-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, PQQ0glxl/ioKgb952p4DxWQ1vaFAhnkwM3sHH/rSj7mB1e92SnzVsh4Mk8wtUQXq G80IRQsdn7m+CEgaAkC/Ig== 0000950123-96-005404.txt : 19961007 0000950123-96-005404.hdr.sgml : 19961007 ACCESSION NUMBER: 0000950123-96-005404 CONFORMED SUBMISSION TYPE: SC 14D9 PUBLIC DOCUMENT COUNT: 5 FILED AS OF DATE: 19961004 SROS: NONE SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: MCNEIL REAL ESTATE FUND XXVI LP CENTRAL INDEX KEY: 0000793307 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE [6500] IRS NUMBER: 330168395 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 14D9 SEC ACT: 1934 Act SEC FILE NUMBER: 005-46941 FILM NUMBER: 96639541 BUSINESS ADDRESS: STREET 1: 13760 NOEL RD STE 700 LB70 CITY: DALLAS STATE: TX ZIP: 75240 BUSINESS PHONE: 2144485800 MAIL ADDRESS: STREET 2: 13760 NOEL ROAD SUITE 700 LB 70 CITY: DALLAS STATE: TX ZIP: 75240 FORMER COMPANY: FORMER CONFORMED NAME: SOUTHMARK EQUITY PARTNERS III LTD DATE OF NAME CHANGE: 19920413 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: MCNEIL PARTNERS LP CENTRAL INDEX KEY: 0000898847 STANDARD INDUSTRIAL CLASSIFICATION: [] STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 14D9 BUSINESS ADDRESS: STREET 1: 13760 NOEL ROAD STREET 2: SUITE 700 CITY: DALLAS STATE: TX ZIP: 75240 BUSINESS PHONE: 2144485800 MAIL ADDRESS: STREET 1: 13760 NOEL ROAD STREET 2: SUITE 700 CITY: DALLAS STATE: TX ZIP: 75240 SC 14D9 1 SCHEDULE 14D-9 1 ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 -------------------- SCHEDULE 14D-9 SOLICITATION/RECOMMENDATION STATEMENT PURSUANT TO SECTION 14(d)(4) OF THE SECURITIES EXCHANGE ACT OF 1934 -------------------- MCNEIL REAL ESTATE FUND IX, LTD. MCNEIL REAL ESTATE FUND XX, L.P. MCNEIL REAL ESTATE FUND X, LTD. MCNEIL REAL ESTATE FUND XXIV, L.P. MCNEIL REAL ESTATE FUND XI, LTD. MCNEIL REAL ESTATE FUND XXV, L.P. MCNEIL REAL ESTATE FUND XIV, LTD. MCNEIL REAL ESTATE FUND XXVI, L.P. MCNEIL REAL ESTATE FUND XV, LTD. MCNEIL REAL ESTATE FUND XXVII, L.P. (NAME OF SUBJECT COMPANY) MCNEIL PARTNERS, L.P. (NAME OF PERSON FILING STATEMENT) Units of Limited Partnership Interests (TITLE OF CLASS OF SECURITIES) 582568 10 1 None 582568 20 0 582568 88 7 582568 30 9 582568 87 9 582568 88 7 None 582568 50 7 810481 (CUSIP NUMBERS OF CLASSES OF SECURITIES) -------------------- Donald K. Reed MCNEIL PARTNERS, L.P. 13760 Noel Road, Suite 700, LB70 Dallas, Texas 75240 (214) 448-5800 (NAME, ADDRESS, AND TELEPHONE NUMBER OF PERSON AUTHORIZED TO RECEIVE NOTICES AND COMMUNICATIONS ON BEHALF OF THE PERSON(S) FILING STATEMENT) Copies to: Patrick J. Foye, Esq. Scott Wallace, Esq. SKADDEN, ARPS, SLATE, MEAGHER & FLOM HAYNES AND BOONE, L.L.P. 919 Third Avenue 901 Main Street, Suite 3100 New York, New York 10022 Dallas, Texas 75202 (212) 735-2274 (214) 651-5587 ================================================================================ 2 ITEM 1. SECURITY AND SUBJECT COMPANY The subject companies are McNeil Real Estate Fund IX, Ltd., McNeil Real Estate Fund X, Ltd., McNeil Real Estate Fund XI, Ltd., McNeil Real Estate Fund XIV, Ltd., McNeil Real Estate Fund XV, Ltd., McNeil Real Estate Fund XX, L.P., McNeil Real Estate Fund XXIV, L.P., McNeil Real Estate Fund XXV, L.P. and McNeil Real Estate Fund XXVI, L.P., each a California limited partnership, and McNeil Real Estate Fund XXVII, L.P., a Delaware limited partnership (each individually, a "Partnership" and collectively, the "Partnerships"). The address of the principal executive offices of each Partnership and McNeil Partners, L.P., a Delaware limited partnership and the general partner of each Partnership ("McNeil Partners"), is 13760 Noel Road, Suite 700, LB70, Dallas, Texas 75240. The title of the class of equity securities to which this statement relates is the outstanding limited partnership units (the "Units") of each Partnership. ITEM 2. TENDER OFFER OF THE BIDDER This statement relates to the unsolicited tender offers being made by High River Limited Partnership, a Delaware limited partnership ("High River"), Riverdale LLC, a New York limited liability company ("Riverdale"), Unicorn Associates Corporation, a New York corporation ("Unicorn"), and Carl C. Icahn ("Mr. Icahn" and together with High River, Riverdale and Unicorn (except in respect of McNeil Real Estate Fund XXVI, L.P. and McNeil Real Estate Fund XXVII, L.P.), the "Bidders") disclosed in ten Tender Offer Statements on Schedule 14D-1, each dated September 20, 1996, as amended (the "Schedules 14D-1"), to purchase from holders of Units ("Unitholders") any and all of the outstanding Units of each Partnership, upon the terms and subject to the conditions set forth in the Offers to Purchase dated September 20, 1996, as amended (the "Offers to Purchase"), and the related Assignments of Partnership Interest (collectively with the Offers to Purchase, the "HR Offers"). The Partnerships did not solicit the HR Offers. The Schedules 14D-1 state that the business address of Mr. Icahn is 114 West 47th Street, New York, NY 10036 and the address of the principal offices of High River, Riverdale and Unicorn is 100 South Bedford Road, Mount Kisco, New York 10549. ITEM 3. IDENTITY AND BACKGROUND (a) The name and business address of McNeil Partners, which is the person filing this statement on behalf of each of the Partnerships, are set forth in Item 1 above. (b)(1) The sole general partner responsible for the management of each Partnership's business is McNeil Partners. McNeil Investors, Inc., a Delaware corporation ("McNeil Investors"), is the sole general partner of McNeil Partners. Robert A. McNeil ("Mr. McNeil") is the sole stockholder of McNeil Investors. Except as described below, there are no material contracts, agreements, arrangements and understandings or any actual or potential conflicts of interest between McNeil Partners or its affiliates and the Partnerships, their executive officers, directors or affiliates. Neither the Partnerships nor McNeil Partners has any directors or executive officers. 2 3 Through 1999, the Partnerships pay an asset management fee to McNeil Partners calculated as 1% of each Partnership's tangible asset value (the "MID"), however, with regard to McNeil Real Estate Fund IX, Ltd., McNeil Real Estate Fund X, Ltd., McNeil Real Estate Fund XI, Ltd., McNeil Real Estate Fund XIV, Ltd. and McNeil Real Estate Fund XV, Ltd., the MID is payable only to the extent of the lesser of each Partnership's excess cash flow or net operating income. Tangible asset value is determined by using the greater of (i) an amount calculated by applying a capitalization rate of 9 percent to the annualized net operating income of each property or (ii) a value of $10,000 per apartment unit for residential properties and $50 per gross square foot for commercial properties to arrive at the property tangible asset value. The property tangible asset value is then added to the book value of all other assets excluding intangible items. The MID percentage decreases subsequent to 1999. The Partnerships pay property management fees equal to 5% of gross rental receipts of residential and self-storage properties and 5% (6% in respect of McNeil Real Estate Fund XXIV, L.P., McNeil Real Estate Fund XXV, L.P., McNeil Real Estate Fund XXVI, L.P. and McNeil Real Estate Fund XXVII, L.P.) of gross rental receipts of commercial properties to McNeil Real Estate Management, Inc. ("McREMI"), an affiliate of McNeil Partners, for providing property management services. Additionally, the Partnerships reimburse McREMI for its costs, including overhead, of administering the Partnerships' affairs. Pursuant to each Partnership's partnership agreement, McNeil Partners or McREMI, as applicable, is entitled to receive upon the removal of McNeil Partners as the general partner of each such Partnership: (i) a terminating distribution in cash equal to the aggregate amount of the MID distributed during the 12 months preceding the effective date of such removal (except in respect of McNeil Real Estate Fund XX, L.P.), (ii) within 30 days of removal as stated in a written notice of removal, any portion of the property management fee, overhead reimbursements or MID which is then accrued and due, but not yet paid, and (iii) within 30 days of removal as stated in a written notice of removal, any unpaid loans or advances (together with accrued, but unpaid interest). As of June 30, 1996, such amounts were in aggregate approximately $2,189,000, $5,366,237, $4,944,109, $2,574,423, $975,349, $37,195, $368,104, $746,270, $569,798 and $814,577 for McNeil Real Estate Fund IX, Ltd., McNeil Real Estate Fund X, Ltd., McNeil Real Estate Fund XI, Ltd., McNeil Real Estate Fund XIV, Ltd., McNeil Real Estate Fund XV, Ltd., McNeil Real Estate Fund XX, L.P., McNeil Real Estate Fund XXIV, L.P., McNeil Real Estate Fund XXV, L.P., McNeil Real Estate Fund XXVI, L.P. and McNeil Real Estate Fund XXVII, L.P., respectively. McNeil Partners, as general partner of each Partnership, is entitled to indemnification under certain circumstances from the Partnerships pursuant to provisions of each respective partnership agreement. As a result of such provisions, a Unitholder may be entitled to a more limited right of action than he or she would otherwise have if such provisions were not included in the partnership agreement. Certain of the directors and executive officers of McNeil Investors and McREMI have employment agreements with such entities that contain provisions granting such directors and executive officers the right to terminate their employment agreements and receive three years annual compensation upon a change of control of such entities. Any compensation payable to such directors or executive officers upon a change of control is not payable from funds of the Partnerships and such agreements are not obligations of the Partnerships. 3 4 If any one of the HR Offers is successful, High River may be in a position to cause the amendment of the applicable Partnership's partnership agreement and the removal of McNeil Partners as the general partner of such Partnership. If McNeil Partners is removed by High River as the general partner of any Partnership, the respective asset or partnership management fee and property management fee payable to McNeil Partners and McREMI will no longer be received by McNeil Partners or McREMI, as the case may be, and therefore, McNeil Partners has a conflict of interest in recommending that Unitholders reject the HR Offers. (b)(2) To the best knowledge of the Partnerships, there are no material contracts, agreements, arrangements and understandings or any actual or potential conflicts of interest between any Partnership or its affiliates and the Bidders, their executive officers, directors or affiliates. ITEM 4. THE SOLICITATION OR RECOMMENDATION (a) Following the Partnerships' receipt of the HR Offers, McNeil Partners met with the financial and legal advisors of the Partnerships to review and consider the HR Offers and to explore various possible alternative courses of action which might be available in response to the HR Offers. BASED ON EACH PARTNERSHIP'S ANALYSIS AND ITS CONSULTATION WITH SUCH ADVISORS, EACH PARTNERSHIP, IN LIGHT OF ALL RELEVANT CIRCUMSTANCES, DETERMINED THAT THE RESPECTIVE HR OFFER IS INADEQUATE, NOT IN THE BEST INTERESTS OF EITHER SUCH PARTNERSHIP OR ITS UNITHOLDERS AND STRONGLY RECOMMENDS THAT ITS UNITHOLDERS REJECT IT. (b) Each of the Partnerships reached the conclusions set forth in Item 4(a) after considering a variety of factors, including, but not limited to, the following: (i) The opinions of Crosson Dannis, Inc., the Partnerships' financial advisor ("Crosson Dannis"), dated October 3, 1996, which state that the consideration offered in the HR Offers is inadequate from a financial point of view to Unitholders compared to the Present Estimated Liquidation Values (as defined below). Crosson Dannis prepared estimates of the range of present values (the "Present Estimated Liquidation Values") of the Units based on the assumption that the Partnerships commence theoretical orderly liquidations in January 1997 and complete those liquidations by 1998 for McNeil Real Estate Fund XX, L.P., McNeil Real Estate Fund XXIV, L.P. and McNeil Real Estate Fund XXVI, L.P.; 1999 for McNeil Real Estate Fund XXV, L.P. and McNeil Real Estate Fund XXVII, L.P.; and 2001 for McNeil Real Estate Fund IX, Ltd., McNeil Real Estate Fund X, Ltd., McNeil Real Estate Fund XI, Ltd., McNeil Real Estate Fund XIV, Ltd. and McNeil Real Estate Fund XV, Ltd. (the "Assumed Liquidations"). THE PRESENT ESTIMATED LIQUIDATION VALUES PER UNIT FOR THE PARTNERSHIPS AS OF OCTOBER 3, 1996 ARE BETWEEN $256 AND $270 FOR MCNEIL REAL ESTATE FUND IX, LTD.; $134 AND $145 FOR MCNEIL REAL ESTATE FUND X, LTD.; $152 AND $161 FOR MCNEIL REAL ESTATE FUND XI, LTD.; $161 AND $171 FOR MCNEIL REAL ESTATE FUND XIV, LTD.; $174 AND $184 FOR MCNEIL REAL ESTATE FUND XV, LTD.; $230 AND $236 FOR MCNEIL REAL ESTATE FUND XX, L.P.; $335 AND $343 FOR MCNEIL REAL ESTATE FUND XXIV, L.P.; $0.357 AND $0.366 FOR MCNEIL REAL ESTATE FUND XXV, L.P.; $0.236 AND $0.243 FOR MCNEIL REAL ESTATE FUND XXVI, L.P.; AND $8.37 AND $8.64 FOR MCNEIL REAL ESTATE FUND XXVII, L.P. The Present Estimated Liquidation Values represent Crosson Dannis' estimate of the present 4 5 value of the gross cash distributions that a Unitholder would receive between now and the completion of the Assumed Liquidations. It should be noted that the Present Estimated Liquidation Values do not represent an estimate by Crosson Dannis of the fair market value of a Unit. A copy of the Crosson Dannis opinion dated October 3, 1996 is filed as exhibit (c) (2). (ii) In April 1996, the Partnerships (other than McNeil Real Estate Fund XXVI, L.P. and McNeil Real Estate Fund XXVII, L.P.) announced that they had determined to evaluate market and other economic conditions to establish the optimum time to commence orderly liquidations of the Partnerships' assets in accordance with the terms of their respective partnership agreements. Taking such conditions as well as other pertinent information into account, each Partnership has determined to begin orderly liquidations of all its assets. Although there can be no assurance made as to the timing of any liquidations due to real estate market conditions, the general difficulty of disposing of real estate, and other general economic factors, it is anticipated that such liquidations would result in the dissolution of the Partnerships followed by a liquidating distribution to Unitholders following the completion of the Assumed Liquidations. (iii) Last August, the Bidders offered $400 per unit for McNeil Real Estate Fund V, Ltd., which was significantly below the partnership's estimate of the pro forma liquidation value of $667.30 per unit as of June 30, 1995. In response, McNeil Real Estate Fund V, Ltd. recommended that unitholders reject the offer because it did not reflect the inherent value of the units and was not in the best interests of either McNeil Real Estate Fund V, Ltd. or its unitholders. Holders of approximately 97.5% of McNeil Real Estate Fund V, Ltd.'s units agreed in the fall of 1995 that Mr. Icahn's offer was inadequate, rejected his offer and did not tender their units. Since then, McNeil Real Estate Fund V, Ltd. distributed $83.40 cash to unitholders (including Mr. Icahn) and, on September 10, 1996, holders of more than 75% of McNeil Real Estate Fund V, Ltd.'s units which voted approved the liquidation and dissolution of McNeil Real Estate Fund V, Ltd., pursuant to which it is anticipated that all unitholders will receive a cash distribution of approximately $643.07 per unit, subject to reserves and adjustment, which closely approximates McNeil Real Estate Fund V, Ltd.'s estimate of pro forma liquidation value. TAKEN TOGETHER WITH THE CASH DISTRIBUTIONS TO UNITHOLDERS, SUCH AMOUNT IS APPROXIMATELY $326.47 PER UNIT (82%) HIGHER THAN THE BIDDERS' 1995 OFFER PRICE FOR MCNEIL REAL ESTATE FUND V, LTD. Although there can be no assurance that a similar result will occur with a particular Partnership or that any particular distribution per Unit will be obtained, THE LIQUIDATION AND DISSOLUTION OF MCNEIL REAL ESTATE FUND V, LTD. AND THE OPINIONS OF CROSSON DANNIS PROVIDE SOLID SUPPORT FOR THE PARTNERSHIPS' VIEW THAT THE HR OFFERS ARE INADEQUATE AND NOT IN THE BEST INTERESTS OF EITHER THE RESPECTIVE PARTNERSHIP OR UNITHOLDERS. (iv) The prices offered by the Bidders are between approximately 66.7% and 70.3% for McNeil Real Estate Fund IX, Ltd.; 59.0% and 63.8% for McNeil Real Estate Fund X, Ltd.; 64.9% and 68.8% for McNeil Real Estate Fund XI, Ltd.; 55.6% and 59.0% for McNeil Real Estate Fund XIV, Ltd.; 54.5% and 57.6% for McNeil Real Estate Fund XV, Ltd.; 72.2% and 74.1% for McNeil Real Estate Fund XX, L.P.; 78.2% and 80.0% for McNeil Real Estate Fund XXIV, L.P.; 68.9% and 70.6% for McNeil Real Estate Fund XXV, Ltd.; 37.7% and 38.8% for McNeil Real Estate Fund XXVI, L.P.; and 5 6 65.1% and 67.2% for McNeil Real Estate Fund XXVII, L.P., of the high and low end of the range in the Present Estimated Liquidation Values. (v) Each of the Partnerships believes that the Units are a long-term, illiquid investment and the full value of an investment in the Units can only be realized by a Unitholder who retains his or her Units through the liquidation of the respective Partnership. (vi) The Bidders are making the HR Offers with a view to making a profit. Accordingly, there is a conflict of interest between their desire to purchase the Units at a low price and Unitholders' desire to sell their Units at a high price. In fact, High River concedes that its own estimates of net asset value per Unit are above the prices it is offering for Units in the HR Offers. (vii) The Partnerships have, from time to time, received inquiries from other parties that may be considering making tender offers for the Units. In anticipation of the HR Offers, the Partnerships have determined to make confidential information available to responsible parties who express a bona fide interest in considering making a tender offer for Units in the Partnerships pursuant to the requirements of federal securities laws. While it is possible that additional offers for Units in the Partnerships on more favorable terms than the HR Offers may be forthcoming, there can be no assurance as to whether any such offers will be made, the terms thereof, or, if made, whether any such offer will be subsequently amended or withdrawn. (viii) The HR Offers do not fully disclose Mr. Icahn's intentions to seek control of the Partnerships. Last year Mr. Icahn commenced similar tender offers for Units after McNeil Partners rejected his proposal to acquire the general partner interest of McNeil Partners and thereby control the Partnerships. In addition, Mr. Icahn negotiated with McNeil Partners during the period of last year's tender offers in an effort to acquire control of the Partnerships. (ix) As stated in the Offers to Purchase, if any one of the HR Offers is successful, High River may be in a position to influence control of the respective Partnership and to influence voting decisions and may seek to remove the Partnership's general partner and/or McREMI. In considering the possibility of High River influencing voting decisions with respect to the Partnerships and whether High River or one of its affiliates would be suitable in such a role, the Partnerships further considered the following: (A) McNeil Partners and McREMI presently manage the businesses of the Partnerships. McREMI is a fully integrated real estate service organization performing property management, asset management, investor services, partnership administration and a wide range of other real estate-related services for 19 limited partnerships with more than 79,000 limited partners. McNeil Investors, with its affiliates and subsidiaries, is one of the largest managers of multifamily residential properties in the United States and a large manager of commercial properties. 6 7 (B) The Offers to Purchase do not adequately disclose information regarding Mr. Icahn's plans in the event he acquires control of the businesses of the Partnerships. In fact, the Offers to Purchase state that High River has never acted as the general partner or property manager of a limited partnership, such as the Partnerships, which is engaged in the business of owning real estate and, to date, High River has not sought to negotiate any arrangements with other parties to act in such capacities. As a result, McNeil Partners believes that High River's lack of experience in managing real estate limited partnerships similar to the Partnerships would adversely effect any such Partnership were Mr. Icahn to acquire control thereof. (C) Certain of the Partnerships could be liable for large accelerated mortgage payments, prepayment interest penalties, or substantial yield maintenance payments in the event that High River takes control of the Partnerships and replaces McNeil Partners and/or McREMI. Such payments or penalties would have a negative impact on such Partnerships. Pursuant to the terms of such indebtedness, the consent of the lenders would be required in respect of any transaction in which High River removes McNeil Partners as the general partner in order to avoid such payments and penalty. (x) Carl C. Icahn controls High River. Each Partnership considered the background of Mr. Icahn, his past investment practices, his reputation in the investment and business communities, and various lawsuits and proceedings, both private and by government agencies, involving Mr. Icahn and affiliated companies. Each Partnership is aware that the strategy Mr. Icahn has employed in the HR Offers, as well as, last year's offers, is similar to strategies he has repeated in numerous previous unsolicited offers for corporate and partnership securities. (xi) The HR Offers are conditioned upon the McNeil Partners consenting in writing to the admission of High River as a substitute limited partner of each of the Partnerships; however, each of the HR Offers fails to disclose that McNeil Partners may, in its sole discretion under certain circumstances set forth in each Partnership's partnership agreement, refuse such admission. McNeil Partners has not determined whether or not to admit High River as a substitute limited partner. Any such determination will be made depending on a number of factors including the effect of such admission on the tax status of the Partnership. Present Estimated Liquidation Value Analysis High River is offering to purchase the Units, which are relatively illiquid investments, and is not offering to purchase the Partnerships' underlying assets or assume any of their liabilities. Although each Partnership does not believe that the amount per Unit which might be distributed to Unitholders following a future sale of all such Partnership's properties necessarily reflects the present fair value of a Unit, the realizable value of such Partnership's assets clearly is a relevant factor in determining the price a prudent purchaser would offer for Units. Crosson Dannis prepared an estimate of the Present Estimated Liquidation Values based on the assumptions that each Partnership commences a theoretical orderly liquidation in 7 8 January 1997 and completes such liquidations in 1998 for McNeil Real Estate Fund XX, L.P., McNeil Real Estate Fund XXIV, L.P. and McNeil Real Estate Fund XXVI, L.P.; 1999 for McNeil Real Estate Fund XXV, L.P. and McNeil Real Estate Fund XXVII, L.P.; and 2001 for McNeil Real Estate Fund IX, Ltd., McNeil Real Estate Fund X, Ltd., McNeil Real Estate Fund XI, Ltd., McNeil Real Estate Fund XIV, Ltd. and McNeil Real Estate Fund XV, Ltd. The Present Estimated Liquidation Values as of October 3, 1996, gross distributions per Unit through the completion of the Assumed Liquidations and the Bidders' offer price per Unit are set forth in the chart below. The Present Estimated Liquidation Values represent Crosson Dannis' estimate of the gross cash distributions that a Unitholder would receive between January 1997 and the completion of the Assumed Liquidations, discounted to reflect the present value of such distributions. It should be noted that the Present Estimated Liquidation Values do not represent an estimate by Crosson Dannis of the fair market value of a Unit.
PRESENT ESTIMATED GROSS LIQUIDATION VALUES DISTRIBUTIONS BIDDERS' OFFER PRICE PARTNERSHIP (PER UNIT) (PER UNIT) (PER UNIT) McNeil Real Estate Fund IX, Ltd. $256 - $270 $404.00 $180.00 McNeil Real Estate Fund X, Ltd. $134 - $145 $250.00 $85.50 McNeil Real Estate Fund XI, Ltd. $152 - $161 $251.00 $104.50 McNeil Real Estate Fund XIV, Ltd. $161 - $171 $271.00 $95.00 McNeil Real Estate Fund XV, Ltd. $174 - $184 $288.00 $100.24 McNeil Real Estate Fund XX, L.P. $230 - $236 $285.00 $170.38 McNeil Real Estate Fund XXIV, L.P. $335 - $343 $416.00 $268.13 McNeil Real Estate Fund XXV, L.P. $0.357 - $0.366 $0.45 $0.252 McNeil Real Estate Fund XXVI, L.P. $0.236 - $0.243 $0.30 $0.092 McNeil Real Estate Fund XXVII, L.P. $8.37 - $8.64 $10.94 $5.62
The Present Estimated Liquidation Values are based in part upon certain estimated cash receipts and disbursements of the Partnerships through the Assumed Liquidations. As a business planning tool, the Partnerships prepare near and long-term projections of cash flow on an annual basis for the next succeeding year and the remaining life of the particular Partnership (the "Draft Projections"). The Draft Projections were reviewed by various operating personnel for, among other things, appropriateness of assumptions, timing of expected cash receipts and disbursements, cash reserves, timing of scheduled loan repayments, and levels of cash flow generally. The Draft Projections are considered by the management of each Partnership as the most current long-term business plan of the particular Partnership. The Draft Projections are prepared to estimate the level of cash flow each asset of each Partnership will produce and the related expenditures and timing of the expenditures to achieve the potential cash flow. The Draft Projections are utilized as a management tool to determine the appropriate methods of operating 8 9 the Partnerships' businesses, which include, but are not limited to, the amount of invested capital in assets, appropriate development plans for assets, level of indebtedness for each Partnership, cash reserves and appropriate distribution levels. The Draft Projections may be updated during any particular year for identified, material change(s) to estimated cash receipts and/or disbursements. The summary of the Draft Projections, which have been prepared on the basis of the most current knowledge of the Partnerships' personnel, are attached hereto as Annex A. The Draft Projections are based on the above and other assumptions and on other general factors relating to the Partnerships' businesses or to more general economic conditions. THERE IS NO ASSURANCE THAT THE DRAFT PROJECTIONS WILL BE ACHIEVED DUE TO, AMONG OTHER THINGS, ADVERSE GENERAL NATIONAL OR LOCAL ECONOMIC CONDITIONS; CHANGES IN INTEREST RATES OR RESTRICTIONS IN FINANCING; UNANTICIPATED EXPENDITURES; CHANGES IN ENVIRONMENTAL LAWS, REGULATIONS OR CONDITIONS AND UNANTICIPATED EXPENDITURES FOR ENVIRONMENTAL MATTERS; CHANGES IN BUILDING CODES; INCREASED COMPETITION; ADVERSE CHANGES IN LAWS, GOVERNMENTAL RULES OR FISCAL POLICIES; AND OTHER FACTORS AFFECTING THE SALE OF REAL ESTATE. ACCORDINGLY, THE ACTUAL OPERATIONS AND CASH FLOWS OF THE PARTNERSHIPS ARE LIKELY TO VARY FROM THOSE INCLUDED IN THE DRAFT PROJECTIONS AND SUCH VARIATIONS MAY BE MATERIAL. CONSEQUENTLY, SUCH PROJECTIONS OF RESULTS OF OPERATIONS AND CASH FLOWS OF THE PARTNERSHIPS AND THE PRESENT ESTIMATED LIQUIDATION VALUES ARE NOT GUARANTEES OF ACTUAL RESULTS OF OPERATIONS OR CASH FLOWS OF THE PARTNERSHIPS AND SHOULD NOT BE CONSIDERED AS THE ACTUAL RESULTS OF THE PARTNERSHIPS OR THE AMOUNT THAT WILL NECESSARILY BE REALIZED BY AN UNITHOLDER WHO RETAINS AN INTEREST IN THE PARTNERSHIP THROUGH ITS RESPECTIVE ACTUAL LIQUIDATION. NO ASSURANCE CAN OR IS MADE THAT THE PROJECTED RESULTS OF THE PARTNERSHIPS' OPERATIONS AND CASH FLOWS, OR THE AMOUNT SET FORTH IN THE PRESENT ESTIMATED LIQUIDATION VALUES, WILL BE REALIZED IN WHOLE OR PART. NO ASSURANCE CAN OR IS MADE AS TO THE ACTUAL RESULTS THAT WILL BE ACHIEVED BY A UNITHOLDER WHO RETAINS AN INTEREST IN THE PARTNERSHIPS. The Crosson Dannis opinions are based upon a number of factors, including the following items and assumptions: (i) The Partnerships hold good and, as the case may be under applicable state laws, marketable or indefeasible title to their assets. (ii) The Partnerships, McNeil Partners and all other pertinent persons have fully complied with all applicable federal, state and local laws and regulations that would otherwise adversely affect the value of the assets of the Partnerships. (iii) All required licenses, certificates of occupancy, consents or legislative or administrative authority from any federal, state or local governmental authority or agency 9 10 have been or will be obtained or renewed for any use of the assets of the Partnerships on which the report is based, whether in whole or part. (iv) As to the real property assets of the Partnerships, all existing leases, subleases and other use agreements are in full force and effect and each party to all such agreements are in full compliance with their obligations thereunder and no default or event of default exists with respect to any such agreements. (v) The assets of the Partnerships are all freely transferable. (vi) No asset of any Partnership is subject to any option, right of first offer, right of first refusal or other encumbrance that could result in any obligation of any Partnership to sell or otherwise dispose of such asset for an amount less than the then fair market value of such asset. (vii) The Present Estimated Liquidation Values specifically disregard the impact of litigation expenses resulting from tender offer defense costs and/or class action litigation. ITEM 5. PERSONS RETAINED, EMPLOYED, OR TO BE COMPENSATED McNeil Partners, on behalf of each Partnership, has engaged Crosson Dannis as their financial advisor to prepare the Present Estimated Liquidation Values and to advise the respective Partnership of Crosson Dannis' opinion as to the adequacy, from a financial point of view, of the consideration offered in each of the HR Offers to Unitholders of such Partnership compared to the Present Estimated Liquidation Value for such Partnership. Pursuant to the engagement agreement between the McNeil Partners, on behalf of each Partnership, and Crosson Dannis, McNeil Partners, on behalf of the Partnerships, agreed to pay Crosson Dannis an aggregate fee of $284,600 for the preparation and presentation of its reports and the delivery of the opinions described above. In addition, McNeil Partners, on behalf of the Partnerships, agreed to reimburse Crosson Dannis for the direct expenses it incurs for deliveries, travel and third party research and data in preparing the Present Values, and indemnify it against certain expenses and liabilities if incurred in connection with its engagement. The fee paid to Crosson Dannis was not contingent upon the conclusions reached in, or the substance of, the opinons. McNeil Partners, on behalf of the Partnerships, has retained The Herman Group, Inc. to assist with communications with Unitholders with respect to, and to provide other services to the Partnerships in connection with, the HR Offers. McNeil Partners, on behalf of the Partnerships, will pay The Herman Group, Inc. reasonable and customary fees for its services, reimburse it for reasonable expenses, and provide customary indemnities. Neither McNeil Partners, the Partnerships nor any person acting on their behalf has employed, retained, or compensated or intends to employ, retain, or compensate any other person or class of persons to make solicitations or recommendations to Unitholders on its behalf concerning the HR Offers. 10 11 ITEM 6. RECENT TRANSACTIONS AND INTENT WITH RESPECT TO SECURITIES (a) Except as described below, neither the Partnerships, McNeil Partners nor McNeil Investors has effected any transactions in the Units during the past 60 days. Except as described below, the Partnerships are not aware of any other transactions in the Units during the past 60 days by any of McNeil Investors's executive officers, directors, affiliates, or subsidiaries. Dean J. Lontos, Vice President of McREMI, purchased 20 Units of McNeil Real Estate Fund XIV, Ltd. for $83.05 per Unit on August 25, 1996 and 100 Units of McNeil Real Estate Fund XX, L.P. for $122.00 per Unit on August 28, 1996. (b) Neither the Partnerships nor, to the knowledge of the Partnerships, any of McNeil Partners' executive officers, directors, affiliates, or subsidiaries intends to tender Units owned by them in the HR Offers. ITEM 7. CERTAIN NEGOTIATIONS AND TRANSACTIONS BY THE SUBJECT COMPANY (a) Except as disclosed in Item 4, There are no negotiations being undertaken or underway which would result in any of the transactions listed in Item 7(a) with respect to any Partnership. (b) Except as disclosed in Item 4, there is no transaction, board resolution, agreement in principle or signed contract in response to the tender offer which relates to or would result in one or more of the matters referred to in Item 7(a) with respect to any Partnership. ITEM 8. ADDITIONAL INFORMATION TO BE FURNISHED Tender Offer Litigation On August 12, 1996, High River sent a letter to the Partnerships (except McNeil Real Estate Fund XXVI, L.P. and McNeil Real Estate Fund XXVII, L.P.) demanding lists of the names, current residence or business addresses and certain other information concerning the Unitholders of such Partnerships. On August 19, 1996, these Partnerships commenced an action against High River, Mr. Icahn and certain of their affiliates (collectively, the "Bidder Defendants") in United States District Court for the Central District of California (the "California Federal Action") seeking, among other things, to declare that such Partnerships are not required to provide High River with a current list of the Unitholders on the grounds that the Bidder Defendants commenced a tender offer in violation of the federal securities laws by filing certain Schedule 13D Amendments on August 5, 1996. On August 19, 1996, such Partnerships, through their counsel, responded to High River's August 12 letter by denying High River's demand for a current list of the Unitholders for the reasons set forth above. On August 23, 1996, the Bidder Defendants filed, among other documents, (a) an answer to these Partnerships' complaint in the California Federal Action denying the allegations contained therein and asserting four affirmative defenses; (b) a counterclaim seeking, among other things, injunctive relief requiring such Partnerships to either make available to High River a copy of the lists of Unitholders or grant High River permission to inspect and copy such lists; and (c) an application for a temporary restraining order ("TRO") and a preliminary injunction seeking access to the lists of Unitholders. On September 6, 1996, the Bidder Defendants' TRO application was 11 12 denied. On September 12, 1996, these Partnerships filed an answer to the Bidder Defendants' counterclaim asserting six affirmative defenses and alleging that the Bidder Defendants were denied access to the lists of Unitholders because their requests for the lists were in connection with illegal tender offers. Discovery is currently underway in the California Federal Action and the matter is expected to go to trial in mid-October 1996. On September 30, 1996, the Partnerships logged an amended complaint for declaratory and injunctive relief against the Bidder Defendants seeking, among other things, to enjoin the HR Offers on the grounds that such offers violate the Partnerships' partnership agreements and federal securities laws and to declare that the Partnerships are not required to provide High River with a current list of Unitholders to facilitate its illegal tender offers. Restrictions on Transfers; Tax Termination The Partnerships intend that no transfer or assignment of Units which, when considered with all other transfers or assignments during the twelve-month period ending with such transfer or assignment, would, in the opinion of counsel to the Partnerships, cause a termination of any Partnership for federal income tax purposes (which termination may occur when 50% or more of the total interest in the Partnership capital and profits is transferred by sale or exchange in a twelve-month period) shall be effective. Depending upon the number of Units tendered pursuant to the HR Offers, sales of Units on the secondary market for the twelve-month period following completion of the HR Offers may be limited. The Partnerships will not process any requests for transfers of Units during such twelve-month period which any Partnership believes would cause a tax termination. Because of the tax-related transfer restrictions, in no event will an aggregate of 50% or more of the Units be accepted for transfer by the Partnership pursuant to any of the HR Offers (reduced to the extent of any prior transfers of Units within the preceding twelve months). ITEM 9. MATERIAL TO BE FILED AS EXHIBITS 99.(a)(1) Form of Letter from the Partnerships to Unitholders dated October 4, 1996. 99.(b) Not applicable. 99.(c)(1) Form of Press Release issued by McNeil Partners on October 4, 1996. 99.(c)(2) Letter dated October 3, 1996 from Crosson Dannis, Inc. to McNeil Partners, L.P. 99.(c)(3) Letter dated August 12, 1996 from the Bidders to the Partnerships (incorporated by reference to Exhibit 6 of Bidders' Schedule 14D-1 dated September 19, 1996). 99.(c)(4) Letter dated August 19, 1996 from counsel to the Partnerships to counsel to the Bidders (incorporated by reference to Exhibit 7 of Bidders' Schedule 14D-1 dated September 19, 1996). 12 13 99.(c)(5) Complaint filed by McNeil Pacific Investors Fund 1972, McNeil Real Estate Fund IX, Ltd., McNeil Real Estate Fund X, Ltd., McNeil Real Estate Fund XI, Ltd., McNeil Real Estate Fund XIV, Ltd., McNeil Real Estate Fund XV, Ltd., McNeil Real Estate Fund XX, L.P., McNeil Real Estate Fund XXIV, L.P. and McNeil Real Estate Fund XXV, L.P., as plaintiffs, against the Bidders and certain affiliates, as defendants (without exhibits) (incorporated by reference to Exhibit 8 of Bidders' Schedule 14D-1 dated September 19, 1996). 99.(c)(6) Defendants' Answer to Complaint for Declaratory and Injunctive Relief filed by High River and certain of its affiliates, as defendants, against McNeil Pacific Investors Fund 1972, McNeil Real Estate Fund IX, Ltd., McNeil Real Estate Fund X, Ltd., McNeil Real Estate Fund XI, Ltd., McNeil Real Estate Fund XIV, Ltd., McNeil Real Estate Fund XV, Ltd., McNeil Real Estate Fund XX, L.P., McNeil Real Estate Fund XXIV, L.P. and McNeil Real Estate Fund XXV, L.P., as plaintiffs (incorporated by reference to Exhibit 19 of Bidders' Schedule 14D-1 dated September 19, 1996). 99.(c)(7) Counterclaim of High River for Injunctive and other Relief re: Denial of Access to a Partner to Limited Partnership Records filed by High River and certain of its affiliates, as defendants, against McNeil Pacific Investors Fund 1972, McNeil Real Estate Fund IX, Ltd., McNeil Real Estate Fund X, Ltd., McNeil Real Estate Fund XI, Ltd., McNeil Real Estate Fund XIV, Ltd., McNeil Real Estate Fund XV, Ltd., McNeil Real Estate Fund XX, L.P., McNeil Real Estate Fund XXIV, L.P. and McNeil Real Estate Fund XXV, L.P., as plaintiffs (without exhibits) (incorporated by reference to Exhibit 20 of Bidders' Schedule 14D-1 dated September 19, 1996). 99.(c)(8) Plaintiffs/Counterclaim-Defendants' Answer to Counterclaim of High River for Injunctive and other Relief filed by McNeil Pacific Investors Fund 1972, McNeil Real Estate Fund IX, Ltd., McNeil Real Estate Fund X, Ltd., McNeil Real Estate Fund XI, Ltd., McNeil Real Estate Fund XIV, Ltd., McNeil Real Estate Fund XV, Ltd., McNeil Real Estate Fund XX, L.P., McNeil Real Estate Fund XXIV, L.P. and McNeil Real Estate Fund XXV, L.P., as plaintiffs, against High River and certain of its affiliates (incorporated by reference to Exhibit 21 of Bidders' Schedule 14D-1 dated September 19, 1996). 99.(c)(9) Proposed Supplemental and Amended Complaint for Declaratory and Injunctive Relief filed by McNeil Pacific Investors Fund 1972, McNeil Real Estate Fund IX, Ltd., McNeil Real Estate Fund X, Ltd., McNeil Real Estate Fund XI, Ltd., McNeil Real Estate Fund XIV, Ltd., McNeil Real Estate Fund XV, Ltd., McNeil Real Estate Fund XX, L.P., McNeil Real Estate Fund XXIV, L.P., McNeil Real Estate Fund XXV, L.P., McNeil Real Estate Fund XXVI, L.P. and McNeil Real Estate Fund XXVII, L.P., as plaintiffs, against High River and certain of its affiliates (without exhibits) (filed herewith). 13 14 SIGNATURE After reasonable inquiry and to the best of my knowledge and belief, I certify that the information set forth in this statement is true, complete and correct. Dated: October 4, 1996 MCNEIL PARTNERS, L.P. General Partner of each of the Partnerships By: McNeil Investors, Inc. General Partner By: /s/ Donald K. Reed ---------------------------- Donald K. Reed President 14 15 ANNEX A
MCNEIL REAL ESTATE FUND XXVI - ------------------------------------------------------------------------------------------------------------------------------------ CASH FLOW PROJECTIONS 000'S 1997 1998 1999 2000 2001 - ------------------------------------------------------------------------------------------------------------------------------------ Partnership cash flow before debt service 2,453 27 0 - - Net sales proceeds 1,940 16,908 - - - Debt service on mortgage obligations (2,025) (1,013) - - - - ------------------------------------------------------------------------------------------------------------------------------------ Partnership cash flow 2,368 15,922 0 - - Estimated distributions to LP's (2,441) (17,922) - - - Beginning working capital cash reserves 2,072 2,000 (0) - - - ------------------------------------------------------------------------------------------------------------------------------------ Ending working capital cash reserves 2,000 (0) - - -
ASSUMPTIONS: Partnership cash flow before debt service - Represents net cash flow from properties after capital improvements but before debt service. Also includes all G & A costs of the partnership and payments to the GP. Based on 1996 property budgets and estimated 1996 partnership costs. Net sales proceeds - Estimated proceeds from sales of properties. Calculated by taking property NOI and capping at 10% for apartments, 11% for retail and self storage, and 12% for office buildings. This capped value is then reduced by a 3% transaction cost and the outstanding balance of the related mortgage indebtedness. Debt service on mortgage obligations - Annual debt service on outstanding mortgage notes secured by real property. Estimated distributions to LP's - Represents distribution of total partnership cash flow subject to maintenance of a working capital cash reserve, which is distributed in year of termination. Cash flow projections assume an orderly liquidation of all partnership properties commencing with sales in 1997 and final termination in 1998 with the final property sale. 16 EXHIBIT INDEX
Exhibit Description Page ------- ----------- ---- 99.(a)(1) Form of Letter from the Partnerships to Unitholders dated October 4, 1996. 99.(c)(1) Form of Press Release issued by McNeil Partners on October 4, 1996. 99.(c)(2) Letter dated October 3, 1996 from Crosson Dannis, Inc. to McNeil Partners, L.P. 99.(c)(3) Letter dated August 12, 1996 from the Bidders to the Partnerships (incorporated by reference to Exhibit 6 of Bidders' Schedule 14D-1 dated September 19, 1996). 99.(c)(4) Letter dated August 19, 1996 from counsel to the Partnerships to counsel to the Bidders (incorporated by reference to Exhibit 7 of Bidders' Schedule 14D-1 dated September 19, 1996). 99.(c)(5) Complaint filed by McNeil Pacific Investors Fund 1972, McNeil Real Estate Fund IX, Ltd., McNeil Real Estate Fund X, Ltd., McNeil Real Estate Fund XI, Ltd., McNeil Real Estate Fund XIV, Ltd., McNeil Real Estate Fund XV, Ltd., McNeil Real Estate Fund XX, L.P., McNeil Real Estate Fund XXIV, L.P. and McNeil Real Estate Fund XXV, L.P., as plaintiffs, against the Bidders and certain affiliates, as defendants (without exhibits) (incorporated by reference to Exhibit 8 of Bidders' Schedule 14D-1 dated September 19, 1996). 99.(c)(6) Defendants' Answer to Complaint for Declaratory and Injunctive Relief filed by High River and certain of its affiliates, as defendants, against McNeil Pacific Investors Fund 1972, McNeil Real Estate Fund IX, Ltd., McNeil Real Estate Fund X, Ltd., McNeil Real Estate Fund XI, Ltd., McNeil Real Estate Fund XIV, Ltd., McNeil Real Estate Fund XV, Ltd., McNeil Real Estate Fund XX, L.P., McNeil Real Estate Fund XXIV, L.P. and McNeil Real Estate Fund XXV, L.P., as plaintiffs (incorporated by reference to Exhibit 19 of Bidders' Schedule 14D-1 dated September 19, 1996).
17 99.(c)(7) Counterclaim of High River for Injunctive and other Relief re: Denial of Access to a Partner to Limited Partnership Records filed by High River and certain of its affiliates, as defendants, against McNeil Pacific Investors Fund 1972, McNeil Real Estate Fund IX, Ltd., McNeil Real Estate Fund X, Ltd., McNeil Real Estate Fund XI, Ltd., McNeil Real Estate Fund XIV, Ltd., McNeil Real Estate Fund XV, Ltd., McNeil Real Estate Fund XX, L.P., McNeil Real Estate Fund XXIV, L.P. and McNeil Real Estate Fund XXV, L.P., as plaintiffs (without exhibits) (incorporated by reference to Exhibit 20 of Bidders' Schedule 14D-1 dated September 19, 1996). 99.(c)(8) Plaintiffs/Counterclaim-Defendants' Answer to Counterclaim of High River for Injunctive and other Relief filed by McNeil Pacific Investors Fund 1972, McNeil Real Estate Fund IX, Ltd., McNeil Real Estate Fund X, Ltd., McNeil Real Estate Fund XI, Ltd., McNeil Real Estate Fund XIV, Ltd., McNeil Real Estate Fund XV, Ltd., McNeil Real Estate Fund XX, L.P., McNeil Real Estate Fund XXIV, L.P. and McNeil Real Estate Fund XXV, L.P., as plaintiffs, against High River and certain of its affiliates (incorporated by reference to Exhibit 21 of Bidders' Schedule 14D-1 dated September 19, 1996). 99.(c)(9) Proposed Supplemental and Amended Complaint for Declaratory and Injunctive Relief filed by McNeil Pacific Investors Fund 1972, McNeil Real Estate Fund IX, Ltd., McNeil Real Estate Fund X, Ltd., McNeil Real Estate Fund XI, Ltd., McNeil Real Estate Fund XIV, Ltd., McNeil Real Estate Fund XV, Ltd., McNeil Real Estate Fund XX, L.P., McNeil Real Estate Fund XXIV, L.P., McNeil Real Estate Fund XXV, L.P., McNeil Real Estate Fund XXVI, L.P. and McNeil Real Estate Fund XXVII, L.P., as plaintiffs, against High River and certain of its affiliates (without exhibits) (filed herewith).
EX-99.A1 2 FORM OF LETTER 1 EXHIBIT 99(a)(1) MCNEIL REAL ESTATE FUND XXVI, L.P. October 4, 1996 Dear Unitholder: If you have not already, you will soon be receiving materials describing an unsolicited offer by Carl C. Icahn and his affiliate, High River Limited Partnership, to purchase your units of McNeil Real Estate Fund XXVI, L.P. (the "Partnership") at a price that is inadequate and not in the best interests of either the Partnership or Unitholders. IMPORTANT: Mr. Icahn's offer price is actually approximately $0.092 per Unit, not $0.096 per Unit as misleadingly stated in his offer to purchase, because pursuant to the terms of his offer the purchase price is to be reduced by $0.004 per Unit which, as Mr. Icahn well knows, was distributed to all Unitholders (including Mr. Icahn) on August 30, 1996. WHY DOES A SOPHISTICATED INVESTOR LIKE MR. ICAHN WANT TO PURCHASE YOUR UNITS FOR APPROXIMATELY $0.092? THE ANSWER IS RELATIVELY SIMPLE: HE WANTS TO PROFIT SIGNIFICANTLY FROM HIS OWNERSHIP OF YOUR UNITS. AS DISCUSSED BELOW, AN INDEPENDENT ESTIMATE OF THE LIQUIDATION VALUE OF YOUR UNITS IS BETWEEN $.236 AND $.243 PER UNIT. FURTHER, AS DISCUSSED BELOW, THE PARTNERSHIP WILL COMMENCE AN ORDERLY LIQUIDATION AND ANTICIPATES COMPLETING THAT LIQUIDATION BY DECEMBER 1998, DURING WHICH TIME UNITHOLDERS WILL RECEIVE CASH DISTRIBUTIONS FROM THE PROCEEDS OF SALES. Last year Mr. Icahn and his affiliates commenced unsolicited tender offers for up to 45% of the outstanding units of limited partnership interests in ten McNeil Real Estate funds. In response, after fully considering his offers in accordance with our fiduciary duties, we informed unitholders that his offers were not in the best interests of either the partnerships or unitholders and we strongly recommended that they be rejected because the prices did not adequately reflect the inherent values of the units. THE HOLDERS OF MORE THAN 90% OF THE UNITS OF THESE PARTNERSHIPS AGREED THAT MR. ICAHN'S OFFER WAS INADEQUATE, REJECTED HIS OFFER AND DID NOT TENDER THEIR UNITS. This time around Mr. Icahn is attempting to purchase any and all of the outstanding Units in eleven McNeil Real Estate funds, including the Partnership. IN RESPONSE, THE PARTNERSHIP HAS RECEIVED THE INDEPENDENT OPINION OF ITS FINANCIAL ADVISOR, CROSSON DANNIS, INC. ("CROSSON DANNIS"), THAT MR. ICAHN'S OFFER PRICE IS INADEQUATE FROM A FINANCIAL POINT OF VIEW TO UNITHOLDERS AS DISCUSSED BELOW. IN LIGHT OF ALL RELEVANT CIRCUMSTANCES, THE PARTNERSHIP DETERMINED THAT MR. ICAHN'S OFFER IS INADEQUATE, NOT IN THE BEST INTERESTS OF EITHER THE PARTNERSHIP OR UNITHOLDERS AND WE STRONGLY RECOMMEND THAT YOU REJECT IT. The Partnership reached this conclusion after considering a variety of factors, including, but not limited to, the following: INDEPENDENT OPINION OF LIQUIDATION VALUE. The opinion of Crosson Dannis, dated October 3, 1996, states that the consideration offered in Mr. Icahn's offer is inadequate from a financial point of view to Unitholders compared to the Present Estimated Liquidation Value (as defined below). Crosson Dannis prepared an estimate of the present value (the "Present Estimated Liquidation Value") of a Unit based on the assumption that the Partnership commences a theoretical orderly liquidation in January 1997 and completes that liquidation by December 1998 (the "Assumed Liquidation"). THE PRESENT ESTIMATED LIQUIDATION VALUE FOR THE PARTNERSHIP AS OF OCTOBER 3, 1996 IS BETWEEN $.236 AND $.243 PER UNIT. 2 The Present Estimated Liquidation Value represents Crosson Dannis' estimate of the present value of the gross cash distributions, approximately $0.30, that a Unitholder would receive between now and the completion of the Assumed Liquidation. It should be noted that the Present Estimated Liquidation Value does not represent an estimate by Crosson Dannis of the fair market value of a Unit. PLANS TO LIQUIDATE THE PARTNERSHIP. In April 1996, the Partnership determined to evaluate market and other economic conditions to establish the optimum time to commence an orderly liquidation of the Partnership's assets in accordance with the terms of its partnership agreement. Taking such conditions as well as other pertinent information into account, we have determined to begin an orderly liquidation of all the Partnership's assets. Although there can be no assurance as to the timing of any liquidation due to real estate market conditions, the general difficulty of disposing of real estate, and other general economic factors, it is anticipated that such liquidation would result in the dissolution of the Partnership followed by a liquidating distribution to Unitholders by December 1998. You should know that the Partnership already has begun the process of marketing one property for sale. LIQUIDATION AND DISSOLUTION OF MCNEIL REAL ESTATE FUND V, LTD. For example, you should be aware that last August, Mr. Icahn offered $400 per unit for McNeil Real Estate Fund V, Ltd. which was significantly below our estimate of the pro forma liquidation value of $667.30 per unit as of June 30, 1995. In response, we recommended that unitholders reject his offer because it did not reflect the inherent value of the units and was not in the best interests of either Fund V or its unitholders. Holders of approximately 97.5% of Fund V's units agreed in the fall of 1995 that Mr. Icahn's offer was inadequate, rejected his offer and did not tender their units. We are pleased to inform you that, since then, Fund V distributed $83.40 cash to unitholders (including Mr. Icahn) and, on September 10, 1996, holders of more than 75% of Fund V's units which voted approved the liquidation and dissolution of Fund V, pursuant to which it is anticipated that all unitholders will receive a cash distribution of approximately $643.07 per Unit, subject to reserves and adjustment, which closely approximates our 1995 estimate of pro forma liquidation value. TAKEN TOGETHER WITH THE CASH DISTRIBUTIONS TO UNITHOLDERS, SUCH AMOUNT IS APPROXIMATELY $326.47 PER UNIT (82%) HIGHER THAN MR. ICAHN'S 1995 OFFER PRICE. Although there can be no assurance that a similar result will occur with the Partnership or that any particular distribution per unit will be obtained, THE LIQUIDATION AND DISSOLUTION OF FUND V AND THE OPINION OF CROSSON DANNIS PROVIDE SOLID SUPPORT FOR OUR VIEW THAT MR. ICAHN'S CURRENT OFFER PRICE OF APPROXIMATELY $0.092 FOR YOUR UNITS IS INADEQUATE AND NOT IN THE BEST INTERESTS OF EITHER THE PARTNERSHIP OR UNITHOLDERS AND WE STRONGLY RECOMMEND THAT YOU REJECT IT. Attached is the Partnership's response to Mr. Icahn's offer which has been filed with the Securities and Exchange Commission and is being mailed to all Unitholders. While we suggest you read the attached Schedule 14D-9 (the "Response") in its entirety, you should be aware that Item 4 of the Response sets forth the recommendation of the Partnership with respect to the Mr. Icahn's offer and the background and reasons for the position taken by the Partnership. We will, of course, continue to keep you informed of significant events concerning the Partnership. In the event you have any questions concerning this letter, please contact The Herman Group, Inc. which has been retained by the Partnership to assist in our response to your inquiries, toll free at (800) 658-2007. Very truly yours, Donald K. Reed McNeil Partners, L.P. General Partner 2 EX-99.C1 3 FORM OF PRESS RELEASE 1 EXHIBIT 99(c)(1) DRAFT PRESS RELEASE For Immediate Release Contact: Sherri M. Herman The Herman Group, Inc. (800) 658-2007 MCNEIL PARTNERSHIPS RECOMMEND REJECTION OF TEN ICAHN TENDER OFFERS DALLAS, TEXAS, October 4, 1996 - Each of ten McNeil Real Estate limited partnerships today announced that it recommends that unitholders reject the unsolicited tender offer of High River Limited Partnership and Carl C. Icahn and not tender their units pursuant to the offer. Last year, Mr. Icahn tendered for units of eight of such Partnerships and holders of more than 90% of the outstanding units of each Partnership rejected his offer and did not tender their units. This year, each such Partnership obtained the independent opinion of Crosson Dannis, Inc. that the consideration offered in each of the offers is inadequate from a financial point of view to unitholders as a class compared to the estimated present liquidation value of a unit. One additional Partnership did not receive such an opinion and did not make a recommendation as to whether unitholders should reject or accept Mr. Icahn's offer. The ten Partnerships' Schedules 14D-9 filed today with the Securities and Exchange Commission concluded, among other things, that: ONCE AGAIN, IN LIGHT OF ALL RELEVANT CIRCUMSTANCES, THE PARTNERSHIP DETERMINED THAT MR. ICAHN'S OFFER IS INADEQUATE, NOT IN THE BEST INTERESTS OF EITHER THE PARTNERSHIP OR UNITHOLDERS AND WE STRONGLY RECOMMEND THAT YOU REJECT IT. All of the Partnerships have commenced litigation against High River, Mr. Icahn and their affiliates alleging, among other things, that the offers were made in violation of the federal securities laws. EX-99.C2 4 LETTER DATED 10/3/1996 1 CROSSON DANNIS, INC. REAL ESTATE VALUATION AND CONSULTATION CAMPBELL CENTRE II 8150 NORTH CENTRAL EXPRESSWAY, SUITE 950 DALLAS, TEXAS 75206 (214)739-3388 FAX (214)739-4592 cdrevc@aol.com Stephen T. Crosson, MAI, SRA David B. Acree, MAI Charles G. Dannis, MAI, SRA Norman L. Archibald, MAI, SRA Deborah A. Wilson, JD John Scarborough, SRA October 3, 1996 Board of Directors of McNeil Investors, Inc., as the General Partner of McNeil Partners, L.P., as the General Partner of McNeil Real Estate Fund XXVI, L.P. c/o McNeil Partners, L.P., its general partner 13760 Noel Road, Suite 700, LB 700 Dallas, Texas 75240 Re: Analysis of Present Estimated Liquidation Value of Unit of Limited Partnership Interest in McNeil Real Estate Fund XXVI, L.P. a California limited partnership (the "Partnership") Gentlemen: We understand that the Partnership has received an offer to purchase any and all of the outstanding units of limited partnership interest in the Partnership (each, a "Unit" and collectively, the "Units") from High River Limited Partnership, Riverdale LLC, Unicorn Associates Corporation and Carl C. Icahn dated September 20, 1996, (the "HR Offer"). In connection with your analysis of the HR Offer you have requested, and accordance with your request, we have completed, an analysis of the Present Estimated Liquidation Value of a unit of limited partnership interest in the Partnership. The effective date of our conclusions is October 3, 1996. Our conclusions are specifically based upon and subject to several important assumptions and limiting conditions presented in our report to you which is attached to this letter (the "Report"). 2 Board of Directors of McNeil Investors, Inc. October 3, 1996 Page Two After employment of the limited valuation processes and methodology described in the Report and subject to the assumptions, limiting conditions and other considerations described in the Report, we have estimated a Present Estimated Liquidation Value (as defined in the Report) of a Unit, effective as of October 3, 1996, of $0.236 TO $0.243 PER UNIT. This estimate is not intended to be and does not constitute an opinion as to the fair market value of a Unit. In making our estimate of the Present Estimated Liquidation Value of a Unit as set forth above, based upon the limited valuation processes and methodology described in this Report and subject to the assumptions, limiting conditions and other considerations set forth in this Report, we have estimated a gross amount of cash that the Partnership would have available to distribute to the holders of Units out of the net proceeds of the Liquidation (as defined in the Report) over the Period of Liquidation (as defined in the Report), effective as of October 3, 1996, of approximately $0.30 PER UNIT. In addition, you have asked us for our opinion as to the adequacy, from a financial point of view, to the holders of the Units of the consideration offered to such holders in the HR Offer as compared to the Present Estimated Liquidation Value of a Unit. Based on the limited valuation processes and methodology described in the attached report and subject to the assumptions and limiting conditions and other considerations set forth in the attached report, we are of the opinion that, as of October 3, 1996, the consideration offered to the holders of Units in the HR Offer is inadequate, from a financial point of view, to such holders of Units as compared to the Present Estimated Liquidation Value of a Unit as set forth above. This letter must remain attached to, and is a permanent part of, the accompanying Report for the conclusions in such Report to be considered valid. Neither this letter, the Report nor any part hereof or thereof is intended to be nor does it constitute a recommendation to any holder of a Unit as to whether or not to accept the consideration offered for such Units in the HR Offer, whether as a means for such holders of Units to liquidate their Units or otherwise. The Report and the conclusions expressed therein are for the use of the board of directors of McNeil Investors, Inc., in its capacity as the general partner of McNeil Partners, L.P., the general partner of the Partnership and the use of the Partnership. Respectfully submitted, Crosson Dannis, Inc. CDI/ab Attachments 3 ANALYSIS OF PRESENT ESTIMATED LIQUIDATION VALUE REPORT OF CROSSON DANNIS INC. RE: FUND XXVI, L.P. PURPOSE, DEFINITIONS AND SCOPE PURPOSE The PURPOSE of the analysis of Crosson Dannis, Inc. is to: (1) estimate the Present Estimated Liquidation Value (as defined below) of a unit of limited partnership interest (each, a "Unit" and collectively, the "Units") in McNeil Real Estate Fund XXVI, L.P. (the "Partnership") and (2) to give our opinion as to the adequacy, from a financial point of view, to the holders of Units, of the consideration offered by High River Limited Partnership, Riverdale LLC, Unicorn Associates Corporation and Carl C. Icahn (the "Bidders") in the offer, dated September 20, 1996, made by the Bidders to the holders of the Units to purchase any and all of the Units (the "HR Offer"). The effective date of our conclusion and opinion is October 3, 1996. CERTAIN LIMITATIONS We have not been requested to opine as to, and this report does not include or constitute an opinion regarding or otherwise address, the fair market value of a Unit. The general partner of the Partnership may, in the future, select and use other strategies for realizing the value of the Partnership's assets. Our analysis and conclusions described herein cannot and do not take into account the potential value of the Units if other strategies are employed. This report is not intended to be and does not constitute a recommendation to any holder of a Unit as to whether or not to accept the consideration offered for such Units in the HR Offer, whether as a means for such holders of Units to liquidate their Units or otherwise. DEFINITIONS When used herein, the following terms have the meanings set forth below: "PARTNERSHIP FINANCIAL MODEL" means the financial model for the Partnership, including projections, prepared by the Partnership's management based on certain assumptions. "PERIOD OF LIQUIDATION" means the period during which the assets of the Partnership are assumed to be sold and the net proceeds distributed to the holders of the Units, which period is from January 1, 1997 to December 31, 1998. "PRESENT ESTIMATED LIQUIDATION VALUE" means the present value of cash distributable out of the net proceeds of an assumed orderly liquidation of the Partnership's assets to the holders of Units over the Period of Liquidation. CROSSON DANNIS, INC. 1 4 "LIQUIDATION" means an assumed orderly liquidation of the Partnership's assets commencing at the beginning of the Period of Liquidation and ending by the end of the Period of Liquidation and conducted under the following conditions: a. The consummation of asset sales will occur within the Period of Liquidation. b. The buyers and the seller all act prudently and knowledgeably in connection with the sale and purchase of the assets. c. The seller is not under compulsion to sell within an inordinately short time. d. The buyers are typically motivated. e. Both buyers and the seller are acting in what they consider their best interests. f. An adequate marketing effort will be made in the specified time allowed for the completion of a sale of any asset. g. Payment for the assets will be made in cash in U.S. dollars or in terms of financial arrangements comparable thereto. h. The price for each asset sold represents the normal consideration that would be paid for that asset if the sale were unaffected by special or creative financing or sales concessions granted by anyone associated with the sale. RELATIONSHIP TO CLIENT Crosson Dannis, Inc.'s relationship to the client is that of an independent third-party consultant. Neither Crosson Dannis, Inc. nor any shareholder, director, officer or employee of Crosson Dannis, Inc. has an interest in the Partnership. The fee paid to Crosson Dannis, Inc. in connection with rendering of this Report has not been contingent upon the conclusions reached or the substance of this Report. SCOPE The scope of our analysis included a number of independent investigations and analyses. To a significant extent our analysis was based on information provided to Crosson Dannis, Inc. by the Partnership and its management. The valuation processes and methodology employed by Crosson Dannis, Inc. is as outlined below: 1. Reviewed property level files for each real property owned by the Partnership. a. Identified those real properties not currently operating on a stabilized basis. b. Inspected a representative sampling of real properties. CROSSON DANNIS, INC. 2 5 2. Reviewed the Partnership's Quarterly Report on Form 10-Q for the quarter ended June 30, 1996. 3. Accumulated market data as we deemed appropriate. 4. Reviewed the Partnership Financial Model, including the financial projections that formed a part of the Partnership Financial Model. a. Modified certain property level assumptions on which the Partnership Financial Model and the projections contained in it were based as we deemed appropriate. b. Modified certain partnership level assumptions on which the Partnership Financial Model and the projections contained in it were based as we deemed appropriate. 5. Interviewed management of the Partnership regarding the business and operations of the Partnership and the assumptions on which the Partnership Financial Model and the projections contained therein were based, particularly those assumptions made at the partnership level. 6. Reviewed the HR Offer. 7. Based upon the above, performed a discounted cash flow analysis using the Partnership Financial Model. It is most important to understand that the scope of work did not include a determination or appraisal of the market value or any other measure of value of the individual real properties owned by the Partnership. ADDITIONAL ASSUMPTIONS AND LIMITING CONDITIONS The following additional assumptions and limiting conditions are integral to the understanding of the conclusions reached herein. PRUDENT AND COMPETENT MANAGEMENT We have assumed that the management of the Partnership and each of its assets is competent, prudent and reasonable relative to current market standards for partnerships similar in structure and of similar assets. We have also assumed that the leasing of the real property assets of the Partnership is competent and prudent and reasonable in accordance with current market standards for similar properties. CROSSON DANNIS, INC. 3 6 USE AND PURPOSE OF THIS REPORT This Report is based upon our review and analysis of the facts and data contained in the information, documents and files that you and others have provided to us. We assume no responsibility for changes in market, economic or other conditions or the factual basis of this Report after the date of this opinion or any inaccuracy or incompleteness of such information, files or documents that could affect this Report. We assume no responsibility for updating this Report. The conclusions expressed in this Report are for the specific purpose as set forth in this Report and are invalid if used for any other purpose. This Report is for the use of the Board of Directors of McNeil Investors, Inc. in its capacity as the general partner of McNeil Partners, L.P., general partner of the Partnership, and the use of the Partnership. THIS REPORT IS NOT INTENDED TO BE AND DOES NOT CONSTITUTE A RECOMMENDATION TO ANY LIMITED PARTNER OF THE PARTNERSHIP AS TO ANY MATTER. PARTNERSHIP ASSETS We assume no responsibility for the legal description of any real property assets of the Partnership reviewed or title to those assets. With your concurrence, with respect to the assets, including real property, and business interests of the Partnership, we have assumed: The Partnership holds good and, as the case may be under applicable state laws, marketable or indefeasible title to its assets. The Partnership, the General Partner and all other pertinent persons have fully complied with all applicable federal, state and local laws and regulations that would otherwise adversely affect the value of the assets of the Partnership. All required licenses, certificates of occupancy, consents or legislative or administrative authority from any federal, state or local governmental authority or agency has been or will be obtained or renewed for any use of the assets of the Partnership on which this Report is based, whether in whole or part. As to the real property assets of the Partnership, all existing leases, subleases and other use agreements are in full force and effect and each party to all such agreements are in full compliance with their obligations thereunder and no default of event of default exists with respect to any such agreements. The assets of the Partnership are all freely transferable. No asset of the Partnership is subject to any option, right of first offer, right of first refusal or other encumbrance that could result in any obligation of the Partnership to sell otherwise dispose of such asset for an amount less than the then fair market value of such asset. CROSSON DANNIS, INC. 4 7 THE UNITS We have assumed that the holders of the Units acquired the Units and continue to hold them as long-term investments and with the understanding that there is no active trading market in the Units and that the Units are illiquid. We have not considered the circumstances of any particular investor in reaching the conclusions expressed in this Report. LEGAL OR OTHER SPECIALIZED EXPERTISE No opinion is intended to be expressed for matters which require legal or specialized expertise, investigation, or knowledge beyond that customarily employed by professional valuation firms. We have assumed that legal descriptions and information concerning the partnership agreement of the Partnership given to us are accurate. ACCURACY OF FINANCIAL AND THIRD PARTY DATA We have assumed and relied upon the accuracy and completeness of the financial and other information used by us in arriving at our conclusions expressed in this Report without assuming responsibility for the independent verification of such information and have further relied upon the assurances of management of the Partnership and its general partner that they are not aware of any facts that would make such information inaccurate, incomplete or otherwise misleading in any material respect. With respect to any financial projections of the Partnership provided to us, we have assumed that such projections have been reasonably prepared on a basis reflecting the best currently available estimates and judgments of the management of the Partnership as to the future financial performance of the Partnership. However, for purposes of our analysis, and based upon our review of certain independent market data, we also may have utilized certain adjustments to any such projections. If so, those adjustments are described in this Report. In arriving at our conclusion in this Report, we have not conducted a physical inspection of all of the Partnership's properties, but have obtained and reviewed existing market data on certain assets of the Partnership. Our conclusion is necessarily based upon market, economic and other conditions as they exist on, and can be evaluated as of, the date of this Report. OPINION DATE The date of this Report is October 3, 1996. The dollar amount reported is based upon the purchasing power of the U.S. dollar as of this date. Crosson Dannis, Inc. assumes no responsibility for economic or physical factors occurring subsequent to the date of this Report. INDEPENDENCE Neither Crosson Dannis, Inc. nor any shareholder, director, officer or employee of Crosson Dannis, Inc. has any interest in the Partnership. The fee paid to Crosson Dannis, Inc. in connection with rendering of this Report has not been contingent upon the conclusions reached or the substance of this Report. CROSSON DANNIS, INC. 5 8 RESPONSIBILITY FOR ASSUMPTIONS Many of the assumptions made in the preparation of this Report and in reaching our opinion expressed in this Report are beyond the control of the Partnership, its general partner and any other person. Such assumptions may or may not prove to be correct. Neither Crosson Dannis, Inc. nor any of its shareholders, officers, directors, employees or agents shall have any responsibility for the accuracy of such assumptions. EFFECT OF LIQUIDATION EXPENSE The conclusions expressed herein specifically disregard the impact(s) of litigation expense resulting from tender defense costs and/or class action litigation. DESCRIPTION OF PARTNERSHIP The Partnership is a California limited partnership. According to the general partner, 86,548,983 units of limited partnership are currently outstanding. Real estate assets owned by the partnership are as follows:
================================================================================ NAME/LOCATION PROPERTY TYPE ================================================================================ Amargosa Creek/43336 Gadsden Avenue APT Lancaster, CA - -------------------------------------------------------------------------------- Continental Plaza/11000 N. Scottsdale Road #270 OFC Scottsdale, AZ - -------------------------------------------------------------------------------- Westwood Center/2002 N. Lois Avenue, #130-A OFC Tampa, FL - -------------------------------------------------------------------------------- Edison Ford Square/2156 McGregor Boulevard RTL Ft. Myers, FL - -------------------------------------------------------------------------------- Northway Mall/1092 Northway Mall RTL Pittsburgh, PA ================================================================================
CROSSON DANNIS, INC. 6 9 PARTNERSHIP VALUATION The conclusions reached this Report are the result in part of an analysis of the Partnership Financial Model developed and provided by the management of the Partnership, including McNeil Partners, L.P., its general partner, and McNeil Investors, Inc., the general partner of McNeil Partners, L.P. Our estimate of the Present Estimated Liquidation Value is based on a valuation analysis that was a discounted cash flow analysis applied to the cash distributions anticipated to be received by the holders of Units based on the Partnership Financial Model. That analysis is based in part on the assumption that the Partnership will commence the Liquidation at the commencement of the Period of Liquidation and that the Liquidation will be completed within the Period of Liquidation. The Partnership Financial Model and the projections contained therein are based on certain important assumptions. The Partnership Financial Model with the assumptions and projections utilized in making the estimates and forming the opinion herein expressed are contained within the files of Crosson Dannis, Inc. Said documents are not included herein due to their confidential nature. CROSSON DANNIS, INC. 7 10 CONCLUSIONS PRESENT ESTIMATED LIQUIDATION VALUE After employment of the limited valuation processes and methodology described herein and subject to the assumptions, limiting conditions and other considerations set forth herein, we have estimated a Present Estimated Liquidation Value of a Unit, effective as of October 3, 1996, of $0.236 TO $0.243 PER UNIT. In making our estimate of the Present Estimated Liquidation Value of a Unit as set forth above, based upon the limited valuation processes and methodology described in this Report and subject to the assumptions, limiting conditions and other considerations set forth in this Report, we have estimated a gross amount of cash that the Partnership would have available to distribute to the holders of Units out of the net proceeds of the Liquidation over the Period of Liquidation, effective as of October 3, 1996, of approximately $0.30 PER UNIT. ADEQUACY OF THE HR OFFER A comparison of the Crosson Dannis, Inc. estimate of the Present Estimated Liquidation Value per Unit with the consideration offered by the Bidders for a Unit in the HR Offer is shown below. It is important to note that the amount of the consideration offered by the Bidders in the HR Offer as shown below has been adjusted downward by the per Unit amount of a cash distribution made by the Partnership to the holders of the Units on or about August 30, 1996. We understand that by the terms of the HR Offer, the consideration for any Units purchased by the Bidders will be adjusted by the amount of any distributions made by the Partnership to the holders of the Units after August 15, 1996. We further understand that the stated consideration for any Unit purchased pursuant to the HR Offer is not so adjusted for any distribution. ================================================================================ CROSSON DANNIS, INC. $0.236 to $0.243/UNIT BIDDERS' OFFER $0.092/UNIT ================================================================================
In view of the foregoing and subject to the assumptions, limiting conditions and other considerations set forth herein, we are of the opinion that, as of October 3, 1996, the consideration offered to the holders of Units in the HR Offer for a Unit is inadequate, from a financial point of view, to the holders of Units compared with the Present Estimated Liquidation Value for a Unit as set forth above. CROSSON DANNIS, INC. 8 EX-99.C9 5 PROPOSED SUPPLEMENTAL AND AMENDED COMPLAINT 1 EXHIBIT 99(c)(9) FRANK ROTHMAN (CA State Bar No. 22890) HARRIET S. POSNER (CA State Bar No. 116097) STEVEN A. VELKEI (CA State Bar No. 160561) SKADDEN, ARPS, SLATE, MEAGHER & FLOM 300 South Grand Avenue, Suite 3400 Los Angeles, California 90071 (213) 687-5000 Attorneys for Plaintiffs/ Counterdefendants MCNEIL PACIFIC INVESTORS FUND 1972, et al. UNITED STATES DISTRICT COURT CENTRAL DISTRICT OF CALIFORNIA WESTERN DIVISION MCNEIL PACIFIC INVESTORS FUND 1972, LTD., MCNEIL ) Case No. CV-96-5680 SVW (CWx) REAL ESTATE FUND IX, LTD., MCNEIL REAL ESTATE FUND ) X, LTD., MCNEIL REAL ESTATE FUND XI, LTD., MCNEIL ) [PROPOSED] SUPPLEMENTAL AND AMENDED COMPLAINT REAL ESTATE FUND XIV, LTD., MCNEIL REAL ESTATE FUND ) FOR DECLARATORY AND INJUNCTIVE RELIEF XV, LTD., MCNEIL REAL ESTATE FUND XX, L.P., MCNEIL ) REAL ESTATE FUND XXIV, L.P., MCNEIL REAL ESTATE ) FUND XXV, L.P., MCNEIL REAL ESTATE FUND XXVI, and ) MCNEIL REAL ESTATE FUND XXVII, ) ) Plaintiffs, ) ) v. ) ) HIGH RIVER LIMITED PARTNERSHIP, RIVERDALE INVESTORS ) CORP., INC., CARL C. ICAHN, and UNICORN ASSOCIATES ) CORPORATION, ) Defendants. ) ) ) AND RELATED COUNTERCLAIMS. ) ) ) ) ) ) ) ) )
2 Plaintiffs, McNeil Pacific Investors Fund 1972, Ltd., McNeil Real Estate Fund IX, Ltd., McNeil Real Estate Fund X, Ltd., McNeil Real Estate Fund XI, Ltd., McNeil Real Estate Fund XIV, Ltd., McNeil Real Estate Fund XV, Ltd., McNeil Real Estate Fund XX, L.P., McNeil Real Estate Fund XXIV, L.P., McNeil Real Estate Fund XXV, L.P., McNeil Real Estate Fund XXVI, L.P. and McNeil Real Estate Fund XXVII, L.P. (collectively, the "Partnerships"), by their attorneys, Skadden, Arps, Slate, Meagher & Flom, for their [Proposed] Supplemental and Amended Complaint for Declaratory and Injunctive Relief against defendants High River Limited Partnership, Riverdale Investors Corp., Inc., Carl C. Icahn, and Unicorn Associates Corporation, allege as follows: JURISDICTION 1. The jurisdiction of this Court is invoked pursuant to 28 U.S.C. Section 1332 (federal question jurisdiction); 15 U.S.C. Section 78aa (jurisdiction over claims arising under the Securities Exchange Act of 1934); and 28 U.S.C. Section 1367 (supplemental jurisdiction). SUMMARY OF SUPPLEMENTAL AND AMENDED COMPLAINT 2. This is an action to enjoin a series of ongoing illegal tender offers by affiliates of the well-known corporate raider, Carl Icahn, for eleven real estate limited partnerships. 3. In early August, defendants unlawfully made a public announcement of their intention to conduct a series of 3 tender offers for limited partnership units in ten California limited partnerships (the "Original Ten Partnerships"). As a matter of law under SEC Rule 14d-2, this unlawful announcement caused tender offers to be commenced at that time. Yet, for more than six weeks, the bidders failed to provide the unitholders, the Partnerships and the Securities and Exchange Commission with the required information to which they were entitled under the federal securities laws. One effect (or, indeed, possibly the intention) of defendants' unlawful announcement was to predispose the unitholders with specific promises concerning purported tender offers -- a manipulative device the SEC has expressly barred pursuant to its authority to make rules to protect investors from the manipulative devices employed during tender offers. 4. For more than six weeks after August 5, 1996, defendants allowed its unlawful tender offers to remain pending, without either (i) disseminating tender offer materials to the Partnerships' unitholders, or (ii) withdrawing or discontinuing the tender offers. Finally, on September 20, 1996, defendant High River Limited Partnership ("High River") finally commenced its tender offers for nine of the Original Ten Partnerships -- omitting one partnership that was in the process of being liquidated, with substantially greater financial benefit to unitholders than they would have received from defendants' lowball offers -- together with two additional partnerships. However, High River's belated commencement of its formal tender offers fails to cure its blatant and continuous pattern of illegality. 2 4 5. Among other defects, High River's current tender offers for "any and all units" in the Partnerships are undertaken in violation of the applicable Partnership Agreements, each of which precludes transfers of Partnership units that would have the effect of dissolving or terminating the Partnership. As High River has itself acknowledged, the Internal Revenue Code and applicable IRS regulations provide that the transfer of more than 50% of partnership interests within any 12-month period results in termination of the Partnership for federal tax purposes. Accordingly, High River should not be permitted to conduct, let alone consummate, coercive tender offers that threaten to cause the Partnerships to terminate, with potentially serious, harmful tax consequences for non-tendering limited partners and the Partnerships themselves, and the offers should be enjoined. Additionally, High River's Schedule 14D-1 disclosures are false, misleading and omissive in several other respects, including such material matters as the time when unitholders can expect to receive payment for their units and the price to be received. The defects in High River's disclosures, individually and cumulatively, warrant injunctive relief against continuation and consummation of the tender offers pending fair and complete correct disclosures and the passage of a reasonable time thereafter. 6. As an aid to their illegal offers, defendants have served the Original Ten Partnerships with demands for lists of unitholders, allegedly made pursuant to the California Limited Partnership Act. Admittedly, defendants' purpose in requesting these lists is to facilitate the pending High River 3 5 tender offers that not only are being pursued in violation of the federal securities laws, but would also, if successful, destroy the Partnerships and damage thousands of unitholders. Because defendants' request for the lists is illegal and made for an improper purpose, the Partnerships are further entitled to a declaratory judgment that they are under no obligation to furnish defendants (or any other person or entity acting in concert with them) with the unitholder lists under these circumstances. PARTIES 7. Each of the plaintiff Partnerships (McNeil Pacific Investors Fund 1972, Ltd., McNeil Real Estate Fund IX, Ltd., McNeil Real Estate Fund X, Ltd., McNeil Real Estate Fund XI, Ltd., McNeil Real Estate Fund XIV, Ltd., McNeil Real Estate Fund XV, Ltd., McNeil Real Estate Fund XX, L.P., McNeil Real Estate Fund XXIV, L.P., McNeil Real Estate Fund XXV, L.P., McNeil Real Estate Fund XXVI, L.P. and McNeil Real Estate Fund XXVII, L.P.) is a limited partnership. All the plaintiffs except McNeil Real Estate Fund XXVII, L.P. ("Fund XXVII") are California limited partnerships. Fund XXVII is a Delaware limited partnership. 8. Defendant High River is a Delaware limited partnership and is one of the bidders in the unlawful tender offers for the Partnerships. 9. Defendant Riverdale is a Delaware corporation and is the general partner of High River and is another bidder in the unlawful tender offers. 4 6 10. Defendant Icahn is a natural person who is another bidder in the unlawful tender offers. Upon information and belief, Icahn controls his co-defendants High River, Riverdale and Unicorn. 11. Defendant Unicorn is a New York corporation. 12. All the defendants have acted in concert in connection with all the matters that form the subject of this action. FACTS A. Icahn's Prior Tender Offers. 13. On August 3, 1995, High River launched a series of ten unsolicited tender offers seeking to acquire up to 45% of the units in each of Original Ten Partnerships. 14. Unitholders in each of the Partnerships overwhelmingly rejected High River's 1995 tender offers. When these tender offers closed on October 6, 1995, High River received tenders of less than approximately 10% of the outstanding limited partnership units in each of the Original Ten Partnerships. 15. Soon after Icahn commenced his tender offers of last year, the proverbial bevy of class action law suits were reflexively filed in California, New York and Texas, purportedly seeking to "protect" the Partnerships' unitholders. As the Partnerships allowed Icahn's tender offers to be consummated without seeking judicial assistance to impede them, these purported "defenders" of unitholder interests found no occasion to do anything in connection with Icahn's tender offers that 5 7 would justify any recovery, judicial relief, or, critically, any legal fees. While the actions in New York and Texas were abandoned by these class plaintiffs, they have expressed their intention to consolidate all their alleged grievances in a pending action in California state court, principally to press contrived claims of breach of fiduciary duty by the Partnerships and their general partner. 16. The units tendered to High River in each of the Ten Original Partnerships have been transferred to High River, or, at High River's designation, to Unicorn. High River is now, and has been throughout 1996, a limited partner of each of the Ten Original Partnerships, and is bound by the Partnership Agreement governing each of the Partnerships. B. The 1996 Schedule 13D Amendment. 17. On August 5, 1996, the Icahn Group filed with the Securities and Exchange Commission Amendment No. 4 to its joint Schedule 13D with respect to the Original Ten Partnerships. A copy of this Amendment to Schedule 13D is annexed hereto as Exhibit A. The contents of the amendment have routinely been placed on databases that are accessible throughout the United States, including this District, and have also been the subject of wire service coverage. 18. The Icahn Group's Amendment to Schedule 13D was filed for the purpose, inter alia, of disclosing the terms of an extraordinary letter agreement between High River and counsel for the purported class plaintiffs who, as noted above, have brought class or derivative claims against the Partnerships and their general partner. 6 8 19. Under Item 6 ("Contracts, Arrangements, Understandings or Relationships With Respect to Securities of the Issuer"), the Icahn Group disclosed: The Letter Agreement . . . provides, among other things, that . . . High River will commence, as soon as possible, but in no event more than 6 months, the Tender Offers for any and all of the outstanding Units of the Partnerships at a price that is not less than 75% of the estimated liquidation value of the Units (as determined by utilizing the same methodology that was used to determine the liquidation values in High River's previous tender offers for the Partnerships), which Tender Offers may be subject to such other terms and conditions as High River determines in its sole discretion. . . . [Emphasis added.] 20. In apparent exchange for this unenforceable "promise," High River's letter agreement with the class plaintiffs also contained an unprecedented -- and probably illegal and unenforceable -- provision under which counsel for the putative class purportedly agreed not to settle the pending California state-court litigation against the Partnerships and their general partner for less than a specified (and exorbitant) amount of consideration. C. Defendants' August 5 Filings Commenced Tender Offers. 21. As a matter of law, the disclosure made by defendants on August 5, 1996, constituted the commencement of tender offers for any or all outstanding limited partnership 7 9 units in each of the Original Ten Partnerships, by each of the defendants, who together constitute a "group" under Section 13(d). 22. SEC Rule 14d-2(a)(5), 15 C.F.R. Section 240.14d-2(a)(5), provides that a tender offer is commenced for purposes of Section 14(d) at 12:01 a.m. on the date when "[t]he tender offer is first published or given to security holders by the bidder. . . ." Under Rules 14d-2(b) and (c), a public announcement by a bidder "shall be deemed to constitute the commencement of a tender offer" if the announcement includes "(1) [t]he identity of the bidder; (2) [t]he identity of the subject company; and (3) [t]he amount and class of securities being sought and the price or range of prices being offered therefor." 23. The Icahn Group's Amendment to Schedule 13D contained all the information sufficient to satisfy each and every element of Rule 14d-2, including the identity of the bidder (High River), the identity of the target (the Original Ten Partnerships), the quantity of securities to be acquired (any and all limited partnership units), and the "range of prices" to be offered (not less than a stated percentage of the Partnerships' liquidation values). The announced price range referred to methodology that had been expressly used and disclosed by High River in the 1995 tender offers for the same Partnerships, and therefore not only constituted part of the public record but was also known to the very unitholders whom the Icahn Group's disclosure was intended to reach and effect. 8 10 24. Accordingly, the Icahn Group's amended Schedule 13D constituted a "public announcement" of High River's commencement of tender offers for the Original Ten Partnerships, effective August 5, 1996. Thereafter, within five (5) business days after August 5, 1996, i.e., by August 12, 1996, the Icahn Group was required either to (1) publicly announce that it had determined not to continue with the tender offers, or (2) disseminate all information to which unitholders are entitled to evaluate the tender offers and determine whether to tender, as set forth in SEC Schedule 14D-1. SEC Rule 14d-2(b), 15 C.F.R. Section 240.14d-2(b). 25. For more than six weeks after August 5, 1996, High River undertook neither of the two legally permissible alternatives. High River failed either to discontinue its tender offers or to make Schedule 14D-1 disclosure to investors even after the Partnerships filed their initial Complaint in this action asking this Court to enjoin defendants' blatant Rule 14d-2 violation and manipulative tactics. Throughout this time, High River was, therefore, in violation of the SEC Rules governing tender offers: If the bidder makes the subsequent announcement contemplated by the first option, the initial announcement will not be deemed to commence an offer. If the bidder complies with the filing, disclosure and dissemination requirements of the second option, the tender offer will commence on the date of such compliance, rather than the date of the earlier public announcement. . . . If the bidder exercises 9 11 neither option, the tender offer commences on the date of the initial announcement, resulting, however, in filing and disclosure violations. As a result, it is not anticipated that a bidder making such a public announcement will select the "do nothing" alternative. SEC Exchange Act Release No. 16384, Fed. Sec. L. Rep. (CCH) 82,373, at 82,583 (Dec. 19, 1979) (emphasis added). 26. Although High River belatedly filed its Schedules 14D-1 on September 20, 1996, and provided tender offer materials to the Partnerships for mailing on September 30, 1996, High River, as a matter of law, could not and, as a matter of fact, did not even attempt to "unring the bell" of its Rule 14d-2 violation. Rather, during those six weeks between August 5 and September 20, 1996, the unlawful information in the Schedule 13D filing was allowed to remain publicly available to influence unitholders with respect to its offers. D. High River's Schedule 14D-1 Filings. 27. On September 20, 1996, at long last, High River finally filed Schedules 14D-1 with the SEC, purportedly commencing tender offers for "any and all units" in the eleven plaintiff Partnerships, including nine of the Original Ten Partnerships affected by the August Schedule 13D Amendments, together with McNeil Real Estate Funds XXVI, L.P. ("Fund XXVI") and Fund XXVII. A copy of the Schedule 14D-1 for Fund XXIV, which is representative of all these filings, is annexed hereto as Exhibit B. 10 12 28. High River's Schedule 14D-1 filings disclosed that High River had entered into two more unusual agreements with the plaintiffs' attorneys in the putative class actions against the partnerships. First, defendants committed themselves to make tender offers for units in two additional Partnerships, Fund XXVI and Fund XXVII, in addition to the Ten Original Partnerships. On the other hand, Plaintiffs' Counsel released High River from its obligation to commence a tender offer for McNeil Real Estate Limited Fund V, Ltd. ("Fund V"), which was in the process of liquidating on terms substantially more favorable than those reflected in High River's lowball offer made in 1995 or the price that would have been offered in 1996. 29. High River's tender offers are for "any and all units" in the eleven Partnerships that are the present plaintiffs herein. However, these tender offers violate the Partnership Agreements that are the organic documents for these Partnerships. 30. Section 708(b)(1)(B) of the United States Internal Revenue Code, 26 U.S.C. Section 708(b)(1)(B), provides that if more than 50% of the partnership interests in a partnership change hands within a 12-month period, the partnership shall terminate under the tax laws. High River's Schedules 14D-1 acknowledge that should High River complete its tender offers in accordance with their terms, Section 708(b)(1)(B) would be triggered, with negative consequences for non-tendering limited partners. 11 13 31. The Partnership Agreements that govern these Partnerships preclude limited partners from taking any actions that would dissolve or terminate the Partnership. Section 16.6 of the Partnership Agreement for each Partnership (except for McNeil Pacific Investors Fund 1972, Ltd. ("Fund 1972")) provides that: No Limited Partner shall have the right or power to . . . (iii) cause the termination and dissolution of the Partnership by court decree or otherwise, except as set forth in this Partnership Agreement. . . . Termination of the Partnerships for tax purposes by act of the limited partners is not among the bases for dissolution or termination authorized by the Partnership Agreements. Thus, successful consummation of High River's tender offers in whole or significant part would contravene and violate the Partnership Agreements. 32. In the 1995 tender offers, High River (and its affiliate, Unicorn) acquired between 5% and 10% of the limited partnership units in the Ten Original Partnerships. Moreover, there have been and will continue to be ongoing transfers of limited partnership interests in the ordinary course. Thus, pursuant to the express terms of the Partnership Agreements asked above, High River may not acquire, other limited partners may not transfer, and McNeil may not recognize the transfer of, more than 50 percent of the outstanding limited partnership units in any 12 month period -- much less "any and all units" in each Partnership. Moreover, by failing to disclose that 12 14 High River may not validly tender for and acquire "any and all units" in the Partnerships, High River's tender offer materials are false and misleading. E. High River's False, Misleading And Misleadingly Omissive Schedules 14D-1. 1. High River's Failure To Disclose Delays In Payments. 33. The Schedules 14D-1 filed by High River are also false and misleading in numerous other respects. First, High River has failed to disclose that, notwithstanding the reasonable expectations of investors and SEC Rule 14e-1(c), it does not pay investors for units that are tendered to them "promptly" after a tender offer closes. 34. High River closed its 1995 tender offers on October 6, 1995. Transfer of most partnership units to High River (and Unicorn) occurred on December 31, 1995. Yet, High River failed to pay many limited partners for their units for several months after December 1995. McNeil and High River each received numerous communications from limited partners complaining of High River's inexcusable failure to make timely payments to unitholders. High River has never publicly disclosed any of these delays or the reason for such delays. 35. High River's prior record of unlawful delay in paying for the units acquired would be highly significant to a reasonable investor considering whether to tender units in the presently pending tender offers. Yet, far from disclosing that it previously delayed in paying for units, High River now claims in its tender offer materials that it will pay for units tendered to it "as promptly as possible following the Expira- 13 15 tion Date." Under the circumstances, High River's disclosure is misleading and fails to disclose facts that are necessary to make the statements that are disclosed not misleading. 2. High River's Misleading Disclosure Of The Tender Offer Prices. 36. With respect to six Partnerships, High River's disclosure of the price to be paid for each unit -- the single most material disclosure imaginable -- is materially false and misleading, in that High River discloses in prominent text on the cover of its tender offer materials the price it will pay for units, while only disclosing in the clause thereafter that that price is to be reduced by the (unspecified) amount of distributions that the Partnerships made recently (but well before High River's Schedules 14D-1 were filed) to the unitholders. 37. For example, in the case of Fund XXVII, High River initially asserts that its offer price is $6.190 per unit. However, given that Fund XXVII made a distribution to unitholders of $0.56884 per unit in August 1996, High River's real offer price for units in Fund XXVII is the lesser sum of $5.6312 -- or a reduction of almost 9.2% from the prominently displayed price. Similarly misleading "prices" are disclosed with respect to distributions made by Funds XV, XX, XXIV, XXV and XXVI. As the August 1996 distributions to unitholders were made approximately one month ago, High River certainly had sufficient time to disclose, in the bold print on the front page of their tender offer materials, the real prices it will pay for tendered units. 14 16 3. Defendants' Failure To Adequately Disclose Their Financial Condition. 38. Finally, the Schedules 14D-1 filed by High River are also insufficient because they fail to adequately disclose the present financial position of High River and its affiliates. 39. High River's Schedules 14D-1 contain only unaudited financial statements as of June 30, 1996 for High River, but do not contain any other additional financial information concerning High River, although such information is material to investors who are entitled to know (i) whether High River is likely to be able to pay for the units it contracts to purchase, and (ii) the financial position of a party that concededly may seek to take control of the Partnerships. Moreover, the Schedules 14D-1 contain no financial information concerning Riverdale, which is High River's general partner, Icahn and/or Unicorn. F. High River's Demand For Unitholder Lists. 40. On August 12, 1996, High River wrote to each of the Ten Original Partnerships making a demand for lists of the unitholders in each Partnership. Specifically, High River's letter indicated: We request permission to inspect and copy, no later than August 19, 1996, during normal business hours, a current list, for each Partnership, of the full name and list known business or residence address of each partner, set forth in alphabetical order together with the contribution and the share in 15 17 profits and losses of each partner (collectively, the Unitholder Lists"). The undersigned, or an affiliate of the undersigned, intends to make a tender offer for Units of each of the Partnerships. [Emphasis added.] A copy of High River's demand letter is annexed hereto as Exhibit C. 41. As demonstrated by the contents and timing of its August 12 letter, High River sought to obtain the unitholder lists for the purpose of facilitating tender offers for the Ten Original Partnerships. However, as demonstrated above, the tender offers are palpably illegal in that, inter alia, (i) they are being conducted in gross violation of the applicable SEC Rules designed to prevent market manipulation and to ensure that unitholders receive all the information they need in order to make informed investment decisions, and (ii) they seek tenders that would cause termination of the Partnerships, in violation of the Partnership Agreements and to the extreme detriment of other unitholders. California state law, which under other circumstances might require the Partnerships to provide High River with the information it seeks, does not require the Partnerships to provide shareholder lists for the purpose, as here, of facilitating the conduct of tender offers that violate both the federal securities laws and the Partnership Agreements, and which offers themselves must be enjoined. 16 18 FIRST CLAIM FOR RELIEF [For Violation Of Sections 14(d) and 14(e) Of The Exchange Act And The Rules And Regulations Promulgated Thereunder -- Premature Commencement Of Offers Under Rule 14d-2] 42. Plaintiffs repeat and reallege the allegations of the preceding paragraphs as if fully set forth herein. 43. Sections 14(d) and (e) of the Exchange Act, 15 U.S.C. Section 78n(d)-(e), require that in connection with a tender offer, full disclosure must be made of the information specified in Section 14(d) and the rules and regulations promulgated thereunder, and make it unlawful to engage in any fraudulent deceptive or manipulative act in connection with any tender offer. 44. Sections 14(d) and (e) and the SEC regulations thereunder are thus intended to insure that security holders confronted with a tender offer are provided with all the information about the offeror and the offer necessary for them to make an informed investment decision whether to tender or hold their securities. 45. Under Rule 14d-2, High River commenced tender offers for all outstanding units of the Partnerships on August 5, 1996, yet High River failed for weeks thereafter either (i) to disclose or disseminate to shareholders virtually any of the information required to be disclosed on Schedule 14D-1, and (ii) also failed, as the only other permissible alternative, to announce within five business days that it was discontinuing the tender offers. High River's manipulation of the marketplace continued until September 20, 1996, when High River 17 19 belatedly filed its Schedules 14D-1 which, in any event, were themselves materially false and omissive. 46. Defendants' Schedule 13D Amendment purporting to disclose an intention to commence tender offers was calculated improperly to condition the Unitholders and interfere with trading in limited partnership units that would otherwise take place. As defendants, who are veteran, sophisticated tender offerors with years of experience in tender offer matters, well know, the avoidance of such manipulative abuses is the very purpose of Rule 14d-2. 47. By reason of the foregoing, defendants should be preliminarily and permanently enjoined from any further violations of the federal securities laws, including without limitation Sections 14(d) and (e) of the Exchange Act and the SEC Rules promulgated thereunder. In particular, High River and any other offeror should be mandatorily enjoined to promptly cure their prior violation of Rule 14d-2 by discontinuing the ongoing, unlawful tender offers for the Partnerships, without acquiring any units pursuant thereto, and waiting at least 60 days thereafter, to allow the market to recover from defendants' unlawful "gun-jumping," before commencing any further tender offers.. 48. The Partnerships and their limited partners have no adequate remedy at law. 18 20 SECOND CLAIM FOR RELIEF [For Breach Of The Partnership Agreements And For Participating In, Aiding And Abetting, And Soliciting Breaches Of The Partnership Agreements] 49. Plaintiffs repeat and reallege the allegations of the preceding paragraphs as if fully set forth herein. 50. Section 708(b)(1)(B) of the United States Internal Revenue Code, 26 U.S.C. Section 708(b)(1)(B), provides that if more than 50% of the partnership interests in a partnership change hands within a 12-month period, the partnership shall be treated as having been terminated for tax purposes. High River's Schedule 14D-1 acknowledges that should High River succeed with its tender offers, Section 708 would be triggered, with potential negative consequences for non-tendering limited partners. 51. The Partnership Agreement for each Partnership precludes limited partners from taking actions that would dissolve or terminate the Partnership. Section 16.6 of the Partnership Agreement for each Partnership (except McNeil Pacific Investors Fund 1972, Ltd.) provides that: No Limited Partner shall have the right or power to . . . (iii) cause the termination and dissolution of the Partnership by court decree or otherwise, except as set forth in this Partnership Agreement. . . 52. High River has offered to acquire "any and all" units in each of the Partnerships would result in the transfer, within a 12-month period, of more than 50% of the units of each Partnership. Such transfer would result in the application of 19 21 Section 708 to each Partnership, with resulting potentially disastrous tax consequences to each limited partner who elects not to tender units. 53. By proposing to engage in conduct that would result in the tax termination of the Partnerships, High River has breached the Partnership Agreements with respect to each of the Partnerships in which it is a limited partner, which include all the Partnerships as to which High River made its 1995 tender offers. 54. Additionally, any limited partner transferring units that would result in the overall transfer of more than 50% of the outstanding units in a 12-month period would, unwittingly, thereby breach the Partnership Agreement. By seeking to induce unitholders to effect such transfers, High River is intentionally participating in, aiding and abetting and soliciting such breaches. 55. High River's conduct concededly threatens irreparable harm not only to the Partnerships but to their limited partners who may choose not to tender units to High River, many of whom chose to invest in the Partnership, in part, as the result of tax considerations. It is fundamentally unfair and illegal for High River to be permitted to destroy, for many limited partners, the Partnerships' favorable tax treatment, in violation of the Partnership Agreements that are the Partnerships' organic documents. 56. By reason of the foregoing, High River should be preliminarily and permanently enjoined from continuing and consummating its pending tender offers for "any and all units" 20 22 in the Partnerships, or offers for any number of units that, when combined with the units previously transferred in the preceding 12 months (including those previously acquired by High River and Unicorn), and/or when combined with the units that can be expected to be transferred by other unitholders in the (next) 12 months, would result in the transfer of more than 50% of outstanding units and the triggering of Section 708(b)(1)(B). 57. The Partnerships and their limited partners have no adequate remedy at law. THIRD CLAIM FOR RELIEF [For Violation Of Sections 14(d) and 14(e) Of The Exchange Act And The Rules And Regulations Promulgated Thereunder -- False, Misleading And Misleadingly Omissive Schedules 14D-1 And Tender Offer Materials] 58. Plaintiffs repeat and reallege the allegations of the preceding paragraphs as if fully set forth herein. 59. High River has purported to commence tender offers for "any and all units" in each of the Partnerships and has filed Schedules 14D-1 and disseminated tender offer materials purporting to offer to purchase "any and all units." Yet, for the reasons discussed above, High River may not, consistent with the Partnership Agreements, acquire units that would cause the transfer of more than 50% of the outstanding units in any Partnership, and should be enjoined from doing so. In fact, the number of units that High River may validly acquire in each Partnership is, in light of its prior tender offers and other transfers that occur in the ordinary course, substantially less 21 23 than 50% of the outstanding units -- not 100%, as High River depicts. 60. High River's tender offer materials are false, misleading and misleadingly omissive in failing to disclose that High River is not entitled to acquire "any and all units" and that transfer of units that would cause the tax termination of the Partnerships under Section 708 would be in breach of the Partnership Agreements and, therefore, cannot take place. 61. High River's tender offer materials are also false, misleading and omissive in that: (a) While stating that unitholders will be paid for their units as promptly as possible following consummation of the offers, they fail to disclose that in the previous tender offers for these Partnerships, High River unreasonably and without excuse delayed for up to several months in making payment for units it purchased and thereby violated SEC Rule 14e-1(c), 17 C.F.R. Section 240.14e-1(c); (b) With respect to six Partnerships, while High River discloses on the cover of its tender offer materials the price it will pay for units, High River discloses only in a later clause that that price to be paid is to be reduced by amounts of distributions that the Partnerships made recently to the unitholders; and (c) The Schedules 14D-1 filed by High River fail to adequately disclose the financial position of High River and its affiliates. 62. By reason of the foregoing, defendants should be preliminarily and permanently enjoined from continuing or 22 24 consummating their tender offers for the Partnerships until they disseminate amended materials containing full, fair and complete supplemental disclosures with respect to each false, misleading or misleadingly omissive statement contained in their Schedules 14D-1 and unitholder mailings, and for a reasonable time (and in no event less than 60 days) thereafter to permit investors to consider and evaluate the contents of such curative disclosures. 63. The Partnerships and their limited partners have no adequate remedy at law. FOURTH CLAIM FOR RELIEF [For Violation Of Section 13(d) Of The Exchange Act And The Rules And Regulations Promulgated Thereunder] 64. Plaintiffs repeat and reallege the allegations of the preceding paragraphs as if fully set forth herein. 65. Section 13(d) of the Exchange Act, 15 U.S.C. Section 78m(d), and the SEC Rules promulgated thereunder make it unlawful for any person to file a Schedule 13D (including an amendment thereto) containing any materially false or misleading statement or omission. 66. Amendment No. 4 to the Icahn Group's Schedule 13D, filed August 5, 1996, is materially false, misleading and omissive in that it fails to disclose that under the SEC Rules, the filing of the Amended Schedule 13D constituted the commencement of tender offers with respect to each Partnership, and that the Icahn Group intended within five business days neither to discontinue the tender offers nor to disclose and 23 25 disseminate the information required to be disclosed so that unitholders could make informed decisions as to whether to tender their units. 67. By reason of the foregoing, defendants should be preliminarily and permanently enjoined from any further violations of the federal securities laws, including without limitation Section 13(d) of the Exchange Act. In particular, defendants should be mandatorily enjoined to promptly amend its Schedule 13D to disclose that on August 5, 1996, High River (and any other offerors) commenced tender offers for the Partnerships and that they have discontinued such tender offers without acquiring any units from any limited partners. 68. The Partnerships and their limited partners have no adequate remedy at law. FIFTH CLAIM FOR RELIEF [Against High River For A Declaratory Judgment That The Partnerships Are Not Required To Provide High River With Unitholder Lists To Aid It In Pursuing Its Illegal Tender Offers] 69. The Partnerships repeat and reallege the allegations of the preceding paragraphs as if fully set forth herein. 70. This claim is brought on behalf of the Ten Original Partnerships (except for Fund V). 71. On August 12, 1996, High River wrote to each of the Ten Original Partnerships making a demand for lists of the unitholders in each Partnership. 72. As demonstrated by the contents and timing of its August 12 letter, High River is seeking to obtain the unitholder lists for the express and conceded purpose of con- 24 26 ducting tender offers for the Ten Original Partnerships. However, as demonstrated above, these tender offers are palpably illegal in that they (i) are being conducted in plain violation of the applicable SEC Rules designed to prevent market manipulation, and (ii) could trigger termination of the Partnerships in violation of the Partnership Agreements. Under California law, the Partnerships should not be required to provide shareholder lists for the purpose of facilitating the conduct of tender offers that violate the federal securities laws and the Partnership Agreements, to the manifest detriment of the Partnerships and the unitholders, and themselves must therefore be enjoined. 73. By reason of the foregoing, the Partnerships are entitled to a declaratory judgment that High River is not entitled to be provided unitholder lists, or any other information, pursuant to High River's letter of August 12, 1996 or which would otherwise be used in connection with illegal tender offers, other conduct in violation of the Partnership Agreements, or any attempt to profit from unlawful market manipulation. WHEREFORE, plaintiffs respectfully demand judgment: I. Declaring that defendants have violated Sections 14(d) and (e) and 13(d) of the Securities Exchange Act of 1934, 15 U.S.C. Sections 78n(d)-(e), 78m(d), and the SEC Rules promulgated thereunder in connection with their commencement and continuation of tender offers for the Partnerships on and after August 5, 1996 and September 20, 1996; 25 27 II. Granting plaintiffs injunctive relief commanding High River to withdraw, discontinue and acquire no units pursuant to its existing tender offers for "any and all units" of the Partnerships, or any of them; III. Granting plaintiffs injunctive relief against defendants and defendants' respective officers, directors, employees, agents and affiliates, and all other persons acting in concert with defendants or on their behalf, directly or indirectly: (a) enjoining them from committing any further violations of the Securities Exchange Act and SEC tender offer rules in connection with the Partnerships and their affiliates; (b) enjoining them from continuing or consummating their pending tender offers, which were commenced in violation of Rule 14d-2, and enjoining them from commencing any new tender offer for the Partnerships for a reasonable period (not less than 60 days) to dissipate the effects of defendants' unlawful conduct; (c) enjoining them from continuing or consummating their pending tender offers or any other tender offers for "any and all" units of the Partnerships or any number of units that could have the effect of causing the Partnerships to terminate, for tax purposes or otherwise, in violation of Section 16.6 of the Partnership Agreement; (d) in the alternative, enjoining consummation of the tender offers pending accurate and complete corrective disclosure with respect to each and every false, misleading and/or misleading omissive matter contained in High River's 26 28 Schedules 14D-1 and tender offer materials disseminated to unitholders; III. Requiring defendants and their affiliates to divest themselves of all Partnership Units beneficially owned by them, acquired after the start of their unlawful tender offers and the filing of their false and misleading Schedule 13D Amendment and, later, Schedules 14D-1; IV. Granting a declaratory judgment that the Partnerships are not required to provide High River with unitholder lists, or any other information, pursuant to High River's letter of August 12, 1996 or which would otherwise be used in connection with illegal tender offers, tender offers conducted in violation of the Partnership Agreements, or any attempt to profit from unlawful market manipulation; and 27 29 V. Granting the Partnerships such other and further relief as the Court may deem just and proper, together with the costs, disbursements and attorneys' fees of this action. DATED: September 30, 1996 FRANK ROTHMAN HARRIET S. POSNER STEVEN A. VELKEI SKADDEN, ARPS, SLATE, MEAGHER & FLOM By ----------------------------------- Harriet S. Posner Attorneys for Plaintiffs/ Counterdefendants McNEIL PACIFIC INVESTORS FUND 1972, et al. 28 -----END PRIVACY-ENHANCED MESSAGE-----