be sold for that much. See "Determination of Offer Price."
o The Offer price exceeds by $150 per Unit the highest prior offer for
Original Units of which Purchaser is aware, made April 17, 2003, based
on the offers that Purchaser has received as an existing limited
partner in the Partnership and a review of public SEC filings.
o No distributions can be made on the Original Units until approximately
$3.9 Million ($478 per unit) more is distributed on the Class A Units,
which would take about 4 years at the current rate of distributions
made on the Class A Units. No distributions have ever been made on the
Original Units. See "Appendix A - Dividends."
o Although the Partnership's properties have finally been listed by the
General Partner, after almost six months from when the General Partner
told Purchaser it was listing them in March 2003, it may take a long
time to complete a sale of the properties or a sale may not occur at
all. The General Partner recently told Purchaser that a listing
agreement has been signed and that the properties are being listed for
a combined asking price of $62.9 Million. See "Certain Information
Concerning the Purchaser - Prior Acquisitions of Units and Prior
Contacts."
o Even if the properties were sold promptly, no proceeds would be
distributed before 2004 and the Partnership would not be completely
liquidated before 2005, according to the General Partner's recent
statements to Purchaser. See "Certain Information Concerning the
Purchaser - Prior Acquisitions of Units and Prior Contacts."
o The Purchaser is not affiliated with the Partnership or its sole
general partner, Income Growth Management, Inc. ("General Partner").
The General Partner may be expected to communicate its position on the
Offer in the next two weeks.
o The Offer allows Unit Holders to dispose of their Original Units
without incurring the sales commissions (typically up to 8% with a
minimum of $150-$200) associated with sales arranged through brokers
or other intermediaries. See "Certain Information Concerning the
Partnership - Trading History of the Units."
o The Purchaser is making the Offer with a view to making a profit for
itself. Accordingly, the desire of the Purchaser to purchase Original
Units at a low price conflicts with the desire of the Unit Holders to
sell their Original Units at a high price.
o The Offer is an immediate opportunity for Unit Holders to liquidate
their investment in the Partnership, but Unit Holders who tender their
Original Units will be giving up the opportunity to participate in any
potential future benefits from ownership of Original Units, including
distributions resulting from any future sale of the Partnership's
properties. Unit Holders may have a more immediate need to use the
cash now tied up in the Units, and may consider the Offer more certain
to achieve a prompt liquidation of their investment in the Units. Unit
Holders who sell all of their Units will also eliminate the need to
file Form K-1 information for the Partnership with their federal tax
returns for years after 2003. See "Details of the Offer - Acceptance
for Payment and Payment of Purchase Price."
o The Offer allows Unit Holders the option to sell "All or None" of
their Original Units, thereby allowing Unit Holders the option to
avoid proration if more than 940 Units are tendered. See "Details of
the Offer - Terms of the Offer; Expiration Date; Proration" and "-
Acceptance for Payment and Payment of Purchase Price."
Each Unit Holder must make his own decision, based on the Unit Holder's
particular circumstances, whether to tender Units. Unit Holders should consult
with their respective advisors about the financial, tax, legal and other
implications of accepting the Offer.
The above statements are intended only as a brief overview of the principal
terms and considerations regarding the Offer. The entire Offer to Purchase,
which follows, provides substantially greater detail about the Offer, and all of
the statements above are qualified by the entire Offer to Purchase. You should
read it completely and carefully before deciding whether or not to tender your
Units. The Offer is subject to certain terms and conditions set forth in this
Offer to Purchase, and in the related Agreement of Transfer and Letter of
Transmittal, that are not summarized above.
DETAILS OF THE OFFER
1. Terms of the Offer; Expiration Date; Proration. On the terms and subject
to the conditions of the Offer, the Purchaser will accept and purchase up to 940
validly tendered, and not withdrawn, Original Units in accordance with the
procedures set forth in this Offer to Purchase ("Properly Tendered"). For
purposes of the Offer, the term "Expiration Date" means 5:00 p.m., Los Angeles
time, on Friday, October 3, 2003, unless the Purchaser extends the period of
time during which the Offer is open, in which event the term "Expiration Date"
shall mean the latest time and date to which the Offer is extended by the
Purchaser.
If, prior to the Expiration Date, the Purchaser increases the price offered
to the Unit Holders pursuant to the Offer, the increased price will be paid for
all Units accepted for payment pursuant to the Offer, whether or not the Units
were tendered prior to the increase in consideration.
If more than 940 Original Units are Properly Tendered (or if the number of
Original Units that are Properly Tendered exceeds applicable limitations on
resales) the Purchaser will, upon the terms and subject to the conditions of the
Offer, accept for payment and pay for an aggregate of 940 Original Units (or, if
less, the maximum number of such Units that can be transferred without exceeding
applicable limitations on resales), pro rata, according to the number of Units
that are Properly Tendered by each Unit Holder, with appropriate adjustments to
avoid purchases of fractional Units. Subject to its obligation to pay for Units
promptly after the Expiration Date, the Purchaser intends to pay for any Units
accepted for payment pursuant to the Offer after determining the final proration
or other adjustments. If the number of Units that are Properly Tendered is less
than or equal to 940 Original Units (or, if less, the maximum number of such
Units which can be transferred without exceeding applicable limitations on
resales), the Purchaser will purchase all Units that are Properly Tendered, upon
the terms and subject to the conditions of the Offer. See "Effects of the Offer
- - Limitations on Resales."
Unit Holders may indicate, by checking a box on the Letter of Transmittal
(the "All or None Box"), that they only wish to sell their Units if they will be
able to sell all of their Units, without any proration. If on the Expiration
Date more than 940 Units have been Properly Tendered, unless the Purchaser
amends the Offer to increase the number of Units to be purchased, the Purchaser
will not accept for payment any Units from Unit Holders that checked the All or
None Box. If more than 940 Units have been Properly Tendered without checking
the All or None Box, then the above description of proration will apply only to
tenders of such Units that do not have the All or None Box checked.
If prior to the Expiration Date any or all of the conditions of the Offer
have not been satisfied, or waived by the Purchaser, the Purchaser reserves the
right to: (i) decline to purchase any of the Units tendered, terminate the Offer
and return all tendered Units, (ii) waive the unsatisfied conditions and,
subject to complying with applicable rules and regulations of the Securities and
Exchange Commission (the "Commission"), purchase all Units that are Properly
Tendered, (iii) extend the Offer and, subject to the right of Unit Holders to
withdraw Units until the Expiration Date, retain previously tendered Units for
the period or periods for which the Offer is extended, and (iv) amend the Offer.
2. Acceptance for Payment and Payment of Purchase Price. On the terms and
subject to the conditions of the Offer, the Purchaser will purchase and will pay
for up to 940 Properly Tendered Original Units, promptly following the
Expiration Date. In all cases, payment for Units purchased pursuant to the Offer
will be made only after timely receipt by the Purchaser of: (i) a properly
completed and duly executed and acknowledged Letter of Transmittal, (ii) any
other documents required in accordance with the Letter of Transmittal, and (iii)
written confirmation from the Partnership of the transfer of the Units to the
Purchaser.
Any Distributions made or declared on or after the date of this Offer
would, by the terms of the Offer and as set forth in the Letter of Transmittal,
be assigned by tendering Unit Holders to the Purchaser and deducted from your
proceeds. Also, the transfer fees charged by the Partnership will be deducted
from your proceeds, which the Partnership advises us is $40 per transfer
(regardless of the number of Units transferred). UNDER NO CIRCUMSTANCE WILL
INTEREST ON THE PURCHASE PRICE BE PAID, REGARDLESS OF ANY EXTENSION OF THE OFFER
OR ANY DELAY IN MAKING SUCH PAYMENT.
If any tendered Units are not purchased for any reason (other than
proration adjustments), the Purchaser may destroy the original Letter of
Transmittal with respect to the Units. If for any reason acceptance for payment
of, or payment for, any Units tendered pursuant to the Offer is delayed or the
Purchaser is unable to accept for payment, purchase or pay for Units tendered,
then, without prejudice to the Purchaser's rights under Section 4 herein, the
Purchaser may, nevertheless, retain documents concerning tendered Units, and
those Units may not be withdrawn except to the extent that the tendering Unit
Holders are otherwise entitled to withdrawal rights as described in Section 5
herein, subject, however, to the Purchaser's obligation under Rule 14e-1(c)
under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), to
pay Unit Holders the purchase price in respect of Units tendered or return
documents, if any, representing those Units promptly after termination or
withdrawal of the Offer.
3. Procedure to Accept the Offer. For the tender of any Units to be valid,
the Purchaser must receive, at the address listed on the back page of this Offer
to Purchase on or prior to the Expiration Date, a properly completed and duly
executed Letter of Transmittal and all documents required by the Instructions.
The method of delivery of the Letter of Transmittal and all other required
documents is at the option and risk of the tendering Unit Holder, and delivery
will be deemed made only when actually received by the Purchaser. If delivery is
by mail, registered mail with return receipt requested, properly insured, is
recommended. In all cases, sufficient time should be allowed to assure timely
delivery.
By executing and delivering a Letter of Transmittal, a tendering Unit
Holder irrevocably appoints the Purchaser and its officers and any other
designee of the Purchaser, and each of them, the attorneys-in-fact and proxies
of the Unit Holder, in the manner set forth in the Letter of Transmittal, each
with full power of substitution, to the full extent of the Unit Holder's rights
with respect to the Units tendered by the Unit Holder and accepted for payment
by the Purchaser (and with respect to any and all distributions, other Units,
rights or other securities issued or issuable in respect thereof (collectively,
"Distributions")), including without limitation the right to direct any IRA
custodian, trustee or other record owner to execute and deliver the Letter of
Transmittal, the right to accomplish a withdrawal of any previous tender of the
Unit Holder's Units and the right to complete the transfer contemplated thereby.
All such proxies will be considered coupled with an interest in the tendered
Units, are irrevocable and are granted in consideration of, and are effective
upon, the acceptance for payment of the Units by the Purchaser in accordance
with the terms of the Offer. Upon acceptance for payment, all prior powers of
attorney and proxies given by the Unit Holder with respect to the Units and
Distributions will, without further action, be revoked, and no subsequent powers
of attorney or proxies may be given (and, if given, will be without force or
effect). The officers and designees of the Purchaser will, with respect to the
Units for which the appointment is effective, be empowered to exercise all
voting and other rights of the Unit Holder as they in their discretion may deem
proper at any meeting of the Partnership or any adjournment or postponement
thereof. In order for Units to be deemed validly tendered, immediately upon the
Purchaser's acceptance for payment of the Units, the Purchaser or its designee
must be able to exercise full voting rights with respect to the Units, including
voting at any meeting of the Partnership's Limited Partners.
By executing and delivering a Letter of Transmittal, a tendering Unit
Holder irrevocably assigns to the Purchaser and its assigns all of the right,
title and interest of the Unit Holder in and to any and all Distributions made
by the Partnership, effective upon and after the date of acceptance with respect
to Units accepted for payment and thereby purchased by the Purchaser.
4. Determination of Validity; Rejection of Units; Waiver of Defects; No
Obligation to Give Notice of Defects. All questions about the validity, form,
eligibility (including time of receipt) and acceptance for payment of any tender
of Units pursuant to the Offer will be determined by the Purchaser, which
determination will be final and binding. The Purchaser reserves the right to
reject any or all tenders of any particular Units determined by it not to be in
proper form or if the acceptance of or payment for those Units may, in the
opinion of Purchaser's counsel, be unlawful. The Purchaser also reserves the
right to waive or amend any of the conditions of the Offer that it is legally
permitted to waive and to waive any defect in any tender with respect to any
particular Units. The Purchaser's interpretation of the terms and conditions of
the Offer (including the Letter of Transmittal) will be final and binding. No
tender of Units will be deemed to have been validly made until all defects have
been cured or waived. Neither the Purchaser nor any other person will be under
any duty to give notification of any defects in the tender of any Units or will
incur any liability for failure to give any such notification.
A tender of Units pursuant to the procedure described above and the
acceptance for payment of such Units will constitute a binding agreement between
the tendering Unit Holder and the Purchaser on the terms set forth in the Offer.
For purposes of the Offer, the Purchaser will be deemed to have accepted
for payment pursuant to this Offer, and thereby purchased, Properly Tendered
Units if, as and when the Purchaser gives written notice to the Partnership or
its Transfer Agent of the Purchaser's acceptance of those Units for payment
pursuant to the Offer. Upon the terms and subject to the conditions of the
Offer, payment for Units accepted for payment pursuant to the Offer will be made
and transmitted directly to Unit Holders whose Units have been accepted for
payment.
5. Withdrawal Rights. Tenders of Units made pursuant to the Offer are
irrevocable, except that Units tendered pursuant to the Offer may be withdrawn
at any time on or prior to the Expiration Date and, unless already accepted for
payment by the Purchaser pursuant to the Offer, may also be withdrawn at any
time after November 3, 2003. If purchase of, or payment for, Units is delayed
for any reason, including extension by the Purchaser of the Expiration Date, or
if the Purchaser is unable to purchase or pay for Units for any reason (for
example, because of proration adjustments) then, without prejudice to the
Purchaser's rights under the Offer, tendered Units may be retained by the
Purchaser and may not be withdrawn, except to the extent that tendering Unit
Holders are otherwise entitled to withdrawal rights as set forth in this Section
5; subject, however, to the Purchaser's obligation, pursuant to Rule 14e-1(c)
under the Exchange Act, to pay Unit Holders the purchase price in respect of
Units tendered promptly after termination or withdrawal of the Offer.
For withdrawal to be effective, a written notice of withdrawal must be
timely received by the Purchaser at its address listed on the back cover of this
Offer to Purchase. Any notice of withdrawal must specify the name of the
person(s) who tendered the Units to be withdrawn and must be signed by the
person(s) who signed the Letter of Transmittal in the same manner as the Letter
of Transmittal was signed. Any Units properly withdrawn will be deemed not
validly tendered for purposes of the Offer. Withdrawn Units may be re-tendered,
however, by following the procedures described in Section 3 herein at any time
prior to the Expiration Date.
All questions about the validity and form (including time of receipt) of
notices of withdrawal will be determined by the Purchaser, which determination
shall be final and binding. Neither the Purchaser nor any other person will be
under any duty to give notice of any defects in any notice of withdrawal or
incur any liability for failure to give any such notice.
6. Extension of Tender Period; Termination; Amendment. The Purchaser
expressly reserves the right at any time:
o to extend the period of time during which the Offer is open and
thereby delay acceptance for payment of, and the payment for, any
Units;
o upon the occurrence of any of the conditions specified in Section 7
herein, to terminate the Offer and not accept for payment any Units
not already accepted for payment, or, if the Purchaser reasonably
anticipates a prompt cure or removal of such condition, to delay for a
reasonable period the acceptance for payment of, or payment for, any
Units not already accepted for payment or paid for; and
o to amend the Offer in any respect (including, without limitation, by
increasing or decreasing the price, increasing or decreasing the
number of Units being sought, or both).
Notice of any such extension, termination or amendment will promptly be
disseminated to Unit Holders in a manner reasonably designed to inform Unit
Holders of such change in compliance with Rule 14d-4(c) under the Exchange Act.
In the case of an extension of the Offer, the extension will be followed by a
press release or public announcement which will be issued no later than 9:00
a.m., New York City time, on the next business day after the scheduled
Expiration Date, in accordance with Rule 14e-1(d) under the Exchange Act. If the
Purchaser makes a material change in the terms of the Offer or the information
concerning the Offer or waives a material condition of the Offer, the Purchaser
will extend the Offer and disseminate additional tender offer materials to the
extent required by Rules 14d-4(c) and 14d-6(d) under the Exchange Act.
7. Conditions of the Offer. Notwithstanding any other term of the Offer,
the Purchaser will not be required to accept for payment or, subject to any
applicable rules and regulations of the Commission, including Rule 14e-1(c)
under the Exchange Act (relating to a bidder's obligation to pay for or return
tendered securities promptly after the termination or withdrawal of such
bidder's offer), to pay for any Units tendered if all authorizations, consents,
orders of, or filings with, or expirations of waiting periods imposed by, any
court, administrative agency or other governmental authority necessary for the
consummation of the transactions contemplated by the Offer shall not have
occurred or been filed, or obtained. Furthermore, notwithstanding any other term
of the Offer, the Purchaser will not be required to accept for payment or,
subject to the aforesaid, pay for any Units, may delay the acceptance for
payment of the Units tendered, or may withdraw the Offer if, at any time on or
after the date of the Offer and on or before the Expiration Date, any of the
following conditions exists:
(a) a preliminary or permanent injunction or other order of any federal or
state court, government or governmental agency shall have been issued and shall
remain in effect which: (i) makes illegal, delays or otherwise directly or
indirectly restrains or prohibits the making of the Offer or the acceptance for
payment, purchase of or payment for any Units by the Purchaser; (ii) imposes or
confirms limitations on the ability of the Purchaser effectively to exercise
full rights of both legal and beneficial ownership of the Units; (iii) requires
divestiture by the Purchaser of any Units; (iv) might materially adversely
affect the business, properties, assets, liabilities, financial condition,
operations, results of operations or prospects of the Purchaser, or the
Partnership; or (v) seeks to impose any material condition to the Offer
unacceptable to the Purchaser;
(b) there shall be any action taken, or any statute, rule, regulation or
order proposed, enacted, enforced, promulgated, issued or deemed applicable to
the Offer by any federal or state court, government or governmental authority or
agency which might, directly or indirectly, result in any of the consequences
referred to in paragraph (a) above;
(c) any event shall have occurred or been disclosed, or shall have been
threatened, regarding the business, properties, assets, liabilities, financial
condition, operations, results of operations or prospects of the Partnership,
which event is materially adverse, or which threatened event, if fulfilled,
would be materially adverse, to the Partnership or its business or properties,
or there shall be any material lien not disclosed in the Partnership's financial
statements, or the Purchaser shall have become aware of any previously
undisclosed fact that has or with the passage of time would have a material
adverse effect on the value of the Units or the Partnership's properties;
(d) the General Partner of the Partnership shall have stated or otherwise
indicated that it intends to refuse to take any action that the Purchaser deems
necessary, in the Purchaser's reasonable judgment, for the Purchaser to be the
registered owner of the Units tendered and accepted for payment hereunder
simultaneously with the consummation of the Offer or as soon thereafter as is
permitted under the Partnership Agreement, in accordance with the Partnership
Agreement and applicable law;
(e)there shall have been threatened, instituted or pending any action or
proceeding before any court or governmental agency or other regulatory or
administrative agency or commission or by any other person, challenging the
acquisition of any Units pursuant to the Offer or otherwise directly or
indirectly relating to the Offer, or otherwise, in the reasonable judgment of
the Purchaser, adversely affecting the Purchaser, the Partnership or its
properties or the value of the Units;
(f) the Partnership shall have (i) issued, or authorized or proposed the
issuance of, any partnership interests of any class, or any securities
convertible into, or rights, warrants or options to acquire, any such interests
or other convertible securities, (ii) issued or authorized or proposed the
issuance of any other securities, in respect of, in lieu of, or in substitution
for, all or any of the presently outstanding Units, (iii) declared or paid any
Distribution, other than in cash, on any of the Units, or (iv) the Partnership
or the General Partner shall have authorized, proposed or announced its
intention to propose any merger, consolidation or business combination
transaction, acquisition of assets, disposition of assets or material change in
its capitalization, or any comparable event not in the ordinary course of
business, other than listing the Partnership's properties for sale; or
(g) the General Partner shall have modified, or taken any step or steps to
modify, in any way, the procedures or regulations applicable to the registration
of Units or transfers of Units on the books and records of the Partnership or
the admission of transferees of Units as registered owners and as Unit Holders.
The foregoing conditions are for the sole benefit of the Purchaser and may
be (but need not be) asserted by the Purchaser regardless of the circumstances
giving rise to such conditions or may be waived by the Purchaser in whole or in
part at any time on or prior to the Expiration Date, subject to the requirement
to disseminate to Unit Holders, in a manner reasonably designed to inform them
of, any material change in the information previously provided. Any
determination by the Purchaser, in its reasonable judgment, concerning the
events described above will be final and binding upon all parties.
8. Backup Federal Income Tax Withholding. To prevent the possible
application of backup federal income tax withholding with respect to payment of
the purchase price, a tendering Unit Holder must provide the Purchaser with the
Unit Holder's correct taxpayer identification number in the space provided in
the Letter of Transmittal.
9. FIRPTA Withholding. To prevent the withholding of federal income tax in
an amount equal to ten percent of the amount of the purchase price plus
Partnership liabilities allocable to each Unit purchased, the Letter of
Transmittal includes FIRPTA representations certifying the Unit Holder's
taxpayer identification number and address and that the Unit Holder is not a
foreign person.
CERTAIN INFORMATION CONCERNING THE PARTNERSHIP
The Partnership is subject to the information reporting requirements of the
Exchange Act and is required to file reports and other information with the
Commission relating to its business, financial results and other matters. Such
reports and other documents may be examined and copies may be obtained from the
offices of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, or
electronically at http://www.sec.gov. Copies should be available by mail upon
payment of the Commission's customary charges by writing to the Commission's
principal offices at 450 Fifth Street, N.W., Washington, D.C. 20549.
General. Attached as Part I of Appendix A to this Offer to Purchase are
excerpts from the last Annual Report on Form 10-K filed by the Partnership with
the Commission (the "Form 10-K"), which excerpts describe the business and
operations of the Partnership.
Outstanding Units. According to the Form 10-K, there were 18,826.5 Original
Units and 8,100 Class A Units (not included in this Offer) issued and
outstanding, held by approximately 1,984 Unit Holders, as of December 31, 2002.
Trading History of the Units. There is no established trading market for
the Units other than limited and sporadic trading through matching services or
privately negotiated sales. At present, privately negotiated sales and sales
through intermediaries (such as through the American Partnership Board) are the
only means available to a Unit Holder to liquidate an investment in Units (other
than this Offer or other occasional offers by other partnership investors, if
any) because the Units are not listed or traded on any exchange or quoted on any
NASDAQ list or system.
According to Partnership Spectrum, an independent third party publication,
between June 1, 2002 and May 31, 2003 (the most recent published information):
80.5 of the Partnership's limited partnership interests traded at prices ranging
from $330 to $350 per unit; with a weighted average price per unit for such
trades of $337. The most recent trades reported for April 1, 2003 - May 31, 2003
were at $330 per unit. Partnership Spectrum does not state, and Purchaser does
not know, whether such transfers were of Class A Units or Original Units. Sales
may be conducted which are not reported in the Partnership Spectrum and the
prices of sales through other channels may differ from those reported by the
Partnership Spectrum. The reported gross sales prices may not reflect the net
sales proceeds received by sellers of Units, which typically are reduced by
commissions (typically up to 8% with a minimum of $150-$200) and other secondary
market transaction costs. The Purchaser does not know whether the information
provided by the Partnership Spectrum is accurate or complete.
Selected Financial and Property Related Data. Attached as Part II of
Appendix A is a summary of certain financial and statistical information with
respect to the Partnership and its properties, all of which has been taken from
the Form 10-K and the Quarterly Report on Form 10-Q for the period ended June
30, 2003 (the "Form 10-Q"). More comprehensive financial and other information
is included in such reports and other documents filed by the Partnership with
the Commission. Part II of Appendix A is qualified in its entirety by reference
to such publicly filed reports and documents, including, without limitation, all
the financial information and related notes contained therein. Unit Holders
should also refer to any Quarterly Reports on Form 10-Q or Current Reports on
Form 8-K filed with the Commission after the Form 10-K or after the date of this
Offer for more recent information relating to the business and operations of the
Partnership.
DETERMINATION OF OFFER PRICE
In establishing the Offer price, the Purchaser reviewed certain publicly
available information including among other things: (i) the Partnership's
limited partnership agreement (the "Partnership Agreement"), (ii) Annual Reports
on Form 10-K, (iii) Quarterly Reports on Form 10-Q, and (iv) other reports filed
with the Commission. The Purchaser determined the Offer price pursuant to its
independent evaluation of the Partnership and its properties. The Purchaser did
not obtain current independent valuations or appraisals of the assets.
Purchaser determined it was willing to offer $1,000 per Unit based on
Purchaser's belief that there is currently a great demand for apartment
properties like the Partnership's and the fact that the properties have been
listed for sale at prices that Purchaser believes make it probable that
Purchaser would get back substantially all of its investment, and give Purchaser
a reasonable chance of ultimately receiving distributions in excess of the offer
price. Purchaser has assumed that the calculations of potential distributions
provided in the General Partner's Form 14D-9 filed with the SEC on July 14, 2003
were accurate and has relied thereon. In that filing, the General Partner stated
that a sale of the Partnership's properties at a combined purchase price of $50
Million would result in distributions to Unit Holders of approximately $979 per
Unit. The Partnership's properties have just recently been listed for a combined
purchase price of $62.9 Million. Purchaser also set the offer price to provide a
premium to the last prior offer of which Purchaser is aware, and to provide an
amount that represents the original per Unit investment amount of Unit Holders
who invested in the Partnership when it was originally organized. Purchaser is
making a speculative offer based on the unique circumstances of the Partnership.
CERTAIN INFORMATION CONCERNING THE PURCHASER
The Purchaser. The Purchaser is a California limited liability company that
was formed on April 24, 1996. The principal office of the Purchaser is 155 North
Lake Avenue, Suite 1000, Pasadena, CA 91101. The Manager of the Purchaser is
Everest Properties II, LLC ("EPII") and it is the person that manages the
Purchaser's affairs. For certain information concerning the directors and
executive officers of EPII, see Schedule I to this Offer to Purchase.
The Purchaser and EPII and their affiliates invest in limited partnerships
such as the Partnership, and in other forms of real estate oriented investments,
and conduct activities incident thereto. For certain selected unaudited
financial information available with respect to the Purchaser, see Appendix B to
this Offer to Purchase. The inclusion of this information is for informational
purposes only and is not intended to imply that such information is material to
a decision whether to sell, tender or hold the Units.
General. Except as set forth above or elsewhere in this Offer to Purchase:
(i) the Purchaser does not beneficially own or have a right to acquire, and, to
the best knowledge of the Purchaser, no associate or majority-owned subsidiary
of Purchaser or the persons listed in Schedule I hereto, beneficially owns or
has a right to acquire any Units or any other equity securities of the
Partnership; (ii) the Purchaser has not, and to the best knowledge of the
Purchaser, none of the persons and entities referred to in clause (i) above or
any of their executive officers, directors or subsidiaries has, effected any
transaction in the Units or any other equity securities of the Partnership
during the past 60 days other than as stated in this Offer to Purchase; (iii)
the Purchaser does not have and, to the best knowledge of the Purchaser, none of
the persons listed in Schedule I hereto has, any contract, arrangement,
understanding or relationship with any other person with respect to any
securities of the Partnership, including, but not limited to, the transfer or
voting thereof, joint ventures, loan arrangements, puts or calls, guarantees of
loans, guarantees against loss or the giving or withholding of proxies, consents
or authorizations; (iv) since December 31, 2000, there have been no transactions
which would require reporting under the rules and regulations of the Commission
between the Partnership or any of its affiliates and the Purchaser or any of its
subsidiaries or, to the best knowledge of the Purchaser, any of its executive
officers, directors or affiliates; and (v) since December 31, 2000 except as
otherwise stated in this Offer to Purchase, there have been no contacts,
negotiations or transactions between the Purchaser, or any of its subsidiaries
or, to the best knowledge of the Purchaser, any of the persons listed in
Schedule I hereto, on the one hand, and the Partnership or its affiliates, on
the other hand, concerning a merger, consolidation or acquisition, tender offer
or other acquisition of securities, an election of directors, or a sale or other
transfer of a material amount of assets of the Partnership.
Prior Acquisitions of Units and Prior Contacts. The Purchaser does not own
units of the Partnership. Affiliates of the Purchaser own Units: Millenium
Management, LLC, owns 506 Original Units (2.7%), acquired pursuant to a tender
offer commenced on April 17, 2003 for $850 per Unit; Everest Investors 10, LLC
owns 1,807 Original Units (9.6%) and 136 Class A Units (1.7%); Everest
Properties, Inc., owns 202 Original Units (1.1%); and Everest Properties II, LLC
owns 120 Class A units (1.5%).
In October 2002, representatives of the Purchaser and the General Partner
met and discussed the General Partner's plans for the Partnership. The Purchaser
advised the General Partner that Purchaser was interested in increasing its
investment in the Partnership. The General Partner stated that it was
considering converting the properties to condominiums and selling the individual
units over the next several years, but that only very preliminary consideration
has been given to such option, no decisions have been made, and that nothing is
likely to occur in that regard in the near term.
In March 2003, a representative of the General Partner informed
representatives of the Purchaser that the Partnership was going to list its
properties for sale. The General Partner stated that it was still considering
converting one of the properties to condominiums and was going to study that
option further before listing that property for sale. The Purchaser advised the
General Partner that Purchaser or one of its affiliates would probably be
interested in bidding for the properties if they were listed for sale. The
Purchaser also obtained from the General Partner a copy of the most recent
limited appraisal of the Partnership's properties dated May 8, 2002, the
operating statements for each property, and certain mortgage loan documents; and
had representatives visit the properties.
In July 2003, Everest Financial, Inc., an affiliate of Purchaser, made a
non-binding proposal to the General Partner to acquire all of the general and
limited partnership interests in the Partnership pursuant to a merger. The
proposal offered $980 per Original Unit in cash, $500 per Class A Unit in cash,
and a cash amount for the general partner interest to be determined through
negotiations. No response to the proposal was received.
In August 2003, representatives of the Purchaser had several contacts with
the General Partner to receive updates on the status of the prospective listing
of the Partnership's properties. The General Partner told Purchaser that a
listing agreement has been signed and that the properties are being listed for a
combined asking price of $62.9 Million. The General Partner stated that,
although it hoped to complete a sale within this calendar year, no partial
distributions would be expected before the first quarter of 2004 and the
Partnership would not be expected to liquidate completely until 2005.
Except as set forth above, neither the Purchaser nor its affiliates are
party to any past, present or proposed material contracts, arrangements,
understandings, relationships, or negotiations with the Partnership or with the
General Partner concerning the Partnership.
Source of Funds. Based on the Offer price of $1,000 per Original Unit, the
Purchaser estimates that the total amount of funds necessary to purchase all
Units sought by this Offer and to pay related fees and expenses, will be
approximately $950,000. The Purchaser expects to obtain these funds by means of
equity capital contributions from its members at the time the Units tendered
pursuant to the Offer are accepted for payment. Such members will fund their
capital contributions through existing cash and other financial assets which in
the aggregate are sufficient to provide the funds required in connection with
the Offer without any borrowings. Such members have agreed and are obligated to
make such capital contributions available to the Purchaser on demand.
FUTURE PLANS OF THE PURCHASER
The Purchaser is seeking to acquire Units pursuant to the Offer to obtain a
substantial equity interest in the Partnership, for investment purposes.
Following the completion of the Offer, the Purchaser and persons related to or
affiliated with the Purchaser may acquire additional Units. Any such acquisition
may be made through private purchases, through one or more future tender or
exchange offers or by any other means deemed advisable by the Purchaser. Any
such acquisition may be at a price higher or lower than the price to be paid for
the Units purchased pursuant to the Offer, and may be for cash or other
consideration. However, the Purchaser has no present intention of making
additional tender offers for the Units. The Purchaser also may consider selling
some or all of the Units it acquires pursuant to the Offer, either directly or
by a sale of one or more interests in the Purchaser itself, depending upon
liquidity, strategic, tax and other considerations. In July 2003, Everest
Financial, Inc., an affiliate of Purchaser, made a non-binding proposal to the
General Partner to acquire all of the general and limited partnership interests
in the Partnership pursuant to a merger. The proposal offered $980 per Original
Unit in cash, $500 per Class A Unit in cash, and a cash amount for the general
partner interest to be determined through negotiations. No response to the
proposal was received, and Everest Financial has not determined whether or not
to make another proposal now that the properties have been listed for sale. It
is possible that an affiliate of Purchaser may bid for the Partnership's
properties now that they are listed for sale; however, no such affiliate has
determined to make any proposal.
Other than as set forth above, the Purchaser does not currently intend to
change current management, indebtedness, capitalization, corporate structure or
business operations of the Partnership and does not have current plans for any
extraordinary transaction such as a merger, reorganization, liquidation or sale
or transfer of assets involving the Partnership. However, these plans could
change at any time in the future. If any transaction is effected by the
Partnership and financial benefits accrue to the Unit Holders, the Purchaser and
its affiliates will participate in those benefits to the extent of their
ownership of the Units.
EFFECTS OF THE OFFER
Future Benefits of Unit Ownership. Tendering Unit Holders shall receive
cash in exchange for their Units purchased by the Purchaser and will forego all
future distributions and income and loss allocations from the Partnership with
respect to such Units.
Limitations on Resales. The Partnership Agreement provides that the General
Partner may refuse to recognize a transfer of Units if in its opinion the
transfer would, for federal income tax purposes, cause the Partnership to be
characterized as a "publicly traded partnership," or cause the Partnership to be
taxed as a corporation. This provision may limit sales of Units on the secondary
market and in private transactions following completion of the Offer.
Accordingly, the Partnership may not recognize any requests for recognition of a
transferee Unit Holder upon a transfer of Units if the General Partner believes
the transfer would cause a tax termination of the Partnership. For the same
reasons, it is theoretically possible that the number of Units tendered for
purchase by the Purchaser taken together with the number of Units that have
transferred prior to the Offer could exceed the number that the General Partner
believes would cause a tax termination of the Partnership; in which case the
Purchaser will purchase the maximum number of Units it may purchase without
causing such a tax termination, as informed by the General Partner. See "Details
of the Offer - Terms of the Offer; Expiration Date; Proration."
Influence on Voting Decisions by the Purchaser. Under the Partnership
Agreement, Unit Holders holding a majority of the Original Units and the Class A
Units, taken together, are entitled to take action with respect to a variety of
matters, including removal of the General Partner, dissolution and termination
of the Partnership, and approval of most types of amendments to the Partnership
Agreement. If the Purchaser obtains all or most of the Original Units sought,
the influence of Purchaser and its affiliates on such actions may be
significant.
CERTAIN FEDERAL INCOME TAX MATTERS
The following summary is a general discussion of certain of the federal
income tax consequences of a sale of Units pursuant to the Offer. The summary is
based on the Internal Revenue Code of 1986, as amended (the "Code"), applicable
Treasury regulations thereunder, administrative rulings, and judicial authority,
all as of the date of the Offer. All of the foregoing is subject to change, and
any such change could affect the continuing accuracy of this summary. This
summary does not discuss all aspects of federal income taxation that may be
relevant to a particular Unit Holder in light of such Unit Holder's specific
circumstances, nor does it describe any aspect of state, local, foreign or other
tax laws. Sales of Units pursuant to the Offer may be taxable transactions under
applicable state, local, foreign and other tax laws. UNIT HOLDERS SHOULD CONSULT
THEIR RESPECTIVE TAX ADVISORS AS TO THE PARTICULAR TAX CONSEQUENCES TO THE UNIT
HOLDER OF SELLING UNITS PURSUANT TO THE OFFER.
In general, a Unit Holder will recognize gain or loss on a sale of Units
pursuant to the Offer equal to the difference between (i) the Unit Holder's
"amount realized" on the sale and (ii) the Unit Holder's adjusted tax basis in
the Units sold. The amount of a Unit Holder's adjusted tax basis in a Unit will
vary depending upon the Unit Holder's particular circumstances, and it will
include the amount of the Partnership's liabilities allocable to the Unit (as
determined under Code Section 752). The "amount realized" with respect to a Unit
will be a sum equal to the amount of cash received by the Unit Holder for the
Unit pursuant to the Offer (that is, the purchase price), plus the amount of the
Partnership's liabilities allocable to the Unit (as determined under Code
Section 752).
The gain or loss recognized by a Unit Holder on a sale of a Unit pursuant
to the Offer generally will be treated as a capital gain or loss if the Unit was
held by the Unit Holder as a capital asset. Gain with respect to Units held for
more than one year will be taxed, for federal income tax purposes, at a maximum
long-term capital gain rate of 15 percent. Gain with respect to Units held one
year or less will be taxed at ordinary income rates. It should also be noted
that the Taxpayer Relief Act of 1997 imposed depreciation recapture of
previously deducted straight-line depreciation with respect to real property at
a rate of 25 percent (assuming eligibility for long-term capital gain
treatment). A portion of the gain realized by a Unit Holder with respect to a
disposition of the Units may be subjected to this 25 percent rate to the extent
that the gain is attributable to depreciation recapture inherent in the
properties of the Partnership.
If any portion of the amount realized by a Unit Holder is attributable to
such Unit Holder's share of "unrealized receivables" or "substantially
appreciated inventory items" as defined in Code Section 751, a corresponding
portion of such Unit Holder's gain or loss will be treated as ordinary gain or
loss. It is possible that the basis allocation rules of Code Section 751 may
result in a Unit Holder's recognizing ordinary income with respect to the
portion of the Unit Holder's amount realized on the sale of a Unit that is
attributable to such items while recognizing a capital loss with respect to the
remainder of the Unit.
Capital losses are deductible only to the extent of capital gains, except
that taxpayers who are natural persons may deduct up to $3,000 per year of
capital losses in excess of the amount of their capital gains against ordinary
income. Excess capital losses generally can be carried forward to succeeding
years (a "C" corporation's carry-forward period is five years and an individual
taxpayer can carry forward such losses indefinitely).
Under Code Section 469, individuals, S corporations and certain
closely-held corporations generally are able to deduct "passive activity losses"
in any year only to the extent of the person's passive activity income for that
year. Substantially all post-1986 losses of Unit Holders from the Partnership
are passive activity losses. Unit Holders may have "suspended" passive activity
losses from the Partnership (i.e., post-1986 net taxable losses in excess of
statutorily permitted "phase-in" amounts and which have not been used to offset
income from other passive activities).
If a Unit Holder sells less than all of its interest in the Partnership
pursuant to the Offer, a passive loss recognized by that Unit Holder can be
currently deducted (subject to the other applicable limitations) to the extent
of the Unit Holder's passive income from the Partnership for that year plus any
other net passive activity income for that year, and any gain recognized by a
Unit Holder upon the sale of Units can be offset by the Unit Holder's current or
"suspended" passive activity losses (if any) from the Partnership and other
sources. If, on the other hand, a Unit Holder sells 100 percent of its interest
in the Partnership pursuant to the Offer, any "suspended" passive activity
losses from the Partnership and any passive activity losses recognized upon the
sale of the Units will be offset first against any net passive activity income
from the Unit Holder's other passive activity investments, and the balance of
any net passive activity losses attributable to the Partnership will no longer
be subject to the passive activity loss limitation and, therefore, will be
deductible by such Unit Holder from its other "ordinary" income (subject to any
other applicable limitations). If more than 940 Original Units are Properly
Tendered, some tendering Unit Holders may not be able to sell 100 percent of
their Original Units pursuant to the Offer because of proration of the number of
Units to be purchased by the Purchaser, unless the Purchaser amends the Offer to
increase the number of Units to be purchased.
A tendering Unit Holder will be allocated the Unit Holder's pro rata share
of the annual taxable income and losses from the Partnership with respect to the
Units sold for the period through the date of sale, even though such Unit Holder
will assign to the Purchaser its rights to receive certain cash distributions
with respect to such Units. Such allocations and any Partnership distributions
for such period would affect a Unit Holder's adjusted tax basis in the tendered
Units and, therefore, the amount of gain or loss recognized by the Unit Holder
on the sale of the Units.
Unit Holders (other than tax-exempt persons, corporations and certain
foreign individuals) who tender Units may be subject to 28 percent backup
withholding unless those Unit Holders provide a taxpayer identification number
("TIN") and are certain that the TIN is correct or properly certify that they
are awaiting a TIN. A Unit Holder may avoid backup withholding by properly
completing and signing the Letter of Transmittal. If a Unit Holder who is
subject to backup withholding does not include its TIN, the Purchaser will
withhold 28 percent from payments to such Unit Holder.
CERTAIN LEGAL MATTERS
General. Except as set forth herein, the Purchaser is not aware of any
filings, approvals or other actions by any domestic or foreign governmental or
administrative agency that would be required prior to the acquisition of Units
by the Purchaser pursuant to the Offer. The Purchaser's obligation to purchase
and pay for Units is subject to certain conditions, including conditions related
to the legal matters discussed herein.
State Takeover Statutes. The Partnership was formed under the laws of the
State of California, which currently does not have any takeover statute
applicable to limited partnerships. However, it is a condition to the Offer that
no state or federal statute impose a material limitation on the Purchaser's
right to vote the Units purchased pursuant to the Offer. If this condition is
not met, Purchaser may terminate or amend the Offer.
If any person seeks to apply any state takeover statute, the Purchaser will
take such action as then appears desirable, which action may include challenging
the validity or applicability of any such statute in appropriate court
proceedings. If there is a claim that one or more takeover statutes apply to the
Offer, and it is not determined by an appropriate court that such statutes do
not apply or are invalid as applied to the Offer, the Purchaser might be
required to file certain information with, or receive approvals from, the
relevant state authorities. This could prevent the Purchaser from purchasing or
paying for Units tendered pursuant to the Offer, or cause delay in continuing or
consummating the Offer. In such case, the Purchaser may not be obligated to
accept for payment or pay for Units tendered.
Fees and Expenses. Purchaser will not pay any fees or commissions to any
broker, dealer or other person for soliciting tenders of Units pursuant to the
Offer. Employees of EPII may solicit tenders of Units without any additional
compensation. The Purchaser will pay all costs and expenses of printing and
mailing the Offer and its legal fees and expenses. The Purchaser will reduce the
purchase price of Units by any transfer fees imposed by the Partnership.
Miscellaneous. The Offer is not made to (nor will tenders be accepted on
behalf of) Unit Holders residing in any jurisdiction in which the making of the
Offer or the acceptance thereof would not be in compliance with the securities
or other laws of such jurisdiction. However, the Purchaser may take such action
as it deems necessary to make the Offer in any jurisdiction and extend the Offer
to Unit Holders in such jurisdiction.
In any jurisdiction where the securities or other laws require the Offer to
be made by a licensed broker or dealer, the Offer will be deemed to be made on
behalf of the Purchaser by one or more registered brokers or dealers that are
licensed under the laws of such jurisdiction.
The Purchaser has filed with the Commission a Tender Offer Statement on
Schedule TO pursuant to Rule 14d-3 under the Exchange Act, furnishing certain
additional information with respect to the Offer, and may file amendments
thereto. The Schedule TO and any amendments thereto, including exhibits, may be
inspected and copies may be obtained at the same places and in the same manner
as set forth under the caption "Certain Information Concerning The Partnership
- -- General."
No person has been authorized to give any information or to make any
representation on behalf of the Purchaser not contained herein or in the Letter
of Transmittal and, if given or made, such information or representation must
not be relied upon as having been authorized.
EVEREST MANAGEMENT, LLC
September 4, 2003
SCHEDULE I
DIRECTORS AND EXECUTIVE OFFICERS
The business address of each executive officer and director of Everest
Properties II, LLC is 155 North Lake Avenue, Suite 1000, Pasadena, California
91101. Each executive officer and director is a United States citizen. The name
and principal occupation or employment of each executive officer and director of
Everest Properties II, LLC ("EPII"), are set forth below.
Present Principal Occupation or Employment
Name Position and Five-Year Employment History
W. Robert Kohorst President of EPII from 1996 - present. President
and Director of Everest Properties, Inc. from
1994 - present. President and Director of KH
Financial, Inc. from 1994 - present.
David I. Lesser Executive Vice President and Secretary of EPII
from 1996 - present. Executive Vice President
of Everest Properties, Inc. from 1995 - present.
Christopher K. Davis Vice President and the General Counsel of EPII
since 1998. Senior Staff Counsel and then
Director of Corporate Legal of Pinkerton's, Inc.
from 1995 - 1998.
Peter J. Wilkinson Vice President and the Chief Financial Officer
of EPII since 1996. Chief Financial Officer and
Director of Everest Properties, Inc. since 1996.
APPENDIX A
The following information has been copied from the Partnership's Annual
Report on Form 10-K for the year ended December 31, 2002 (the "Form 10-K") and
Quarterly Report on Form 10-Q for the period ended June 30, 2003 (the "Form
10-Q"). Although the Purchaser has no information that any statements contained
in this Appendix A are untrue, the Purchaser has not independently investigated
the accuracy of statements, and takes no responsibility for the accuracy,
inaccuracy, completeness or incompleteness of any of the information contained
in this section or for the failure by the Partnership to disclose events which
may have occurred and may affect the significance or accuracy of any such
information.
PART I
Business
General. Income Growth Partners, Ltd. X, a California limited partnership
(the "Limited Partnership") and subsidiaries (collectively, the "Partnership"),
was formed in February 1988 to acquire, operate and hold for investment one or
more parcels of income-producing, multi-family residential real property.
Currently, the Limited Partnership operates two separate apartment complexes in
Southern California: 1) Mission Park and 2) Shadow Ridge Meadows. The limited
partnership agreement provides that the Partnership shall continue through
February 2021, unless terminated sooner.
Income Growth Management, Inc. ("IGM") is the sole general partner. The
general partner has made no cash capital contributions to date. As of December
31, 2002, there were 1,984 limited partners in the Partnership.
The Partnership has no full time employees. Employees of corporations
affiliated with the general partner perform certain administrative and other
services on behalf of the Partnership (see Item 12). The Partnership's executive
offices are located at 11230 Sorrento Valley Road, Suite 220, San Diego,
California 92121 and the Partnership's telephone number is (858) 457-2750.
Financing Strategy. The Partnership seeks to minimize the cost of financing
its properties and will refinance existing loans from time to time to take
advantage of prevailing market conditions. The Mission Park and Shadow Ridge
Meadows properties were refinanced to prevailing rates during 1995 and 1997,
respectively.
Competitive Conditions. Changes in the national and regional economic
climates, changes in local real estate conditions, such as the oversupply of
apartments or a reduction in demand for apartments, competition from
single-family housing, apartment properties and other forms of multifamily
residential housing, the inability to provide adequate maintenance and to obtain
adequate insurance, increased operating costs, changes in zoning, building,
environmental, rent control and other laws and regulations, the costs of
compliance with current and future laws, changes in real property taxes and
unusual occurrences (such as earthquakes and floods) and other factors beyond
the control of the Partnership may adversely affect the income from, and value
of, the Partnership's properties.
Leases and Inflation. Substantially all of the leases at the Partnership's
apartment properties are for a period of one year or less, allowing, at the time
of renewal, for adjustments in the rental rate and the opportunity to release
the apartment unit at the prevailing market rate. The short-term nature of these
leases generally serves to minimize the risk to the Partnership of the adverse
effect of inflation and the Partnership does not believe that inflation has had
a material adverse impact on its revenues.
A-1
Restrictions Imposed By Laws Benefiting Disabled Persons. Under the
Americans with Disabilities Act of 1990 (the "ADA"), all places of public
accommodation are required to meet certain federal requirements related to
access and use by disabled persons. These requirements became effective in 1992.
A number of additional federal, state and local laws exist which also may
require modifications to the properties, or restrict certain further renovations
thereof, with respect to access thereto by disabled persons. For example, the
Fair Housing Amendments Act of 1988 (the "FHAA") requires apartment properties
first occupied after March 13, 1990 to be accessible to the handicapped.
Noncompliance with the ADA or the FHAA could result in an order to correct any
noncomplying feature, which could result in substantial capital expenditures.
Although management of the Partnership believes that the properties are
substantially in compliance with present requirements, if the properties are not
in compliance, the Partnership is likely to incur additional costs to comply
with the ADA and the FHAA.
During 1995, on a tax free basis, the Limited Partnership exchanged the
Mission Park property for a 99% interest in IGP X Mission Park Associates, L.P.,
a newly formed California limited partnership (the "Mission Park Subsidiary").
The Mission Park Subsidiary is separate and distinct from the Limited
Partnership, having separate assets, liabilities and business operations.
During 1997, on a tax free basis, the Limited Partnership exchanged the
Shadow Ridge Meadows property for a 99% interest in IGP X Shadow Ridge Meadows,
Ltd., a newly formed California limited partnership (the "Shadow Ridge Meadows
Subsidiary"). The Shadow Ridge Meadows Subsidiary is also separate and distinct
from the Partnership, having separate assets, liabilities and business
operations.
Formation of the Mission Park Subsidiary and the Shadow Ridge Subsidiary
had no impact on the Partnership's overall financial condition, results of
operations, allocation of net income/loss, cash distributions or Partnership
assets.
PART II
Properties
The Partnership, through its subsidiaries, presently owns two properties as
follows:
MISSION PARK:
Date of purchase: August 1989
Purchase price: $17,100,000
Property Description: A 264-unit apartment complex located in San
Marcos, California. The property includes two full-size recreation
rooms, two heated swimming pools and spas, night-lighted tennis
courts, a satellite cable TV system and covered parking. The building
is approximately 13 years old. The property contains 215,292 square
feet. Mortgage debt outstanding on this property as of December 31,
2002 and 2001 was approximately $9,400,000 and $9,600,000,
respectively.
A-2
SHADOW RIDGE MEADOWS:
Date of purchase: November 1988
Purchase price $12,700,000
Property Description: A 184-unit apartment complex located in Vista,
California. The property includes a large recreation center, a heated
swimming pool and spa, five laundry facilities, a satellite cable TV
system and covered parking. The building is approximately 14 years
old. The property contains 127,197 square feet. Mortgage debt
outstanding on this property as of December 31, 2002 and 2001, was
approximately $9,300,000 and $9,400,000, respectively.
As depreciation methods for tax and accounting purposes may differ,
the tax basis of the properties will vary from the amounts reported in
the financial statements.
Dividends
As a limited partnership, the Partnership does not pay dividends.
The amended partnership agreement provides that any distributions of cash from
operations will be made in the following order of priority:
First, each Class A Unit receives a 12% cumulative noncompounded annual return
on the balance of actual funds invested in Class A Units. Second, each Class A
Unit receives a total return of original invested capital. Third, each Class A
Unit receives a $500 bonus. Fourth, each Original Unit holder receives a 10%
noncumulative return on the adjusted balance of original invested capital.
Thereafter, 90% of distributions of cash from operations will be made to the
Original Unit holders and 10% to the general partner.
The amended partnership agreement also provides that any distributions of cash
from a sale or refinancing of [sic] will be made in the following order of
priority:
First, each Class A Unit receives a 12% cumulative noncompounded annual return
on the balance of actual funds invested in Class A Units. Second, each Class A
Unit receives a total return of original invested capital. Third, each Class A
Unit receives a $500 bonus. Fourth, each Original Unit holder receives an amount
equal to the adjusted balance of original invested capital. Fifth, the general
partner receives any non-subordinated debts payable to them. Sixth, each
Original Unit holder receives a 10% cumulative return on the adjusted balance of
original invested capital (the "Preferred Return"). Thereafter, 85% of
distributions of cash from sale or refinancing will be made to the Original Unit
holders and 15% to the general partner. As of December 31, 2002, the general
partner has not received any cash distributions from operations or from a sale
or refinancing.
The Partnership distributed approximately $810,000 during 2002 and $907,200
during 2001.
Cash distributions are determined at the discretion of the general partner. Any
future distributions are largely dependent on future income, expenses, debt
service and operating reserves and there can be no assurance that future
distributions will be paid.
A-3
Selected Financial Data.
The following selected financial data has been copied or derived from the
Form 10-K and Form 10-Q and should be read in conjunction with the financial
statements and the related notes set forth in such report:
December 31, December 31,
June 30, 2003 2002 2001
Rental properties, at cost,
less accumulated depreciation. $16,846,655 $17,075,846 $17,491,481
Total assets..................... 18,104,969 18,225,015 18,559,299
Total liabilities................ 19,198,695 19,189,602 19,537,067
Partners' capital (deficit) (1,083,726)
Limited partners'............. (829,498) (719,202)
General partner's............. (125,089) (248,566)
Six Months Year ended Year ended
ended June 30, December 31, December 31,
2003 2002 2001
Revenue
- --------------------------------- $2,733,218 $5,355,976 $4,978,621
Rents......................... 172,028 303,866 288,823
Other......................... -- 2,247 7,094
Interest......................
Total revenues................... 2,905,246 5,662,089 5,274,538
Expenses
Operating expenses............ 1,333,856 2,427,176 2,458,077
Interest...................... 714,393 1,445,424 1,463,836
Depreciation and amortization. 500,136 966,308 928,624
Total expenses................... 2,548,385 4,838,908 4,850,537
Net income....................... $ 356,861 $ 823,181 $ 424,001
A-4
APPENDIX B
EVEREST MANAGEMENT, LLC
Balance Sheet
As of July 31, 2003
(unaudited)*
TOTAL ASSETS.........................................................$2,399,497
==========
LIABILITIES & EQUITY
Members Capital................................................$2,934,780
Retained Earnings.............................................. (535,283)
---------
TOTAL LIABILITIES & EQUITY...........................................$2,399,497
==========
* The Purchaser's business consists solely of making and holding investments for
its own account in limited partnership interests. Audited financial statements
are not prepared.
B-1
The Letter of Transmittal, and any other required documents should be sent
or delivered by each Unit Holder or his broker, dealer, commercial bank, trust
company or other nominee to the Purchaser at its address set forth below.
Questions and requests for assistance may be directed to the Purchaser at
its address and telephone number listed below. Additional copies of this Offer
to Purchase, the Letter of Transmittal, and other tender offer materials may be
obtained from the Purchaser as set forth below, and will be furnished promptly
at the Purchaser's expense.
Everest Properties II, LLC
(Manager)
155 North Lake Avenue
Suite 1000
Pasadena, California 91101
(800) 611-4613 or (626) 585-5920
Facsimile: (626) 585-5929