11.9 of the Partnership Agreement the General Partners and/or their Affiliates
will return to the Partnership an appropriate amount of the Acquisition Fees
paid to them without interest. In addition, the General Partners will receive a
Placement Fee from each Operating Partnership in connection with the Acquisition
by the Partnership of a Preferred Equity Investment therein. See note 4 above.
(6) The Partnership will pay all Acquisition Expenses not paid by the
Operating Partnerships. To the extent that Acquisition Expenses payable by the
Partnership are less than 0.25% of Gross Proceeds, the General Partners will
receive the difference.
(7) The Partnership initially expects to reserve 1.0% of the Gross
Proceeds as a reserve for working capital ("Reserves"). In addition, the
Operating Partnerships are expected to maintain working capital reserves
independent of those maintained by the Partnership to the extent that the
Special General Partner and the Developer determine that the same is necessary
or advisable. See "Investments Objectives and Policies--Interim Investments and
Reserves."
MANAGEMENT COMPENSATION
The following table sets forth the types and estimates of the amounts of
all fees, compensation, income, distributions and other payments that the
General Partners and their Affiliates will or may receive in connection with the
business and operations of the Partnership and the Operating Partnerships. Such
fees, compensation, income, distributions and other payments were not determined
by arm's length bargaining. See "Conflicts Of Interest."
Entity or Entities Receiving Method of Determination
Form of Compensation Compensation or Reimbursement and Estimated Dollar Amount
-------------------- -------------------------------- ---------------------------
OFFERING STAGE
Selling Commissions .............. Selling Agent, an Affiliate 7% of the aggregate purchase price of BUC$
of Pru-Bache Properties sold by the Partnership (assuming no volume
discounts); actual amount depends upon
number of BUC$ sold; up to $4,050,200
if maximum number of BUC$ is sold without
any quantity discount. (1)
Non-Accountable Expense Allowance.. General Partners (3) The amount, if any, by which Organization
and Offering Expenses are less than 2.5% of
Gross Proceeds; not determinable at this
time. (2)
ACQUISITION STAGE (4)
Acquisition Fees .................. General Partners (3) 4% of the Gross Proceeds in consideration of
the services of the General Partners in
selecting and evaluating Preferred Equity
Investments for acquisition by the Partnership,
negotiating the terms of the Partnership's
acquisition of Preferred Equity Investment, and
closing the acquisition of Preferred Equity
Investments by the Partnership; up to $178,800 if the
minimum sub scripton is sold and $2,314,400 if the
maxmium subscription is sold. (5)
Placement Fees .................... General Partners (3) An amount equal to up to 2% of the Gross Proceeds
payable by the Operating Partnerships in
reimbursement of expenses incurred and services
performed by the General Partners in connection with
the administration of the acquisition of Preferred
Equity Investments, estimated to be $89,400 if the
minimum subscription is sold and $1,157,200 if the
maxmium subscription is sold.
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Entity or Entities Receiving Method of Determination
Form of Compensation Compensation or Reimbursement and Estimated Dollar Amount
-------------------- ----------------------------- ---------------------------
Non-Accountable Acquisition Expense General Partners (3) An amount, if any, by which Acquisition Expenses
Allowance ......................... paid by the Partnership are less than .25% of
Gross Proceeds; not determin able at this time.
OPERATIONAL STAGE (6)
Participating Interest in Cash Flow General Partners (3) 0.5% annually of the aggregate Invested Assets
(see "Glossary"), payment of half of which for any
year will be subordinated to the distribution to BUC$
of Cash Available for Distribution for that year in
an amount equal to 8% per annum on their Adjusted
Contributions; estimated to be not more than $261,817
per year if the maximum number of BUC$ is sold and
sufficient Preferred Equity Investments are acquired
to utilize the Gross Proceeds of such sale; any
amount of such Distribution not made for any year
will be deferred without interest and will be paid
only out of Sale or Refinancing Proceeds after
BUC$holders have received their Priority Return and a
return of their Original Contributions.
Share of Distributions of Operating Special General Partner as 0.01% of all distributions by the Operating
Cash Flow by the Operating Special Limited Partner of Partnerships of operating cash flow from the
Partnerships ...................... Operating Partnerships (3) Properties for any fiscal year after distribution
to the Partnership of amounts sufficient to satisfy
its Preferred Equity Return with respect to such year
and all prior years. Actual amounts depend upon the
results of operations of the Properties and cannot be
estimated at this time. See Allocations and
Distributions."
Distributive Share of Distributions General Partners (3) 2% of all distributions by the Partnership of Cash
of Cash Available for Distribution Available for Distribution for any year After payment
by the Partnership ................ of the Participating Interest in Cash Flow; actual
amounts received depend upon the results of
operations of the Partnership and cannot be
estimated at this time. See "Allocations and
Distributions."
Accountable Operating Expense General Partners (3) The lesser of (i) actual costs incurred in providing
Reimbursement ..................... goods and materials acquired and services performed
for the Partnership, or (ii) with respect to services
performed for the Partnership, 90% of the amount that
an independent third party would charge for such
services.
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Entity or Entities Receiving Method of Determination
Form of Compensation Compensation or Reimbursement and Estimated Dollar Amount
-------------------- -------------------------------- ---------------------------
SALE OR REFINANCING STAGE
Subordinated Interest in General Partners and Subordinated Interest in Disposition Proceeds be paid
Disposition Proceeds ............... Affiliates (3) by the Partnership upon sale of a Property or
Preferred Equity Investment if the General Partners
or their Affiliates provide substantiai services in
connection therewith, in an amount equal to the
lesser of (i) 3% of the gross sales price, or (ii)
one-half of the normal and competitive rate
customarily charged by unaffiliated parties rendering
similar services, in each case only after the
BUC$holders have received an amount equal to their
Adjusted Contributions plus payment of an annual
cumulative simple interest return thereon of 6% (as
such return may have been satisfied through prior
distributions of Cash Available for Distribution).
(7)
Share of Proceeds of Sale or Special General Partner as 0.01% of all distributions by each Operating
Refinancing of Properties by the Special Limited Partner of Partnership of the net proceeds of the Sale or
Operating Partnerships ............ Operating Partnerships (3) or Refinancing of Properties after distribution to
the Partnership of amounts of Sale or Refinancing
Proceeds (i) sufficient to pay any unsatisfied
portion of its Preferred Equity Return for the year
of distribution and all prior years and (ii) equal in
the aggregate to the amount of the Preferred Equity
Investment; actual amounts depend upon the net
proceeds of the Sale or Refinancing of Properties and
other factors and are not determinable at this time.
Distributive share of Sale and General Partners (3) 2% of all distributions of Sale or Refinancing
Refinancing Proceeds distributed Proceeds by the Partnership until the BUC$holders
by the Partnership ................ have received distributions of Sale or Refinancing
Proceeds from the Partnership in an aggregate amount
equal to (i) their Priority Return for any year not
there tofore satisfied through the distribution by
the Partnership to s of Cash Available for
Distribution and prior distributions of Sale or
Refinancing Proceeds and (ii) an amount equal to the
aggregate Adjusted Contributions of the BUC$ holders;
thereafter, 15% of such distributions of Sale or
Refinancing Proceeds; actual amounts depend upon the
net proceeds of the Sale or Refinancing of Properties
and other factors and are not determinable at this
time. See "Allocations and Distributions."
19
(1) The estimated amounts are based on the assumption that all of the BUC$
will be sold directly by the Selling Agent. In addition, the Partnership will
reimburse the Selling Agent for certain accountable expenses in connection with
the offering of BUC$. In no event will the total underwriting compensation to be
paid, including underwriting commissions, sales commissions and public offering
expense reimbursements, exceed 10% of the Gross Proceeds, except that up to an
additional 0.5% of the Gross Proceeds may be paid in reimbursement of bona fide
due diligence expenses.
(2) A portion of the nonaccountable expense allowance may be deemed to be
underwriting compensation. See Note 1 above. The General Partners and/or their
Affiliates will pay all Organization and Offering Expenses of the Partnership
excluding underwriting and sales commissions in excess of 2.5% of the Gross
Proceeds. See "Plan of Distribution."
(3) All fees, compensation and interests in Cash Available for
Distribution and Sale or Refinancing Proceeds will be allocated between the
General Partners as they shall determine from time to time.
(4) Pursuant to Section 15.8 of the Partnership Agreement, the General
Partners must commit to Preferred Equity Investments a percentage of the Gross
Proceeds equal to 82.5% of Gross Proceeds. In the event that the Preferred
Equity Investments would otherwise be insufficient, the Acquisition Fees payable
by the Partnership will be decreased by an amount necessary for compliance with
Section 15.8.
(5) Acquisition Fees will be paid to The General Partners or their
Affiliates by the Partnership as proceeds from the offering are received without
regard to the results of the Partnership's operations. However, if The
Partnership is required to return any uninvested Net Proceeds pursuant to
Section 11.9 of the Partnership Agreement, The General Partners and/or their
Affiliates will return to the Partnership an appropriate portion of the
Acquisition Fees paid to Them without interest.
(6) It is expected that each Operating Partnership will pay property management
fees which will be competitive for similar services in the same geographic area
to a property manager that is not an Affiliate of the General Partners. See
"Management of Properties." In the unlikely event that the General Partners or
their Affiliates provide supervisory property management services for the
Partnership's Properties, they will be enticed to receive a fee which is
competitive for similar services in the same geographic area, but not exceeding
SO of the annual Gross Revenues from the Properties.
(7) The General Partners or their Affiliates are entitled to receive a
Subordinated Interest in Disposition Proceeds only on those sales in which such
entity participates and provides substantial services, including but not limited
to any one or more of the following: preparing a brochure or presentation on the
Property or Preferred Equity Investment to be sold, structuring the terms of the
sale transaction, finding prospective purchasers and negotiating the sale. If
non-Affiliates participate in a sale, the subordination requirement of The
Partnership Agreement shall apply only to Affiliates involved in the
transaction. In addition, the Partnership Agreement limits the payment to all
parties upon the sale of a Property to no more than 6% of the gross sales of
such Property.
20
the General Partner shares in certain Partnership distributions and tax benefits
in a manner disproportionate to their capital contributions, the General Partner
is being compensated directly out of the plan's assets, rather than Partnership
assets, in exchange for the provisions of services to the plan, i.e., for
establishing the Partnership and making it available as an investment to the
plan. If this were the case, then absent a specific exemption applicable to the
transaction, a prohibited transaction could be determined to have occurred
between the investing plan and the General Partner. Accordingly, the General
Partners will not permit a plan to invest in the Partnership if any General
Partner or an Affiliate thereof is a fiduciary of such plan.
Based on the foregoing, and because BUC$ are expected to be held by at
least 100 persons who are independent of the Partnership and independent of one
another, counsel will render an opinion as of the date of the Prospectus that it
is more likely than not that the underlying assets of the Partnership will not
be considered to be plan assets for s, the transactions described in
this Prospectus that the Partnership might enter into with the General Partners
or their Affiliates will not constitute "prohibited transactions" under ERISA,
and the receipt of any Distribution or tax allocation by the General Partners
disproportionate to their capital contributions will not constitute "prohibited
transactions."
DESCRIPTION OF BUC$
The BUC$ will represent all of the economic and virtually all of the ownership
rights attributable to Limited Partnership Interests held by Related BUC$
Associates, Inc., an Affiliate of the Related General Partner, which is serving
as the depositary for such Limited Partnership Interests and as Assignor Limited
Partner. Each BUC will represent a Limited Partnership Interest of $20. BUC$
will be issued in registered form only and will generally be freely transferable
(see below) commencing 45 days after the Final Closing Date, unless the General
Partners, in their discretion, allow earlier transfers, and except when
transfers would be restricted under federal or state securities laws. If the
General Partners believe that it is in the best interest of the Partnership,
they intend to apply to list the BUC$ for trading on NASDAQ or a national
exchange. There can be no assurance that the BUC$ will be listed or quoted or
that, if listed or quoted, a market in the BUC$ will develop.
Subscribers for BUC$ in the Offering will become assignees of the Assignor
Limited Partner upon the closing of the sale of the BUC$ purchased by them. At
such closing, the $20 purchase price (less volume discounts, if any, and Selling
Commissions) for each BUC will be contributed to the Partnership and by
amendment to the Partnership Agreement, the Assignor Limited Partner will become
a Limited Partner with respect to a corresponding amount of Limited Partnership
Interests. By operation of the Partnership Agreement, the Limited Partnership
Interests thereby acquired by the Assignor Limited Partner are assigned to the
subscribers for the BUC$ and the Assignor Limited Partner simultaneously will
cause to be issued BUC$ registered in the names of the BUC$ purchasers or their
nominees.
Although under Delaware law, an assignee, unlike a substituted limited
partner, is not entitled to all the statutory rights of a limited partner,
including voting rights and the right to inspect and copy the Partnership's
books, the Partnership has granted such rights to s under the
Partnership Agreement, to the fullest extent permitted by law.
Following the termination of the Offering, s who wish to exchange
their BUC$ for Limited Partnership Interests and become Limited Partners may do
so by executing and delivering to the Partnership subscription agreements and
applications (which are available upon request from the General Partners) and
making payment not to exceed $100 per transaction to cover expenses involved in
the transfer. s surrendering BUC$ to become substituted Limited
Partners will be admitted to the Partnership monthly following the submission of
all required documents to the Assignor Limited Partner and acceptance of such
investors by the General Partners. Limited Partnership Interests will not be
listed for trading on any securities exchange or included for quotation on the
NASDAQ System and it is not anticipated that a public market will develop for
Limited Partnership Interests. There are also certain restrictions on the
transfers of Limited Partnership Interests. See "Summary of Partnership
Agreement--Transferability of Limited Partnership Interests." Accordingly,
holders of Limited Partnership Interests are expected to encounter greater
difficulty in selling or pledging their Limited Partnership Interests than
holders of BUC$. Therefore, Limited Partnership Interests should only be
considered as a long-term investment. BUC$ which have been exchanged for Limited
Partnership Interests will be cancelled and will not be reissued. INVESTORS WHO
EFFECT SUCH AN EXCHANGE WILL NOT BE ABLE TO RE-EXCHANGE THEIR LIMITED
PARTNERSHIP INTERESTS FOR BUC$.
Bankers Trust Company will act as the transfer agent and registrar for the BUC$.
The transferee of BUC$ shall not be recognized as an assignee of Limited
Partnership Interests unless and until the day such transfer is received and
recorded by the transfer agent of the Partnership in respect of the BUC$. See
"Summary of Partnership Agreement--Transferability of Limited Partnership
Interests" for a discussion of transfers of Limited Partnership Interests and
the restriction that no BUC may be sold, assigned or exchanged if such BUC, when
added to the total of all BUC$ and Limited Partnership Interests sold or
exchanged within the prior 12 months, would result in the termination of the
Partnership.
The General Partners have the ability, without a vote of Limited Partners
or s, to delist BUC$ from public trading markets, to cause the
Assignor Limited Partner to cancel all BUC$ and to cause the holders of such
BUC$ to become substituted Limited Partners
88
in the Partnership to the extent of their holdings in BUC$ and/or to impose
additional restrictions on transfers of BUC$ or Limited Partnership Interests
should the General Partners deem it advisable or necessary to do so in order to
preserve the tax status of the Partnership as an entity taxable as a partnership
and not as a corporation for federal income tax purposes or, if necessary, to
provide for continued availability of tax benefits. The Partnership does not
intend to redeem or repurchase any of the BUC$ or Limited Partnership Interests
during the life of the Partnership.
SUMMARY OF PARTNERSHIP AGREEMENT
The rights and obligations of the Partners in the Partnership are governed
by the Partnership Agreement, the form of which is set out in its entirety at
the end of this Prospectus as Exhibit A. The s will become assignees
of the Assignor Limited Partner of the Partnership and as such, their rights
will also be governed by the terms of the Partnership Agreement. Prospective
investors should study the Partnership Agreement carefully. The following
statements and other statements in this Prospectus concerning the Partnership
Agreement and related matters are merely an outline, do not purport to be
complete and in no way modify or amend the Partnership Agreement.
BUC$ HOLDERS WILL BE BOUND BY THE PROVISIONS OF THE PARTNERSHIP AGREEMENT
Nature of Partnership
Summit Preferred Equity L.P. is a limited partnership formed under the
Delaware Revised Uniform Limited Partnership Act. The Partnership Agreement
authorizes the issuance and sale for cash of up to 2,893,000 Limited Partnership
Interests and BUC$ representing the assignment of such Limited Partnership
Interests. The Initial Limited Partner acquired 150 Limited Partnership
Interests and will with. draw as a Limited Partner at the first closing of the
sale of BUC$.
The Responsibilities of the General Partners
The General Partners have the exclusive management and control of all
aspects of the business of the Partnership. In the course of their management,
the General Partners may acquire, hold, encumber, sell, dispose of and otherwise
deal with and invest in Preferred Equity Investments upon such terms as they
determine to be in the best interests of the Partnership. They may also employ
such persons, including, under certain circumstances, Affiliates of the General
Partners, as they deem necessary or desirable for the efficient operation of the
Partnership. However, the Partnership Agreement provides that prior to the sale,
pledge or encumbrance of all or substantially all of the assets of the
Partnership, Holders holding more than 50% of the total outstanding Limited
Partnership Interests and BUC$ must approve of such sale or pledge. Neither the
Limited Partners nor the s shall have any authority to transact
business for or participate in the control of the business of the Partnership.
The authority of the General Partners is also subject to certain express
restrictions set forth in the Partnership Agreement. None of the General
Partners will take any action which constitutes its voluntary withdrawal from
the Partnership until the dissolution of the Partnership.
Tax Matters Partner
The Related General Partner has been designated the "Tax Matters Partner"
under Section 15.10 of the Partnership Agreement to manage administrative tax
proceedings conducted at the Partnership level by the IRS with respect to
Partnership matters. Any Partner has the right to participate in such
administrative proceedings relating to the determination of Partnership items at
the Partnership level. Expenses of such administrative proceedings undertaken by
the Tax Matters Partner will be paid for out of Partnership assets. Each Holder
who elects to participate in such proceedings will be responsible for any
expense incurred by such Holder in connection with such participation. Further,
the cost to a Holder of any adjustment, and the cost of any resulting audit or
adjustment of a Holder's tax return, will be borne solely by the affected
Holder. See "Federal Income Tax Considerations--Tax Returns, Tax Information,
Audits and Proceedings"; and "Conflicts of Interest--Tax Matters Partner."
Liability of s and Limited Partners
A 's capital and a Limited Partner's capital are subject to the
risks of the Partnership's business. In general, limited partners are not liable
for a limited partnership's obligations unless they take part in the management
or control of the business of the partnership and thereby incur liability as
general partners. In the opinion of counsel to the Partnership, no Limited
Partner of the Partnership will have any liability under Delaware law for
obligations of the Partnership in excess of the Limited Partner's capital
contribution and share of the Partnership's assets and undistributed profits,
except for any duty to return certain distributions and returns of capital,
unless such Limited Partner takes part in the control of the Partnership's
business.
Under the Delaware Act, the exercise by Limited Partners of the voting
rights contemplated by the Partnership does not constitute taking part in the
management or control of the business of the Partnership. In the opinion of
counsel to the Partnership, the liability of the BUC$ holders will be no greater
than that of a Limited Partner of the Partnership.
89