SCHEDULE 14A INFORMATION
Consent Solicitation Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
(Amendment No. 2)
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 Section 240.14a-11(c) or Section
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:
<PAGE>
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 proposal, 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
<PAGE>
RAL-Yield Equities II Limited Partnership
SOLICITATION OF CONSENT OF LIMITED PARTNERS
This Consent Solicitation Statement is Dated ___________ ____, 1998
Voting on the Proposal 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
August 31, 1998 as the record date for determining the Limited Partners
having the right to receive notice of, and to vote on, the proposal
described herein. Each RAL II Interest shall be entitled to one vote on
the proposal. A list of Limited Partners entitled to vote on the proposal
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
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.
<PAGE>
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
<PAGE>
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 August 31, 1998 (the "Record
Date") are entitled to notice of and to vote on the proposal. Each RAL II
Interest is entitled to one vote with respect to the proposal. As of the
Record Date, there were 8,301.5 RAL II Interests outstanding and entitled
to notice of and to vote on the proposal.
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 proposal 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 the 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 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.
<PAGE>
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
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 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 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. Such net proceeds,
after payment of partnership expenses, 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 herein 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.
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.
Other than as described above, the Partnership participated in no
negotiations or discussions with any party regarding the sale of any of
the Real Property or any other alternative to the Sale.
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 factors listed below in addition to the factors listed above, which
together include all of the considerations, identified by the General
Partners, that might argue against recommendation of the Sale to the
Limited Partners.
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.
Other than as described above, the General Partners considered no
alternatives to the Sale. The foregoing discussion includes all factors
known to the Partnership, the General Partners, or their affiliates that
may affect materially (i) the amount of the distributions to be made to
Limited Partners following the Sale, (ii) the values assigned to the Real
Property for purposes of comparison to alternatives to the Sale, and
(iii) the fairness of the Sale to the Limited Partners.
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 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 September 1, 1998, VRC delivered its written 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:
- Audited financial statements for the Partnership for the years
1993 through 1996.
- Unaudited financial statements and other internal financial
analysis for the individual owned properties that constituted
the Real Property for the years 1993 through 1997.
- Market data pertaining to the current real estate market in the
neighborhoods of the Real Property.
- Demographic and economic histories and projections for the
neighborhoods in which the Real Property is located.
- 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 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:
- Buyer and seller are typically motivated;
- Both parties are well informed or well advised, and acting in
what they consider their best interests;
- A reasonable time is allowed for exposure in the open market;
- Payment is made in terms of cash in U.S. dollars or in terms of
financial arrangements comparable thereto; and
- 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 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 sets 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
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 from
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.
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. Neither the General Partners nor VRC are aware of any factors,
other than those described above or in the Fairness Opinion, 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;
(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.
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 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 $185,000. 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."
TAX CONSIDERATIONS
The following description is based upon the Internal Revenue Code of
1986, as amended (the "Code"), and rules, regulations and existing
interpretations related thereto, any of which could be changed at any
time. A complete discussion of all federal, state and other tax aspects
of the proposed sale is beyond the scope of the following summary and
investors must consult their own tax advisors on such matters. Moreover,
this discussion does not address all possible categories of investors,
some of whom may be subject to special rules, including individual
retirement accounts and pension funds. The tax and other matters
described herein do not constitute and should not be considered as, legal
or tax advice to investors. The following describes the material federal
income tax consequences, as of the date hereof, of the sale of the
partnership's assets to an investor who is an individual citizen or
resident of the United States and who holds the partnership interest as a
capital asset.
Taxation of Partnerships in General
An entity classified as a partnership (and is not classified as a
"publicly-traded partnership" ("PTP")) for federal income tax purposes is
not subject to federal income tax. Instead, income, gain 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.
Should the partnership be classified as an association taxable as a
corporation or be considered a PTP for federal income tax purposes, the
income, gain, and loss of the partnership would be reported by the
partnership and the partnership would be required to pay income taxes upon
such net income at the rates generally applicable to corporations.
Limited partners would not be liable for income tax on the partnership's
income, gain, or loss in their individual capacities. Distributions to
limited partners would be treated as taxable income to the extent of
current or cumulated earnings and profits of the partnership.
Distributions received and liquidation of the partnership would be first
treated as a reduction of basis, and then as capital gain. To the extent
such liquidating distributions did not exceed an investor's adjusted tax
basis (i.e., in general, such investor's original cost), such investor
would be entitled to recognize a capital loss.
The following discussion assumes that the partnership's
classification as a partnership (and not as a PTP) is respected by the
Internal Revenue Service.
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. A partner's basis will include a
partner's pro rata share of income, gain, and loss recognized on the sale
by the partnership of its assets. 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 Partner believes that the allocations made under the
Partnership Agreements for the Partnership have substantial economic
effect.
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.
Since a partnership's gain (if any) 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) are held for more than one year
and are not "dealer property" and thus 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 are combined with any other section 1231 gains
or losses recognized in that year, and the net section 1231 gains or
losses would be allocated to the partners as provided in the partnership
agreement. Each partner is required to combine such section 1231 gains or
losses with any other section 1231 gains or losses recognized by the
partner in that year. The partner's net section 1231 gains are taxed as
either ordinary income or capital gains. Net section 1231 losses are
taxable as 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 furniture, fixtures and equipment may be subject to
recapture as ordinary income under the provisions of sections 1245 of the
Code. Such recapture gain will be recognized in the year of the
disposition.
A portion of a partner's gain recognized on disposition of a
partnership's buildings may be subject to a maximum stated capital gain
rate of 25%. Any other gain from the sale or other disposition of
partnership properties that are treated as long-term capital gains (i.e.,
property held for more than one year) or section 1231 gains are taxed at
the partner level at a maximum stated rate of 20%.
A partner's share of any losses from the sale of Partnership
properties that are treated as capital losses are deductible in any year
only to the extent of the partner's other long and short-term capital
gains for that year. Any excess of capital losses over capital gains is
deductible by a 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.
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. Accordingly, any suspended passive losses will be
deductible in the year the partnership liquidated.
Alternative Minimum Tax
The above summary of the federal income tax provisions relating to
the proposed transaction has not taken into account the federal
alternative minimum tax. This tax was designed to ensure that at least
some tax is paid by taxpayers who obtain benefits from exemptions and
deductions. A taxpayer's alternative minimum tax liability is determined
by adjusting its regular tax liability for alternative minimum tax
preference and adjustment items. The proposed transaction 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.
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 Ral II 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.
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>
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 450,761 566,485 568,817 498,788 272,541 190,214 263,586
Net Income 523,995 643,133 654,540 566,968 331,268 220,590 299,911
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 RAL II Interests (8,301.5 Ral II
Interests at $1,000 per Ral II 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.
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
Wauwatosa, Wisconsin approximately 20,591 square
feet of land
Vacant Restaurant 4,000 square-foot building on
West Allis, Wisconsin approximately 34,000 square
feet of land
Pizza Hut Restaurant 4,000 square-foot building on
Waterloo, Iowa approximately 34,000 square
feet of land
Wendy's Restaurant 3,600 square-foot building on
Wauwatosa, Wisconsin approximately 56,000 square
feet of land
Spacious Acres Mobile Home Park* 182 mobile home pads on 63.5
Town of Concord, Wisconsin acres of land
Wendy's Restaurant 3,900 square-foot building on
Eden Prairie, Minnesota approximately 62,000 square
feet of land
Rocky Rococo Restaurant 3,900 square-foot building on
Racine, Wisconsin approximately 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.
<TABLE>
<CAPTION>
Occupancy Rates
Six Months Six Months
Ended Ended
1997 1996 1995 1994 1993 June 30, 1998 June 30, 1997
<S> <C> <C> <C> <C> <C> <C>
99% 99% 99% 99% 99% 100% 99%
</TABLE>
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.
<TABLE>
<CAPTION>
Rental Rates
Six Months Six Months
Ended June 30, Ended June 30,
1997 1996 1995 1994 1993 1998 1997
<S> <C> <C> <C> <C> <C> <C>
$2,786 $2,670 $2,539 $2,447 $2,335 $2,884 $2,767
</TABLE>
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 Six Months
Ended 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 August 31, 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.
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 on 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.
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.
<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").
(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 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 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 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.
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.
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 a waiver by Buyer of its rights to rely on
Seller's representations and warranties, provided, however, that the represen-
tations 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 repre-
sentations 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 adminis-
tration 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 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
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, 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
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)
<PAGE>
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
<PAGE>
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
<PAGE>
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.
<PAGE>
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
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.
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
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
<PAGE>
APPENDIX B
[Letterhead of Valuation Research Corporation]
September 1, 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 September 1, 1998, 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 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
30, 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.
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 Partners, the
Partnership, or to assist the General Partners or the Partnership in the
negotiations involving the sale of the Partnership's assets. The General
Partners 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, 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:
- Audited Financial statements for the Partnership for the years
1992 through 1996.
- 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.
- Market data pertaining to the current real estate market in the
neighborhoods of the seven owned properties.
- Demographic and economic histories and projections for the
subject properties' neighborhoods.
- 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:
- Buyer and seller are typically motivated;
- Both parties are well informed or well advised, and acting in
what they consider their best interests;
- A reasonable time is allowed for exposure in the open market;
- Payment is made in terms of cash in U.S. dollars or in terms of
financial arrangements comparable thereto; and
- 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, respectively. 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.
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 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.
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.
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.
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 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.
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 considering any portion of such analyses and of
the factors 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 September 1, 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 proposed sale of the assets of the Partnership. The Partnership may
include this letter as a part of the information statement filed with the
Securities and Exchange Commission and delivered to holders of the
Partnership's limited partnership interests. 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 its entirety. The term "interested 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 property
that constitutes the underlying assets of the Partnership.
Respectfully submitted,
VALUATION RESEARCH CORPORATION
Attachment
Engagement Number: 02-3173-00
<PAGE>
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 Partners of RAL-
YIELD EQUITIES II that there will be no material change in the proposed
sale of assets or any documents in VRC's possession as of September 1,
1998.
Except as contemplated hereby, 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 they are 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 limited partnership interests in the Partnership.
<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 proposal, 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.
