SCHEDULE 14A INFORMATION
Consent Solicitation Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
(Amendment No. 1)
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to ss. 240.14a-11(c) or ss. 240.14a-12
RAL-Yield Equities II Limited Partnership
(Name of Registrant as Specified in its Charter)
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ ] No fee required.
[X] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0- 11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
4) Proposed maximum aggregate value of transaction: $6,134,000
5) Total fee paid: $1,227
[X] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
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RAL-Yield Equities II Limited Partnership
20875 Crossroads Circle, Suite 800
Waukesha, Wisconsin 53186
____________, 1998
Dear Limited Partner:
The enclosed materials solicit the consent of Limited Partners of
RAL-Yield Equities II Limited Partnership ("RAL II" or the "Partnership") to the
sale of substantially all of the operating assets of the Partnership to Great
Lakes Investors LLC ("Great Lakes") and the distribution of the Partnership's
remaining assets to its partners.
If the sale of the Partnership's assets is approved by the requisite
vote and consummated, the General Partners anticipate that the holders of
limited partnership interests of RAL II (the "RAL II Interests") would receive,
within 60 days after the closing of the sale, approximately $689 for each RAL II
Interest. Holders of RAL II Interests may subsequently receive one or two
additional distributions, subject to certain contingencies, of indeterminable
amounts at any time within the first seven years following the closing of the
sale. The Partnership will be dissolved as soon as practicable following the
closing of the sale of the Partnership's assets and, if necessary, a trust will
be established to distribute any future contingent payments, if any, to former
holders of RAL II Interests.
Additional information about the proposed sale of the Partnership's
assets is set forth in the accompanying Consent Solicitation Statement, which
the General Partners advise you to carefully review.
The General Partners of the Partnership have approved the sale of RAL
II's assets to Great Lakes, subject to the consent of the holders of a majority
of outstanding RAL II Interests. The General Partners of the Partnership
recommend that you vote your RAL II Interests to consent to the sale of the
Partnership's assets and for its dissolution as soon as practicable thereafter
for the reasons set forth under "PROPOSED SALE OF PARTNERSHIP ASSETS AND
SUBSEQUENT DISSOLUTION OF THE PARTNERSHIP -- Background and Reasons for the
Sale" in the attached Consent Solicitation Statement.
PLEASE SIGN, DATE AND MAIL THE ENCLOSED REPLY CARD IN THE ENCLOSED
POSTAGE-PAID ENVELOPE. Your vote may be revoked or changed at any time prior to
September __, 1998, the date set for the tabulation of the vote on the two
proposals, by providing written notice to the Partnership, c/o RAL Asset
Management Group, 20875 Crossroads Circle, Suite 800, Waukesha, Wisconsin 53186,
or by executing and returning a Reply Card bearing a later date.
Very truly yours,
/s/ Robert A. Long
Robert A. Long
On behalf of each of the General
Partners of RAL-Yield Equities II
Limited Partnership
PLEASE COMPLETE, SIGN, DATE AND RETURN
THE ENCLOSED REPLY CARD TODAY
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RAL-Yield Equities II Limited Partnership
SOLICITATION OF CONSENT OF LIMITED PARTNERS
This Consent Solicitation Statement is Dated ___________ ____, 1998
Voting on the Proposals Described Below
Will Close on September __, 1998
The General Partners of RAL-Yield Equities II Limited Partnership, a
Wisconsin limited partnership ("RAL II" or the "Partnership") hereby solicit the
written consent of the limited partners of the Partnership (the "Limited
Partners") to approve the Asset Purchase Agreement, dated February 17, 1998, as
amended (the "Purchase Agreement") by and between the Partnership and Great
Lakes Investors LLC ("Great Lakes"), to approve the sale of substantially all of
the assets of the Partnership to Great Lakes pursuant to the Purchase Agreement
(the "Sale"), the distribution of the Partnership's net assets following the
closing of the Sale, and the dissolution of the Partnership as soon as
practicable thereafter, all as set forth in this Consent Solicitation Statement.
The General Partners anticipate, based on certain assumptions
described in this Consent Solicitation Statement, that the approximate total
cash distribution to the Limited Partners resulting from the Sale will be equal
to approximately $689 for each limited partnership interest in the Partnership
(the "RAL II Interests") (which amount does not include possible subsequent
distributions, which are subject to certain contingencies, as described herein).
The General Partners have fixed _____________, 1998 as the record date for
determining the Limited Partners having the right to receive notice of, and to
vote on, the proposals described herein. Each RAL II Interest shall be entitled
to one vote on each of the proposals. A list of Limited Partners entitled to
vote on the proposals will be available during ordinary business hours at the
Partnership's executive offices, 20875 Crossroads Circle, Suite 800, Waukesha,
Wisconsin 53186, from the date hereof through September __, 1998, for
examination by any Limited Partner for purposes germane to the consent
solicitation. The telephone number of the Partnership's principal executive
offices is (414) 798-0900.
By Order of the General Partners of
RAL-Yield Equities II Limited Partnership,
/s/ Robert A. Long
Robert A. Long
General Partner
Waukesha, Wisconsin
____________ ____, 1998
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THE GENERAL PARTNERS UNANIMOUSLY RECOMMEND THAT YOU VOTE "YES" TO APPROVE THE
PURCHASE AGREEMENT, THE SALE AND THE SUBSEQUENT DISSOLUTION OF THE PARTNERSHIP.
YOUR VOTE, WHICH IS BEING SOLICITED BY THE GENERAL PARTNERS OF THE PARTNERSHIP,
IS IMPORTANT. PLEASE SIGN AND MAIL THE ENCLOSED REPLY CARD TODAY. A RETURN
ENVELOPE, WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES, IS ENCLOSED
FOR THAT PURPOSE.
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TABLE OF CONTENTS
Page
CONSENT SOLICITATION.........................................................
Voting in the Consent Solicitation..................................
Related Transactions with Great Lakes...............................
Solicitation Expenses...............................................
PROPOSED SALE OF PARTNERSHIP ASSETS
AND SUBSEQUENT DISSOLUTION OF THE PARTNERSHIP..............................
General Overview....................................................
Conditions to Closing of the Sale...................................
Purchase Price; Anticipated Distributions...........................
Vote Required.......................................................
Recommendation of the General Partners..............................
Background and Reasons for the Sale.................................
Opinion of Valuation Advisor........................................
The Purchase Agreement..............................................
Interests of Certain Persons in the Transaction.....................
TAX CONSIDERATIONS...........................................................
Taxation of Partnerships in General.................................
Basis of Partnership Interests......................................
Allocation of Income, Gain, Loss and Deduction Among
the Partners......................................................
Sales Of Partnership Properties.....................................
Liquidation of the Partnership......................................
Alternative Minimum Tax.............................................
Conclusion..........................................................
ADDITIONAL INFORMATION FOR LIMITED PARTNERS..................................
Dissenters' Rights..................................................
Receipt of Distribution After the Sale..............................
Operations Following the Sale and Effect of the
Sale on Limited Partners..........................................
THE PARTNERSHIP..............................................................
Selected Historical Financial and Operating Data....................
Description of Business.............................................
Properties..........................................................
Legal Proceedings...................................................
Security Ownership of Certain Beneficial Owners
and Management....................................................
Comparative Per-Interest Data.......................................
Market Price Data...................................................
EXPERTS ....................................................................
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE............................
LIST OF APPENDICES
ASSET PURCHASE AGREEMENT, AS AMENDED................................ APPENDIX A
FAIRNESS OPINION OF VALUATION RESEARCH CORPORATION.................. APPENDIX B
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CONSENT SOLICITATION
This Consent Solicitation Statement is being furnished by the General
Partners of RAL II to the Limited Partners for the solicitation of written
consents from the Limited Partners in connection with a proposal to sell
substantially all of the operating assets of the Partnership to Great Lakes and
to dissolve the Partnership as soon as practicable thereafter, as described in
greater detail herein.
This Consent Solicitation Statement is first being mailed to the
Limited Partners on __________, 1998.
Voting in the Consent Solicitation
Record Date; Interests Entitled to Vote. Only holders of record of RAL
II Interests at the close of business on ________ ____, 1998 (the "Record Date")
are entitled to notice of and to vote on each of the proposals. Each RAL II
Interest is entitled to one vote with respect to each of the proposals. As of
the Record Date, there were 8,301.5 RAL II Interests outstanding and entitled to
notice of and to vote on the proposals.
Vote Required. Pursuant to the Partnership Agreement, the affirmative
consent of the holders of a majority of the issued and outstanding RAL II
Interests as of the Record Date must be received by September __, 1998, the date
set by the General Partners for tabulating the consents, or by such later date
as may be determined by the General Partners. Therefore, abstentions and broker
non-votes will have the same effect as a vote against the proposals described
herein.
Reply Cards. All properly executed Reply Cards, returned to the General
Partners, c/o RAL Asset Management Group, will be voted in accordance with the
specifications thereon, or, if no specifications are made, will be voted FOR
approval of each proposal described herein. Any Reply Card may be revoked by a
Limited Partner prior to September __, 1998 by delivering written notice to the
General Partners stating that the Reply Card is revoked or by execution and
delivery of a Reply Card bearing a later date.
Related Transactions with Great Lakes
The General Partners of the Partnership are also General Partners of
four other limited partnerships (the "Affiliated Partnerships") that have each
entered into agreements to sell substantially all of their operating assets to
Great Lakes (the "Related Transactions"). The Sale is conditioned on the closing
of the Related Transactions with three of the Affiliated Partnerships (RAL Yield
+ Equities III Limited Partnership, RAL Yield + Equities IV Limited Partnership,
and RAL Income + Equity Growth V Limited Partnership), each of which
transactions is contingent on the approval of the limited partners of such
partnerships. The closing of the Sale is not contingent on closing or approval
of the sale of the fourth Affiliated Partnership, RAL Germantown/Monroe Income
Limited Partnership. See "Interests of Certain Persons in the Transaction."
Solicitation Expenses
In addition to solicitation by mail, the employees of the Partnership
and its representatives may solicit consents from limited partners by telephone,
fax or in person. Such persons will not be additionally compensated, but will be
reimbursed for their reasonable, out-of-pocket expenses incurred in connection
with such solicitation. Arrangements will also be made with brokerage firms,
nominees, fiduciaries and other custodians for the forwarding of solicitation
materials to the beneficial owners of limited partnership interests held of
record by such entities and the Partnership will reimburse such persons for
their reasonable out-of-pocket expenses in connection therewith. In addition,
the General Partners of the Partnership and the Affiliated Partnerships may
obtain, collectively, the services of a proxy solicitation firm.
Together with the Affiliated Partnerships, the Partnership will bear,
pro rata (based on each partnership's respective base, non-contingent purchase
price), the costs of the solicitation of consents from the Limited Partners and
the limited partners of the Affiliated Partnerships. The General Partners
estimate that the portion of such costs
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attributable to RAL II will not exceed $90,000, which includes printing costs,
postage, fees of a proxy solicitation firm, and legal and accounting fees. Of
such amount, the General Partners of RAL II expect that the fees of the proxy
solicitation firm attributable to RAL II will not exceed $6,000.
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PROPOSED SALE OF PARTNERSHIP ASSETS
AND SUBSEQUENT DISSOLUTION OF THE PARTNERSHIP
General Overview
The following is a brief summary of the material aspects of the
Purchase Agreement and the Sale. This summary is qualified in all respects by
the text of the Purchase Agreement, which is attached as Appendix A to this
Consent Solicitation Statement and is incorporated herein by this reference.
Limited Partners are advised to read the Purchase Agreement carefully in its
entirety.
The Purchase Agreement provides for the sale to Great Lakes of
substantially all of the Partnership's assets, principally its interest in real
estate owned by the Partnership (the "Real Property"), lease contracts relating
to the Real Property, and the personal property and intangible assets related to
the operation of the Real Property and the Partnership. The Partnership will
retain any cash on hand at the time the Sale is completed.
Conditions to Closing of the Sale
The closing of the Sale is subject to the following principal
conditions: (i) the approval of the Sale by the Limited Partners, (ii) the
closing of the Related Transactions involving RAL Yield + Equities III Limited
Partnership, RAL Yield + Equities IV Limited Partnership and RAL Income + Equity
Growth V Limited Partnership, (iii) the remediation of any defects in title to
the Real Property that may be revealed by surveys to be ordered by Great Lakes,
(iv) remediation of any defects in the Real Property that may be revealed by
environmental assessments to be ordered by Great Lakes, (v) the receipt of
consents of certain third parties to the assignment of the Partnership's
contractual rights to Great Lakes, and (vi) the receipt by the Partnership of a
satisfactory opinion by an independent valuation company as to the fairness of
the consideration to be received by the Partnership under the Purchase
Agreement. Until the satisfaction or waiver of such conditions, the Sale will
not occur, except that, in the event that environmental assessments of certain
parcels of Real Property reveal defects, then Great Lakes may elect to proceed
with the Sale, but with a price adjustment designed to reflect the costs of
remediation of such defects. The amount of any such adjustments is limited under
the Purchase Agreement to the lesser of $100,000 or 10% of the portion of the
total purchase price allocated to such parcel. The estimated distributions to
Limited Partners of approximately $689 per RAL II Interest assume no such
adjustment. As of the date of this Consent Solicitation Statement, no approvals
of any state or federal regulatory agencies are required to consummate the Sale.
See "-- The Purchase Agreement -- Conditions to Closing."
If one or more of the Related Transactions cannot be closed
contemporaneously with the Sale for any reason, and the General Partners and
Great Lakes elect to waive such condition to closing, the General Partners would
not resolicit the consent of the Limited Partners to the Sale. Since the
Partnership and the Affiliated Partnerships have each agreed to pay a pro rata
share of the costs of the Sale and the Related Transactions, regardless of
whether each such transaction is ultimately completed, the failure to consummate
one or more of the Related Transactions will have no effect on the distributions
to be made to holders of RAL II Interests following the closing of the Sale. If
any of the other condition to closing of the Sale is waived by the Partnership,
the General Partners intend to resolicit the consents of the Limited Partners if
they believe that such waiver may make the terms of the Sale materially less
advantageous to the Limited Partners.
Purchase Price; Anticipated Distributions
Pursuant to the Purchase Agreement, the aggregate base purchase price
to be paid for the assets of the Partnership will be $6,134,000. As described
below, upward adjustments to the purchase price may be made if RAL II leases the
site of a former restaurant in West Allis, Wisconsin prior to the closing of the
Sale or if Great Lakes sells or leases such parcel within seven years following
the closing of the Sale.
In addition, the base purchase price cited above will be adjusted, as
of the closing of the Sale, for proratable items, such as current and prepaid
rent, real estate and other taxes and utility charges. In addition, Great
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Lakes will receive a credit for any rent concessions granted by the Partnership
to its existing tenants. The General Partners believe that none of the
adjustments to the purchase price described in this paragraph are likely to
materially affect distributions to the Limited Partners.
Based on the General Partners' analysis of the Purchase Agreement,
taking into account all liabilities or obligations which must be paid by the
Partnership prior to its dissolution, the General Partners believe that the
portion of the sales consideration available for distribution to Limited
Partners will be affected by (i) an estimated $511,000 in costs associated with
the Sale, including real estate transfer fees, solicitation expenses, costs of
title insurance and title surveys, and fees of accountants, attorneys and the
Partnership's valuation advisor and (ii) the net (repayment)/receipt of
obligations, increasing cash available for distribution by approximately
$126,000, resulting in estimated net proceeds from the sale of approximately
$5,749,000, or $689 per Interest. Such net proceeds will be distributed to the
Limited Partners within 60 days of the closing of the Sale.
Upon the closing of the Sale, in addition to such distribution, the
Limited Partners will also receive the right to receive one or two final
distributions of indeterminable amounts (each a "Conditional Future
Distribution") which may be made if and when the site of a former restaurant in
West Allis, Wisconsin (the "West Allis Property"), included in the Real
Property, is either leased or sold by Great Lakes within seven years following
the closing of the Sale. If a lease is entered into during such period, Great
Lakes will pay RAL II an amount determined by capitalizing average annual net
rent payable on the West Allis Property during the shorter of the entire lease
term or the first five years of the lease term at 11% per year, less $200,000.
In addition, regardless of whether Great Lakes has made any further payment to
RAL II as a result of such a lease, if Great Lakes sells the West Allis Property
within seven years following the closing, Great Lakes will make an additional
payment to RAL II equal to the sale price of the West Allis Property, less Great
Lakes' selling expenses, the amount of any previous additional payment upon the
leasing of the West Allis Property as aforesaid, and $200,000. Any such amounts
will be distributed to the Limited Partners of record on the Record Date, pro
rata, within 60 days of their receipt by RAL II or, if RAL II has then been
dissolved, by a trustee to be appointed for such purpose prior to dissolution.
The per-Interest amount of the distribution to Limited Partners
described above is an estimate only. Actual distributions will be based on the
amount of consideration to be received for the Partnership's assets, as adjusted
for prorated items and any credits for rent concessions, and the Partnership's
cash reserves as of date of the closing of the Sale, in addition to the amount
of the Partnership's indebtedness and expenses associated with the Sale.
Currently, there can be no assurance that any Conditional Future
Distribution will ever be made to Limited Partners of RAL II and it is
impossible to estimate the amount of any Conditional Future Distribution, if
any, or the date on which any such Conditional Future Distribution may be made.
Vote Required
The approval of the Purchase Agreement, the Sale and the subsequent
dissolution of the Partnership as soon as practicable requires the affirmative
consent of holders of a majority of RAL II Interests outstanding at the Record
Date. Therefore, abstentions and broker non-votes will have the same effect as a
vote against the proposal.
Recommendation of the General Partners
As described in further detail below, the General Partners believe that
the terms of the Sale are fair and reasonable and are in the best interests of
the Partnership and the Limited Partners. Therefore, the General Partners of the
Partnership have unanimously approved the Sale and recommend that the Limited
Partners of the Partnership consent to the Purchase Agreement, the Sale, and the
subsequent dissolution of the Partnership.
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Background and Reasons for the Sale
Background. The business plan of the Partnership has always provided
that the Partnership will seek to sell properties within seven to ten years of
their acquisition and whenever the Partnership is presented with an offer
reflecting attractive valuations and other transaction terms that are in the
interests of the Partnership and its Limited Partners. Since its creation in
1984, RAL II has received and solicited offers to purchase portions of its real
estate holdings from time to time. Some of the resulting negotiations have
resulted in the sale of individual parcels and distribution of proceeds to the
Limited Partners.
For the past several years, the General Partners of the Partnership
have believed that the value to be realized by the Limited Partners may be
maximized by grouping all of the Real Property, as well as the real property
owned by the Affiliated Partnerships, into a series of related sales with a
single buyer, in large part, because such a sale may involve considerably lower
transaction costs, for both buyer and sellers, compared with the sale of each of
the properties in separate transactions. Moreover, the General Partners have
been concerned that the sale of only a portion of the Real Property would leave
the Partnership with higher operational costs relative to earnings. Because an
active trading market for the RAL II Interests has never developed, the General
Partners have also sought to sell all of the Real Property to allow the Limited
Partners to liquidate their investments, provided that a buyer could be found to
offer a fair purchase price.
The General Partners have been discussing the terms of a sale of the
Partnership's assets to Great Lakes or its affiliates for the past several
years. Douglas C. Heston, one of Great Lakes' members, is also a shareholder,
director and officer of First Financial Realty Management, Inc. ("FFRM"). Since
1993, FFRM has been responsible for managing the Real Property pursuant to a
Property Management Subcontract with Midwest Property Management I, Inc. FFRM
has also been responsible for performing partnership administration services for
the Partnership since 1993. As a result of FFRM's property management and
partnership administration services, the General Partners have believed that Mr.
Heston, or an entity in which he was a principal, would be a knowledgeable buyer
of the Partnership's assets, able to evaluate the peculiar attributes of the
Real Property and to offer an aggregate purchase price and other transaction
terms that would maximize the value to be realized by the Limited Partners. In
particular, the General Partners have placed great emphasis on finding a buyer,
such as Great Lakes, that is willing to purchase the Real Property on an "as-is,
where-is" basis. See "-- The Purchase Agreement -- Representations and
Warranties."
Early in the negotiations with Mr. Heston for the sale of the
Partnership's assets, another potential buyer expressed an interest in
purchasing some of the Real Property and certain parcels of the real property of
the Affiliated Partnerships. That potential buyer and its principals were the
owners of numerous mobile home parks located throughout the United States and
initially proposed a purchase of only the mobile home parks owned by RAL II and
the Affiliated Partnerships. Because of the perceived advantage in a sale of all
of the Real Property to a single buyer, and in order to receive an offer that
was at least as favorable to the offer from Great Lakes, the General Partners
told such prospective buyer that it should consider making an offer to purchase
all of the Real Property, not just the Partnership's mobile home park. Despite
its agreement to submit such an offer, ultimately that potential buyer submitted
a non-binding letter of intent for the purchase of the Partnership's mobile home
park only. Based on the purchase price offered for the mobile home park and the
likely effect of such a transaction on negotiations with Great Lakes for the
sale of all of the Real Property, the General Partners did not continue
negotiations with that potential buyer. However, since the purchase price
proposed by that potential buyer for the mobile home park was slightly higher
than the price allocated to the mobile home park in Great Lakes' original
proposal, the General Partners insisted that Great Lakes increase its offer to
match the price offered by that potential buyer, which Great Lakes agreed to do.
In February 1998, Great Lakes presented to the General Partners a final
offer for all of the Real Property, which the General Partners believe reflected
a fair valuation of the Real Property and other transaction terms favorable to
the Partnership and the Limited Partners.
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The terms of the Sale were approved by the General Partners of the
Partnership at a meeting held on February 12, 1998. At the meeting, the General
Partners received presentations concerning, and reviewed carefully the terms and
conditions of, the proposed Sale with legal counsel. In considering whether to
recommend approval of the Purchase Agreement and the Sale to the Limited
Partners, the General Partners considered, among other things, the historical
trading prices and trading information for the Interests and information
presented by Valuation Research Corporation, including an analysis of likely
future income, other comparable real estate being sold, and an asset analysis.
The General Partners also discussed the Partnership's results of operations for
1996 and 1997, as well as its growth potential for succeeding years.
Reasons for Entering into the Purchase Agreement with Great Lakes. In
approving the final Purchase Agreement and the Sale and recommending approval
thereof to the Limited Partners, the General Partners considered the following
principal factors in addition to the factors listed above:
1. The base consideration and the estimated distributions to be
received by the Limited Partners of the Partnership within 60
days of the closing of the Sale, excluding possible
Conditional Future Distributions;
2. Information concerning the financial strength and business
reputation of Great Lakes and its principals;
3. The terms, other than the financial terms, of the Purchase
Agreement;
4. The relative strengths and weaknesses of other prospective
buyers of some or all of the Real Property;
5. The prospects for enhancing the financial position and results
of the Partnership and arriving at a more attractive agreement
for the sale of the Real Property in the future;
6. The prospects for finding one or more buyers of a portion of
the Real Property at prices in excess of the prices allocated
to such parcels by the Partnership and Great Lakes under the
Purchase Agreement;
7. The difficulties and costs that would be faced by the
Partnership in identifying and taking advantage of new
opportunities in the relevant real estate markets or in
finding alternative buyers for the Real Property if the Sale
was not consummated;
8. The opinion of Valuation Research Corporation, in light of the
assumptions and limitations set forth therein, that the
consideration to be received by the Partnership pursuant to
the Purchase Agreement is fair from a financial point of view;
and
9. The fact that the Partnership has engaged in no other
substantive negotiations toward, and has received no other
formal offers for the purchase of all of the Real Property, or
any portion of the Real Property, at prices as attractive to
those to be realized by the Sale.
Opinion of Valuation Advisor
Background. The General Partners of the Partnership engaged Valuation
Research Corporation ("VRC") to render an opinion with respect to the fairness,
from a financial point of view, of the consideration to be received by the
Partnership pursuant to the Sale. VRC is a nationally-recognized firm engaged in
the valuation of businesses and their securities in connection with acquisitions
and mergers, negotiated underwritings, private placements, and valuations for
corporate and other purposes. The General Partners selected VRC primarily
because of its expertise and reputation, and secondarily because of its cost
competitiveness. Each of the Affiliated Partnerships have similarly retained VRC
to provide an opinion as to the fairness, from a financial point of view, of the
consideration
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to be received under their respective asset purchase agreements with Great
Lakes. The aggregate fees of VRC for the Partnership and the Affiliated
Partnerships, which are collectively payable by the partnerships, pro rata
(based on non-contingent base purchase prices), will be approximately $72,000
($20,000 of which will be payable by RAL II). None of RAL II or the Affiliated
Partnerships has ever retained VRC for any other purpose in the past.
On ___________, 1998, VRC delivered its fairness opinion (the "Fairness
Opinion") to the General Partners of RAL II, to the effect that, as of such
date, the consideration to be received by the Partnership as set forth in the
Purchase Agreement was fair to the Partnership and to the Limited Partners from
a financial point of view. The Fairness Opinion, which sets forth assumptions
made and matters considered, appears as Appendix B to this Consent Solicitation
Statement and is incorporated herein by reference. The Limited Partners are
urged to read the Fairness Opinion in its entirety. VRC's Fairness Opinion was
delivered for the information of the Partnership and does not constitute a
recommendation as to how any Limited Partner should vote on the proposed Sale
and subsequent dissolution of the Partnership. The following summary of the
Fairness Opinion is qualified in its entirety by reference to the full text of
the Fairness Opinion.
VRC was not requested to serve as a financial advisor to the General
Partners or the Partnership, or to assist the General Partners or the
Partnership in determining a purchase price for the Partnership's assets. The
General Partners did not place any limitation on the scope of VRC's
investigation or review. In addition, VRC was not requested to and did not
analyze or give any effect to the impact of any federal, state or local income
taxes to the Partnership or the Limited Partners arising out of the Sale. The
Partnership has agreed to indemnify VRC against certain liabilities arising out
of its engagement to prepare and deliver the Fairness Opinion.
The General Partners have not asked VRC to update the Fairness Opinion.
However, the General Partners intend to ask for an updated fairness opinion in
the event that the Partnership agrees to an amendment to the Purchase Agreement
that is materially adverse to the interests of the Partnership or the Limited
Partners, or if there is a substantial, unanticipated change, after the date of
the Fairness Opinion, in factors affecting the likely future results of the
Partnership's operations or the value of the Real Property that could materially
increase the value of the Partnership's assets.
In rendering the Fairness Opinion, VRC held discussions with the
General Partners and became familiar with the assets involved in the proposed
Sale. In addition, VRC examined extensive data provided by the Partnership and
published market data pertaining to the underlying assets of the Partnership.
This included, but was not limited, to the following:
o Audited financial statements for the Partnership for the
years 1993 through 1997.
o Unaudited financial statements and other internal financial
analysis for the individual owned properties that constituted
the Real Property for the years 1993 through 1997.
o Market data pertaining to the current real estate market
in the neighborhoods of the Real Property.
o Demographic and economic histories and projections for the
neighborhoods in which the Real Property is located.
o Review of comparable sales and lease data for the Real
Property.
The basis of VRC's Fairness Opinion is the current market value of the
underlying assets of the Partnership. VRC did not take into consideration any
other assets that may be owned by the Partnership nor any liabilities or debt
associated with any of the Real Property. For purposes of its Fairness Opinions,
VRC defines "market value" as:
The most probable price that a property should bring in a competitive
and open market under all conditions requisite to a fair sale, the
buyer and seller each acting prudently and knowledgeably, and assuming
the
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price is not affected by undue stimulus. Implicit in this definition is
the consummation of a sale as of a specified date and the passing of
title from seller to buyer under conditions whereby:
o Buyer and seller are typically motivated;
o Both parties are well informed or well advised, and acting in
what they consider their best interests;
o A reasonable time is allowed for exposure in the open market;
o Payment is made in terms of cash in U.S. dollars or in terms
of financial arrangements comparable thereto; and
o The price represents the normal consideration for the property
sold, unaffected by special or creative financing or sales
concessions granted by anyone associated with the sale.
To determine the value of the Real Property, VRC relied primarily on
the income approach. Typically, appraisers use up to three approaches in valuing
real property: the cost approach, the direct sales comparison approach and the
income approach. These approaches are based, respectively, on the cost to
replace assets, the market exchanges of comparable properties, and the
capitalization of income. In VRC's analysis, all three methods of valuation were
considered; however, because of the income-producing nature of the Real Property
and the current real estate market, VRC placed more emphasis on the income
approach and used the direct sales comparison approach and the cost approach as
a check on the reasonableness of the results obtained using the income approach.
VRC also considered the highest and best use of the property. The
valuation of real estate is based on its most profitable likely use. The highest
and best use is arrived at by testing potential uses of the property, both as
improved and as though vacant, to find the use that is physically possible,
legally permitted, financially feasible and produces the highest price or value.
In each case, VRC found the current use of the Real Property to be the highest
and best use of the property.
The following paragraphs summarize the significant quantitative and
qualitative analyses performed by VRC in arriving at the Fairness Opinion. VRC
considered all such quantitative and qualitative analyses in connection with its
valuation analysis but has relied more on the income capitalization approach
than the other two.
Income Capitalization Approach. VRC believes that the "income
capitalization approach" to valuation of income-producing real estate is still
the primary factor in investment decisions for real estate investors. The basic
premise of the income approach is that the earning power of a real estate
investment is the critical element affecting its value. Income capitalization
methods, techniques, and procedures represent attempts to quantify the present
worth of anticipated future income.
The two accepted methods of applying the income approach are defined
below:
Direct Capitalization - a method by which an estimate of a single
year's income expectancy or an annual average of several years' income
expectancies are converted to an indication of value by one direct
step, either by dividing the income estimate by an appropriate rate or
by multiplying the income estimate by an appropriate factor.
Discounted Cash Flow Analysis - A set of procedures in which the
quantity, variability, timing, and duration of periodic income, as well
as the quantity and timing of reversions, are specified and discounted
to a present value at a specified yield rate.
Value is created by the expectation of benefits to be derived in the
future, and value may be defined as the present worth of all rights to future
benefits. All income capitalization methods, techniques, and procedures
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represent attempts to quantify expected future benefits. With adequate
information and proper use, direct capitalization and yield capitalization
methods should produce similar value indications. In choosing which of the two
(or both) methods to apply, the appraiser considers the typical investor's view
of market value.
The first step in both income approaches is the determination of a
proper rental or revenue stream that one would expect to be able to obtain from
the subject property, based on actual historical operations and a study of
comparable rental properties. A similar analysis of typical operating expenses,
along with expected vacancy and collection losses, aids in constructing an
operating statement that results in a net operating income for the first and
subsequent years. The estimated first-year net operating income can then be
converted into an indicated property value through the overall direct
capitalization process, while the estimated future cash flows can be converted
into an indicated value by discounting those individual yearly amounts to a
present value.
VRC's analysis began with an estimate of each subject market's rent
potential, based on an analysis of the actual rentals in place with the subject
property and market information pertaining to comparable rental rates in the
subject's area. Using this information, a potential gross income estimate was
made. This estimated potential gross income was projected to grow over the
course of the projection period (10 years) at various rates, based on current
and forecasted economic conditions in each of the subject areas.
Secondly, allowances for vacancy and collection losses were made, based
on market surveys in each of the subject areas and actual historical performance
of the subject properties. This adjustment ranged from a low of 0% for the
leased fast-food restaurants to 2% for the mobile home park. The result of
subtracting the vacancy and collection loss estimate from the estimated gross
income is the effective gross income. It is this effective gross income that is
used to pay for any operating expenses associated with the operation of the
subject properties. The estimate of the operating expenses was based on a
combination of historical expenses of the subject and published market surveys.
These operating expenses were projected to grow at a projected 2.5% to 3.0%
inflation rate per year over the course of the 10-year projection period. In
addition to the normal operating expenses, an estimate of the cost and timing of
major capital improvements was made and used as an added expense. The basis for
this capital improvement expense adjustment was the actual age and size of each
subject property and the projected amount and timing of replacements for such
major items as roadway repair, sewer and water line maintenance, roofing,
heating, ventilating and air conditioning units, etc.
The net operating income is the cash flow that accrues to the owner of
the property, after deductions for the above expenditures and allowances. It is
this net operating income that was converted into an estimate of value.
The following table set forth the estimated aggregate revenues,
expenses and net operating income of the Real Property for each of the
twelve-month periods ending December 31, 1998 through December 31, 2007 that
were included in the financial forecasts used by VRC in connection with the
preparation of the Fairness Opinion.
Estimated Aggregate Revenues, Expenses and Net Operating Income
(In Thousands of Dollars)
Year 1998 1999 2000 2001 2002
Revenue $1,624 $1,644 $1,673 $1,709 $1,750
Expenses* 999 1,025 1,053 1,082 1,111
Net Income 625 619 620 627 639
Year 2003 2004 2005 2006 2007
Revenue $1,780 $1,810 $1,860 $1,914 $1,952
Expenses* 1,141 1,162 1,203 1,236 1,269
Net Income 639 639 657 678 683
*Including Capital Expenditures
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In rendering the Fairness Opinion, VRC relied, without assuming
responsibility for independent verification, on the accuracy and completeness of
all financial and operating data, financial analyses, reports and other
information that were publicly available, compiled or approved by or otherwise
furnished or communicated to VRC by or on behalf of the Partnership. With
respect to the financial forecasts utilized by VRC, VRC believes that the
assumptions underlying the forecasts were reasonable and that, consequently,
there is a reasonable probability that the projections would prove to be
substantially correct. However, readers should be aware that actual revenues,
expenses and net operating income of the properties owned by the Partnership
would depend, to a large extent, on a number of factors that cannot be predicted
with certainty or that may be outside of the control of the General Partners,
including general business, market and economic conditions, supply and demand
for rental properties in the areas in which the Real Property is located, future
operating expenses and capital expenditure requirements for the properties,
future occupancy rates, the ability of the General Partners and property
managers for the properties to maintain the attractiveness of the properties to
tenants, real estate tax rates, changes in tax laws and other factors. As a
result, actual results could differ significantly from the forecasted results.
Capitalization Rate Valuation Analysis. The relationship between net
operating income and value can be expressed in its overall rate of return, or
capitalization rate. VRC abstracted capitalization rates from market surveys
conducted by reputable national firms for each of the major metropolitan areas
in which the subject properties are located, including surveys conducted and
reported by The National Real Estate Index, the Korpacz Real Estate Investor
Survey and the American Council of Life Insurance. The indicated value for each
property was derived from the net operating income of each property, divided by
the appropriate capitalization rate. The capitalization rates used in this
analysis ranged from 9.0% to 12.0%.
Discounted Cash Flow Analysis. VRC also performed a discounted cash
flow analysis of (i) the present value of the forecasted cash flows form future
operations of the Real Property, and (ii) the present value of the estimated
proceeds of a sale of the property at the conclusion of the forecast period. In
completing this analysis, VRC utilized financial and operating forecasts of each
property's estimated cash flow for the twelve-month periods ending December 31,
1998 to December 31, 2007 and applied discount rates of 11.0% to 15.0%, with an
average of 12.0%. The residual value is based on capitalizing forecasted cash
flow for the year 2008 at 10.5%. Since this discounted cash flow analysis
assumes the immediate sale of the properties to third parties, VRC did not take
into account any tax ramifications of the cash flow in this analysis, nor did
VRC consider any outstanding debt associated with the properties.
The Cost Approach. The cost approach is a valuation technique that uses
the concept of replacement as a value indicator. Replacement or reproduction
cost is estimated for the property being appraised, which is then adjusted for
losses in value (appraised depreciation) due to a variety of factors. This
process requires valuing the site as if vacant, then adding the replacement cost
of the improvements, based on market-derived costs for similarly constructed
properties. Then accrued depreciation from physical deterioration and
obsolescence is estimated and subtracted from the replacement cost to arrive at
the present value. VRC believes this approach provided a good check on the
estimated value obtained using the income approach for the fast-food restaurant
properties owned by the Partnerships, but it was not used for the mobile home
park.
The Direct Sales Comparison Approach. The sales comparison approach is
a valuation technique in which the value is estimated on the basis of market
prices in actual transactions. The technique consists of studying available
market comparable information and adjusting for differences. This process is
essentially that of comparison and correlation. Differences always exist between
properties, even though they may be almost identical and, therefore, adjustments
for these differences must be made. Some adjustments that may prove important
are: (i) conditions of the sale, (ii) financing terms, (iii) market conditions
(time), (iv) location, (v) physical characteristics, and (vi) income
characteristics. VRC believes that, for those properties currently encumbered by
a long-term lease, the direct sales comparison approach is not an appropriate
methodology to use, but that, for those properties that have yearly lease
renewals, it serves as a good check on the reasonableness of the value obtained
using the income approach.
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Conclusion of Value. Based on the foregoing methodology and on such
other matters as VRC considered, it was VRC's opinion that, as of the date of
its Fairness Opinion, the purchase price of $6,134,000 for the assets of RAL II
represented a fair value to the Partnership and the Limited Partners, from a
financial point of view, for such assets.
General Partners' Reliance on Fairness Opinion. In addition to the
limitations considered by VRC, as set forth above and in the Fairness Opinion
attached to this Consent Solicitation Statement as Appendix B hereto, the
General Partners considered the conclusion expressed in the Fairness Opinion in
light of the factors described under "--Background and Reasons for the Sale,"
including the prospects for increasing the profitability of the Partnership in
the absence of a sale of the Real Property and the prospects for identifying
buyers for some or all of the Real Property at prices higher than those to be
received pursuant to the Sale. The General Partners are not aware of any
factors, other than those described above or considered by VRC, that would not
support the Fairness Opinion.
The Purchase Agreement
General. The Purchase Agreement provides that, upon approval of the
Sale by a majority in interest of the Limited Partners and satisfaction or
waiver of the other conditions to the Sale, the Partnership will sell, and Great
Lakes will purchase, substantially all of the operating assets of the
Partnership, including the Real Property, all buildings and improvements
thereon, and the personal and intangible property used in connection with the
business of the Partnership, including equipment, vehicles, furniture, fixtures,
inventories and supplies, books, records, licenses, franchises, permits,
favorable leases and trade names. As part of the Sale, Great Lakes will assume
certain contractual obligations of the Partnership. The Purchase Agreement is
reproduced in its entirety as Appendix A to this Consent Solicitation Statement
and all references in this Consent Solicitation Statement to the Purchase
Agreement are qualified by reference thereto.
Closing of the Sale. The closing of the Sale (the "Closing") will occur
as promptly as practical after the requisite Limited Partner approval has been
obtained and all the conditions thereto, as set forth in the Purchase Agreement,
have been satisfied or waived. It is currently anticipated that all conditions,
other than required consents of the limited partners of the Partnership and the
Affiliated Partnerships and deliveries to be made at the Closing, will have been
satisfied prior to the date on which the tabulation of Limited Partners'
consents is to be made. If the Limited Partners and the limited partners of each
of the Affiliated Partnerships approve the Sale, the General Partners expect the
Closing to occur on or before ___________, 1998.
Consideration. At the Closing, Great Lakes will pay the Partnership,
subject to certain adjustments based on typical prorations, credits to Great
Lakes for any rent concessions made by the Partnership and possible costs of
environmental remediation as outlined in the Purchase Agreement, aggregate cash
consideration of $6,134,000 for the Partnership's operating assets. The
Partnership will use a portion of the proceeds to pay Partnership obligations.
Representations and Warranties. The Purchase Agreement contains
representations and warranties of the Partnership that the Partnership owns its
property without undisclosed liens or encumbrances.
Operations Pending Closing. Pursuant to the Purchase Agreement, the
Partnership has agreed that, during the period following the date of the
Purchase Agreement and prior to the Closing, it will:
(a) Provide Great Lakes with access to the Real Property, certain
documents, information and updates of certain information
concerning the Real Property and the operation of the
Partnership's business;
(b) Enter into no new lease or modify any existing lease, except
in the ordinary course of business;
(c) Take no action to transfer any of the assets to be sold to
Great Lakes by the Partnership, except as permitted by the
Purchase Agreement;
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(d) Create no liens or other encumbrances affecting the Real
Property;
(e) Settle no lawsuits affecting the assets to be sold to Great
Lakes by the Partnership;
(f) Maintain the Real Property in a manner consistent with past
practice;
(g) Remove no improvements or personal property from the Real
Property;
(h) Maintain adequate fire and extended-coverage and rent-loss
insurance; and
(i) Not enter into new or modify any old employment agreements.
Conditions to Closing. The obligations of the Partnership and Great
Lakes to consummate the Sale are subject to a number of conditions, including,
among others:
(a) Approval of the Sale by the holders of more than 50% of the
RAL II Interests and approval of more than 50% of the limited
partnership interests of three of the Affiliated Partnerships;
(b) Completion of title surveys for each parcel of Real Property
(the cost of which will be paid by the Partnership at the
Closing) and the remedy or waiver by Great Lakes of any
defects revealed by such surveys;
(c) The receipt, by the Partnership and at its expense, of written
commitments of title insurance companies to issue title
insurance policies, with only exceptions permitted by the
Purchase Agreement, as to each parcel of the Real Property;
(d) Completion of written environmental assessments of each parcel
of Real Property (the cost of which will be paid by Great
Lakes at the Closing) and the remedy or waiver by Great Lakes
of any defects revealed by such assessments; and
(e) Receipt of any required approval of the Securities and
Exchange Commission and any state securities commission.
If a property survey described in clause (b) above reveals a title defect to
which Great Lakes objects and which the Partnership cannot remedy, Great Lakes
may either accept the property subject to such defect or refuse the affected
parcel and receive a decrease in the purchase price of the Partnership's assets
equal to the amount allocated to such property. In such event, the complete
distribution of Partnership assets to the Limited Partners and the dissolution
of the Partnership will not be possible until the affected property is disposed
of in another transaction. If an environmental assessment described in clause
(d) above reveals a defect, (i) Great Lakes may refuse the affected parcel and
receive a decrease in the purchase price of the relevant Partnership's assets
equal to the portion of the purchase price allocated to such parcel, (ii) Great
Lakes may purchase the defective parcel and offset the cost of remediation
(subject to certain limitations) against the purchase price, or (iii) with
respect to one parcel of the Real Property, Great Lakes may pay to the
Partnership the portion of the purchase price allocated to such parcel, but
defer the receipt of title to the defective parcel and lease such parcel from
the Partnership at nominal cost until remediation of the defects is completed,
with the Partnership paying toward such remediation up to the lesser of 10% of
the purchase price allocated to such parcel or $100,000. If the Sale is
consummated, but one or more parcels of the Real Property are retained by the
Partnership pursuant to the foregoing, distributions of net proceeds will still
be made to the Limited Partners within 60 days of the Closing, but the
Partnership will not be dissolved and final distributions to the Limited
Partners will not be made unless and until a buyer can be found to purchase the
retained Real Property on commercially reasonable terms.
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Consummation of Other Asset Sales. The closing under the Purchase
Agreement is also conditioned upon the closing of the sale of the operating
assets of three of the Affiliated Partnerships to Great Lakes. Great Lakes and
the General Partners negotiated the cross-closing contingency because Great
Lakes desires to purchase substantially all of the operating assets of the
Partnership and the Affiliated Partnerships and is not willing to purchase them
separately for the overall consideration offered. The General Partners agreed to
the cross-closing contingency because, based on their experience in negotiating
the sale of real estate assets, they believed that they would be unable to find
purchasers for the individual assets of the Partnerships that would be willing
to pay as much for the individual assets as Great Lakes was willing to pay for
them as part of the larger transaction and because multiple transactions were
likely to require significantly greater aggregate transaction costs.
Remedies Upon Failure to Close. If the Sale does not close due to
breach of the Purchase Agreement by Great Lakes, then the Partnership will, in
lieu of other legal remedies that might be available to the Partnership, retain
the benefit of (i) $10,000 deposited with the Partnership by Great Lakes, (ii) a
promissory note of Great Lakes, which has been delivered to the Partnership, in
the amount of $100,000, (iii) a letter of credit for the benefit of the
Partnership, to be delivered after the satisfaction of the conditions to the
Partnership's obligation to close, in the amount of $100,000, and (iv) a cash
amount equal to the Partnership's out-of-pocket expenses incurred in connection
with the proposed Sale.
If the Sale does not close due to a breach of the Purchase Agreement by
the Partnership, other than a defect in title to any of the Real Property that
Great Lakes is unwilling to waive, then all up-front payments as described above
will be returned and Great Lakes may pursue any other legal remedies available
to it. In addition, failure to close due to the Partnership's breach, other than
for an unwaived title defect or failure of the Limited Partners to approve the
Sale, will entitle Great Lakes to receive, in the event of a sale of the
Partnership's assets within 12 months of the Partnership's default, a
termination fee equal to the lesser of (a) 6% of the purchase price set forth in
the Purchase Agreement or (b) 25% of the amount by which the purchase price to
be paid by the new buyer exceeds the purchase price set forth in the Purchase
Agreement.
Indemnification. The Purchase Agreement provides that the Partnership
will indemnify and hold Great Lakes harmless from and against any liability or
claim relating to the Real Property and arising prior to the Closing or arising
as a result of the Partnership's breach under the Purchase Agreement.
Notwithstanding the foregoing, however, Great Lakes has agreed that it shall be
responsible for the first $50,000 of claims against the Partnership. The
Partnership's obligation to indemnify Great Lakes will expire on the first
anniversary of the Closing (except in the case of the Partnership's obligation
to indemnify due to fraud or intentional misrepresentation).
The Purchase Agreement also provides that Great Lakes will indemnify
the Partnership from and against any liability or claim relating to Real
Property and arising after the Closing. Great Lakes has also agreed to indemnify
the Partnership against claims arising as a result of Great Lakes'
investigations of the Real Property prior to the Closing and any liabilities or
claims arising after the Closing and relating to the Property Management
Agreement, dated as of June 1, 1993 between the Partnership and Midwest Property
Management I, Inc., which agreement will be assigned by the Partnership to Great
Lakes as of the Closing.
Interests of Certain Persons in the Transaction
Douglas C. Heston, a member of Great Lakes, is a shareholder, director
and officer of First Financial Realty Management, Inc. ("FFRM"). FFRM currently
provides property management and partnership administration services for the
Partnership and the Affiliated Partnerships. Until 1988, Mr. Heston was also a
General Partner of RAL II. In connection with his withdrawal as a General
Partner of RAL II, Mr. Heston retained certain economic benefits associated with
having been a General Partner, including the right to receive a portion of any
real estate commissions paid by RAL II to the General Partners or their
affiliates.
Mr. Heston is also a shareholder, director and officer of First
Financial Realty Advisors, Inc. ("FFRA"). In 1995, FFRA purchased from Robert A.
Long, a General Partner of RAL II, certain economic benefits which would
otherwise accrue to Mr. Long, including the right to receive a portion of any
distributions of cash flow and
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sales or refinancing proceeds from the Partnership to the General Partners and
the right to receive a portion of any real estate commissions paid by the
Partnership to the General Partners or their affiliates. FFRA has entered into
similar arrangements with Mr. Long with regard to each of the Affiliated
Partnerships, of which Mr. Long is also a General Partner.
RAL II and each of the Affiliated Partnerships have entered into a
Nonexclusive Listing Agreement with RAL-RV Brokerage Co., Inc. ("RAL-RV"), a
corporation owned by the General Partners, pursuant to which RAL- RV will be
paid a 6% real estate brokerage commission by RAL II and each of the Affiliated
Partnerships, if allowed by the relevant limited partnership agreement. With the
exception of RAL II, the right of the General Partners or their affiliates to
receive a real estate commission is subordinated to the Limited Partners first
receiving an amount equal to 100% of their original capital contributions, plus
6% of the original capital contributions per annum, on a cumulative basis. In
connection with the Sale, it is anticipated that RAL-RV will be paid a real
estate commission only by RAL II.
Pursuant to the Partnership Agreement, the General Partners will
receive an amount equal to their aggregate net capital accounts of $80,256,
which amount will be distributed among the five General Partners on the basis of
their respective ownership percentages.
The General Partners of RAL II and the Affiliated Partnerships have
certain contractual obligations to several former General Partners of the
partnerships, which require the General Partners to share a portion of real
estate commissions and/or distributions of cash flow and/or sale or refinancing
proceeds with those former General Partners. In the case of RAL II, only Mr.
Heston is entitled to such payment, which the General Partners expect will not
exceed $______. Mr. Heston is not entitled to any such payment in connection
with the Related Transactions.
Certain of the General Partners or their affiliates own small numbers
of RAL II Interests. See "THE PARTNERSHIP -- Security Ownership of Certain
Beneficial Owners and Management."
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TAX CONSIDERATIONS
Taxation of Partnerships in General
An entity classified as a partnership for federal income tax purposes
is not subject to federal income tax. Instead, income or loss "flows through"
from the partnership to its partners who are taxable in their individual
capacities on their allocable shares of partnership income, gain, loss,
deduction and credit ("taxable income or loss"). However, the partnership is a
tax reporting entity that must make an annual return of partnership taxable
income 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 income tax return (if required) 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. This
consistency requirement may be waived if the partner files a statement
identifying the inconsistency or shows that it resulted from an incorrect
schedule furnished by the partnership.
Each partner generally 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. A
partner's basis in its partnership interest is increased by its allocable share
of partnership taxable income. It is this basis increase that generally allows
distributions of cash or property to the partners to be made without recognition
of gain, since the basis increase generally offsets corresponding decreases in
basis that result from such distributions. As a result, a partner is generally
not taxed on distributions of cash or property received from a partnership,
except to the extent that any money distributed exceeds the partner's adjusted
basis in its partnership interest immediately before the distribution.
Basis of Partnership Interests
A partner's basis in its interest is equal to its cost for such
interest (i.e. the amount of money actually contributed by the partner to the
partnership or paid to another to purchase the interest), reduced (but not below
zero) 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 liabilities
is treated as a contribution of money by that partner to the partnership.
Conversely, a decrease in its share of partnership liabilities is treated as a
distribution of money to it.
Generally, a limited partner may not take liabilities 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, in
the case of a limited partnership, if a partnership asset is subject to a
liability for which no partner has any personal liability (a "nonrecourse
liability"), in general, the partner's allocable share of the non-recourse
liability will be taken into account to determine basis.
Allocation of Income, Gain, Loss and Deduction Among the Partners
A partner's distributive share of a partnership's taxable income or
loss generally is determined by reference to the allocation of such items in the
partnership agreement. However, if the allocation under the partnership
agreement is determined not to have "substantial economic effect," then the
partnership agreement may not govern, and the partner's allocable share will be
determined according to the partner's interest in the partnership taking into
account all the facts and circumstances. An allocation is considered to have
"substantial economic effect" if the allocation may actually affect the dollar
amount of the partner's shares of the total partnership income or loss
independent of tax consequences. The General Partners believe that the
allocations made under the Partnership Agreements for the Partnership have
substantial economic effect.
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Sales Of Partnership Properties
The sale of the Partnership's assets will be a taxable event to the
Partnership and to its partners. Gain or loss on the sale is measured by the
difference between the adjusted basis of the assets disposed of and the amount
realized. On a sale, the amount realized is the sum of any money received, plus
the fair market value of any property received, plus the amount of liabilities
from which the Partnership is discharged as a result of the sale or disposition
(which includes the amount of any nonrecourse liability to which the transferred
property is subject). The adjusted basis of such property is generally its cost
less deductions, allowed or allowable, for depreciation. In general, gains from
the sale or other disposition of partnership properties that are treated as
long-term capital gains are taxed at the partner level at a lower rate than
ordinary income and short-term capital gains.
Since a partnership's gain on a sale of property will be measured by
the difference between the sales proceeds (including the amount of any
indebtedness to which the property is subject) and the adjusted basis of the
property, the amount of tax payable by a partner in respect of its share of such
gain may in some cases exceed its share of the cash proceeds therefrom.
A substantial portion of the assets to be sold (including buildings,
land, furniture, fixtures and equipment) that were held for more than one year
and are not "dealer property," 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 in that year, and the
section 1231 gains or losses would be allocated to the partners as provided in
the partnership agreement and combined with any other section 1231 gains or
losses incurred by the partner in that year. The partner's net section 1231
gains or losses would be taxed as capital gains or constitute ordinary losses.
If a partnership is deemed a "dealer" and its investment in any property that
constitutes the partnership is considered not to be a capital asset or section
1231 asset, any gain or loss on the sale of such property would be treated as
ordinary income or loss. The Partnership has attempted to operate in such a
manner so as not to be deemed a "dealer."
A portion of a partner's gain recognized on disposition of a
partnership's buildings and furniture, fixtures and equipment may be subject to
recapture as ordinary income under the provisions of sections 1245 or 1250 of
the Internal Revenue Code of 1986, as amended. Such recapture gain will be
recognized in the year of the disposition.
A non-corporate partner's share of any losses from the sale of
Partnership properties that is treated as a capital loss is deductible in any
year only to the extent of the partner's long and short-term capital gains for
that year. Any excess of capital losses over capital gains is deductible by a
non-corporate partner up to $3,000 ($1,500 in the case of a separate return for
a married individual) although the unused portion of such capital losses could
be carried over to later years, and deducted as a long-term or short-term
capital loss until fully exhausted.
Liquidation of the Partnership
Generally, upon the liquidation of a partnership, gain will be
recognized by and taxable to a partner to the extent the amount of cash and
marketable securities distributed to it exceeds its basis in the partnership at
the time of the distribution. Gain or loss on the liquidation of a partnership
interest generally is considered to be capital gain or loss.
An exception to such treatment is provided in Code section 751, which
states that the proceeds of a sale, exchange or liquidation of a partnership
interest will be considered an amount realized from the sale or exchange of
property other than a capital asset to the extent that such proceeds are
attributable to the partnership's "unrealized receivables" or to "substantially
appreciated inventory." The term "unrealized receivables" includes amounts not
previously includable in income under the partnership's method of accounting,
rights to payment for services rendered or to be rendered and for goods
delivered or to be delivered and a partner's pro rata share of any potential
Code section 1245 or 1250 income, short-term obligations, market discount bonds,
franchises, trademarks and trade
16
<PAGE>
names and several other categories of property which would be treated as amounts
received from the sale or exchange of property other than a capital asset. Thus,
the difference between the amount realized that is attributable to a
partnership's "section 751 property" and the adjusted basis to the partner of
such "section 751 property" is treated as ordinary income or loss to the
partner. The difference between the remainder, if any, of the partner's adjusted
basis for its partnership interest and the balance, if any, of the amount
realized, is the partner's capital gain or loss on the liquidation of the
partnership interest.
Capital loss will be recognized in the event only cash and unrealized
receivables are distributed, and only to the extent the partner's adjusted basis
for its interest exceeds the sum of money distributed and the partnership's
adjusted basis for unrealized receivables.
In addition, each partner may be in receipt of income or loss from the
normal operations of a partnership during the year of dissolution. Such income
may constitute ordinary income or loss.
There are three commonly encountered limitations on a partner's ability
to take into account its share of a partnership's loss in computing its
individual tax liability. A partner is entitled to deduct its share of the
partnership's loss only after satisfying all three rules. A partner's deductible
share of losses is limited to its basis in its partnership interest. The at-risk
rules limit a partner's deductible share of losses to the amount it is
considered to be economically at-risk in the venture. If a partner's share of
the partnership's losses are considered "passive losses," the partner must
combine them with its passive losses from other sources and is allowed to deduct
the total only to the extent of its passive income from all sources. Losses that
are disallowed due to any of these three limitations are deductible in the year
of the termination of a partnership interest and would offset any gain from
liquidation.
Alternative Minimum Tax
The above summary of the federal income tax provisions relating to the
proposed transactions has not taken into account the federal alternative minimum
tax. This tax was designed to ensure that at least some tax is paid by high
income taxpayers who obtain benefits from large exemptions and deductions. A
taxpayer's alternative minimum tax liability is determined by adjusting its
regular tax liability for alternative minimum tax preference items. Both of the
proposed transactions may result in alternative minimum tax preference items
flowing through to the partners.
Conclusion
The preceding is intended only as a summary of income tax consequences
relating to the sale of assets by partnerships and partnerships' liquidation
generally. The Limited Partners should consult their own tax advisors with
respect to all matters discussed herein and their own particular tax
circumstances.
THE FOREGOING DISCUSSION IS INTENDED ONLY AS A SUMMARY OF THE MATERIAL
FEDERAL INCOME TAX CONSEQUENCES OF THE SALE AND DOES NOT PURPORT TO BE A
COMPLETE ANALYSIS OR LISTING OF ALL POTENTIAL TAX EFFECTS RELEVANT TO A DECISION
OF WHETHER TO VOTE IN FAVOR OF THE SALE. THE DISCUSSION DOES NOT ADDRESS THE TAX
CONSEQUENCES THAT MAY BE RELEVANT TO A PARTICULAR LIMITED PARTNER WHO IS SUBJECT
TO SPECIAL TREATMENT UNDER CERTAIN FEDERAL INCOME TAX LAWS NOR ANY CONSEQUENCES
ARISING UNDER THE LAWS OF ANY STATE, LOCALITY OR FOREIGN JURISDICTION. THE
DISCUSSION IS BASED UPON THE INTERNAL REVENUE CODE OF 1986, AS AMENDED, TREASURY
REGULATIONS THEREUNDER AND ADMINISTRATIVE RULINGS AND COURT DECISIONS AS OF THE
DATE HEREOF. ALL OF THE FOREGOING ARE SUBJECT TO CHANGE, AND ANY SUCH CHANGE
COULD AFFECT THE CONTINUING VALIDITY OF THIS DISCUSSION. THE LIMITED PARTNERS
ARE URGED TO CONSULT AND RELY ON THEIR OWN TAX ADVISORS CONCERNING THE FEDERAL,
STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF THE PROPOSED SALE TO THEM.
17
<PAGE>
ADDITIONAL INFORMATION FOR LIMITED PARTNERS
Dissenters' Rights
Under Wisconsin law and the Partnership Agreement, no Limited Partner
is entitled to exercise dissenters' rights with respect to the Sale and
subsequent dissolution of the Partnership.
Receipt of Distributions After the Sale
Upon consummation of the Sale, the Limited Partners will be entitled to
receive, within 60 days of the Closing, the cash consideration outlined in
"PROPOSED SALE OF PARTNERSHIP ASSETS AND SUBSEQUENT DISSOLUTION OF THE
PARTNERSHIP - Anticipated Distributions." Since certificates representing the
RAL II Interests have not been issued to the Limited Partners, it will not be
necessary for the Limited Partners to return certificates in order to receive
distributions following the Sale.
Operations Following the Sale and Effect of the Sale on Limited Partners
Upon consummation of the Sale, the Partnership will use proceeds of the
Sale to pay off its debt and other payables associated with the operation of the
Partnership and the Real Property. Based on the existing obligations of the
Partnership, the anticipated expenses related to the Sale and current and
historical accounts payable, the General Partners believe that initial
distributions to Limited Partners will total approximately $689 per Interest,
not including any Conditional Future Distribution.
In order to reduce expenses and maximize the distribution to the
Limited Partners, the Partnership will begin to wind down its affairs following
consummation of the Sale. Great Lakes has agreed that, after the closing of the
Sale, it will cause its affiliate, First Financial Realty Management, Inc., to
provide certain partnership administration services to the Partnership until it
can be dissolved. Information regarding Conditional Future Distributions will be
sent to Limited Partners at least annually until all such Conditional Future
Distributions have been made or the seven-year period in which they may accrue
has expired, although the General Partners anticipate that distributions of
annual and quarterly reports to Limited Partners containing financial statements
will be discontinued following the closing of the Sale. The Partnership will
continue to maintain books and records and file tax returns until the affairs of
the Partnership have been settled.
Following the consummation of the Sale and the distribution of net
proceeds available therefor, the Limited Partners will not have any interest in
the Real Property or Great Lakes, except the right to receive Conditional Future
Distributions, if any. If, however, after the Closing, any parcel of the Real
Property is retained by the Partnership due to the results of title and
environmental surveys which have yet to be conducted, a distribution to the
Limited Partners of available funds will still be made; however, the Partnership
will not be dissolved and the Limited Partners will continue to be Limited
Partners of the Partnership until the affected property can be sold on
commercially reasonable terms.
18
<PAGE>
THE PARTNERSHIP
Selected Historical Financial and Operating Data
The following selected financial information of RAL II for the years
ended December 31, 1997, 1996, 1995, 1994 and 1993 has been derived from RAL
II's financial statements, which have been audited by Kolb Lauwasser & Co., S.C.
for such periods. The following selected financial information for each of the
six months ended June 30, 1998 and 1997 are unaudited but, in the opinion of the
General Partners of RAL II, include all adjustments (consisting only of normal,
recurring adjustments) necessary for a fair presentation of the results of such
periods.
<TABLE>
<CAPTION>
Year Ended December 31, Period Ended June 30,
1997 1996 1995 1994 1993 1998 1997
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Summary of Operations:
Total Revenue $1,625,397 1,650,595 1,575,619 1,498,653 1,286,016 750,896 825,660
Operating Income 450,761 566,485 568,817 498,788 272,541
Net Income 523,995 643,133 654,540 566,968 331,268 190,214 263,586
Per-Interest Data:
Net Income per Interest 62.49 76.70 78.06 67.61 39.51 26.57 31.75
Financial Condition:
Total Assets 4,507,221 4,786,990 5,199,217 5,212,005 5,275,948 4,354,820 4,648,018
Bond, Notes and
Capitalized Lease
Obligations -- -- -- -- -- -- --
Partners' Capital 4,321,704 4,601,294 5,024,493 5,012,074 5,040,009 4,176,398 4,499,413
Distributions per Interest:
First Quarter 24.20 55.02 18.20 17.06 14.50 24.20 24.20
Second Quarter 24.20 25.03 18.20 18.20 14.50 19.88 24.20
Third Quarter 24.20 24.20 18.20 18.20 14.56
Fourth Quarter 24.20 24.20 22.75 18.20 16.49
</TABLE>
Additional financial data is included in the Partnership's annual
report to Limited Partners for the year ended December 31, 1997 and the
Partnership's Quarterly Reports on Form 10-Q for the periods ended March 31,
1998 and June 30, 1998, a copy of each of which is enclosed with this Consent
Solicitation Statement.
Description of Business
RAL II is a Wisconsin Limited Partnership formed on March 30, 1984
under the Wisconsin Revised Uniform Limited Partnership Act. RAL II was
organized to acquire, for cash (no debt), real estate projects, including real
estate for restaurants, mobile home communities and other commercial properties.
RAL II sold $8,301,500 in Limited Partnership Interests (8,301.5 Interests at
$1,000 per Interest) from March 30, 1984 through June 30, 1985. RAL II has
registered with the Securities and Exchange Commission a total of 8,301.5
Interests held by the public.
19
<PAGE>
Properties
As of June 30, 1998, RAL II owned the following properties:
Property Approximate Size
Rocky Rococo Restaurant
and Business 3,200 square-foot building on approximately
Wauwatosa, Wisconsin 20,591 square feet of land
Vacant Restaurant 4,000 square-foot building on approximately
West Allis, Wisconsin 34,000 square feet of land
Pizza Hut Restaurant 4,000 square-foot building on approximately
Waterloo, Iowa 34,000 square feet of land
Wendy's Restaurant 3,600 square-foot building on approximately
Wauwatosa, Wisconsin 56,000 square feet of land
Spacious Acres Mobile
Home Park* 182 mobile home pads on 63.5 acres of land
Town of Concord, Wisconsin
Wendy's Restaurant 3,900 square-foot building on approximately
Eden Prairie, Minnesota 62,000 square feet of land
Rocky Rococo Restaurant 3,900 square-foot building on approximately
Racine, Wisconsin 79,025 square feet of land
- -----------------
* Denotes a material property, having gross revenues greater than 10% of total
revenues.
All of the Real Property was unencumbered as of June 30, 1998. In the
opinion of the General Partners, all of the Real Property is adequately covered
by insurance.
Material Properties
Following is information with respect to the Spacious Acres Mobile Home
Park, RAL II's only property whose revenues are greater than 10% of total
revenues of RAL II as denoted above.
Occupancy Rates. Following is a listing of the approximate average
physical occupancy rates during each of the last five years and for the
six-month periods ended June 30, 1998 and 1997.
Occupancy Rates
Six Months Ended Six Months Ended
1997 1996 1995 1994 1993 June 30, 1998 June 30, 1997
---- ---- ---- ---- ---- ------------- -------------
99% 99% 99% 99% 99% 100% 99%
20
<PAGE>
Rental Rates. Following is a listing of the approximate average
per-unit rental rates during each of the last five years and for the six-month
periods ended June 30, 1997 and 1998.
Rental Rates
Six Months
Six Months Ended Ended June
1997 1996 1995 1994 1993 June 30, 1998 30, 1997
---- ---- ---- ---- ---- ------------- --------
$2,786 $2,670 $2,539 $2,447 $2,335 $2,884 $2,767
Depreciation. Depreciation information for the mobile home park is as
follows:
Type of Asset Rate Method Depreciable Life
- ------------- ---- ------ ----------------
Land Improvements SL ACRS 15/20 Years
Building SL ACRS 18/19/40 Years
Equipment DDB ACRS/MACRS 5/7/12 Years
Taxes. Following is certain tax information for the mobile home park
for each of the last three years and for the six-month periods ended June 30,
1998 and 1997.
<TABLE>
<CAPTION>
Six Months Ended Six Months Ended
1997 1996 1995 1994 1993 June 30, 1998 June 30, 1997
---- ---- ---- ---- ---- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Tax Rate(per 1,000) .017869 .018925 .020455 .029525 .030346 .017869 .017869
Real Estate Taxes $33,597 $35,735 $38,626 $43,331 $44,095 $16,799 $16,799
</TABLE>
Leases on Investment Properties
The restaurant properties are leased under 20-year leases with two
five-year options to renew the leases at the end of the original term. Rent,
which is payable monthly, generally is equal to the greater of 6.50% or 6.75% of
gross sales, depending on the lease, or a minimum base rent stated in the lease.
All of the tenants are currently paying rent based on the minimum base rental.
The leases are "triple net" to RAL II, with the lessee being responsible for
occupancy costs such as maintenance, insurance, taxes and utilities. The Rocky
Rococo Restaurant and Business in Wauwatosa is currently being operated directly
by RAL II. Any excess cash flow is for the benefit of the Partnership. The
vacant restaurant property in West Allis, Wisconsin was leased to a Hardee's
Restaurant franchisee that became insolvent and went through an informal
reorganization. The lessee vacated the premises in December 1996. The property
has been reclassified in RAL II's financial statements as property held for sale
or release as of June 30, 1998 and December 31, 1997 and 1996. The mobile home
park receives income on a monthly basis from tenant leases that normally have
lease terms of one year or less.
Legal Proceedings
As of June 30, 1998, there were no material pending legal actions
affecting RAL II.
Security Ownership of Certain Beneficial Owners and Management
As of the date of this Consent Solicitation Statement, there were
8,301.5 RAL II Interests outstanding, each entitled to one vote on the Purchase
Agreement and Sale.
As of August 31, 1998, no person or group is known by RAL II to own
beneficially more than 5% of the outstanding RAL II Interests.
21
<PAGE>
Certain of the General Partners own less than 1% of the RAL II
Interests outstanding: Thomas R. Brophy beneficially owns 17 RAL II Interests;
Robert A. Long beneficially owns six RAL II Interests and disclaims beneficial
ownership of two additional RAL II Interests beneficially owned by his wife; and
Bart Starr beneficially owns eight RAL II Interests.
Comparative Per-Interest Data
The following sets forth certain data concerning the historical net
earnings, distributions and book value per Interest for RAL II.
<TABLE>
<CAPTION>
Year Ended December 31, Six Months Ended
1997 1996 1995 1994 1993 June 30, 1998
---- ---- ---- ---- ---- -------------
<S> <C> <C> <C> <C> <C> <C>
Net Income (Loss) Per Interest $ 62.49 $ 76.70 $ 78.06 $ 67.61 $ 39.51 $ 26.57
Cash Distribution Per Interest 96.80 128.45 77.35 71.66 60.05 44.08
Book Value Per Interest 513.15 547.46 599.22 598.51 602.56 495.38
</TABLE>
Market Price Data
There is no established public trading market for the RAL II Interests.
Nevertheless, the General Partners become aware of some transfers of RAL II
Interests after they occur as a result of a review of transfer documents
submitted to the Partnership from the purchaser or broker, which documents
sometimes include the applicable sale price. The General Partners believe that
such prices may, but do not necessarily, include various transfer fees and
commissions.
For the period from January 1997 through June 1998, the General
Partners are aware of several trades, from a low price of $331 per RAL II
Interest to a high price of $560 per RAL II Interest. The General Partners
believe that, because of the very limited trading in the RAL II Interests,
individual trades are anecdotal and that such prices do not necessarily reflect
the true value of the Partnership's assets or the prices at which RAL II
Interests would likely trade in a fluid market. At June 30, 1998, RAL II had
1,262 Limited Partners of record who held 8,301.5 RAL II Interests.
EXPERTS
The audited consolidated financial statements of the Partnerships as of
December 31, 1997 and for each of the years in the three-year period then ended,
have been incorporated by reference herein in reliance an the report of Kolb
Lauwasser & Co., S.C., independent certified public accountants, and upon the
authority of such firm as experts in accounting and auditing.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The Partnership incorporates herein by reference the following
documents, filed by the Partnership with the Securities and Exchange Commission
(the "Commission") pursuant to the Securities Exchange Act of 1934, as amended,
and the rules promulgated thereunder (the "Exchange Act"): (i) the Partnership's
Annual Report on Form 10-K for the fiscal year ended December 31, 1997; (ii) the
Partnership's Quarterly Reports on Form 10-Q for the quarters ended March 31,
1998 and June 30, 1998; (iii) all other reports filed by the Partnership
pursuant to Section 13(a) or 15(d) of the Exchange Act since December 31, 1997;
and (iv) the description of the RAL II Interests contained in the Partnership's
Registration Statement on Form 10, filed with the Commission on May 1, 1986.
All documents filed by the Partnership pursuant to Section 13(a),
13(c), 14, or 15(d) of the Exchange Act subsequent to the date of this Consent
Solicitation Statement and prior to September __, 1998 shall be deemed to be
incorporated by reference in this Consent Solicitation Statement and to be part
hereof from the date of filing of such documents. All information appearing in
this Consent Solicitation Statement is qualified in its entirety by the
information and financial statements (including notes thereto) appearing in the
documents incorporated by reference herein.
22
<PAGE>
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be modified or superseded, for purposes
of this Consent Solicitation Statement, to the extent that a statement contained
herein or in any subsequently filed document that is deemed to be incorporated
herein modifies or supersedes any 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 Solicitation Statement.
23
<PAGE>
APPENDIX A
ASSET PURCHASE AGREEMENT
THIS AGREEMENT is made as of February 17, 1998 between GREAT LAKES
INVESTORS LLC, a Wisconsin limited liability company, or assigns ("Buyer"), and
RAL YIELD EQUITIES II LIMITED PARTNERSHIP, a Wisconsin limited partnership
("Seller").
RECITALS
A. Seller owns the business described on the attached Exhibit A (the
"Business," consisting of the "Projects" listed on Exhibit A).
B. Buyer desires to purchase the Business and the assets of the
Business defined in Section 1 (the "Assets"), and Seller desires to sell the
Business and the Assets to Buyer, on the terms and conditions of this Agreement.
AGREEMENTS
In consideration of the foregoing recitals and the mutual agreements
that follow, the receipt and sufficiency of which Buyer and Seller acknowledge,
BUYER AND SELLER AGREE:
1. Purchase and Sale. Buyer shall purchase from Seller and Seller shall
sell to Buyer the Assets of the Business, comprised of the Property, the Name,
and the Business Interests, defined as follows:
(a) "Property" means:
(1) The real property described on the attached Exhibit
1(a)(1) and all easements, servitudes and other rights appurtenant to it,
including all rights, title and interest of Seller in and to the adjacent
streets, alleys and rights-of-way and all interests in contiguous property owned
by Seller, its general partners or its affiliates (collectively, the "Land").
(2) All buildings, improvements, and building fixtures
located on the Land (collectively, the "Improvements"; together with the Land,
the "Real Property").
(3) All equipment and personal property owned by Seller and
located on the Real Property (collectively, the "Personal Property").
(4) All warranties for construction protecting against
material defects in and to the Improvements that were received by Seller from
its contractors and material suppliers, to the extent assignable ("Warranties").
<PAGE>
(5) All contracts for maintenance, materials and service to
items (1) through (3) (collectively, the "Contracts").
(b) "Name" means all of Seller's right, title and interest in
and to the name of the Business set forth on Exhibit A, and all rights to
telephone numbers, telephone directory listings, existing advertising and media
and promotional materials, to the extent assignable.
(c) "Business Interests" means all of Seller's right, title
and interest in and to the contacts, reputation or good will of the Business,
all leases affecting the Property ("Leases"), any rights related to vacant land
adjacent to the Real Property, any dealership agreements for the sale or
distribution of manufactured housing related to the Business, any franchise
rights related to the Business, and such other rights, interests or intangibles
involved in the operation of the Business, including (without limitation) the
items described on the attached Exhibit 1(c).
2. Earnest Money; Consideration.
(a) Contemporaneously with execution of this Agreement, Buyer
shall deliver $10,000.00 (the "Deposit") to Chicago Title Insurance Company (the
"Title Insurance Company") to be held as earnest money and either applied to the
cash payment set forth below at closing or disbursed to Buyer or Seller, as the
case may be, pursuant to the terms of this Agreement. The earnest money shall be
held in an interest-bearing account, with interest considered additional earnest
money. The parties agree that the earnest money is sufficient consideration for
Buyer's exclusive right to inspect and purchase the Assets pursuant to this
Agreement, and for Seller's execution and delivery of, and performance of its
obligations under, this Agreement. This consideration is in addition to and
independent of any other consideration or payment provided in the Agreement.
(b) Within 10 days after this Agreement becomes binding, Buyer
shall execute and deliver to Seller, as additional earnest money, Buyer's
$100,000 promissory note payable in full at Closing or upon Buyer's breach of
this Agreement (the "Buyer Note"). Within 3 business days after waiver or
satisfaction of the last of Seller's conditions precedent under Section 4A,
Buyer shall deliver to Seller a $100,000 letter of credit issued by a financial
institution reasonably acceptable to Seller securing Buyer's obligations under
the Buyer Note (the "Letter of Credit"). Buyer's payment of the Buyer Note shall
be credited against the Purchase Price at Closing. If the transactions
contemplated under this Agreement fail to close due to Seller's default (other
than default limited to a valid legal defect in title that Buyer is unwilling to
waive) or failure to satisfy or waive any of Seller's conditions precedent set
forth in Section 4A, the Buyer Note shall be void, and Seller shall immediately
return the original Buyer Note and the original Letter of Credit to Buyer, both
marked "Canceled."
3. Purchase Price. The purchase price for the Assets ("Purchase Price")
is set forth on the attached Exhibit 3. The allocation of the Purchase Price
among the Projects (the "Project Allocations") is set forth on Exhibit A.
Subject to the prorations and credits set forth in Section
-3-
<PAGE>
9 and elsewhere in this Agreement, Buyer shall pay the Purchase Price to Seller
at Closing by certified or cashier's check or wire transfer.
4. Buyer's Conditions Precedent. The matters set forth below are
conditions precedent to Buyer's obligation to conclude this transaction. If
Buyer does not deliver written notice to Seller by the date established on the
attached Exhibit 4 for each condition that the condition has not been satisfied
and that Buyer therefore elects to exercise such rights as Buyer may have under
this Section, Buyer shall be deemed to have waived the condition. If Buyer
timely elects to terminate Buyer's obligation to purchase a Project because of a
failure to satisfy any condition with respect to such Project, then the Purchase
Price shall be reduced by the Project Allocation for the affected Project, and
as to the affected Project, this Agreement shall terminate, and Buyer shall
promptly deliver to Seller (at no cost to Seller) copies of the reports it
obtains in connection with the Project.
(a) Buyer shall order a survey of each Project from a surveyor
or engineer reasonably acceptable to Seller. The parties shall share the survey
costs equally, subject to adjustment as provided below. Each survey must comply
with the minimum detail requirements to permit the Title Insurance Company to
issue owner's and lender's policies of title insurance free from exceptions for
matters that a current survey would disclose, showing the foundations of all
buildings constituting Improvements, the courses and dimensions of and the area
of the Land, all recorded or apparent easements or rights-of-way appurtenant to
or part of the Real Property or to which the Real Property is subject, the
location of all adjoining streets, any applicable flood hazard zone or notation
of the lack of any such zone, and the distances of any buildings to the
boundaries of the Real Property, and showing that the Real Property is free from
questions of encroachment. Buyer shall deliver each survey to the Title
Insurance Company. Buyer shall deliver written notice to Seller of any title
defects disclosed by the surveys that are not Permitted Encumbrances (defined
below) and to which Buyer objects. Seller shall use reasonable efforts to
eliminate such objections that are not Permitted Encumbrances. If Seller fails
to timely eliminate any objection that is not a Permitted Encumbrance, Buyer may
either accept such objections, which will then become Permitted Encumbrances, or
terminate this Agreement as to any or all affected Projects. The foregoing
rights notwithstanding, Buyer shall not be permitted to terminate this Agreement
as to the West Allis Property (defined in Exhibit 3) because of a title defect
related to Seller's dispute with Home Depot U.S.A., Inc. If Buyer does not
timely notify Seller of any defects as required above, then this condition shall
be deemed satisfied.
(b) Seller, at Seller's expense, shall order a written
commitment from the Title Insurance Company to issue an ALTA owner's policy of
title insurance with general exceptions deleted, in the amount of the Purchase
Price allocated to the Real Property as shown in the Purchase Price allocation
on Exhibit 3, insuring that on recording the warranty deed from Seller to Buyer
the Real Property shall be free and clear of all liens, encumbrances and defects
except the matters listed on the attached Exhibit 4(b) ("Permitted
Encumbrances"). Buyer must either approve the form and content of this
commitment or give Seller written notice of its objections to the matters
disclosed in it. Seller shall use reasonable efforts to eliminate such
objections that
-4-
<PAGE>
are not Permitted Encumbrances. If Seller fails to timely eliminate any
objection that is not a Permitted Encumbrance, Buyer may either accept such
objections, which will then become Permitted Encumbrances, or terminate this
Agreement as to any or all affected Projects. The foregoing rights
notwithstanding, Buyer shall not be permitted to terminate this Agreement as to
the West Allis Property (defined in Exhibit 3) because of a title defect related
to Seller's dispute with Home Depot U.S.A., Inc.
(c) Buyer shall order a written environmental assessment of
the Property from a qualified environmental engineer and an engineering report
of the utility systems serving the Property from a qualified engineer. The
parties shall share the assessment costs equally, subject to adjustment as
provided below. Seller shall assist in the preparation of the environmental
assessment and engineering report, if reasonably required by Buyer, by providing
all information Seller may have and that is reasonably requested, permitting
soil samples to be taken from the Real Property, and complying in a timely
manner with any other reasonable requests of the persons preparing the
environmental assessment and engineering report. Buyer shall deliver written
notice to Seller of any defects disclosed by the environmental assessment and
engineering report (including the matters set forth in Section 7, the existence
of underground storage tanks, or objections of Buyer's lender, if any, to the
content or conclusion of the assessment and report) ("Defects"). Seller shall,
within 10 days after notice, obtain from one or more firms reasonably acceptable
to Buyer a quotation of the cost of remediating the Defects. If the quotation is
less than or equal to the lesser of $100,000 or 10% of the Project Allocation
for the affected Project, Seller shall, at its expense before closing, remediate
the Defects. If the quotation is more than such amount and Seller is unwilling
to pay the additional amount, Buyer shall have the following options:
(1) In the case of all Projects other than the Rocky Rococo
Restaurant in Wauwatosa, Wisconsin (the "Wauwatosa Rocky's"), Buyer may either
(i) terminate this Agreement as to the affected Project and have the Purchase
Price reduced by the Project Allocation; or (ii) close on the affected Project
and offset Seller's share of the quotation for remediating the Defects against
the Purchase Price. If Buyer chooses option (ii) above, Seller shall have no
further obligations with respect to remediating the affected Project's Defects.
(2) In the case of the Wauwatosa Rocky's, Buyer may defer
taking title to the affected Project until the Defects have been remediated. If
Buyer selects this option, Buyer shall at Closing pay the Project Allocation to
Seller to purchase the restaurant operations at the Project (including the
franchise rights described in Exhibit 1(c)), and Buyer and Seller shall at
Closing enter into a groundlease of the affected Project at a net rent of $1 per
year. Buyer shall be entitled to all income from the Project during the
groundlease term, and shall be responsible for the payment of all real estate
taxes, insurance, cost of maintenance and repairs, and all other carrying costs
and operating expenses associated with the affected Project. Buyer shall have
the Project's Defects remediated, and Seller shall pay the lesser of $100,000 or
10% of the Project Allocation toward the remediation costs, with Buyer paying
the balance. The groundlease shall expire when the Defects have been remediated,
at which time Buyer shall take title to the affected Project. If Buyer acquires
a Project affected by Defects and all or a portion
-5-
<PAGE>
of the cost of remediating the Defects is reimbursable from the State of
Wisconsin PECFA Fund, the reimbursement shall first be paid to reimburse Buyer
such costs that were paid by Buyer (to the extent they are reimbursable), and
the balance shall be paid to Seller.
(d) Buyer shall receive, at Seller's expense before closing,
the written consent of each party to the contracts listed on Exhibit 1(c) whose
consent is required for the transfer of Seller's contract rights to Buyer.
(e) At closing, the information contained in the Exhibits to
this Agreement must be materially accurate and complete with respect to all
material matters, and not contain any untrue statements of material fact or omit
material facts which would render any Exhibit misleading.
4A. Seller's Conditions Precedent. The matters set forth below are
conditions precedent to Seller's obligation to conclude this transaction. If
Seller delivers written notice to Buyer by Seller's Contingency Deadline
(defined below) that any such condition has not been satisfied or waived, Seller
may terminate this Agreement by written notice to Buyer. If Seller timely elects
to terminate this Agreement because of Seller's failure to satisfy or waive any
condition, this Agreement shall terminate, the Deposit, the Buyer Note (marked
"Canceled"), and the Letter of Credit (also marked "Canceled") shall be promptly
returned to Buyer, and neither party shall have any further obligation to the
other except as set forth in Sections 8(b) and 11. If Seller fails to timely
deliver such notice, these conditions shall be deemed waived. "Seller's
Contingency Deadline" shall be June 13, 1998, provided that as long as Seller is
diligently pursuing satisfaction of Seller's conditions precedent, this date may
be extended, at Seller's option, to August 13, 1998.
(a) Seller must obtain either (1) approval of the transaction
by the federal Securities and Exchange Commission and all state securities
commissioners with jurisdiction, or (2) an opinion of counsel reasonably
satisfactory to Seller that such approval is not required. Buyer shall cooperate
in Seller's efforts to obtain such approvals, including providing financial
information concerning Buyer if required.
(b) The Limited Partners of Seller must approve the
transactions contemplated in this Agreement by the consent or approval of the
holders of a majority of the outstanding limited partnership interests in
Seller.
(c) Seller must receive a so-called "fairness opinion,"
prepared at Seller's expense by an independent valuation company (e.g.,
Valuation Research Corporation or American Appraisal Associates, Inc.) of
Seller's choosing, which (1) states that the Purchase Price is fair and adequate
consideration for the Assets in language, and subject to assumptions and
qualifications, customary in the industry and (2) is reasonably satisfactory to
Seller's securities counsel, Foley & Lardner, and at least a majority of
Seller's general partners.
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4B. Mutual Condition Precedent. The parties' obligations under this
Agreement are contingent on this transaction closing simultaneously with the
transactions contemplated under the agreements of the same date between Buyer
and the affiliates of Seller described on the attached Exhibit 4B, provided that
in the case of the agreement with RAL Income + Equity Growth V Limited
Partnership ("RAL V"), this condition shall be deemed satisfied if all of the
transactions with RAL V are closed by January 31, 1999 in accordance with the
terms of the Asset Purchase Agreement between Buyer and RAL V of the same date
as this Agreement.
5. Matters Pending Closing. Until closing:
(a) Buyer's authorized representatives, including its
appraisers, architects and engineers, shall have access to the Property and to
all Seller's records and information regarding the Property (whether on the
Property or at Seller's offices) during normal business hours and after at least
24 hours prior written or oral notice. Any entry on the Property by Buyer's
authorized representatives shall not interfere with the rights of tenants in
possession, and shall be subject to the provisions of Section 11(b).
(b) Without Buyer's prior written consent, except as provided
in this paragraph or in Exhibit 3, Seller shall not: (1) make any new lease
affecting the Business or the Property or permit the termination or modification
of any Lease except in the ordinary course of Seller's Business; (2) transfer
all or any portion of the Property; (3) create any liens, encumbrances,
easements or rights-of-way affecting the Property; or (4) settle any lawsuits
related to the Business or the Assets. The foregoing provision notwithstanding,
Seller may sell, or enter into one or more contracts to sell, the specific
Projects identified in the attached Exhibit 5(b). If Seller sells, or enters
into a contract to sell, any such Project, the Purchase Price shall be reduced
by the Project Allocation.
(c) Seller shall maintain the Property in accordance with
standards previously followed by Seller and shall take no action affecting the
Property that is not in the ordinary course of Seller's Business without Buyer's
prior written consent. Seller shall maintain at customary levels all
inventories, building supplies and personal property used in the normal
maintenance, servicing, supplying and upkeep of the Property.
(d) Seller shall not remove any Improvements or Personal Property from
the Property unless removal is for the purpose of repair or maintenance, in
which case the property removed shall be promptly replaced.
(e) Seller shall maintain fire and extended coverage insurance
in the amount of the replacement cost of the Improvements and Personal Property,
together with rent loss insurance in an amount not less than the annual gross
rents payable by tenants under the Leases.
(f) Seller shall not enter into any new or modify any existing
service or employment contracts that shall not expire on or before closing
without Buyer's prior written consent, which shall not be unreasonably withheld.
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6. Closing Date.
(a) The transaction contemplated under this Agreement shall be
closed at the offices of Mallery & Zimmerman, S.C., 111 East Wisconsin Avenue,
Suite 1790, Milwaukee, Wisconsin 53202, or Buyer's lender's attorneys, if any,
within 45 days after satisfaction or waiver of the conditions set forth in
Section 4A (the "Closing Date"), or at such other time and place as the parties
may agree. Possession of the Property shall be delivered to Buyer on the Closing
Date, subject to the rights of tenants under the Leases.
(b) At closing Seller shall deliver to Buyer the following
documents:
(1) A General Warranty Deed conveying to Buyer the Real
Property, subject only to Permitted Encumbrances;
(2) A Bill of Sale conveying to Buyer the Personal Property
free and clear of liens or encumbrances;
(3) Each Lease then in effect and an Assignment conveying to
Buyer the interest of Seller in and to each Lease, as amended;
(4) An Assignment conveying to Buyer the interest of Seller
in and to the Warranties and the Contracts and written verification that any
present property management agreement with an affiliate of Seller other than
Midwest Property Management I, Inc. or Midwest Property Management II, Inc. has
been terminated;
(5) The owner's policy of title insurance required under
Section 4(b);
(6) An Assignment conveying to Buyer the interest of Seller
in the Name and good will;
(7) The original Buyer Note, marked "Paid," and the original
Letter of Credit, marked "Canceled"; and
(8) Such other documents as Buyer may reasonably request.
(c) At closing Buyer shall deliver to Seller payment of the
balance of the Purchase Price.
7. Seller's Warranties and Representations. This Agreement is entered
into by Buyer based on the representations and warranties of Seller contained in
it. These representations and warranties shall be true and correct as of the
date of this Agreement and as of the Closing Date and shall survive closing,
subject to the provisions of Section 13(d). Seller acknowledges that the
warranties and representations made by Seller are a material inducement to
Buyer's entering into this Agreement. No inspection, testing or mapping by Buyer
of the Property shall constitute
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a waiver by Buyer of its rights to rely on Seller's representations and
warranties, provided, however, that the representations and warranties shall be
deemed modified by any factual matters disclosed by any inspection, testing or
mapping that make Buyer or its agents actually aware of inaccuracies in the
representations and warranties. Seller's representations and warranties shall
also be deemed modified by any factual matters of which Buyer, Buyer's affiliate
First Financial Realty Management, Inc. ("FFRM"), or their respective employees
or agents have received or do receive actual or constructive notice in the
course of performing partnership administration services for Seller or managing
the Property and the Business, or otherwise. Seller represents and warrants to
Buyer that Seller owns the Assets free and clear of all liens and encumbrances
other than Permitted Encumbrances. Seller makes no representations or warranties
concerning the physical condition of the Assets, and is selling the Assets in
their physical condition as-is, where-is, and with all faults.
8. Closing Costs.
(a) If the transaction closes, Seller shall be responsible for
the title insurance premiums for the owner's policy (with no special
endorsements), survey charges, real estate transfer fees, and costs for the
engineering reports; and Buyer shall be responsible for the costs of the
environmental studies. To the extent either party has paid costs for which the
other is responsible, the responsible party shall reimburse the other party at
closing.
(b) If the transaction does not close due to Buyer default,
Buyer shall reimburse Seller for all costs previously paid by Seller for the
items set forth in paragraph (a). If the transaction does not close due to
Seller default, Seller shall reimburse Buyer for all costs previously paid by
Buyer for such items. If this transaction does not close for any other reason,
the parties shall share the costs of such items equally.
(c) In either case, each party shall pay its own attorneys'
fees and expenses.
9. Prorations and Credits.
(a) The following items shall be prorated and apportioned as
of the Closing Date: net general real estate taxes, utility charges, current and
prepaid rent, and any amounts payable under the Contracts. For the purposes of
prorating real estate and personal property taxes on the Closing Date, the taxes
for the year of closing shall be prorated based upon the prior year's net tax
amounts. Municipal parking fees shall be reflected, if necessary, to avoid Buyer
incurring any liability for parking fees collected or assessed prior to the
Closing Date. Special assessments, if any, for work on site actually commenced,
announced, or levied before the Closing Date, and all charges, tap fees,
paybacks, and other obligations for improvements affecting the Property and
imposed prior to the Closing Date, and the costs of restoring the Property as
nearly as possible to the condition that existed before such work or
improvements, shall be paid by Seller; provided, however, that the restoration
costs, if any, shall be included in the costs of remedying Defects under Section
4(c) and accordingly shall be subject to the
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limitations on Seller's liability in Section 4(c). Income and expenses
attributable to the Closing Date shall accrue to Seller.
(b) Buyer shall receive credit for free rent and other rent
concessions made or granted by Seller with respect to any portion of the
Property. On the Closing Date, Seller shall pay to Buyer the amount of any rent
security deposits then held by Seller together with accrued interest, if any.
10. Fire or Other Casualty.
(a) If the Property or any part of it is damaged by fire or
other casualty prior to the Closing Date (as determined by Buyer in good faith),
and this casualty results in uninsured or unreimbursed loss or abatement of rent
or termination of Leases accounting for more than 5% of the rental income of the
Property, Buyer may terminate this Agreement by written notice to Seller within
20 days after the damage and this Agreement shall be of no further effect and
neither party will thereafter have any further obligation to the other except
that all earnest money paid, plus accrued interest, shall be returned promptly
to Buyer. Seller shall grant to Buyer full and free access to the Property for
the purpose of inspecting such damage and assessing the extent of it, but this
entry upon the Property by Buyer shall not interfere with Seller's
reconstruction or the rights of tenants in possession under the Leases, and
shall be subject to the provisions of Section 11(b).
(b) If this Agreement is not terminated pursuant to subsection
(a) above, closing shall occur without abatement of the Purchase Price and
Seller shall assign and transfer to Buyer at closing by written instrument all
of Seller's right, title and interest to all insurance proceeds paid or payable
to Seller on account of such fire or casualty, less the amount expended by
Seller for the cost of restoration prior to the Closing Date, and Seller shall
reimburse Buyer for the amount of any "deductible" under the insurance policy,
to the extent paid by Buyer.
11. Indemnification.
(a) Seller shall indemnify and hold Buyer harmless and shall
assume the defense of any liability or claim asserted on or after the Closing
Date against and in respect of any liabilities, obligations, costs and expenses
directly related to or connected with the Property, whether accrued, absolute or
contingent, or otherwise existing on the Closing Date or arising out of any
transaction entered into or any set of facts existing prior to the Closing Date,
except as expressly assumed in this Agreement by Buyer, or for any loss, cost,
expense or liability arising from any breach or default by Seller under this
Agreement, including breaches of Seller's warranties. Notwithstanding the
foregoing, Buyer's rights against Seller under Section 11(a) (except rights
resulting from fraud or intentional misrepresentation) shall expire unless Buyer
gives Seller written notice of a claim under this provision within one year
after closing. Further, Seller shall have no obligations under Section 11(a)
unless and until Buyer's damages exceed $50,000, and then only for the amount by
which the damages exceed that amount. Buyer agrees to look solely to the assets
of Seller (including any assets or proceeds distributed to its partners
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after closing) to satisfy any claims under Section 11(a). In no event shall the
general partners of Seller be personally liable under Section 11(a), except to
the extent they have actually received assets or proceeds from Seller after
Closing.
(b) Buyer shall indemnify and hold Seller harmless and shall
assume the defense of any liability or claim asserted on or after the Closing
Date against and in respect of any liabilities, obligations, costs and expenses
related to or connected with the Property, whether accrued, absolute or
contingent but only to the extent that such liability or claim arises out of any
transaction entered into or any set of facts coming into existence after the
Closing Date, or for any loss, cost, expense or liability arising from any
breach or default by Buyer under this Agreement, except as provided in Section
12(a). Buyer shall hold Seller harmless from and indemnify Seller against any
loss, liability, damages or expenses (including reasonable attorney fees and
disbursements) arising out of or resulting from any entry, inspection, mapping
or other investigations on the Property by Buyer, its agents, contractors or
consultants. In addition, Buyer acknowledges and is aware that Article VI(C) of
the Property Management Agreement dated as of June 1, 1993, between Seller and
Midwest Property Management I, Inc. (the "Management Agreement"), provides that
after the Projects have been transferred to Buyer pursuant to this Agreement,
the Management Agreement shall continue in full force and effect in respect of
the Projects and shall be jointly and severally binding upon Seller and Seller's
successors in title or assigns, unless terminated as provided in the Management
Agreement. Therefore, in addition to the foregoing indemnification obligations,
Buyer agrees to indemnify and hold Seller harmless from and against any loss,
costs, damages or expenses (including, without limitation, reasonable attorney's
fees and disbursements) suffered or incurred by Seller with respect to the
Management Agreement after the Closing Date.
(c) If as a result of any liability or claim either Buyer or
Seller is required to indemnify and hold the other harmless, the party to whom
the claim is made shall promptly notify the other in writing of such liability
or claim and both Buyer and Seller will cooperate with each other in the defense
of the liability or claim; the party responsible for the defense shall select
such defense counsel as it may deem necessary subject to the reasonable approval
of the other party.
12. Termination, Default and Remedies.
(a) If, after waiver or satisfaction of all contingencies
listed in Section 4, Buyer defaults under this Agreement, Buyer shall pay to
Seller, as liquidated damages, in lieu of all legal or equitable remedies which
may be available to Seller, (1) any earnest money paid or to be paid by Buyer
under this Agreement (including, without limitation, the Deposit, the Buyer
Note, and the Letter of Credit) plus accrued interest, plus (2) an additional
amount equal to Seller's actual out of pocket costs (including reasonable
attorneys' fees) incurred in connection with Seller's performance under this
Agreement.
(b) If Seller defaults under this Agreement, all earnest money
(including, without limitation, the Deposit, the Buyer Note, marked "Canceled,"
and the Letter of Credit,
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also marked "Canceled") and accrued interest shall be returned to Buyer and, in
addition, Buyer may pursue any legal or equitable remedy that may be available
to Buyer. In the alternative, Buyer may choose the remedy set forth in Section
12(c) below, if applicable. However, if Seller is in default under this
Agreement solely by reason of a valid legal defect in title that Buyer is
unwilling to waive, the earnest money paid and accrued interest shall be
returned to Buyer as Buyer's sole remedy and this Agreement shall be void.
(c) If this transaction does not close due to Seller's default
(other than default limited to a valid legal defect in title that Buyer is
unwilling to waive) or inability to satisfy the condition set forth in Section
4A(b), then if, within 12 months after Seller's default or termination of this
Agreement, Seller sells or enters into a contract to sell the Assets to another
buyer (the "Post-Termination Sale or Contract"), Seller shall pay Buyer a
termination fee equal to the lesser of the following: (1) 25% of the amount by
which the sale price under the Post- Termination Sale or Contract exceeds the
Purchase Price defined in this Agreement; or (2) 6% of the Purchase Price
defined in this Agreement. If Buyer chooses this remedy, such payment shall be
paid by Seller to Buyer as liquidated damages, in lieu of all legal or equitable
remedies that may be available to Buyer.
13. Miscellaneous Provisions.
(a) Interpretation. This Agreement is governed by and shall be
construed in accordance with the laws of the State of Wisconsin. Time is of the
essence of this Agreement. This Agreement supersedes all prior agreements and
communications, written or verbal, between Buyer and Seller relating to the
purchase and sale of the Assets.
(b) Assignment. Buyer may assign this Agreement, provided the
assignee assumes the obligations of Buyer, but Buyer shall remain liable for
Buyer's obligations. The representations, warranties, covenants and agreements
contained in this Agreement and all other rights of Buyer arising under this
Agreement shall inure to the benefit of any such assignee.
(c) Effect of Acceptance. Upon execution of this Agreement by
Buyer, FFRM, and at least three out of four of the individuals signing on behalf
of Seller, this Agreement shall be binding upon and inure to the benefit of
Buyer and Seller and their respective heirs, legal representatives, successors
and assigns. There are no conditions, representations, warranties, covenants, or
agreements relating to this transaction not contained in this Agreement or in
the Exhibits to it. Any subsequent conditions, representations, warranties,
covenants or agreements shall not be valid and binding upon the parties unless
in writing and signed by both parties.
(d) Survival. All representations, warranties, covenants and
agreements in this Agreement shall survive the Closing Date and shall not merge
in the General Warranty Deed or any other document executed and delivered in
performance of this Agreement. However, Buyer's rights against Seller for any
breach of a representation or warranty (except a breach resulting from fraud or
intentional misrepresentation) shall expire unless Buyer gives Seller
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written notice of an alleged breach within one year after Closing. Buyer agrees
to look solely to the assets of Seller (including any assets or proceeds
distributed to its partners after Closing) to satisfy any claims under such
provision. Notwithstanding anything to the contrary provided in this Agreement,
in no event shall the general partners of Seller be personally liable under any
provision(s) of this Agreement or with respect to any of Seller's obligations
hereunder, except to the extent they have actually received assets or proceeds
from Seller after Closing.
(e) Notices. Any notice required to be given herein will be in
writing and either delivered personally or sent postage prepaid by certified
United States Mail, return receipt requested, addressed, if to Buyer, at 20875
Crossroads Circle, Waukesha, Wisconsin 53186 and if to Seller c/o Martin W.
Meyer, Esq., Domnitz, Mawicke, Goisman & Rosenberg, S.C., 1509 North Prospect
Avenue, Milwaukee, Wisconsin 53202. Either party may, by written notice,
designate a different address for notices. Notice shall be deemed given when
personally delivered to the office of either party during normal business hours
or when deposited in the mail.
(f) Disclosure. Certain of Buyer's affiliates are licensed
real estate brokers who intend to realize a profit from this transaction.
(g) Post-Closing Management. Buyer shall cause FFRM to
continue to provide partnership administration services (preparation of Seller's
tax returns and reports and attendant income tax schedules for partners of
Seller and the like) to Seller at no cost to Seller until Seller has been
dissolved and finally liquidated. If FFRM fails to perform such partnership
administration services for any reason, Buyer shall be obligated to perform, or
cause to be performed, such partnership administration services.
(The rest of this page is intentionally left blank)
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GREAT LAKES INVESTORS LLC RAL - YIELD EQUITIES II LIMITED
PARTNERSHIP
By: /s/ Douglas C. Heston By: /s/ Thomas R. Brophy
Douglas C. Heston, Thomas R. Brophy,
Manager General Partner
By: /s/ John A. Hanson
John A. Hanson,
General Partner
By: /s/ Robert A. Long
Robert A. Long,
General Partner
By: /s/ Bart Starr
Bart Starr,
General Partner
CONSENT OF MANAGER
First Financial Realty Management, Inc. agrees to the provisions of
Section 13(g) of this Agreement.
FIRST FINANCIAL REALTY MANAGEMENT,
INC.
By: /s/ Douglas C. Heston
Douglas C. Heston, President
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EXHIBITS:
A - Description of Business
1(a)(1) - Legal Description of Land
1(c) - Specific Business Interests
3 - Purchase Price and Allocation
4 - Contingency Deadlines
4(b) - Permitted Encumbrances
4B - Agreements with Seller's Affiliates
5(b) - Assets Seller May Sell
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EXHIBIT A
Description of Business
Project Allocation
Spacious Acres Mobile Home Park TBD
Sullivan, Wisconsin
Wendy's Restaurant TBD
Wauwatosa, Wisconsin
Former Hardee's Restaurant $ 200,000
West Allis, Wisconsin
Wendy's Restaurant TBD
Eden Prairie, Minnesota
Pizza Hut Restaurant TBD
Waterloo, Iowa
Rocky Rococo Restaurant TBD
Racine, Wisconsin
Rocky Rococo Pan Style Pizza Restaurant TBD
Wauwatosa, Wisconsin
<PAGE>
EXHIBIT 1(a)(1)
Legal Description
To be provided in title insurance commitment
<PAGE>
EXHIBIT 1(c)
Specific Business Interests
Rights under the franchise agreement with Rocky Rococo Corporation with respect
to the Rocky Rococo Pan Style Pizza restaurant in Wauwatosa, Wisconsin, which
agreement must by Closing be extended through the year 2008 on terms
substantially identical to its present terms. If necessary to obtain the
franchisor's approval of the assignment of such franchise agreement or to extend
the term of such franchise agreement, Douglas C. Heston, by his execution of
this Agreement on behalf of Buyer, agrees to personally guarantee all of Buyer's
obligations under such franchise agreement. If the parties are unable to obtain
an assignment or an extension of the franchise agreement, Buyer shall have the
option to either (1) waive the requirement that the agreement be assigned or
extended, or (2) terminate this Agreement as to the affected Project and have
the Purchase Price reduced by the Project Allocation.
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EXHIBIT 3
Purchase Price
The Purchase Price is $6,134,000.
If a lease of the former Hardee's Restaurant in West Allis, Wisconsin (the "West
Allis Property") is executed within 7 years after Closing, Buyer shall pay
Seller (1) an amount determined by capitalizing average annual net rent payable
during the shorter of the entire lease term or the first 5 years of the lease
term at 11% per year; less (2) $200,000. Such payment shall be due upon leasing
the West Allis Property.
Further, regardless of whether Buyer has made the foregoing payment to Seller,
if Buyer sells the West Allis Property within 7 years after Closing, Buyer shall
pay Seller (1) Buyer's sale price for the West Allis Property; less (2) Buyer's
selling expenses, including real estate transfer fees, recording fees, brokers'
commissions and legal fees; less (3) any amount previously paid by Buyer to
Seller, pursuant to the preceding paragraph; less (4) $200,000. If the formula
described in the preceding sentence results in an amount equal to or less than
zero, neither Buyer nor Seller shall be required to make a payment to the other
party. Such payment shall be due at closing of the sale of the West Allis
Property.
If Seller is able to lease or sell the West Allis Property prior to Closing, the
following shall occur: (a) If Seller leases the West Allis Property, the
Purchase Price shall be increased by an amount equal to (1) an amount determined
by capitalizing average annual net rent payable during the shorter of the entire
lease term or the first 5 years of the lease term at 11% per year; less (2)
$200,000; and (b) if Seller sells the West Allis Property, the Purchase Price
shall be reduced by $200,000, and Seller shall be entitled to receive and retain
all of such net sale proceeds. Nothing in this provision shall relieve Seller of
the obligation under Section 5(b) of this Agreement to obtain Buyer's consent to
any such lease.
Upon notice to Buyer that Seller has sold the West Allis Property, Buyer shall
release the West Allis Property from any right, title or interest Buyer has or
may have in the West Allis Property pursuant to this Agreement, and Buyer shall
execute any documents reasonably required to evidence such release.
<PAGE>
EXHIBIT 4
Contingency Deadlines
Section Contingency Deadline*
4(a) Notice of survey defects 60 days
Remedy of survey defects 90 days
4(b) Notice of title objections 60 days
Remedy of title objections 90 days
4(c) Notice of environmental defects 75 days
Remedy of environmental defects 105 days
* Expressed as the number of days after the date of this Agreement. Deadlines
falling on a non-business day shall be extended to the next business day.
<PAGE>
EXHIBIT 4(b)
Permitted Encumbrances
Each encumbrance specifically listed in the Title Insurance Commitment shall be
a "Permitted Encumbrance" under this Agreement, provided it does not (a)
materially interfere with the access to and from or the use or occupancy of the
Real Property; or (b) result in the violation of any building or zoning code; or
(c) create or result in a material encroachment that materially interferes with
the access to and from or the use or occupancy of the Real Property or any
properties adjacent to the Real Property or materially reduces the value of the
Real Property or any properties adjacent to the Real Property; (d) constitute a
monetary lien that will not be discharged at or prior to the Closing Date; or
(e) materially interfere with Buyer's ability to continue to lease at their fair
market values those mobile home sites at the Property (assuming the Property is
a mobile home park) that have been under lease during any part of the year
preceding the Closing Date.
<PAGE>
EXHIBIT 4B
Agreements With Seller's Affiliates
Asset Purchase Agreement with RAL Yield + Equities III Limited Partnership
Asset Purchase Agreement with RAL Yield + Equities IV Limited Partnership
Asset Purchase Agreement with RAL Income + Equity Growth V Limited Partnership
Asset Purchase Agreement with RAL Germantown/Monroe Income Limited Partnership
(The simultaneous closing of this transaction with Buyer, as required under
Section 4B, shall only be required if the transaction with Buyer is approved by
the holders of a majority of the outstanding limited partnership interests in
RAL Germantown/Monroe Income Limited Partnership)
Purchase Agreement with Thomas R. Brophy, John A. Hanson, and Robert A. Long
(and possibly Bart Starr)
<PAGE>
EXHIBIT 5(b)
Assets Seller May Sell
Former Hardee's Restaurant
West Allis, Wisconsin
(subject to the terms of Exhibit 3)
<PAGE>
FIRST AMENDMENT TO ASSET PURCHASE AGREEMENT
This First Amendment to Asset Purchase Agreement ("First
Amendment") is made as of June 26, 1998 by and between GREAT LAKES INVESTORS
LLC, a Wisconsin limited liability company ("Buyer"), and RAL-YIELD EQUITIES II
LIMITED PARTNERSHIP, a Wisconsin limited partnership ("Seller").
RECITALS
A. Buyer and Seller entered into that certain Asset Purchase
Agreement dated February 17, 1998 (the "Original Agreement"), pursuant to which
Seller agreed to sell and Buyer agreed to purchase the Assets, as defined in
Section 1 of the Original Agreement.
B. Purchaser and Seller desire to amend certain provisions of
the Original Agreement as set forth in this First Amendment.
NOW, THEREFORE, in consideration of the mutual agreements
contained in the Original Agreement and in this First Amendment, it is agreed as
follows:
1. Contingency Deadlines. The deadlines contained in Sections
4 and 4A of the Original Agreement regarding notices, remedies and the
satisfaction or waiver of the contingencies contained therein shall be changed
as follows:
a. Exhibit 4 of the Original Agreement shall be deleted in its
entirety and replaced with the form of Exhibit 4 attached to this First
Amendment. If Buyer is diligently attempting to satisfy the contingencies set
forth in Sections 4(a), 4(b) and 4(c) of the Original Agreement, Buyer shall
have the right to further extend to September 15, 1998 any or all of the
deadlines set forth on the amended Exhibit 4 that relate to notice of defects or
objections, in which case the related deadline for the remedy of such defects or
objections shall be extended to October 15, 1998. If Buyer desires to exercise
its right to extend any or all of such deadlines, it must so notify Seller on or
before July 15, 1998.
b. "Seller's Contingency Deadline", as defined in Section 4A of the
Original Agreement, shall be changed from June 13, 1998 (which was previously
extended by Seller to August 13, 1998) to July 15, 1998. If Seller is diligently
attempting to satisfy the contingencies set forth in Section 4A of the Original
Agreement, Seller shall have the right to further extend the date of Seller's
Contingency Deadline to September 15, 1998. If Seller desires to exercise its
right to extend Seller's Contingency Deadline, it must so notify Buyer on or
before July 15, 1998.
2. Closing Date. The "Closing Date" as defined in Section 6(a)
of the Original Agreement shall be changed to July 31, 1998, provided that if
Buyer exercises its right to extend one or more contingency deadlines pursuant
to Section 1(a) of this First Amendment and/or if Seller exercises its right to
extend Seller's Contingency Deadline pursuant to Section 1(b) of this First
Amendment, then the "Closing Date" shall be extended to the date that is
<PAGE>
fifteen (15) days after all of the conditions set forth in Sections 4 and 4A
have been satisfied or waived.
3. Purchase of Note Receivable. Seller has previously sold
certain real property located on Hwy. "T" in the City of Waukesha, Wisconsin. In
connection with such sale, Seller received a land contract or a note and
mortgage (the "Note Receivable") from the buyer of such property. In addition to
the Assets described in the Original Agreement, Buyer shall also purchase from
Seller all of Seller's right, title and interest in and to the Note Receivable.
The amount to be paid by Buyer to Seller for the Note Receivable shall be equal
to the unpaid principal balance of the Note Receivable as of the Closing Date,
plus any interest accrued thereon, and the Purchase Price shall be increased by
a like amount. At the closing of the transaction contemplated herein, Seller
shall deliver to Buyer an Assignment conveying to Buyer the interest of Seller
in and to the Note Receivable.
4. Purchase of Inventory. At the closing of the transaction
contemplated herein, Seller shall convey to Buyer all of Seller's right, title
and interest in and to any and all food and beverage inventory on hand at the
Wauwatosa Rocky's (as defined in the Original Agreement) at the close of
business on the day preceding the Closing Date. The price to be paid by Buyer to
Seller for such food and beverage inventory shall be equal to the amount paid by
Seller to purchase such items, and shall be in addition to the Purchase Price.
5. Effect of Amendment. Except as amended or modified as set
forth herein, the Original Agreement shall remain unchanged, in full force and
effect and binding upon the parties.
2
<PAGE>
6. Counterparts. This First Amendment may be executed in one
or more counterparts, each of which will be deemed an original of this First
Amendment.
IN WITNESS WHEREOF, Buyer and Seller have executed this First Amendment
as of the date first written above.
GREAT LAKES INVESTORS LLC
By: /s/ Douglas C. Heston
Douglas C. Heston, Manager
RAL-YIELD EQUITIES II LIMITED
PARTNERSHIP
By: /s/ Thomas R. Brophy
Thomas R. Brophy, General
Partner
By: /s/ John A. Hanson
John A. Hanson, General
Partner
By: /s/ Robert A. Long
Robert A. Long, General
Partner
By: /s/ Bart Starr
Bart Starr, General Partner
3
<PAGE>
EXHIBIT 4
Contingency Deadlines
Section Contingency Deadline
4(a) Notice of survey defects July 15, 1998
Remedy of survey defects July 31, 1998
4(b) Notice of title objections July 15, 1998
Remedy of title objections July 31, 1998
4(c) Notice of environmental defects July 15, 1998
Remedy of environmental defects July 31, 1998
4
<PAGE>
APPENDIX B
[letterhead of Valuation Research Corporation]
__________, 1998
FOR DISCUSSION PURPOSES ONLY
(June 16, 1998)
RAL-YIELD + EQUITIES II Limited Partnership
c/o Domnitz, Mawicke, Goisman & Rosenberg, S.C.
1509 North Prospect Avenue
Milwaukee, WI 53202
Ladies and Gentlemen:
Valuation Research Corporation ("VRC") has been retained by you to express our
opinion as of _____________, as to the fairness, from a financial point of view,
of the $6,134,000 cash tender offer ("the Offering Price") for the major assets
of RAL- YIELD + EQUITIES II Limited Partnership ("the Partnership"). We
understand that under the terms of the proposed tender offer (the "Offer") Great
Lakes Investors LLC, a Wisconsin limited liability company, would purchase these
assets from the Partnership and thus the Partnership would, in effect, be
terminated.
NATURE OF THE BUSINESS
RAL-YIELD + EQUITIES II is a Wisconsin limited partnership formed on March 5,
1984 under the provisions of the Wisconsin Uniform Limited Partnership Act, to
acquire for cash, operate, lease, develop and eventually sell income-producing
real estate properties. Currently, the Partnership owns seven properties. It
operates both a mobile home park and a restaurant and leases five commercial
properties to various restaurant franchisers. These properties are located in
Iowa, Minnesota and Wisconsin. The Partnership will terminate December 31, 2014,
except in the event of prior sale of the Partnership's properties, action by a
majority interest of the Limited Partners or certain other events.
Effective June 30, 1985, the Partnership completed its offering of limited
partnership interests. A total of 8,031.5 interests were sold for an aggregate
contribution of $8,301,500. In connection with the sale of the limited
partnership interests, the Partnership incurred costs to raise capital of
approximately $768,000, which were charged against partners' equity.
<PAGE>
VALUATION RESEARCH CORPORATION
FOR DISCUSSION PURPOSES ONLY
(June 16, 1998)
RAL-YIELD + EQUITIES II Limited Partnership ________, 1998
c/o Domnitz, Mawicke, Goisman & Rosenberg, S.C. Page 2
The Partnership exists for the sole purpose of investing in income producing
properties (fast-food restaurants and mobile home parks). Currently the direct
property investment is in six fast-food restaurants:
Rocky Rococo Pan Style Pizza Wauwatosa, WI
Rocky Rococo Racine, WI
Pizza Hut Waterloo, IA
Wendy's Eden Prairie, MN
Hardee's West Allis, WI
Wendy's Wauwatosa, WI
and a mobile home park:
Spacious Acres Mobile Home Park Sullivan, WI
Valuation Research Corporation, as part of its appraisal business, is regularly
engaged in the valuation of businesses, business interests, and tangible assets
(real estate and personal property) in connection with mergers and acquisitions,
competitive bidding, financial restructurings, partnership recapitalization,
gift and estate tax, solvency and fairness opinions, and other financial and
appraisal services.
In connection with this engagement, Valuation Research Corporation was not
requested to serve as a financial advisor to the General Partner, the
Partnership, or to assist the General Partner or the Partnership in the
negotiations involving the sale of the Partnership's assets. The General Partner
or the Partnership did not place any limitation on the scope of VRC's
investigation or review. In addition, VRC was not requested to and did not
analyze or give any effect to the impact of any federal, state or local income
taxes to the Partnership or the owners of the units of the Partnership arising
out of the transaction contemplated herein. The Partnership has agreed to
indemnify VRC against certain liabilities arising out of its engagement to
prepare and deliver this Fairness Opinion.
In rendering our Fairness Opinion, VRC held discussions with management and we
became familiar with the assets involved in this proposed transaction. In
addition,
<PAGE>
VALUATION RESEARCH CORPORATION
FOR DISCUSSION PURPOSES ONLY
(June 16, 1998)
RAL-YIELD + EQUITIES II Limited Partnership ________, 1998
c/o Domnitz, Mawicke, Goisman & Rosenberg, S.C. Page 3
VRC has examined extensive data provided by the Partnership and published market
data pertaining to the underlying assets of the Partnership. This included, but
was not limited, to the following:
o Audited Financial statements for the Partnership for the years
1992 through 1996.
o Unaudited financial statements and other internal financial
analysis for the seven owned properties that constitute the
underlying assets of the Partnership for the years 1994
through 1997.
o Market data pertaining to the current real estate market in
the neighborhoods of the seven owned properties.
o Demographic and economic histories and projections for the
subject properties' neighborhoods.
o Review of comparable sales and lease data for each of the
seven properties.
The basis of our opinion of the fairness of the Offer is the current market
value of the underlying assets of the Partnership. We have not taken into
consideration any other assets that may be part of the Partnership nor any
liabilities or debt associated with any of the properties or the Partnership.
For this opinion, Market Value is defined as:
The most probable price which a property should bring in a competitive
and open market under all conditions requisite to a fair sale, the
buyer and seller each acting prudently and knowledgeably, and assuming
the price is not affected by undue stimulus. Implicit in this
definition is the consummation of a sale as of a specified date and the
passing of title from seller to buyer under conditions whereby:
o Buyer and seller are typically motivated;
o Both parties are well informed or well advised, and acting in
what they consider their best interests;
<PAGE>
VALUATION RESEARCH CORPORATION
FOR DISCUSSION PURPOSES ONLY
(June 16, 1998)
RAL-YIELD + EQUITIES II Limited Partnership ________, 1998
c/o Domnitz, Mawicke, Goisman & Rosenberg, S.C. Page 4
o A reasonable time is allowed for exposure in the open market;
o Payment is made in terms of cash in U.S. dollars or in terms
of financial arrangements comparable thereto; and
o The price represents the normal consideration for the property
sold unaffected by special or creative financing or sales
concessions granted by anyone associated with the sale.
Source: Uniform Standards of Professional Appraisal Practice,
Published by the Appraisal Foundation, 1997.
To determine the value of the underlying real property asset(s), we relied
primarily on the income approach. Typically, appraisers use up to three
approaches in valuing real property: the cost approach, the direct sales
comparison approach and the income approach. These approaches are based on the
cost to replace assets, the market exchanges of comparable properties, and the
capitalization of income. In this analysis, all three methods of valuation were
considered; however, because of the income-producing nature of the properties,
the encumbered nature of the fast-food restaurants, the limited number of
comparable mobile home sales, and the current real estate market, we placed more
emphasis on the income approach and used the direct sales comparison approach
and the cost approach as a check on the reasonableness of the results obtained
using the income approach.
In our analysis, we have also considered the highest and best use of the
property. The valuation of real estate is based on its most profitable likely
use. The highest and best use is arrived at by testing potential uses of the
property, both as improved and as though vacant, to find the use which meets the
following criteria: Physically possible - the uses of vacant land which are
possible after considering physical characteristics of the land; legally
permitted - uses that are permissible after considering local, state and federal
regulations and private restrictions; financially feasible - those uses which
are physically possible and legally permitted which produce a positive return
beyond operation expenses, financial obligations, and capital amortization; and
maximum productive use - the use that is physically possible, legally permitted
and financially feasible which produces the highest price or value, which is the
highest and best use. In each case, we found that the current use to be the
highest and best use of the property.
<PAGE>
VALUATION RESEARCH CORPORATION
FOR DISCUSSION PURPOSES ONLY
(June 16, 1998)
RAL-YIELD + EQUITIES II Limited Partnership ________, 1998
c/o Domnitz, Mawicke, Goisman & Rosenberg, S.C. Page 5
The following paragraphs summarize the significant quantitative and qualitative
analyses performed by VRC in arriving at the fairness opinion. VRC considered
all such quantitative and qualitative analyses in connection with its valuation
analysis but has relied more on the income capitalization approach then the
other two.
INCOME CAPITALIZATION APPROACH
The Income Capitalization Approach to Value is considered to be one of the more
reliable approaches in the valuation of income producing properties and is still
the primary factor in investment decisions for today's real estate investors.
The basic premise of the income approach is that the earning power of a real
estate investment is the critical element affecting its value. Value is often
defined as the present worth of anticipated future income. All income
capitalization methods, techniques, and procedures represent attempts to
quantify expected future benefits.
The two accepted methods of applying the income approach are defined below:
Direct Capitalization - a method by which an estimate of a single
year's income expectancy or an annual average of several year' income
expectancies are converted to an indication of value by one direct
step, either by dividing the income estimate by an appropriate rate or
by multiplying the income estimate by an appropriate factor.
Discounted Cash Flow Analysis - A set of procedures in which the
quantity, variability, timing, and duration of periodic income, as well
as the quantity and timing of reversions, are specified and discounted
to a present value at a specified yield rate.
The principle of anticipation has a crucial role in this approach. This
principle states that value is created by the expectations of benefits to be
derived in the future. The relevance of anticipation to the approach cannot be
overstated. Value is created by the expectation of benefits to be derived in the
future, and value may be defined as the present worth of all rights to future
benefits. All income capitalization methods, techniques, and procedures
represent attempts to quantify expected future benefits.
With adequate information and proper use, direct capitalization and yield
capitalization methods should produce similar value indications. In choosing
which of the two (or both) methods to apply, the appraiser considers the typical
investor's view of market value.
<PAGE>
VALUATION RESEARCH CORPORATION
FOR DISCUSSION PURPOSES ONLY
(June 16, 1998)
RAL-YIELD + EQUITIES II Limited Partnership ________, 1998
c/o Domnitz, Mawicke, Goisman & Rosenberg, S.C. Page 6
The first step in both income approaches is the determination of a proper rental
or revenue stream that one would expect to be able to obtain from the subject
property based on actual historical operations and a study of comparable rental
properties. A similar analysis of typical operating expenses along with expected
vacancy and collection losses aids in constructing an operating statement that
results in a net operating income (NOI) for the first and subsequent years. The
estimated first year NOI can then be converted into an indicated property value
through the overall direct capitalization process, while the estimated future
cash flows can be converted into an indicated value by discounting those
individual yearly amounts to a present value.
Our analysis began with an estimate of each of the subject's market rent
potential based on an analysis of the actual rentals in place with the subject
property and market information pertaining to comparable rental rates in the
subject's area. Using this information, a potential gross income estimate was
made. This estimated potential gross income was projected to grow over the
course of the projection period--10 years--at various rates based on current and
forecasted economic conditions in each of the subject areas.
Secondly, allowances for vacancy and collection losses were made based on market
surveys in each of the subject's area and actual historical performance of the
subject property. This adjustment ranged from a low of 0% for the leased
fast-food restaurants to 2% for the mobile home park.
The result of subtracting the vacancy and collection loss estimate from the
estimated gross income is the effective gross income. It is this effective gross
income that is used to pay for any operating expenses associated with the
operation of the subject property.
The estimate of the operating expenses was based on a combination of historical
expenses of the subject and published market surveys. These operating expenses
were projected to grow at a projected 2.5% to 3.0% inflation rate per year over
the course of the 10-year projection period.
In addition to the normal operating expenses an estimate of the cost and timing
of major capital improvements is made and used as an added expense. The basis
for this capital improvement expense adjustment is the actual age and size of
each subject property and the projected amount and timing of replacements for
such major items as roadway repair, sewer and water line maintenance, roofing,
heating, ventilating and air condition units, etc.
<PAGE>
VALUATION RESEARCH CORPORATION
FOR DISCUSSION PURPOSES ONLY
(June 16, 1998)
RAL-YIELD + EQUITIES II Limited Partnership ________, 1998
c/o Domnitz, Mawicke, Goisman & Rosenberg, S.C. Page 7
The net operating income (NOI) is that cash flow which accrues to the owner of
the property after deductions for the above expenditures and allowances. It is
this net operating income that was converted into an estimate of value.
The following table sets forth the estimated aggregate revenues, expenses and
net operating income (NOI) of the properties underlying the subject limited
partnership for each of the twelve-month periods ending December 31, 1998
through December 31, 2007 that were included in the financial forecasts used by
VRC in connection with the preparation of the Fairness Opinion.
RAL-YIELD + EQUITIES II
Pro Forma Income Statement
Year Ending December 31,
(In Thousands of Dollars)
Year 1998 1999 2000 2001 2002
Revenues $1,624 $1,644 $1,673 $1,709 $1,750
Expenses* 999 1,025 1,053 1,082 1,111
Net Income 625 619 620 627 639
Year 2003 2004 2005 2006 2007
Revenue $1,780 $1,810 $1,860 $1,914 $1,952
Expenses* 1,141 1,162 1,203 1,236 1,269
Net Income 639 639 657 678 683
*Including Capital Expenditures
In rendering this fairness opinion, VRC relied, without assuming responsibility
for independent verification, on the accuracy and completeness of all financial
and operating data, financial analyses, reports and other information that were
publicly available, compiled or approved by or otherwise furnished or
communicated to VRC by or on behalf of the Partnership. With respect to the
financial forecasts utilized by VRC, VRC believes that the assumptions
underlying the forecasts are reasonable and that consequently there is a
reasonable probability that the projections would prove to be substantially
correct. However, readers of this fairness opinion should be aware that actual
revenues, expenses and net
<PAGE>
VALUATION RESEARCH CORPORATION
FOR DISCUSSION PURPOSES ONLY
(June 16, 1998)
RAL-YIELD + EQUITIES II Limited Partnership ________, 1998
c/o Domnitz, Mawicke, Goisman & Rosenberg, S.C. Page 8
operating income of the properties underlying the Partnership will depend to a
large extent on a number of factors that cannot be predicted with certainty or
which may be outside of the control of the General Partners, including general
business, market and economic conditions, supply and demand for rental
properties in the areas in which the properties are located, future operating
expense and capital expenditure requirements for the properties, future
occupancy rates, the ability of the General Partners and property managers for
the properties to maintain the attractiveness of the properties to tenants, real
estate tax rates, changes in tax laws and other factors. As a result, actual
results could differ significantly from the forecasted results.
Capitalization Rate Valuation Analysis
The relationship between NOI and value can be expressed in its overall
rate of return, or capitalization rate. Capitalization rates were
abstracted from market surveys conducted by reputable national firms
for each of the major metropolitan areas in which the subject
properties are located, including surveys conducted and reported by The
National Real Estate Index, Korpacz Real Estate Investor Survey and the
American Council of Life Insurance. The indicated value for each
property was derived from the NOI of each property divided by the
appropriate capitalization rate. The capitalization rates used in this
analysis ranged from 9.0% to 12.0%.
Discounted Cash Flow Analysis
We also performed a discounted cash flow analysis of (i) the present
value of the forecasted cash flows from future operations of those
properties owned by the Partnership, and (ii) the present value of the
estimated proceeds of a sale of the property at the conclusion of the
forecast period. In completing this analysis, we utilized financial and
operating forecasts of each property's estimated cash flow for the
twelve-month periods ending December 31, 1998 to December 31, 2007 and
applied discount rates of 11.0% to 15.0% with an average of 12.0% to
forecasted cash flows and to a forecasted residual value. The residual
value is based on capitalizing forecasted cash flow for the year 2008
at 10.5%. Since this discounted cash flow analysis assumes the
immediate sale of the properties to third parties, we did not take into
account any tax ramifications of the cash flow in this analysis, nor
did we consider any outstanding debt associated with the properties.
<PAGE>
VALUATION RESEARCH CORPORATION
FOR DISCUSSION PURPOSES ONLY
(June 16, 1998)
RAL-YIELD + EQUITIES II Limited Partnership ________, 1998
c/o Domnitz, Mawicke, Goisman & Rosenberg, S.C. Page 9
THE COST APPROACH
The cost approach is a valuation technique that uses the concept of replacement
as a value indicator. Replacement or reproduction cost is estimated for the
property being appraised which is then adjusted for losses in value (appraised
depreciation) due to a variety of factors. This process requires valuing the
site as if vacant, then adding the replacement cost new of the improvements
based on market derived costs for similarly constructed properties. Then accrued
depreciation from physical deterioration and obsolescence of all causes is
estimated and subtracted from the replacement cost new to arrive at the present
value.
This approach provided a good check on the estimated value obtained using the
income approach for the fast-food restaurant properties owned by the
Partnership. It was not used for the mobile home park.
THE DIRECT SALES COMPARISON APPROACH
The sales comparison approach is a valuation technique in which the value is
estimated on the basis of market prices in actual transactions. The technique
consists of studying available market comparable information and adjusting for
differences. This process is essentially that of comparison and correlation.
Differences always exist between properties even though they may be almost
identical, and therefore adjustments for these differences must be made. Some
adjustments that may prove important are: (i) condition of sale, (ii) financing
terms, (iii) market conditions (time), (iv) location, (v) physical
characteristics, and (vi) income characteristics.
For those properties currently encumbered by a long term lease, the direct sales
comparison approach is not an appropriate methodology to use. For those
properties that have yearly lease renewals, it serves as a good check on the
reasonableness of the value obtained using the income approach.
CONCLUSION OF VALUE
The preparation of a fairness opinion involves various determinations as to the
most appropriate and relevant quantitative and qualitative methods of analyses
and the application of those methods to the particular circumstances and
therefore such an opinion is not readily susceptible to partial analyses or
summary description. Accordingly, our analyses must be considered as a whole and
that considering any portion of such analyses and of the factors
<PAGE>
VALUATION RESEARCH CORPORATION
FOR DISCUSSION PURPOSES ONLY
(June 16, 1998)
RAL-YIELD + EQUITIES II Limited Partnership ________, 1998
c/o Domnitz, Mawicke, Goisman & Rosenberg, S.C. Page 10
considered, without considering all analyses and factors, could create a
misleading or incomplete view of the process underlying the fairness opinions.
Any estimates contained in these analyses are not necessarily indicative of
actual values or predictive of future results or values, which may be
significantly more or less than as set forth herein.
Our fairness opinion is based solely upon the information available to it and
the economic market and other circumstances that existed as of the date hereof.
Events occurring after such date could materially affect the assumptions and
conclusions contained in the fairness opinion. We have not undertaken to
reaffirm or revise this fairness opinion or otherwise comment upon any events
occurring after the date hereof.
We have relied without independent verification on the accuracy and completeness
of all of the financial and other information reviewed by us for purposes of
this opinion. Nothing came to our attention, for purposes of this opinion, which
causes us to question their accuracy or their representation of the operations
of the assets under review. We have not verified the title to ownership of these
assets, nor have we made an independent valuation or appraisal of the reported
current assets or any of the liabilities reported by the Partnership on its
financial statements. Our opinion necessarily is based on conditions as they
exist and can be valued only as of ____________, 1998.
Based on and subject to the foregoing and based on such other matters as we
consider relevant, it is our opinion that as of the date hereof, the $6,134,000
offer to the Partnership represents a fair value, from a financial point of
view, to the Partnership and its Limited Partners.
This letter is solely for the information of and assistance to the parties to
whom it is addressed in conducting their investigation with regard to the
upcoming tender offer for the assets of the Partnership. The Partnership may
include this letter as a part of the information statement filed with the
Security and Exchange Commission. Any other uses are expressly prohibited and
neither this letter nor any of its parts may be circulated, quoted, or otherwise
referred to for any other purpose without the written consent of VRC, the
exercise of which will be at the sole discretion of VRC, not unreasonably
withheld. If given, such consent shall not be without sufficient review by VRC
as to the precise language of such disclosure and the time and place of its
potential release.
The above limitations do not apply to interested parties as defined herein.
However, in such instances, this opinion must be provided to such parties in it
entirety. The term "interested
<PAGE>
VALUATION RESEARCH CORPORATION
FOR DISCUSSION PURPOSES ONLY
(June 16, 1998)
RAL-YIELD + EQUITIES II Limited Partnership ________, 1998
c/o Domnitz, Mawicke, Goisman & Rosenberg, S.C. Page 11
parties" shall include the Partnership's auditors and attorneys, participants
and assignees, regulators, or appropriate parties involved in this transaction.
VRC has no responsibility to update the opinion stated herein for events and
circumstances occurring after the date of this letter.
This opinion is subject to the assumptions and limiting conditions contained
herein. VRC has not investigated the title to, nor the liabilities against, the
Partnership or the underlying assets of the Partnership and assumes no
responsibility concerning these matters. Neither Valuation Research Corporation
nor any of its personnel have any present or contemplated financial interest in
the Partnership or the assets of the Partnership, and we certify that the
compensation received for this opinion letter is not contingent on the
conclusions stated. Additionally, the assignment was not based on a requested
minimum valuation, a specific valuation, or the approval of a loan.
Valuation Research Corporation does not conduct or provide environmental
liability assessments of any kind in performing its valuations so that our
opinion of the fairness of the Offer does not reflect any actual or contingent
environmental liabilities associated with the owned residential property that
constitutes the underlying assets of the Partnership.
Respectfully submitted,
VALUATION RESEARCH CORPORATION
Attachment
Engagement Number: 02-3173-00
<PAGE>
VALUATION RESEARCH CORPORATION
FOR DISCUSSION PURPOSES ONLY
(June 16, 1998)
RAL-YIELD + EQUITIES II Limited Partnership ________, 1998
c/o Domnitz, Mawicke, Goisman & Rosenberg, S.C. Page 12
LIMITING FACTORS AND ASSUMPTIONS
In accordance with recognized professional ethics, the professional fee for this
service is not contingent upon our conclusion of value, and neither Valuation
Research Corporation nor any of its employees have a present or intended
material financial interest in the subject company.
The opinion expressed herein is valid only for the stated purpose as of the date
of the fairness opinion.
Financial statements and other related information provided by the subject
company or its representatives in the course of this investigation have been
accepted, without further verification, as fully and correctly reflecting the
company's business conditions and operating results for the respective periods,
except as specifically noted herein.
Public information and industry and statistical information has been obtained
from sources we deem to be reliable; however, we make no representation as to
the accuracy or completeness of such information, and have accepted the
information without further verification.
The conclusions of value are based upon the assumption that the current level of
management expertise and effectiveness would continue to be maintained and that
the character and integrity of the enterprise through any sale, reorganization,
exchange, or diminution of the owners' participation would not be materially or
significantly changed.
This letter and the conclusions arrived at herein are for the exclusive use of
our client for the sole and specific purposes as noted herein. Furthermore, the
letter and conclusions are not intended by the author, and should not be
construed by the reader, to be investment advice in any manner whatsoever. The
conclusions reached herein represent the considered opinion of Valuation
Research Corporation, based upon information furnished to them by the
Partnership and other sources.
We have been assured by the Partnership and the General Partner of RAL-YIELD +
EQUITIES II that there will be no material change in the proposed tender office
or any documents in VRC's possession as of ____________, 1998.
<PAGE>
VALUATION RESEARCH CORPORATION
FOR DISCUSSION PURPOSES ONLY
(June 16, 1998)
RAL-YIELD + EQUITIES II Limited Partnership ________, 1998
c/o Domnitz, Mawicke, Goisman & Rosenberg, S.C. Page 13
Neither all nor any part of the contents of this letter (especially any
conclusions as to value, the identity of any appraiser or appraisers, or the
firm with which such appraisers are connected, or any reference to any of their
professional designations) should be disseminated to the public through
advertising media, public relations, news media, sales media, mail, direct
transmittal, or any other public means of communication, without the prior
written consent and approval of Valuation Research Corporation.
Future services regarding the subject matter of this letter, including, but not
limited to, testimony or attendance in court, shall not be required of Valuation
Research Corporation, unless previous arrangements have been made in writing.
Valuation Research Corporation is not an environmental consultant or auditor,
and it takes no responsibility for any actual or potential environmental
liabilities. Any person entitled to rely on this letter wishing to know whether
such liabilities exist, or their scope, and the effect on the value of the
property is encouraged to obtain a professional environmental assessment.
Valuation Research Corporation does not conduct or provide environmental
assessments and has not performed one for the subject property.
Valuation Research Corporation has asked The Partnership whether it is subject
to any present or future liability relating to environmental matters (including
but not limited to CERCLA/Superfund liability). Valuation Research Corporation
has not determined independently whether The Partnership is subject to any such
liabilities, nor the scope of any such liabilities. Valuation Research
Corporation's appraisal takes no such liabilities into account except as they
have been reported expressly to Valuation Research Corporation by The
Partnership, or by an environmental consultant working for The Partnership and
then only to the extent that the liability was reported to us in an actual or
estimated dollar amount. To the extent such information has been reported to us,
Valuation Research Corporation has relied on it without verification and offers
no warranty or representation as to its accuracy or completeness.
We have not made a specific compliance survey or analysis of the subject
properties to determine whether it is subject to or in compliance with the
Americans with Disabilities Act of 1990 (ADA) and this opinion does not consider
the impact, if any, of noncompliance in estimating the value of The Units.
<PAGE>
[FRONT]
RAL-YIELD EQUITIES II LIMITED PARTNERSHIP
CONSENT SOLICITATION
THIS CONSENT IS SOLICITED ON BEHALF OF THE GENERAL PARTNERS
The following proposal is submitted for approval by written consent to
the holders of limited partnership interests (the "Interests") of RAL-Yield
Equities II Limited Partnership (the "Partnership") by the General Partners of
the Partnership:
To approve the Asset Purchase Agreement, as amended (the "Purchase
Agreement") by and between the Partnership and Great Lakes Investors
LLC ("Great Lakes"), to sell substantially all of the assets of the
Partnership to Great Lakes pursuant to the Purchase Agreement and to
distribute the Partnership's net assets and dissolve the Partnership as
soon as practicable thereafter, all as set forth in the Consent
Solicitation Statement.
The undersigned Limited Partner hereby votes his or her Interests on
such proposal as follows:
|_| FOR |_| AGAINST |_| ABSTAIN
(Continued on reverse side)
[BACK]
(Continued from obverse side)
A properly executed and dated Reply Card must be received by _______,
1998 to be included in the tabulation of consents. THE GENERAL PARTNERS URGE THE
LIMITED PARTNERS TO CONSENT TO THE ABOVE PROPOSAL.
The undersigned hereby acknowledges receipt of the Consent
Solicitation Statement relating to the above proposals, the Partnership's 1997
Annual Report to Limited Partners and the Partnership's Quarterly Reports on
Form 10-Q for the quarters ended March 31, 1998 and June 30, 1998.
Dated: , 1998
Signed
Signature(s) of Limited Partner(s)
PLEASE SIGN EXACTLY AS YOUR NAME APPEARS
HEREON. When shares are held by joint
tenants, both should sign.
When signing as attorney, executor,
administrator, trustee or guardian,
please give your full title as such. If
a corporation, please sign in full
corporate name by the president or other
authorized officer. If a partnership,
please sign in partnership name by
authorized person.
PLEASE MARK, SIGN, DATE AND RETURN THIS REPLY CARD TODAY USING THE ENCLOSED
ENVELOPE.
