OFFER TO PURCHASE FOR CASH
ALL UNITS
of Limited Partnership Interests in
AMERICAN REPUBLIC REALTY FUND I
by
EVEREST MANAGEMENT, LLC
at a Cash Purchase Price of
$300 per Unit
THE OFFER, WITHDRAWAL RIGHTS AND PRORATION PERIOD WILL EXPIRE AT 5:00 P.M., LOS
ANGELES TIME, ON FRIDAY, JUNE 9, 2006, UNLESS THE OFFER IS EXTENDED.
Everest Management, LLC ("Everest" or the "Purchaser"), a California
limited liability company, is offering to purchase ALL Units of AMERICAN
REPUBLIC REALTY FUND I (the "Partnership") not already held by Purchaser and its
affiliates, at a cash purchase price of $300 per 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 $75 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 or
and is not conditioned upon financing. To the knowledge of the Purchaser, a Unit
Holder will not incur any fees, such as selling broker commissions or depositary
fees, to sell Units in response to this Offer; unless such Unit Holder holds
Units in a manner that involves fees particular to such Unit Holder.
The enclosed Letter of Transmittal may be used to tender Units for the
Offer. Please read all Offer materials completely before completing and
returning the Letter of Transmittal (blue form).
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For More Information or for Further Assistance,
Please Call or Contact the Purchaser at:
Everest Management, LLC
199 South Los Robles Avenue
Suite 200
Pasadena, California 91101
(626) 585-5920
(800) 611-4613 (toll free)
May 9, 2006
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.....................................3
4. Determination of Validity; Rejection of Units; Waiver of Defects;
No Obligation to Give Notice of Defects...........................4
5. Withdrawal Rights.................................................4
6. Extension of Tender Period; 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
Outstanding Units......................................................8
Trading History of the Units...........................................8
DETERMINATION OF OFFER PRICE..................................................8
CERTAIN INFORMATION CONCERNING THE PURCHASER..................................9
The Purchaser..........................................................9
General................................................................9
Prior Acquisitions of Units and Prior Contacts.........................9
Source of Funds........................................................9
FUTURE PLANS OF THE PURCHASER................................................10
EFFECTS OF THE OFFER.........................................................10
Future Benefits of Unit Ownership.....................................10
Limitations on Resales................................................10
Influence Over Future Voting Decisions................................10
Other Potential Effects...............................................11
FEDERAL INCOME TAX MATTERS...................................................11
CERTAIN LEGAL MATTERS........................................................13
General...............................................................13
State Takeover Statutes...............................................13
Fees and Expenses.....................................................13
Miscellaneous.........................................................13
SCHEDULE I - EXECUTIVE OFFICERS
i
INTRODUCTION
The Purchaser hereby offers to purchase ALL Units of limited partnership
interests in the Partnership not already held by Purchasers and their
affiliates, at a cash purchase price of $300 per 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 $75 per transfer (regardless of the number of units transferred). To the
knowledge of the Purchaser, a Unit Holder will not incur any other fees, such as
selling broker commissions or depositary fees, to sell Units in response to this
Offer; unless such Unit Holder holds Units in a manner that involves fees
particular to such Unit Holder.
SUMMARY OF THE OFFER.
The purpose of the Offer is for the Purchaser to acquire an equity interest
in the Partnership for investment purposes.
In considering the Offer, Unit Holders are urged to consider the following:
o The price offered for the Units is $300 in CASH, less any
Distributions made after the date of this Offer. See "Details of the
Offer - Acceptance for Payment and Payment of Purchase Price."
o The Offer is $75 per Unit (33%) more than the highest prior
third-party offer for Units of which Purchaser is aware (made recently
by a party unaffiliated with Everest), based on a review of public SEC
filings and offers received by Purchaser as an existing partner in the
Partnership.
o The Units are illiquid - no trades of Partnership interests were
reported during the two years ending January 31, 2006, according to
the most recent published report of Direct Investments Spectrum, an
independent industry publication. The Offer allows Unit Holders to
dispose of their Units without incurring the sales commissions
(typically up to 8% with a minimum of $150-$200) associated with sales
arranged through brokers or other intermediaries. See "Certain
Information Concerning the Partnership - Trading History of the
Units."
o The Partnership will not be required to terminate before December 31,
2012, unless a majority of the limited partners approve an earlier
dissolution or an event occurs that would require a dissolution,
according to the Partnership's limited partnership agreement, and,
according to the Partnership's public reports, the termination date
can be extended if certain events occur.
o You may be able to obtain a tax benefit by selling if you have
accumulated passive losses that you can use once you have disposed of
your investment in the Partnership; you should consult your tax
advisor about this possibility.
o The Purchaser is not affiliated with the Partnership or its general
partners. The Partnership's general partner, Mr. Robert J. Werra (the
"General Partner"), may be expected to communicate the Partnership's
position on the Offer in the next two weeks.
o The Purchaser is making the Offer with a view to making a profit for
itself. Accordingly, the desire of the Purchaser to purchase Units at
a low price conflicts with the desire of the Unit Holders to sell
their Units at a high price.
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o The Offer is an immediate opportunity for Unit Holders to liquidate
their investment in the Partnership, but Unit Holders who tender their
Units will be giving up the opportunity to participate in any
potential future benefits from ownership of Units, including
distributions resulting from any future sale of the Partnership's
properties. Unit Holders may have a more immediate need to use the
cash now tied up in the Units, and may consider the Offer more certain
to achieve a prompt liquidation of their investment in the Units. 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 2006. See "Details of the Offer - 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, in
accordance with the procedures set forth in this Offer to Purchase, ALL validly
tendered, and not withdrawn, Units not already held by Purchaser and its
affiliates ("Properly Tendered"). For purposes of the Offer, the term
"Expiration Date" means 5:00 p.m., Los Angeles time, on Friday, June 9, 2005,
unless the Purchaser extends the period of time during which the Offer is open,
in which event the term "Expiration Date" shall mean the latest time and date to
which the Offer is extended by the Purchaser.
If, prior to the Expiration Date, the Purchaser increases the price offered
to the Unit Holders pursuant to the Offer, the increased price will be paid for
all Units accepted for payment pursuant to the Offer, whether or not the Units
were tendered prior to the increase in consideration.
If the General Partner determines that the Partnership Agreement limits
transfers to a number of Units and the General Partner does not waive such limit
(the "Transfer Limit"), and the number of Units that are Properly Tendered
exceeds the Transfer Limit, the Purchaser will, upon the terms and subject to
the other conditions of the Offer, accept for payment and pay for Units equal to
the Transfer Limit, pro rata, according to the number of Units that are Properly
Tendered by each Unit Holder, with appropriate adjustments to avoid purchases of
fractional Units. Subject to its obligation to pay for Units promptly after the
Expiration Date, the Purchaser intends to pay for any Units accepted for payment
pursuant to the Offer after determining the final proration or other
adjustments. The Purchaser does not believe it would take any longer than five
business days to determine the effects of any proration required. If the number
of Units that are Properly Tendered is less than or equal to the Transfer Limit,
if any, the Purchaser will purchase all Units that are Properly Tendered, upon
the terms and subject to the other conditions of the Offer. See "Effects of the
Offer - Limitations on Resales."
2
Unit Holders may indicate, by checking a box on the Letter of Transmittal
(the "All or None Box"), that in the event of a Transfer Limit they only wish to
sell their Units if they will be able to sell all of their Units, without any
proration. See "Details of the Offer - Withdrawal Rights."
If 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 ALL Properly Tendered Units, promptly following the Expiration Date. In all
cases, payment for Units purchased pursuant to the Offer will be made only after
timely receipt by the Purchaser of: (i) a properly completed and duly executed
and acknowledged Letter of Transmittal, (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 or the General
Partner confirms ownership of and changes the distribution address for the
Units.
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 $75 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 original 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.
3
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.
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
4
payment by the Purchaser pursuant to the Offer, may also be withdrawn at any
time after July 8, 2006. 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 or return documents, if any, representing those Units promptly
after termination or withdrawal of the Offer.
For withdrawal to be effective, an original written notice of withdrawal
must be timely received by the Purchaser at its address listed on the back cover
of this Offer to Purchase. Any notice of withdrawal must specify the name of the
person(s) who tendered the Units to be withdrawn and must be signed by the
person(s) who signed the Letter of Transmittal in the same manner as the Letter
of Transmittal was signed. Any Units properly withdrawn will be deemed not
validly tendered for purposes of the Offer. Withdrawn Units may be re-tendered,
however, by following the procedures described in Section 3 herein at any time
prior to the Expiration Date.
All questions about the validity and form (including time of receipt) of
notices of withdrawal will be determined by the Purchaser, which determination
shall be final and binding. Neither the Purchaser nor any other person will be
under any duty to give notice of any defects in any notice of withdrawal or
incur any liability for failure to give any such notice.
Automatic Withdrawal Option. Unit Holders may indicate, by checking a box
on the Letter of Transmittal (the "All or None Box"), that they only wish to
sell their Units if they will be able to sell all of their Units, without any
proration. If at any time during the day of the Expiration Date there is a
Transfer Limit imposed by the General Partner pursuant to the Partnership
Agreement, the Purchaser will deem all Units from Unit Holders that checked the
All or None Box to be withdrawn and not validly tendered for purposes of the
Offer. Neither the Purchaser nor any other person will be under any duty to give
any notice that such automatic withdrawal will occur. Unit Holders may change
their election whether or not to check the All or None Box at any time on or
prior to the Expiration Date by submitting a new Letter of Transmittal with
their preferred election, in the manner described in Section 3 herein.
6. Extension of Tender Period; Amendment. The Purchaser expressly reserves
the right at any time:
o to extend the period of time during which the Offer is open and
thereby delay acceptance for payment of, and the payment for, any
Units;
o to 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).
5
Notice of any such extension or amendment will promptly be disseminated to
Unit Holders in a manner reasonably designed to inform Unit Holders of such
change in compliance with Rule 14d-4(c) under the Exchange Act. In the case of
an extension of the Offer, the extension will be followed by a press release or
public announcement which will be issued no later than 9:00 a.m., New York City
time, on the next business day after the scheduled Expiration Date, in
accordance with Rule 14e-1(d) under the Exchange Act. If the Purchaser makes a
material change in the terms of the Offer or waives a condition that constitutes
a material change in the terms of the Offer, the Purchaser will extend the Offer
and disseminate additional tender offer materials to the extent required by
Rules 14d-4(c) and 14d-6(d) under the Exchange Act. If a Distribution occurs
before the Expiration Date and the Purchaser reduces its Offer price as a
result, the Purchaser will provide notice thereof to Unit Holders and extend the
Expiration Date in accordance with Rule 14e-1(b) under the Exchange Act. The
Purchaser will not provide a subsequent offering period pursuant to Rule 14d-11
under the Exchange Act.
7. Conditions of the Offer. Notwithstanding any other term of the Offer,
the Purchaser will not be required to accept for payment or, subject to any
applicable rules and regulations of the Commission, including Rule 14e-1(c)
under the Exchange Act (relating to a bidder's obligation to pay for or return
tendered securities promptly after the termination or withdrawal of such
bidder's offer), to pay for any Units tendered, may delay the acceptance for
payment of the Units tendered, or may withdraw the Offer if, at any time on or
after the date of the Offer and before the Expiration Date, any of the following
conditions exists:
(a) a preliminary or permanent injunction or other order of any federal or
state court, government, administrative agency or other governmental authority
shall have been issued and shall remain in effect which: (i) makes illegal,
delays or otherwise directly or indirectly restrains or prohibits the making of
the Offer or the acceptance for payment, purchase of or payment for any Units by
the Purchaser; (ii) imposes or confirms limitations on the ability of the
Purchaser effectively to exercise full rights of both legal and beneficial
ownership of the Units; (iii) requires divestiture by the Purchaser of any
Units; (iv) materially adversely affects the business, properties, assets,
liabilities, financial condition, operations, results of operations or prospects
of the 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, administrative agency or
other governmental authority which, directly or indirectly, results in any of
the consequences referred to in paragraph (a) above;
(c) any court, government, administrative agency or other governmental
authority, shall attempt to require any authorization, consent, filing or
waiting period in order for the Offer to be consummated, or any such authority
shall make comments or inquiries concerning the Offer, and the Purchasers are
unable to demonstrate to such authority that such authorization, consent, filing
or waiting period is not required, or resolve to the satisfaction of any such
authority any comments or inquiries made concerning the Offer;
(d) any event shall have occurred or been disclosed, or shall have been
threatened, regarding the business, properties, assets, liabilities, financial
condition, operations, or results of operations of the Partnership, which event
is materially adverse or with the passage of time would be materially adverse,
or which threatened event, if fulfilled, would be materially adverse, to the
Partnership or its business or properties;
(e) the General Partner or 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, with
full voting rights, 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, or the Purchaser is unable to
confirm to its reasonable satisfaction that the General Partner or Partnership
will not refuse to take any such action;
6
(f) 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 Partnership or its properties or the
value of the Units;
(g) 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,
(h) 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 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
For information about the Partnership, please refer to the annual report
prepared and distributed by the Partnership, particularly Items 1 and 2 of the
Partnership's Form 10-K for the fiscal year ended December 31, 2005 (the "Form
10-K"), any subsequent Quarterly Reports on Form 10-Q, and any other materials
sent to you by the Partnership. These documents contain and periodically update
information concerning the Partnership, including detailed information regarding
the properties owned, including mortgages, rental rates, operations, management,
and taxes. In addition, the Partnership is subject to the information and
reporting requirements of the Exchange Act and information about the Partnership
can be obtained on the Commission's EDGAR system, at its internet web site at
www.sec.gov, and are available for inspection at the Commission's principal
office in Washington, D.C., at Station Place, 100 F Street, N.E., Washington,
D.C. 20549.
7
Outstanding Units. According to the Form 10-K, there were 11,000 Units
issued and outstanding, held by approximately 625 Unit holders, as of as of
December 31, 2005.
Trading History of the Units. There is no established trading market for
the Units other than limited and sporadic trading through matching services or
privately negotiated sales. At present, privately negotiated sales and sales
through intermediaries (such as through the American Partnership Board) are the
only means available to a Unit Holder to liquidate an investment in Units (other
than this Offer or other occasional offers by other partnership investors, if
any) because the Units are not listed or traded on any exchange or quoted on any
NASDAQ list or system.
According to Direct Investments Spectrum, an independent third party
publication, between February 1, 2004 and January 31, 2006 (the most recent
published information), there were no trades of the Partnership's limited
partnership interests. 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.
The Purchaser is aware that an unregistered offer was recently made to
purchase Units at $225 per Unit. The Purchaser is not affiliated with the party
that made such offer, but was informed by such party that they did purchase some
Units pursuant to their offer. Otherwise, the Purchaser is not aware of any
trades of units that were not reported in the Direct Investment Spectrum.
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
own analysis. The Purchaser did not obtain current independent valuations or
appraisals of the assets.
The Purchaser developed an estimated current liquidation value for the
Partnership's Units using its proprietary valuation methods, based on the
Purchaser's own estimate of the fair market value of the Partnership's property
obtained by a review and analysis of the Partnership's publicly filed financial
statements and other publicly available information, the Partnership Agreement
provisions regarding the allocation of distributions, historical distributions
made to Unit Holders, the assets, liabilities and operating results of the
Partnership, the mortgage loans, assumed expenses of selling the properties and
liquidating the Partnership, and other considerations. In so doing, the
Purchaser applied an 8.0% capitalization rate to the estimated 2005 net
operating income for each of the properties and to the Partnership's 2005
reported net operating income as a whole. The Purchaser then reviewed the
Partnership Agreement to determine how net liquidation proceeds from a current
sale of the Partnership's properties would be distributed. Based on the
information described above, the Purchaser estimates the net proceeds to Unit
Holders from a current liquidation of the Partnership would be between $251 and
$327 per Unit. The Purchaser also considered that the general partner stated an
estimated value in 2005 of $331 per Unit. No assurances can be provided that the
Purchaser's estimates are correct, and the actual amount of net proceeds that
would be received from a current liquidation of the Partnership's assets may
differ substantially from the Purchaser's estimate. Unit Holders are advised not
to rely on Purchaser's estimates, but to make their own estimates with the
assistance of their own advisors.
8
CERTAIN INFORMATION CONCERNING THE PURCHASER
The Purchaser. The Purchaser is a California limited liability company that
was formed in 1996. The principal office of the Purchaser is 199 South Los
Robles Avenue, Suite 200, Pasadena, CA 91101. The Purchaser has no employees of
its own. The Purchaser's manager is Everest Properties II, LLC, a California
limited liability company. Both the Purchaser and its manager have the same
executive officers. For certain information concerning the executive officers of
the Purchaser and its manager, see Schedule I to this Offer to Purchase.
The Purchaser and its affiliates invest in limited partnerships such as the
Partnership, and in other forms of real estate oriented investments, and conduct
activities incident thereto.
General. Except as set forth elsewhere in this Offer to Purchase: (i) the
Purchaser does not beneficially own or have a right to acquire, and, to the best
knowledge of the Purchaser, no associate or majority-owned subsidiary of
Purchaser or the persons listed in Schedule I hereto, beneficially owns or has a
right to acquire any Units or any other equity securities of the Partnership;
(ii) the Purchaser has not, and to the best knowledge of the Purchaser, none of
the persons and entities referred to in clause (i) above or any of their
executive officers, directors or subsidiaries has, effected any transaction in
the Units or any other equity securities of the Partnership during the past 60
days other than as stated in this Offer to Purchase; (iii) the Purchaser does
not have and, to the best knowledge of the Purchaser, none of the persons listed
in Schedule I hereto has, any contract, arrangement, understanding or
relationship with any other person with respect to any securities of the
Partnership, including, but not limited to, the transfer or voting thereof,
joint ventures, loan arrangements, puts or calls, guarantees of loans,
guarantees against loss or the giving or withholding of proxies, consents or
authorizations; (iv) since January 1, 2004, 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 January 1, 2004, 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 owns 2,300
Units, or approximately 21% of the Partnership's outstanding Units. Everest
Properties II, LLC, an affiliate of Purchaser, owns 1,029 Units, or
approximately 9.4% of the Partnership's outstanding Units. None of the foregoing
Units were acquired in the last 60 days.
Representatives of the Purchaser have, within the last six months,
contacted the General Partner to inquire whether the Partnership would be
interested in selling one or more of its properties to the Purchaser or one of
its affiliates. The General Partner responded that it had no such interest.
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 since January 1, 2004.
Source of Funds. Based on the Offer price and the number of Units already
owned by the Purchaser and its affiliate, 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 $2,325,000. The Purchaser
expects to obtain these funds from current cash and cash equivalents, and by
means of equity capital contributions from its members at the time the Units
tendered pursuant to the Offer are accepted for payment. Such members will fund
their capital contributions through existing cash and other financial assets
which in the aggregate are sufficient to provide the funds required in
connection with the Offer without any borrowings. Such members have irrevocably
agreed and are obligated to make such capital contributions available to
Purchaser on demand.
9
FUTURE PLANS OF THE PURCHASER
The Purchaser is seeking to acquire Units pursuant to the Offer to obtain a
substantial equity interest in the Partnership, for investment purposes.
Following the completion of the Offer, the Purchaser and persons related to or
affiliated with the Purchaser may acquire additional Units, although there is no
current intention to do so. Any such acquisition may be made through private
purchases, through one or more future tender or exchange offers or by any other
means deemed advisable by the Purchaser. Any such acquisition may be at a price
higher or lower than the price to be paid for the Units purchased pursuant to
the Offer, and may be for cash or other consideration. The Purchaser also may
consider selling some or all of the Units it acquires pursuant to the Offer,
either directly or by a sale of one or more interests in the Purchaser itself,
depending upon liquidity, strategic, tax and other considerations.
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 or to seek to influence the management
and affairs of the Partnership, and does not have current plans for any
extraordinary transaction such as a merger, reorganization, liquidation or sale
or transfer of assets involving the Partnership. However, these plans could
change at any time in the future. If any transaction is effected by the
Partnership and financial benefits accrue to the Unit Holders, the Purchaser and
its affiliates will participate in those benefits to the extent of their
ownership of the Units.
EFFECTS OF THE OFFER
Future Benefits of Unit Ownership. Tendering Unit Holders shall receive
cash in exchange for their Units purchased by the Purchaser and will forego all
future distributions and income and loss allocations from the Partnership with
respect to such Units.
Limitations on Resales. The Partnership Agreement prohibits a transfer of
Units if the transfer would result in 50% or more of the Units being transferred
in a 12 month period (a "Tax Termination"). This provision may limit sales of
Units on the secondary market and in private transactions following completion
of the Offer. Accordingly, the Partnership may not recognize any requests for
recognition of a transferee Unit Holder upon a transfer of Units if the transfer
would result in a Tax Termination, or the Partnership may attempt to impose a
limit on the number of Units it will accept for transfer as a result of the
Offer (a "Transfer Limit" - see "Details of the Offer - Terms of the Offer;
Expiration Date; Proration"). In either such event, the Purchaser will purchase
the maximum number of Units it may purchase without causing a Tax Termination or
surpassing a Transfer Limit validly imposed under the Partnership Agreement, as
informed by the General Partner. It is not possible for Purchaser to determine
how many Units may be purchased because only the General Partner will know the
number of Units that have been transferred in all other transactions prior to
the expiration of the Offer. Also, the General Partner may elect to accept
transfers notwithstanding a technical Tax Termination if the General Partner
determines that the actual effect of such a Tax Termination is not material to
the Partnership.
Influence Over Future Voting Decisions. Under the Partnership Agreement,
Unit Holders holding a majority of the Units are entitled to take action with
respect to a variety of matters, including removal of the General Partner,
10
dissolution and termination of the Partnership, and approval of most types of
amendments to the Partnership Agreement. After the Offer, the Purchaser and its
affiliate may have significant influence over such actions. If the Purchaser
acquires more than 2,171 Units, the Purchaser and its affiliate would hold a
majority of the Units and therefore would control any vote of the Unit holders.
Other Potential Effects. The Units are registered under the Exchange Act,
which requires, among other things that the Partnership furnish certain
information to its Unit holders and to the Commission and comply with the
Commission's proxy rules in connection with meetings of, and solicitation of
consents from, Unit holders. Registration and reporting requirements could be
terminated by the Partnership if the number of record holders falls below 300,
or below 500 if the Partnership's total assets are below $10 million for three
consecutive preceding fiscal years. The Partnership reported a total of 625
limited partners as of its most recent fiscal year end and less than $10 million
in total assets. It is possible that the purchase of Units pursuant to the Offer
could reduce the number of record Unit holders below 500. Any decision to
terminate the registration of the Partnership would be made solely by the
Partnership's General Partner, without any requirement in the Partnership
Agreement to obtain the approval of Unit Holders. The Purchasers presently do
not intend to request the General Partner to terminate the registration of the
Partnership.
FEDERAL INCOME TAX MATTERS
The following 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 section. This section 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.
11
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 the number of Units sought in the
Offer are Properly Tendered, some tendering Unit Holders may not be able to sell
100 percent of their Units pursuant to the Offer because of proration of the
number of Units to be purchased by the Purchaser, unless the Purchaser amends
the Offer to increase the number of Units to be purchased.
A tendering Unit Holder will be allocated the Unit Holder's pro rata share
of the annual taxable income and losses from the Partnership with respect to the
Units sold for the period through the date of sale, even though such Unit Holder
will assign to the Purchaser its rights to receive certain cash distributions
with respect to such Units. Such allocations and any Partnership distributions
for such period would affect a Unit Holder's adjusted tax basis in the tendered
Units and, therefore, the amount of gain or loss recognized by the Unit Holder
on the sale of the Units.
Unit Holders (other than tax-exempt persons, corporations and certain
foreign individuals) who tender Units may be subject to 28 percent backup
withholding unless those Unit Holders provide a taxpayer identification number
("TIN") and are certain that the TIN is correct or properly certify that they
are awaiting a TIN. A Unit Holder may avoid backup withholding by properly
completing and signing the Letter of Transmittal. If a Unit Holder who is
subject to backup withholding does not include its TIN, the Purchaser will
withhold 28 percent from payments to such Unit Holder.
12
Possible Tax Termination. The Code provides that if 50% or more of the
capital and profits interests in a partnership are sold or exchanged within a
single 12-month period, such partnership generally will terminate for federal
income tax purposes. It is possible that the Partnership could terminate for
federal income tax purposes as a result of consummation of the Offer (although
the Partnership Agreement prohibits transfers of Units that would cause such a
termination). A tax termination of the Partnership would require the Partnership
to start depreciating its assets as though they were reacquired at the date of
such termination, which would extend the duration of the depreciation period of
such assets beyond their current period, but could significantly reduce the
depreciation expense that the Partnership would be able to deduct in the tax
years that would have remained in the depreciation period in the absence of a
tax termination. A tax termination could have an effect on a corporate or other
non-individual Unit holder whose tax year is not the same as the Partnership's,
as such a Unit holder might recognize more than one year's Partnership tax items
in one tax return, thus accelerating by a fraction of a year the effects from
such items. The Purchaser is not able to determine if the foregoing effects
would be material to the Partnership or to Unit Holders.
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. A number of states have adopted anti-takeover laws
which purport, to varying degrees, to be applicable to attempts to acquire
securities of entities domiciled in such states or which have substantial
assets, security holders, principal executive offices or principal places of
business in such states. These laws are generally directed at the acquisition of
corporations and not partnerships. The Purchaser is not aware of any state
anti-takeover law that would apply to the transaction contemplated by 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. Furthermore, 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.
Fees and Expenses. Purchaser will not pay any fees or commissions to any
broker, dealer or other person for soliciting tenders of Units pursuant to the
Offer. Employees of the Purchaser may solicit tenders of Units without any
additional compensation. The Purchaser will pay all costs and expenses of
printing and mailing the Offer and its legal fees and expenses.
Miscellaneous. The Offer is not made to (nor will tenders be accepted on
behalf of) Unit Holders residing in any jurisdiction in which the making of the
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
13
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
May 9, 2006
14
SCHEDULE I
EXECUTIVE OFFICERS
The Purchaser's manager is Everest Properties II, LLC, a California limited
liability company ("EPII"). Purchaser has no employees of its own. Both the
Purchaser and EPII have the same executive officers and no directors. The
business address of each executive officer is 199 South Los Robles Avenue, Suite
200, Pasadena, California 91101. Each executive officer is a United States
citizen. The name and principal occupation or employment of each executive
officer 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.
A-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.
May 9, 2006 EVEREST MANAGEMENT, LLC
Everest Management, LLC
199 South Los Robles Avenue
Suite 200
Pasadena, California 91101
(800) 611-4613 or (626) 585-5920
Facsimile: (626) 585-5929