<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14D-9
SOLICITATION/RECOMMENDATION STATEMENT PURSUANT TO
SECTION(d)(4) OF THE SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. 1)
DIVALL INSURED INCOME FUND
LIMITED PARTNERSHIP
(Name of Subject Company)
DIVALL INSURED INCOME FUND
LIMITED PARTNERSHIP
(Name of Person(s) Filing Statement)
UNITS OF INTEREST
(Title of Class of Securities)
255016107
(CUSIP Number of Class of Securities)
Bruce A. Provo
The Provo Group, Inc.
101 W. 11th St., Ste. 1110
Kansas City, MO 64105
(816) 421-7444
(Name, Address and Telephone Number of Person Authorized to Receive Notices
and Communications on Behalf of the Person(s) Filing this Statement)
Copy to:
Robert T. Schendel, Esq.
Shughart Thomson & Kilroy, P.C.
12 Wyandotte Plaza
120 W. 12th Street, Suite 1800
Kansas City, Missouri 64105
(816) 421-3355
<PAGE>
Amendment No. 1 to Schedule 14D-9
This Amendment No. 1 to Schedule 14D-9 amends the Schedule 14D-9 (the
"Schedule 14D-9") filed by DiVall Insured Income Fund Limited Partnership, a
Wisconsin limited partnership (the "Partnership"), with the Securities and
Exchange Commission ("SEC") on March 31, 1998.
ITEM 4. THE SOLICITATION AND RECOMMENDATION
Item 4 is hereby amended to include the following document filed by the
Partnership with the Securities and Exchange Commission, which is hereby
incorporated in this Schedule 14D-9 by reference:
Consent Statement on Schedule 14A, filed April 24, 1998.
ITEM 9. MATERIAL TO BE FILED AS EXHIBITS
Item 9 is hereby amended to include the following exhibit:
(a) Consent Statement on Schedule 14A, filed April 24, 1998 with the
Securities and Exchange Commission.
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.
DIVALL INSURED INCOME FUND
LIMITED PARTNERSHIP
By: The Provo Group, Inc.
General Partner
By: /s/ Bruce A. Provo
-----------------------------------
Bruce A. Provo
President
Dated: April 23, 1998
<PAGE>
DIVALL INSURED INCOME FUND LIMITED PARTNERSHIP
101 W. 11th Street, Suite 1110
Kansas City, Missouri 64105
________________________________________________________________________________
REQUEST FOR CONSENT OF LIMITED PARTNERS
________________________________________________________________________________
Dear Limited Partner:
As discussed more fully in the attached Consent Statement, we are
soliciting the consent of Limited Partners to a sale of all the Partnership's
remaining properties and a subsequent liquidation of the Partnership. We
believe that a liquidation of the Partnership is in the best interests of the
Limited Partners. Please read the Consent Statement carefully before filling
out the attached Consent Card.
You may have recently received one or more tender offers to purchase your
units in the Partnership. We believe that the sale of properties and
liquidation of the Partnership outlined in this Consent Statement will maximize
the Limited Partners' return. Thus, we have recommended that you not tender and
instead vote FOR the proposal on the enclosed ConsentCard.
Holders of more than 50% of the outstanding Partnership units must approve
the sale of all or substantially all of the Partnership's assets. Only Limited
Partners of record at the close of business on April 15, 1998 will be entitled
to notice of, and to participate in, the vote. Failure of a Limited Partner to
return a Consent Card will constitute a vote AGAINST the proposed sale.
If Limited Partners holding a majority of outstanding Partnership interests
do approve of the sale, we will aggressively pursue the final sale of the
properties on the terms described in the Consent Statement.
YOUR CONSENT IS IMPORTANT. PLEASE SIGN AND DATE THE ENCLOSED GRAY CONSENT
CARD AND RETURN IT PROMPTLY IN THE ENCLOSED RETURN ENVELOPE. YOU MAY REVOKE
YOUR CONSENT IN WRITING.
Very truly yours,
THE PROVO GROUP, INC.,
as General Partner of
DIVALL INSURED INCOME FUND
LIMITED PARTNERSHIP
April 23, 1998
<PAGE>
DIVALL INSURED INCOME FUND LIMITED PARTNERSHIP
101 W. 11TH ST. SUITE 1110
KANSAS CITY, MISSOURI 64105
CONSENT STATEMENT
APRIL 23, 1998
This Consent Statement is being furnished to holders ("Limited Partners")
----------------
of limited partnership interests ("Units") in DiVall Insured Income Fund Limited
-----
Partnership, a Wisconsin limited partnership ("Partnership"), in connection with
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the solicitation of written consents by the Partnership to approve a sale of all
of the Partnership's properties either on an individual or group basis (the
"Proposed Sale"), and to subsequently liquidate the Partnership. No meeting
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will be held in connection with this solicitation of consents from the Limited
Partners. To be counted, a properly signed Gray Consent Card must be received
by the independent tabulators ReSource/Phoenix (the "Tabulator") at 2401 Kerner
---------
Boulevard, San Rafael, California 94901 on or before May 31, 1998. Failure of a
Limited Partner to return a Consent Card will constitute a vote AGAINST the
Proposed Sale.
This Consent is solicited by The Provo Group, Inc. (the "General Partner"),
---------------
the sole general partner of the Partnership, to implement the General Partner's
recommendation that the Partnership's assets be sold and the Partnership be
liquidated. This Consent also responds to an Offer to Purchase dated March 27,
1998 (the "Tender Offer") to the Limited Partners by U.S. Restaurant Properties,
------------
Inc. ("USRP"). The General Partner believes the purchase price offered by USRP
----
in the Tender Offer of $575 per Unit (the "Tender Offer Price") is too low, and
------------------
that the Proposed Sale will maximize the Limited Partners' return on their
investment. Solicitation of Consents other than by mail may be made by
telephone, facsimile or in person by regularly employed officers, employees and
agents of the General Partner, who will not receive additional compensation for
their efforts. The total cost of soliciting Consents will be borne by the
Partnership.
Only Limited Partners of record at the close of business on April 15, 1998
will be entitled to vote by executing and returning the enclosed Consent Card.
A vote "For" the Consent will authorize the Partnership to proceed with the
Proposed Sale. A Limited Partner may revoke its Consent Card at any time prior
to May 31,1998, by mailing a properly executed Consent Card bearing a later date
or by mailing a signed, written notice of revocation to the attention of the
General Partner or the Tabulator. Revocation of a Consent Card will be
effective upon receipt by the General Partner or the Tabulator of either (i) an
instrument revoking the Consent Card or (ii) a duly executed Consent Card
bearing a later date. This Consent Statement and Consent Card were first mailed
to Limited Partners on or about April 23,1998.
INTRODUCTION
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GENERAL INFORMATION
The Partnership owns 22 parcels of real property (collectively the
"Properties" and individually a "Property"). Each Property is subject to an
---------- --------
Absolutely Net Lease, or sublease, between the Partnership as lessor and the
operator of a business as tenant (collectively the "Leases," individually a
------
"Lease"). Tenants operate as fast-food, family style or casual/theme
-----
<PAGE>
restaurants (such as Hardee's, Popeye's Chicken, Denny's, etc.). The
Partnership also leases certain equipment located at two of the Properties to
the tenant pursuant to an equipment lease (collectively the "Equipment Leases").
----------------
THE PARTNERSHIP IS HEREBY SOLICITING WRITTEN CONSENTS FROM EACH PARTNER
APPROVING THE PROPOSED SALE.
The General Partner estimated at the end of 1997 that the net asset value
of the Partnership was approximately $660/Unit. Based on the appraisals
received from Valuation Associates Real Estate Group ("Valuation Associates"),
--------------------
on March 30, 1998, the net asset value of the Partnership, after deducting
anticipated costs and expenses of the Proposed Sale and liquidation of the
Partnership, is currently estimated to be approximately $718/Unit. See
"Background and Recommendations of the General Partner - Appraised Values,"
below.
The Partnership's Amended and Restated Agreement of Limited Partnership
(the "Partnership Agreement") provides in Section 10.2 that the General Partner
---------------------
may not sell substantially all of the properties without the approval of Limited
Partners holding more than 50% of the Units. The total number of outstanding
Units as of April 8, 1998 was 25,000. Each Unit is entitled to one vote. There
is no established trading market for the Units.
As of December 31, 1997, the Partnership had 1,759 Limited Partners of
record. To the best knowledge of the General Partner, no person or group owns
more than 5% of the Partnership's outstanding Units. Neither the General
Partner, nor any of its officers or directors are the beneficial owners of any
Partnership Units.
FORWARD-LOOKING STATEMENTS
THIS CONSENT STATEMENT CONTAINS FORWARD-LOOKING STATEMENTS. DISCUSSIONS
CONTAINING SUCH FORWARD-LOOKING STATEMENTS MAY BE FOUND IN THE MATERIAL SET
FORTH UNDER "DESCRIPTION OF THE PROPOSED SALE" AND "PRO FORMA UNAUDITED
FINANCIAL DATA" AS WELL AS WITHIN THIS CONSENT STATEMENT GENERALLY. IN
ADDITION, WHEN USED IN THIS CONSENT STATEMENT, THE WORDS "BELIEVES,"
"ANTICIPATES," "EXPECTS" AND SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY
FORWARD-LOOKING STATEMENTS; HOWEVER, NOT ALL FORWARD-LOOKING STATEMENTS WILL
CONTAIN SUCH EXPRESSIONS. SUCH STATEMENTS ARE SUBJECT TO A NUMBER OF RISKS AND
UNCERTAINTIES. ACTUAL RESULTS OR EVENTS IN THE FUTURE COULD DIFFER MATERIALLY
FROM THOSE DESCRIBED IN THE FORWARD-LOOKING STATEMENTS AS A RESULT OF THE
INABILITY OF THE GENERAL PARTNER TO FIND A SUITABLE PURCHASER FOR THE
PROPERTIES, THE INABILITY TO AGREE ON AN ACCEPTABLE PURCHASE PRICE OR CONTRACT
TERMS, A DECREASE IN THE FINANCIAL PERFORMANCE OF THE PROPERTIES, THE DISCOVERY
OF AN ENVIRONMENTAL CONDITION IMPACTING ONE OR MORE OF THE PROPERTIES, AN
ECONOMIC DOWNTURN IN THE MARKETS IN WHICH THE PROPERTIES ARE LOCATED AND OTHER
FACTORS SET FORTH IN THIS CONSENT STATEMENT. THE PARTNERSHIP UNDERTAKES NO
OBLIGATION TO PUBLICLY RELEASE ANY REVISIONS TO THESE FORWARD-LOOKING STATEMENTS
THAT MAY BE MADE TO REFLECT ANY FUTURE EVENTS OR CIRCUMSTANCES.
2
<PAGE>
BACKGROUND AND RECOMMENDATIONS OF THE GENERAL PARTNER
-----------------------------------------------------
DESCRIPTION OF PARTNERSHIP'S BUSINESS
The operating revenue of the Partnership is derived from rent on the Leases
and the Equipment Leases. Most of the Leases provide for a "Base Rent" and a
"Percentage Rent." The Tenant is required to pay the Base Rent on a monthly
basis, as well as be responsible for all taxes, insurance, utilities, and day-
to-day maintenance and repair obligations with respect to each Property. The
Tenant is required to pay Percentage Rent if the sales revenues generated by the
Property (with certain adjustments) exceed certain levels measured on an annual
basis. Percentage Rent, if applicable to a Property and if earned with respect
to such Property, is usually payable annually. Generally, the only way to
increase net operating revenues with respect to the Partnership's portfolio is
for (i) Base Rents to increase, (ii) Percentage Rents to increase, or (iii) the
Partnership to reduce expenses.
Base Rents. The Base Rents in some of the Leases increase periodically or
----------
are modified. The Base Rent for 9 Leases are due for an increase in 1998.
Most of the remaining Leases are not scheduled to have an increase over the
remainder of the term of the Lease. Base Rent increases also generally occur
upon the renewal of a Lease. Six of the Leases provide the Tenant 2 options to
renew for 5 years each and 5 of the Leases provide the Tenant 1 option to renew
for 5 years. The average remaining term of the Leases is approximately 10 years
from January 1, 1998. The average increase in the Base Rent as of the rent
adjustment dates (either within the term or upon renewal) is 2.5%. It is
projected that the scheduled increases in Base Rent will increase the
Partnership's revenues (assuming all other revenues and expenses remain at 1997
levels) by $26,016 in 1998, $0 in 1999 and $52,800 in 2000.
Percentage Rents. Although most of the Tenants appear to have increased
-----------------
or maintained the sales at the Properties in 1997, the General Partner does not
anticipate significant increases in Percentage Rents for 1998. Percentage Rents
are generally viewed as a function of inflation, the overall success of the
restaurant concept, and the success of the individual location. There is little
that the Partnership, as landlord, can do to positively affect the Percentage
Rent earned at any of the Properties. Given the low inflation rate that has
predominated in the U.S., and the highly competitive nature of the convenience
restaurant sector, there is little indication that external forces will drive up
the Percentage Rents in the near future, although the current high consumer
confidence levels may translate into more dining out.
Expenses. The General Partner believes that the expenses associated with
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managing the Partnership compare favorably with other partnerships managing
similar portfolios in the industry. The General Partner believes that the
expenses incurred by the Partnership in 1997 represent the expected level of
expenses (assuming that Provo continues managing the portfolio of Properties),
now that the significant expenses associated with the Restoration are over.
Although the General Partner will continue to work to reduce expenses while
retaining the quality of services, the General Partner does not predict
significant reductions in expenses for the foreseeable future.
3
<PAGE>
BACKGROUND OF PARTNERSHIP
Since becoming the general partner of the Partnership in May of 1993, The
Provo Group, Inc., an Illinois corporation ("Provo") has constantly looked to
-----
maximize the value of the Partnership. Initially, Provo worked to (i) restore
confidence in management, and (ii) provide accountability of the General Partner
to the Limited Partners by appointing the Advisory Board, made up of limited
partners and representatives of the broker/dealer community. Provo also
initiated successful efforts to recover funds (the "Restoration") from the
-----------
former general partners (Gary DiVall and Paul Magnuson) and former accountants
and attorneys for the Partnership. These efforts have resulted in the
Partnership recovering approximately $745,000 in Restoration.
More recently, the General Partner, in consultation with the Advisory
Board, has considered various means of maximizing Partnership value. Among the
alternatives they have considered are (i) continuing to operate the
Partnership's business, (ii) transferring the Partnership's assets to a Real
Estate Investment Trust (a "REIT") in a roll-up transaction, and (iii) selling
----
the Partnership's Properties, both individually and in bulk. As disclosed in the
Tender Offer (p.17), USRP did approach the General Partner in January of this
year and expressed an interest in acquiring all of the Partnership Properties.
USRP proposed to pay Provo approximately $600,000 in exchange for Provo's
interest as general partner in the Partnership. As part of the USRP proposal
Provo was required to assist USRP in acquiring the Units for $575/Unit. The
USRP proposal was preliminary, informal and nonbinding. Provo informed USRP
that the Partnership was not for sale. Provo believed that to accept such an
offer without subjecting the Partnership's portfolio to an independent appraisal
and without actively marketing the Properties was not in the best interest of
the Limited Partners. Provo also believed the price offered to the Limited
Partners was inadequate.
TENDER OFFER
The Tender Offer is an attempt by USRP to acquire the Properties by
obtaining control of the Partnership. "If [USRP] acquires control of the
Partnership, [USRP] intends to pursue a merger or similar combination between
the Partnership and [USRP] or an affiliate of [USRP] or seek to consummate a
sale of the Partnership's assets to [USRP] or an affiliate of [USRP]
(collectively, a "Combination Transaction") at a purchase price per [Unit] no
-----------------------
greater than the [Tender Offer Price]" (p. 1 of the Offer to Purchase).
Essentially, the Tender Offer is an attempt by USRP to acquire all of the
Partnership assets by paying each of the Limited Partners not more than $575 per
Unit.
The Tender Offer Price is $575/Unit, less the value per Unit of any
----
distribution of cash or assets of the Partnership made after March 27, 1998.
Since it is anticipated that the Partnership will make at least one quarterly
distribution of $17/Unit prior to the date that USRP would pay for tendered
Units, the actual net proceeds would be $558/Unit. See "BACKGROUND AND
RECOMMENDATIONS OF GENERAL PARTNER-Liquidation Value/Comparison to Tender
Offer."
The General Partner does not believe that $575/Unit reflects the true value
of the Partnership's assets. The General Partner had estimated that the net
asset value of the Partnership
4
<PAGE>
as of December 31, 1997 was $660/Unit. In order to validate such estimate, the
Partnership retained Valuation Associates, an experienced appraisal company
based in Orlando, Florida, to provide appraised values for each of the
Properties. Although the General Partner intends to sell all the Properties in a
single sale, if the General Partner believes it is in the best interest of the
Limited Partners, the Properties may be sold individually or in any combination,
provided that the Total Sales Price (as defined below) for all the Properties
equals or exceeds 90% the aggregate appraised value for such Properties. See
"DESCRIPTION OF PROPOSED SALE -Purchase Price."
APPRAISALS
Valuation Associates was selected to appraise the Properties by the General
Partner because of its reputation in the industry and due to satisfaction with
prior engagements of the firm. The General Partner and Valuation Associates
have no other current or ongoing relationships. Valuation Associates has been
in the business of the valuation of restaurant and other real estate properties
for over 30 years. Its staff includes Members of the Appraisal Institute (MAI)
and have other qualifications such as the SRPA designation and various state
certifications. Many members of its staff also hold advanced degrees in
finance, economics, real estate and restaurant and hospitality management. The
market value appraisals of the Properties provided by Valuation Associates
follow the Uniform Standards of Professional Appraisal Practice, and exclude
wall coverings, tenant improvements and furniture, fixture and equipment. The
appraisal process included inspections of the sites and buildings, gathering and
analysis of comparable sales, rents and construction costs, and evaluation of
the Properties under the "income approach," utilizing the discounted cash flow
technique.
THE PROPERTIES
The remaining properties of the Partnership and their individual appraised
values are as follows:
<TABLE>
<CAPTION>
ACQUISITION DATE TENANT LOCATION APPRAISED VALUE
---------------- ------ -------- ---------------
<S> <C> <C> <C>
03/27/87 DenAmerica, Inc. Denny's $ 410,000
827 Park Ave.
Beaver Dam WI
06/30/87 DenAmerica, Inc. BW-3 709,500
502 N. Blake Road
Hopkins, MN
10/08/87 Fazoli's Fazoli's 471,500
Restaurants, Inc. 3600 Merle Hay Road
Des Moines, IA
07/08/87 TP Acquisition Taco Cabana 1,136,000
Corp. 4355 Camp Wisdom
Dallas, TX
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
ACQUISITION DATE TENANT LOCATION APPRAISED VALUE
---------------- ------ -------- ---------------
<S> <C> <C> <C>
01/08/87 TP Acquisition Taco Cabana 1,193,000
Corp. 1505 N. Collins Street
Arlington, TX
09/28/87 TP Acquisition Taco Cabana $ 1,212,000
Corp. 12475 NW Hwy. & Shiloh Rd.
Dallas, TX
10/27/87 Chi Chi's, Inc. Chi-Chi's Mexican 1,225,000
1030 Clairemont Ave.
Eau Claire, WI
12/01/87 THG Restaurant Popeye's Famous Chicken 802,000
Group, Inc. 7430 S. Stoney Island Ave.
Chicago, Il
12/01/87 THG Restaurant Popeye's Famous Chicken 885,000
Group, Inc. 300 E. 35th Street
Chicago, IL
12/01/87 THG Restaurant Popeye's Famous Chicken 757,000
Group, Inc. 346 E. 95th Street
Chicago, IL
12/01/87 THG Restaurant Popeye's Famous Chicken 750,000
Group, Inc. 111 W. 75th Street
Chicago, IL
12/01/87 THG Restaurant Popeye's Famous Chicken 704,000
Group, Inc. 818 E. 47th Street
Chicago, IL
12/01/87 THG Restaurant Popeye's Famous Chicken 795,000
Group, Inc. 8732 S. Stoney Island Road
Chicago, IL
12/01/87 THG Restaurant Popeye's Famous Chicken 525,000
Group, Inc. 5431 S. Halsted
Chicago, Il
12/23/87 Manzana Grande, Rio Bravo 971,500
Inc. 3000 32nd Ave, S
Grand Forks, ND
12/24/87 DenAmerica, Inc. Denny's 947,500
10614 N. 43rd Ave
Glendale, AZ
12/24/87 DenAmerica, Inc. Denny's 765,000
87th and Grand Avenue
Peoria, AZ
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
ACQUISITION DATE TENANT LOCATION APPRAISED VALUE
---------------- ------ -------- ---------------
<S> <C> <C> <C>
03/18/88 DenAmerica, Inc. Denny's 820,500
7605 E. McDowell
Scottsdale, AZ
03/18/88 DenAmerica, Inc. Denny's $ 600,000
1231 W. Baseline
Mesa, AZ
03/24/88 Hardee's Food Hardee's 633,500
Systems, Inc. 838 E. Johnson Street
Fond du Lac, WI
03/25/88 TP Acquisition Taco Cabana 1,274,000
Corp. 1827 Greenville Avenue
Dallas, TX
04/15/88 BJ's, Inc. BJ's Market 695,000
8736 S. Stoney Island Avenue
Chicago, IL
TOTAL $18,282,000
===========
</TABLE>
The appraisals by Valuation Associates were completed and delivered to the
Partnership on March 30, 1998. As detailed above, the aggregate appraised value
of the Partnership's Properties is $18,282,000.
LIQUIDATION VALUES/COMPARISON TO TENDER OFFER
Based on the appraised value of the Properties, the net asset value is
determined by reducing the appraised value of the Properties and the estimated
fair market value of the Partnership's other assets by (i) the estimated
transaction costs which would be incurred upon the sale of all of the
Properties, including without limitation, commissions, title costs, surveys,
legal fees and transfer taxes, and (ii) estimated expenses relating to the
liquidation of the Partnership. The General Partner believes the net asset
value as of April 1, 1998 is $718/Unit.
In addition, the General Partner has projected distributions of net
operating income earned for the period from January 1, 1998 through the
projected closing date on the sale of the Properties (August 31, 1998) of
approximately $42/Unit. In accordance with historic Partnership practice, such
amounts would be paid quarterly on May 15, 1998 ($17/Unit), August 15, 1998
($15/Unit) and November 15, 1998 ($10/Unit).
Thus, the General Partner believes that the Limited Partners could receive
approximately (i) $718/Unit in liquidating distribution if the Properties are
competitively marketed and the Partnership is liquidated, and (ii) $42/Unit in
income distributions prior to or contemporaneously with the liquidating
distribution, for total distributions of approximately $760 from now until
liquidation. This is approximately $173/Unit in excess of the Tender Offer
Price, after adjusting for timing differentials.
7
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
COMPARISON OF TENDER OFFER VS. PROPOSED LIQUIDATION
-TOTAL PROCEEDS TO LIMITED PARTNERS/UNIT
Projected Payment Chronology USRP TENDER OFFER PROPOSED
---------------------------- ------------------ --------
LIQUIDATION
-----------
<S> <C> <C>
Projected May 15, 1998
Distribution of Operating Income $ 17 $ 17
Tender Offer Price Payment June 15, 1998/1/ 558 0
Projected August 15, 1998
Distribution of Operating Income 0 15
Projected November 15, 1998
Distribution of Operating Income 0 10
Projected Liquidating
Distribution November 15, 1998
(Assuming sale at Appraised Value) 0 718
Imputed Interest, Assuming Reinvestment of
Tender Offer Payment (5% MM rate from 6/15/98
to 11/15/98) 12 0
TOTAL $587 $760
==== ====
/1/Tender Offer Price payment may be at any time
from the date a Unit is tendered until after
July 3, 1998.
- ------------------------------------------------------------------------------------------------
</TABLE>
REASONS FOR PROPOSED SALE
The General Partner has determined that now is a good time to sell the
Partnership's Properties and then liquidate the Partnership, primarily for three
related reasons. First, the General Partner believes that the Partnership's
assets can be sold at a favorable price. The following factors indicate that
the Properties will be highly valued by the market: (i) the low interest rate
environment tends to drive up the value of any asset (like the Properties) which
generate a stream of income; (ii) the U.S. economy is strong, (iii) the real
estate sector is showing increasing strength, and (iv) the Tenants and
restaurant concepts in the Partnership portfolio generally appear to be
strengthening.
Second, the Tender Offer Price is too low. As described above, the General
Partner believes the Limited Partners could realize approximately $760/Unit
(including both income distributions and liquidating distributions) upon a
liquidation of the Partnership. This is substantially in excess of the
$587/Unit (adjusted for the timing differential) being offered by USRP.
8
<PAGE>
Third, the proposed Tender Offer, even if it is not successful in acquiring
over 50% of the Units in the near future, may prevent the Partnership from
maximizing the value of the Partnership assets for all of the Limited Partners.
As the Tender Offer acknowledges, if USRP obtains less than 50% of the Units,
USRP "could then be in a position to influence decisions of the Partnership on
which Limited Partners are entitled to vote." (Tender Offer, page 12). A
majority vote of the Limited Partners is required to approve the sale of
substantially all of the Partnership assets, as well as liquidation of the
Partnership.
From a practical standpoint, it can be expensive and difficult to obtain a
favorable response rate from the Limited Partners appreciably greater than 50%
on consent solicitations regardless of the popularity of the proposition. There
are a myriad of reasons Limited Partners do not respond to solicitations,
including being out of town, sick, disinterested, indifferent and/or
unmotivated, even if they do not object to the proposition. Based on
experience, the General Partner believes that a significant portion of the
Limited Partners will not respond to any solicitation of proxies or consents.
If one person holds even 20% of the remaining Units, it may become difficult to
take Partnership action requiring Limited Partner consent without the vote of
the large Unit- holder.
Applying the foregoing to the current situation, USRP has indicated an
intent to acquire all of the Partnership's Properties for $575/Unit. If they
were to acquire 20% to 30% of the Units, they might be able to block the
liquidation of the Partnership, even if such liquidation would result in the
Limited Partners receiving more than $575/Unit.
DESCRIPTION OF PROPOSED SALE
----------------------------
The Partnership is soliciting this Consent as an alternative to the Tender
Offer. If more than 50% of the Units vote in favor of this Consent, the General
Partner will immediately initiate a procedure to solicit competitive bids for
the purchase of all the Partnership Properties. Such procedure, as described
below, is designed to obtain a fair market price for the Properties. Upon
completion of the sale of the Properties, the assets of the Partnership would be
distributed to the Limited Partners, net of all normal and customary costs of
such sale, and other reserves as the General Partner deems appropriate (if any).
The General Partner believes that such a competitive bid process could
reasonably be expected to result in total distributions (operating income and
liquidation proceeds) to the Limited Partners equal to $760/Unit, which is 29%
more than the Tender Offer Price (adjusted for timing differential).
Whether more than 50% of the Units (i) elect to tender their Units to USRP
in exchange for the Tender Offer Price, or (ii) elect to consent to the Proposed
Sale as recommended by the General Partner, the ultimate result will be the same
- -- liquidation of the Partnership. However, the General Partner believes that
the liquidation proceeds to the Limited Partners resulting from the Proposed
Sale pursuant to the competitive bid process (see below) would result in total
distributions (operating income and liquidation proceeds) 29% higher than the
Tender Offer Price (adjusted for timing differential).
9
<PAGE>
COMPETITIVE BID PROCESS
As set forth above, the aggregate appraisal value of all of the Properties
(the "Total Appraised Value") is $18,282,000.
---------------------
The General Partner has identified numerous parties ("Potential Buyers"),
----------------
which the General Partner believes have the capacity and interest to purchase
all of the Partnership Properties. Within 15 days of receiving Consent
authorization from more than 50% of the Units to proceed with the Proposed Sale,
the General Partner will solicit bids from the Potential Buyers.
The General Partner will request that each Potential Buyer sign a
Confidentiality Agreement with the Partnership in order to receive a bid
package. Such Confidentiality Agreement will restrict the Potential Buyers from
utilizing any confidential information disclosed to them with respect to the
Partnership or Partnership Properties for any purpose other than bidding on the
purchase of all of the Properties. In addition, a Potential Buyer will agree in
the Confidentiality Agreement not to purchase, or attempt to purchase, either
directly or indirectly, more than 5% of the currently outstanding Units within
the following two years, through any means without the express written consent
of the General Partner.
Upon the Partnership's receipt of the signed Confidentiality Agreement, the
Partnership will deliver the Potential Buyer a bid package containing
information about the Properties. The Potential Buyer will then also have
access to additional information concerning the Properties located in a "due
diligence room," at the General Partner's offices in Kansas City, Missouri.
The Properties will be offered for sale pursuant to sealed bids (the
"Bids") from the Potential Buyers which must be delivered to the General Partner
----
on or before July 15, 1998 (the "Bid Date"), to be held in escrow by Chicago
--------
Title and Trust Company. Each Bid must be all cash, completely unconditional
and accompanied by a deposit in the amount of $100,000 (the "Deposit"). No
-------
interest shall be paid on the Deposits. If a Bid is accepted, the Deposit will
become non-refundable.
The General Partner will review the Bids beginning at 4:00 p.m. CDT on the
Bid Date to determine which Bid, or combination of Bids, yields the highest
aggregate price for all of the Properties (the "Total Price") which is in excess
-----------
of the "Minimum Purchase Price" (as described below in "DESCRIPTION OF PROPOSED
SALE - Purchase Price"). The General Partner will reserve the right to contact
Potential Buyers to clarify their Bid and to offer them the option of increasing
their Bid for all of the Properties to meet the Total Price, in which case such
Potential Buyer may be selected as the Buyer. The General Partner will notify
the Potential Buyer(s) by July 23, 1998 if all or a portion of their Bid has
been accepted and will enter into a binding Sale Agreement with the successful
bidder(s) (the "Buyer(s)"). Closing on the sale of all of the Properties will
--------
take place simultaneously in the offices of Shughart Thomson & Kilroy, P.C., 120
W. 12th Street, Kansas City, Missouri on or before August 31, 1998, unless
extended at the option of the General Partner, in its sole discretion.
10
<PAGE>
PURCHASE PRICE
The minimum purchase price for all of the Partnership Properties shall be
90% of Total Appraised Value of the Properties (the "Minimum Purchase Price").
----------------------
Each Bid shall include both (i) a purchase price for all of the Properties in
the aggregate, and (ii) a purchase price for each of the Properties
individually. The Total Appraised Value is $18,282,000, so the Minimum Purchase
Price is $16,454,000. After deducting ordinary and necessary expenses
associated with the Proposed Sale and expenses associated with liquidation, (i)
the liquidating distribution to the Limited Partners would be approximately
$647/Unit, based upon a sale at the Minimum Purchase Price, and (ii) the
liquidating distribution to the Limited Partners based on the appraised value
would be approximately $718/Unit. In either event, the General Partner
anticipates additional net operating income distributions of $42/Unit.
Certain fees, costs and expenses will be incurred by the Partnership in the
Proposed Sale (the "Expenses"). Such Expenses may include (i) the appraisal
--------
fees (ii) title insurance fees, (iii) survey fees, (iv) legal fees, (v)
brokerage fees/commissions, (vi) filing fees, and (vii) such other fees and
expenses as are ordinary and necessary in connection with a large real estate
transaction. The General Partner estimates such Expenses at approximately 4% of
the Total Price.
TIMING
If the Proposed Sale is approved, the General Partner intends to conduct
the sale in an aggressive and efficient manner, resulting in timely
distributions to Limited Partners. Accordingly, the General Partner has
established the following time line goals for completion of the Proposed Sale:
May 31, 1998 Deadline for receipt of Consent Cards
June 15, 1998 Send bid packages to Potential Buyers
July 15, 1998 Deadline for receipt of bid proposals
August 31, 1998 Closing of Proposed Sale
November 15, 1998 Final Distribution to Limited Partners
The foregoing are the General Partner's goals for and estimates of the time
required for each step of the Proposed Sale. Various delays may be encountered
which could result in a later closing date or distribution date.
Eleven (11) of the Leases contain rights of first refusal, allowing lessees
to match any purchase price within 30 days of notice. Under the schedule
detailed above, these rights are not expected to have a significant impact on
the timing of the Proposed Sale.
11
<PAGE>
ADVANTAGES TO THE LIMITED PARTNERS
Maximizing Value. The General Partner believes that the Proposed Sale
----------------
will maximize the Partnership's realization of value in the Properties. The
Properties are generally leased under 20 year leases, with remaining lease terms
between 2 and 15 years. The remaining terms of the Leases are one of the
primary factors that a prospective buyer will evaluate in pricing the
Properties. As the Leases approach maturity, prospective buyers are likely to
attribute a greater discount to the value of the Properties and, therefore, if
the Partnership continues to hold the Properties, the General Partner believes
that the Properties' fair market value may decrease.
Improved conditions for the sale of restaurant properties. As the
---------------------------------------------------------
economic well-being of consumers has increased as a result of full employment
and strong financial markets, restaurants have seen increased customer traffic.
As a result, in many real estate markets, prices for restaurant properties have
been increasing. In addition, the low interest rate environment has resulted in
improved values for "triple net" leased properties, the value of which generally
move inversely with interest rates.
Lack of an established trading market. There is currently no active or
-------------------------------------
established trading market for Partnership Units. The Proposed Sale would
provide an efficient and cost effective manner for Limited Partners to realize
the value of their Units without having to comply with the conditions and
restrictions of selling its Units individually. The General Partner believes
that the Proposed Sale is the most attractive opportunity for the Limited
Partners to obtain the highest value of their Units because Properties will be
sold in a competitive bid process. The General Partner also believes that the
Proposed Sale is likely to result in a substantially higher value to Limited
Partners than the USRP Tender Offer for Units.
DISADVANTAGES TO LIMITED PARTNERS
There is no assurance that (i) the Partnership will be successful in
obtaining a Bid or Bids equal to the Minimum Purchase Price, (ii) the
Partnership will be successful in consummating the Proposed Sale with any
Buyer(s), or (iii) that the ultimate per Unit liquidation proceeds to the
Limited Partners will exceed the Tender Offer Price. If the Proposed Sale is
not consummated, the Partnership will continue to own the Properties, but the
Limited Partners may be unable to sell their Units to USRP (or any other party)
at the Tender Offer Price.
While the General Partner believes that the Proposed Sale would be in the
best interests of the Limited Partners to maximize value, as opposed to the USRP
Tender Offer, each Limited Partner should consider the following factors in
evaluating the Proposed Sale. Upon the completion of the liquidation, Limited
Partners will no longer receive distributions of cash flows from operations
since the Partnership will no longer be operating the Properties. (Note that,
unlike the Tender Offer, the Limited Partners will be entitled to receive
distributions of net income earned through the date of the sale of the
Properties.) However, Limited Partners will receive a distribution of the net
proceeds from the sale of Properties, after deduction of certain expenses and
fees as described above. Limited Partners will be subject to capital gains
taxes to the extent the net proceeds from the Proposed Sale per Unit exceeds the
Limited Partners' adjusted tax basis in each Unit. Finally, Limited Partners
will not benefit from future appreciation, if any, in the value of the
Properties if the Properties are sold.
12
<PAGE>
ADVANTAGES TO THE GENERAL PARTNER
The Partnership Agreement and the Permanent Manager Agreement (the "PMA")
---
both provide for the General Partner to receive up to a 3% commission
("Disposition Fee") on the sale of any Partnership properties if it provides a
---------------
substantial portion of the services in the sales effort. If the Proposed Sale
occurs, the General Partner will collect such Disposition Fee earlier than it
might otherwise if the Partnership remained an ongoing concern, but conversely
the General Partner will not be entitled to future management fees following
liquidation of the Partnership. Such Disposition Fee may be avoided if the
Units of the Partnership are purchased pursuant to the Tender Offer and the
Properties are later acquired by USRP by merger or liquidation of the
Partnership.
FEDERAL INCOME TAX CONSEQUENCES OF THE PROPOSED SALE
----------------------------------------------------
The following is a summary of the material Federal income tax consequences
which may affect a Limited Partner resulting from the Proposed Sale. This
summary is not intended as a substitute for careful tax planning, and
consequences may vary according to each Limited Partner's individual
circumstances.
This summary is based on the Internal Revenue Code of 1986, as amended
("Code"), as well as currently existing regulations thereunder, judicial
----
decisions and current administrative rules and practices. The following
discussion does not discuss the impact, if any, state or local taxes may have on
the Proposed Sale. Furthermore, no assurance can be given as to the accuracy or
completeness of this summary.
TAXATION OF PARTNERSHIPS IN GENERAL
An entity classified as a partnership for federal income tax purposes is
not subject to federal income tax. Rather, income or loss "flows through" the
partnership to the partners, who are taxed individually on their allocable
shares of partnership income, gain, loss or deductions. However, the
partnership is a tax reporting entity that must file an annual return disclosing
the partnership's gain or loss. The tax treatment of partnership items of
taxable income or loss is generally determined at the partnership level. Each
partner is required to treat partnership items on its return in a manner
consistent with the treatment of such items on the partnership return and may be
penalized for intentional disregard of the consistency requirement. Each
partner must account for its allocable share of partnership taxable income or
loss in computing its income tax, whether or not any actual cash distribution is
made to such partner during its taxable year.
BASIS OF PARTNERSHIP INTERESTS
A partner's basis in its unit is equal to its cost for such unit, reduced
by its allocable share of partnership distributions, taxable losses and
expenditures of the partnership not deductible in computing its taxable income
and not properly chargeable to its capital account, and increased by its
allocable share of partnership taxable profits, income of the partnership exempt
from tax and additional contributions to the partnership. For purposes of
determining basis, an increase in a partner's share of partnership liability is
treated as a contribution of money by that partner to the partnership.
Conversely, a decrease in its share of partnership liability is treated as
distribution of
13
<PAGE>
money from the partnership. Generally, a partner may not take recourse liability
into account in determining its basis except to the extent of any additional
capital contribution it is required to make under the partnership agreement.
However, if a partnership asset is subject to a liability for which no partner
has any personal liability, in general, the partner's allocable share of the
nonrecourse liability will be taken into account to determine basis.
EFFECT OF THE PROPOSED SALE
The Proposed Sale will be a taxable event to the Limited Partners. Gain or
loss on a sale generally will be measure by the difference between the net
amount realized (after deducting ordinary and necessary expenses of the sale)
and the adjusted basis of the assets that are sold. Generally the amount
realized is the sum of any money received, plus the fair market value of any
property received, plus the amount of liability from which the Partnership is
discharged as a result of the sale. The adjusted basis of property is generally
the initial tax basis less deductions, allowed or allowable, for depreciation.
A substantial portion of the assets to be sold, including building, land
and equipment, which were held for more than one year are expected to be treated
as "section 1231 assets." Section 1231 assets are property used in the trade or
business of a character which is subject to the allowance for depreciation,
held for more than one year, and real property used in the trade or business
held for more than one year. Gains or losses from the sale of section 1231
assets would be combined with any other section 1231 gains or losses incurred by
the Partnership in that year, and the section 1231 gains or losses would be
allocated to the Limited Partners as provided in the Partnership Agreement.
EFFECT OF LIQUIDATION
Generally, upon the liquidation of a partnership, gain will be recognized
by and taxable to a partner to the extent the amount of cash distributed to it
exceeds the partner's basis in its Unit at the time of distribution. Any gain
or loss which a Limited Partner recognizes from a liquidating distribution is
generally taxed as capital gain or loss. However, any income or loss received
from the normal operations of the partnership during the year of liquidation,
may constitute ordinary income or loss.
Any capital gain or loss will be treated as long-term if the Limited
Partner has held its Units for more than eighteen months when the liquidation is
consummated. For non-corporate limited partners, long-term capital gains are
generally taxed at a 20% rate. If the Limited Partner has held his units more
than one year, but less than 18 months, such gain will be a mid-term capital
gain. Mid-term capital gains are generally taxed at a 28% rate. If the Limited
Partner has held its Units for less than a year, any gain will be a short-term
capital gain. Short-term capital gains are taxed as ordinary income. Capital
losses generally are deductible only to the extent of capital gains plus, in the
case of a non-corporate Limited Partner, up to $3,000 of ordinary income.
Capital losses realized upon the liquidation may be utilized to offset capital
gains from other sources and may be carried forward, subject to applicable
limitations.
14
<PAGE>
EXEMPT EMPLOYEE TRUSTS AND INDIVIDUAL RETIREMENT ACCOUNTS
Tax-exempt organizations, including trusts which hold assets of employee
benefit plans, although not generally subject to federal income tax, are subject
to tax on certain income derived from a trade or business carried on by the
organization which is unrelated to its exempt activities. However, such
unrelated business taxable income does not in general include income from real
property, gain from the sale of property other than inventory, interest,
dividends and certain other types of passive investment income that is derived
from "debt-financed properties" as defined in Section 514 of the Code. Further,
if, as the Partnership believes, the Properties are not characterized as
"inventory," and are not held primarily for sale to customers in the ordinary
course of the Partnership's business, the income from the sale of the Properties
should not constitute unrelated business taxable income. Finally, the
Partnership's temporary investment of funds in interest-bearing instruments and
deposits also should not give rise to unrelated business taxable income.
THE FOREGOING ANALYSIS CANNOT BE, AND IS NOT INTENDED AS, A SUBSTITUTE FOR
CAREFUL TAX PLANNING. LIMITED PARTNERS ARE URGED TO CONSULT THEIR OWN TAX
ADVISORS WITH RESPECT TO THEIR OWN TAX SITUATIONS AND THE EFFECTS OF THIS
TRANSACTION AS TO FEDERAL TAXES INCLUDE, BUT NOT LIMITED TO, INCOME AND ESTATE
TAXES.
DISTRIBUTION UPON LIQUIDATION OF THE PARTNERSHIP
------------------------------------------------
Upon completion of the Proposed Sale, the Partnership will be dissolved
and its business wound up in accordance with Article VIII of the Partnership
Agreement. The sale proceeds, after establishing any necessary cash reserves to
cover liabilities, will be distributed to the Limited Partners and the General
Partner in the manner set forth in the Partnership Agreement, although the
distribution to the General Partner is expected to be limited to the minimum
amount necessary to cover its tax obligations on its portion of the
Partnership's income resulting from the liquidation. In addition, pursuant to
Paragraph 24 of the Permanent Manager Agreement between the Partnership and the
General Partner, the Partnership will use approximately $70,000 from the
Indemnification Trust to purchase general liability insurance coverage in a
policy that will cover a 5 year "tail" period. The insurance will cover the
General Partner from claims arising from or related to the General Partner's
operation of the Partnership. The insurance will not include coverage for
criminal acts or fraud. The remainder of the amounts in the Indemnification
Trust, approximately $230,000, will be distributed with the sale proceeds during
liquidation.
While the Minimum Price provides a floor on the amounts to be received in
the proposed sale, the General Partner believes that there is a reasonable
likelihood that the Properties will actually be sold at or above their appraised
values. The General Partner estimates that a sale of the Properties at the
appraised values will, after deducting all expenses associated with this consent
solicitation, the sale of properties and establishment of required reserves,
result in a liquidating distribution to the Limited Partners of approximately
$718 per Unit. If a final liquidating distribution of $718 per Unit is
achieved, together with distributions of income earned during the period of
January 1, 1998 through August 31, 1998 of approximately $42/Unit, then Limited
Partners will have received a total of $1,652 to $1,549 per Unit in
distributions over the life of the Partnership (from the first Unit sold in 1986
to the last in March of 1988). For additional information regarding the
calculation of the
15
<PAGE>
estimated liquidating distribution upon a sale at The Minimum Price, the
appraised value, and at 10% above the appraised value, see Note 3 to the "Pro
Forma Unaudited Financial Data," below.
REGULATORY REQUIREMENTS
-----------------------
Other than the requirement under Wisconsin law that the Partnership file a
Certificate of Cancellation to dissolve the Partnership, there are no federal or
state regulatory requirements that apply to the Proposed Sale.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
-------------------------------------------------
The following document filed by the Partnership with the Securities &
Exchange Commission are hereby incorporated in this Consent Statement by
reference:
Annual Report on Form 10-K for the fiscal year ended December 31, 1997
("Form 10-K"), previously mailed to all partners on or about April 3, 1998.
All reports and other documents filed by the Partnership after the date of
this Consent Statement pursuant to Section 13(a), 13(c), 14 or 15(d) of the
Securities and Exchange Act of 1934 and prior to the final date on which written
consents may be received shall be deemed to be incorporated by reference herein
and to be a part hereof from the dates of filing of such reports or documents.
Any statement contained herein or in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for the purposes of this Consent Statement to the extent that a statement
contained herein or in another document that also is or is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Consent Statement.
PRO FORMA UNAUDITED FINANCIAL DATA
----------------------------------
The following unaudited pro forma balance sheet assume that as of December
31, 1997, the Partnership had sold the Properties for $18,282,000 and liquidated
the Partnership. The funds available for distribution to Limited Partners,
adjusting for payment of liabilities of the Partnership, expenses and prorations
of sale and expenses of liquidation, are expected to total approximately
$17,942,000.
The unaudited pro forma balance sheet should be read in conjunction with
the appropriate notes to the unaudited pro forma balance sheet.
ALL OF THE FOLLOWING UNAUDITED PRO FORMA FINANCIAL DATA IS BASED UPON AMOUNTS AS
OF DECEMBER 31, 1997. FINAL RESULTS MAY DIFFER FROM SUCH INFORMATION.
16
<PAGE>
DIVALL INSURED INCOME FUND LIMITED PARTNERSHIP
PRO FORMA BALANCE SHEET
December 31, 1997
(Unaudited)
<TABLE>
<CAPTION>
Pro Forma Adjustments
-------------------------------------------
Sale of Sale of
Historical Property Remaining Liquidation & Pro Forma
December 31, January 1998 Properties Dissolution December 31,
1997 (Note 1) (Note 2) (Note 3) 1997
------------- ----------- -------------- --------------- -----------
Assets
<S> <C> <C> <C> <C> <C>
Investment Properties $14,850,000 ($200,000) ($14,650,000) $0 $0
Cash and cash equivalents, at cost
which approximates market value 644,000 (20,000) 17,137,000 (17,761,000) 0
Cash held in indemnification trust 300,000 (300,000) 0
Receivables and prepaid assets 228,000 (228,000) 0
Deferred rent receivable 189,000 (189,000) 0
Deferred fees, net of amortization 103,000 (103,000) 0
------------ ---------- -------------- -------------- ----------
Total assets $16,314,000 ($220,000) $2,195,000 ($18,289,000) $0
============ ========== ============== ============== ==========
Liabilities and Partners' Capital
Mortgage notes payable $475,000 ($240,000) ($235,000) $0
Due to current General Partner 2,000 (2,000) 0
Accounts payable and accrued expenses 80,000 (80,000) 0
Security deposits 125,000 (125,000) 0
Unearned rental income 54,000 (54,000) 0
------------ ---------- -------------- -------------- ----------
736,000 (240,000) (414,000) (82,000) 0
------------ ---------- -------------- -------------- ----------
Partners' Capital:
General Partner 37,000 200 26,000 (63,200) 0
Limited Partners 15,541,000 19,800 2,583,000 (18,143,800) 0
------------ ---------- -------------- -------------- ----------
15,578,000 20,000 2,609,000 (18,207,000) 0
------------ ---------- -------------- -------------- ----------
Total Liabilities and Partners' Capital $16,314,000 ($220,000) $2,195,000 ($18,289,000) $0
============ ========== ============== ============== ==========
</TABLE>
See accompanying notes to pro forma financial statements.
<PAGE>
DIVALL INSURED INCOME FUND LIMITED PARTNERSHIP
NOTES TO UNAUDITED PRO FORMA BALANCE SHEET
Note 1
- ------
During January 1998, the Partnership sold a parcel of vacant land in
Colorado Springs for $235,000, resulting in a net gain, after selling
commissions, of approximately $20,000. The net proceeds from this sale of
approximately $220,000 were used to repay a line of credit outstanding at
December 31, 1997.
Note 2
- ------
The pro forma balance sheet assumes that the Partnership's remaining
properties have been sold for $18,282,000 (the appraised value).
The estimated gain recognized from the sale of the remaining properties has
been computed as follows:
<TABLE>
<S> <C>
Total contract sale price (at appraised value) $18,282,000
Less:Net book value of real estate investment properties (14,650,000)
Disposition fee (a) (548,000)
Other expenses of sale (primarily legal fees and title insurance) (183,000)
Write-off of non-cash assets (292,000)
-------------
Net gain on sale of real estate (at appraised value) $2,609,000
=============
</TABLE>
(a) All or part of the disposition fee may be paid to an affiliate of the
general partner pursuant to the terms of the Permanent Manager Agreement and
the amended Partnership Agreement. Services to be provided by the general
partner post-liquidation include administrative services pertaining to any
future IRS and state tax audits for all open years as well as all other
ongoing partnership recordkeeping requirements.
Note 3
- ------
The costs of dissolution and liquidation of the Partnership are estimated at
$265,000, including $70,000 for the purchase of general partner liability
insurance in exchange for the release of the Partnership's Indemnification
Trust in the amount of approximately $300,000.00.
The estimated distribution of available funds in liquidation of the
Partnership to limited partners as of December 31, 1997, based on three
estimated selling price scenarios has been computed as follows:
<TABLE>
<CAPTION>
SALE PRICE
--------------------------------------------
10% BELOW APPRAISED 10% ABOVE
APPRAISAL VALUE APPRAISAL
-------------- ------------- --------------
<S> <C> <C> <C>
Total contract sale price $16,454,000 $18,282,000 $20,110,000
Liabilities transferred in sale (179,000) (179,000) (179,000)
Repayment of mortgage notes (235,000) (235,000) (235,000)
Disposition fee per Permanent Manager Agreement (494,000) (548,000) (603,000)
Other expenses of sale (primarily legal fees and title insurance) (165,000) (183,000) (201,000)
-------------- ------------- --------------
Adjusted cash received 15,381,000 17,137,000 18,892,000
Add: Current liquid assets of the Partnership (including
indemnification trust account) 1,172,000 1,172,000 1,172,000
Less: January note repayment, net of property sale proceeds (20,000) (20,000) (20,000)
Current liabilities of the Partnership (82,000) (82,000) (82,000)
Estimated expenses of liquidation and dissolution (265,000) (265,000) (265,000)
-------------- ------------- --------------
Estimated cash available for final distribution $16,186,000 $17,942,000 $19,697,000
============== ============= ==============
Estimated distribution to Limited Partners per $1,000 unit assuming
liquidation retroactively to December 31, 1997 $647 $718 $788
============== ============= ==============
</TABLE>
<PAGE>
* * * IMPORTANT * * *
Your consent is important! Please take a moment to sign, date and promptly
mail your GRAY consent card to:
- ----
The Provo Group, Inc.
c/o ReSource Phoenix
PO Box 2609
San Rafael, CA 94912-9890
If you have any questions ro need assistance please call:
THE PROVO GROUP, INC.
---------------------
1-800-54PROVO
1-800-547-7686
1-888-842-4058 ext 231
1-608-244-7661
