Definitive Proxy Solicitation Material — Merger or Acquisition — Schedule 14A
Filing Table of Contents
Document/Exhibit Description Pages Size
1: DEFM14A Definitive Proxy Solicitation Material -- Merger 77 261K
or Acquisition
2: EX-10 Material Contract 70 206K
3: EX-10.1 Material Contract 3 13K
4: EX-10.2 Material Contract 9 25K
5: EX-10.3 Material Contract 2 11K
6: EX-10.4 Material Contract 16 47K
7: EX-12 Statement re: Computation of Ratios 39 158K
8: EX-12.1 Statement re: Computation of Ratios 9 38K
9: EX-12.2 Statement re: Computation of Ratios 9 42K
10: EX-12.3 Statement re: Computation of Ratios 10 45K
11: EX-20 Other Document or Statement to Security Holders 68 241K
12: EX-20.1 Other Document or Statement to Security Holders 1 7K
13: EX-20.2 Other Document or Statement to Security Holders 2 16K
DEFM14A — Definitive Proxy Solicitation Material — Merger or Acquisition
Document Table of Contents
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------
SCHEDULE 14A
(Rule 14a-101)
SCHEDULE 14A INFORMATION
-------------
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement / / Confidential, For Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to
Rule 14a-11(c) or Rule 14a-12
SHOPCO REGIONAL MALLS, L.P.
(Name of Registrant as Specified in its Charter)
Payment of Filing Fee:
/ / No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
1) Title of each class of securities to which transaction applies:
Depository Units of Limited Partnership Interests
2) Aggregate number of securities to which transaction applies:
70,250 Units of Limited Partnership Interests
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11(c)(2) (set forth the amount on
which the filing fee is calculated and state how it was
determined): Based upon the aggregate cash to be paid to the
General Partner and Limited Partners of the Registrant for the sole
asset of the Registrant and the subsequent dissolution and
liquidation of the Registrant $8,571,000, which is the subject of
this Schedule 14A, the Registrant is paying a filing fee of $1,714
(one fiftieth of one percent of the cash to be distributed to the
General Partner and Limited Partners of the Registrant in the
subject transaction.)
4) Proposed maximum aggregate value of transaction: $8,571,000
5) Total fee paid: $1,714
/X/ Fee paid previously with preliminary materials: The total fee of $1,714
computed pursuant to Exchange Act Rules 14a-6(i)(1) and 0-11 was
previously paid in connection with the filing of preliminary proxy
materials on December 30, 1999.
/ / Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the form or schedule and the date of its filing:
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
-2-
Shopco Regional Malls, L.P.
3 World Financial Center, 29th Floor
New York, New York 10285-2900
February 2, 2000
NOTICE OF CHANGE OF SPECIAL MEETING DATE
To the Limited Partners of
Shopco Regional Malls, L.P.:
Please be advised that the date for the special meeting of the limited
partners of Shopco Regional Malls, L.P. referred to in the attached proxy
statement is now scheduled for February 29, 2000.
Please return the enclosed blue proxy card by 5:00 p.m., Eastern Time,
on February 28, 2000.
When reading the attached proxy statement, please substitute: 1) the new
special meeting date of February 29, 2000 for the original special meeting
date of February 7, 2000 in each place where it appears; 2) the new proxy
card return date of February 28, 2000 for the original proxy card return date
of February 4, 2000 in each place where it appears.
We are mailing this notice and the attached proxy statement and enclosed
proxy card to the limited partners of Shopco Regional Malls, L.P. on
February 2, 2000.
Sincerely,
Michael T. Marron
President
Regional Malls Inc.,
the General Partner of Shopco Regional
Malls, L.P.
-1-
Shopco Regional Malls, L.P.
3 World Financial Center, 29th Floor
New York, New York 10285-2900
January 12, 2000
To the Limited Partners of
Shopco Regional Malls, L.P.:
We are pleased to inform you that after extensive marketing and
negotiation, we have reached an agreement to sell Cranberry Mall, located in
Westminster, Maryland. Cranberry Properties MM Corp. will pay $33,500,000 in
cash to Shopco Malls L.P., the owner partnership, which holds title to
Cranberry Mall and in which Shopco Regional Malls, L.P. has a 99% general
partnership interest. We estimate that the limited partners will receive
distributions of approximately $122 per unit as a result of this sale and the
subsequent liquidation and dissolution of Shopco Regional Malls, L.P. This
distribution will include available cash of the partnership after paying or
providing for payment of transaction costs and all other outstanding
liabilities. It is possible, however, that prior to closing, the purchaser
may seek to renegotiate the purchase price if certain conditions to closing
are not met. In that event, we may use our reasonable discretion to agree
upon a lower purchase price that is believed by us to be in the best
interests of the limited partners, but in no event shall the purchase price
be reduced by more than 3%. (Shopco Regional Malls, L.P. is referred to as
the Partnership to distinguish it from its general partner, Regional Malls,
Inc. Shopco Malls L.P., which holds the direct interest in Cranberry Mall,
is referred to as the Owner Partnership.)
Together with the limited partner of the Owner Partnership, we will sell
our combined interest in Cranberry Mall pursuant to the terms of an agreement
with the purchaser. The agreed upon value of Cranberry Mall was based upon a
thorough marketing by Insignia/ESG Capital Advisors Group and an arm's length
negotiation between the purchaser and us on behalf of the Partnership and the
Owner Partnership. After the sale, both the Partnership and the Owner
Partnership will liquidate and distribute proceeds to their respective
partners.
We are asking the limited partners of the Partnership to approve the
sale of Cranberry Mall and the subsequent dissolution of the Partnership on
the terms described in the accompanying proxy statement. The vote will occur
at a special meeting of the limited partners to be held at the Partnership's
offices at 3 World Financial Center, 26th Floor, New York, New York
10285-2900 on February 7, 2000, at 9 a.m. local time.
If the sale is not consummated, there can be no assurance that any
future disposition of Cranberry Mall will occur, or that the proceeds of such
-2-
a sale would be sufficient to pay down the outstanding mortgage on the
property. The outstanding principal of the current mortgage was due and
payable on April 1, 1999 and is in forbearance until April 1, 2000. Although
the General Partner intends to seek to have the mortgage extended and the
terms thereof modified or to otherwise refinance the mortgage, there can be
no assurances that such extension, modification or refinancing will be
obtained, or that the terms thereof will be favorable.
The General Partner recommends that the limited partners vote "FOR" the
sale.
Limited partners holding a majority of the limited partnership units
must approve the transaction by voting "FOR" on the enclosed proxy card for
the Partnership to proceed with the sale. Whether or not you plan to attend
the special meeting, please take the time to vote on the proposal submitted
to the limited partners by completing and mailing the enclosed proxy card.
If you sign, date and mail your proxy card without indicating how you wish to
vote, your proxy will be counted as a vote in favor of the sale of Cranberry
Mall. If you fail to return a properly executed proxy card, it will have the
same effect as a vote against the sale. YOUR VOTE IS VERY IMPORTANT.
If the sale is approved by the limited partners and certain other
conditions to the sale are met or waived, the sale will be consummated. The
Owner Partnership will sell Cranberry Mall and distribute the proceeds to the
Partnership and the limited partner of the Owner Partnership. The Owner
Partnership will then liquidate and distribute any remaining cash.
Thereafter, the Partnership will be liquidated and dissolved at such time as
the General Partner determines that all remaining Partnership assets are
available for distribution and all Partnership obligations and liabilities
have been paid or provisions have been made for their payment. If the sale
is not consummated, there can be no assurance that any future disposition of
Cranberry Mall will occur or what the terms of such a transaction might be.
The net cash proceeds from the sale of Cranberry Mall will be
distributed to you together with all other cash of the Partnership. The
estimated distributions of $122 per unit represent:
(1) the net proceeds from the sale of Cranberry Mall (after paying or
providing for payment of transaction costs) of approximately $20 per
unit; and
(2) additional cash reserves of the Owner Partnership (after paying or
providing for payment of outstanding and anticipated liabilities) and
the Partnership (after paying or providing for payment of outstanding
and anticipated liabilities), which the Partnership estimates will be
approximately $102 per unit.
-3-
In the event that the purchaser renegotiates the purchase price and the
General Partner agrees to a lower price, the amounts distributed to you will
be lower. The availability of funds for distribution of additional
Partnership cash reserves will be determined, in part, by the collection
after the sale of certain rental and other payments due from tenants at
Cranberry Mall adjusted as of the closing date. To collect such funds sooner
than they would otherwise be paid, the Partnership may accept discounted
payments with respect to amounts due, which would result in limited partners
receiving their liquidating distribution sooner than would otherwise be the
case, but could reduce the amount of such liquidating distribution. An
initial distribution is contemplated to occur within 60 days of the
completion of the sale, and a final distribution of cash reserves not
utilized to meet Partnership obligations or liabilities will be made at such
time as we determine.
Please read the enclosed proxy statement and return the proxy card
indicating your vote in the enclosed, prepaid envelope to MacKenzie Partners,
Inc., 156 Fifth Avenue, 13th Floor, New York, New York 10010 or by facsimile
(212/929-0308), Attention: Charles Koons. Your vote is important and must
be received no later than February 7, 2000. The enclosed proxy statement
contains detailed instructions on completing and returning your proxy.
Our recommendation to approve the sale is based on a number of factors
more fully described in the enclosed proxy statement. Certain conflicts of
interest described in the enclosed proxy statement exist in connection with
our recommendation.
Again, your vote is very important. Please sign, date and return the
enclosed proxy card promptly. Should you have any questions, please contact
MacKenzie Partners, Inc., the Partnership's information agent, by calling the
following toll-free (1-800/322-2885).
-4-
Your participation in this vote is important and greatly appreciated.
Sincerely,
Michael T. Marron
President
Regional Malls Inc.,
the General Partner of Shopco
Regional Malls, L.P.
-5-
NOTICE OF SPECIAL MEETING
of
THE LIMITED PARTNERS
of
SHOPCO REGIONAL MALLS, L.P.
To Be Held on February 7, 2000
To the Limited Partners of
Shopco Regional Malls, L.P.:
NOTICE IS HEREBY GIVEN that a special meeting of the limited partners of
Shopco Regional Malls, L.P., a Delaware limited partnership, will be held at
the offices of the partnership, 3 World Financial Center, 26th Floor, New
York, New York 10285-2900 on February 7, 2000, at 9 a.m., local time, for
the following purposes:
1. To approve the sale of Cranberry Mall, in Westminster, Maryland,
and the subsequent liquidation and dissolution of the partnership.
Cranberry Properties MM Corp., a Delaware corporation, will
purchase Cranberry Mall for $33,500,000. Regional Malls Inc., the
general partner of the partnership, anticipates that the limited
partners will receive distributions of approximately $122 per unit
of limited partnership interest in the partnership in cash,
representing (i) approximately $20 per unit of net proceeds from
the sale of the partnership's interest in Cranberry Mall (after the
partnership pays or provides for payment of transaction costs), and
(ii) additional cash reserves (after payment or provision for
payment of outstanding and anticipated liabilities), which the
partnership estimates will be approximately $102 per unit. It is
possible that distributions to the limited partners will be lower
if the purchaser renegotiates the purchase price, and the general
partner, in its reasonable discretion, agrees to a lower purchase
price which it believes to be in the best interests of the limited
partners, but in no event shall the purchase price be reduced by
more than 3%.
2. To transact such other business as may properly come before the
special meeting or any adjournment or postponement thereof.
Information regarding the matters to be acted upon at the special
meeting is set forth in the accompanying proxy statement.
If the sale is not consummated, there can be no assurance that any
future disposition of Cranberry Mall will occur, or that the proceeds of such
a sale would be sufficient to pay down the outstanding mortgage on the
property. The outstanding principal of the current mortgage was due and
-1-
payable on April 1, 1999 and is in forbearance until April 1, 2000. Although
the General Partner intends to seek to have the mortgage extended and the
terms thereof modified or to otherwise refinance the mortgage, there can be
no assurances that such extension, modification or refinancing will be
obtained, or that the terms thereof will be favorable.
Regional Malls Inc., the General Partner of the Partnership,
Recommends That the Limited Partners Vote "For" the Sale.
You are invited to attend the special meeting. Even if you intend to
attend the special meeting, you are requested to sign and date the
accompanying proxy card and return it promptly either in the enclosed,
postage-prepaid envelope or by facsimile to (212) 929-0308, Attention:
Charles Koons. Whether or not you plan to attend the special meeting, please
take the time to vote on the proposal submitted to the limited partners by
completing and mailing the enclosed proxy card. If you sign, date and mail
your proxy card without indicating how you wish to vote, your proxy will be
counted as a vote in favor of the sale of Cranberry Mall and the subsequent
liquidation and dissolution of the partnership. If you fail to return a
properly executed proxy card, it will have the same effect as a vote against
the sale and liquidation.
The close of business on December 31, 1999, has been established as the
record date for determining the limited partners entitled to notice of, and
to direct the vote of units at, the special meeting. A quorum, defined as
the presence in person or by proxy of limited partners holding more than 50%
of the outstanding partnership interests, is required for the meeting. If a
quorum is not present, limited partners holding a majority interest of units
may adjourn the meeting from time to time until a quorum is obtained. Once a
quorum is present, limited partners holding a majority interest of the units
must submit a proxy or vote in person "For" the sale of Cranberry Mall and
the subsequent liquidation and dissolution of the partnership. In the event
that such a vote is not obtained, the sale and liquidation will not be
approved and the limited partners will not receive the distribution of
-2-
proceeds described above. Attendance at the special meeting will be limited
to registered holders of units and invited guests of the partnership.
Regional Malls Inc.
General Partner
Michael T. Marron
President
New York, New York
January 12, 2000
Your Vote Is Very Important. To Ensure That Your Interests Will Be
Represented, Please Sign the Enclosed Proxy Card and Return It Promptly
Whether You Intend To Be Present at the Special Meeting or Not. Return the
Proxy Card in the Enclosed, Postage-Prepaid Envelope or by Facsimile
(212/929-0308), Attention: Charles Koons. Failure to Return a Proxy Card or
Abstention from Voting Will Have the Same Effect as a Vote "Against" the
Sale. Any Properly Executed Proxy Card on Which a Choice Is Not Indicated
Will Be Voted "For" the Sale.
-3-
SHOPCO REGIONAL MALLS, L.P.
3 World Financial Center, 29th Floor
New York, New York 10285-2900
------------------------
THIS PROXY IS SOLICITED ON BEHALF OF THE GENERAL PARTNER
--------------------------------------------------------
The undersigned hereby appoints Michael T. Marron and Rocco F. Andriola,
and each of them, with full power of substitution, as attorneys, agents and
proxies to vote its limited partnership units on behalf of the undersigned at
the special meeting of the limited partners of Shopco Regional Malls, L.P.
called by Regional Malls Inc., the general partner of the partnership, to be
held at the offices of the partnership, 3 World Financial Center, 26th Floor,
New York, New York 10285-2900, on February 7, 2000 at 9 a.m., local time, or
any postponement or adjournment thereof, for the following purposes:
1. To consider the sale of Cranberry Mall owned by Shopco Malls L.P.,
and the subsequent liquidation and dissolution of the partnership,
in accordance with the terms described in the proxy statement.
THE GENERAL PARTNER RECOMMENDS THE PROPOSED SALE.
APPROVE / / DISAPPROVE / /
2. Any other business that may properly come before the meeting.
This proxy, when properly executed and duly returned, will be voted in
the manner directed herein by the undersigned limited partner. If no
direction is made on this properly executed proxy, this proxy will be
voted to APPROVE the sale and subsequent liquidation of the partnership.
PLEASE SIGN EXACTLY AS YOUR NAME APPEARS ON THE LABEL AFFIXED
TO THIS PROXY. WHEN UNITS ARE HELD BY JOINT TENANTS, WHEN SIGNING
AS AN ATTORNEY, EXECUTOR, ADMINISTRATOR, TRUSTEE OR GUARDIAN, PLEASE
GIVE FULL TITLE OF SUCH. IF A CORPORATION, PLEASE SIGN NAME BY
AUTHORIZED OFFICER. IF A PARTNERSHIP, PLEASE SIGN IN PARTNERSHIP NAME
BY AUTHORIZED PERSON.
Dated ____________________ ____, 2000
Signature: _________________________________
Name: ______________________________________
Signature (if held jointly): _________________
-1-
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Please sign and date this blue proxy card and return it in the enclosed
postage prepaid envelope or fax it to 212-929-0308 by 5:00 p.m.,
Eastern Time, on February 4, 2000 (unless such date and/or time
is extended in the sole discretion of the General Partners).
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The Proxy Solicitation Agent:
MACKENZIE
PARTNERS, INC.
156 Fifth Avenue
New York, New York 10010
(212) 929-5500 (Call Collect)
or
Call Toll Free (800) 322-2885
-2-
SHOPCO REGIONAL MALLS, L.P.
3 World Financial Center, 29th Floor
New York, New York 10285-2900
PROXY STATEMENT
For the Special Meeting of the Limited Partners
To Be Held on February 7, 2000
We are mailing this proxy statement and the enclosed proxy card to the
limited partners of Shopco Regional Malls, L.P., a Delaware limited
partnership, on or around January 12, 2000. The purpose of this
communication is to solicit proxies for use at a special meeting of the
limited partners, which will be held at the offices of the Partnership, 3
World Financial Center, 26th Floor, New York, New York, 10285-2900, on
Monday, February 7, 2000, at 9 a.m., local time.
At the special meeting, we will ask the limited partners to consider the
approval of the sale of Cranberry Mall, located in Westminister, Maryland and
the subsequent dissolution and liquidation of the Partnership. Cranberry
Mall is the sole asset of Shopco Malls L.P., a Delaware limited partnership,
of which the Partnership, Shopco Regional Malls, L.P., is the general
partner. (In this proxy statement, Shopco Regional Malls, L.P. is referred
to as the Partnership to distinguish it from Regional Malls, Inc., its
General Partner. Shopco Malls L.P., which holds the direct interest in
Cranberry Mall, is referred to as the Owner Partnership.) Since the
Partnership is the managing general partner of the Owner Partnership, the
Partnership controls the Owner Partnership. Following the sale, the
Partnership and its limited partners will have no further ownership interest
in Cranberry Mall, and both the Partnership and the Owner Partnership will
liquidate their assets.
The purchase price for Cranberry Mall is based on a thorough marketing
by Insignia/ESG Capital Advisors Group and an arm's length negotiation
between the General Partner, on behalf of the Owner Partnership, and
Cranberry Properties MM Corp., a Delaware corporation located at 152 West
57th Street, 44th floor, New York, New York 10019 (the "Purchaser"). The
Purchaser will pay the Owner Partnership $33,500,000 in cash. The
Partnership will receive approximately $1,415,000 of this amount net of
certain transaction costs (including repayment or assumption by the Purchaser
of the current mortgage on the property). This represents approximately $20
per unit of limited partnership interest. If the Purchaser attempts to
renegotiate the purchase price prior to the closing, the General Partner, in
its reasonable discretion, may agree upon a lower purchase price which it
believes is in the best interests of the limited partners, but in no event
shall the purchase price be reduced by more than 3%. In that event, limited
partners will receive lower distributions than those specified above.
-1-
The General Partner is required to act as a fiduciary with respect to
the Partnership and the limited partners in a manner that is fair and
reasonable to the limited partners in accordance with the Partnership's
investment objectives. Insignia Retail Group, Inc. was retained as manager
and leasing agent for Cranberry Mall. The Owner Partnership retained
Insignia/ESG Capital Advisors Group to assist with the marketing of Cranberry
Mall.
The terms of the sale are set forth in an Agreement of Purchase and
Sale, dated as of September 11, 1999 and amended by the First Amendment to
Agreement of Purchase and Sale, dated as of October 28, 1999 and the Second
Amendment to Agreement of Purchase and Sale, dated as of November 29, 1999
among Barker Pacific Group, Inc., the original purchaser, and the Owner
Partnership. Pursuant to an Assignment of Purchase and Sale Agreement, dated
as of November 11, 1999, Barker Pacific Group, Inc. assigned, sold and
transferred its rights and obligations under the Agreement of Purchase and
Sale to Cranberry Properties MM Corp. The Agreement of Purchase and Sale was
then further amended by the Third Amendment to Agreement of Purchase and
Sale, dated as of December 23, 1999 among Cranberry Properties MM Corp. and
the Owner Partnership. If the sale is approved by the limited partners and
certain other conditions to the sale are met or waived, the sale will be
consummated and the Partnership will have sold its indirect interest in
Cranberry Mall. We estimate that the limited partners will receive
distributions of approximately $122 per unit in cash as a result of the sale
of Cranberry Mall and the ultimate liquidation of both the Partnership and
the Owner Partnership, representing:
(1) net proceeds from the sale (after paying or providing for payment of
transaction costs) of approximately $20 per unit; and
(2) the Partnership's proportional share of additional cash reserves of
the Owner Partnership (after payment or provision for payment of
outstanding and anticipated liabilities) and additional cash reserves of
the Partnership (after payment or provision for payment of outstanding
and anticipated liabilities), which will be approximately $102 per unit.
In the event that prior to closing the purchaser renegotiates the purchase
price, the distributions to the limited partners will be lower.
The availability of funds for distribution of additional cash reserves
will be determined, in part, based on the collection after the closing of
certain rental and other payments due from tenants at Cranberry Mall adjusted
as of the closing date. To collect such funds sooner than they would
otherwise be paid, the Partnership may accept discounted payments with
respect to amounts due, which would result in limited partners receiving
their liquidating distribution sooner than would otherwise be the case but
could reduce the amount of such liquidating distribution. The actual
-2-
distribution will be based upon the net cash proceeds of the sale, together
with all remaining cash after paying or providing for payment of the
Partnership's costs in connection with the proxy solicitation, the sale, and
the winding up of the Partnership. These costs may include the preparation
of the final audit and tax filings, as well as all other outstanding and
anticipated liabilities (including establishing reasonable reserves for any
contingent or unforeseen liabilities or obligations). The General Partner
will not receive a liquidating distribution.
If the sale is not consummated, there can be no assurance that any
future disposition of Cranberry Mall will occur, or that the proceeds of such
a sale would be sufficient to pay down the outstanding mortgage on the
property. The outstanding principal of the current mortgage was due and
payable on April 1, 1999 and is in forbearance until April 1, 2000. Although
the General Partner would seek to have the mortgage extended and the terms
thereof modified or to otherwise refinance the mortgage, there can be no
assurances that such extension, modification or refinancing will be obtained,
or that the terms thereof will be favorable.
The Amended and Restated Agreement of Limited Partnership of the
Partnership, dated as of October 6, 1988, as amended, gives limited partners
holding a majority of the issued and outstanding units of limited partnership
interest the right to approve or disapprove the sale of Cranberry Mall. The
General Partner is calling a special meeting of limited partners to provide
them with the opportunity to approve the sale. A quorum, defined as the
presence in person or by proxy of limited partners holding more than 50% of
the outstanding Partnership interests, is required for the meeting. If a
quorum is not present, holders of a majority interest may adjourn the meeting
from time to time until a quorum is obtained. Once a quorum is present,
limited partners holding a majority interest must submit a proxy or vote in
person "For" the sale, or it will not be approved and the limited partners
will not receive the distribution of proceeds described above. Neither
Delaware law nor the Partnership Agreement provide the limited partners
voting against the sale with dissenters' appraisal rights.
The close of business on December 31, 1999, has been established as the
record date for determining which limited partners are entitled to vote the
units at the special meeting. As of the record date, the Partnership had
outstanding and entitled to vote 70,250 units held of record by 4,376 limited
partners. Each unit entitles the holder to one vote on each matter submitted
to a vote of the limited partners.
The General Partner recommends that the limited partners vote "FOR" the
sale of Cranberry Mall and the subsequent liquidation and dissolution of the
Partnership.
-3-
Our recommendation is based on a number of factors more fully described
in this proxy statement. Certain conflicts of interest exist in connection
with the General Partner's recommendation in that pursuant to the Partnership
Agreement, the General Partner is entitled to certain indemnification rights
by the Partnership. See "Risks Factors" beginning on page 11.
All duly executed proxy cards received from the limited partners prior
to the special meeting will be voted as directed on the card. If a duly
executed proxy card does not specify a choice, the relevant units will be
voted "FOR" the sale of Cranberry Mall and the subsequent liquidation and
dissolution of the Partnership. A limited partner may revoke a submitted
proxy at any time before it is voted at the special meeting.
The accompanying proxy is solicited by the General Partner on behalf of
the Partnership, to be voted at the special meeting and any adjournment or
postponement thereof. The Partnership's principal executive offices are
located at 3 World Financial Center, 29th Floor, New York, New York
10285-2900 (telephone: 212/526-3183). We have engaged MacKenzie Partners,
Inc. to act as Information Agent in connection with the proxy solicitation
process. All communications should be directed to MacKenzie Partners, Inc.
by calling toll-free (800/322-2885). In addition to the original
solicitation by mail, proxies may be solicited by telephone, facsimile
transmission or in person. All expenses of this solicitation, including the
cost of preparing and mailing this proxy statement, will be borne by the
Partnership.
The Partnership's Securities and Exchange Commission file number is 1-10217.
______________________
The date of this Proxy Statement is January 12, 2000.
-4-
TABLE OF CONTENTS
Page
QUESTIONS AND ANSWERS ABOUT THE SALE OF CRANBERRY MALL AND THE
SUBSEQUENT DISSOLUTION OF SHOPCO REGIONAL MALLS, L.P. . . . . . . . 1
SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
The Transaction . . . . . . . . . . . . . . . . . . . . . . . . . . 4
The Special Meeting; Vote Required . . . . . . . . . . . . . . . . 5
Purpose of and Reasons for the Sale . . . . . . . . . . . . . . . . 6
Effects of the Sale . . . . . . . . . . . . . . . . . . . . . . . . 6
Valuation of the Mall . . . . . . . . . . . . . . . . . . . . . . 8
Recommendation of the General Partner . . . . . . . . . . . . . . . 8
Risk Factors; Conflicts of Interest . . . . . . . . . . . . . . . . 9
RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Risks of the Sale . . . . . . . . . . . . . . . . . . . . . . . . . 11
Indemnification under the Partnership Agreement . . . . . . . . . . 11
DISCUSSION OF THE SALE . . . . . . . . . . . . . . . . . . . . . . . . . 13
Reasons for the Sale . . . . . . . . . . . . . . . . . . . . . . . 13
Effects of the Sale . . . . . . . . . . . . . . . . . . . . . . . . 17
Valuation of Cranberry Mall . . . . . . . . . . . . . . . . . . . . 18
Recommendation of the General Partner . . . . . . . . . . . . . . 19
Appraisal Rights . . . . . . . . . . . . . . . . . . . . . . . . . 21
Costs Associated with the Transaction . . . . . . . . . . . . . . . 21
SPECIAL MEETING OF THE LIMITED PARTNERS . . . . . . . . . . . . . . . . . 22
Special Meeting; Record Date . . . . . . . . . . . . . . . . . . . 22
Procedures for Computing Proxies . . . . . . . . . . . . . . . . . 22
Vote Required . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Solicitation Procedures . . . . . . . . . . . . . . . . . . . . . . 24
Revocation of Proxies . . . . . . . . . . . . . . . . . . . . . . . 24
TERMS OF THE SALE . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
The Purchase Agreement . . . . . . . . . . . . . . . . . . . . . . 25
Allocation of Costs Associated with the Sale . . . . . . . . . . . 26
Representations, Warranties and Covenants of the Parties . . . . . 26
Conditions to Closing the Sale . . . . . . . . . . . . . . . . . . 29
Termination of the Purchase Agreement . . . . . . . . . . . . . . . 30
Amendment of the Purchase Agreement . . . . . . . . . . . . . . . . 31
Dissolution and Liquidation of the Partnership . . . . . . . . . . 31
Determination of Cash Available for Distribution . . . . . . . . . 32
Regulatory Approvals . . . . . . . . . . . . . . . . . . . . . . . 33
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ACCOUNTING TREATMENT AND INCOME TAX CONSEQUENCES OF THE SALE . . . . . . 33
Accounting Treatment . . . . . . . . . . . . . . . . . . . . . . . 33
Material U.S. Federal Income Tax Consequences of the Transaction . 33
CERTAIN INFORMATION ABOUT THE PARTNERSHIP . . . . . . . . . . . . . . . . 36
The Partnership . . . . . . . . . . . . . . . . . . . . . . . . . . 36
The General Partner . . . . . . . . . . . . . . . . . . . . . . . . 36
The Property Manager . . . . . . . . . . . . . . . . . . . . . . . 36
Description of Cranberry Mall . . . . . . . . . . . . . . . . . . . 36
Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . 39
Distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Ownership of Units . . . . . . . . . . . . . . . . . . . . . . . . 40
Market for the Units . . . . . . . . . . . . . . . . . . . . . . . 40
Independent Certified Public Accountants . . . . . . . . . . . . . 41
Available Information . . . . . . . . . . . . . . . . . . . . . . . 41
Prior Related Transactions . . . . . . . . . . . . . . . . . . . . 41
SELECTED FINANCIAL DATA . . . . . . . . . . . . . . . . . . . . . . . . . 41
DOCUMENTS CONSTITUTING THIS PROXY STATEMENT . . . . . . . . . . . . . . . 42
ANNEX I: Amended and Restated Agreement of Limited Partnership of
Shopco Regional Malls, L.P., dated as of October 6, 1988 . . I-1
ANNEX II: Selected Financial Data . . . . . . . . . . . . . . . . . . II-1
ANNEX III: Unaudited Pro Forma Condensed Financial Information . . . . III-1
ANNEX IV: Purchase and Sale Agreement, dated as of September 11, 1999 IV-1
ANNEX V: First Amendment to Purchase and Sale Agreement,
dated as of October 28, 1999 . . . . . . . . . . . . . . . . V-1
ANNEX VI: Assignment of Purchase and Sale Agreement,
dated as of November 11, 1999 . . . . . . . . . . . . . . VI-1
ANNEX VII: Second Amendment to Purchase and Sale Agreement,
dated as of November 29, 1999 . . . . . . . . . . . . . . VII-1
ANNEX VIII: Third Amendment to Purchase and Sale Agreement,
dated as of December 23, 1999 . . . . . . . . . . . . . VIII-1
PART II: SHOPCO REGIONAL MALLS, L.P.'S ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 1998
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PART III: SHOPCO REGIONAL MALLS, L.P.'S QUARTERLY REPORTS ON FORM 10-Q FOR
THE QUARTERS ENDED MARCH 31, 1999, JUNE 30, 1999 AND
SEPTEMBER 30, 1999
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QUESTIONS AND ANSWERS ABOUT THE SALE OF CRANBERRY MALL AND THE SUBSEQUENT
DISSOLUTION OF SHOPCO REGIONAL MALLS, L.P.
Q: What am I voting on?
A: The sale of Cranberry Mall and subsequent liquidation and dissolution of
Shopco Regional Malls, L.P.
Q: Who is entitled to vote?
A: The limited partners of Shopco Regional Malls, L.P. as of the close of
business on December 31, 1999 are entitled to one vote per unit of limited
partnership.
Q: What happens if I vote FOR the sale?
A: If the holders of a majority of the limited partnership units vote FOR
the sale, the sale will be consummated. Title to Cranberry Mall will be
transferred to the purchaser for the purchase price of $33,500,000. If
certain conditions to closing are not met, the purchaser may renegotiate the
purchase price and the General Partner may use its reasonable discretion to
agree upon a lower price which it believes to be in the best interests of the
limited partners, but in no event shall the purchase price be reduced by more
than 3%. Following the sale of Cranberry Mall, Shopco Regional Malls, L.P.
will liquidate and you will receive a liquidating distribution.
Q: Is the General Partner recommending that the limited partners vote for
the sale of Cranberry Mall?
A: Yes, because the General Partner believes it is in the best interests of
Shopco Regional Malls, L.P. and its limited partners to sell Cranberry Mall
at this time, the General Partner is recommending that the limited partners
vote for the sale of Cranberry Mall and the subsequent liquidation and
dissolution of Shopco Regional Malls, L.P.
Q: How much will my liquidating distribution be?
A: We estimate that you will receive $122 per limited partnership unit
after all liabilities and transaction costs are paid. If certain conditions
to closing are not met, the purchaser may renegotiate the purchase price, and
we may use our reasonable discretion to agree upon a lower price which,
although lower, we believe to be in the best interests of the limited
partners, but in no event shall the purchase price be reduced by more than
3%. In that event, your distribution will be lower.
Q: What happens if I vote AGAINST the sale?
A: If a majority of the limited partners vote AGAINST the sale, the sale
will not be consummated and Shopco Malls L.P. will remain the owner of
Cranberry Mall. Shopco Regional Malls, L.P. will not liquidate, and limited
partners will not receive a liquidating distribution. There can be no
assurance that another suitable buyer will be found, or that any future sale
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of Cranberry Mall will provide sufficient proceeds to pay off the mortgage
on the property which became due and payable on April 1, 1999 and is in
forbearance until April 1, 2000.
Q: Who owns Cranberry Mall, and what is the Owner Partnership?
A: Shopco Malls L.P., which is referred to as the Owner Partnership, holds
title to Cranberry Mall. Shopco Regional Malls, L.P. has a 99% general
partnership interest in the Owner Partnership. Consequently, the Partnership
controls the Owner Partnership.
Q: How do I vote?
A: Sign and date each proxy card you receive and return it in the prepaid
envelope. You may revoke your proxy by (1) voting in person at the meeting
or (2) at any time before the meeting sending a signed and dated written
notice of revocation to Shopco Regional Malls, L.P. If you return your
signed proxy card without indicating your voting preference, Michael T.
Marron and Rocco F. Andriola will vote FOR the sale on your behalf.
Q: What if I don't vote?
A: If you fail to return a properly executed proxy card, it will be the
same as if you had voted AGAINST the sale. Please return your proxy card!
Q: Is my vote confidential?
A: Yes, absolutely. MacKenzie Partners, Inc. is the information agent for
the meeting and will tabulate the votes in confidence, as well as certain
employees who are associated with processing proxy cards and counting the
vote.
Q: Will filling out one proxy card vote all of my units?
A: Yes. Properly filling out and mailing the enclosed proxy will ensure
that all of your units will be voted in the manner that you indicate.
Q: What constitutes a quorum for the meeting?
A: Limited partners representing a majority of the outstanding units must
be present at the meeting or represented by a proxy. If you submit a
properly executed proxy card, you will be considered part of the quorum.
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SUMMARY
Set forth below is a summary of certain information contained elsewhere
in this Proxy Statement. The information contained in this Summary is
qualified by the more complete information contained elsewhere in this Proxy
Statement. All limited partners are urged to read this Proxy Statement in
its entirety. This Proxy Statement consists of the following three parts:
(1) this document, (2) Shopco Regional Malls, L.P.'s Annual Report on Form
10-K for the year ended December 31, 1998, and (3) Shopco Regional Malls,
L.P.'s Quarterly Reports on Form 10-Q for the quarters ended March 31, 1999,
June 30, 1999 and September 30, 1999.
This Proxy Statement Contains Forward-Looking Statements. Discussions
Containing Such Forward-Looking Statements May Be Found in the Material Set
Forth Under "-- Purpose of and Reasons for the Sale" and "DISCUSSION OF THE
SALE -- Reasons for the Sale" as Well as Within the Proxy Statement
Generally. In Addition, When Used in this Proxy Statement, the Words
"Believes," "Anticipates," "Expects" and Similar Expressions Are Intended to
Identify Forward-Looking Statements; However, Not All Forward-Looking
Statements Will Contain Such Expressions. Such Statements Are Subject to a
Number of Risks and Uncertainties. Actual Results or Events in the Future
Could Differ Materially from Those Described in the Forward-Looking
Statements. The Amount of Distributions to Limited Partners May Be More or
Less Than the Amount Described in this Proxy Statement. The Partnership
Further Cautions Limited Partners That the Discussion of Factors May Not Be
Exhaustive. The Partnership Undertakes No Obligation to Publicly Release Any
Revisions to These Forward-Looking Statements That May Be Made to Reflect Any
Future Events or Circumstances.
Background
The Partnership Shopco Regional Malls, L.P. is a Delaware
limited partnership formed on March 11,
1988. The Partnership is operated in
accordance with the Amended and Restated
Agreement of Limited Partnership, dated as
of October 6, 1988, as amended (the
"Partnership Agreement"). The affairs of
the Partnership are conducted by its
general partner, Regional Malls Inc. (the
"General Partner"). The Partnership was
formed to acquire a general partnership
interest in Shopco Malls L.P., a Delaware
limited partnership. Shopco Regional
Malls, L.P. is referred to as the
Partnership to distinguish it from its
general partner, Regional Malls, Inc.
Shopco Malls L.P., which holds the direct
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interest in Cranberry Mall, is referred to
as the Owner Partnership. The primary
assets of the Owner Partnership were
Cranberry Mall, located in Westminster,
Maryland ("Cranberry Mall" or, the "Mall")
and the Mall at Assembly Square.
Concurrent with the acquisitions of
Cranberry Mall and the Mall at Assembly
Square, the Partnership became the
managing general partner of the Owner
Partnership. The Partnership's primary
business was and is acting as general
partner for the Owner Partnership. All of
the Partnership's revenues, operating
profit or losses and assets relate solely
to its ownership interest in and operation
of the Owner Partnership.
The Owner Partnership The partners of the Owner Partnership are
the Partnership, which holds a general
partnership interest in the Owner
Partnership, and Shopco Limited
Partnership, a Delaware limited
partnership, which holds a limited
partnership interest in the Owner
Partnership. The Owner Partnership
transferred title to the Mall at Assembly
Square on December 20, 1996 to the holder
of the mortgage pursuant to a foreclosure
proceeding. Consequently, Cranberry Mall
is the only asset of the Owner
Partnership. The business affairs of the
Owner Partnership are carried out and
managed by the Partnership and the General
Partner which have effective discretion
with respect to the Owner Partnership.
All of the Owner Partnership's revenues,
operating profit or losses and assets
relate solely to its ownership interest in
and operation of Cranberry Mall. See
"CERTAIN INFORMATION ABOUT THE
PARTNERSHIP--The Partnership."
Cranberry Mall Cranberry Mall is a single-level, enclosed
regional shopping center located on
approximately 55.61 acres in Westminster,
Maryland, approximately 30 miles northwest
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of Baltimore. Cranberry Mall consists of
a central enclosed mall anchored by three
major department stores -- Belk (formerly
Leggett), Sears, Roebuck and Company and
Montgomery Ward -- and contains space for
approximately 90 retail stores, a health
club, a nine-theatre cinema complex, and a
fourth nationally recognized retail anchor
store. Cranberry Mall currently has gross
leasable space totaling approximately
530,000 square feet and has parking for
approximately 2,597 automobiles. For a
description of Cranberry Mall and its
operations, see the section entitled
"CERTAIN INFORMATION ABOUT THE
PARTNERSHIP--Description of Cranberry
Mall." Cranberry Mall is managed by
Insignia Retail Group, Inc. (the "Property
Manager"). The Property Manager is
responsible for rent collection, leasing
and day-to-day on-site management. See
"CERTAIN INFORMATION ABOUT THE
PARTNERSHIP--The Property Manager."
Insignia/ESG Capital Advisors Group, an
affiliate of the property manager, has
been engaged as a broker to sell Cranberry
Mall.
The Transaction
The Sale Pursuant to its capacity as the general
partner of the Owner Partnership, the
Partnership proposes to direct the Owner
Partnership to sell Cranberry Mall to
Cranberry Properties MM Corp., a Delaware
corporation (the "Purchaser") for a
purchase price of $33,500,000 in cash (the
"Sale"). If certain conditions to closing
of the Sale (the "Closing") are not met,
the Purchaser may attempt to renegotiate
the purchase price and the General
Partner, in its reasonable discretion, may
agree to a purchase price of less than
$33,500,000, which it believes to be in
the best interests of the limited partners
of the Partnership (the "Limited
Partners"), but in no event shall the
purchase price be reduced by more than 3%.
-5-
The Partnership will receive approximately
$2,475,000 of this amount after repayment
or assumption by the Purchaser of the
principal balance of the mortgage loan and
before certain transaction costs. The
Sale of Cranberry Mall will result in
approximately $20 of net proceeds per unit
of limited partnership interest in the
Partnership (each, a "Unit") after paying
or providing for payment of transaction
costs, which the Partnership estimates
will be approximately $1,060,000 or $15
per Unit. In addition, the Sale will
represent the last asset held by both the
Owner Partnership and the Partnership.
Both entities will subsequently liquidate,
resulting in additional distributions of
approximately $102 per Unit. In the event
that the Purchaser renegotiates the
purchase price, distributions to the
Limited Partners will be lower. The terms
of the Sale are set forth in an Agreement
of Purchase and Sale, dated as of
September 11, 1999 and amended by the
First Amendment to Agreement of Purchase
and Sale, dated as of October 28, 1999 and
the Second Amendment to Agreement of
Purchase and Sale, dated as of November
29, 1999 among Barker Pacific Group, Inc.,
the original purchaser ("Barker") and the
Owner Partnership. Pursuant to an
Assignment of Purchase and Sale Agreement,
dated as of November 11, 1999, Barker
assigned, sold, and transferred its rights
and obligations under the Purchase
Agreement to the Purchaser. The Purchase
Agreement was then further amended by the
Third Amendment to Agreement of Purchase
and Sale, dated as of December 23, 1999
among Purchaser and the Owner Partnership.
The Agreement of Purchase and Sale, as
amended, is referred to herein as the
"Purchase Agreement." For a summary of
the terms of the Purchase Agreement, see
the section entitled "TERMS OF THE SALE."
The agreed upon value of Cranberry Mall
was based on a thorough marketing by
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Insignia/ESG Capital Advisors Group and an
arm's length negotiations between the
Purchaser and the General Partner on
behalf of the Partnership and the Owner
Partnership. See "DISCUSSION OF THE SALE
-- Reasons for the Sale."
Dissolution and
Liquidation If the Sale is approved by the Limited
Partners and certain other conditions are
met or waived, the Sale will be
consummated. The Owner Partnership will
distribute to the Partnership its share of
the proceeds of the Sale. The General
Partner will not receive any proceeds of
the Sale. The Owner Partnership will
subsequently liquidate and distribute to
the Partnership its proportional share of
additional Owner Partnership cash reserves
(after payment or provision for payment of
outstanding and anticipated liabilities),
and the Partnership will distribute its
share of additional cash reserves (after
payment or provision for payment of
outstanding and anticipated liabilities)
to the Limited Partners, which is
projected to be in the aggregate
approximately $7,156,000, or $102 per
Unit. The Partnership will subsequently
liquidate. See "TERMS OF THE SALE
Dissolution and Liquidation of the
Partnership" and "--Determination of
Cash Available for Distribution."
The Special Meeting;
Vote Required A special meeting of the Limited Partners
will be held on February 7, 2000. At the
special meeting, the Limited Partners will
consider and vote upon the Sale and the
subsequent dissolution and liquidation of
the Partnership. The close of business on
December 31, 1999, has been established as
the record date. As of the record date,
the Partnership had outstanding and
entitled to vote 70,250 Units, held of
record by 4,376 Limited Partners. Each
Unit entitles the holder to one vote on
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each matter submitted to a vote of the
Limited Partners. It is a condition to
the Closing of the Sale that Limited
Partners holding a majority of the Units
approve the Sale and the subsequent
liquidation and dissolution of the
Partnership. The General Partner on
behalf of the Partnership is therefore
soliciting proxies from the Limited
Partners to be voted at the special
meeting and any adjournment(s) or
postponement(s) thereof. A quorum,
defined as the presence in person or by
proxy of Limited Partners holding more
than 50% of the outstanding Units, is
required for the meeting. See "SPECIAL
MEETING OF THE LIMITED PARTNERS."
Purpose of and Reasons
for the Sale As part of the General Partner's
continuing effort to fulfill its fiduciary
responsibility to the Limited Partners by
enhancing the value of the Limited
Partners' investment in the Units, the
General Partner continually considers
various strategies and alternatives
available to the Partnership. One such
strategy is directing, in its capacity as
managing general partner of the Owner
Partnership, the Owner Partnership to sell
Cranberry Mall. For a discussion of these
various strategies and alternatives, see
"DISCUSSION OF THE SALE -- Reasons for the
Sale." The subsequent dissolution and
liquidation of the Partnership will allow
the Limited Partners to liquidate, on an
all cash basis, their illiquid investment
in their Units, which cash can then be
invested in alternative investments.
The considerations which resulted in the
determination to present the Sale to the
Limited Partners and to recommend the Sale
are described in the section entitled
"DISCUSSION OF THE SALE -- Reasons for the
-8-
Sale." Although the Sale is not without
the risks described in the section
entitled "RISK FACTORS -- Risks of the
Sale," the General Partner believes that,
given the favorable terms of the Sale, it
is its fiduciary responsibility to present
the Sale to the Limited Partners for their
approval. The General Partner recommends
that the Limited Partners APPROVE the
Sale.
Effects of the Sale If the Sale is approved by the Limited
Partners and certain other conditions are
met or waived, the sale will be
consummated. The Partnership will have
sold its interest in Cranberry Mall
through the Owner Partnership to the
Purchaser. Thereafter, the Partnership
will be liquidated and dissolved at such
time as the General Partner determines
that all remaining Partnership assets are
available for distribution and all
Partnership obligations and liabilities
have been paid or provided for. The Owner
Partnership will be liquidated and
dissolved as well.
The General Partner estimates that the
Limited Partners will receive
distributions of approximately $122 per
Unit in cash as a result of the Sale and
the Partnership's ultimate dissolution,
representing (1) net proceeds from the
Sale (after paying or providing for
payment of transaction costs) of
approximately $20 per Unit; (2) additional
Partnership cash reserves (after payment
or provision for payment of outstanding
and anticipated Partnership liabilities)
and additional Owner Partnership cash
reserves (after payment or provision for
payment of outstanding and anticipated
Owner Partnership liabilities), which will
be approximately $102 per Unit. The
amounts distributed to the Limited
Partners will be less than the amounts
specified above if the Purchaser
-9-
renegotiates the purchase price and the
General Partner, in its reasonable
discretion, agrees to a lower price which
it believes is in the best interests of
the Limited Partners, but in no event
shall the purchase price be reduced by
more than 3%. See "TERMS OF THE SALE--
Dissolution and Liquidation of the
Partnership" and "--Determination of Cash
Available for Distribution." The General
Partner will not receive a liquidating
distribution. Any reserves not utilized
to meet Partnership liabilities or
obligations will be distributed to the
Limited Partners at such time as
determined by the General Partner. Upon
liquidation and dissolution of the
Partnership, Limited Partners will cease
to have an ownership interest in the
Partnership and will no longer bear the
risks or benefits associated with such
ownership. See "DISCUSSION OF THE SALE--
Effects of the Sale." For a description
of certain tax consequences of the Sale,
see "ACCOUNTING ISSUES AND INCOME TAX
CONSEQUENCES OF THE SALE."
If the Sale is not consummated, there can
be no assurance that any future
disposition of Cranberry Mall will occur
or what the terms of such a transaction
might be. Any future sale may not be at a
purchase price sufficient to pay off the
mortgage on Cranberry Mall and may not
occur on or before April 1, 2000, the date
when such mortgage becomes due and
payable. If the Sale is not approved, the
General Partner will continue to operate
the Partnership in accordance with the
terms of the Partnership Agreement and in
fulfillment of its fiduciary duties,
including the review of any offers to
purchase Cranberry Mall or the
Partnership's interest in the Owner
Partnership (the "Interest"). In
addition, the General Partner will
continue to evaluate the various
-10-
alternatives to the Sale, as described in
the section entitled "DISCUSSION OF THE
SALE -- Reasons for the Sale." Such
alternatives include: (1) continuing to
hold the Interest and consequently
Cranberry Mall; (2) an auction of the
Interest; (3) an auction of Cranberry
Mall; and (4) solicitation of bids for the
Interest or Cranberry Mall. Holding
Cranberry Mall will likely require
additional capital expenditures which
provide an uncertain return for investors.
In addition, the outstanding principal of
the current mortgage on Cranberry Mall was
due and payable April 1, 1999 and is in
forbearance until April 1, 2000, and the
General Partner will have to negotiate
with the holder of the mortgage for a
continuation of the forbearance past April
1, 2000. Therefore, the General Partner
has concluded that such options are not in
the best interest of the Limited Partners
at this time, particularly in light of the
Purchaser's offer. See "DISCUSSION OF THE
SALE--Effects of the Sale--Effects of
Failure to Approve the Sale."
Valuation of the Mall The agreed upon value of Cranberry Mall is
based on a thorough marketing by
Insignia/ESG Capital Advisors Group
("Insignia") and an arm's length
negotiation between the Purchaser and the
General Partner on behalf of the Owner
Partnership. Insignia is the real estate
capital markets subsidiary of Insignia
Financial Group, one of the nation's
largest commercial real estate service
providers. The General Partner, working
with Insignia, determined that a broad
based marketing effort would provide
maximum market exposure and Insignia
subsequently identified and mailed
marketing materials to over 100 qualified
mall investors as prospective purchasers
of Cranberry Mall. As a result of this
extensive marketing process, the General
Partner entered into negotiations with the
-11-
Purchaser, and the Purchaser subsequently
entered into the Purchase Agreement.
In 1997, Cushman & Wakefield, Inc., an
independent third-party appraisal firm,
was engaged by the Partnership to prepare
an appraisal of Cranberry Mall as of
January 1, 1998. Pursuant to its
engagement, Cushman & Wakefield reported
to the Partnership that the valuation of
Cranberry Mall was $40,000,000 as of
January 1, 1998. The General Partner
believes that the January 1, 1998
valuation, which is almost two years old,
is not an accurate measure of a current,
realizable selling price for Cranberry
Mall for several reasons including,
without limitation: (i) a recent
deterioration in the Mall's net operating
income due in large part to the unforseen
and continuing vacancy of a large anchor
tenant space; (ii) a recent decline in
investment demand for regional malls;
(iii) increased interest rates for
commercial mortgage loans; (iv) the
increasing number of bankruptcies in
national chains in the retailing industry;
and (v) increased competition within the
Mall's primary and secondary trade areas.
See "DISCUSSION OF THE SALE--Valuation of
Cranberry Mall."
Recommendation of the
General Partner The General Partner recommends that the
Limited Partners vote "FOR" the Sale. The
General Partner's recommendation and its
determination that the terms of the Sale
are fair to the Limited Partners was based
on the following factors. See "DISCUSSION
OF THE SALE--Recommendation of the General
Partner" for a more detailed discussion of
the following factors.
Factors in Favor of the
Sale In determining the fairness of the Sale,
the General Partner considered the
following factors which weighed in favor
-12-
of the Sale: (1) the thoroughness of the
marketing effort for Cranberry Mall and
the small likelihood that a superior offer
with a comparable probability of closing
the transaction could be obtained; (2) the
arm's-length negotiation between the
Purchaser and the General Partner on
behalf of the Partnership as the basis for
determining the agreed upon value of
Cranberry Mall; (3) the structure of the
Sale as an all-cash transaction with
reduced transaction costs; (4) uncertainty
regarding a future offer to purchase
Cranberry Mall at a price sufficient to
cover the outstanding principal of the
current mortgage; (5) the fact that the
outstanding principal of the current
mortgage was due and payable April 1, 1999
and is in forbearance until April 1, 2000,
with no assurance that such mortgage can
be extended or refinanced on acceptable
terms; (6) the fact that a significant
investment will be required for the
leasing of the vacant anchor tenant space
and general renovation of the Mall within
the next few years in order to maintain
its competitive position. Such lease-up
and renovation might necessitate continued
ownership of Cranberry Mall for several
years to realize a return on such
investment, thereby exposing the Limited
Partners to the additional market risk of
continued ownership of their Units; (7)
the fact that the longer that Cranberry
Mall is held, the greater the risk of
lease renegotiation at lower than market
or current rental rates and non-renewal
and early termination of leases; (8) the
termination in February 1999 of a prior
agreement for the purchase of Cranberry
Mall by the prior purchaser due to its
inability to execute its proposed
redevelopment scheme; (9) the high cost of
operating the Partnership as a publicly-
held entity; (10) the lack of an
established exchange or market for the
Units; and (11) the General Partner's
-13-
industry knowledge regarding the
marketability of Cranberry Mall. See
"DISCUSSION OF SALE--Reasons for the
Sale."
Factors Against the
Sale In determining the fairness of the terms
of the Sale, the General Partner also
considered the following factors which
weighed against the Sale: (1) the
Purchaser may attempt to renegotiate the
purchase price downward prior to the
Closing if certain conditions to Closing
are not met; (2) the Limited Partners may
be unable to invest the cash received by
them in connection with the Sale in
alternative investments that will generate
a return equal to or greater than that
generated by the investment in the
Partnership; (3) after the consummation of
the Sale, the Limited Partners will no
longer share in any potential increases in
the value of Cranberry Mall; (4) there can
be no assurances that a better offer for
Cranberry Mall may not be available; and
(5) the Limited Partners may incur certain
tax liabilities as a result of the Sale.
See "ACCOUNTING ISSUES AND INCOME TAX
CONSEQUENCES OF THE SALE."
The General Partner concluded that the
factors weighing in favor of the Sale
outweighed the factors weighing against
the Sale and that, as with any investment
decision, the potential disadvantages and
risks of the Sale are speculative, cannot
be quantified and do not outweigh the
benefits.
Risk Factors;
Conflicts of Interest The Sale is subject to certain risks and
conflicts of interest as more fully
described in the section entitled "RISK
FACTORS." Such risks include the
possibility that prior to the Closing the
Purchaser may attempt to renegotiate the
purchase price downward if certain
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conditions to Closing are not met. The
General Partner, in its reasonable
discretion, may agree to a lower purchase
price which it believes is in the best
interests of the Limited Partners, but in
no event shall the purchase price be
reduced by more than 3%.
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RISK FACTORS
Risks of the Sale
The Sale is not without certain potential disadvantages and risks to
the Limited Partners. Such disadvantages and risks include the following:
- The Purchaser may attempt to renegotiate the purchase price downward
prior to the Closing if certain conditions to Closing are not met.
The General Partner, in its reasonable discretion, may agree to a
lower purchase price which it believes is in the best interests of
the Limited Partners, but in no event shall the purchase price be
reduced by more than 3%. This will result in lower distributions to
the Limited Partners.
- There can be no assurance that the cash distributions received by the
Limited Partners in connection with the Sale can be invested in
alternative investments that will generate a return equal to or
greater than that generated by the investment in the Partnership.
- Despite the approval of the Sale by the Limited Partners, it may not
be consummated because of the failure of the Purchaser or the Owner
Partnership to meet certain conditions to Closing. Such conditions
include the delivery of valid title to Cranberry Mall, the delivery
of estoppel certificates from tenants of Cranberry Mall and the
accuracy of certain representations made regarding authority,
litigation, leases and contracts.
- The Limited Partners will no longer have an ownership interest in
Cranberry Mall and thus will not share in any potential increases in
its value.
- There can be no assurances that a better offer for the acquisition of
the Partnership's interest in the Owner Partnership or Cranberry Mall
may not be available now or in the future.
- The Limited Partners may incur certain tax liabilities as a result of
the Sale.
Notwithstanding these risks, the General Partner has concluded that, as
with any investment, such potential disadvantages and risks are speculative,
cannot be quantified and do not outweigh the benefits of the Sale and the
subsequent liquidation of the Partnership.
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Indemnification under the Partnership Agreement
The Partnership Agreement that governs the Partnership provides that
the General Partner will not be liable for any loss incurred by the
Partnership or any of the Limited Partners as a result of any act or omission
of the General Partner acting in good faith on behalf of the Partnership or
the Owner Partnership. Such act must be reasonably believed by the General
Partner or such other person to be within the scope of the authority granted
by the Partnership Agreement and in the best interests of the Partnership, so
long as such act or omission does not constitute negligence or misconduct.
Under the terms of the Partnership Agreement, the General Partner is
indemnified by the Partnership for any claim, loss, expense, liability,
action or damage, including reasonable attorneys' fees, resulting from any
such act or omission. Any indemnity shall be paid from, and only to the
extent of, Partnership assets.
If a claim is made against the General Partner in connection with its
actions with respect to the Sale, the General Partner expects that it will
seek to be indemnified by the Partnership. As a result, a limited partner's
remedy with respect to claims against the General Partner and such other
Person relating to the General Partner's or such other person's involvement
in the Sale could be more limited than the remedies which would have been
available absent the existence of these rights in the Partnership Agreement.
A successful claim for indemnification, including the expenses of defending a
claim made, would reduce the Partnership's assets by the amount paid.
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DISCUSSION OF THE SALE
Reasons for the Sale
As part of our continuing effort to fulfill our fiduciary
responsibility to the Limited Partners by enhancing the value of the Limited
Partners' investment in the Units, we continually consider various strategies
and alternatives available to the Partnership. One such strategy is to
direct, in the Partnership's capacity as managing general partner, the Owner
Partnership to sell Cranberry Mall. Consummation of the sale of Cranberry
Mall (the "Sale") to the Purchaser will allow the Limited Partners to
liquidate, on an all-cash basis, their illiquid investment in the Units,
which cash can then be invested in alternative investments.
We believe the terms of the Sale are favorable to the Partnership and
the Limited Partners in part because: (1) the Sale will be consummated on an
all-cash basis at an agreed upon value of Cranberry Mall based, in part, on
the fair market value of the Mall as determined by a thorough marketing by
Insignia/ESG Capital Advisors Group and an arm's length negotiation between
the Purchaser and the General Partner on behalf of the Partnership; and (2)
the Limited Partners will no longer be subject to the risks inherent in the
ownership of a retail mall that has suffered deteriorating net operating
income and operates in a market that has suffered a recent decline in
property values. See "--Recommendation of the General Partner--Factors in
Favor of the Sale." Although the Sale is not without risks, as described in
the section entitled "RISK FACTORS--Risks of the Sale," the General Partner
believes that, given the favorable terms of the Sale, it has a fiduciary
responsibility to present it to the Limited Partners for their approval and
to recommend the Sale.
The considerations which resulted in the determination to present the
Sale to the Limited Partners and to recommend the Sale are described in more
detail below.
Background of the Sale
The General Partner considered several alternatives to the Sale,
including: (1) continuing to hold the Partnership's interest in the Owner
Partnership (the "Interest") and consequently Cranberry Mall; (2) an auction
of the Interest; (3) an auction of Cranberry Mall; and (4) solicitation of
third-party bids for the Interest or for Cranberry Mall.
Continuing to hold the Interest and Cranberry Mall, considered the
least desirable alternative, was rejected. The value of the Mall becomes
less certain the longer the property is held, increasing the risk in such
ownership. Cranberry Mall operates in a segment of the commercial real
estate market that has suffered a recent decline in property value due to
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several factors, including without limitation, internet retailing, oversupply
of regional malls and changing consumer tastes. The ownership of retail
properties is also subject to risks relating to conditions in the retailing
industry, which has seen a number of bankruptcies of national chains as well
as smaller local retailers. Certain of these risks were recently evidenced
at Cranberry Mall by the bankruptcy-related lease termination of Caldor, an
anchor tenant at Cranberry Mall, who filed for protection under the U.S.
Bankruptcy Code on September 18, 1995. Subsequently, in February 1998,
Caldor announced that it would close its store at Cranberry Mall, and did so
on May 10, 1998. In July 1998, Caldor rejected its lease with bankruptcy
court approval. Although the Partnership's claim for unpaid rent and
rejection damages under Caldor's lease was filed shortly thereafter, it would
have been preferable to retain Caldor as a tenant. Caldor did not submit a
plan for reorganization and on January 22, 1999 was ordered to wind down its
business operations and affairs under Chapter 11 of the Bankruptcy Code.
Since May, 1998, the General Partner and Insignia Retail have made efforts to
secure a new anchor tenant for Caldor's space. On July 1, 1999, the General
Partner executed letters of intent with two nationally recognized tenants to
lease approximately 31,000 square feet of Caldor's space. Improvements and
alterations necessary to accommodate these tenants will require substantial
capital outlays by the owner of the property. The total cost that will be
incurred to secure these tenants, which includes leasing commissions, tenant
improvements, and related capital improvements, is estimated to be in excess
of $2 million. Another example of a bankruptcy-related risk involves
Montgomery Ward, another Cranberry Mall anchor tenant. On July 7, 1997,
Montgomery Ward filed for protection under Chapter 11 of the U.S. Bankruptcy
Code, and as part of its bankruptcy process announced the closing of 48
stores on October 10, 1997. However, during bankruptcy Montgomery Ward
reaffirmed its lease at Cranberry Mall, has remained in possession of its
space, and is committed to paying all rent arrears under a confirmed plan of
reorganization. Another example of a bankruptcy-related risk involves a non-
anchor tenant, County Seat. On October 17, 1996, County Seat filed for
protection under Chapter 11 of the U.S. Bankruptcy Code in the United States
Bankruptcy Court in the District of Delaware. County Seat confirmed a plan
of reorganization, but was unable to meet certain of its obligations
thereunder. As a result, County Seat was forced to file a second Chapter 11
case, in the United States Bankruptcy Court in the Southern District of New
York, on January 22, 1999. Thereafter, County Seat announced that it would
close its store at Cranberry Mall, and rejected its lease with bankruptcy
court approval.
Both an auction of the Interest and an auction of Cranberry Mall were
rejected by the General Partner. In addition to the factors noted in the
preceding paragraph, it is the belief of the General Partner that real estate
auctions (as opposed to a solicitation of third-party bids through the use of
investment bankers or real estate brokers) are frequently viewed as a sale
method of last resort, making it even less likely that a price greater than
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the price reflected in the proposed Sale could be achieved, as the typical
buyer at such an auction is seeking below-market purchase prices.
In light of the above mentioned reasons, the General Partner determined
to pursue the sale of Cranberry Mall as the most desirable strategic
investment alternative available to the Partnership. During the second
quarter of 1998 the General Partner engaged Insignia/ESG Capital Advisors
Group ("Insignia") as broker to market Cranberry Mall for sale. The General
Partner selected Insignia as a broker based on Insignia's excellent
reputation as a premier national brokerage firm and its expertise in
marketing commercial retail real estate and negotiating sophisticated real
estate transactions. Insignia is the real estate capital markets subsidiary
of Insignia Financial Group, one of the nation's largest commercial real
estate service providers with 49 offices the continental United States plus
international operations in the United Kingdom, Germany, and Italy. During
1998, Insignia was responsible for over $3.4 billion in commercial investment
property sales. In its Quarterly Report on Form 10-Q for the quarter ended
June 30, 1998, the Partnership reported that it engaged a broker to market
Cranberry Mall for sale, and in anticipation of the sale of the Mall,
recorded the Partnership's real estate on its June 30, 1998 balance sheet as
"Real Estate Assets Held for Disposition."
The General Partner, working with Insignia, determined that a broad
based marketing effort would provide maximum market exposure. Insignia
identified over 100 qualified mall investors as prospective purchasers of
Cranberry Mall, and sent them investment summaries and confidentiality
agreements in August 1998. In September 1998, 17 of these prospective
purchasers entered into confidentiality agreements with the Partnership and
received Confidential Offering Memoranda. Between September 22 and October
6, 1998, four of the prospective purchasers submitted non-binding offers to
purchase Cranberry Mall, ranging in price from $30 million to $39.75 million.
CenterCo, Inc. ("CenterCo") submitted the highest offer of $39.75 million
(which was $4 million higher than the second highest offer), based on its
plans to redevelop Cranberry Mall. The General Partner proceeded to
negotiate with CenterCo, and on December 3, 1998, the Owner Partnership
entered into an agreement to sell its ownership interest in Cranberry Mall to
CenterCo for $39,750,000. The agreement provided for termination by CenterCo
at any time during the due diligence review period. Pursuant to this
termination provision, CenterCo terminated the agreement on February 5, 1999
as it was unable to execute a viable redevelopment scheme. As a result of
this termination, the General Partner and Insignia resumed efforts to
actively market the property for sale.
In February 1999, Insignia identified 57 qualified mall investors as
prospective purchasers of Cranberry Mall, and sent them investment summaries
and confidentiality agreements. This group was largely composed of investors
who had indicated interest in the previous marketing effort. In March 1999,
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12 investors entered into confidentiality agreements with the Partnership and
received updated Confidential Offering Memoranda. Between March 22 and April
10, 1999, four of the prospective purchasers submitted non-binding offers to
purchase Cranberry Mall, ranging in price from $30 million to $34 million.
The General Partner, after discussions with Insignia and after assessing the
risks and considering several factors, including the certainty of closure,
proceeded to negotiate with one of the two highest bidders, Condor
Acquisition Partners LC ("Condor"), an affiliate of Barker Pacific Group,
Inc. ("Barker"). Condor is a Delaware limited liability company in which
Barker is a fifty percent shareholder, created for the purpose of acquiring
commercial retail real estate. Barker is a real estate investment firm
comprised of experienced real estate professionals active in asset
management, acquisitions, and development of major commercial projects.
On July 1, 1999, the Partnership executed a letter of intent to sell
Cranberry Mall to Barker. On September 11, 1999, pursuant to an Agreement of
Purchase and Sale, the Owner Partnership agreed to sell its ownership
interest in Cranberry Mall to Barker for a net purchase price of $34,000,000
in cash. The Agreement of Purchase and Sale was subsequently amended by a
First Amendment to Agreement of Purchase and Sale, dated as of October 28,
1999 and a Second Amendment to Agreement of Purchase and Sale, dated as of
November 29, 1999. Pursuant to an Assignment of Purchase and Sale Agreement,
dated as of November 11, 1999, Barker assigned, sold and transferred its
rights and obligations under the purchase agreement, as amended, to the
Cranberry Properties MM Corp. Cranberry Properties MM Corp. is a Delaware
corporation and a wholly-owned subsidiary of Phoenix Four ("Phoenix"), an
international business corporation based in Nassau, Bahamas. Phoenix,
established in 1993, is an open-ended opportunity fund publicly listed on the
Luxembourg Stock Exchange, and a Bahamas licensed mutual fund, specializing
in the acquisition of value-added commercial real estate debt and equity
assets. Pursuant to continuing negotiations between Cranberry Properties MM
Corp. and the General Partner on behalf of the Partnership and the Owner
Partnership, the two parties entered into a Third Amendment to Agreement of
Purchase and Sale dated as of December 23, 1999 to the purchase agreement
under which the Owner Partnership will sell its ownership interest in
Cranberry Mall to Cranberry Properties MM Corp. for a purchase price of
$33,500,000 in cash. The due diligence expiration date of the Agreement of
Purchase and Sale was extended, from time to time, by mutual agreement of the
parties, through December 23, 1999.
Risks and Related Costs Associated with Continued Ownership of the Mall
The ownership of retail properties is subject to risks relating to
conditions in the retailing industry, which has seen a number of bankruptcies
of national chains (commonly known as "national credit tenants") as well as
smaller local retailers. The longer the Partnership holds its Interest in
the Owner Partnership and Cranberry Mall, the greater the risk to the
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Partnership of lease defaults, lease renegotiation at rental rates lower than
market or current rates, and non-renewal and early termination of leases. At
Cranberry Mall, this risk is evidenced by the recent lease default of Caldor
pursuant to its bankruptcy filing. Such risks are not exclusively limited to
anchor stores; they also affect specialty stores, including County Seat and
several other former tenants at Cranberry Mall which have defaulted on their
leases pursuant to bankruptcy filings. Such lease defaults or non-renewals
often result in the need for substantial capital improvements or remodeling
to attract new tenants. The Owner Partnership and the Partnership have
previously reserved against such risks, and the maintenance of such reserves,
together with lease defaults, non-renewals and early terminations, has
resulted and could be expected to result in the future in lower distributions
to the Limited Partners.
The Mall is likely to require a significant investment for the leasing
of vacant anchor tenant space and a general renovation within the next few
years in order to maintain its competitive position. Any financing required
in connection with such lease-up or renovation would increase the liabilities
of the Owner Partnership or the Partnership and may result in lower
distributions to the Limited Partners. In addition, such lease-up or
renovation of the Mall might necessitate continued ownership of the Mall for
several years in order to enable the Partnership to realize a return on such
investment, which would expose the Limited Partners to the additional market
risks associated with continued ownership of the Mall and the lack of an
established trading market for the Units.
If the Sale is not approved, there can be no assurance as to whether
any future sale of the Interest or Cranberry Mall, or any future liquidation
or dissolution of the Partnership, will occur or on what terms such a sale,
or liquidation or dissolution, might occur. Any such future sale may not be
at a price sufficient to satisfy the mortgage on the property. As of
December 29, 1999 the principal balance of the mortgage is $31,025,000.
The outstanding principal balance on the mortgage on the property
became due and payable on April 1, 1999. The General Partner and the
mortgage lender, Metropolitan Life Insurance Company, agreed to allow the
Partnership to defer the repayment of the principal balance of the loan to
April 1, 2000, provided that the Partnership continues to pay interest at the
same rate and times set forth in the mortgage notes. If the sale is not
approved, the General Partner intends to seek to have the mortgage extended
and the terms thereof modified or to otherwise refinance the mortgage;
however, there can be no assurances that such extension, modification or
refinancing will be obtained or that the terms thereof will be favorable.
The Partnership incurs general and administrative costs related to its
status as a public reporting entity under the Federal securities laws. The
costs of preparing reports such as Annual Reports on Form 10-K and Quarterly
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Reports on Form 10-Q, as well as the expenses of printing and mailing these
materials, are significant. In addition, the Partnership incurs significant
legal and accounting fees in complying with the Federal securities laws.
There is no established trading market for the Units. As a result, the
Limited Partners and the Partnership incur all of the costs associated with
public-entity status, but have little of the benefits associated with
liquidity. The Units are not readily transferable; consequently, the Limited
Partners are essentially locked into their investment in the Units until the
Interest or Cranberry Mall is sold.
Benefits of the Sale
As a result of the sale of Cranberry Mall, the Limited Partners will
receive their proportionate share, on an all-cash basis, of the fair market
value of the Partnership's interest in Cranberry Mall, after the Owner
Partnership and the Partnership each pays or provides for payment of all
outstanding and anticipated liabilities (including establishing reserves for
any contingent or unforeseen liabilities or obligations). Such proceeds can
then be reinvested by the Limited Partners in other investments that could
possibly yield a higher return than the investment in the Partnership. In
addition, the structure of the Sale on an "as is" basis limits the need for
the Partnership to reserve substantial funds after the closing date of the
Sale (the "Closing Date") to satisfy any post-closing liabilities.
Effects of the Sale
General
If the Sale is approved by the Limited Partners and the remaining
conditions to the Sale are met or waived, the Sale will be consummated, and
the Owner Partnership will have sold Cranberry Mall to the Purchaser. The
Owner Partnership will then pay the Sale Costs (as defined in "Costs
Associated with the Transaction") and pay or make provision (including
establishing reserves) for the payment of all other outstanding and
anticipated liabilities. The remaining proceeds will be distributed to the
Partnership for distribution to the Limited Partners; the General Partner
will not receive any distribution from the Sale. The Partnership will be
liquidated and dissolved at such time as the General Partner determines that
all remaining Partnership assets are available for distribution and all
Partnership obligations and liabilities have been paid or provided for; the
General Partner will not receive any distribution from such liquidation and
dissolution. Thereafter, the registration of the Units under Section
12(g)(4) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), will be terminated. Further, upon dissolution, the Partnership will
no longer be subject to the periodic reporting requirements of the Exchange
Act and will cease filing information with the Securities and Exchange
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Commission (the "Commission"). The General Partner intends to conclude the
liquidation of the Partnership as soon as it deems appropriate.
Effects on the Limited Partners
Upon liquidation and dissolution of the Owner Partnership and the
Partnership, in accordance with the Partnership Agreement, the resulting
proceeds of the Sale, together with all cash on hand and reserves, will be
used to make distributions to the Limited Partners after payment of or making
provision for the payment of all other outstanding and anticipated
Partnership liabilities (including establishing reserves for any contingent
or unforeseen liabilities or obligations). The General Partner currently
anticipates that the Limited Partners will receive distributions of
approximately $122 per Unit as a result of the Sale and the Owner
Partnership's and the Partnership's ultimate dissolution, representing (1)
approximately $20 per Unit of net proceeds from the Sale after providing for
payment of transaction costs, and (2) the distribution of additional
Partnership cash reserves (after paying or providing for payment of
outstanding and anticipated Partnership liabilities) and additional cash
reserves of the Owner Partnership (after payment or provision for payment of
outstanding and anticipated liabilities), which the Partnership estimates
will be approximately $102 per Unit. The amounts distributed to the Limited
Partners will be less than the amounts specified above if the Purchaser
renegotiates the purchase price and the General Partner, in its reasonable
discretion, agrees to a lower price, which it believes is in the best
interests of the Limited Partners, but in no event shall the purchase price
be reduced by more than 3%. The availability of funds for distribution of
additional Partnership cash reserves may be determined, in part, based on the
collection after the Closing of certain rental and other payments due from
tenants at the Mall adjusted as of the Closing Date. To collect such funds
sooner than they would otherwise be paid, the Partnership may accept
discounted payments with respect to amounts due, which would result in
Limited Partners receiving their liquidating distribution sooner than would
otherwise be the case but could reduce the amount of such liquidating
distribution. See "TERMS OF THE SALE--Dissolution and Liquidation of the
Partnership" and "--Determination of Cash Available for Distribution." Based
on the estimated distributions to be made to the Limited Partners as a result
of the sale of Cranberry Mall and the subsequent liquidation of the Owner
Partnership and the Partnership, Limited Partners will not receive an amount
in excess of the preferred return to which they are entitled under the
Partnership Agreement.
Effects on the Partnership
The purchase price to be paid by the Purchaser for Cranberry Mall is
$33,500,000. Approximately 100% of the net proceeds from the purchase price
will be paid to the Partnership. This amount is based upon the Partnership's
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interest in the Owner Partnership (the "Interest") and was determined based
on the provisions in the Amended and Restated Agreement of Limited
Partnership of the Owner Partnership, dated as of October 6, 1988 (the "Owner
Partnership Agreement"). The Partnership will receive a liquidating
distribution, which will include (i) approximately $1,415,000 which
constitutes the net proceeds from the Sale and (ii) the distributions from
the Owner Partnership to the Partnership and the net cash reserves of the
Partnership, in an approximate aggregate amount of $7,156,000, for an
approximate total of $8,571,000, all in accordance with the terms of the
Owner Partnership Agreement. Any increase or decrease in total Partnership
distributions based on funds collected after the Closing and the amount
required to pay or provide for payment of the Partnership's obligations or
liabilities will increase or decrease the liquidating distribution to the
Limited Partners. See "TERMS OF THE SALE--Determination of Cash Available
for Distribution."
Effects of Failure to Approve the Sale
If the Sale is not consummated, there can be no assurance as to whether
any future liquidation or disposition of the Interest or Cranberry Mall,
either in whole or in part, will occur or on what terms they might occur.
Any future sale may not be at a purchase price sufficient to pay off the
mortgage on Cranberry Mall and may not occur on or before April 1, 2000, the
date when such mortgage becomes due and payable. However, if not approved,
the General Partner will continue to operate the Partnership in accordance
with the terms of the Partnership Agreement and in fulfillment of its
fiduciary duties, including the review of any third-party offers to purchase
the Interest or Cranberry Mall, in an effort to enhance the Partnership's
value on behalf of the Limited Partners. In addition, the General Partner
will continue to evaluate the various alternatives to the transaction, as
described in the section entitled "Purpose of and Reasons for the
Transaction." Such alternatives include: (1) continuing to hold the
Interest and Cranberry Mall; (2) an auction of the Interest or Cranberry
Mall; and (3) solicitation of bids for the Interest or Cranberry Mall. The
General Partner has concluded that such options are not in the best interest
of the Limited Partners at this time, particularly in light of the
Purchaser's offer.
Valuation of Cranberry Mall
Current Valuation
The purchase price is based on a thorough marketing by Insignia/ESG
Capital Advisors Group ("Insignia") and an arm's length negotiation between
the Purchaser and the General Partner on behalf of the Partnership and the
Owner Partnership. The General Partner, working with Insignia, determined
that a broad based marketing effort would provide maximum market exposure and
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Insignia subsequently identified and mailed marketing materials to over 100
qualified mall investors as prospective purchasers of Cranberry Mall. As a
result of this extensive marketing process, the General Partner entered into
negotiations with the Purchaser, and the Purchaser subsequently entered into
the Purchase Agreement.
Insignia is the real estate capital markets subsidiary of Insignia
Financial Group, one of the nation's largest commercial real estate service
providers with 49 offices in the continental United States plus international
operations in the United Kingdom, Germany, and Italy. During 1998, Insignia
was responsible for $3.4 billion in commercial investment property sales.
See "DISCUSSION OF THE SALE--Reasons for the Sale--Background of the Sale."
Prior Years Valuation
In 1997, Cushman & Wakefield, an independent third-party appraisal
firm, was engaged by the Owner Partnership to prepare an appraisal of the
Mall as of January 1, 1998. Pursuant to its engagement, Cushman & Wakefield
reported to the Partnership that the value of the Mall was $40,000,000 as of
January 1, 1998. However, appraisals are only estimates of value as of the
specific appraisal date, and certain conditions affecting the value of
Cranberry Mall are significantly different at the present time than at the
time the appraisal was completed. The General Partner believes that the
January 1, 1998 appraisal value, which is almost two years old, is not an
accurate measure of a current, realizable selling price for Cranberry Mall
for several reasons including, without limitation: (i) a recent deterioration
in the Mall's net operating income due in large part to the unforseen and
continuing vacancy of a large anchor tenant space; (ii) a recent decline in
investment demand for regional malls; (iii) increased interest rates for
commercial mortgage loans; (iv) the increasing number of bankruptcies in
national chains in the retailing industry; and (v) increased competition
within the Mall's primary and secondary trade areas.
Recommendation of the General Partner
Factors Considered
The General Partner believes that the terms of the Sale are fair to the
Partnership and the Limited Partners. The General Partner recommends that
the Limited Partners vote "FOR" the Sale. In determining the fairness of the
Sale and its decision to recommend the transaction, the General Partner
considered each of the factors discussed below. Although the General Partner
was unable to weigh each factor precisely, the factors are set forth below in
their approximate order of importance:
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Factors in Favor of the Sale:
- The thoroughness of the marketing effort for Cranberry Mall
and the small likelihood that a superior offer with a
comparable probability of closing the transaction could be
obtained.
- The agreed upon value of Cranberry Mall was based on a
thorough marketing by Insignia/ESG Capital Advisors and an
arm's length negotiation between the Purchaser and the
General Partner on behalf of the Partnership and the Owner
Partnership. See the section entitled "--Reasons for the
Sale."
- The fact that the Purchaser is willing to consummate the
Sale on an all-cash basis. This all-cash transaction will
allow substantially all of the Partnership's pro rata share
of the purchase price, after payment or provision for
payment of the Sale Costs and all other outstanding and
anticipated Partnership liabilities (including establishing
reserves for any contingent or unforeseen liabilities or
obligations), to be paid to the paid to the Limited
Partners, which can thereafter be reinvested by the Limited
Partners in other investments. An all-cash transaction also
significantly simplifies the Sale and lowers sale costs.
- The fact that another offer to buy Cranberry Mall may not,
after the payment of the expenses incurred in connection
with such a sale, be a large enough sum to cover the
outstanding principal of the current mortgage ($31,025,000).
- The fact that the outstanding principal of the current
mortgage was due and payable April 1, 1999 and is in
forbearance until April 1, 2000. Although the General
Partner intends to seek to have the mortgage extended and
the terms thereof modified or to otherwise refinance the
mortgage, there can be no assurances that such extension,
modification or refinancing will be obtained, or that the
terms thereof will be favorable.
- The fact that a significant investment will be required for
the releasing of the vacant anchor tenant space of Cranberry
Mall. In addition, the Mall is likely to require a
renovation within the next few years in order to maintain
its competitive position. Such lease-up and renovation
might necessitate continued ownership of the Mall for
several years to enable the Partnership to realize a return
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on such investment, which would expose the Limited Partners
to additional market risk. These costs and risks are
discussed in the section entitled "--Reasons for the Sale."
- The fact that the longer Cranberry Mall is held, the greater
the risk of lease renegotiation at lower than market or
current rental rates and non-renewal and early termination
of leases.
- The fact that a prior agreement for the purchase of
Cranberry Mall was terminated by the prior purchaser in
February 1999. The purchase price of $39.75 million offered
by the purchaser was based upon its potential redevelopment
of the property. The purchaser terminated the purchase
agreement after determining it was not possible to execute a
viable redevelopment scheme.
- The high cost of operating the Partnership as a
publicly-held entity.
- The lack of an established exchange or market for the Units
which makes it extremely difficult for the Limited Partners
to liquidate their investment.
- The General Partner's industry knowledge regarding the
marketability of Cranberry Mall.
Factors Against the Transaction:
- The Purchaser may attempt to renegotiate the purchase price
downward prior to Closing if certain conditions to Closing
are not met. The General Partner, in its reasonable
discretion, may agree to a lower purchase price which it
believes is in the best interests of the Limited Partners,
but in no event shall the purchase price be reduced by more
than 3%. This will result in lower distributions to the
Limited Partners.
- The Limited Partners may be unable to invest the cash
received by them in connection with the Sale in alternative
investments that will generate a return equal to or greater
than that generated by the investment in the Partnership.
- After the consummation of the Sale, the Limited Partners
will no longer have an ownership interest in the Interest or
Cranberry Mall and thus will not share in any potential
increases in its value.
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- There can be no assurances that a better offer for the
acquisition of the Interest or Cranberry Mall may not be
available now or in the future.
Conclusion
After evaluation of each of the foregoing factors, the General Partner
concluded that the factors weighing in favor of the Sale outweighed the
factors weighing against the Sale. In particular, the General Partner
concluded that, as with any investment decision, the potential disadvantages
and risks of the Sale are speculative, cannot be quantified and do not
outweigh the benefits of the Sale. Therefore, the General Partner recommends
that the Limited Partners vote "FOR" the Sale.
Appraisal Rights
Neither Delaware law nor the Partnership Agreement provide rights of
appraisal or similar rights to the Limited Partners who dissent from the vote
of the majority in approving the Sale. As a result, if Limited Partners
holding a majority of the Units approve the Sale and the Sale is consummated,
the Partnership will be liquidated and all Limited Partners, including those
who do not approve the Sale, will receive initial and liquidating
distributions pursuant to the terms of the Partnership Agreement.
Costs Associated with the Transaction
The following is an itemized statement of the approximate amount of
expenses incurred or estimated to be incurred by the Owner Partnership and
the Partnership in connection with the Sale (the "Sale Costs") and the
subsequent dissolution and liquidation of the Partnership and the Owner
Partnership (the "Liquidation Costs" and together with the Sale Costs, the
"Transaction Costs"):
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Sale Costs
Legal and Accounting fees . . . . . . . . . . . . $300,000
Proxy solicitation fees . . . . . . . . . . . . . $6,000
Printing and mailing costs . . . . . . . . . . . $25,000
Commissions . . . . . . . . . . . . . . . . . . . $502,000
Transfer and Conveyance taxes . . . . . . . . . . $201,000
Other, including filing fees . . . . . . . . . . $26,000
Total Sale Costs . . . . . . . . . . . . . . . . 1,060,000
Liquidation Costs $348,000
Transaction Costs $1,408,000
* Note: Although the Owner Partnership will pay the Sale Costs,
because the Partnership owns 99% of the Owner Partnership,
the Partnership will ultimately bear virtually all costs of
the Sale.
All of the foregoing fees and expenses will be paid by the Owner
Partnership or the Partnership from cash from operations. Of such fees and
expenses, approximately $1,714 has been paid through January 15, 2000. No
part of such funds is expected to be borrowed.
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SPECIAL MEETING OF THE LIMITED PARTNERS
Special Meeting; Record Date
Pursuant to the terms of the Partnership Agreement, the affirmative
vote or written consent of the Limited Partners holding more than 50% of the
issued and outstanding Units (a "Majority-in-Interest") is required to
approve the Sale. A Special Meeting of the Limited Partners will be held on
February 7, 2000, at the offices of the Partnership, 3 World Financial
Center, 26th Floor, New York, New York 10285-2900, at 9:00 a.m., local time,
to consider and vote upon the Sale and the subsequent liquidation and
dissolution of the Partnership. The Partnership Agreement provides that the
General Partner may call a special meeting of the Limited Partners at any
time and place convenient to Limited Partners, provided that the General
Partner gives written notice of such meeting to all Limited Partners, and
such meeting must be held no less than 15 days and no more than 60 days after
the General Partner sends such notice to the Limited Partners. The close of
business on December 31, 1999, has been established as the Record Date for
the Sale. A Limited Partner holding Units as of the Record Date will retain
the right to vote on the proposals set forth herein even if such Limited
Partner sells or transfers such Units after such date. As of the Record
Date, the Partnership had outstanding and entitled to vote 70,250 Units, held
of record by 4,376 Limited Partners. The presence in person or by proxy of
Limited Partners holding more than 50% of the outstanding Units shall
constitute a quorum; however, if no such quorum is present, holders of more
than 50% of the Units so present or so represented may adjourn the meeting
from time to time without further notice, until a quorum shall be obtained.
Even if a valid quorum is present, with respect to the Special Meeting, if
Limited Partners holding a majority of the Units do not submit a proxy or
vote in person at the Special Meeting in favor of the Sale, the Sale cannot
be approved.
All Limited Partners are invited to attend the Special Meeting.
However, even those Limited Partners intending to attend the Special Meeting
are requested to complete and return the enclosed proxy card promptly.
Procedures for Computing Proxies
Accompanying this Proxy Statement is a proxy card solicited by the
General Partner on behalf of the Partnership for use at the Special Meeting
and any adjournment(s) or postponement(s) thereof. When a proxy card is
returned, properly executed, and is received prior to or at the Special
Meeting and before the occurrence of the vote, and not revoked, the Units
represented thereby will be voted at the Special Meeting by the proxy or
proxies named therein in the manner specified on the proxy card. It is
important that you mark, sign and date your proxy card and return it either
in the enclosed, postage-prepaid envelope or by facsimile to (212) 929-0308,
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Attention: Charles Koons, as soon as possible. Return of your proxy card
prior to the Special Meeting does not prohibit you from attending the Special
Meeting. To be properly executed, the proxy card must be signed by and bear
the date of signature of the Limited Partner voting the Units represented
thereby. All questions as to the validity of proxies will be determined by
the General Partner, which determinations shall be final and binding. The
General Partner reserves the right to waive any defects or irregularities in
any proxy.
Each Unit entitles the holder thereof to one vote with respect to the
proxies solicited hereby. Only holders of record of Units on the Record Date
may grant a proxy with respect to those Units. If Units Are Held of Record
in the Names of Two or More Persons, All Such Persons Must Sign the Proxy
Card. When Signing as an Attorney, Executor, Administrator, Trustee or
Guardian, Your Full Title as Such Should Be Provided. If a Corporation Is
the Holder of Record, the Proxy Should Be Signed by the President or Other
Authorized Officer. If a Partnership Is the Holder of Record, the Proxy
Should Be Signed by an Authorized Person (A General or Managing Partner of
the Partnership).
A Limited Partner in favor of the Sale should mark the "FOR" box on the
enclosed proxy card, date and sign the proxy and return it either in the
enclosed, postage-prepaid envelope or by facsimile to (212) 929-0308,
Attention: Charles Koons, as soon as possible. If a proxy card is executed
but no indication is made as to what action is to be taken, it will be deemed
a vote "FOR" the Sale and subsequent liquidation and dissolution of the
Partnership. By voting "FOR" the Transaction by proxy, the holder of record
of Units returning the proxy authorizes Michael T. Marron and Rocco F.
Andriola, or either of them, to vote such holder's Units for the Transaction
at the Special Meeting and any adjournment(s) or postponement(s) thereof.
AS THE AFFIRMATIVE VOTE OF THE LIMITED PARTNERS HOLDING A
MAJORITY-IN-INTEREST OF THE ISSUED AND OUTSTANDING UNITS IS NECESSARY TO
APPROVE THE PROPOSED TRANSACTION, FAILURE TO RETURN A PROXY IN A TIMELY
MANNER OR TO VOTE AT THE SPECIAL MEETING, OR ABSTENTION FROM VOTING, WILL
HAVE THE SAME EFFECT AS A VOTE "AGAINST" THE TRANSACTION.
Questions and requests for assistance or for additional copies of this
Proxy Statement and proxy card may be directed to the Partnership's
Information Agent, MacKenzie Partners, Inc., 156 Fifth Avenue, 13th Floor,
New York, New York 10010, toll-free (800) 322-2885 or (212) 929-5500
(collect). In addition to soliciting proxies by mail, proxies may be
solicited in person and by telephone or facsimile transmission.
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Vote Required
Pursuant to the terms of the Partnership Agreement, the affirmative
vote of the Limited Partners holding a Majority-in-Interest is necessary to
approve the Sale. Each Unit entitles the holder to one vote on each matter
submitted to a vote of the Limited Partners. If the affirmative vote of the
Limited Partners holding a Majority-in-Interest of the Limited Partners
approves the Transaction and certain other conditions are met or waived, the
Sale will be consummated.
In connection with certain tender offers which have previously been
made for Units, the Partnership has entered into agreements with the
offerors. Among other provisions, these agreements have provided that for a
specified period of time, in the event of a vote of Limited Partners, the
Units acquired pursuant to a tender offer will be voted for or against any
proposal in the same percentages as the votes of the other Units. As of the
date of this Proxy Statement, 3,150 Units are subject to such agreements.
The General Partner plans to not dissolve the Partnership for at least
180 days after the Closing Date. Thereafter, the Partnership will be
liquidated and dissolved (the "Liquidation") at such time as the General
Partner determines that all remaining Partnership assets are available for
distribution and all Partnership obligations and liabilities have been paid
or provided for. A vote in favor of the Transaction, therefore, includes a
consent to both the Sale and the Liquidation.
Solicitation Procedures
The Partnership has retained MacKenzie Partners, Inc. to act as
Information Agent (the "Information Agent") and for advisory services in
connection with this proxy solicitation. In connection therewith, the
Information Agent will be paid reasonable and customary compensation and will
be reimbursed for its reasonable out-of-pocket expenses. The cost of
solicitation will be borne by the Partnership. See "DISCUSSION OF THE SALE--
Costs Associated with the Sale."
The Partnership will not pay any fees or commissions to any broker or
dealer or other person (other than to the Information Agent) for soliciting
proxies pursuant to this solicitation. Custodians, nominees and fiduciaries
will be requested to forward the solicitation material to the customers for
whom they hold Units, and the Partnership will reimburse them for reasonable
mailing and handling expenses incurred by them in forwarding proxy materials
to their customers.
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Revocation of Proxies
A proxy executed and delivered by a Limited Partner may subsequently be
revoked by submitting written notice of revocation to the Partnership. A
revocation may be in any written form validly signed by a Limited Partner as
long as it clearly states that such Limited Partner's proxy previously given
is no longer effective. To prevent confusion, the notice of revocation must
be dated. Notices of revocation should be delivered to the Information
Agent. A Limited Partner may also revoke its proxy by attending the Special
Meeting and voting in person. If a Limited Partner signs, dates and delivers
a proxy to the Partnership and, thereafter, on one or more occasions dates,
signs and delivers a later-dated proxy, the latest-dated proxy card is
controlling as to the instructions indicated therein and supersedes such
Limited Partner's prior proxy as embodied in any previously submitted proxy
card.
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TERMS OF THE SALE
The Purchase Agreement
Barker Pacific Group, Inc., a Delaware corporation located at 811 W.
Seventh Street, Suite 1050, Los Angeles, California 90017 ("Barker"), First
American Title Insurance Company, as escrow agent, and the Owner
Partnership, by its General Partner, entered into the Purchase Agreement,
dated as of September 11, 1999. Barker is a real estate investment firm
comprised of experienced real estate professionals active in asset
management, acquisitions, and development of major commercial projects.
Pursuant to an Assignment of Purchase and Sale Agreement, dated as of
November 11, 1999, Barker assigned, sold and transferred its rights and
obligations under the Purchase Agreement to Cranberry Properties MM Corp., a
Delaware corporation located at 152 West 50th Street, 40th floor, New York,
New York 10019 (the "Purchaser"). Cranberry Properties MM Corp. is a
Delaware corporation and a wholly-owned subsidiary of Phoenix Four
("Phoenix"), an international business corporation based in Nassau, Bahamas.
Phoenix, established in 1993, is an open-ended opportunity fund publicly
listed on the Luxembourg Stock Exchange, and a Bahamas licensed mutual fund,
specializing in the acquisition of value-added commercial real estate debt
and equity assets. Barker remains primarily liable under the Purchase
Agreement. The following summary is qualified by reference to the complete
form of Purchase Agreement. A copy of the Purchase Agreement will be sent to
any Limited Partner or his or her representative, at such Limited Partner's
expense, upon request to MacKenzie Partners, Inc., 156 Fifth Avenue, 13th
Floor, New York, New York 10010.
The purpose of the Sale is to transfer to the Purchaser all right,
title and interest to Cranberry Mall. Pursuant to the terms of the Purchase
Agreement, the Purchaser will pay the Owner Partnership $33,500,000 for
Cranberry Mall. However, if certain conditions to Closing are not met the
Purchaser may attempt to renegotiate the purchase price prior to Closing. In
that event, the General Partner, in its reasonable discretion, may agree upon
a lower purchase price which it believes is in the best interests of the
Limited Partners, but in no event shall the purchase price be reduced by more
than 3%.
The purchase price is payable as follows: (1) the Purchaser has paid
initial earnest money of $150,000 by wire transfer of funds to a designated
interest-bearing escrow account upon execution of the Purchase Agreement (the
"Initial Earnest Money"); and (2) the Purchaser will deposit by wire transfer
additional earnest money of $150,000 no later than the second business day
following receipt by the Purchaser of an acceptable written financing
commitment from Metropolitan Life Insurance Company, and in any event not
later than February 2, 2000 (the "Additional Earnest Money"). The Additional
Earnest Money will be held in the same interest-bearing escrow account as the
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Initial Earnest Money of $150,000 (collectively, the "Earnest Money"). On
the Closing Date, the Purchaser will deliver to the Owner Partnership the
purchase price, less the Earnest Money and any adjustments for closing costs
and prorations, by wire transfer of immediately available funds.
Subsequently, the escrow agent will deliver the Earnest Money to the Owner
Partnership.
The Purchaser and the Owner Partnership will apportion rents in
accordance with the Purchase Agreement. All fixed and overage rents paid or
payable by tenants under leases or licenses will be prorated as of the date
of closing, and to the extent such rents have been paid the net amounts will
be added to or deducted from the purchase price. Following the Closing, the
Purchaser will use commercially reasonable efforts to collect past due rent.
The Purchaser, however, is not obligated to sue any tenant for the non-
payment of any fixed or overage rent. Other than with respect to rent
arrearages due from Caldor, CVS Pharmacy and certain tenants which have ever
used their "co-tenancy rights," the Owner Partnership may pursue tenants to
collect delinquent rent and may sue tenants; however, the Owner Partnership
may not evict any delinquent tenants.
If the Closing does not occur for any reason and either party makes a
written demand on the escrow agent for payment of such amount, the escrow
agent will give written notice to the other party within 24 hours. If the
escrow agent does not receive written objection within five business days
after notice is given, the escrow agent is authorized to make such payment.
If the escrow agent does receive written objection to payment, or in good
faith elects not to make such payment for any other reason, the escrow agent
will continue to hold the payment until otherwise directed by joint written
instructions from the parties, or a court judgment orders otherwise. At any
time, the escrow agent may deposit the Earnest Money with the clerk of the
court of New York County and must give written notice of such deposit to the
Owner Partnership and the Purchaser. Upon such a deposit, the escrow agent
will be relieved and discharged of all further obligations and
responsibilities. The escrow agent is acting for the parties' convenience
and will not be liable to either party for any act or omission, other than
gross negligence or willful misconduct. The Owner Partnership and the
Purchaser will jointly indemnify the escrow agent from all costs, claims and
expenses, including attorneys' fees, incurred in connection with the
performance of the escrow agent duties.
Allocation of Costs Associated with the Sale
The Purchase Agreement provides for the allocation of costs associated
with the Sale. The Purchaser will pay for its due diligence investigation,
title reports and surveys, any owner and mortgage title insurance that it
chooses to obtain, and recording charges. The Owner Partnership and the
Purchaser will split the cost of transfer taxes, deed stamps, conveyance
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taxes and documentary stamp taxes ("Transfer Taxes"). If the Purchaser
elects to obtain financing, it will pay all the costs associated with such
financing. The Owner Partnership will pay the brokerage commissions due to
the broker retained by the General Partner to market Cranberry Mall for sale,
Insignia/ESG Capital Advisors Group.
Each party will be responsible for its own attorneys' fees and any
other professional fees incurred in connection with the Sale. In addition,
each party will indemnify the other party for expenses incurred due to the
party's failure to pay the costs for which it is responsible under the
Agreement.
Representations, Warranties and Covenants of the Parties
Pursuant to the Purchase Agreement, the Purchaser has represented,
warranted and covenanted to the Owner Partnership that: (1) it is a
corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware; (2) it has all requisite power and authority
to enter into the Purchase Agreement and to perform its obligations
thereunder and has taken all necessary action to authorize the execution,
delivery and performance of the Purchase Agreement which is a legal, valid
and binding obligation of the Purchaser enforceable against the Purchaser in
accordance with its terms; (3) no consent is required to be obtained or made
in connection with the execution, delivery and performance of the Purchase
Agreement; (4) the execution, delivery and compliance with, and performance
of the terms and provisions of the Purchase Agreement will not conflict with
or result in any violation of the Purchaser's organizational documents, any
bond, note or other instrument of indebtedness or violate any writ, judgment,
law, rule or regulation; (5) it has made an examination of Cranberry Mall and
agrees that Cranberry Mall will be sold and conveyed to and accepted by it at
the Closing in its then existing condition, as is, where is, with all faults,
and without any written or verbal representations or warranties whatsoever,
whether express or implied or arising by operation of law, other than those
expressly set forth in the Purchase Agreement; (6) it will use its good faith
efforts to consummate the Closing and fulfill its obligations under the
Purchase Agreement; and (7) it assumes all obligations of the Owner
Partnership to pay the leasing commissions set forth in a schedule to the
Purchase Agreement.
Pursuant to the Purchase Agreement, the Owner Partnership has made the
following general representations and warranties to the Purchaser: (1) it is
a duly formed, validly existing limited partnership in good standing under
the laws of the State of Delaware and is or as of Closing will be qualified
to do business and in good standing under the laws of the State of Maryland;
(2) it has all requisite power and authority to enter into the Purchase
Agreement and to perform its obligations thereunder and has taken all
necessary action to authorize the execution, delivery and performance of the
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Purchase Agreement which is a legal, valid and binding obligation of the
Owner Partnership enforceable against the Owner Partnership in accordance
with its terms; (3) with the exception of obtaining Limited Partner approval
and the documents evidencing or securing the loan from Metropolitan Life
Insurance Company referred to in a schedule to the Purchase Agreement, no
consent is required to be obtained in connection with the execution, delivery
and performance of the Purchase Agreement, except the failure of which to
obtain will not materially adversely effect the Owner Partnership's ability
to consummate the transaction or its ownership or operation of the property;
(4) with the exception of obtaining Limited Partner approval, the execution,
delivery and compliance with, and performance of the terms and provisions of
the Purchase Agreement will not conflict with or result in any violation of
the Owner Partnership's organizational documents, any bond, note or other
instrument of indebtedness or violate any writ, judgment, law, rule or
regulation, except for any conflict or violation which will not materially
adversely effect the Owner Partnership's ability to consummate the
transaction or its ownership or operation of the property; and (5) the Owner
Partnership is not a "foreign person" under the Federal tax laws.
Pursuant to the Purchase Agreement, the Owner Partnership has made the
following representations and warranties to the Purchaser as to Cranberry
Mall: (1) it is the owner and holder of Cranberry Mall, holds Cranberry Mall
free and clear of any liens, restrictions or encumbrances except for the
permitted exceptions, has the right to sell Cranberry Mall, and the Purchaser
will receive Cranberry Mall free of any encumbrances (other than the
permitted exceptions); (2) to the Owner Partnership's knowledge (i) it has
provided a schedule of all material service, maintenance, supply,
construction, development and management contracts to its knowledge, and to
its knowledge all material contracts are terminable upon thirty days notice,
and (ii) the sole management and leasing contract for Cranberry Mall is with
Insignia Retail Group, Inc. and will be terminated as of the Closing Date and
Purchaser shall have no obligations under the contract other than the
commissions and fees payable pursuant to the brokerage agreement with
Insignia Retail Group, Inc.; (3) it has provided a schedule of the leases
relating to property under which to its knowledge the Owner Partnership holds
the landlord's interest; (4) no brokerage commissions or finder's fees are
currently payable with respect to the leases or licenses, other than the
commissions and fees payable pursuant to the brokerage agreement with
Insignia Retail Group, Inc.; (5) to its knowledge the Owner Partnership knows
of no threatened or pending condemnation affecting Cranberry Mall; (6) to its
knowledge, the Owner Partnership knows of no pending or threatened legal
actions against Cranberry Mall that would materially adversely affect the
Owner Partnership's ability to consummate the transactions and the ownership
or the operation of Cranberry Mall, except as set forth in a schedule to the
Purchase Agreement; (7) it does not have any employees at Cranberry Mall; and
(8) it has not received written notice from Sears, Roebuck and Co., Belk, or
Montgomery Ward & Co., Incorporated (collectively, the "Major Tenants"), that
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a Major Tenant has exercised the right pursuant to such tenant's lease to
vacate its demised premises, cease its present business operations or
terminate its lease or give any written intention to do so.
Pursuant to the Purchase Agreement, the Owner Partnership has made the
following covenants to the Purchaser for the period from the date of the
Purchase Agreement through the Closing:
The Owner Partnership has agreed that it will keep Cranberry Mall
insured against fire and other hazards covered by the insurance policies
maintained by it on the date of the Purchase Agreement and that it will
continue to operate and maintain Cranberry Mall in a businesslike manner and
substantially in accordance with its past practices.
The Owner Partnership has agreed it will not enter into any third party
contracts without the Purchaser's prior written consent (which shall not be
unreasonably withheld), with the exception of contracts necessary as a result
of an emergency at Cranberry Mall or a contract (other than a construction
contract) for improvements contemplated by proposed leases and not entered
into as of the date of the Purchase Agreement. If the Owner Partnership
enters into any third party contracts after the date of the Purchase
Agreement, the Owner Partnership will promptly provide written notice and a
copy of the contract to the Purchaser and unless the contract needed approval
which was not obtained, the Purchaser will assume the contract at Closing and
the schedule shall be deemed amended at the Closing to include such
contracts. If a new contract requires the Purchasers' approval and the
Purchaser does not object within five business days, then the Purchaser shall
be deemed to have approved the contract. The Owner Partnership will assist
the Purchaser in terminating any contract or delivering termination notices
although it is under no obligation to terminate any contract prior to Closing
or to deliver any payments to any parties.
The Owner Partnership has agreed that it will continue its present
rental program and efforts to rent vacant space at Cranberry Mall, but
without the prior consent of the Purchaser will not execute any new leases or
amend, terminate or accept the surrender of any existing tenancies, or
approve any subleases. The Owner Partnership is authorized to accept the
termination of leases at the end of their existing terms, enter into leases
with those tenants and specific spaces listed on a Schedule to the Purchase
Agreement, and amend, extend or renew any of the existing leases listed on a
Schedule to the Purchase Agreement. If the Owner Partnership enters into any
leases, the Purchaser will assume such leases and the schedules shall be
deemed amended at Closing to include such leases. The Owner Partnership has
agreed that it will continue to use the Purchaser as a consultant with
respect to the marketing and leasing of Cranberry Mall and in connection
therewith shall institute a procedure for regular weekly meeting and frequent
telephone consultations with Purchaser with respect to (i) the marketing
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efforts to secure prospective tenants for Cranberry Mall, (ii) all renewals,
extensions and space options of the present tenants and (iii) during the
early negotiation period with any prospective tenants, the (1) economic terms
of the proposed transaction, such as the fixed rent, any additional rent,
tenant improvement costs and term of lease, and (2) any design and location
issues.
The Owner Partnership has agreed that it will promptly advise the
Purchaser of any litigation, arbitration or administrative hearing instituted
after the date of the Purchase Agreement which if adversely determined would
materially adversely effect its ability to consummate the transactions
contemplated by the Purchase Agreement or the ownership or operation of
Cranberry Mall. The Owner Partnership has agreed that it will not transfer
or dispose of any item constituting personal property associated with
Cranberry Mall except for consumption of inventory, office and other supplies
and replacement of worn out or defective parts to any contracts. The Owner
Partnership has agreed that it will perform all obligations of landlord under
the existing leases and will cooperate with the Purchaser at no cost to the
Owner Partnership in delivering to tenants subordination, non-disturbance and
attornment agreements to be executed in connection with the Purchaser's
financing. The Owner Partnership has also agreed that it will use good faith
efforts to keep the Purchaser apprized of the status of the Limited Partner
approval and will deliver to Purchaser, within three business days of a
written request by Purchaser, an update with respect to Limited Partner
approval, and will promptly notify Purchaser when and if it is received. The
Owner Partnership has also agreed that in consideration of Purchaser's
efforts to negotiate an assumption of the mortgage loan in connection with
the transaction, and in order to more efficiently address the thirty (30) day
prepayment notice period (the "Prepayment Notice Period") under the mortgage
loan documents, the Owner Partnership shall use reasonable efforts to obtain
a written waiver from lender of the Prepayment Notice Period (or a written
agreement reducing same).
The representations and warranties contained in the Purchase Agreement
shall survive for a period of six months after the Closing provided that any
action suit or proceeding with respect to the representations and warranties
is properly commenced within this survival period. The covenants contained
in the Purchase Agreement to the extent to be performed prior to or at
Closing shall not survive after the Closing, but all other covenants shall
survive the Closing of the Purchase Agreement unless otherwise provided.
Conditions to Closing the Sale
The obligations of the Purchaser and the Owner Partnership to
consummate the Sale are subject to various conditions which include, in
addition to certain customary closing conditions such as the continued
correctness of representations and warranties in all material respects and
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due performance of obligations of the parties under the Purchase Agreement,
the following: (1) no order or injunction of any court or administrative
agency nor any statute, rule, regulation or executive order will be in effect
which restrains or prohibits the transfer of Cranberry Mall or the
consummation of any other transaction contemplated by the Purchase Agreement;
and (2) there will be no action pending brought by any third party seeking to
restrain, prohibit or change in any material respect the purchase and sale of
Cranberry Mall or seeking material damages with respect to such purchase and
sale or any other transaction contemplated by the Purchase Agreement.
Other conditions include the Purchaser's receipt of: (1) title to
Cranberry Mall in the form of a special warranty deed; (2) conforming tenant
estoppel certificates from (i) the Major Tenants and (ii) tenants occupying,
in the aggregate, 80% of the square feet of Cranberry Mall occupied by
tenants under leases of over 1000 square feet including the Major Tenants,
and Owner Partnership will use its good faith efforts to acquire tenant
estoppel certificates from tenants occupying spaces of less than 1,000 square
feet; (3) an assignment of leases; (4) a bill of sale relating to all
fixtures, chattels, equipment and articles of personal property located at
Cranberry Mall; (5) an assignment of contracts; (6) all keys to Cranberry
Mall which are in Owner Partnership's possession; (7) an affidavit that the
Owner Partnership is not a "foreign person" under the Federal tax laws; (8)
such other assignments, instruments of transfer, and documents as the
Purchaser may reasonably require in order to complete the transactions
contemplated under the Purchase Agreement or to evidence compliance by the
Owner Partnership with the covenants, agreements, representations and
warranties made by it thereunder; (9) a Secretary's Certificate from the
Owner Partnership certifying due authorization and execution of all documents
being delivered and of all transactions contemplated by the Purchase
Agreement; and (10) an Incumbency Certificate from the Owner Partnership
certifying the authority of the general partner to execute the Purchase
Agreement. In the event any property related to Cranberry Mall is not
assignable, the Owner Partnership will use commercially reasonable efforts to
enforce such property for the benefit and at the expense of Purchaser.
Other conditions include the Owner Partnership's receipt of: (1) the
Purchase Price and all other amounts due to it under the Purchase Agreement;
(2) Limited Partner approval, which if not obtained (and the Owner
Partnership is unable to transfer property to the Purchaser as a result) for
any reason other than the default, wilful act or misrepresentation of the
Purchaser will result in termination of the Purchase Agreement, the Earnest
Money shall be returned to the Purchaser, and the Owner Partnership shall pay
to Purchaser a break-up fee in an amount up to $300,000 (the "Break-Up Fee"),
equal to the sum of (i) due diligence costs up to but not in excess of
$200,000 and (ii) financing costs and expenses, including, without
limitation, lender's fees, commitment fees, and reasonable attorneys' fees;
(3) an assignment and assumption of landlord's interest in leases; (4) an
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assignment and assumption of contracts; (5) tenant notice letters as
specified in the Purchase Agreement; (6) such other assignments, instruments
of transfer, and documents as the Owner Partnership may reasonably require in
order to complete the transactions contemplated under the Purchase Agreement
or to evidence compliance by the Purchaser with the covenants, agreements,
representations and warranties made by it thereunder; (7) a Secretary's
Certificate from the Purchaser certifying due authorizations of all documents
being delivered and of all transactions contemplated by the Purchase
Agreement; (8) an Incumbency Certificate from the Purchaser certifying the
authority of its officers or general partner to execute the Purchase
Agreement; and (9) all consents, approvals or waivers listed on a schedule in
the Purchase Agreement.
These conditions may be waived by the appropriate party.
Termination of the Purchase Agreement
In the event the Limited Partner Approval has not been obtained by
sixty (60) days after February 7, 2000, either the Owner Partnership or the
Purchaser may terminate the Purchase Agreement and the Owner Partnership will
(i) cause the Earnest Money to be returned to the Purchaser, and (ii) deliver
the Break-Up Fee to the Purchaser.
If the Purchaser (i) is unable to obtain a written financing commitment
from Metropolitan Life Insurance Company which sets forth an agreement to
amend and restructure the mortgage on Cranberry Mall in terms acceptable to
the Purchaser by January 24, 2000, with a right in favor of the Purchaser to
extend such date for five business days if such commitment has not been
received (the Funding Expiration Date") and (ii) notifies the Owner
Partnership by written notice on or prior to such date that it is exercising
its right to terminate the Purchase Agreement, then (1) the Purchase
Agreement shall be deemed terminated; (2) the Initial Earnest Money shall be
retained by the Owner Partnership; and (3) neither party shall have any
further rights or obligations to the other, except for those expressly stated
to survive the termination of the Purchase Agreement.
If Purchaser (i) has not terminated the Purchase Agreement by 5:00 p.m.
E.S.T. on the Funding Expiration Date, and (ii) does not deposit the
Additional Earnest Money within two (2) business days of the Funding
Expiration Date, then (1) the Purchase Agreement shall be deemed terminated,
and (2) the Owner Partnership shall be entitled to retain the Initial Earnest
Money.
If prior to the Closing of the Sale, any portion of Cranberry Mall is
damaged or destroyed by fire or other casualty, or taken or threatened to be
taken as a result of any condemnation or eminent domain proceeding, the Owner
Partnership will promptly notify the Purchaser. As soon as practicable after
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the occurrence of such casualty or an actual condemnation (as opposed to
threatened), the Owner Partnership will notify the Purchaser of the estimated
cost of restoration as determined by written estimate of an independent
construction contracting firm satisfactory to both parties or the estimated
loss in value of the property as a result of the condemnation. If the
estimated cost of restoration is $3,500,000 or less, the Owner Partnership
shall allow as a credit against the purchase price an amount equal to the net
proceeds received by Owner Partnership for such casualty or condemnation less
any amounts spent by Owner Partnership with respect to restoration. If the
Owner Partnership has not received any insurance or condemnation proceeds as
of the Closing Date, than the Owner Partnership at the Closing shall assign
to the Purchaser, rights to the insurance or condemnation proceeds, and all
rights in connection with such casualty or condemnation. However, if the
estimated cost of restoration exceeds the foregoing amount, the Purchaser has
the option to either (1) terminate the Purchase Agreement, in which event the
Earnest Money will be returned to Purchaser and the Purchase Agreement will
be deemed null and void except with respect to those provisions which
explicitly survive such termination or (2) acquire Cranberry Mall in its "as
is" condition, together with an assignment from the Owner Partnership, of the
insurance or condemnation proceeds. In the event that a condemnation or
casualty occurs and either (a) the casualty or condemnation is in excess of
$3,500,000 and the Purchaser decides to proceed to Closing, or (b) if the
casualty or condemnation is less than $3,500,000, Owner Partnership shall,
(i) in the event Owner Partnership has not paid the deductible on the
insurance policy, credit to Purchaser an amount equal to such deductible to
be paid by Purchaser or (ii) in the event Owner Partnership has paid the
deductible, Owner Partnership shall not deduct such amount from any credits
taken by Owner Partnership in connection with monies spent to restore or
repair the property.
Amendment of the Purchase Agreement
The Purchase Agreement may be amended or an obligation under it be
waived only if such amendment or waiver is in writing and executed by the
Purchaser and the Owner Partnership.
Dissolution and Liquidation of the Partnership
If the Sale is approved by the Limited Partners and certain other
conditions to the Sale are met or waived, the Sale will be consummated, the
Owner Partnership will sell Cranberry Mall to the Purchaser and the Owner
Partnership will subsequently liquidate. The Partnership will distribute the
proceeds of the Sale and any remaining Partnership cash reserves net of
Partnership liabilities. Thereafter, the Partnership will be liquidated and
dissolved at such time as the General Partner determines that all remaining
Partnership assets are available for distribution and all Partnership
obligations and liabilities have been paid or provided for. The General
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Partner estimates that Limited Partners will receive distributions of
approximately $122 per Unit as a result of the Sale and the Partnership's
ultimate dissolution, representing (1) net proceeds of the Sale (net of
Transaction Costs and the repayment or assumption by the Purchaser of the
current mortgage on the property) of approximately $20 per Unit and (2)
additional Partnership cash (after paying or providing for payment of
outstanding and anticipated Partnership liabilities) and additional Owner
Partnership cash (after providing for payment of outstanding and anticipated
Owner Partnership Liabilities), which the Partnership estimates will be
approximately $102 per Unit. The amounts distributed to the Limited Partners
will be less than the amounts specified above if the Purchaser renegotiates
the purchase price and the General Partner, in its reasonable discretion,
agrees to a lower price which it believes is in the best interests of the
Limited Partners, but in no event shall the purchase price be reduced by more
than 3%.
The General Partner has elected to receive neither a distribution of
the Sale proceeds nor a liquidating distribution with respect to its
ownership interest in the Partnership.
The initial distributions of cash to the Limited Partners are
contemplated to occur within 60 days of the consummation of the Sale, and a
final liquidating distribution of reserves not utilized to meet Partnership
obligations or liabilities will be made at such time as determined by the
General Partner. There can be no assurance regarding the timing of such
distributions as circumstances beyond the control of the Partnership could
affect the determination of contingent liabilities of the Owner Partnership
and the Partnership and/or the timing of the Ownership Partnership's and the
Partnership's dissolution and liquidation and therefore the timing, as well
as the amount, of distributions to the Limited Partners. The General Partner
intends to conclude the liquidation and winding up of the Owner Partnership
and the Partnership as soon as possible after the Closing Date for the Sale.
Determination of Cash Available for Distribution
The agreed upon sale price of the Mall of $33,500,000 was based on a
thorough marketing by Insignia/ESG Capital Advisors and an arm's length
negotiation between the Purchaser and the General Partner on behalf of the
Partnership and the Owner Partnership. The Purchaser proposes to purchase
Cranberry Mall for $33,500,000 in cash. The Partnership will distribute to
the Limited Partners approximately $8,571,000 which constitutes net proceeds
from the Sale and net cash held by the Partnership and the Owner Partnership,
all of which will be distributed to the Limited Partners as the General
Partner has elected not to receive its share of such a distribution. The
amounts distributed to the Limited Partners will be less than the amounts
specified above if the Purchaser renegotiates the purchase price and the
General Partner, in its reasonable discretion, agrees to a lower price which
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it believes is in the best interests of the Limited Partners, but in no event
shall the purchase price be reduced by more than 3%. The availability of
funds for distribution of additional cash reserves will be determined, in
part, based on the collection after the Closing of certain rental and other
payments due from tenants at the Mall adjusted as of the Closing Date. In
order to collect such funds sooner than they would otherwise be paid, the
Owner Partnership may accept discounted payments with respect to amounts due,
which will result in the Partnership and, indirectly, the Limited Partners'
receiving their liquidating distribution sooner than would otherwise be the
case but could reduce the amount of such liquidating distribution. The
General Partner has estimated that Transaction Costs, including the Sale
Costs, estimated wind-up costs, and other outstanding and anticipated
liabilities of the Owner Partnership and the Partnership net of remaining
earnings of the Owner Partnership and the Partnership, respectively, will be
approximately $1,408,000 in the aggregate. The General Partner estimates the
ultimate cash available for distribution to be as follows:
Gross sales price . . . . . . . . . . . . . . $33,500,000
Less estimated sales costs . . . . . . . . . 1,060,000
------------
Estimated net sales proceeds . . . . . . . . 32,440,000
------------
Repayment of the mortgage note payable . . . (31,025,000)
------------
Estimated net proceeds after mortgage payment 1,415,000
Cash available at September 30, 1999 . . . . 7,082,000
Reserves for estimated costs related to
liquidation . . . . . . . . . . . . . . . . . (348,000)
General Partner Deficit restoration . . . . . 137,000
Liquidation of balance sheet accounts . . . . 285,000
----------
Total Cash Available for Distributions . . . $8,571,000
==========
The amounts distributed to the Limited Partners will be less than the
amounts specified above if the Purchaser renegotiates the purchase price and
the General Partner, in its reasonable discretion, agrees to a lower price
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which it believes is in the best interests of the Limited Partners, but in no
event shall the purchase price be reduced by more than 3%.
Based on the number of issued Units, the estimated cash available for
distribution is approximately $122 per Unit. However, pursuant to Section V
of the Partnership Agreement, cash will be distributed to the Limited
Partners in accordance with their positive capital accounts, after allocation
of gains and losses from the operations of the Partnership and the sale of
the Interest.
The cash available for distribution will be adjusted for changes
occurring prior to the Closing Date in the items set forth above and will be
based, in part, on the collection of certain amounts after the Closing, as
described above.
Regulatory Approvals
The Partnership is not aware of any approval or other action by any
Federal, state or local governmental authority that would be required for
consummation of the Sale. Should any such approval or other action be
required, it is presently contemplated that such approval or action would be
sought.
ACCOUNTING TREATMENT AND
INCOME TAX CONSEQUENCES OF THE SALE
Accounting Treatment
The Transaction, as currently proposed, will result in a loss from the
sale of the property for financial reporting purposes.
Material U.S. Federal Income Tax Consequences of the Transaction
The following is a summary of the material federal income tax
consequences to a U.S. Limited Partner resulting from the Sale and subsequent
liquidation of the Owner Partnership and the Partnership. It would be
impractical to discuss all aspects of federal income tax laws which may
affect the federal income tax consequences described herein and no attempt
has been made to do so. This summary is not intended as a substitute for
careful tax planning, particularly because the federal income tax
consequences of an investment in partnerships such as the Partnership are
often dependent on a variety of factors, and the impact of such factors may
vary from Limited Partner to Limited Partner according to its own particular
tax situation. Therefore, Each Limited Partner Should Satisfy Him or Herself
as to the Federal Income Tax Consequences of the Transaction Described Herein
by Obtaining Guidance from His or Her Own Tax Advisor.
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The following summary is based on the Internal Revenue Code of 1986, as
amended to date (the "Code"), the legislative history of the Code, existing
and proposed regulations thereunder, judicial decisions and current
administrative rulings and practices. No assurance can be given that
legislative, judicial or administrative changes may not be forthcoming which
would affect the accuracy of this summary. Any such changes may or may not
be retroactive with respect to transactions entered into or contemplated
prior to the effective date of such changes. This summary is based on the
assumption that Units are held as capital assets and does not address Limited
Partners in special tax situations such as insurance companies, banks,
thrifts, financial institutions, tax-exempt entities and Non-U.S. Limited
Partners (as defined below). For purposes of this discussion, a "U.S.
Limited Partner" is an individual who is a citizen of the United States or is
treated as a resident of the United States for federal income tax purposes, a
corporation or entity treated as a partnership for such purposes that in
either case is created or organized in or under the laws of the United States
or any political subdivision thereof, an estate the income of which is
subject to United States federal income taxation regardless of its source or
a trust (i) that is subject to the supervision of a court within the United
States and the control of one or more United States persons as described in
Section 7701(a)(30) of the Code or (ii) that has a valid election in effect
under applicable Treasury regulations to be treated as a United States
person. A "Non-U.S. Limited Partner" is a person or entity that is not a
U.S. Limited Partner. Capitalized terms not defined herein have the same
meanings as in the Partnership Agreement.
Limited Partners should be aware that the Internal Revenue Service (the
"IRS") may not agree with certain of the conclusions reached herein and that,
if challenged by the IRS, such conclusions might not be sustained by the
courts. If the tax treatment accorded to one or more items is disallowed,
Limited Partners may be assessed for additional taxes along with interest and
penalties in future years.
In addition, it should be noted that the Limited Partners may be
subject to taxes other than federal income taxes, such as state and local
income or franchise taxes and estate or inheritance taxes which may be
imposed by various jurisdictions.
Taxation of Limited Partners in General
The Partnership is a partnership for federal income tax purposes and
therefore is not subject to federal income tax; rather, each Limited Partner
is required to take into account its distributive share of the Partnership's
income, gains, losses, deductions, credits and tax preference items in
computing such Limited Partner's federal income tax liability for any taxable
year of the Partnership ending within or with the taxable year of such
Limited Partner, without regard to whether the Limited Partner has received
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or will receive any distribution from the Partnership. Such distributive
share is required to be reported by the Partnership to each Limited Partner
on Schedule K-l of IRS Form 1065; each Limited Partner is required to report
consistently with such Schedule K-l unless it discloses any inconsistent
position to the IRS when it files its federal income tax return. A Limited
Partner's distributive share of the Partnership's income or loss is
determined in accordance with the allocations set forth in the Partnership
Agreement.
Limited Partner's Loss Upon the Sale of Cranberry Mall
Each Limited Partner will be allocated for federal income tax purposes
its share of the loss allocated to the Partnership by the Owner Partnership
upon the disposition of Cranberry Mall pursuant to the Transaction. Loss
from the Sale allocated to the Partnership by the Owner Partnership and, in
turn, allocated to the Limited Partners by the Partnership will retain its
character when reported by the Limited Partners. Such loss will constitute
Code section 1231 loss (i.e., loss from disposition of real property used in
a trade or business and held for more than one year, other than property held
for sale to customers in the ordinary course of business). A Limited
Partner's share of the loss from the Sale will be netted with any other
section 1231 gains or section 1231 losses incurred by the Limited Partner
from other activities in the taxable year. Net section 1231 gains are
taxable as capital gains except to the extent of net section 1231 losses, if
any, incurred in the five preceding years. Net section 1231 losses are
taxable as ordinary losses.
Liquidation of the Partnership
The distribution of all of the Partnership's remaining assets to the
Limited Partners and the General Partner in connection with the Transaction
will constitute a liquidating distribution. Upon such liquidating
distribution, a Limited Partner may incur federal income tax. A Limited
Partner's adjusted basis in its Units will decrease by the amount of loss
allocated and the amount of money distributed to such Limited Partner in
connection with the disposition of Cranberry Mall. For purposes of
determining basis, a decrease in a Limited Partner's share of Partnership
liability is treated as a distribution of money from the Partnership. In
general, a Limited Partner will recognize gain upon receipt of the
liquidating cash distribution to the extent that the amount of cash received
exceeds such Limited Partner's adjusted basis in its Units. A Limited
Partner may recognize loss on the liquidating distribution to the extent that
such distribution consists of money and the amount of such money is less than
the Limited Partner's pre-distribution adjusted basis in its Units.
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Final Partnership Returns and Future Tax Issues
Upon the liquidation of the Partnership, the General Partner, on behalf
of the Partnership, will file a final U.S. federal tax return for the
Partnership, and on a timely basis will provide Schedule K-1 forms to all
Limited Partners setting forth their allocable shares of the Partnership's
items of income, gain, loss, deduction and credit. Limited Partners should
understand that although the Partnership will be terminated, such termination
will not eliminate the possibility that the IRS could challenge the tax
treatment of the Partnership's activities for the year of termination or any
prior year for which the statute of limitation for making adjustments has not
elapsed. If any adjustments are made to the Partnership's tax return, the
General Partner will so notify the Limited Partners. Any tax audit or
adjustments could result in assessment of additional tax liabilities upon the
Limited Partners which would be payable from their own funds and would not be
reimbursable by the General Partner of the Partnership.
The foregoing analysis cannot be, and is not intended as, a substitute
for careful tax planning. Limited Partners are urged to consult their own
tax advisors with respect to their own tax situation and the effects of this
transaction as to federal, state and local taxes including, but not limited
to, income, estate and inheritance taxes.
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CERTAIN INFORMATION ABOUT THE PARTNERSHIP
The Partnership
The Partnership is a Delaware limited partnership formed on March 11,
1988. The Partnership is governed by the Amended and Restated Agreement of
Limited Partnership dated October 6, 1988, which vests exclusive management
control over the Partnership in the General Partner, subject to the rights of
the Limited Partners to vote on certain limited matters. The address of the
Partnership's principal executive office is 3 World Financial Center, 29th
Floor, New York, New York 10285-2900, and the telephone number is
212/526-3183. All communications in connection with the proxy solicitation
process should be directed to MacKenzie Partners, Inc., the Partnership's
Information Agent, by calling toll-free 800/322-2885.
The Partnership was formed to acquire a general partnership interest in
Shopco Malls L.P. (formerly Shearson Shopco Malls L.P.), a Delaware limited
partnership (the "Owner Partnership"). The primary assets of the Owner
Partnership were two Malls--The Mall at Assembly Square and Cranberry Mall.
The Partnership became the managing general partner of the Owner Partnership.
The Owner Partnership consists of the Partnership, which holds a 99% general
partnership interest in the Owner Partnership; and Shopco Limited
Partnership, which holds a 1% limited partnership interest. The Mall at
Assembly Square was transferred in foreclosure to the holder of a mortgage on
the property.
All of the Partnership's revenues, operating profit or losses, and
assets relate solely to its interest as the general partner of the Owner
Partnership. Currently, all of the Owner Partnership's revenues, operating
profit or losses, and assets relate solely to its ownership interest in and
operation of Cranberry Mall. For a description of the Mall and its
operations, see the section entitled "--Description of Cranberry Mall." The
Partnership is authorized to act through the Owner Partnership to do all
things necessary to carry out the terms of the Partnership Agreement
including to accept, collect, hold, sell, exchange, mortgage, pledge or
otherwise dispose of the Mall.
The General Partner
The General Partner of the Partnership is Regional Malls Inc., a
Delaware corporation, with its principal business address at 3 World
Financial Center, 29th Floor, New York, New York 10285-2900.
The Property Manager
The Mall is managed on a day-to-day basis by the property manager,
Insignia Retail Group (the "Property Manager"). Insignia Retail Group
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replaced Shopco Management Corporation, the old property manager and an
affiliate of the Owner Partnership on May 1, 1997. The Property Manager is
responsible for rent collection, leasing and day-to-day on-site management of
Cranberry Mall. As Property Manager, Insignia Retail Group receives an
annual fee equal to 4% of the gross rents collected from Cranberry Mall. The
original agreement with Insignia Retail Group expired on April 30, 1998 and
provided for its annual renewal for one-year terms. For the year ended
December 31, 1998, the Property Manager received a management fee of $160,363
pursuant to the Property Management and Leasing Agreement.
Description of Cranberry Mall
Cranberry Mall is an enclosed regional shopping center located on
approximately 55.61 acres in Westminster, Maryland, approximately 30 miles
northwest of Baltimore. The Mall, which opened in March 1987, consists of a
central enclosed mall anchored by three major department stores--Belk, Inc.
("Belk"), Montgomery Ward ("Montgomery Ward") and, Sears, Roebuck and Company
("Sears") with space for a fourth. Parking is provided for over 2,597 cars.
The Mall currently has gross leasable space totaling 530,119 square feet.
Currently the Mall has an outstanding mortgage of $31,025,000 held by the
Metropolitan Life Insurance Company with a maturity date of April 1, 2000.
The total building area of the Mall is allocated as shown in the
table below.
Percent of
Anchors: Square Feet Total Area
Belk . . . . . . . . . . . . . 65,282 12%
Montgomery Ward . . . . . . . . 80,260 15%
Sears . . . . . . . . . . . . 70,000 13%
Unoccupied Anchor Store
(formerly Caldor) . . . . . . . 81,200 15%
Enclosed Mall Tenants . . . . . 224,377 43%
Outparcel Store (1) . . . . . . 9,000 2%
Total . . . . . . . . . . . . . 530,119 100%
(1) Outparcel Store is an auto service center leased to
Montgomery Ward.
Anchor Tenants
Sears leases approximately 70,000 square feet of gross leasable
building area. The Sears store opened in October 1987 and the initial term
of the lease expires in 2002, with two successive five-year renewal options.
Sears pays an annual fixed rent of $195,800 and an annual percentage rent
equal to 2.25% of new sales in excess of $10,000,000 up to $15,000,000 and 2%
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of net sales in excess of $15,000,000. Beginning in 1993, Sears commenced
paying its pro rata share of increases in real estate taxes, but such tax
payments may be deducted from percentage rent due on an annual non-cumulative
basis. Also commencing in 1993, Sears became responsible for contributing to
exterior common area maintenance on a flat rate basis. Sears currently pays
all utilities directly and is not required to carry its own fire insurance.
Sears is required to use the premises as a Sears retail store until the year
2002 or under such other trade name as the majority of Sears retail stores
are then operating. Thereafter, the tenant may assign or sublet the premises
with the landlord's consent, not to be unreasonably withheld.
On September 18, 1995, Caldor, an anchor tenant at Cranberry Mall,
filed for protection under the U.S. Bankruptcy Code. In February 1998,
Caldor announced that it would close its store at Cranberry, and did so on
May 10, 1998. In July 1998, Caldor rejected its lease with bankruptcy court
approval and the Partnership's claim for unpaid rent and rejection damages
under Caldor's lease was filed shortly thereafter. It would have been
preferable, however, to retain Caldor as a tenant. Caldor did not submit a
plan for reorganization and on January 22, 1999 was ordered to wind down its
business operations and affairs under Chapter 11 of the Bankruptcy Code. It
is not known at this time the extent to which these claims for unpaid rent
and rejection damages will be paid. Since the time Caldor vacated, the
General Partner and Insignia have been marketing the space and attempting to
attract a replacement anchor tenant. On July 1, 1999, the General Partner
executed non-binding letters of intent with two nationally recognized tenants
to lease approximately 31,000 square feet of Caldor's space. Improvements
and alterations necessary to accommodate these tenants will require
substantial capital outlays by the Purchaser. The total cost that will be
incurred to secure the new tenants, which includes leasing commissions,
tenant improvements, and related capital improvements, is estimated to be in
excess of $2 million.
On November 1, 1996, Belk acquired 100% in the stock of Leggett of
Virginia Inc. and its affiliated Leggett stores, which includes the Leggett
store at Cranberry Mall. Belk currently leases 65, 282 square feet of gross
leasable building area. The initial term of the lease expires in 2007 and
the lease provides four successive, five-year renewal options at the same
rent. Belk is obligated to pay an annual fixed rent of $228,487 and an
annual percentage rent equal to 2% of sales above $10,608,325. Belk is
responsible for its pro rata share of increases in real estate taxes after
the third year of full assessment but it may deduct one-half of these tax
payments on a cumulative basis from percentage rent due. Utility charges are
paid directly to the public utility and Belk is not required to carry its own
fire insurance or to pay for common area maintenance. During the first 15
years of the lease, ending March 4, 2002, the tenant is required to use the
premises as a Belk retail department store or under such other trade name as
Belk is then operating substantially all of its department stores. The
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tenant cannot assign or sublet the premises during the first 15 years of the
lease term without the landlord's consent to anyone other than another Belk
mercantile company of comparable net worth as the tenant.
Montgomery Ward leases approximately 80,000 square feet of gross
leasable building area and 9,000 square feet for an automotive center. The
Montgomery Ward store opened for business on November 4, 1990 and the initial
term of the lease expires in 2010 with four successive five-year renewal
options. Montgomery Ward pays an annual fixed rent of $348,114 and an annual
percentage rent equal to 2.5% of the net retail sales in excess of
$13,924,560. Montgomery Ward is required to reimburse the landlord for its
pro rata share of insurance and utility costs and real estate taxes based on
its gross leasable area of the building. Montgomery Ward will be required to
reimburse the landlord for a portion of the common area and maintenance
charges as set forth under the lease agreement. During the first 15 years of
the lease term, the tenant is required to use the premises as a retail store
under the trade name Montgomery Ward or under such other name as the tenant
is doing business in the majority of its retail department stores in the
State of Maryland. Montgomery Ward has the right to sublease the premises at
any time during its lease term with the landlord's written consent, however,
they will not be relieved of their obligations under the terms of the lease.
On July 7, 1997, Montgomery Ward filed for protection under Chapter 11
of the U.S. Federal Bankruptcy Code. On October 10, 1997, as part of its
bankruptcy reorganization process, Montgomery Ward announced the closing of
48 stores. During bankruptcy, Montgomery Ward reaffirmed its lease at
Cranberry Mall, has remained in possession of its space, and is committed to
paying all rent arrears under a confirmed plan of reorganization.
Competition
The General Partner believes that the primary trade area for Cranberry
Mall (i.e., the primary geographical area from which Cranberry Mall derives
its repeat sales and regular customers) is the area within a radius of
approximately 15 miles from Cranberry Mall. The General Partner believes the
secondary trade area is within a radius of 15 to 20 miles from Cranberry
Mall.
There are no competitive shopping malls in the primary trade area of
Cranberry Mall, although there is considerable retail activity in strip
centers and on local roads near Cranberry Mall. Also, a 116,000 square foot
free-standing WalMart opened in November of 1992 near Cranberry Mall in the
Englar Business Park and a Sam's Club store is under construction. In
addition, in 1996, a Target store opened approximately one mile southeast of
Cranberry. In the secondary trade area there are three competitive shopping
centers: Hunt Valley Mall, Carrolltowne Mall and Owings Mill Mall. Hunt
Valley Mall is a bi-level enclosed shopping center located approximately 25
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miles east of Cranberry Mall and is anchored by Macy's and Sears.
Carrolltowne Mall is located 25 miles from Cranberry Mall and was expanded
and enclosed during 1989. Carrolltowne Mall is oriented to the discount
shopper. Owings Mill Mall is located approximately 25 miles from Cranberry
Mall and is anchored by Macy's, Hechts and is adding a J.C. Penny store.
Owings Mill Mall caters to the upscale market. Cranberry Mall also competes
with the North Hanover Mall in Hanover, Pennsylvania, located 26 miles north
of Cranberry Mall. North Hanover Mall is a 450,000 square foot regional mall
anchored by Bon Ton, J.C. Penny, Kmart and Sears. Retail stores at malls
also compete with local shops, stores and power centers. Generally,
competition among retailers for customers is intense, with retailers
competing on the basis of quality, price, service and location.
Legal Proceedings
In December 1996, Aetna, the secured lender of the Assembly Square
Mall, foreclosed on the property. Following the foreclosure on the mortgage
of Assembly Square Mall, Aetna advised the Partnership it would pursue
environmental remediation claims for land contamination under the terms of
the mortgage. On September 3, 1997, the Partnership and Aetna entered into a
Settlement Agreement whereby the Partnership paid $400,000 to Aetna for a
complete release from the mortgage's loan covenants. The release excludes
environmental claims already made by Aetna regarding existing environmental
conditions and environmental claims which could arise in the future because
of existing conditions. The Partnership separately funded approximately
$500,000 to pay for work performed to address environmental conditions at the
Assembly Square property. Accordingly, the Partnership incurred $900,000 of
environmental remediation and settlement costs, which was recorded in fiscal
year 1997. The Partnership demanded and collected in 1999 a $300,000
contribution from a prior owner of the Assembly Square property for the
amounts the Partnership expended in connection with the environmental site
remediation. The Partnership also demanded and collected in 1999 a $25,000
contribution from another former owner for costs associated with the
environmental rededication at the property. The Commonwealth of
Massachusetts is performing a statutorily-required audit on the remediation
performed at Assembly Square; it is uncertain whether that audit will require
additional remediation to be performed. The Partnership has negotiated an
agreement with the current owner of Assembly Square Mall, under which that
owner acknowledges responsibility for responding to the audit and indemnifies
the Partnership from any liability arising from that audit or environmental
conditions on the property.
On or about June 9, 1999, a purported class action complaint was filed
in the Court of Chancery for New Castle County, Delaware on behalf of all
persons who purchased Units in the Partnership, against the General Partner,
the Partnership, and Lehman Brothers Inc. (the "Defendants"). The complaint
alleges, among other things, that the General Partner failed to protect the
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Partnership's assets and the interests of the holders of the Units in
connection with the default on the mortgage encumbering Assembly Square Mall,
the foreclosure sale of Assembly Square Mall and the efforts to sell
Cranberry Mall. The complaint purports to assert claims for breach of
fiduciary duty and breach of contract and seeks an accounting. The
Defendants have filed a motion to dismiss the complaint and intend to defend
the action vigorously.
Distributions
Since inception, Limited Partners have received cumulative
distributions of approximately $303 per Unit.
The Partnership's policy is to distribute to the Limited Partners (Unit
Holders) their allocable portion of Net Cash Flow (as defined in the
Partnership Agreement) (after making provision for the liabilities and
obligations of the Partnership) with respect to each fiscal year in quarterly
installments. Distributions of Net Cash Flow, if any, are paid on a
quarterly basis to registered holders of the Units on record dates
established by the Partnership, which generally are the last day of each
quarter.
In consideration of a decline in operations at The Mall at Assembly
Square, the General Partner suspended cash distributions beginning with the
1996 first quarter. Distributions have remained suspended since this time in
consideration of the foreclosure of Assembly Square, reduced Partnership cash
flow and issues concerning certain anchor tenants at Cranberry Mall.
For the first, second, and third quarters of calendar year 1999 and the
years ended December 31, 1998, 1997 and 1996, the Partnership made no cash
distributions other than a special distribution of $74.69 on October 19,
1998.
Below is a table summarizing the historical data for the
Partnership's distributions per Unit per annum:
Quarter 1999(a) 1998(a) 1997(a) 1996(a)(b) 1995(a)
------- ------- ------- ------- ---------- -------
First Quarter . . . . $ -- $ -- $ -- $ -- $ 3.70
Second Quarter . . . -- -- -- -- 3.74
Third Quarter . . . . -- -- -- -- 3.78
Fourth Quarter . . . -- 74.69(c) -- -- 3.78
---- ------ ---- ---- ------
Total . . . . . . . . $ -- $74.69 $ -- $ -- $15.00
==== ====== ==== ==== ======
(a) Regular distribution amounts are reflected in the period for which they
are declared. The record date is generally the last day of each month
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of the respective quarter and the actual cash distributions are paid
approximately 45 days after the record date.
(b) In consideration of a decline in operations at The Mall at Assembly
Square, regular cash distributions to the Limited Partners were
suspended beginning with the first quarter of 1996 and have remained
suspended through the present in consideration of (i) the foreclosure of
The Mall at Assembly Square, (ii) reduced Partnership cash flow and
(iii) issues concerning certain anchor tenants at Cranberry Mall.
(c) The fourth quarter 1998 distribution was a special cash distribution
paid October 19, 1998 from excess cash reserves.
Ownership of Units
On the Record Date, there were issued and outstanding and entitled to
vote 70,250 Units, held by 4,376 Limited Partners. As of the Record Date, no
person (including any "group" as that term is used in Section 3(d)(3) of the
Exchange Act) is known to the Partnership to be the beneficial owner of more
than 5% of the outstanding Units. In connection with certain tender offers
previously made for Units, the offerers and the Partnership have entered into
agreements pursuant to which such offerers shall vote, for a specified period
of time, the Units acquired pursuant to a tender offer in the same
percentages as the votes of the other Units. As of the date of this Proxy
Statement, 3,150 Units are subject to such agreements.
As of the Record Date, neither the General Partner nor any director or
executive officer of the General Partner beneficially owned any Units.
Market for the Units
The Units are not traded on any established trading market, nor has
there been such a market. Thus, no information is available as to high and
low bid quotations or sales prices. It is not anticipated that there will be
a public market for the Units in the future.
Independent Certified Public Accountants
KPMG LLP, was the independent auditor of the Partnership's financial
statements for each of the years in the three-year period ended December 31,
1998. No representative of KPMG LLP is expected to be present at the Special
Meeting.
Available Information
The Units are registered pursuant to Section 12(g) of the Exchange Act.
As such, the Partnership is subject to the informational filing requirements
of the Exchange Act, and in accordance therewith, is obligated to file
reports and other information with the Commission relating to its business,
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financial condition and other matters. Comprehensive financial information
is included in the Partnership's Annual Report on Form 10-K and Quarterly
Reports on Form 10-Q, and other documents filed by the Partnership with the
Commission, including the 1998 Annual Report on Form 10-K, which is included
in Part II of this Proxy Statement, and the Quarterly Reports on Form 10-Q
for the periods ended March 31, 1999, June 30, 1999 and September 30, 1999,
which are included in Part III of this Proxy Statement. Such reports and
other information are available for inspection and copying at the public
reference facilities of the Commission at 450 Fifth Street, N.W., Washington,
D.C. 20549, and at the regional offices of the Commission located at 7 World
Trade Center, New York, New York 10048. Copies are available by mail upon
payment of the Commission's customary charges by writing to the Commission's
principal offices at 450 Fifth Street, N.W., Washington, D.C. 20549. In
addition, the Commission maintains an Internet Web site that contains
reports, proxy and information statements and other information regarding
registrants that file electronically with the Commission. The Partnership's
electronic filings are publicly available on this Web site at
http://www.sec.gov.
The General Partner is a privately held company and is not subject to
the reporting requirements of the Exchange Act.
Prior Related Transactions
On July 31, 1993, Shearson Lehman Brothers Inc. ("Shearson") sold
certain of its domestic retail brokerage and asset management businesses to
Smith Barney, Harris Upham & Company. Incorporated ("Smith Barney").
Subsequent to this sale, Shearson changed its name to Lehman Brothers Inc.
The transaction did not affect the ownership of the Partnership or the
Partnership's General Partner. However, the assets acquired by Smith Barney
included the name "Shearson." Consequently, the General Partner changed its
name to Regional Malls Inc. and the Owner Partnership changed its name to
Shopco Malls L.P. to delete any references to "Shearson."
SELECTED FINANCIAL DATA
The "Selected Historical Financial Data of the Partnership" table
attached hereto in Annex II provides a summary of certain financial data for
the Partnership. Such selected financial data should be read in conjunction
with the detailed information and financial statements included in the
Partnership's Annual Report on Form 10-K for the year ended December 31,
1998, which is included in Part II of this Proxy Statement, and the
Partnership's Quarterly Reports on Form 10-Q for the quarters ended March 31,
1999, June 30, 1999 and September 30, 1999, which are included in Part III of
this Proxy Statement.
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The foregoing information contained in the "Selected Historical
Financial Data of the Partnership" table is derived from the audited
financial statements of the Partnership for 1994, 1995, 1996, 1997 and 1998
and the unaudited financial statements of the Partnership for the third
quarters of 1998 and 1999.
DOCUMENTS CONSTITUTING THIS PROXY STATEMENT
This Proxy Statement consists of the following three parts: (1) this
document, (2) Shopco Regional Malls, L.P.'s Annual Report on Form 10-K for
the year ended December 31, 1998, and (3) Shopco Regional Malls, L.P.'s
Quarterly Report on Form 10-Q for the quarters ended March 31, 1999, June 30,
1999 and September 30, 1999.
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED IN THIS PROXY STATEMENT AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATION SHOULD NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED.
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Dates Referenced Herein and Documents Incorporated by Reference
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