Exhibit (a)(1)
OFFER TO PURCHASE FOR CASH 2,526,686
UNITS OF BENEFICIAL INTEREST OF KIEWIT ROYALTY TRUST
AT
$0.60 PER UNIT
By:
MPF SENIOR NOTE PROGRAM I, LP; SUTTER OPPORTUNITY FUND 4, LLC;
MPF DEWAAY PREMIER FUND 3, LLC; MPF FLAGSHIP FUND 12, LLC; MPF
SPECIAL FUND 8, LLC; MACKENZIE PATTERSON SPECIAL FUND 6;
MACKENZIE PATTERSON SPECIAL FUND 6-A; SALVAGE INVESTORS, LLC
(collectively the "Purchasers")
THE OFFER, WITHDRAWAL RIGHTS, AND PRORATION PERIOD WILL EXPIRE AT 11:59 P.M.,
PACIFIC TIME, ON SEPTEMBER 14, 2007, UNLESS THE OFFER IS EXTENDED.
The Purchasers hereby seek to acquire 2,526,686 Units of beneficial interest
(the "Units") in KIEWIT ROYALTY TRUST (the "Trust"). The Purchasers are not
affiliated with the Trust or its Trustee. The Trustee of the Trust is U.S. Bank
National Association (the "Trustee"). The Purchasers hereby offer to purchase
2,526,686 Units at a purchase price equal to $0.60 per Unit, less the amount of
any distributions declared or made with respect to the Units between July 31,
2007 and September 14, 2007, or such other date to which this offer may be
extended (the "Expiration Date"), in cash, without interest, upon the terms and
subject to the conditions set forth in this offer to purchase (the "Offer to
Purchase") and in the related Letter of Transmittal, as each may be supplemented
or amended from time to time (which together constitute the "Offer"). As noted
above, the Offer price would be subject to reduction for distributions made or
declared prior to the Expiration Date. Any distributions made or declared after
the Expiration Date would, by the terms of the Offer and as set forth in the
Letter of Transmittal, be assigned by tendering Unit holders to the Purchasers.
Tender of Units will include the tender of any and all securities into which the
Units may be converted and any securities distributed with respect to the Units
from and after the Offer Date. The Trust had 861 holders of record owning an
aggregate of 12,633,432 units as of December 31, 2006, according to its Annual
Report on Form 10-K for the fiscal year ending December 31, 2006. The Purchasers
and their affiliates currently beneficially own 0 Units, or 0.0% of the
outstanding Units. The 2,526,686 Units subject to the Offer constitute 20% of
the outstanding Units. Consummation of the Offer, if all Units sought are
tendered, would require payment by the Purchasers of up to $1,516,012 in
aggregate purchase price, which the Purchasers intend to fund out of their
current working capital.
Holders of Units ("Unit holders") are urged to consider the following factors:
o Our offer provides you with the opportunity to receive a guaranteed amount
of money in a specified time period. The Trustee has given no indication
when the Trust will be liquidating, if ever. The terms of the Trust
Indenture provide that the Trust will continue until net revenues fall
below $1,000,000 for three consecutive years or until unit holders vote to
terminate (subject to the "Rule Against Perpetutities" savings clause
which limits the term of the trust to 21 years after the death of all
members of the board of directors of the predecessor to the Trust, Peter
Kiewit Sons', Inc.; the Purchasers believe Walter Scott, Jr. was and is a
director and is still alive). Thus, the Trust could continue for well over
21 years or until the coal mine reserves are depleted sufficiently.
o The tax year in which you sell your Units will be the final year for which
you will be obligated to file a K-1 for the Trust with your tax return.
This may represent a reduction in costs associated with filing complicated
tax returns. Your decision to sell may have other favorable or unfavorable
tax consequences and potential sellers should consult their individual tax
advisers.
o Unit holders who tender their Units will give up the opportunity to
participate in any future benefits from the ownership of Units, including
potential future distributions by the Trust from operations or
dispositions, and the purchase price per Unit payable to a tendering Unit
holder by the Purchasers may be less than the total amount which might
otherwise be received by the Unit holder with respect to the Unit over the
remaining term of the Trust.
o The Purchasers are making the Offer for investment purposes and with the
intention of making a profit from the ownership of the Units. In
establishing the purchase price of $0.60 per Unit, the Purchasers are
motivated to establish the lowest price which might be acceptable to Unit
holders consistent with the Purchasers' objectives. There is no public
market for the Units, and neither the Unit holders nor the Purchasers have
any accurate means for determining the actual present value of the Units.
Although there can be no certainty as to the actual present value of the
Units, the Purchasers have estimated, solely for the purposes of
determining an acceptable Offer price, that the Trust could have an
estimated liquidation value of approximately $0.86 per Unit. It should be
noted, however, that the Purchasers have not made an independent appraisal
of the Units or the Trust's royalties, and are not qualified to appraise
royalties or coal mines. Furthermore, there can be no assurance as to the
timing or amount of any future Trust distributions, and
1
there cannot be any assurance that the Purchasers' estimate accurately
reflects an approximate value of the Units or that the actual amounts
which may be realized by holders for the Units may not vary substantially
from this estimate.
o The Depositary, MacKenzie Patterson Fuller, LP, is an affiliate of certain
of the Purchasers. No independent party will hold securities tendered
until the offer closes and payment is made. Because there is no
independent intermediary to hold the Purchasers' funds and tendered
securities, the Purchasers may have access to the securities before all
conditions to the Offer have been satisfied and selling Unit holders have
been paid; however, neither the Depositary nor the Purchasers has any
rights with respect to the Units prior to the Expiration Date and
acceptance by the Purchasers for payment. Further, by tendering your
Units, you are agreeing to arbitrate any disputes that may arise between
you and the Purchasers or the Depositary, to subject yourself to personal
jurisdiction in California, and that the prevailing party in any such
action will be entitled to recover attorney fees and costs.
o The Offer allows Unitholders the option to sell 'All or None' of their
Units, thereby allowing Unitholders the option to avoid proration if more
than 2,526,686 Units are tendered. See Section 2--Acceptance for Payment
and Payment for Units; Proration and Section 4--Withdrawal Rights;
Automatic Withdrawal Option. The Purchasers may accept only a portion of
the Units tendered by a Unitholder if a total of more than 2,526,686 Units
are tendered and the Unitholder does not select the 'All or None' option.
THE OFFER TO PURCHASE IS NOT CONDITIONED UPON ANY MINIMUM NUMBER OF UNITS BEING
TENDERED. IF MORE THAN 2,526,686 UNITS ARE VALIDLY TENDERED AND NOT WITHDRAWN,
THE PURCHASERS WILL ACCEPT FOR PURCHASE 2,526,686 UNITS FROM TENDERING
UNITHOLDERS (WHO DO NOT ELECT THE 'ALL OR NONE' OPTION) ON A PRO RATA BASIS,
SUBJECT TO THE TERMS AND CONDITIONS HEREIN. A UNIT HOLDER MAY TENDER ANY OR ALL
UNITS OWNED BY SUCH UNIT HOLDER.
The Purchasers expressly reserve the right, in their sole discretion, at any
time and from time to time, (i) 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, subject to the restriction below, (ii) upon the occurrence of any of
the conditions specified in Section 13 of this Offer to Purchase prior to the
Expiration Date, to terminate the Offer and not accept for payment any Units,
and (iii) to amend the Offer in any respect prior to the Expiration Date. 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 Securities Exchange Act of
1934 (the "Exchange Act"). In the case of an extension of the Offer, such
extension will be followed by a press release or public announcement which will
be issued no later than 9:00 a.m., Eastern Time, on the next business day after
the scheduled Expiration Date, in accordance with Rule 14e-1(d) under the
Exchange Act.
IMPORTANT
Any Unit holder desiring to tender any or all of such Unit holder's Units should
complete and sign the Letter of Transmittal (a copy of which is enclosed with
this Offer to Purchase, printed on purple paper) in accordance with the
instructions in the Letter of Transmittal and mail, deliver or telecopy the
Letter of Transmittal and any other required documents to MacKenzie Patterson
Fuller, LP (the "Depositary"), an affiliate of the Purchasers, at the address or
facsimile number set forth below.
MacKenzie Patterson Fuller, LP
1640 School Street, Moraga, California 94556
Telephone: 800-854-8357; Facsimile: 925-631-9119
E-Mail Address: offers@mpfi.com
Questions or requests for assistance or additional copies of this Offer to
Purchase or the Letter of Transmittal may be directed to the Purchasers at
1-800-854-8357.
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NO PERSON HAS BEEN AUTHORIZED TO MAKE ANY RECOMMENDATION OR ANY REPRESENTATION
ON BEHALF OF THE PURCHASERS OR TO PROVIDE ANY INFORMATION OTHER THAN AS
CONTAINED HEREIN OR IN THE LETTER OF TRANSMITTAL. NO SUCH RECOMMENDATION,
INFORMATION OR REPRESENTATION MAY BE RELIED UPON AS HAVING BEEN AUTHORIZED.
- ---------------------------
The Trust is subject to the information and reporting requirements of the
Exchange Act and in accordance therewith is required to file reports and other
information with the Securities and Exchange Commission ("Commission") relating
to its business, financial condition and other matters. Such reports and other
information are available on the Commission's electronic data gathering and
retrieval (EDGAR) system, at its internet web site at www.sec.gov, may be
inspected at the public reference facilities maintained by the Commission at 100
F Street, NE, Room 1580, Washington, D.C. 20549. Copies of such material
2
can also be obtained from the Public Reference Room of the Commission in
Washington, D.C. at prescribed rates.
The Purchasers have filed with the Commission a Tender Offer Statement on
Schedule TO (including exhibits) pursuant to Rule 14d-3 of the General Rules and
Regulations under the Exchange Act, furnishing certain additional information
with respect to the Offer. Such statement and any amendments thereto, including
exhibits, may be inspected and copies may be obtained from the offices of the
Commission in the manner specified above.
TABLE OF CONTENTS
Page
SUMMARY TERM SHEET.............................................................4
INTRODUCTION...................................................................7
TENDER OFFER...................................................................9
Section 1. Terms of the Offer.................................................9
Section 2. Acceptance for Payment and Payment for Units;Proration.............10
Section 3. Procedures for Tendering Units.....................................10
Section 4. Withdrawal Rights..................................................12
Section 5. Extension of Tender Period; Termination; Amendment.................12
Section 6. Material Federal Income Tax Consequences...........................13
Section 7. Effects of the Offer...............................................14
Section 8. Future Plans......................................................14
Section 9. The Business of the Trust..........................................15
Section 10. Conflicts of Interest.............................................15
Section 11. Certain Information Concerning the Purchasers.....................15
Section 12. Source of Funds...................................................16
Section 13. Conditions of the Offer...........................................16
Section 14. Certain Legal Matters.............................................17
Section 15. Fees and Expenses.................................................17
Section 16. Miscellaneous.....................................................17
SCHEDULE I....................................................................18
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SUMMARY TERM SHEET
The Purchasers are offering to purchase up to 2,526,686 Units for $0.60 per Unit
in cash. The following are some of the questions that you, as a Unit holder of
the Trust, may have and answers to those questions. The information in this
summary is not complete, and we urge you to carefully read the remainder of this
Offer to Purchase and the accompanying Letter of Transmittal.
WHO IS OFFERING TO BUY MY UNITS?
The offer to purchase your Units is being made jointly by MPF Senior Note
Program I, LP; Sutter Opportunity Fund 4, LLC; MPF DeWaay Premier Fund 3, LLC;
MPF Flagship Fund 12, LLC; MPF Special Fund 8, LLC; MacKenzie Patterson Special
Fund 6; MacKenzie Patterson Special Fund 6-A; Salvage Investors, LLC. Each of
the entity Purchasers is an investment fund managed or advised by MacKenzie
Patterson Fuller, LP, a private, independent investment firm or its affiliate
Sutter Capital Management, LLC. None of these entities is affiliated with the
Trust or its Trustee.
WHAT ARE THE CLASSES AND AMOUNTS OF SECURITIES SOUGHT IN THE OFFER?
We are seeking to purchase up to 2,526,686 Units of beneficial interest, which
are the "Units" issued to investors in the Trust.
HOW MUCH ARE YOU OFFERING TO PAY AND WHAT IS THE FORM OF PAYMENT?
We are offering to pay $0.60 per Unit, net to you in cash, less the amount of
any distributions declared or made with respect to the Units between July 31,
2007 and the date the Offer expires. The Offer price would be reduced by the
amount of distributions made or declared prior to the Expiration Date (none is
expected in accordance with past practice). Any distributions made or declared
after the Expiration Date would, by the terms of the Offer and as set forth in
the Letter of Transmittal, be assigned by tendering Unit holders to the
Purchasers. If you tender your Units to us in the Offer, you will not have to
pay brokerage fees or similar expenses.
DO YOU HAVE THE FINANCIAL RESOURCES TO MAKE PAYMENT?
If the total amount of Units sought is purchased, the Purchasers' capital
commitment will be approximately $1,516,012. The Purchasers have an aggregate of
approximately $29 million in total assets at their disposal to fund payment to
selling Unit holders. The Purchasers currently have sufficient funded capital to
fund all of their commitments under this Offer and all other tender offers they
may be presently making.
IS THE FINANCIAL CONDITION OF THE BIDDERS RELEVANT TO MY DECISION ON WHETHER TO
TENDER IN THE OFFER?
Because this is a cash offer that is not conditioned on financing being
available, and the Purchasers have more than adequate resources and no intention
to take control of the Trust, other information concerning the Purchasers'
financial condition would seem to have little relevance to your decision.
HOW LONG DO I HAVE TO DECIDE WHETHER TO TENDER IN THE OFFER?
You will have at least until 11:59 p.m., Pacific Time, on September 14, 2007, to
decide whether to tender your Units in the Offer.
WILL ALL OF THE UNITS I TENDER BE ACCEPTED BY THE PURCHASERS?
The Purchasers desire to purchase up to 2,526,686 Units. If the number of Units
validly tendered and not properly withdrawn on or prior to the Expiration Date
is less than or equal to 2,526,686, we will purchase all Units so tendered and
not withdrawn, upon the terms and subject to the conditions of the Offer.
However, if more than 2,526,686 Units are so tendered and not withdrawn, we will
accept for payment and pay for 2,526,686 Units so tendered, pro rata according
to the number of Units so tendered, adjusted by rounding down to the nearest
whole number of Units tendered by each Unit holder to avoid purchases of
fractional Units, as appropriate. However, you have the option to sell `All or
None' of your Units by checking the appropriate box on the Letter of
Transmittal. If you check that box, we will not purchase your Units if more than
2,526,686 Units are tendered, and you will be deemed to automatically withdraw
your tender. See Section 2. Acceptance for Payment and Payment for Units;
Proration and Section 4. Withdrawal Rights.
CAN THE OFFER BE EXTENDED AND UNDER WHAT CIRCUMSTANCES?
The Offer can be extended in our discretion.
4
HOW WILL I BE NOTIFIED IF THE OFFER IS EXTENDED?
If we extend the offer, we will make a public announcement of the extension, not
later than 9:00 a.m., Eastern Time, on the day after the day on which the Offer
was scheduled to expire. You can check our website at www.mpfi.com (click on MPF
Tenders) to see if it has been extended, or check the SEC's EDGAR database.
WHAT ARE THE MOST SIGNIFICANT CONDITIONS TO THE OFFER?
There are no conditions to the offer based on a minimum number of Units
tendered, the availability of financing, or the success of the offer. However,
we may not be obligated to purchase any Units if certain conditions occur, such
as legal or government actions which would prohibit the purchase. Furthermore,
we are not obligated to purchase any Units which are validly tendered if, among
other things, there is a material adverse change in the Trust or its business.
Please see the discussion in Section 13, Conditions of the Offer, for a
description of all conditions. Further, by tendering your Units, you are
agreeing to arbitrate any disputes that may arise between you and the Purchasers
or the Depositary, to subject yourself to personal jurisdiction in California,
and that the prevailing party in any such action will be entitled to recover
attorney fees and costs.
WHEN WILL YOU PAY ME FOR THE UNITS I TENDER?
Upon the Expiration of the Offer and our acceptance of the Units you tender, we
will pay you upon confirmation that the Trustee will either transfer the Units
or recognize the change of address for distributions and correspondence on the
Units.
HOW DO I TENDER MY UNITS?
To tender your Units, you must deliver a completed Letter of Transmittal
(printed on purple paper), to the Depositary at: MacKenzie Patterson Fuller, LP,
1640 School Street, Moraga, California 94556 (Telephone: 800-854-8357; Facsimile
Transmission: 925-631-9119), no later than the time the Offer expires.
UNTIL WHAT TIME CAN I WITHDRAW PREVIOUSLY TENDERED UNITS?
You can withdraw previously tendered Units at any time until the Offer has
expired and, if we have not agreed to accept your Units for payment by September
29, 2007, you can withdraw them at any time after such time until we do accept
your Units for payment.
HOW DO I WITHDRAW PREVIOUSLY TENDERED UNITS?
To withdraw Units, you must deliver a written notice of withdrawal, or a
facsimile of one, with the required information to the Depositary while you
still have the right to withdraw the Units.
WHAT DOES THE TRUST'S TRUSTEE THINK OF THE OFFER?
The Purchasers have not sought the approval or disapproval of the Trustee. The
Trustee may be expected to respond with the Trust's position on the offer in the
next two weeks.
WILL THE TRUST CONTINUE AS A PUBLIC COMPANY?
The Trust reported 861 holders of its outstanding Units as of the date of its
most recent annual report. If the total number of Unit holders is below 300, the
Trust can elect to discontinue its status as a public reporting company.
Accordingly, it is possible that the Offer could result in the total number of
Unit holders falling below the 300 holder level. However, there has never been a
public trading market for the Units and none is expected to develop, so the
Trust's status as a public company will not affect a trading market in the
Units. A change in the Trust's status as a public company could reduce the
information available to Unit holders about the Trust in the event the
information required by the Trust Indenture is not as extensive as that provided
in reports required to be filed by public companies under applicable rules of
the Securities and Exchange Commission. Further, such potential deregistration
would result in the loss of the other protections afforded by registration.
IF I DECIDE NOT TO TENDER, HOW WILL THE OFFER AFFECT MY UNITS?
The Purchasers do not anticipate that Units held by non-tendering Unit holders
will be affected by the completion of the offer.
5
WHAT ARE THE PURCHASERS' FUTURE INTENTIONS CONCERNING THE TRUST?
The Purchasers have no present intention to seek control of the Trust or to
change the management or operations of the Trust. The Purchasers do not have any
present intention to take action in connection with the liquidation of the Trust
or with any extraordinary transaction concerning the Trust or its assets.
Although the Purchasers do not have any present intention to take any action
with respect to management or control of the Trust, the Purchasers reserve the
right, at an appropriate time, to exercise their rights as Unit holders to vote
on matters subject to a Unit holder vote, including any vote affecting the sale
of the Trust's assets and the liquidation and dissolution of the Trust. Thus, if
the Purchasers purchase over 50% of the outstanding Units of the Trust (pursuant
to this and any other tender offers and other purchases), they will be in a
position to control the Trust by virtue of being able to remove and replace the
Trustee, to cause the Trust to sell its assets, and to liquidate the Trust.
WHAT IS THE MARKET VALUE OF MY UNITS?
The Units do not have a readily ascertainable market value, and neither the Unit
holders nor the Purchasers has any accurate means for determining the actual
present value of the Units. According to the Trust, "There is no established
public trading market for the Units." (Annual Report on Form 10-K for the fiscal
year ending December 31, 2006). The Purchasers' review of independent secondary
market reporting publications such as The Stanger Report and The Direct
Investments Spectrum (formerly The Partnership Spectrum), reported no trading
prices on secondary markets during the 1st Quarter 2007 and no trading prices on
secondary markets in Jan/Feb 2007, respectively. The American Partnership Board,
another independent, third-party source, reported no trades in June 2007. The
information published by these independent sources is believed to be the product
of their private market research and does not constitute the comprehensive
transaction reporting of a securities exchange. Accordingly, the Purchasers do
not know whether the foregoing information is accurate or complete. The
Purchasers are unaware of any other recent trading prices. Although there can be
no certainty as to the actual present value of the Units, the Purchasers have
estimated, solely for the purposes of determining an acceptable Offer price,
that the Trust could have an estimated liquidation value of approximately $0.86
per Unit, or higher. It should be noted, that the Purchasers have not made an
independent appraisal of the Units or the Trust's royalties, and are not
qualified to appraise royalty interests in coal mines. Accordingly, there can be
no assurance that this estimate accurately reflects an approximate value of the
Units or that the actual amounts which may be realized by Unit holders for the
Units may not vary substantially from this estimate.
TO WHOM CAN I TALK IF I HAVE QUESTIONS ABOUT THE TENDER OFFER?
You can call MacKenzie Patterson Fuller, LP, toll-free, at 800-854-8357.
6
To the Unit holders of KIEWIT ROYALTY TRUST:
INTRODUCTION
The Purchasers hereby offer to purchase 2,526,686 Units at a purchase
price of $0.60 per Unit ("Offer Price"), less the amount of any distributions
declared or paid with respect to the Units between July 31, 2007, and the
Expiration Date, in cash, without interest, upon the terms and subject to the
conditions set forth in the Offer. The Purchasers are unaware of any
distributions declared or paid since July 31, 2007. Unit holders who tender
their Units will not be obligated to pay any transfer fees, or any other fees,
expenses or commissions in connection with the tender of Units. The Purchasers
will pay all such costs and all charges and expenses of the Depositary, an
affiliate of certain of the Purchasers, as depositary in connection with the
Offer.
For further information concerning the Purchasers, see Section 11 below
and Schedule I. None of the Purchasers or the Depositary is affiliated with the
Trust or the Trust's Trustee. The address of the Trust's principal executive
offices is 1700 Farnam Street, Omaha, Nebraska 68102, and its phone number is
(402) 348-6000
Unit holders are urged to consider the following factors:
o Our offer provides you with the opportunity to receive a guaranteed amount
of money in a specified time period. The Trustee has given no indication
when the Trust will be liquidating, if ever. The terms of the Trust
Indenture provide that the Trust will continue until net revenues fall
below $1,000,000 for three consecutive years or until unit holders vote to
terminate (subject to the "Rule Against Perpetutities" savings clause
which limits the term of the trust to 21 years after the death of all
members of the board of directors of the predecessor to the Trust, Peter
Kiewit Sons', Inc.; the Purchasers believe Walter Scott, Jr. was and is a
director and is still alive). Thus, the Trust could continue for well over
21 years or until the coal mine reserves are depleted sufficiently.
o The tax year in which you sell your Units will be the final year for which
you will be obligated to file a K-1 for the Trust with your tax return.
This may represent a reduction in costs associated with filing complicated
tax returns. Your decision to sell may have other favorable or unfavorable
tax consequences and potential sellers should consult their individual tax
advisers.
o The Offer will provide Unit holders with an opportunity to liquidate their
investment without the usual transaction costs associated with market
sales. Unit holders may have a more immediate need to use the cash now
tied up in an investment in the Units and may wish to sell them to the
Purchasers.
o Unit holders who tender their Units will give up the opportunity to
participate in any future benefits from the ownership of Units, including
potential future distributions by the Trust from dispositions or
operations, and the purchase price per Unit payable to a tendering Unit
holder by the Purchasers may be less than the total amount which might
otherwise be received by the Unit holder with respect to the Unit over the
remaining term of the Trust.
o The Purchasers are making the Offer for investment purposes and with the
intention of making a profit from the ownership of the Units. In
establishing the purchase price of $0.60 per Unit, the Purchasers are
motivated to establish the lowest price which might be acceptable to Unit
holders consistent with the Purchasers' objectives. There is no public
market for the Units, and neither the Unit holders nor the Purchasers have
any accurate means for determining the actual present value of the Units.
Although there can be no certainty as to the actual present value of the
Units, the Purchasers have estimated, solely for the purposes of
determining an acceptable Offer price, that the Trust could have an
estimated liquidation value of approximately $0.86 per Unit. It should be
noted, however, that the Purchasers have not made an independent appraisal
of the Units or the Trust's royalties, and are not qualified to appraise
coal mine royalties. Furthermore, there can be no assurance as to the
timing or amount of any future Trust distributions, and there can be no
assurance that the Purchasers' estimate accurately reflects an approximate
value of the Units or that the actual amounts which may be realized by
holders for the Units may not vary substantially from this estimate.
o The Depositary, MacKenzie Patterson Fuller, LP, is an affiliate of certain
of the Purchasers. No independent party will hold securities tendered
until the offer closes and payment is made. Because there is no
independent intermediary to hold the Purchasers' funds and tendered
securities, the Purchasers may have access to the securities before all
conditions to the Offer have been satisfied and selling Unit holders have
been paid; however, neither the Depositary nor the Purchasers has any
rights with respect to the Units prior to the Expiration Date and
acceptance by the Purchasers for payment. Further, by tendering your
Units, you are agreeing to arbitrate any disputes that may arise between
you and the Purchasers or the Depositary, to subject yourself to personal
jurisdiction in California, and that the prevailing party in any such
action will be entitled to recover attorney fees and costs.
7
o The Offer allows Unitholders the option to sell 'All or None' of their
Units, thereby allowing Unitholders the option to avoid proration if more
than 2,526,686 Units are tendered. See Section 2--Acceptance for Payment
and Payment for Units; Proration and Section 4--Withdrawal Rights;
Automatic Withdrawal Option. The Purchasers may accept only a portion of
the Units tendered by a Unitholder if a total of more than 2,526,686 Units
are tendered and the Unitholder does not select the 'All or None' option.
Establishment of the Offer Price
The Purchasers have set the Offer Price at $0.60 per Unit, less the amount
of any distributions declared or made with respect to the Units between July 31,
2007 and the Expiration Date. In determining the Offer Price, the Purchasers
analyzed a number of quantitative and qualitative factors, including: (i) the
lack of a secondary market for resales of the Units and the resulting lack of
liquidity of an investment in the Trust; (ii) the estimated value of the Trust's
royalties; and (iii) the costs to the Purchasers associated with acquiring the
Units.
The Trust made the following statements in its Annual Report on Form 10-K
for the fiscal year ending December 31, 2006: "There is no established public
trading market for the Units." The lack of any public market for the sale of
Units means that Unit holders have limited alternatives if they seek to sell
their Units. As a result of such limited alternatives for Unit holders, the
Purchasers may not need to offer as high a price for the Units as they would
otherwise. On the other hand, the Purchasers take a greater risk in establishing
a purchase price as there is no prevailing market price to be used for reference
and the Purchasers themselves will have limited liquidity for the Units upon
consummation of the purchase. The Purchasers' review of independent secondary
market reporting publications such as Stanger Report and The Direct Investments
Spectrum (formerly The Partnership Spectrum), reported no trading prices on
secondary markets during the 1st Quarter 2007 and no trading prices on secondary
markets in Jan/Feb 2007, respectively. The American Partnership Board, another
independent, third-party source, reported no trades in June 2007. The
information published by these independent sources is believed to be the product
of their private market research and does not constitute the comprehensive
transaction reporting of a securities exchange. Accordingly, the Purchasers do
not know whether the foregoing information is accurate or complete. The
Purchasers are unaware of any other recent trading prices.
The Purchasers are offering to purchase Units which are an illiquid
investment and are not offering to purchase the Trust's underlying assets. The
Purchasers' valuation is based upon the sale of the assets of the Trust, but
such assets may not be liquidated for an indefinite period of time. Accordingly,
the underlying asset value of the Trust is only one factor used by the
Purchasers in arriving at the Offer Price. However, in the absence of trading
price information, the Purchasers' estimate of the net asset value of the Trust
may be relevant to Unit holders' review of the Offer Price. Using publicly
available information concerning the Trust contained in the Trust's Annual
Report on Form 10-K for the fiscal year ending December 31, 2006 and the
quarterly reports for the quarters ended March 31, 2007, September 30, 2006, and
June 30, 2006, the Purchasers derived an estimated net asset value for the
Units. The Purchasers are not qualified as royalty or coal mine appraisers and
have relied solely on publicly available information in making their estimate of
the value of the Trust's assets. The Purchasers' estimated value of Trust assets
was calculated solely for purposes of formulating their offer and cannot be
relied upon as representing an amount which might actually be realized upon a
liquidation of the Trust's assets, whether now or at any time in the future.
In determining their estimated value of the Units, the Purchasers first
calculated the "Estimated Net Sales Value" of the Trust's investments. The
Estimated Net Sales Value was estimated to be three times the Trust's net income
from the quarter ended March 31, 2007, annualized. The result reduced by 4% to
take into account the estimated closing costs which would be incurred upon sale
by the Trust of the royalties, including brokerage commissions, title costs,
surveys, appraisals, legal fees and transfer taxes. The net income was obtained
from the Trust's Form 10-Q for the first quarter ended March 31, 2007 (available
on the Commission's EDGAR system, at its internet web site at www.sec.gov, and
available for inspection at the Commission's principal office in Washington,
D.C.).
The Purchasers believe that the multiple of net income is within a range
of multiples currently employed in the marketplace for royalties of similar
type, age, and quality. The utilization of different multiples, however, could
also be appropriate. In this regard, Unit holders should be aware that the use
of higher multiple would result in a higher Estimated Net Sales Value. The
resulting Estimated Liquidation Value of the Trust's assets was approximately
$0.86 per Unit. The Purchasers emphasize that this value was calculated by them
solely for purposes of selecting an Offer Price. There can be no assurance as to
the actual liquidation value of Trust assets or as to the amount or timing of
distributions of liquidation proceeds which may be received by Unit holders. The
Trust has not announced any pending offer to purchase its assets. Accordingly,
there can be no assurance as to the availability or timing of any liquidation
proceeds. Details on our analysis of the Estimated Valuation per Unit based upon
this information is given below:
- --------------------------------------------------------------------------------
Gross valuation of Trust royalties $11,363,000
- --------------------------------------------------------------------------------
Less: Selling Costs at 4% ($454,000)
- --------------------------------------------------------------------------------
Estimated net valuation of your Trust $10,909,000
- --------------------------------------------------------------------------------
Total number of units 12,633,432
- --------------------------------------------------------------------------------
Estimated valuation per unit $0.86
- --------------------------------------------------------------------------------
8
The Offer Price represents the price at which the Purchasers are willing
to purchase Units. The Purchasers arrived at the $0.60 Offer Price by applying a
liquidity discount to their calculations of Estimated Liquidation Value of the
Trust's assets, after deducting selling and liquidation costs. The Purchasers
apply such a discount with the intention of making a profit by holding on to the
Units until the Trust is liquidated, hopefully at close to the full Estimated
Liquidation Value. No independent person has been retained to evaluate or render
any opinion with respect to the fairness of the Offer Price and no
representation is made by the Purchasers or any affiliate of the Purchasers as
to such fairness. Other measures of the value of the Units may be relevant to
Unit holders. Unit holders are urged to consider carefully all of the
information contained herein and consult with their own advisers, tax, financial
or otherwise, in evaluating the terms of the Offer before deciding whether to
tender.
The Offer is not made with any current view toward or plan or purpose of
acquiring Units in a series of successive and periodic offers. Nevertheless, the
Purchasers reserve the right to gauge the response to this solicitation, and, if
not successful in purchasing 2,526,686 Units pursuant to this Offer, may
consider future offers. Factors affecting the Purchasers' future interest in
acquiring additional Units include, but are not limited to, the relative success
of the current Offer, any increase or decrease in the availability of capital
for investment by the Purchasers and their investment fund affiliates, the
current diversification and performance of each affiliated fund's portfolio of
interests, the development of any public market in the Units or actions by
unrelated parties to tender for or purchase Units, the status of and changes and
trends in the Trust's operations, announcement of pending sales and the proposed
terms of sales, and local and national and financial market developments and
trends.
General Background Information
Certain information contained in this Offer to Purchase which relates to,
or represents, statements made by the Trust or the Trustee, has been derived
from information provided in reports filed by the Trust with the SEC.
Tendering Unit holders will not be obligated to pay transfer fees,
brokerage fees, or commissions on the sale of the Units to the Purchasers
pursuant to the Offer. The Purchasers will pay all charges and expenses incurred
in connection with the Offer. The Purchasers desire to purchase up to 2,526,686
Units. If the number of Units validly tendered and not properly withdrawn on or
prior to the Expiration Date is less than or equal to 2,526,686, we will
purchase all Units so tendered and not withdrawn, upon the terms and subject to
the conditions of the Offer. However, if more than 2,526,686 Units are so
tendered and not withdrawn, we will accept for payment and pay for 2,526,686
Units so tendered, pro rata according to the number of Units so tendered,
adjusted by rounding down to the nearest whole number of Units tendered by each
Unit holder to avoid purchases of fractional Units, as appropriate. However, you
have the option to sell `All or None' of your Units by checking the appropriate
box on the Letter of Transmittal. If you check that box, we will only purchase
your Units if we can purchase all of your Units; otherwise, you will be deemed
to automatically withdraw your tender. See Section 2. Acceptance for Payment and
Payment for Units; Proration and Section 4. Withdrawal Rights.
If, prior to the Expiration Date, the Purchasers increase the
consideration offered to Unit holders pursuant to the Offer, such increased
consideration will be paid with respect to all Units that are purchased pursuant
to the Offer, whether or not such Units were tendered prior to such increase in
consideration. Unit holders are urged to read this Offer to Purchase and the
accompanying Letter of Transmittal carefully before deciding whether to tender
their Units.
TENDER OFFER
Section 1. Terms of the Offer. Upon the terms and subject to the conditions of
the Offer, the Purchasers will accept for payment and pay for Units validly
tendered on or prior to the Expiration Date and not withdrawn in accordance with
Section 4 of this Offer to Purchase. The term "Expiration Date" shall mean 11:59
p.m., Pacific Time, on September 14, 2007, unless and until the Purchasers shall
have extended the period of time for which the Offer is open, in which event the
term "Expiration Date" shall mean the latest time and date on which the Offer,
as so extended by the Purchasers, shall expire.
The Offer is conditioned on satisfaction of certain conditions. See
Section 13, which sets forth in full the conditions of the Offer. The Purchasers
reserve the right (but shall not be obligated), in their sole discretion and for
any reason, to waive any or all of such conditions. If, by the Expiration Date,
any or all of such conditions have not been satisfied or waived, the Purchasers
reserve the right (but shall not be obligated) to (i) decline to purchase any of
the Units tendered, terminate the Offer and return all tendered Units to
tendering Unit holders, (ii) waive all the unsatisfied conditions and, subject
to complying with applicable rules and regulations of the Commission, purchase
all Units validly tendered, (iii) extend the Offer and, subject to the right of
Unit holders to withdraw Units until the Expiration Date, retain the Units that
have been tendered during the period or periods for which the Offer is extended
or (iv) to amend the Offer. Notwithstanding the foregoing, upon the expiration
of the Offer, if all conditions are either satisfied or waived, the Purchasers
will promptly pay for all validly tendered Units upon confirmation that the
Trustee will either transfer the Units or recognize the change of address for
distributions and
9
correspondence on the Units, and the Purchasers do not intend to imply that the
foregoing rights of the Purchasers would permit the Purchasers to delay payment
for validly tendered Units following expiration.
The Purchasers do not anticipate and have no reason to believe that any
condition or event will occur that would prevent the Purchasers from purchasing
tendered Units as offered herein. Further, by tendering your Units, you are
agreeing to arbitrate any disputes that may arise between you and the Purchasers
or the Depositary, to subject yourself to personal jurisdiction in California,
and that the prevailing party in any such action will be entitled to recover
attorney fees and costs. However, by so doing, you are not waiving any of your
rights under the federal securities laws or any rule or regulation thereunder.
Section 2. Acceptance for Payment and Payment for Units Acceptance for Payment
and Payment for Units; Proration. Upon the terms and subject to the conditions
of the Offer (including, if the Offer is extended or amended, the terms and
conditions of any extension or amendment), the Purchasers will accept for
payment, and will pay for, Units validly tendered and not withdrawn in
accordance with Section 4, promptly following the Expiration Date and upon
confirmation that the Trustee will either transfer the Units or recognize the
change of address for distributions and correspondence on the Units. In all
cases, payment for Units purchased pursuant to the Offer will be made only after
timely receipt by the Depositary of a properly completed and duly executed
Letter of Transmittal (or facsimile thereof) and any other documents required by
the Letter of Transmittal.
The Purchasers desire to purchase up to 2,526,686 Units. If the number of
Units validly tendered and not properly withdrawn on or prior to the Expiration
Date is less than or equal to 2,526,686, we will purchase all Units so tendered
and not withdrawn, upon the terms and subject to the conditions of the Offer.
However, if more than 2,526,686 Units are so tendered and not withdrawn, we will
accept for payment and pay for 2,526,686 Units so tendered, pro rata according
to the number of Units so tendered, adjusted by rounding down to the nearest
whole number of Units tendered by each Unit holder to avoid purchases of
fractional Units, as appropriate.
In the event that proration is required, because of the difficulty of
immediately determining the precise number of Units to be accepted, the
Purchasers will announce the final results of proration as soon as practicable,
but in no event later than five business days following the Expiration Date. The
Purchasers will not pay for any Units tendered until after the final proration
factor has been determined.
Unitholders may indicate, by checking a box on the Letter of Transmittal
(the 'All or None' Box), that they only wish to sell their Units if they will be
able to sell all of their Units, without any proration. See Section
4--Withdrawal Rights. If more than 2,526,686 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.
For purposes of the Offer, the Purchasers shall be deemed to have accepted
for payment (and thereby purchased) tendered Units when, as and if the
Purchasers give oral or written notice to the Depositary of the Purchasers'
acceptance for payment of such Units pursuant to the Offer. Upon the terms and
subject to the conditions of the Offer, payment for Units purchased pursuant to
the Offer will in all cases be made by deposit of the Offer Price with the
Depositary, which will act as agent for the tendering Unit holders for the
purpose of receiving payment from the Purchasers and transmitting payment to
tendering Unit holders.
Under no circumstances will interest be paid on the Offer Price by reason
of any delay in making such payment.
If any tendered Units are not purchased for any reason (other than due to
proration as described above), the Letter of Transmittal with respect to such
Units not purchased will be of no force or effect. If, for any reason
whatsoever, acceptance for payment of, or payment for, any Units tendered
pursuant to the Offer is delayed or the Purchasers are unable to accept for
payment, purchase or pay for Units tendered pursuant to the Offer, then, without
prejudice to the Purchasers' rights under Section 13, the Depositary may,
nevertheless, on behalf of the Purchasers, retain tendered Units and such Units
may not be withdrawn (but subject to compliance with Rule 14e-1(c) under the
Exchange Act, which requires that the Purchasers pay the consideration offered
or return the Units deposited by or on behalf of the Unit holder promptly after
the termination or withdrawal of a tender offer), except to the extent that the
tendering Unit holders are entitled to withdrawal rights as described in Section
4.
If, prior to the Expiration Date, the Purchasers shall increase the
consideration offered to Unit holders pursuant to the Offer, such increased
consideration shall be paid for all Units accepted for payment pursuant to the
Offer, whether or not such Units were tendered prior to such increase.
Section 3. Procedures for Tendering Units.
10
Valid Tender. For Units to be validly tendered pursuant to the Offer, a properly
completed and duly executed Letter of Transmittal (a copy of which is enclosed
with this Offer to Purchase, printed on purple paper) with any other documents
required by the Letter of Transmittal must be received by the Depositary at its
address set forth on the back cover of this Offer to Purchase on or prior to the
Expiration Date. A Unit holder may tender any or all Units owned by such Unit
holder.
In order for a tendering Unit holder to participate in the Offer, Units must be
validly tendered and not withdrawn prior to the Expiration Date, which is 11:59
p.m., Pacific Time, on September 14, 2007, or such date to which the Offer may
be extended.
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 Depositary.
Backup Federal Income Tax Withholding. To prevent the possible application of
31% backup federal income tax withholding with respect to payment of the Offer
Price for Units purchased pursuant to the Offer, a tendering Unit holder must
provide the Depositary with such Unit holder's correct taxpayer identification
number and make certain certifications that such Unit holder is not subject to
backup federal income tax withholding. Each tendering Unit holder must insert in
the Letter of Transmittal the Unit holder's taxpayer identification number or
social security number in the space provided on the front of the Letter of
Transmittal. The Letter of Transmittal also includes a substitute Form W-9,
which contains the certifications referred to above. (See the Instructions to
the Letter of Transmittal.)
FIRPTA Withholding. To prevent the withholding of federal income tax in an
amount equal to 10% of the sum of the Offer Price plus the amount of Trust
liabilities allocable to each Unit tendered, each Unit holder must complete the
FIRPTA Affidavit included in the Letter of Transmittal certifying such Unit
holder's taxpayer identification number and address and that the Unit holder is
not a foreign person. (See the Instructions to the Letter of Transmittal and
"Section 6. Certain Federal Income Tax Consequences.")
Other Requirements. By executing a Letter of Transmittal as set forth above, a
tendering Unit holder irrevocably appoints the designees of the Purchasers as
such Unit holder's proxies, in the manner set forth in the Letter of
Transmittal, each with full power of substitution, to the full extent of such
Unit holder's rights with respect to the Units tendered by such Unit holder and
accepted for payment by the Purchasers. Such appointment will be effective when,
and only to the extent that, the Purchasers accept such Units for payment. Upon
such acceptance for payment, all prior proxies given by such Unit holder with
respect to such Units will, without further action, be revoked, and no
subsequent proxies may be given (and if given will not be effective). The
designees of the Purchasers will, with respect to such Units, be empowered to
exercise all voting and other rights of such Unit holder as they in their sole
discretion may deem proper at any meeting of Unit holders, by written consent or
otherwise. In addition, by executing a Letter of Transmittal, a Unit holder also
assigns to the Purchasers all of the Unit holder's rights to receive
distributions from the Trust with respect to Units which are accepted for
payment and purchased pursuant to the Offer, other than those distributions
declared or paid during the period commencing on the Offer Date and terminating
on the Expiration Date.
Determination of Validity; Rejection of Units; Waiver of Defects; No Obligation
to Give Notice of Defects. All questions as to the validity, form, eligibility
(including time of receipt), and acceptance for payment of any tender of Units
pursuant to the procedures described above will be determined by the Purchasers,
in their sole discretion, which determination shall be final and binding. The
Purchasers reserve the absolute right to reject any or all tenders if not in
proper form or if the acceptance of, or payment for, the absolute right to
reject any or all tenders if not in proper form or if the acceptance of, or
payment for, the Units tendered may, in the opinion of the Purchasers' counsel,
be unlawful. The Purchasers also reserve the right to waive any defect or
irregularity in any tender with respect to any particular Units of any
particular Unit holder, and the Purchasers' interpretation of the terms and
conditions of the Offer (including the Letter of Transmittal and the
Instructions thereto) will be final and binding. Neither the Purchasers, the
Depositary, nor any other person will be under any duty to give notification of
any defects or irregularities in the tender of any Units or will incur any
liability for failure to give any such notification.
A tender of Units pursuant to any of the procedures described above will
constitute a binding agreement between the tendering Unit holder and the
Purchasers upon the terms and subject to the conditions of the Offer, including
the tendering Unit holder's representation and warranty that (i) such Unit
holder owns the Units being tendered within the meaning of Rule 14e-4 under the
Exchange Act and (ii) the tender of such Unit complies with Rule 14e-4. Rule
14e-4 requires, in general, that a tendering security holder actually be able to
deliver the security subject to the tender offer, and is of concern particularly
to any Unit holders who have granted options to sell or purchase the Units, hold
option rights to acquire such securities, maintain "short" positions in the
Units (i.e., have borrowed the Units) or have loaned the Units to a short
seller. Because of the nature of interests such as the Units, the Purchasers
believe it is unlikely that any option trading or short selling activity exists
with respect to the Units. In any event, a Unit holder will be deemed to tender
Units in compliance with Rule 14e-4 and the Offer if the holder is the record
owner of the Units and the holder (i) delivers the Units pursuant to the terms
of the Offer, (ii) causes such delivery to be made, (iii) guarantees such
delivery, (iv) causes a guaranty of such delivery, or (v) uses any other method
11
permitted in the Offer (such as facsimile delivery of the Transmittal Letter).
Section 4. Withdrawal Rights. Except as otherwise provided in this Section 4,
all tenders of Units pursuant to the Offer are irrevocable, provided that Units
tendered pursuant to the Offer may be withdrawn at any time prior to the
Expiration Date and, unless theretofore accepted for payment as provided in this
Offer to Purchase, may also be withdrawn at any time on or after September 29,
2007.
For withdrawal to be effective a written or facsimile transmission notice
of withdrawal must be timely received by the Depositary at the address or the
facsimile number set forth in the attached Letter of Transmittal. Any such
notice of withdrawal must specify the name of the person 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.
If purchase of, or payment for, Units is delayed for any reason or if the
Purchasers are unable to purchase or pay for Units for any reason, then, without
prejudice to the Purchasers' rights under the Offer, tendered Units may be
retained by the Depositary on behalf of the Purchasers and may not be withdrawn
except to the extent that tendering Unit holders are entitled to withdrawal
rights as set forth in this Section 4, subject to Rule 14e-1(c) under the
Exchange Act, which provides that no person who makes a tender offer shall fail
to pay the consideration offered or return the securities deposited by or on
behalf of security holders promptly after the termination or withdrawal of the
tender offer.
All questions as to the form and validity (including time of receipt) of
notices of withdrawal will be determined by the Purchasers, in their sole
discretion, which determination shall be final and binding. Neither the
Purchasers, nor the Depositary, nor any other person will be under any duty to
give notification of any defects or irregularities in any notice of withdrawal
or will incur any liability for failure to give any such notification.
Any Units properly withdrawn will be deemed not to be validly tendered for
purposes of the Offer. Withdrawn Units may be re-tendered, however, by following
the procedures described in Section 3 at any time prior to the Expiration Date.
Automatic Withdrawal Option. Unitholders may indicate, by checking a box
on the Letter of Transmittal (the 'All or None Box'), that they only wish to
sell their Units if they will be able to sell all of their Units, without any
proration. If at any time during the day of the Expiration Date more than
2,526,686 Units have been properly tendered, unless the Purchaser amends the
Offer to increase the number of Units to be purchased, the Purchaser will deem
all Units from Unitholders 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. Unitholders 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.
Section 5. Extension of Tender Period; Termination; Amendment. The Purchasers
expressly reserve the right, in their sole discretion, at any time and from time
to time, (i) 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 by
giving oral or written notice of such extension to the Depositary, (ii) upon the
occurrence or failure to occur of any of the conditions specified in Section 13,
to terminate the Offer and not accept for payment any Units by giving oral or
written notice of such termination to the Depositary, and (iii) to amend the
Offer in any respect (including, without limitation, by increasing or decreasing
the consideration offered or the number of Units being sought in the Offer or
both or changing the type of consideration) by giving oral or written notice of
such amendment to the Depositary prior to the Expiration Date. Any extension,
termination, or amendment will be followed as promptly as practicable by public
announcement, the announcement in the case of an extension to be issued no later
than 9:00 a.m., Eastern Time, on the next business day after the previously
scheduled Expiration Date, in accordance with the public announcement
requirement of Rule 14d-4(c) under the Exchange Act. Without limiting the manner
in which the Purchasers may choose to make any public announcement, except as
provided by applicable law (including Rule 14d-4(c) under the Exchange Act), the
Purchasers will have no obligation to publish, advertise, or otherwise
communicate any such public announcement, other than by issuing a press release.
The Purchasers may also be required by applicable law to disseminate to Unit
holders certain information concerning the extensions of the Offer and any
material changes in the terms of the Offer. The Purchasers will not provide a
subsequent offering period following the Expiration Date.
If the Purchasers extend the Offer, or if the Purchasers (whether before
or after its acceptance for payment of Units) are delayed in their payment for
Units or are unable to pay for Units pursuant to the Offer for any reason, then,
without prejudice to the Purchasers' rights under the Offer, the Depositary may
retain tendered Units on behalf of the Purchasers, and such Units may be
withdrawn to the extent tendering Unit holders are entitled to withdrawal rights
as described in Section 4 (generally, if notice of withdrawal is given to the
Depositary prior to the Expiration Date). However, the ability of the Purchasers
to delay payment for Units that the Purchasers have accepted for payment is
limited by Rule 14e-1 under the Exchange Act, which requires that the Purchasers
pay the consideration offered or return the securities deposited by or on behalf
of holders of securities promptly after the termination or withdrawal of the
Offer, except that the Purchasers may delay payment until they receive
confirmation that the Trustee will either transfer the Units or recognize the
change of address for
12
distributions and correspondence on the Units.
If the Purchasers make a material change in the terms of the Offer or the
information concerning the Offer or waive a material condition of the Offer, the
Purchasers will extend the Offer to the extent required by Rules 14d-4(c),
14d-6(d) and 14e-1 under the Exchange Act. The minimum period during which an
offer must remain open following a material change in the terms of the offer or
information concerning the offer, other than a change in price or a change in
percentage of securities sought, will depend upon the facts and circumstances,
including the relative materiality of the change in the terms or information.
With respect to a change in price or a change in percentage of securities sought
(other than an increase of not more than 2% of the securities sought), however,
a minimum ten business day period is generally required to allow for adequate
dissemination to security holders and for investor response. As used in this
Offer to Purchase, "business day" means any day other than a Saturday, Sunday or
a federal holiday, and consists of the time period from 12:01 a.m. through
midnight, Pacific Time. Any material change in the terms of the Offer will be
published, sent, or given to you in a manner reasonably designed to inform you
of such change; in most cases we will mail you supplemental materials.
Section 6. Material Federal Income Tax Consequences. The following summary of
federal income tax consequences is based upon current provisions of the Internal
Revenue Code of 1986, as amended (the "Code"), Treasury regulations thereunder,
and current administrative rulings and court decisions, all of which are subject
to change or different interpretation at any time, possibly with retroactive
effect. Subsequent changes in such authorities may cause the federal income tax
consequences to vary substantially from the consequences described below. No
attempt has been made in the following summary to comment on all federal income
tax matters affecting the Trust or Unit holders. Each Unit holder is urged to
consult its own tax advisor as to the particular tax consequences to it of the
ownership and disposition of Units, including the applicability of any U.S.
federal income, federal estate or gift, state, local and foreign tax laws,
changes in applicable tax laws and any pending or proposed legislation. All
references to "Unit holders" are to beneficial owners of the Units. It is
assumed for purposes of this discussion that the Trust is classified as a
grantor trust for federal income tax purposes and not an association taxable as
a business entity. This summary does not discuss all aspects of federal income
taxation that may be relevant to a particular taxpayer in light of its personal
investment circumstances. This summary does not address the effect of the U.S.
federal alternative minimum, estate or gift tax laws or the tax considerations
arising under the law of any state, local or foreign jurisdiction. Moreover,
this discussion does not address Unit holders subject to specialized tax
treatment.
If a partnership (including for this purpose any entity or arrangement treated
as a partnership for federal income tax purposes) is a beneficial owner of
Units, the tax treatment of a partner in the partnership generally will depend
upon the status of the partner and the activities of the partnership. A Unit
holder that is a partnership, and the partners in such partnership, should
consult their own tax advisors about the U.S. federal income tax consequences of
purchasing, owning, and disposing of Units.
Tendering Unit Holders. Each tendering Unit holder will be treated, for federal
income tax purposes, as having disposed of an undivided interest in each of the
assets of the Trust. As a result, each tendering Unit holder will recognize gain
or loss, for federal income tax purposes, measured by the difference between the
amount realized on the sale and the Unit holder's tax basis in the Unit sold. A
Unit holder's tax basis in its Units will generally include its allocable share
of the debts of the Trust, if any, at the time that the Unit holder acquired its
Units, and such tax basis must be reduced, but not below zero, by any depletion
deductions that the Unit holder has been allowed. A Unit holder's amount
realized will generally include an allocable share of the debts of the Trust, if
any, at the time the Units are sold. The character of the gain or loss as
ordinary income or loss or as capital gain or loss will be determined by
reference to the royalty interests, rather than by reference to the Units (with
the result, inter alia, that the depletion recapture rules will generally
require a Unit holder to recharacterize, as ordinary income, any capital gain
recognized in connection with the sale of Units, but not in excess of the
depletion deductions previously allowed to the Unit holder that were applied to
reduce tax basis). A tendering Unit holder who has been allowed a tax credit
pursuant to former section 29 of the Code will not have to recapture as ordinary
income any amount previously allowed as such a credit. Any gain or loss on Units
tendered by a Unit holder who is not a dealer with respect to such Units and who
has a holding period for such Units of more than one year would be long-term
capital gain or loss, except to the extent of any depletion recapture (as
described above). Long-term capital gains of individuals, estates and trusts
are, under current law, generally taxed at a maximum rate of 15%. If a
noncorporate Unit holder has held Units for 12 months or less, any capital gain
recognized on the tender of such Units would be short-term capital gain which is
subject to tax at ordinary income rates. Capital gains of corporate taxpayers
are generally taxed at ordinary income rates. A tendering Unit holder's ability
to deduct capital losses is subject to certain limitations.
In general, income, gain, loss, deduction and credits attributable to the assets
of the Trust will be taken into account by Unit holders consistent with their
method of accounting and without regard to the accounting method employed by the
Trust. The Trust allocates items of income, gain, loss, deduction and credits to
Unit holders based on record ownership at the quarterly record dates. It is
possible that the IRS could disagree with this allocation method and could
assert that income and deductions of the Trust should be determined and
allocated on a daily or prorated basis, which could require adjustments to the
tax returns of the Unit holders affected by the issue and result in an increase
in the administrative expense of the Trust in subsequent periods. It is also
possible that the IRS would take the position that a portion of the proceeds
from a sale of the Units is ordinary income to the extent of any accrued Trust
income at the time of the sale allocable to the Units sold, but which has not
13
been distributed to the tendering Unit holder. Unit holders may be required to
file IRS Form 8271 in connection with their ownership and/or tender of Units.
Backup Withholding and Information Reporting. The proceeds from a disposition of
Units may be subject to information reporting and U.S. federal backup
withholding tax if the Unit holder thereof is a noncorporate taxpayer and fails
to supply an accurate taxpayer identification number or otherwise fails to
comply with applicable U.S. information reporting or certification requirements.
Any amounts so withheld will be allowed as a credit against the Unit holder's
U.S. federal income tax liability.
THE FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS INCLUDED FOR GENERAL
INFORMATION ONLY. UNIT HOLDERS ARE URGED TO CONSULT THEIR TAX ADVISORS WITH
RESPECT TO THE TAX CONSEQUENCES TO THEM OF THE OFFER, INCLUDING THE EFFECTS OF
FEDERAL, STATE AND LOCAL TAX CONSEQUENCES THEREOF.
Section 7. Effects of the Offer.
Resales. The Purchasers do not believe the provisions of the Trust Indenture
should restrict transfers of Units pursuant to the Offer.
Effect on Trading Market. If a substantial number of Units are purchased
pursuant to the Offer the result would be a reduction in the number of Unit
holders. Reducing the number of security holders in certain kinds of equity
securities might be expected to result in a reduction in the liquidity and
volume of activity in the trading market for the security. However, there is no
established public trading market for the Units and none is expected to develop.
Therefore, the Purchasers do not believe a reduction in the number of Unit
holders will materially further restrict the Unit holders' ability to find
purchasers for their Units through secondary market transactions.
Voting Power of Purchasers. If the Purchasers acquire a significant number of
the Units sought hereunder could give the Purchasers a controlling voting
interest in matters subject to a Unit holder vote. The Trust does not hold
annual or regular meetings to elect directors, and does not have a
representative board of directors overseeing management. Votes of Unit holders
would only be solicited, if ever, for matters affecting the fundamental
structure of the Trust, such as the sale of the royalties and termination of the
Trust, and the affirmative vote of more than 50% of the outstanding Units (not a
mere quorum) is required to effect such actions. The Purchasers and their
affiliates do not intend to call for any such vote in the foreseeable future. A
Unit holder who tenders Units to the Purchasers grants a proxy to the Purchasers
as of the date of acceptance of the tender, granting the Purchasers the right to
vote such Units in their sole discretion as to any matters for which the Trust
has established a record date prior to the time such. Units are transferred by
the Trust to the Purchasers. The Purchasers reserve the right to exercise any
and all rights they might hold in the event that any vote is called by the
Trustee, or if, in the future, changes in circumstances would dictate that they
or other Unit holders exercise their right to call a vote. Thus, if the
Purchasers purchase over 50% of the outstanding Units of the Trust (pursuant to
this and any other tender offers and other purchases), they will be in a
position to control the Trust by virtue of being able to remove and replace the
Trustee, to cause the Trust to sell its assets, and to liquidate the Trust.
Other Potential Effects. The Units are registered under the Exchange Act, which
requires, among other things that the Trust 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 Trust if the
number of record holders falls below 300, or below 500 if the Trust's total
assets are below $10 million for three consecutive preceding fiscal years. The
Trust reported a total of 861 Unit holders as of its most recent fiscal year
end, but the Purchasers are offering to purchase up to 2,526,686 Units.
Accordingly, it is possible that the Offer could result in the total number of
Unit holders falling below the foregoing 300 holder level. As disclosed by the
Trust in its public reports, however, there has never been a public trading
market for the Units and none is expected to develop, so the Trust's status as a
public company will not affect a trading market in the Units. A change in the
Trust's status as a public company could reduce the information available to
Unit holders about the Trust in the event the information required by the Trust
Indenture is not as extensive as that provided in reports required to be filed
by public companies under applicable rules of the Securities and Exchange
Commission.
Section 8. Future Plans. Following the completion of the Offer, the Purchasers,
or their affiliates, may acquire additional Units. Any such acquisitions may be
made through private purchases, one or more future tender offers or by any other
means deemed advisable or appropriate. Any such acquisitions may be at a
consideration higher or lower than the consideration to be paid for the Units
purchased pursuant to the Offer. The Purchasers are seeking to purchase a total
of 2,526,686 Units. If the Purchasers acquire fewer than 2,526,686 Units
pursuant to the Offer, the Purchasers may seek to make further purchases on the
open market at prevailing prices, or solicit Units pursuant to one or more
future tender offers at the same price, a higher price or, if the Trust's
circumstances change, at a lower price. Alternatively, the Purchasers may
discontinue any further purchases of Units after termination of the Offer,
regardless of the number of Units purchased. The Offer is not made with any
current view toward or plan or purpose of acquiring Units in a series of
successive and periodic offers. Nevertheless, as noted above,
14
the Purchasers reserve the right to gauge the response to this solicitation,
and, if not successful in purchasing 2,526,686 Units in this Offer, may consider
future offers. Factors affecting the Purchasers' future interest in acquiring
additional Units include, but are not limited to, the relative success of the
current Offer, any increase or decrease in the availability of capital for
investment by the Purchasers and their investment fund affiliates, the current
diversification and performance of each affiliated fund's portfolio of
interests, the development of any public market in the Units or actions by
unrelated parties to tender for or purchase Units, the status of and changes and
trends in the Trust's operations, announcement of pending sales and the proposed
terms of sales, and local and national and financial market developments and
trends.
The Purchasers are acquiring the Units pursuant to the Offer solely for
investment purposes. The Purchasers have no present intention to seek control of
the Trust or to change the management or operations of the Trust. The Purchasers
do not have any present intention to take any action in connection with the
liquidation of the Trust. The Purchasers nevertheless reserve the right, at an
appropriate time, to exercise their rights as Unit holders to vote on matters
subject to a Unit holder vote, including, but not limited to, any vote to
affecting the sale of the Trust's royalties and the liquidation and dissolution
of the Trust. Except as expressly set forth herein, the Purchasers have no
present intention to seek control of the Trust, to cause the Trust to engage in
any extraordinary transaction, to cause any purchase, sale or transfer of a
material amount of the assets of any Trust, to make any change in the
distribution policies, indebtedness or capitalization of any Trust or to change
the structure, management or operations of the Trust, the listing status of the
Units or the reporting requirements of the Trust. However, if the Purchasers
purchase over 50% of the outstanding Units of the Trust (pursuant to this and
any other tender offers and other purchases), they will be in a position to
control the Trust by virtue of being able to remove and replace the Trustee, to
cause the Trust to sell its assets, and to liquidate the Trust.
Section 9. The Business of the Trust. For information about the Trust, please
refer to the annual report prepared by the Trust which was sent to you earlier,
particularly Item 2 of Form 10-K, the Quarterly Reports on Form 10-Q, and any
other materials sent to you by the Trust. These documents contain updated
information concerning the Trust, including detailed information regarding the
royalties and coal mines owned. In addition, the Trust is subject to the
information and reporting requirements of the Exchange Act and information about
the Trust 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.
Section 10. Conflicts of Interest. The Depositary is affiliated with certain
Purchasers. Therefore, by virtue of this affiliation, the Depositary may have
inherent conflicts of interest in acting as Depositary for the Offer. The
Depositary's role is administrative only, however, and any conflict of interest
should not be deemed material to Unit holders.
Section 11. Certain Information Concerning the Purchasers. The Purchasers are
MPF Senior Note Program I, LP; Sutter Opportunity Fund 4, LLC; MPF DeWaay
Premier Fund 3, LLC; MPF Flagship Fund 12, LLC; MPF Special Fund 8, LLC;
MacKenzie Patterson Special Fund 6; MacKenzie Patterson Special Fund 6-A;
Salvage Investors, LLC. For information concerning the Purchasers and their
respective principals, please refer to Schedule I attached hereto. The principal
business of each of the Purchasers is investment in securities, particularly
real estate-based securities. The principal business address of each of the
Purchasers is 1640 School Street, Moraga, California 94556, except Salvage
Investors, whose address is 710 Kipling Street, Suite 305; Lakewood, CO 80215.
The Purchasers have made binding commitments to contribute and have
available sufficient amounts of capital necessary to fund the acquisition of all
Units subject to the Offer, the expenses to be incurred in connection with the
Offer, and all other anticipated costs of the Purchasers. The Purchasers are not
public companies and have not prepared audited financial statements or financial
statements prepared in accordance with generally accepted accounting principles.
MacKenzie Patterson Fuller, LP and its affiliates have been in the business of
purchasing illiquid securities, both in open market transactions and by means of
tender offers, since 1982 and have acquired more than $170 million in such
securities for affiliated portfolios during the last ten years. The Purchasers
have aggregate assets that are more than sufficient to fund their collective
obligation to purchase Units in this Offer and any other outstanding tender
offers.
Except as otherwise set forth herein, (i) neither the Purchasers nor, to the
best knowledge of the Purchasers, the persons listed on Schedule I nor any
affiliate of the Purchasers beneficially owns or has a right to acquire any
Units, (ii) neither the Purchasers nor, to the best knowledge of the Purchasers,
the persons listed on Schedule I nor any affiliate of the Purchasers, or any
director, executive officer or subsidiary of any of the foregoing has effected
any transaction in the Units within the past 60 days, (iii) neither the
Purchasers nor, to the best knowledge of the Purchasers, the persons listed on
Schedule I nor any affiliate of the Purchasers has any contract, arrangement,
understanding or relationship with any other person with respect to any
securities of the Trust, including but not limited to, contracts, arrangements,
understandings or relationships concerning the transfer or voting thereof, joint
ventures, loan or option arrangements, puts or calls, guarantees of loans,
guarantees against loss or the giving or withholding of proxies, consents or
authorizations, (iv) there have been no transactions or business relationships
which would be required to be disclosed under the rules and regulations of the
Commission between any of the Purchasers or, to the best knowledge of the
Purchasers, the persons listed on Schedule I, or any affiliate of the Purchasers
on the one hand, and the Trust or its affiliates, on the other hand, (v) there
have been no contracts, negotiations or transactions between the Purchasers, or
to the best knowledge of the Purchasers any affiliate of the Purchasers on the
one hand, the persons
15
listed on Schedule I, and the Trust 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, (vi) no person listed on Schedule I has been
convicted in a criminal proceeding during the past five years (excluding traffic
violations or similar misdemeanors), and (vii) no person listed on Schedule I
has been a party to any judicial or administrative proceeding during the past
five years (except for matters dismissed without sanction or settlement) that
resulted in a judgment, decree, or final order enjoining the person from future
violations of, or prohibiting activities subject to, federal or state securities
laws, or a finding of any violation of federal or state securities laws. .
Section 12. Source of Funds. The Purchasers expect that approximately $1,516,012
would be required to purchase 2,526,686 Units, if tendered, and an additional
$20,000 may be required to pay related fees and expenses. The Purchasers
anticipate funding all of the purchase price and related expenses through their
existing capital and assets. The cash and liquid securities necessary to
complete the entire purchase are readily available and are committed to that
purpose. Accordingly, there are no financing arrangements to fall through and no
alternative financing plans.
Section 13. Conditions of the Offer. Notwithstanding any other term of the
Offer, the Purchasers shall not be required to accept for payment or to pay for
any Units tendered unless all authorizations or approvals of, 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 have been obtained or occurred on or before the
Expiration Date. As of the Offer Date, the Purchasers are unaware of any such
required authorizations, approvals, or waiting periods relating to this Offer.
The Purchasers shall not be required to accept for payment or pay for any
Units and may terminate or amend the Offer as to such Units 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 or governmental authority or 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 of or payment for any Units by the Purchasers, (ii)
imposes or confirms limitations on the ability of the Purchasers effectively to
exercise full rights of ownership of any Units, including, without limitation,
the right to vote any Units acquired by the Purchasers pursuant to the Offer or
otherwise on all matters properly presented to the Trust's Unit holders, (iii)
requires divestiture by the Purchasers of any Units, (iv) causes any material
diminution of the benefits to be derived by the Purchasers as a result of the
transactions contemplated by the Offer (see the discussion of such benefits in
the Summary Term Sheet and Introduction sections of the Offer to Purchase) or
(v) materially adversely affect the business, royalties, assets, liabilities,
financial condition, operations, results of operations or prospects of the
Purchasers or the Trust, in the reasonable judgment of the Purchasers;
(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, other than the application of the waiting period provisions of the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, which will,
directly or indirectly, result in any of the consequences referred to in clauses
(i) through (v) of paragraph (a) above;
(c) any change or development shall have occurred or been threatened since
the date hereof, in the business, royalties, assets, liabilities, financial
condition, operations, results of operations or prospects of the Trust, which,
in the reasonable judgment of the Purchasers, is or will be materially adverse
to the Trust, or the Purchasers shall have become aware of any fact that, in the
reasonable judgment of the Purchasers, does or will have a material adverse
effect on the value of the Units;
(d) there shall have occurred (i) any general suspension of trading in, or
limitation on prices for, securities on any national securities exchange or in
the over-the-counter market in the United States, (ii) a declaration of a
banking moratorium or any suspension of payments in respect of banks in the
United States, (iii) any limitation by any governmental authority on, or other
event which might affect, the extension of credit by lending institutions or
result in any imposition of currency controls in the United States, (iv) a
commencement of a war or armed hostilities or other national or international
calamity directly or indirectly involving the United States, (v) a material
change in United States or other currency exchange rates or a suspension of a
limitation on the markets thereof, or (vi) in the case of any of the foregoing
existing at the time of the commencement of the Offer, a material acceleration
or worsening thereof; or
(e) it shall have been publicly disclosed or the Purchasers shall have
otherwise learned that (i) more than fifty percent of the outstanding Units have
been or are proposed to be acquired by another person (including a "group"
within the meaning of Section 13(d)(3) of the Exchange Act), or (ii) any person
or group that prior to such date had filed a Statement with the Commission
pursuant to Sections 13(d) or (g) of the Exchange Act has increased or proposes
to increase the number of Units beneficially owned by such person or group as
disclosed in such Statement by two percent or more of the outstanding Units.
The foregoing conditions are for the sole benefit of the Purchasers and
may be asserted by the Purchasers or may be
16
waived by the Purchasers in whole or in part at any time and from time to time
prior to the Expiration Date in their sole exercise of reasonable discretion,
and the Offer will remain open for a period of at least five business days
following any such waiver of a material condition. However, if we waive a
certain condition for one tendering Unitholder, we will waive that condition for
all Unitholders tendering Units. Any determination by the Purchasers concerning
the events described above will be final and binding upon all parties, subject,
of course, to the parties' ability to seek review of any contested determination
by an arbitrator pursuant to Section 16.
Section 14. Certain Legal Matters.
General. Except as set forth in this Section 14, the Purchasers are 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 Purchasers pursuant to the Offer. Should any such approval or other
action be required, it is the Purchasers' present intention that such additional
approval or action would be sought. While there is no present intent to delay
the purchase of Units tendered pursuant to the Offer pending receipt of any such
additional approval or the taking of any such action, there can be no assurance
that any such additional approval or action, if needed, would be obtained
without substantial conditions or that adverse consequences might not result to
the Trust's business, or that certain parts of the Trust's business might not
have to be disposed of or held separate or other substantial conditions complied
with in order to obtain such approval or action, any of which could cause the
Purchasers to elect to terminate the Offer without purchasing Units thereunder.
The Purchasers' obligation to purchase and pay for Units is subject to certain
conditions, including conditions related to the legal matters discussed in this
Section 14.
Antitrust. The Purchasers do not believe that the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended, is applicable to the acquisition of Units
pursuant to the Offer.
Margin Requirements. The Units are not "margin securities" under the regulations
of the Board of Governors of the Federal Reserve System and, accordingly, such
regulations are not applicable to the Offer.
State Takeover Laws. A number of states have adopted anti-takeover laws which
purport, to varying degrees, to be applicable to attempts to acquire securities
of corporations which are incorporated in such states or which have substantial
assets, security holders, principal executive offices or principal places of
business therein. These laws are directed at the acquisition of corporations and
not Trusts. The Purchasers, therefore, do not believe that any anti-takeover
laws apply to the transactions contemplated by the Offer.
Although the Purchasers have not attempted to comply with any state
anti-takeover statutes in connection with the Offer, the Purchasers reserve the
right to challenge the validity or applicability of any state law allegedly
applicable to the Offer and nothing in this Offer nor any action taken in
connection herewith is intended as a waiver of such right. If any state
anti-takeover statute is applicable to the Offer, the Purchasers might be unable
to accept for payment or purchase Units tendered pursuant to the Offer or be
delayed in continuing or consummating the Offer. In such case, the Purchasers
may not be obligated to accept for purchase or pay for any Units tendered.
Section 15. Fees and Expenses. The Purchasers have retained MacKenzie Patterson
Fuller, LP, an affiliate of certain Purchasers, to act as Depositary in
connection with the Offer. The Purchasers will pay the Depositary reasonable and
customary compensation for its services in connection with the Offer, plus
reimbursement for out-of-pocket expenses, and will indemnify the Depositary
against certain liabilities and expenses in connection therewith, including
liabilities under the federal securities laws. The Purchasers will also pay all
costs and expenses of printing, publication and mailing of the Offer and all
costs of transfer.
Section 16. Miscellaneous. THE OFFER IS NOT BEING MADE TO (NOR WILL TENDERS BE
ACCEPTED FROM OR ON BEHALF OF) UNIT HOLDERS IN ANY JURISDICTION IN WHICH THE
MAKING OF THE OFFER OR THE ACCEPTANCE THEREOF WOULD NOT BE IN COMPLIANCE WITH
THE LAWS OF SUCH JURISDICTION. THE PURCHASERS ARE NOT AWARE OF ANY JURISDICTION
WITHIN THE UNITED STATES IN WHICH THE MAKING OF THE OFFER OR THE ACCEPTANCE
THEREOF WOULD BE ILLEGAL.
No person has been authorized to give any information or to make any
representation on behalf of the Purchasers 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.
Further, by tendering your Units, you are agreeing to arbitrate any disputes
that may arise between you and the Purchasers or the Depositary, to subject
yourself to personal jurisdiction in California, and that the prevailing party
in any such action will be entitled to recover attorney fees and costs.
July 31, 2007
17
SCHEDULE I
THE PURCHASERS AND THEIR RESPECTIVE PRINCIPALS
The Purchasers are MPF Senior Note Program I, LP; Sutter Opportunity Fund
4, LLC; MPF DeWaay Premier Fund 3, LLC; MPF Flagship Fund 12, LLC; MPF Special
Fund 8, LLC; MacKenzie Patterson Special Fund 6; MacKenzie Patterson Special
Fund 6-A; Salvage Investors, LLC. Each of the entity Purchasers is organized as
a limited liability company or limited partnership. The Manager of each of the
limited liability company Purchasers and the general partner of each of the
limited partnership Purchasers is MacKenzie Patterson Fuller, LP or its
affiliate Sutter Capital Management, LLC, except Salvage Investors, LLC, whose
manager is John G. Brant. The names of the directors and executive officers of
MacKenzie Patterson Fuller, LP are set forth below. Sutter Capital Management,
LLC is wholly owned by MPF Advisers, LP, an affiliate of MacKenzie Patterson
Fuller, LP. The Purchasers have jointly made the offer and are jointly and
severally liable for satisfying its terms. Other than the foregoing, the
Purchasers' relationship consists of an informal agreement to share the costs
associated with making the offer and to allocate any resulting purchases of
Units among them in such manner and proportions as they may determine in the
future. Each of the entities is organized in California. The Purchasers intend,
if the Offer is fully subscribed, to allocate the Units among themselves as
follows: 5.0%, 26.4%, 16.5%, 6.6%, 13.2%, 13.2%, 9.1%, and 10.0%. We will
determine modifications to this allocation based upon the number of Units
tendered. Priority is given to Purchasers which already hold Units, then to
Purchasers which raised capital first, then to the remaining Purchasers in equal
shares. Units will be allocated according to this priority until the maximum
number of Units listed above are allocated to Purchasers within a given
priority, then Units will be allocated similarly among Purchasers in the next
level of priority, until all Units are allocated.
MacKenzie Patterson Fuller, LP
The names of the directors and executive officers of MacKenzie Patterson Fuller,
LP are set forth below. Each individual is a citizen of the United States of
America. The principal business address of MacKenzie Patterson Fuller, LP, each
Purchaser, and each individual is 1640 School Street, Moraga, California 94556,
and the business telephone number for each is 925-631-9100. The general partner
is BC-GP, Inc., a California corporation owned by the limited partners.
C.E. Patterson is President and a director of MacKenzie Patterson Fuller, LP,
which acts as manager and general partner of a number of real estate investment
vehicles, and has served in those positions since January 1989. In 1981, Mr.
Patterson founded Patterson Financial Services, Inc. (now MPF Advisers, LP), a
registered investment adviser ("MPFA"), with Berniece A. Patterson, as a
financial planning firm, and he has served as its President since that date. Mr.
Patterson founded Patterson Real Estate Services, a licensed California Real
Estate Broker, in 1982. As President of MPFA, Mr. Patterson is responsible for
all investment counseling activities. He supervises the analysis of investment
opportunities for the clients of the firm. Mr. Patterson previously served as
president of Host Funding, Inc., an owner of lodging properties, from December
1999 through 2003. Mr. Patterson is also an officer and controlling shareholder
of Cal-Kan, Inc., a closely held real estate investment company. Mr. Patterson,
through his affiliates, manages a number of investment and real estate
companies.
Berniece A. Patterson is a director of MacKenzie Patterson Fuller, LP and has
served in that capacity since January 1989. In 1981, Ms. Patterson and C.E.
Patterson established MPFA. She has served as Chair of the Board and Secretary
of MPFA since that date. Her responsibilities with MPFA include oversight of
administrative matters and monitoring of past projects underwritten by MPFA.
Since October 1990, Ms. Patterson has been responsible for the day-to-day
operations of two nursing homes and over 200 employees.
Glen W. Fuller became senior vice president and a director of MacKenzie
Patterson Fuller, LP in May 2000. Since 2004 he has been a director and vice
president of MPFA. Prior to becoming senior vice president, from August 1998 to
April 2000, he was with MacKenzie Patterson Fuller, LP as a portfolio manager
and research analyst. From December 1999 to 2003, Mr. Fuller served as an
officer and director of Host Funding, Inc. Prior to joining MacKenzie Patterson
Fuller, LP, from May 1996 to July 1998, Mr. Fuller ran the over-the-counter
trading desk for North Coast Securities Corp. (previously Morgan Fuller Capital
Group) with responsibility for both the proprietary and retail trading desks.
Mr. Fuller was also the registered options principal and registered municipal
bond principal for North Coast Securities, a registered broker dealer. Mr.
Fuller was formerly a NASD-registered options principal and registered bond
principal, and he held his NASD Series 7, general securities license (now
inactive). Mr. Fuller has also spent time working on the floor of the New York
Stock Exchange as a trading clerk and on the floor of the Pacific Stock Exchange
in San Francisco as an assistant specialist for LIT America.
Chip Patterson is senior vice president, general counsel, and a director of the
MacKenzie Patterson Fuller, LP Since 2004 he has been a director and vice
president of MPFA. Prior to joining MacKenzie Patterson Fuller, LP in July 2003,
he was a securities and corporate finance attorney with the national law firm of
Davis Wright Tremaine LLP from August 2000 to January 2003. From August 1997 to
May 2000 he attended the University of Michigan Law School, where he graduated
magna cum laude with a Juris Doctor Degree. Prior to law school, Chip Patterson
taught physics, chemistry, and math at the high school level for three years,
from June 1994 to June 1997. He graduated with high distinction and Phi Beta
Kappa from the University of California at Berkeley with a Bachelor of Arts
Degree in Political Science. He also has prior experience in
18
sales, retail, and banking.
Christine Simpson is senior vice president of MacKenzie Patterson Fuller, LP and
MPFA and is responsible for the day-to-day management of research and securities
purchases and sales on behalf of the entities managed by MacKenzie Patterson
Fuller, LP Ms. Simpson has served in that position since January 1997; from
January 1994 until her promotion to vice president, she was a research analyst
with MacKenzie Patterson Fuller, LP She joined MacKenzie Patterson Fuller, LP as
an administrative assistant in July 1990. Ms. Simpson received her Bachelor of
Arts degree in Management from Saint Mary's College of California in May 2005
and her Master of Science in Financial Analysis and Investment Management from
Saint Mary's College of California in October 2006.
Robert E. Dixon is senior vice president and a director of MPFA and MacKenzie
Patterson Fuller, LP and served as an officer and director of Sutter Holding
Company, Inc. from March 2002 to October 2006. Mr. Dixon received his Bachelor's
degree in economics from the University of California at Los Angeles in 1992. He
worked for Lehman Brothers, Inc. in equity sales and trading during 1993 and
1994. From October 1994 to June, 1996 he worked for MacKenzie Patterson, Inc. as
a securities research analyst. Mr. Dixon became a Chartered Financial Analyst in
1996, and received his Master of Business Administration degree from Cornell
University in 1998. In July of 1998 he began buying and selling securities for
his own account and those of the entities he controlled, and he was principally
engaged in that activity until May 2005, when he rejoined MPFA. Mr. Dixon was a
registered representative of North Coast Securities from 1994 through 1997.
Andrea K. Meyer is vice president of Trading and Portfolios for MPFA and
MacKenzie Patterson Fuller, LP As vice president of Trading and Portfolios, Ms.
Meyer is responsible for handling the day-to-day operations of the trading
department. She graduated from St. Mary's College of California in 1997 with a
Bachelor of Science in Business Administration with a concentration in Finance
and a Minor in Accounting. Prior to joining MPFA in 1998, she worked for a year
for State Street Bank and Trust, one of the leading financial services
specialists worldwide, as a portfolio accountant.
Salvage Investors, LLC
Salvage Investors, LLC is a Colorado limited liability company, founded and
managed by John G. Brant, who also founded the law firm of Brant, Stevens &
Graf, LLC. Mr. Brant has over 28 years of experience in the structure, analysis,
and management of alternative and illiquid investments. An accounting graduate
from the University of Oklahoma, Mr. Brant received his J.D. from the University
of Texas and worked with the IRS until joining the Golden, Colorado law firm of
Bradley, Campbell & Carney in 1975. In 1983, Mr. Brant founded his own firm,
which evolved into Brant, Stevens & Graf. In 2002, Mr. Brant co-founded Branzan
Investment Advisors, Inc., an alternative investment manager.
19