<PAGE>
SCHEDULE 14A
Information Required in Proxy Statement
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
(Amendment No. )
[X ] Filed by the Registrant
[ ] 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 SS240.14a-11(c) or SS240.14a-12
BRAUVIN HIGH YIELD FUND L.P. II
-------------------------------
(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):
[ ] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2) of
Item 22(a)(2) of Schedule 14A.
[ ] $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
[X ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
Units of Limited Partnership Interests
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2) Aggregate number of securities to which transactions applies:
40,347 Units of Limited Partnership Interests
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3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:
Based upon the aggregate cash to be paid for the Registrant's assets
($30,183,300) which are the subject of this Schedule 14A, the
Registrant is paying a filing fee of $6,036.66 (one-fiftieth of one
percent of this aggregate of the cash and the value of securities
(other
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than its own) and other property to be received by the Registrant in
-------------
the subject transaction.)
--------------------------------------------------------
4) Proposed maximum aggregate value of transaction:
$30,183,300
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5) Total fee paid:
$6,036.66
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[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 offering 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:
N/A
--------------------------------------------------------
2) Form Schedule or Registration Statement No.:
N/A
--------------------------------------------------------
3) Filing Party:
N/A
--------------------------------------------------------
4) Date Filed:
N/A
--------------------------------------------------------
<PAGE>
BRAUVIN HIGH YIELD FUND L.P. II
150 South Wacker Drive
Suite 3200
Chicago, Illinois 60606
July __, 1996
To the Limited Partners of
Brauvin High Yield Fund L.P. II:
We are pleased to inform you that Brauvin High Yield Fund L.P. II (the
"Partnership") has entered into an agreement through which the Partnership has
agreed to merge with and into another entity, the effect of which will be that
each Limited Partner will receive approximately $775.45 in cash for each of
their units of limited partnership interest of the Partnership (the "Units").
Consummation of this transaction is subject to your approval. Limited Partners
holding a majority of the Units must approve the transaction and an amendment to
the Restated Limited Partnership Agreement of the Partnership, described below,
by voting "FOR" on the enclosed proxy card in order for the Partnership to
accept this all cash offer. If the transaction and the amendment are approved
by the Limited Partners and certain other conditions are met, the transaction
will be consummated, the Partnership will cease to exist and your Units will be
redeemed entirely for approximately $775.45 per Unit in cash. The redemption
price is based on the fair market value of the assets of the Partnership which
has been determined by an independent appraiser to be $30,183,300, plus all
remaining cash of the Partnership, less expenses incurred in connection with the
transaction and other Partnership obligations. The independent appraiser has
delivered an opinion that this transaction is fair to the Limited Partners from
a financial point of view.
The General Partners will not receive any payment in exchange for the
redemption of their general partnership interests nor will they receive any fees
from the Partnership in connection with the transaction. However, the
transaction is subject to certain conflicts of interest, as described in the
enclosed Proxy Statement, including the fact that the entity into which the
Partnership will be merged is affiliated with Mr. Jerome J. Brault and Brauvin
Realty Advisors II, Inc., two of the General Partners of the Partnership, due to
the minority ownership interest of Mr. Brault (who is also an executive officer
and the director of Brauvin Realty Advisors II, Inc.) and his son, James L.
Brault (who is an executive officer of Brauvin Realty Advisors II, Inc.) in such
entity.
<PAGE>
In addition to the approval by the Limited Partners holding a majority of
the Units, Delaware law provides that a merger must also be approved by the
general partners of a partnership, unless the partnership agreement provides
otherwise. As described in the enclosed Proxy Statement, the Partnership's
Partnership Agreement is silent on this matter and not all of the General
Partners are recommending the proposed transaction. The Limited Partners are,
therefore, being asked to adopt an amendment to the Partnership Agreement to
allow the vote of the Limited Partners owning a majority of the Units to
determine the outcome of the transaction without a vote of the General Partners.
Failure to approve this amendment would likely preclude the consummation of the
transaction even if the transaction were approved by the Limited Partners
holding a majority of the Units.
The Partnership is soliciting your proxy in connection with the transaction
and the amendment. Included with this letter is a Notice of Special Meeting of
the Limited Partners to be held August __, 1996, at 9:00 a.m., local time, at
the offices of the Partnership, 150 South Wacker Drive, Chicago, Illinois 60606,
for the purpose of considering and voting on the transaction and the amendment.
Also enclosed herewith is a Proxy Statement dated July __, 1996, which contains
information relating to the proposed transaction and the amendment, together
with a proxy card which authorizes Jerome J. Brault, the Managing General
Partner, to vote your Units with respect to the transaction and the amendment at
the special meeting of the Limited Partners and any adjournment thereof. The
Limited Partners who hold Units of record on the books of the Partnership at the
close of business on _________________, 1996, are entitled to notice of, and to
vote at, the special meeting or any adjournments thereof. There are no quorum
requirements with respect to the special meeting of the Limited Partners (the
"Special Meeting"), however, if Limited Partners holding a majority of the Units
do not submit a proxy or vote in person at the Special Meeting neither the
transaction nor the amendment can be approved.
Regardless of whether you expect to be present in person at the Special
Meeting, please complete and promptly return the enclosed proxy card in the
enclosed, postage-prepaid envelope or by facsimile to (214) 999-9323 or (214)
999-9348 so that your Units may be represented and voted. A proxy may be
revoked at any time prior to its exercise by submitting a revocation or a later-
dated proxy to the Partnership's Information Agent, The Herman Group, Inc. or by
attending the Special Meeting and voting in person. Proxies properly executed
and returned, and not revoked, will be voted in accordance with instructions as
indicated thereon.
As both the transaction and the amendment require the approval of the
Limited Partners holding a majority of the Units, failure to return a proxy in a
timely manner or to vote at the Special Meeting will have the same effect as a
vote "AGAINST" the transaction and "AGAINST" the amendment. Likewise,
abstentions and broker non-votes will have the same effect as a vote "AGAINST"
the transaction
<PAGE>
and "AGAINST" the amendment. Any proxy cards which are returned and on which a
choice is not indicated will be voted "FOR" the transaction and "FOR" the
amendment. In view of the importance of the Special Meeting, it is requested
-----------------------------------------------------------------
that you sign, mark and return the enclosed proxy card in the enclosed, postage-
- - -------------------------------------------------------------------------------
prepaid envelope or by facsimile to (214) 999-9323 or (214) 999-9348 no later
- - -----------------------------------------------------------------------------
than August __, 1996. When voting your proxy by facsimile, both sides of the
- - -----------------------------------------------------------------------------
proxy card must be transmitted.
- - ------------------------------
The transaction is one of a series of related transactions whereby the
purchaser seeks to acquire the assets of the Partnership and the assets of
certain affiliates of the Partnership. The approval of the limited partners
holding a majority in interest of each such limited partnership is a condition
to the effectiveness of the transaction, which condition may be waived by the
purchaser.
Cezar M. Froelich, one of the general partners of the Partnership gave
notice of his intent to resign as an individual General Partner of the
Partnership on May 23, 1996. Pursuant to the terms of the Partnership
Agreement, Mr. Froelich's resignation will become effective on the 90th day
following notice to the Limited Partners, which notice was dated June 20, 1996.
Questions and requests for assistance may be directed to the Partnership's
Information Agent, The Herman Group, Inc. at (800) 992-6145.
Very truly yours,
BRAUVIN REALTY ADVISORS II, INC., Corporate
General Partner
By:________________________________
Title:_____________________________
___________________________________
Jerome J. Brault, Managing General
Partner
JEROME J. BRAULT, THE MANAGING GENERAL PARTNER OF THE PARTNERSHIP AND
BRAUVIN REALTY ADVISORS II, INC., THE CORPORATE GENERAL PARTNER OF THE
PARTNERSHIP, WHICH IS CONTROLLED BY MR. BRAULT, HAVE DETERMINED THAT THE
TRANSACTION AND THE AMENDMENT ARE FAIR AND REASONABLE TO THE LIMITED PARTNERS
AND, THEREFORE, RECOMMEND THAT THE LIMITED PARTNERS VOTE "FOR" THE TRANSACTION
AND "FOR" THE AMENDMENT. HOWEVER, THE SUCH GENERAL PARTNERS ARE SUBJECT TO
CERTAIN CONFLICTS OF INTEREST WITH RESPECT TO THE TRANSACTION. CEZAR M.
FROELICH AND DAVID M. STROSBERG, TWO OF THE INDIVIDUAL GENERAL PARTNERS, ARE NOT
RECOMMENDING THE TRANSACTION FOR THE REASONS STATED IN THE ENCLOSED PROXY
STATEMENT.
<PAGE>
NOTICE OF SPECIAL MEETING OF THE LIMITED PARTNERS OF
BRAUVIN HIGH YIELD FUND L.P. II
To be Held August __, 1996
To the Limited Partners
of Brauvin High Yield Fund L.P. II:
NOTICE IS HEREBY GIVEN, that a special meeting (the "Special Meeting") of
the Limited Partners of Brauvin High Yield Fund L.P. II, a Delaware limited
partnership (the "Partnership") will be held at the offices of the Partnership,
150 South Wacker Drive, Suite 3200, Chicago, Illinois 60606 on ______, August
__, 1996, at 9:00 a.m. local time, for the following purposes:
1. To approve the merger of the Partnership with and into Brauvin Real
Estate Funds L.L.C., a Delaware limited liability company (the
"Purchaser"), the effect of which will be that each Limited Partner
will receive approximately $775.45 per Unit in cash for their
partnership interests. The Purchaser is affiliated with Mr. Jerome J.
Brault and Brauvin Realty Advisors II, Inc., two of the general
partners of the Partnership. Because the merger will result in a
transfer of the Partnership's assets to an affiliate of these general
partners, by approving the merger, the Limited Partners are
automatically approving an amendment of the Partnership's Restated
Limited Partnership Agreement, as amended, allowing the Partnership to
sell property to affiliates.
2. To adopt an amendment to the Partnership's Restated Limited
Partnership Agreement, as amended, which will allow the majority vote
of the Limited Partners to determine the outcome of the merger without
the vote of the General Partners. Upon approval of the amendment the
vote of the Limited Partners holding a majority of the Units will be
the only vote necessary to approve this transaction. Failure to
approve this amendment would likely preclude the consummation of the
merger even if the merger were approved by the Limited Partners
holding a majority of the Units.
3. To transact such other business as may properly come before the
Special Meeting or any adjournment or postponement thereof.
Information concerning the matters to be acted upon at the Special Meeting
is set forth in the accompanying Proxy Statement.
JEROME J. BRAULT, THE MANAGING GENERAL PARTNER OF THE PARTNERSHIP (THE
"MANAGING GENERAL PARTNER"), AND BRAUVIN REALTY
<PAGE>
ADVISORS II, INC., THE CORPORATE GENERAL PARTNER OF THE PARTNERSHIP (THE
"CORPORATE GENERAL PARTNER" AND WITH THE MANAGING GENERAL PARTNER, THE
"OPERATING GENERAL PARTNERS"), WHICH IS CONTROLLED BY MR. BRAULT, HAVE
DETERMINED THAT THE TRANSACTION AND THE AMENDMENT ARE FAIR AND REASONABLE TO THE
LIMITED PARTNERS AND, THEREFORE, RECOMMEND THAT THE LIMITED PARTNERS VOTE "FOR"
THE TRANSACTION AND "FOR" THE AMENDMENT. HOWEVER, THE OPERATING GENERAL
PARTNERS ARE SUBJECT TO CERTAIN CONFLICTS OF INTEREST WITH RESPECT TO THE
TRANSACTION. CEZAR M. FROELICH AND DAVID M. STROSBERG, TWO OF THE INDIVIDUAL
GENERAL PARTNERS, ARE NOT RECOMMENDING THE TRANSACTION FOR THE REASONS STATED IN
THE ENCLOSED PROXY STATEMENT.
You are invited to attend the Special Meeting. Even if you intend to
attend the Special Meeting, you are requested to sign and date the accompanying
proxy card and return it promptly in the enclosed, postage-prepaid envelope or
by facsimile to (214) 999-9323 or (214) 999-9348. When voting your proxy by
facsimile, both sides of the proxy card must be transmitted. If you attend the
Special Meeting, you may, if you wish, vote in person regardless of whether you
have given your proxy. In any event, a proxy may be revoked at any time before
it is exercised.
The close of business on _________, 1996 has been fixed as the record date
for determination of the Limited Partners entitled to notice of and to vote at
the Special Meeting. There are no quorum requirements with respect to the
Special Meeting, however, if Limited Partners holding a majority of the Units do
not submit a proxy or vote in person at the Special Meeting neither the
Transaction nor the amendment can be approved.
BRAUVIN REALTY ADVISORS II, INC., Corporate
General Partner
By:___________________________
Title:________________________
______________________________
Jerome J. Brault, Managing
General Partner
Chicago, Illinois
July __, 1996
YOUR VOTE IS VERY IMPORTANT. IN ORDER TO ENSURE THAT YOUR INTERESTS WILL
BE REPRESENTED, WHETHER YOU INTEND TO BE PRESENT AT THE SPECIAL MEETING OR NOT,
PLEASE SIGN THE ENCLOSED PROXY CARD AND MAIL IT PROMPTLY IN THE ENCLOSED,
POSTAGE-PREPAID
<PAGE>
ENVELOPE OR BY FACSIMILE TO (214) 999-9323 OR (214) 993-9348. WHEN VOTING YOUR
PROXY BY FACSIMILE, BOTH SIDES OF THE PROXY CARD MUST BE TRANSMITTED. FAILURE
TO RETURN A PROXY CARD, ABSTENTION FROM VOTING AND BROKER NON-VOTES WILL EACH BE
THE SAME AS A VOTE "AGAINST" THE TRANSACTION AND "AGAINST" THE AMENDMENT. ANY
PROXY CARDS ON WHICH A CHOICE IS NOT INDICATED WILL BE VOTED "FOR" THE
TRANSACTION AND "FOR" THE AMENDMENT.
<PAGE>
TABLE OF CONTENTS
-----------------
Page
----
SUMMARY............................................................... 4
The Transaction.................................................. 4
Related Transactions............................................. 4
Amendment to the Partnership Agreement........................... 5
The Special Meeting; Votes Required.............................. 5
Purpose of and Reasons for the Transaction....................... 5
Effects of the Transaction....................................... 6
Valuation of the Assets; Fairness Opinion........................ 7
Recommendations of the General Partners.......................... 7
Conflicts of Interest............................................ 8
SPECIAL MEETING OF THE LIMITED PARTNERS............................... 9
Special Meeting; Record Date..................................... 9
Procedures for Completing Proxies................................ 9
Votes Required................................................... 11
Solicitation Procedures.......................................... 11
Revocation of Proxies............................................ 12
TERMS OF THE TRANSACTION.............................................. 12
The Merger Agreement............................................. 12
Representations and Warranties of the Parties.................... 13
Additional Agreements............................................ 15
Conditions to Closing the Transaction............................ 15
Determination of Redemption Price................................ 18
Termination of the Merger Agreement.............................. 19
Amendment of the Merger Agreement................................ 20
Amendment of Partnership Agreement............................... 20
Related Transactions............................................. 20
INCOME TAX CONSEQUENCES OF THE TRANSACTION............................ 21
Certain Federal Income Tax Consequences.......................... 21
Differing Tax Treatment of the Limited Partners.................. 24
SPECIAL FACTORS....................................................... 25
Purpose of and Reasons for the Transaction....................... 25
Alternatives to the Transaction.................................. 29
Effects of the Transaction....................................... 31
Valuation of the Assets; Fairness Opinion........................ 33
Recommendations of the General Partners.......................... 38
Appraisal Rights................................................. 41
Costs Associated with the Transaction............................ 42
CONFLICTS OF INTEREST................................................. 42
Interests in the Purchaser....................................... 42
Purchaser Fees................................................... 43
Indemnification under the Partnership Agreement.................. 43
Indemnification by the Purchaser................................. 44
CERTAIN INFORMATION ABOUT THE PARTNERSHIP, ITS GENERAL
i
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PARTNERS AND THEIR AFFILIATES......................................... 45
The Partnership.................................................. 45
The General Partners............................................. 46
Description of the Assets........................................ 47
Distributions.................................................... 57
Ownership of Units............................................... 58
Market for the Units............................................. 58
Legal Proceedings................................................ 59
Independent Certified Public Accountants......................... 59
Available Information............................................ 59
CERTAIN INFORMATION CONCERNING THE PURCHASER.......................... 59
SELECTED FINANCIAL DATA............................................... 60
INCORPORATION BY REFERENCE............................................ 61
ANNEX I - VALUATION
ANNEX II - FAIRNESS OPINION
ii
<PAGE>
BRAUVIN HIGH YIELD FUND L.P. II
150 South Wacker Drive
Suite 3200
Chicago, Illinois 60606
PROXY STATEMENT
For the Special Meeting of the Limited Partners
To be Held August __, 1996
This proxy statement (the "Proxy Statement") and the enclosed proxy card
are being first mailed to the beneficial owners of the limited partnership
interests (the "Limited Partners") of Brauvin High Yield Fund L.P. II, a
Delaware limited partnership (the "Partnership") on or about July __, 1996 by
the Partnership to solicit proxies for use at a special meeting of the Limited
Partners (the "Special Meeting") to be held at the offices of the Partnership,
150 South Wacker Drive, Chicago, Illinois 60606 on ______, August __, 1996 at
9:00 a.m., local time, or at such other place and time to which the Special
Meeting may be adjourned.
The purpose of the Special Meeting is to consider the approval of a merger
(the "Merger") of the Partnership with and into Brauvin Real Estate Funds
L.L.C., a Delaware limited liability company (the "Purchaser") that is
affiliated with the Operating General Partners, as hereinafter defined. Because
the Merger will result in a transfer of the Partnership's assets to an affiliate
of these general partners of the Partnership, by approving the Merger, the
Limited Partners are automatically approving an amendment of the Partnership
Agreement, as hereinafter defined, allowing the Partnership to sell or lease
property to affiliates (this amendment, together with the Merger shall be
referred to herein as the "Transaction"). The terms of the Merger are set forth
in an Agreement and Plan of Merger dated as of June 14, 1996 by and among the
Purchaser and the Partnership, Brauvin High Yield Fund L.P. and Brauvin Income
Plus L.P. III (the "Merger Agreement"). Promptly upon consummation of the
Transaction, the Partnership will be merged with and into the Purchaser through
a merger of its partnership interests, the Partnership will cease to exist and
the Purchaser, as the surviving entity, will succeed to all of the assets and
liabilities of the Partnership. As a
- - --------------------------------------------------------------------------------
THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE UNITED STATES
SECURITIES AND EXCHANGE COMMISSION (THE "COMMISSION") NOR HAS THE COMMISSION
PASSED UPON THE FAIRNESS OR MERITS OF SUCH TRANSACTION NOR UPON THE ACCURACY OR
ADEQUACY OF THE INFORMATION CONTAINED IN THIS DOCUMENT. ANY REPRESENTATION TO
THE CONTRARY IS UNLAWFUL.
<PAGE>
result of the Merger, all of the outstanding units of limited partnership
interest of the Partnership (each a "Unit" and collectively, the "Units") will
be redeemed by the Purchaser for approximately $775.45 per Unit in cash. This
redemption price is based on the fair market value of the properties of the
Partnership (the "Assets") which has been determined by an independent appraiser
to be $30,183,300, or $748.09 per Unit, plus all remaining cash of the
Partnership as of the effective time of the Merger (the "Effective Time"), less
earnings of the Partnership after July 31, 1996, less the Partnership's actual
costs incurred and accrued through the Effective Time, including reasonable
reserves in connection with: (i) the proxy solicitation; (ii) the Transaction
(as detailed in the Merger Agreement); and (iii) winding up of the Partnership,
including preparation of the final audit, tax return and K-1s (collectively, the
"Transaction Costs") and less all other Partnership obligations, which amount is
currently anticipated to be $27.36 per Unit. The general partners of the
Partnership (the "General Partners") will not receive any payment in exchange
for the redemption of their general partnership interests nor will they receive
any fees from the Partnership in connection with the Transaction. However, the
Transaction is subject to certain conflicts of interest, as described herein,
including the fact that Mr. Jerome J. Brault, the Managing General Partner of
the Partnership (the "Managing General Partner") and an executive officer and
the director of Brauvin Realty Advisors II, Inc., the Corporate General Partner
of the Partnership (the "Corporate General Partner") and his son, James L.
Brault, an executive officer of the Corporate General Partner, have a minority
ownership interest in the Purchaser. Cezar M. Froelich and David M. Strosberg,
two of the individual General Partners have no affiliation with the Purchaser.
The affirmative vote of the Limited Partners holding a majority of the
Units (in excess of 50%) is necessary to approve the Transaction. In addition,
the Delaware Revised Uniform Limited Partnership Act (the "Act") provides that a
merger must also be approved by the general partners of a partnership, unless
the limited partnership agreement provides otherwise. Because the Restated
Limited Partnership Agreement of the Partnership, as amended (the "Partnership
Agreement") is silent on this matter and because not all of the General Partners
are recommending the Transaction, the Limited Partners are also being asked to
adopt an amendment (the "Amendment") to the Partnership Agreement which provides
that the vote of the General Partners is not required to approve the
Transaction. The affirmative vote of the Limited Partners holding a majority of
the Units is necessary to approve the Amendment. Upon approval of the
Amendment, the vote of the Limited Partners holding a majority of the Units will
be the only vote necessary to approve the Transaction. There are no quorum
requirements with respect to the Special Meeting, however, if the Limited
Partners holding a majority of the Units do not submit a
2
<PAGE>
proxy or vote in person at the meeting neither the Transaction nor the Amendment
can be approved. Neither the Act nor the Partnership Agreement provide the
Limited Partners not voting in favor of the Transaction or the Amendment with
dissenters' appraisal rights.
The close of business on ________________, 1996 has been established as the
record date (the "Record Date") for determining the Limited Partners entitled to
notice of, and to direct the vote of the Units at the Special Meeting. As of
the Record Date, the Partnership had outstanding and entitled to vote 40,347
Units, held of record by 2,642 Limited Partners. Each Unit entitles the holder
to one vote on each matter submitted to a vote of the Limited Partners.
All duly executed proxy cards received from the Limited Partners prior to
the Special Meeting will be voted in accordance with the choices specified
thereon. If a duly executed proxy card does not specify a choice, the Units
represented thereby will be voted "FOR" the Transaction and "FOR" the Amendment.
A Limited Partner who gives a proxy may revoke it at any time before it is voted
at the Special Meeting, as described herein.
The accompanying proxy is solicited on behalf of the Partnership to be
voted at the Special Meeting. The Partnership's principal executive offices are
located at 150 South Wacker Drive, Suite 3200, Chicago, Illinois 60606 and its
telephone number is (312) 443-0922. The Partnership has engaged The Herman
Group, Inc. to act as Information Agent in connection with the proxy
solicitation process. In addition to the original solicitation by mail, proxies
may be solicited by telephone, telegraph or in person. All expenses of this
solicitation, including the cost of preparing and mailing this Proxy Statement,
will be borne by the Partnership.
The Partnership is a Delaware limited partnership formed on May 3, 1988.
The Partnership's Commission file number is 0-17556. The General Partners are
the Corporate General Partner, the Managing General Partner, Cezar M. Froelich
and David M. Strosberg. Mr. Froelich gave notice of his intent to resign as an
individual General Partner of the Partnership on May 23, 1996. Pursuant to the
terms of the Partnership Agreement, Mr. Froelich's resignation will become
effective on the 90th day following notice to the Limited Partners, which notice
was dated June 20, 1996. Mr. Strosberg has indicated his intent to resign as an
individual General Partner subsequent to approval of the Transaction by the
Limited Partners. The Corporate General Partner and the Managing General
Partner are collectively referred to herein as the "Operating General Partners."
3
<PAGE>
SUMMARY
Set forth below is a summary of certain information contained
elsewhere in this Proxy Statement. It is not intended to be a complete
description of those matters which it covers and much of the information
contained in this Proxy Statement is not covered by this Summary. The
information contained in this Summary is qualified by the more complete
information contained elsewhere in this Proxy Statement or incorporated by
reference into this Proxy Statement. All Limited Partners are urged to read this
Proxy Statement in its entirety.
The Transaction
Pursuant to the terms of the Merger Agreement, the Partnership
proposes to merge with and into the Purchaser through a merger of its
partnership interests. Promptly upon consummation of the Transaction, the
Partnership will cease to exist and the Purchaser, as the surviving entity, will
succeed to all of the Assets and liabilities of the Partnership. As a result of
the Merger, the interests of the Limited Partners in the Partnership will be
redeemed for approximately $775.45 per Unit in cash. This redemption price is
based on the fair market value of the Assets which has been determined by an
independent appraiser to be $30,183,300, or $748.09 per Unit, as of April 1,
1996 plus all remaining cash of the Partnership as of the Effective Time, less
earnings of the Partnership after July 31, 1996, less the Transaction Costs and
less all other Partnership obligations, which amount is currently anticipated to
be $27.36 per Unit. Thus, the actual redemption price will be subject to
adjustment based upon changes in these amounts prior to the Effective Time. The
independent appraiser has also delivered an opinion that the Transaction is fair
to the Limited Partners from a financial point of view. The General Partners
will not receive any payment in exchange for the redemption of their general
partnership interests nor will they receive any fees from the Partnership in
connection with the Transaction. However, the Transaction is subject to certain
conflicts of interest as described herein, including the fact that the Managing
General Partner and his son, James L. Brault (collectively, the "Braults") have
a minority ownership interest in the Purchaser. Messrs. Froelich and Strosberg
have no affiliation with the Purchaser. See "Terms of the Transaction - The
Merger Agreement," "Terms of the Transaction - Determination of Redemption
Price" and "Conflicts of Interest."
Related Transactions
The Transaction is one of a series of related transactions whereby the
Purchaser seeks to acquire the Assets of the Partnership and the assets, through
purchase or merger, of the Affiliated Limited Partnerships (as hereinafter
defined). The
4
<PAGE>
approval of a majority in interest of the limited partners of each of the
Affiliated Limited Partnerships to their respective Affiliated Transactions, as
hereinafter defined, is a condition to the effectiveness of the Transaction,
which condition may be waived by the Purchaser. See "Terms of the Transaction -
Related Transactions."
Amendment to the Partnership Agreement
Consummation of the Transaction is subject to approval by the Limited
Partners holding a majority of the Units (in excess of 50%). In addition, the
Act provides that a merger must also be approved by the general partners of a
partnership, unless the limited partnership agreement provides otherwise.
Because the Partnership Agreement is silent on this matter and because not all
of the General Partners are recommending the Transaction, the Limited Partners
are being asked to adopt the Amendment, which allows the vote of the Limited
Partners owning a majority of the Units to determine the outcome of the
Transaction without a vote of the General Partners. Upon approval of the
Amendment the vote of the Limited Partners holding a majority of the Units will
be the only vote necessary to approve the Transaction. Failure to approve the
Amendment would likely preclude the consummation of the Merger even if the
Merger were approved by the Limited Partners holding a majority of the Units.
The Special Meeting; Votes Required
A Special Meeting of the Limited Partners will be held on August __,
1996, to consider and vote upon the Transaction and the Amendment. It is a
condition to the closing of the Transaction that the Limited Partners holding a
majority of the Units (in excess of 50%) approve both the Transaction and the
Amendment. The Partnership is soliciting proxies from the Limited Partners to
be used at the Special Meeting and any adjournments thereof. See "Special
Meeting of the Limited Partners."
5
<PAGE>
Purpose of and Reasons for the Transaction
The principal purpose of the Transaction is to cause the transfer of
the Assets and the liabilities to the Purchaser in return for cash proceeds
which will be distributed to the Limited Partners through the redemption of
their Units. The Transaction will result in the Limited Partners receiving the
fair market value for the Assets from a buyer that has the ability to quickly
consummate the Transaction and is willing to assume all of the Assets and
liabilities of the Partnership with limited representations and warranties.
This structure allows the Limited Partners to receive cash in exchange for their
Units based upon the current fair market value of the Assets, which cash can be
invested in alternative investments. See "Special Factors - Purpose of and
Reasons for the Transaction."
Effects of the Transaction
If the Transaction and the Amendment are approved and the remaining
conditions to the Transaction are met or waived, the Merger will be effected and
in connection therewith, the Assets and liabilities of the Partnership will be
transferred to the Purchaser as the surviving entity in the Merger, the
Partnership will cease to exist and the Units of the Limited Partners will be
redeemed for approximately $775.45 per Unit in cash. Thereafter, Limited
Partners will cease to be owners of the Partnership and will no longer bear the
costs or benefits associated with such ownership. See "Special Factors -
Effects of the Transaction," "Special Factors - Purpose of and Reasons for the
Transaction -Costs and Risks Associated with Continued Ownership" and "Special
Factors - Purpose of and Reasons for the Transaction - Benefits of the
Transaction."
The General Partners will not receive any payment in exchange for the
redemption of their general partnership interests nor will they receive any fees
from the Partnership in connection with the Transaction. However, the Braults
have a minority ownership interest in the Purchaser, which will own the Assets
following the consummation of the Transaction. In addition, each of Brauvin
Management Company and Brauvin Financial, Inc., corporations owned, in part, by
Cezar M. Froelich and an affiliate of Jerome J. Brault, will receive $55,140
from the Purchaser (not the Partnership) for advisory services rendered in
connection with the Transaction.
If the Transaction is not consummated, there can be no assurance as to
whether any future liquidation or disposition of the Assets, either in whole or
in part, will occur or on what terms they might occur. However, if not
approved, the Operating General Partners will continue to operate the
Partnership in accordance with the terms of the Partnership Agreement and in
fulfillment of their fiduciary duties, including the review of
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any third-party offers to purchase any or all of the Assets, in an effort to
enhance the Partnership's value on behalf of the Limited Partners. In addition,
the Operating General Partners will continue to evaluate the various
alternatives to the Transaction, as described under the heading "Special Factors
- - -Alternatives to the Transaction" below. Such alternatives include: (i)
continuing to hold the Assets; (ii) individual property sales; (iii) an auction
of any or all of the properties; and (iv) solicitation of third-party bids. The
Operating General Partners have concluded that such options are not in the best
interest of the Limited Partners at this time, particularly in light of the
Purchaser's offer. The Operating General Partners do not intend to actively
solicit bids for the Assets in the immediate future.
Valuation of the Assets; Fairness Opinion
Cushman & Wakefield Valuation Advisory Services ("Cushman &
Wakefield"), the largest real estate valuation and consulting organization in
the United States, was engaged by the Partnership to prepare an appraisal of the
Assets. Cushman & Wakefield was subsequently engaged to provide an opinion as
to the fairness of the Transaction to the Limited Partners from a financial
point of view. Cushman & Wakefield valued the Assets at $30,183,300, which is
the total cash consideration to be paid by the Purchaser for the Assets in
connection with the Transaction. In addition, Cushman & Wakefield has advised
the Partnership that in its opinion, the Transaction is fair to the Limited
Partners from a financial point of view. See "Special Factors - Valuation of
the Assets; Fairness Opinion."
Recommendations of the General Partners
The Operating General Partners have determined that the terms of the
Transaction are fair to the Limited Partners and, therefore, recommend that the
Limited Partners vote "FOR" the Transaction and "FOR" the Amendment. The
recommendations of the Operating General Partners are, however, subject to
conflicts of interest as described herein. The Operating General Partners'
determination of fairness was based on the following factors in favor of the
Transaction: (i) use of an independent appraiser's valuation of the Assets as a
basis for the redemption price; (ii) the structure of the transaction as a
merger, whereby all of the Assets and the liabilities of the Partnership are
transferred to the Purchaser, thereby eliminating the need for the Partnership
to continue operations with the less salable or valuable properties; (iii)
avoidance of certain potential transaction costs, such as investment banking
fees or real estate brokerage commissions, which could have approximated
$900,000 to $1,800,000 in the aggregate; (iv) the willingness of the Purchaser
to effect an all cash transaction; (v) the independent fairness opinion rendered
in connection with the Transaction;
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(vi) the fact that the Partnership is approaching the end of the originally
anticipated holding period for the Assets; (vii) the fact that the Transaction
will be effected with minimal representations and warranties by the Partnership,
thereby eliminating the need to escrow funds; (viii) the flexibility granted to
the Operating General Partners in the Merger Agreement to pursue subsequent
offers that can produce a better return to the Limited Partners; (ix) the fact
that a majority in interest of the Limited Partners (in excess of 50%) is
required to approve the Transaction; (x) the average lease term of the Assets
and other risks associated with continuing to own the Assets; (xi) the high cost
of operating a publicly-held entity; (xii) the lack of an established trading
market for the Units; (xiii) the comparison of the per Unit redemption price to
current and historical market prices; (xiv) the expressed desire of certain
Limited Partners to have their investment in the Partnership liquidated; and
(xv) the Operating General Partners' industry knowledge regarding the
marketability of properties with lease terms similar to the Assets. In
determining the fairness of the Transaction, the Operating General Partners also
considered the following factors: (i) the affiliated nature of the Transaction
and other conflicts of interest; (ii) that there can be no assurance that the
cash redemption price received by the Limited Partners in connection with the
Transaction can be invested in alternative investments that will generate a
return equal to or greater than that generated by the investment in the
Partnership; (iii) that the Limited Partners will no longer have an ownership
interest in the Assets and thus will not share in any potential changes in their
value; (iv) that there can be no assurances that a better offer for the
acquisition of the Assets may not be available now or in the future; and (v)
that the Limited Partners may incur certain tax liabilities as a result of the
Transaction. Messrs. Froelich and Strosberg are not recommending the
Transaction since they believe that the most advantageous methodology for
determining a fair price for the Assets would be to seek third-party offers
through an arm's-length bidding process. See "Special Factors - Recommendations
of the General Partners" for a discussion of the foregoing factors.
Conflicts of Interest
The Transaction is subject to certain conflicts of interest as more
fully described under the heading "Conflicts of Interest" below. Such
conflicts include: (i) that the Operating General Partners are affiliated with
the Purchaser, due to the minority ownership interest of the Braults in such
entity and, therefore, they have an indirect economic interest in consummating
the Transaction that may be considered to be in conflict with the economic
interests of the Limited Partners; (ii) that each of Brauvin Management Company
and Brauvin Financial, Inc., which are owned, in part, by Cezar M. Froelich and
an affiliate of Jerome J. Brault, will receive $55,140 from the Purchaser (not
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the Partnership) for advisory services rendered in connection with the
Transaction; and (iii) that the General Partners have been granted certain
indemnification rights by each of the Partnership and the Purchaser.
SPECIAL MEETING OF THE LIMITED PARTNERS
Special Meeting; Record Date
Pursuant to the terms of the Partnership Agreement, the approval of
the Limited Partners holding a majority of the Units is required to approve the
Transaction and to approve the Amendment. A Special Meeting of the Limited
Partners will be held on August __, 1996, at the offices of the Partnership, 150
South Wacker Drive, Chicago, Illinois 60606, at 9:00 a.m., local time, to
consider and vote upon the Transaction and the Amendment. The Partnership
Agreement provides that the General Partners may call a special meeting of the
Limited Partners, which special meeting shall have a record date, for the
purpose of determining the Limited Partners entitled to vote, of not more than
60 days nor less than 20 days prior to the date when ballots are delivered to
the Limited Partners. In accordance therewith, the close of business on
________________, 1996 has been established as the Record Date. Under the terms
of the Partnership Agreement, only the Limited Partners holding Units of record
on the Record Date are eligible to vote those Units on the proposals set forth
in this Proxy Statement. A Limited Partner holding Units of record as of the
Record Date will retain the right to vote on the proposals set forth herein even
if such Limited Partner sells or transfers such Units after such date. As of
the Record Date, the Partnership had 40,347 Units outstanding and entitled to
vote, held of record by 2,642 Limited Partners. A list of the Limited Partners
entitled to vote at the special meeting will be available for inspection at the
executive offices of the Partnership at 150 South Wacker Drive, Suite 3200,
Chicago, Illinois 60606. There are no quorum requirements with respect to the
Special Meeting, however, if Limited Partners holding a majority of the Units do
not submit a proxy or vote in person at the Special Meeting, neither the
Transaction nor the Amendment can be approved.
All Limited Partners are invited to attend the Special Meeting.
However, even those Limited Partners intending to attend the Special Meeting are
requested to complete and return the enclosed proxy card promptly.
Procedures for Completing Proxies
Accompanying this Proxy Statement is a proxy card solicited by and on
behalf of the Partnership for use at the Special Meeting. When a proxy card is
returned, properly executed, the
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Units represented thereby will be voted at the Special Meeting by the Managing
General Partner in the manner specified on the proxy card. It is important that
you mark, sign and date your proxy card and return it in the enclosed, postage-
prepaid envelope or by facsimile to (214) 999-0323 or (214) 999-9348 as soon as
possible. When voting your proxy by facsimile, both sides of the proxy must be
transmitted. Delivery of your proxy does not prohibit you from attending the
Special Meeting. To be properly executed, the proxy card must be signed by and
bear the date of signature of the Limited Partner voting the Units represented
thereby. All questions as to the form of documents and the validity of consents
will be determined by the Managing General Partner, which determinations shall
be final and binding. The Managing General Partner reserves the right to waive
any defects or irregularities in any proxy.
Each Unit entitles the holder thereof to one vote with respect to the
proxies solicited hereby. Only holders of Units of record on the record date
may grant a proxy with respect to those Units. IF UNITS STAND OF RECORD IN THE
NAMES OF TWO OR MORE PERSONS, ALL SUCH PERSONS MUST SIGN THE PROXY CARD. WHEN
SIGNING AS AN ATTORNEY, EXECUTOR, ADMINISTRATOR, TRUSTEE OR GUARDIAN, PLEASE
GIVE THE FULL TITLE OF SUCH. IF A CORPORATION, THE PROXY SHOULD BE SIGNED BY
THE PRESIDENT OR OTHER AUTHORIZED OFFICER. IF A PARTNERSHIP, PLEASE SIGN IN
PARTNERSHIP'S NAME BY AN AUTHORIZED PERSON. IF YOUR UNITS ARE HELD IN THE NAME
OF A BROKERAGE FIRM, BANK, NOMINEE OR OTHER INSTITUTION, ONLY SUCH INSTITUTION
CAN SIGN A PROXY WITH RESPECT TO YOUR UNITS AND CAN DO SO ONLY AT YOUR
DIRECTION. ACCORDINGLY, IF YOUR UNITS ARE SO HELD, PLEASE CONTACT YOUR ACCOUNT
REPRESENTATIVE AND GIVE INSTRUCTIONS FOR A PROXY TO BE SIGNED WITH RESPECT TO
YOUR UNITS.
A Limited Partner in favor of the Transaction and the Amendment should
mark the "FOR" boxes on the enclosed proxy card, date and sign the proxy and
mail it promptly in the enclosed postage-prepaid envelope or fax a copy to (214)
999-9323 or (214) 999-9348. When voting your proxy by facsimile, both sides of
the proxy card must be transmitted. If a proxy card is executed but no
indication is made as to what action is to be taken, it will be deemed to
constitute a vote "FOR" the Transaction and "FOR" the Amendment. By consenting
to the Transaction and the Amendment, the Limited Partners irrevocably appoint
the Managing General Partner, or his designee, as their attorney-in-fact to
execute and deliver such documents as are necessary to effect the Transaction
and the Amendment.
AS THE CONSENT OF THE LIMITED PARTNERS HOLDING A MAJORITY IN INTEREST
OF THE OUTSTANDING UNITS IS NECESSARY TO CONSUMMATE THE PROPOSED TRANSACTION AND
TO ADOPT THE AMENDMENT, FAILURE TO RETURN A PROXY IN A TIMELY MANNER OR TO VOTE
AT THE SPECIAL MEETING, ABSTENTION FROM VOTING OR A BROKER NON-VOTE WILL EACH
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HAVE THE SAME EFFECT AS A VOTE "AGAINST" THE TRANSACTION AND "AGAINST" THE
AMENDMENT.
Questions and requests for assistance or for additional copies of the
Proxy Statement and proxy card may be directed to the Partnership's Information
Agent, The Herman Group, Inc., 2121 San Jacinto Street, 26th Floor, Dallas,
Texas 75201, (800) 992-6145. In addition to soliciting proxies by mail, proxies
may be solicited in person and by telephone or telegraph. You may also contact
your broker, dealer, commercial bank, trust company or other nominee for
assistance concerning the proxy solicitation.
Votes Required
Pursuant to the terms of the Partnership Agreement and the Act, the
vote of the Limited Partners owning a majority of the Units (in excess of 50%)
is necessary to approve the Transaction and the Amendment. Each Unit entitles
the holder to one vote on each matter submitted to a vote of the Limited
Partners. If a majority in interest of the Limited Partners consent to the
Transaction and the Amendment and certain other conditions are met, the
Transaction will be consummated. The Operating General Partners believe that if
both the Transaction and the Amendment are not approved by the Limited Partners
owning a majority of the Units, the Transaction will not be completed.
Solicitation Procedures
The Partnership has retained The Herman Group, Inc. to act as
Information Agent and for advisory services in connection with this proxy
solicitation. In connection therewith, The Herman Group, Inc. will be paid
reasonable and customary compensation and will be reimbursed for its reasonable
out-of-pocket expenses, as described herein. See "Special Factors - Costs
Associated with the Transaction." The Partnership has also agreed to indemnify
The Herman Group, Inc. against certain liabilities and expenses including,
liabilities and expenses under federal securities laws.
The Partnership will not pay any fees or commissions to any broker or
dealer or other person (other than to The Herman Group, Inc.) for soliciting
proxies pursuant to this solicitation. Banks, brokerage houses and other
custodians, nominees and fiduciaries will be requested to forward the
solicitation material to the customers for whom they hold Units, and the
Partnership will reimburse them for reasonable mailing and handling expenses
incurred by them in forwarding proxy materials to their customers.
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Revocation of Proxies
A proxy executed and delivered by a Limited Partner may subsequently
be revoked by submitting written notice of revocation to the Partnership. A
revocation may be in any written form validly signed by a Limited Partner as
long as it clearly states that such Limited Partner's proxy previously given is
no longer effective. To prevent confusion, the notice of revocation must be
dated. Notices of revocation should be delivered to The Herman Group, Inc.,
2121 San Jacinto Street, 26th Floor, Dallas, Texas 75201, (800) 992-6145. A
Limited Partner may also revoke its proxy by attending the Special Meeting and
voting in person. If a Limited Partner signs, dates and delivers a proxy to the
Partnership and, thereafter, on one or more occasions dates, signs and delivers
a later-dated proxy, the latest-dated proxy card is controlling as to the
instructions indicated therein and supersedes such Limited Partner's prior proxy
as embodied in any previously submitted proxy card.
TERMS OF THE TRANSACTION
The Merger Agreement
The Partnership, Brauvin High Yield Fund L.P., a Delaware limited
partnership affiliated with the Partnership, and Brauvin Income Plus L.P. III, a
Delaware limited partnership affiliated with the Partnership, and the Purchaser
entered into the Merger Agreement as of June 14, 1996, pursuant to which the
Partnership has agreed to merge (through a merger of its partnership interests)
with and into the Purchaser, subject to the conditions set forth therein. The
summary of the Merger Agreement which is set forth below is qualified in its
entirety by reference to the complete form of Merger Agreement, which is
available for inspection and copying by any interested Limited Partner, or its
representative who has been so designated by the Limited Partner, at the
Partnership's principal executive offices during regular business hours. A copy
of the Merger Agreement shall also be sent to any Limited Partner or duly
designated representative thereof, at such Limited Partner's expense, upon
receipt of the written request of such Limited Partner.
The Merger Agreement provides, and the Purchaser intends, that as soon
as practicable after satisfaction or waiver of the conditions to the
Transaction, including approval thereof by the Limited Partners, the Purchaser
shall file a certificate of merger with the Secretary of State of Delaware and
the Partnership shall be merged with and into the Purchaser. The Transaction
shall become effective at such time as is specified in the certificate of
merger. Following the Transaction, the Purchaser shall continue as the
surviving entity and the Partnership shall cease to exist. The Purchaser, as
the
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surviving entity, shall succeed to and possess all of the rights, privileges and
powers of the Partnership, whose Assets shall vest in the Purchaser, who shall
thereafter be liable for all of the liabilities and obligations of or any claims
or judgments against the Partnership. The Articles of Organization of the
Purchaser shall thereafter be the Articles of Organization of the surviving
entity. As a result of the Transaction, all of the Units will be converted into
the right to receive approximately $775.45 per Unit in cash. The redemption
price is based on the fair market value of the Assets as determined by an
independent appraiser, plus Available Cash, as hereinafter defined, of the
Partnership as of the Effective Time, less earnings of the Partnership after
July 31, 1996, less the Transaction Costs and less liabilities of the
Partnership not otherwise deducted in computing Available Cash.
For purposes of this computation, "Available Cash" means the amount of
cash and cash equivalents held by or at the direction of the Partnership after
deducting any amounts then owned, accrued or reserved by the Partnership for
goods, services or liabilities of any nature or description.
The Purchaser and the Partnership will select a person or entity to
act as the redemption agent (the "Redemption Agent"). At the Effective Time,
the Purchaser shall deposit with the Redemption Agent an aggregate amount equal
to the aggregate redemption price in the Merger. The Redemption Agent shall
deliver to the Partnership all the funds held by it for purposes of the Merger.
See "Terms of the Transaction - Determination of Redemption Price" and "Special
Factors - Valuation of the Assets; Fairness Opinion."
If the Closing Conditions, as hereinafter defined, are met, the
Transaction is expected to be effected on or before September 15, 1996. Should
the Transaction not be consummated by September 15, 1996, the financing to
consummate the Transaction may not be available. In order to meet certain other
interim deadlines established by the Purchaser, the Transaction must be approved
by the Limited Partners no later than August 15, 1996.
Representations and Warranties of the Parties
Pursuant to the Merger Agreement, the Purchaser has represented and
warranted to the Partnership that: (i) it is a limited liability company duly
formed and in good standing under the laws of the State of Delaware with the
requisite authority to carry on the business it will conduct following the
Merger; (ii) it has the requisite power and authority to enter into the Merger
Agreement and perform its obligations thereunder; and (iii) all government
approvals and notices which are required for it to effect the Merger have been
obtained or been properly filed, except those approvals or filings where the
failure to
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make such filing or obtain authorization, consent or approval will not have a
material adverse affect on the Purchaser.
Pursuant to the Merger Agreement, the Partnership has represented and
warranted to the Purchaser that: (i) it is a limited partnership duly formed
and validly existing and in good standing under the laws of the State of
Delaware; (ii) it has the requisite power to carry on its business; (iii) it has
40,347 issued and outstanding Units; (iv) it has the requisite power and
authority to enter into the Merger Agreement, subject to the approval of the
Limited Partners; (v) except as otherwise disclosed, entering into the Merger
Agreement will not violate, conflict with, or result in a breach of any
provision of, or constitute a default under, or result in the termination of, or
accelerate the performance required by, or result in a right of termination or
acceleration under, or result in the creation of any lien upon any of the Assets
under any of the terms, conditions or provisions of the Partnership's
organizational documents or Partnership Agreement, any note, bond, mortgage,
indenture, deed of trust, license, lease, agreement or other instrument or
obligation which the Partnership is a party to, or violate any statute, rule or
regulation or preclude the Partnership or any of its Assets, except as otherwise
disclosed; (vi) the Partnership has made all required filings with the
Securities and Exchange Commission; (vii) the Partnership has no liabilities
other than those disclosed on its balance sheet provided pursuant to the Merger
Agreement; (viii) there has been no adverse changes in the Partnership's
financial condition since the preparation of the financial statements provided
pursuant to the Merger Agreement; (ix) to the knowledge of the Partnership there
is no action or proceeding or investigation pending, threatened against or
involving the Partnership or any of its Assets or rights of the Partnership and
to the Partnership's knowledge, any liabilities which if adversely determined
would individually or in the aggregate have a material adverse affect on the
condition of the Partnership; and (x) the Partnership will provide to the
Purchaser a true, correct and complete set of all files, documents and other
written materials relating to each parcel of real property held by the
Partnership and all buildings and improvements thereon including, without
limitation, copies of environmental reports, letters of credit or other credit
enhancement instruments, title insurance policies, hazard insurance policies,
flood insurance policies and other insurance policies, all balance sheets,
operating statements and other financial statements, all existing engineering
reports, soil studies and reports, plans, specifications, architectural and
engineering drawings, completion agreements, arrangements, warranties,
commitments and other similar reports, studies and items, leases and contracts,
property management and leasing brokerage agreements and other writings
whatsoever.
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Additional Agreements
The Partnership agreed to file a proxy statement soliciting approval
of the Limited Partners for both the Transaction and the Amendment and to hold a
meeting of the Limited Partners as soon as practicable thereafter.
The Operating General Partners have agreed that, if required pursuant
to their fiduciary obligation, they will respond to any unsolicited inquiry,
contract or proposal made by a third party to the Partnership (an "Alternative
Proposal"), and nothing in the Merger Agreement shall prohibit any of the
General Partners from responding to such Alternative Proposal, making any
required disclosures under Federal securities laws or providing information
regarding the Partnership to the party making such Alternative Proposal,
negotiating with such party in good faith, terminating the Merger Agreement or
taking any other action, provided, however, that the Partnership agrees to give
the Purchaser reasonable notice of any such response, negotiations or other
matters, as well as a reasonable opportunity to respond, taking into account in
good faith that the facts and circumstances were valid at the time of such
response, negotiation or other matters. In the event the Merger Agreement is
terminated due to the consummation of an Alternative Proposal, Purchaser shall
be entitled to a fee equal to 1.0% of the merger consideration.
Conditions to Closing the Transaction
The respective obligations of each party to effect the Transaction
shall be subject to the fulfillment at or prior to the Effective Time of each of
the following conditions which may be waived, in whole or in part, only by
written agreement of the Partnership and the Purchaser: (i) all approvals,
notices, filings, registrations and authorizations of any governmental authority
required for consummation of the Transaction shall have been obtained or made;
(ii) approval of the Transaction by Limited Partners holding a majority of Units
shall have been obtained; (iii) no preliminary or permanent injunction or other
order, decree or ruling issued by a court of competent jurisdiction or by a
governmental, regulatory or administrative agency or commission, nor any
statute, rule, regulation or executive order promulgated or enacted by a
governmental authority shall be in effect which would prevent the consummation
of the Transaction.
The obligation of the Partnership to effect the Transaction is also
subject to the fulfillment at or prior to the Effective Time of each of the
following conditions which may be waived, in whole or in part, by the
Partnership: (i) the Purchaser shall in all material respects have performed
each obligation to be performed by it under the Merger Agreement on or prior to
the
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Effective Time; (ii) the representations and warranties of the Purchaser set
forth in the Merger Agreement and described above shall be true and correct in
all material respects at and as of the Effective Time as if made at and as of
such time, except to the extent that any such representation or warranty is made
as of a specified date, in which case such representation or warranty shall have
been true and correct as of such date; (iii) the Partnership shall have received
a certificate of the Purchaser, dated the Closing Date, signed by the manager of
the Purchaser, to the effect that the conditions specified in sections (i) and
(ii) above have been fulfilled; (iv) a favorable opinion of Cushman & Wakefield
as to the fairness of the redemption price to the Limited Partners, from a
financial point of view, shall have been delivered to the Partnership; and (v)
no later than the earlier of: (A) July 15, 1996; or (B) the date of the mailing
of this Proxy Statement, the Purchaser shall have delivered to the Partnership a
commitment letter executed by a financial institution or other financing source
providing for debt financing in an amount at least equal to $58,000,000 and on
terms commercially reasonable from the point of view of the Partnership as the
selling party in the Transaction.
The obligation of the Purchaser to effect the Transaction is also
subject to the fulfillment at or prior to the Effective Time, or such earlier
date as specified therein, of each of the following conditions which may be
waived in whole or in part by the Purchaser: (i) the Partnership shall in all
material respects have performed each obligation to be performed by it under the
Merger Agreement on or prior to the Effective Time; (ii) the Partnership shall
have cash available and not restricted equal to and replacement reserves
estimated to be $1,126,500 and $515,500, respectively; (iii) the Purchaser shall
have received certificates of the Partnership, dated the Closing Date, to the
effect that the conditions specified in sections (i) and (ii) have been
fulfilled; (iv) the Purchaser shall have received evidence, in form and
substance reasonably satisfactory to its counsel, that such licenses, permits,
consents, approvals, waivers, authorizations, qualifications and orders of
domestic governmental authorities and parties to contracts and leases with the
Partnership as are necessary in connection with the consummation of the
transactions contemplated in the Merger Agreement (excluding licenses, permits,
consents, approvals, authorizations, qualifications or orders, the failure to
obtain which after the consummation of the transactions contemplated hereby, in
the aggregate, will not have a material adverse effect on the condition of the
Partnership); (v) no action, suit or proceeding before any court or governmental
authority shall have been commenced and be pending by any person against the
Partnership or the Purchaser or any of their affiliates, partners, officers or
directors seeking to restrain, prevent, change or delay in any material respect
any of the terms or provisions of the Transaction or seeking material damages in
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connection therewith; (vi) the Purchaser, its manager and its lenders shall have
received the favorable legal opinion of Holleb & Coff, counsel to the
Partnership, and Prickett, Jones, Elliott, Kristol & Schnee, special Delaware
counsel to the Partnership, with respect to certain corporate and partnership
matters; (vii) receipt by the Purchaser of debt and equity financing which in
its sole judgement is satisfactory; (viii) the Partnership shall not have
undergone a material adverse change in its condition or its ability to perform
its obligations under the Merger Agreement; (ix) the Purchaser shall have
determined that the legal, accounting and business due diligence investigation
of the Partnership to be conducted by or on behalf of the Purchaser, including,
without limitation, any information obtained from the Disclosure Schedule to be
attached as an exhibit to the Merger Agreement, has not revealed that proceeding
with the Transaction would be inadvisable or contrary to the Purchaser's best
interests; (x) the Partnership shall not have made a distribution of earnings
with respect to any Units from June 14, 1996 through the Effective Time; (xi)
the Purchaser shall have received from the Partnership an environmental
assessment of each Asset, and the Purchaser shall have completed its review of
such Environmental Reports and the Purchaser shall be satisfied in its
reasonable discretion that: (A) the Purchaser will not be exposed to
unacceptable risk, liability or obligation as a consequence of the Merger
Agreement and the Transaction contemplated thereby; and (B) the Purchaser will
not be subject to any material adverse, unusual or onerous agreements,
conditions, liabilities or obligations to which the Partnership is a party;
(xii) the Purchaser shall have completed its review of the assets and business
of the Partnership and found them to be satisfactory to it in its reasonable
discretion; (xiii) the Partnership, at its own expense, shall have ordered and
delivered to the Purchaser an owner's title insurance policy (ALTA Owner's
Policy Form B-1970 (rev. 10/17/70 and 10/17/84)) if available with respect to
each Asset (or an endorsement of existing policies in favor of the Purchaser),
insuring the Purchaser and issued as of the Closing Date by a title insurance
company reasonably satisfactory to the Purchaser, in such amount(s) as may be
reasonably satisfactory to Purchaser, showing fee simple title thereto to be
vested in the Purchaser, subject in each case only to permitted liens, with
extended coverage over all general exceptions, if available, a zoning
endorsement in the form of ALTA endorsement Form 3.1 and such other endorsements
as the Purchaser shall reasonably request, if available; (xiv) the Partnership,
at its own expense, shall have ordered and delivered to the Purchaser surveys of
each Asset for which title insurance is being obtained, dated not earlier than
March 31, 1996, prepared by a licensed surveyor, and certified to the Purchaser
and the title insurance company, as having been prepared in accordance with
American Land Title Association land survey standards, and showing all material
improvements to be within lot, side lot, rear lot and setback lines. Such
surveys shall
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reveal no material encroachments on each Asset and be sufficient to enable to
title company issuing the title policies described in section (xiii) above to
issue same with full extended coverage, if available; and (xv) the Partnership
shall have delivered to the Purchaser such further information, documents and
instruments as the Purchaser shall reasonably require.
Determination of Redemption Price
The fair market value of the Assets as determined by Cushman &
Wakefield, an independent appraiser, is $30,183,300. As of June 19, 1996, cash
on hand was $1,311,900. The Operating General Partners have estimated that net
earnings from June 20, 1996 to July 31, 1996 will be approximately $353,900.
The Operating General Partners have also estimated that the Transaction Costs
will be approximately $434,900 of which $19,739 have been paid by the
Partnership to date and that other Partnership liabilities (excluding
Transaction Costs) will be approximately $127,000 as of the Effective Time.
Therefore, the Operating General Partners believe the estimated redemption price
per Unit to be as follows:
<TABLE>
<CAPTION>
<S> <C>
Appraised value of the Assets $30,183,300
Cash on hand as of June 19, 1996 1,311,900
Estimated earnings through July 31, 1996 353,900
===========
Available cash 1,665,800
Estimated Transaction Costs ( 434,900)
Other estimated Partnership
liabilities ( 127,000)
Estimated cash available for
distribution $31,287,200
===========
Number of Units 40,347
===========
Estimated redemption price per Unit $775.45
===========
</TABLE>
The redemption price per Unit will be adjusted for changes occurring
prior to the Effective Time in the items set forth above. The General Partners
will not receive any payment in exchange for the redemption of their general
partnership interests nor will they receive any fees from the Partnership in
connection with the Transaction. However, the Transaction is subject to certain
conflicts of interest, including the fact that the Braults have a minority
ownership interest in the Purchaser. See "Conflicts of Interest."
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<PAGE>
Termination of the Merger Agreement
The Merger Agreement may be terminated and the Transaction
contemplated hereby may be abandoned, by written notice promptly given to the
other parties hereto, at any time prior to the Effective Time, whether prior to
or after Limited Partner approval of the Transaction: (i) by mutual written
consent of the Purchaser and the Partnership; (ii) by either the Purchaser or
the Partnership, if a court of competent jurisdiction or governmental,
regulatory or administrative agency or commission shall have issued an order,
decree or ruling or taken any other action, in each case permanently
restraining, enjoining or otherwise prohibiting the transactions contemplated by
the Merger Agreement and such order, decree, ruling or other action shall have
become final and nonappealable; (iii) by either the Purchaser or the
Partnership, if the Effective Time shall not have occurred on or before the
Termination Date, unless the absence of such occurrence shall be due to the
failure of the party seeking to terminate the Merger Agreement to perform in all
material respects each of its obligations under the Merger Agreement required to
be performed by it prior to the Effective Time; (iv) by either the Purchaser or
the Partnership, if Limited Partner approval of the Transaction shall not be
obtained; (v) by the Purchaser, if the Partnership shall have withdrawn,
modified or amended in any respect its approval of the Transaction; (vi) by the
Purchaser, if the Partnership fails to perform in all material respects its
obligations under the Merger Agreement; (vii) by the Purchaser, if there shall
have occurred a material adverse change in the condition of the Partnership
since the date of the Merger Agreement; (viii) by the Partnership, if the
Purchaser fails to perform in all material respects its obligations under the
Merger Agreement; (ix) by the Purchaser, if the Partnership shall have settled
or compromised any lawsuit or other designated action without the prior written
consent of the Purchaser, unless such settlement or compromise: (A) requires
the payment of money by the Partnership in an amount which, when aggregated
with the amount of money paid or payable in connection with all other designated
actions, does not exceed $15,000; and (B) does not include any other material
term or condition to which the Purchaser shall reasonably object; (x) by the
Purchaser, if, prior to the Effective Time, the representations and warranties
of the Partnership set forth in the Merger Agreement shall not be true and
correct in all material respects at any time as if made as of such time, except
to the extent that any such representation or warranty is made as of a specific
date, in which case such representation or warranty shall have been true and
correct as of such date; or (xi) by the Partnership, if there shall have been a
failure of the Purchaser to obtain the necessary commitment for financing as
described herein. In the event the Merger Agreement is terminated due to the
confirmation of an Alternative Proposal, Purchaser shall be entitled to a fee
equal to 1.0% of the merger consideration.
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<PAGE>
Amendment of the Merger Agreement
The Merger Agreement may not be amended except by an instrument in
writing signed on behalf of each of the parties hereto; provided, however, that
after Limited Partner approval of the Transaction has been obtained, no
amendment may be made which changes the amount of cash to be paid for the Units,
or effects any change which would adversely affect the Limited Partners without
further Limited Partner approval.
Amendment of Partnership Agreement
Consummation of the Transaction is subject to approval by the Limited
Partners owning a majority of the Units. In addition, the Act provides that a
merger must also be approved by the general partners of a partnership, unless
the limited partnership agreement provides otherwise. Because the Partnership
Agreement is silent on this matter and because not all of the General Partners
are recommending the Transaction, the Limited Partners are being asked to adopt
the Amendment, which allows the vote of the Limited Partners owning a majority
of the Units to determine the outcome of the Transaction without a vote of the
General Partners. Upon approval of the Amendment, the vote of the Limited
Partners owning a majority of the Units will be the only vote necessary to
approve the Transaction. Failure to approve the Amendment would likely preclude
the consummation of the Merger even if the Merger were approved by the Limited
Partners holding a majority of the Units.
Related Transactions
In addition to the Transaction, the Purchaser has proposed a series of
mergers and an asset purchase (the "Affiliated Transactions") with Brauvin High
Yield Fund L.P., Brauvin Income Plus L.P. III and Brauvin Corporate Lease
Program IV L.P., which partnerships are affiliates of the Partnership (the
"Affiliated Limited Partnerships"). Each of the Affiliated Limited Partnerships
has investment objectives substantially identical to the Partnership and owns
property similar to the types of properties owned by the Partnership. The
Partnership is a joint venture partner with certain of the Affiliated Limited
Partnerships, which joint ventures own one or more properties. See "Certain
Information About the Partnership, Its General Partners and Their Affiliates -
Description of the Assets." The approval of the limited partners of each of the
Affiliated Limited Partnerships to the Affiliated Transactions is being
solicited concurrently with the Partnership's solicitation pursuant to this
Proxy Statement. It is a condition to the effectiveness of the Transaction that
the limited partners of each of the Affiliated Limited Partnerships approve the
Affiliated Transactions. This condition may be waived by the Purchaser in its
sole discretion.
20
<PAGE>
INCOME TAX CONSEQUENCES OF THE TRANSACTION
Certain Federal Income Tax Consequences
The following summary, based upon current law, is a general discussion
of certain material federal income tax consequences of the conversion of a Unit
into the right to receive cash pursuant to the Merger. This summary is based on
the Internal Revenue Code of 1986, as amended (the "Code"), applicable Treasury
regulations thereunder and administrative rulings and judicial authority as of
the date of this Proxy Statement. All of the foregoing are subject to change,
and any such change could affect the continuing accuracy of this summary. This
summary does not discuss all aspects of federal income taxation that may be
relevant to a particular Limited Partner in light of such Limited Partner's
specific circumstances or to certain types of Limited Partners subject to
special treatment under the federal income tax laws (for example, foreign
persons, dealers in securities, banks, insurance companies and tax-exempt
organizations), and it does not discuss any aspect of state, local, foreign or
other tax laws. No ruling has been (or will be) sought from the Internal
Revenue Service, and no opinion of legal counsel will be rendered, as to the
anticipated federal income tax consequences of the Merger. This summary is
based on the assumption that the Partnership is a partnership for federal income
tax purposes and that, although the Partnership is a "publicly traded
partnership" within the meaning of Section 7704 of the Code (i.e., subject to
taxation as a corporation), it is not currently subject to the operative
provisions of Section 7704 of the Code under an effective date grandfathering
provision.
The receipt of the right to receive cash pursuant to the Merger will
be a taxable transaction for federal income tax purpose and may also be a
taxable transaction under applicable state, local, foreign and other tax laws.
For federal income tax purposes, Limited Partners generally will recognize gain
or loss equal to the difference between: (i) the "amount realized" in respect of
a Unit in the Partnership that is converted into a right to receive cash
pursuant to the Merger; and (ii) the Limited Partner's adjusted tax basis in the
Unit. The "amount realized" with respect to a Unit will be equal to the sum of
the amount of cash to be received by the Limited Partner of the Unit pursuant to
the Merger plus the Limited Partner's allocable share of liabilities of the
Partnership attributable to the Unit as determined under Section 752 of the Code
and the Treasury regulations promulgated thereunder. A Limited Partner's
adjusted tax basis in a Unit (whether acquired by purchase or capital
contribution), in general, will be the original cost of the Unit adjusted to
reflect the allocable share of the Partnership's income and losses, minus
distributions to the Limited Partner with respect to the Unit, plus the Limited
Partner's allocable
21
<PAGE>
share of liabilities of the Partnership attributable to the Unit as determined
under Section 752 of the Code. In addition, the adjusted tax basis in a Unit
owned by a Limited Partner that participated in the Partnership's distribution
reinvestment plan would in general be increased by any amounts recontributed by
such Limited Partner to the Partnership pursuant to the distribution
reinvestment plan. Any Limited Partner that participated in the distribution
reinvestment plan should contact his or her own tax advisor to determine the
adjusted tax basis in his or her Units.
In general, the amount realized by a Limited Partner on a disposition
of a Unit pursuant to the Merger less such Limited Partner's adjusted tax basis
in the Unit will be treated as a capital gain or loss if the Unit was held by
the Limited Partner as a capital asset. Any capital gain or loss will be
treated as long-term capital gain or loss if the Limited Partner's holding
period for the Unit exceeds one year. Under present law, long-term capital
gains will generally be taxed at a maximum federal marginal tax rate of 28% (in
the case of individuals) or 35% (in the case of corporations), whereas the
maximum federal marginal tax rate for ordinary income is 39.5% (in the case of
individuals) or 35% (in the case of corporations). Certain limitations apply to
the deductibility of capital losses under the Code. In the case of a
corporation, capital losses are deductible only to the extent of capital gains.
An individual may deduct up to $3,000 of capital losses in excess of the amount
of his or her capital gains against ordinary income. Excess capital losses
generally can be carried forward to succeeding years (a corporation's carry
forward period is five years and an individual can carry forward such losses
indefinitely); in addition, corporations are allowed to carry back excess
capital losses to the third preceding taxable year.
However, under Section 751 of the Code, the difference between the
portion of the amount realized by a Limited Partner that is attributable to
"unrealized receivables" (which includes recapture of depreciation) and
"substantially appreciated inventory" over the portion of the Limited Partner's
adjusted tax basis in the Unit that is allocable to such items will be taxed as
ordinary income or loss rather than capital gain or loss. A Limited Partner's
adjusted tax basis in a Unit allocable to "unrealized receivables" and
"substantially appreciated inventory" will be determined by reference to the
Partnership's tax basis in these items, which amount could be less than the
Limited Partner's adjusted tax basis in the Unit otherwise allocable to these
items. Because a Limited Partner's adjusted tax basis in his or her Unit will
be allocated to "unrealized receivables" and "substantially appreciated
inventory" based on the Partnership's tax basis in these items. A Limited
Partner may realize an overall loss on the disposition of his or her Unit, but
have to realize ordinary income on the Section 751
22
<PAGE>
portion of the disposition, which will correspondingly increase the capital loss
on the remaining portion of the disposition.
Under Section 469 of the Code, a taxpayer that is an individual,
estate, trust, closely held corporation or personal service corporation
generally can deduct passive activity losses from a passive activity against
passive activity income received from other passive activities, but cannot
deduct such losses from other types of income. In the case of a publicly traded
partnership (including a publicly traded partnership that is not subject to the
publicly traded partnership provisions of the Code), the passive activity loss
limitation is applied separately to each publicly traded partnership.
Accordingly, income or gain realized by a Limited Partner from the Partnership
cannot be offset by passive losses generated by other passive activities of the
Limited Partner. However, upon a complete disposition by a Limited Partner of
its Units pursuant to the Merger, a Limited Partner's allocable share of the net
losses (if any) of the Partnership that were suspended under the passive loss
rules of Section 469 of the Code generally would be currently deductible. In
the absence of a complete disposition of Units by a Limited Partner, the
deductibility of such suspended passive losses (if any) may be limited.
A Limited Partner (other than certain exempt Limited Partners
including, among others, all corporations and certain foreign individuals) who
delivers a Unit pursuant to the Merger may be subject to a 31% backup
withholding unless the Limited Partner provides a taxpayer identification number
("TIN") and certifies that the TIN is correct or properly certifies that he is
awaiting a TIN. A Limited Partner who does not furnish a TIN may be subject to
a penalty imposed by the Internal Revenue Service. A Limited Partner may avoid
backup withholding by properly completing and signing a Form W-9. If backup
withholding applies to a Limited Partner, the Partnership is required to
withhold 31% from payments to such Limited Partner. Backup withholding is not
an additional tax. Rather, the amount of the backup withholding can be credited
against the federal income tax liability of the person subject to the backup
withholding. If backup withholding results in an overpayment of tax, a refund
can be obtained by the Limited Partner upon filing an income tax return.
Pursuant to Section 897 of the Code, gain or loss realized by a
foreign person on the disposition of an interest in a partnership is subjected
to federal income tax to the extent the amount realized on such sale is
attributable to United States real property interests. Under Section 1445 of
the Code, the transferee of a partnership interest held by a foreign person is
generally required to deduct and withhold a tax equal to 10% of the amount
realized on the disposition. The Partnership, however, will not be required to
withhold 10% of the amount
23
<PAGE>
realized by any Limited Partner if the Limited Partner furnishes an affidavit
stating, under penalty of perjury, the Limited Partner's TIN, that such Limited
Partner is not a foreign person and the Limited Partner's address.
Differing Tax Treatment of the Limited Partners
At the time of subscription, those Limited Partners not in need of
passive income elected to be classified as "Taxable Limited Partners."
Investors that were tax-exempt or seeking passive income to offset passive
losses from other investments elected to be classified as "Tax-Exempt Limited
Partners." The Partnership Agreement contains a special allocation provision
which allocates all of the depreciation allocable to the Limited Partners to the
Taxable Limited Partners. In all other respects, the Taxable Limited Partners
and the Tax-Exempt Limited Partners have been and will be treated alike. Due to
the special allocation of depreciation, which resulted in the Taxable Limited
Partners receiving certain benefits, such as increased amounts of depreciation
deductions and "tax-sheltered cash flow" (i.e., cash distributions in excess of
taxable income), in the early years of the Partnership's existence, the Taxable
Limited Partners were subject to certain risks, including: (i) allocation of a
greater amount of gain upon the sale of properties which, if such depreciation
deductions are used and not carried forward under the "passive loss rules," will
result in greater tax liability without receiving greater cash distributions;
and (ii) receipt of smaller cash distributions on the liquidation of the
Partnership and/or the sale of the Assets if there is a loss on the sale of the
Assets, which differ from those to which the Tax-Exempt Limited Partners will be
subject. Limited Partners are urged to consult with their tax advisors
regarding this issue.
As a result of the allocation of these losses to Taxable Limited
Partners, their tax basis in their Units was reduced. Therefore, these Limited
Partners will likely recognize more taxable income on the Transaction. However,
a portion of such additional income may be offset by prior losses which were
limited under the passive loss rules. The Tax-Exempt Limited Partners may or
may not be subject to tax on the Transaction. Limited Partners are urged to
consult with their tax advisors regarding this issue.
THE FEDERAL INCOME TAX CONSEQUENCES SET FORTH ABOVE ARE BASED UPON
PRESENT LAW, ARE FOR GENERAL INFORMATION ONLY AND DO NOT PURPORT TO BE A
COMPLETE ANALYSIS OR LISTING OF ALL POTENTIAL TAX EFFECTS WHICH MAY APPLY TO A
LIMITED PARTNER. THE TAX CONSEQUENCES TO A PARTICULAR LIMITED PARTNER MAY BE
DIFFERENT FROM THE TAX CONSEQUENCES TO OTHER LIMITED PARTNERS, INCLUDING THE
APPLICATION AND EFFECT OF STATE, LOCAL AND OTHER TAX LAWS, AND THUS, LIMITED
PARTNERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS AS TO THE INCOME TAX
CONSEQUENCES OF THE MERGER.
24
<PAGE>
SPECIAL FACTORS
Purpose of and Reasons for the Transaction
The principal purpose of the Transaction is to cause the transfer of
the Assets and the liabilities of the Partnership to the Purchaser in return for
cash proceeds which will be distributed to the Limited Partners through the
redemption of their Units. Promptly upon consummation of the Transaction, the
Units of the Limited Partners will be redeemed for approximately $775.45 per
Unit in cash.
Background and Operational History of the Partnership
The Partnership is a Delaware limited partnership organized on May 3,
1988 to raise funds from investors to acquire debt-free ownership of existing,
free-standing, income-producing retail, office or industrial real properties
predominantly all of which will involve triple-net leases. The Partnership
completed its public offering on September 30, 1989 and raised a total of
$38,923,000. As of December 31, 1995, the Partnership had also raised an
additional $3,914,384 through its distribution reinvestment plan. As of the
date hereof, the Partnership owns the land and buildings underlying 28
properties as well as a 51% interest in a Scandinavian Health Spa and a 99%
interest in a joint venture which owns the land and buildings underlying six
Ponderosa restaurants. See "Certain Information about the Partnership, Its
General Partners and their Affiliates -Description of the Assets." All of the
properties of the Partnership are under lease.
Cash distributions to Limited Partners for 1995, 1994 and 1993 were
$3,582,492, $3,478,020 and $3,569,741, respectively. Because of the decision to
present the Transaction to the Limited Partners, the Operating General Partners
have determined that no further distributions of operating cash flow will be
made by the Partnership to the Limited Partners prior to consummation or
termination of the Transaction. The Operating General Partners have also
determined that the Partnership will not repurchase Units from Limited Partners
during this period. See "Certain Information About the Partnership, Its General
Partners and their Affiliates - Distributions."
The Partnership is the second of a series of affiliated limited
partnerships formed to acquire similar properties. The Partnership's Prospectus
dated June 17, 1988 (the "Prospectus") states that the anticipated holding
period for the Partnership's properties is no more than seven to ten years. The
properties acquired by the Partnership are therefore nearing the end of their
anticipated holding periods. Except for Brauvin Corporate Lease Program IV
L.P., the properties acquired by the Affiliated
25
<PAGE>
Limited Partnerships are near the end of the period in which it was anticipated
that such properties would be sold. As a result, the Operating General Partners
began investigating options for the liquidation of the properties held by the
Partnership and the Affiliated Limited Partnerships.
Actions Resulting in the Transaction; Mitigation of Conflicts
Over the past few years, in an attempt to enhance Limited Partner value
with respect to the Units, the Operating General Partners approached several
investment banking firms regarding various strategies and alternatives available
to the Partnership, including the liquidation of the Assets and return the
proceeds from such liquidation to the Limited Partners. Although numerous
meetings were held with representatives from such investment banks, no viable
value enhancement scenarios were formulated. During the past several months the
Operating General Partners increased their activity with respect to formulating
a liquidation strategy, as the Partnership is at the end of the anticipated
holding period of seven to ten years for its properties. As a result of recent
conversations with persons familiar with the triple-net lease industry, it was
determined that the rapidly approaching termination dates for many of the leases
governing the Partnership's properties caused such properties to fall outside of
the acquisition parameters and standards of several organizations interested in
acquiring a portfolio of triple-net lease properties and thus limited the
salability of the Partnership's portfolio. As a result of the Operating General
Partners consideration of an exit strategy, the Braults began to actively pursue
the possibility of acquiring the Assets from the Partnership. In attempting to
obtain the necessary financing to effect this purchase, the Braults met with
various third-party debt and equity sources who negotiated and structured the
terms of the Transaction on behalf of the Purchaser so as to allow the Purchaser
to consummate the Transaction on an all cash basis. In connection with the
negotiation of the financing arrangements, the terms of the Transaction and the
ownership structure of the Purchaser, each party, including the Purchaser, the
Partnership, the debt and equity participants and the General Partners, were
represented by separate professionals experienced in transactions of this type.
The retention of such professionals was deemed to be important in order to
mitigate the potential conflicts of interest inherent in the Transaction. The
redemption price was based on the independent appraisal of Cushman & Wakefield,
who was retained by the Partnership in connection with the Partnership's annual
valuation of the Assets, prior to any discussions of the Transaction with
Cushman & Wakefield and the terms of the Transaction were negotiated with the
assistance of counsel to the Purchaser and counsel to the Partnership. In
addition, Cushman &
26
<PAGE>
Wakefield was retained to provide an opinion that the Transaction is fair to the
Limited Partners from a financial point of view.
Prospects of the Partnership
Pursuant to the terms of the Merger Agreement, the Purchaser has agreed to
pay approximately $775.45 per Unit in cash in connection with the Transaction,
which is based upon the fair market value of the Assets as determined by Cushman
& Wakefield. Due to the relatively fixed nature of the lease payments generated
by the Assets and the remaining lease terms, the fair market value may not
increase over the foreseeable future. To date, the Partnership has not been
presented with any firm offers for the purchase of the Assets, although it has
received and pursued a few expressions of interest from third parties. One
such expression of interest was for all of the Assets (together with the assets
of the Affiliated Limited Partnerships) but at an aggregate purchase price lower
than that proposed by the Purchaser, with higher transaction costs and other
factors, such as a lack of management ability, that led the Operating General
Partners to believe that this transaction would not be better for the Limited
Partners or the limited partners of the Affiliated Limited Partnerships.
However, the Operating General Partners did pursue this possible transaction
long enough to cause an increase in the offer price by approximately 6% from the
initial offer price. Another expression of interest was for only certain of the
Assets, which would result in an overall lesser return to the Limited Partners
and the need to continue to operate the Partnership and the Affiliated Limited
Partnerships and thus the proposal was not pursued. Although the Partnership
has not received any additional expressions of interest as a result of the proxy
solicitation process, Brauvin Income Plus L.P. III and Brauvin Corporate Lease
Program IV L.P., two of the Affiliated Limited Partnerships, have received an
expression of interest from an experienced owner of properties similar to those
owned by the Affiliated Limited Partnerships, as a result of their respective
proxy solicitation processes. Mr. Froelich and Mr. Strosberg believe that the
Partnership should actively seek third-party offers through an arm's-length
bidding process to establish a fair price for the Assets. In this regard, the
Partnership has made, and will continue during the pendency of the proxy
solicitation process to make, all pertinent information pertaining to the
Partnership and the Assets available to other potential purchasers who have the
financial ability to acquire the Assets on an all cash basis. If the
Transaction is not approved, there can be no assurance as to whether any future
liquidation or disposition of the Assets will occur or on what terms they might
occur. Despite the Partnership obtaining both the Valuation and the Fairness
Opinion from Cushman & Wakefield, there can be no assurance that a better offer
for the acquisition of the Assets may not be available.
27
<PAGE>
Costs and Risks Associated with Continued Ownership
The average remaining lease term for the Assets is 8.1 years. The longer
the Assets are held by the Partnership, the greater the risk to the Partnership
of lease rollover, renegotiation and non-renewal. Because many of the
Partnership's properties were designed for a particular type of operation, lease
default or non-renewal could result in the need for substantial capital
improvements or remodeling to attract new tenants. Eventually the Partnership
will be required to reserve against such risks. Lease defaults and non-
renewals, as well as reserves against such risks will eventually result in lower
distributions to the Limited Partners.
The Partnership incurs general and administrative costs related to its
status as a public reporting entity under the Federal securities laws. The
costs of preparing reports such as Annual Reports on Form 10-K and Quarterly
Reports on Form 10-Q, as well as the expenses of printing and mailing these
materials can be significant. The Partnership incurs significant legal and
accounting fees in complying with the Federal securities laws. Over the past
two years, the Partnership has spent approximately $161,125 and $170,956,
respectively on partnership administration expense, and legal, accounting and
tax advisory fees necessitated by the on-going Federal securities law
compliance. If the Partnership were not a publicly-held entity, many of these
costs could be eliminated, although such cost savings would not be of benefit to
the Limited Partners.
There is no established trading market for the Units. As a result, the
Limited Partners and the Partnership incur all of the costs associated with
public-entity status, but have little of the benefits. Since the Units are not
readily transferable, the Limited Partners are essentially locked into their
investment in the Units.
Benefits of the Transaction
As a result of the Transaction, the Limited Partners will receive $775.45
per Unit in cash, which is equal to their proportionate share of the fair market
value of the Assets, as valued by an independent appraiser. Such proceeds can
then be reinvested by the Limited Partners in other investments that could
possibly yield a higher return than the investment in the Partnership. The
terms of the Transaction are viewed by the Operating General Partners to be
favorable to the Partnership and the Limited Partners in part because the cost
of the Transaction to the Partnership, which is estimated to equal approximately
1 1/2% of the total value of the Transaction, is believed to be below industry
standards for a transaction of this size. It is not unusual in similar types of
transactions to see investment banking fees or real estate brokers commissions
which alone
28
<PAGE>
exceed 3% of the value of a transaction. In addition, the structure of the
Transaction eliminates the need for the Partnership to reserve or hold back any
funds from distribution to the Limited Partners to satisfy any post-closing
liabilities.
Disadvantages and Risks of the Transaction
The Transaction is not without certain potential disadvantages and risks to
the Limited Partners. Such disadvantages and risks include the fact that: (i)
there can be no assurance that the cash redemption price received by the Limited
Partners in connection with the Transaction can be invested in alternative
investments that will generate a return equal to or greater than that generated
by the investment in the Partnership; (ii) the Limited Partners will no longer
have an ownership interest in the Assets and thus will not share in any
potential changes in their value; (iii) despite the Partnership obtaining both
the Valuation and the Fairness Opinion from Cushman & Wakefield, there can be no
assurances that a better offer for the acquisition of the Assets may not be
available now or in the future; and (iv) the Limited Partners may incur certain
tax liabilities as a result of the Transaction. Notwithstanding the foregoing,
the Operating General Partners concluded that, as with any investment, such
potential disadvantages and risks are speculative, are unable to be quantified
and do not outweigh the benefits of the Transaction.
Alternatives to the Transaction
The Operating General Partners considered several alternatives to the
Transaction, including: (i) continuing to hold the Assets; (ii) individual
property sales; (iii) an auction of any or all of the properties; (iv)
solicitation of third-party bids; and (v) a sale of the Assets to the Purchaser.
Continuing to hold the Assets was rejected as the risk from ownership
increases the longer the properties are held and thus the value of the Assets
becomes less certain. This risk results from the approaching maturity dates for
each of the leases of the Assets (which average remaining lease is 8.1 years),
the costs of the renegotiation of such leases and the related risk of default or
non-renewal. A merger of the Partnership with and into the Purchaser will allow
the Limited Partners to avoid such increasing risks. Furthermore, the
Partnership's investment in the properties is approaching the outside of its
initial estimated holding periods and thus it is the General Partners duty to
look to the liquidation of the Assets.
Individual property sales were rejected as this option would likely result
in the Partnership's more salable or valuable properties being sold and the
Partnership being forced to retain the less salable or valuable properties.
Even if the more
29
<PAGE>
salable or valuable properties were sold on an all cash basis comparable to the
Transaction, the Partnership would likely be required to retain a substantial
portion of the proceeds of such sales to cover the expenses related to ongoing
administration of the Partnership. Because the Partnership's administrative
costs are relatively fixed, a sale of the more salable or valuable properties
would ultimately result in proportionally less cash being available for
distribution to the Limited Partners. Furthermore, it is the belief of the
Operating General Partners that costs associated with individual sales of the
properties would, in the aggregate, be greater than the costs associated with a
sale of all of the Assets, due in part to the need to negotiate with multiple
parties and the loss of economies of scale. These increased costs would further
result in less cash being available for distribution to the Limited Partners.
Finally, because the more salable or valuable properties will likely be sold
first, risks associated with lease defaults and non-renewals, as well as risks
associated with particular markets and industries will increase. Therefore, the
sale of the Assets in a single transaction eliminates the need for the
Partnership to remain in existence with a smaller, less diverse and more risky
portfolio.
An auction of all of the Assets was also rejected as it is the Operating
General Partners belief that real estate auctions (as opposed to a solicitation
of third-party bids through the use of investment bankers or real estate
brokers) are generally viewed as a sale method of last resort and the typical
buyer at such an auction is seeking below market price purchases. An auction of
individual assets would result in the same adverse effects as those resulting
from sales of individual properties.
A formal solicitation of third-party bids for the Assets was not undertaken
by the Operating General Partners prior to the date the Partnership entered into
the Merger Agreement. However, over the past few years the Operating General
Partners had approached several investment banking firms regarding various
strategies and alternatives available to the Partnership, including the
liquidation of the Assets. Although numerous meetings were held with
representatives from such investment banking firms, no viable value enhancement
scenarios were formulated. Furthermore, after recent conversations with persons
familiar with the triple-net lease industry, it was determined that the rapidly
approaching termination dates for many of the leases to which the Partnership's
properties were subject caused such properties to fall outside of the
acquisition parameters and standards of several organizations interested in
acquiring a portfolio of triple-net lease properties and thus limited the
salability of the Partnership's portfolio. Notwithstanding the fact that the
Operating General Partners did not believe that the solicitation of third-party
bids would result in a better offer for the Limited Partners, the Operating
General Partners required
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<PAGE>
that the terms of the Merger Agreement permit the General Partners to terminate
the Transaction at any time should they receive an offer for the Assets which
they in good faith believe to be on terms preferable to the Transaction.
However, in accordance with the terms of the Merger Agreement, the Partnership
will not actively solicit third-party bids. Although there have been a few
expressions of interest from potential third-party purchasers generated by the
Purchaser's effort to secure financing, as described above, no party has made a
firm offer for the Assets. In conjunction with Messrs. Froelich and Strosberg's
belief that the solicitation of third-party offers through an arm's-length
bidding process would be the most advantageous method for determining a fair
price for the Assets, the Partnership continues to make available to prospective
purchasers all relevant materials necessary to conduct due diligence with
respect to the Assets. Until the Transaction is approved, the General Partners
will entertain any offers which can produce a comparable overall return to the
Limited Partners. Notwithstanding the foregoing, the Operating General Partners
have surveyed the market and have been unable to identify a strategic or
financial buyer that would be interested in purchasing the entire portfolio of
the Assets, on all cash basis. This is mainly the result of two factors: (i)
63% of the Assets have lease terms which provide the lessees with rights of
first refusal on any sale of the Assets, thereby significantly complicating the
negotiations or possible offers from third parties; and (ii) the average
remaining lease term of 8.1 years makes the Assets less attractive to such
purchaser.
The Purchaser was unwilling to structure the Transaction as a sale of the
Assets to the Purchaser, due in part to the additional costs that would be
incurred by the Purchaser in connection with such a sale (such as real estate
transfer taxes and other transfer related costs).
Effects of the Transaction
General
If the Transaction and the Amendment are approved and the remaining
conditions to the Transaction are met or waived, the Merger will be effected by
filing the Certificate of Merger with the Delaware Secretary of State and in
connection therewith the Assets and liabilities of the Partnership will be
transferred to the Purchaser as the surviving entity in the Merger and the
Partnership will cease to exist. Thereafter, the registration of the Units
under Section 12(g)(4) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act") will be terminated. Further, following the Transaction, the
Partnership will no longer be subject to the periodic reporting requirements of
the Exchange Act and will cease filing information with the Securities and
Exchange Commission (the "Commission"). The
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<PAGE>
Corporate General Partner intends to conclude the Transaction with and into the
Purchaser as soon as possible and no later than December 31, 1996.
Effects on the Limited Partners
As a result of the Transaction, the Units will be redeemed for
approximately $775.45 per Unit in cash. This redemption price is based on the
fair market value of the Assets which has been determined by Cushman & Wakefield
to be $30,183,000, or $748.09 per Unit, plus cash on hand as of the Effective
Time, less the Transaction Costs and less all other Partnership obligations,
which amount is currently anticipated to be $27.36 per Unit. Thus, the actual
redemption price will be subject to adjustment based upon changes in these
amounts prior to the Effective Time.
Thereafter, the Limited Partners will cease being owners of the Partnership
and will no longer bear the costs and risks associated with such ownership. A
description of such risks and benefits is set forth above under the heading
"Special Factors -Purpose of and Reasons for the Transaction - Disadvantages and
Risks Associated with Continued Ownership." However, the Limited Partners will
thereafter will assume the risks associated with the consummation of the
Transaction. See "Special Factors -Purposes of and Reasons for the Transaction
- - - Disadvantages and Risks of the Transaction" above.
Effects on the General Partners
The General Partners will not receive any payment in exchange for the
redemption of their general partnership interests nor will they receive any fees
from the Partnership in connection with the Transaction. However, the Braults
have a minority ownership interest in the Purchaser and thus will become part
owners of the Assets following the consummation of the Transaction. In
addition, each of Brauvin Management Company and Brauvin Financial, Inc.,
corporations owned, in part, by Cezar M. Froelich and an affiliate of Jerome J.
Brault, will receive $55,140 from the Purchaser (not the Partnership) for
advisory services rendered in connection with the Transaction.
Effects of Failure to Approve the Transaction
If the Transaction is not consummated, there can be no assurance as to
whether any future liquidation or disposition of the Assets, either in whole or
in part, will occur or on what terms they might occur. However, if not
approved, the Operating General Partners will continue to operate the
Partnership in accordance with the terms of the Partnership Agreement and in
fulfillment of their fiduciary duties, including the review of any third-party
offers to purchase any or all of the Assets, in
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<PAGE>
an effort to enhance the Partnership's value on behalf of the Limited Partners.
In addition, the Operating General Partners will continue to evaluate the
various alternatives to the Transaction, as described under the heading "Special
Factors -Alternatives to the Transaction" below. Such alternatives include:
(i) continuing to hold the Assets; (ii) individual property sales; (iii) an
auction of any or all of the properties; and (iv) solicitation of third-party
bids. The Operating General Partners have concluded that such options are not
in the best interest of the Limited Partners at this time, particularly in light
of the Purchaser's offer. The Operating General Partners do not intend to
actively solicit bids for the Assets in the immediate future should the
Transaction not be consummated.
Valuation of the Assets; Fairness Opinion
The Valuation Advisory Services Group of Cushman & Wakefield of Illinois,
Inc. ("Cushman & Wakefield") was engaged by the Partnership on March 15, 1996 to
value the Assets pursuant to the Partnership's obligation to provide a valuation
of the Units within 120 days after the end of the fiscal year to satisfy the
requirements of the Employee Retirement Income Security Act of 1974, as amended.
The Partnership subsequently engaged Cushman & Wakefield to provide an opinion
as to whether the Transaction is fair from a financial point of view (the
"Fairness Opinion"). Other than the engagements described herein, and the
engagement of Cushman & Wakefield by the Affiliated Limited Partnerships in
connection with the Affiliated Transactions, there has been no material
relationship between Cushman & Wakefield or its affiliates and the Partnership
or its affiliates, nor is any such relationship contemplated.
Copies of the Valuation and the Fairness Opinion are attached hereto as
Annex I and Annex II, respectively.
Experience of Cushman & Wakefield
Cushman & Wakefield is part of a national network of affiliated full
service real estate companies providing brokerage, management, consulting and
valuation services in the United States (the "C&W Affiliated Companies"). The
clients of the C&W Affiliated Companies include major commercial and investment
banks, Fortune 500 corporations, pension funds, advisory firms and government
agencies. The Valuation Advisory Services Group of the C&W Affiliated Companies
has 19 branch offices located in various geographic regions of the United
States. This large network of professionals provides local expertise in key
markets and sub-regions and enables Cushman & Wakefield to effectively handle
broad-based, multi-property assignments. Furthermore, the C&W Affiliated
Companies valuation network provides a large national database of market
information and ensures a consistent methodology for each property valuation.
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<PAGE>
The Operating General Partners considered several appraisal firms but ultimately
chose Cushman & Wakefield based upon their expertise and industry leadership.
Valuation
Pursuant to its engagement, Cushman & Wakefield reported to the Partnership
that the sum of the individual valuations of the Assets was $30,183,000 as of
April 1, 1996 (collectively, the "Valuation"). Certain of the assumptions,
qualifications and limitations to the Valuation are described below. The
summary set forth below does not purport to be a complete description of the
analysis employed by Cushman & Wakefield in preparing the Valuation. A copy of
the Valuation analysis will be made available to Limited Partners upon request.
The Partnership imposed no conditions or limitations on the scope of Cushman &
Wakefield's investigation or the methods and procedures to be followed in
preparing the Valuation. No other appraisals of the Assets were obtained by the
Partnership due to the significant cost involved and the Operating General
Partners' opinion that the Valuation was prepared according to industry
standards by a reliable and independent appraisal firm.
Factors Considered
In preparing the Valuation, Cushman & Wakefield: (i) conducted a physical
inspection of each property; (ii) considered the location and market area of
each property, with particular attention given to the submarket definition,
demand generators, competitive properties, trade area demographics and outlook;
(iii) reviewed property sales history where provided; (iv) analyzed site and
improvements with regard to quality, functionality and condition of improvements
toward existing use; and (v) considered the highest and best use of each site.
In addition, Cushman & Wakefield conducted a review and analysis of each
existing individual lease abstract, or leases where provided, affecting each of
the properties. In conducting their analysis, Cushman & Wakefield was provided
with, among other things: (i) certain information relating to the business,
earnings, operating cash flow and assets of the Partnership, including sales
performance of the Assets for 1993 through 1995, where provided, and estimates
for 1996; (ii) surveys, legal descriptions, current property tax statements, and
detailed lease abstracts; and (iii) such other information as Cushman &
Wakefield deemed necessary or appropriate. In addition, Cushman & Wakefield
personnel questioned the Operating General Partners about the markets in which
the Assets operate and the operating history of the Assets.
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<PAGE>
Summary of Cushman & Wakefield's Methodology and Approaches to Value
Cushman & Wakefield's valuation of the Assets was based primarily on a
discounted cash flow analysis. Cushman & Wakefield believes that the valuation
resulting from the discounted cash flow analysis is the best indication of
value, as an investor in the type of property owned by the Partnership considers
its income producing capabilities as most important. A sales comparison
approach based on comparable sales was determined to be less reliable because of
the lack of comparable properties and recent sales data for many of the Assets.
Individual evaluation reports containing property specific information such
as location, competition, and market and trade area analysis, were prepared by
Cushman & Wakefield for each Asset. These evaluation reports formed the
foundation for Cushman & Wakefield's valuation analysis. In conducing its cash
flow analysis, Cushman & Wakefield performed an individual property-by-property
analysis to establish an anticipated cash flow to be received over a specified
holding period, typically of a ten-year duration, for a particular property.
Analysis as to cash flows takes into account the contractual rent and the terms
and conditions of each lease, plus reversion, as well as the credit associated
therewith.
Cushman & Wakefield also conducted an analysis of the reversionary
component of the cash flow analysis for each property, which values the property
at the end of a specified holding period, based on the estimated highest and
best use of the property, at reversion. The highest and best use of a property
was formulated based on a decision matrix which takes into account specific
property and location characteristics, demographic profile and outlook, sales
history and market position of the property relative to its competition. Where
the highest and best use of a property at reversion was estimated to be a
continuation of the existing use, the reversionary value of the property is
based on capitalizing the property's eleventh year's net operating income into
value by means of direct capitalization. Use of a ten-year investment holding
period within a discounted cash flow analysis represents typical investor
criteria within the market. The discounted cash flow method is an accepted
means within the market of analyzing and valuing properties similar to the
Assets, and is in conformance with the established and accepted valuation
procedures of the Appraisal Institute regarding properties of this type. Where
the anticipated highest and best use of a property differs from the existing
use, the reversionary value of the property was estimated based on a cost
approach methodology, which incorporates land value estimates and depreciated
replacement
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<PAGE>
cost estimates for the improvement contribution, if any. Cushman & Wakefield
determined the current use of each property to be its highest and best use,
except as otherwise determined within the valuation and evaluation reports.
Pursuant to the discounted cash flow analysis, Cushman & Wakefield's
valuation of the Assets totalled $30,183,000, which is the amount allocated by
the Purchaser to the Assets in connection with the Transaction. The Operating
General Partners have reviewed and accept the Valuation and believe that it was
prepared in accordance with appropriate professional standards.
Assumptions, Limitations and Qualifications of Cushman & Wakefield's
Valuation
In preparing the Valuation, Cushman & Wakefield relied, without independent
verification, on the accuracy and completeness of all information supplied or
otherwise made available to it by or on behalf of the Partnership. In arriving
at the Valuation, Cushman & Wakefield assumed: (i) good and marketable title;
(ii) that each Asset was free and clear of all liens, unless otherwise stated;
(iii) responsible ownership and competent management of each Asset; (iv) no
hidden or unapparent conditions; (v) full compliance with zoning laws; (vi)
possession of all necessary licenses, certificates of occupancy and other
governmental consents; (vii) that no potentially hazardous or toxic materials
were located at or about the Assets; and (viii) compliance with the Americans
with Disabilities Act of 1990. Cushman & Wakefield did not conduct a legal
survey of the Assets. An appraisal is only an estimate of value, as of the
specific dates stated in the appraisal, and is subject to the assumptions and
limiting conditions stated in the report. An opinion is not a measure of
realizable value and may not reflect the amount which would be received if the
property was sold. Reference should be made to the entire appraisal report.
Fairness Opinion
Subsequent to its engagement in connection with the Valuation, Cushman &
Wakefield was engaged to provide an opinion as to the fairness of the
Transaction to the Limited Partners from a financial point of view. Cushman &
Wakefield was neither asked to make, nor did it make, any recommendation as to
the redemption price, although it did provide the Valuation on which the
redemption price was based. Cushman & Wakefield was not asked to solicit offers
from other interested parties nor was it asked to opine on any aspects of the
Transaction other than that specifically mentioned above. In connection with
rendering its opinion, Cushman & Wakefield reviewed the information and
conducted the analysis as described in its Fairness Opinion.
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<PAGE>
Cushman & Wakefield has advised the Partnership through the Corporate
General Partner that in its opinion, the price per Unit reflected in the
Transaction is fair, from a financial point of view, to the Limited Partners.
In its opinion Cushman & Wakefield stated that the determination that a price is
"fair" does not mean that the price is the highest price which might be obtained
in the marketplace, but rather that based upon the sum of the appraised values
of the Assets, the price reflected in the Transaction is within a range that
Cushman & Wakefield believes is reasonable. Although there is no active market
in trading the Units, Cushman & Wakefield noted that for those Units that have
traded the price per Unit was at or below the price per Unit in the Transaction.
Cushman & Wakefield relied on its appraisal work as a basis for establishing the
fairness of the Transaction. Other methods could have been employed to test the
fairness of the Transaction and yielded different results. In rendering this
opinion, Cushman & Wakefield noted that it had not considered, and had not
addressed, market conditions and other factors (e.g., whether the sale of the
Assets as a portfolio rather than a series of sales of individual properties,
would produce a premium or a discounted selling price) that, in an open-market
transaction, could influence the selling price of the Assets and result in
proceeds to the Limited Partners greater or less than the proposed price per
Unit. Cushman & Wakefield also noted that it had not considered the price and
trading history of other publicly traded securities that might be deemed
relevant due to the relative small size of the Transaction and the fact that the
Units are not publicly traded. Furthermore, Cushman & Wakefield noted that it
had not compared the financial terms of the Transaction to the financial terms
of other transactions that might be deemed relevant, given that the Transaction
involves all cash to the Limited Partners.
Compensation
Cushman & Wakefield was paid a fee of $2,500 for each Asset valued in
connection with the Valuation, for an aggregate fee of $86,750 from the
Partnership, plus out-of-pocket expenses, and will be paid $22,000 by the
Partnership for the Fairness Opinion. In addition, the Affiliated Limited
Partnerships will pay Cushman & Wakefield on the same basis for services
rendered to each of them in connection with the Affiliated Transactions.
Cushman & Wakefield is also entitled to reimbursements for certain costs
incurred in connection with providing their services to the Partnership. The
fees paid to Cushman & Wakefield in connection with the Valuation and the
Fairness Opinion were negotiated by
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the Operating General Partners. The Partnership has agreed to indemnify Cushman
& Wakefield against certain liabilities arising out of its engagement to prepare
and deliver the Valuation and the Fairness Opinion.
Recommendations of the General Partners
Factors Considered
The Operating General Partners have determined that the terms of the
Transaction are fair to the Limited Partners and, therefore, recommend that the
Limited Partners vote "FOR" the Transaction and "FOR" the Amendment. In
determining the fairness of the Transaction and their decision to recommend the
Transaction, the Operating General Partners considered each of the factors
discussed below. Although the Operating General Partners were unable to weigh
each factor precisely, the factors are set forth below in their approximate
order of importance:
Factors in Favor of the Transaction:
-----------------------------------
* The redemption price of the Transaction was based on the Valuation, which
was prepared by Cushman & Wakefield, an expert, independent appraiser that
is considered one of the best valuation firms in the industry in valuing
triple-net lease assets. The Valuation considered the current fair market
value of each and every Asset. See "Special Factors - Valuation of the
Assets; Fairness Opinion" for a detailed description of this Valuation. As
described herein, the Operating General Partners reviewed and accepted the
Valuation and believe that it was prepared in accordance with appropriate
professional standards and considers all relevant information. In
considering the importance of this factor, the Operating General Partners
considered that Cushman & Wakefield was retained to conduct the Valuation
on behalf of the Partnership, not the Purchaser, and in connection with an
annual valuation of the assets. Since the Purchaser was willing to pay the
current fair market value of the Assets on an all cash basis, the Operating
General Partners concluded that such factor weighed heavily in favor of the
fairness of the Transaction.
* The Transaction was structured as a merger, whereby the Purchaser will
acquire all of the Assets and liabilities of the Partnership, thereby
---
eliminating the need for the Partnership to continue operations with the
less salable or valuable properties. The Operating General Partners also
concluded that this factor weighed heavily in favor of the Transaction. As
described above under "Special Factors -Alternatives to the Transaction,"
there are significant detriments attached to sales of less than all of the
Assets.
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* The avoidance of certain potential transaction costs, such as investment
banking fees or real estate brokerage commissions, which could have
approximated $900,000 to $1,800,000 in the aggregate. Such costs are not
atypical in transactions similar to the Transaction and the fact that
neither the Partnership nor the Purchaser would need to pay such costs was
deemed to be a significant benefit of the Transaction.
* The fact that the Purchaser was willing to consummate the Transaction on an
all cash basis, as opposed to an exchange of securities or other assets.
This all cash transaction will allow the full amount of the redemption
price to be paid to the Limited Partners in cash, which can thereafter be
reinvested by the Limited Partners in other investments. An all cash
transaction also significantly simplifies the transaction and lowers
transaction costs.
* The fact that an opinion was received from Cushman & Wakefield stating that
the Transaction is fair to the Limited Partners from a financial point of
view. See "Special Factors - Valuation of the Assets; Fairness Opinion"
above for a discussion of this Fairness Opinion. This opinion was one of
the items considered by the Operating General Partners in making their
recommendation to the Limited Partners as to the fairness of the
Transaction.
* The fact that the anticipated holding period for the Assets is near the end
of the seven to ten year term originally contemplated in the Prospectus.
* The fact that in connection with the Transaction, the Partnership will only
be required to make limited representations and warranties to the Purchaser
as to the condition of the Assets, thereby eliminating the need to
establish an escrow of funds as is typically required in merger
transactions or asset sales. This will allow all of the redemption price
to be paid to the Limited Partners at the time of the Merger and thereafter
to be invested by the Limited Partners in other investments.
* The fact that the Merger Agreement permits the General Partners to
terminate the Transaction at any time if they receive an offer for the
Assets which they in good faith believe to be on terms preferable to the
Transaction. Until the Transaction is approved by the Limited Partners,
the General Partners will continue to entertain any and all offers which
can produce a comparable overall return to the Limited Partners.
* The fact that the vote of a majority in interest of the Limited Partners is
required to approve the Transaction and
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the Amendment. As a result, the Transaction can only be effected if it is
approved by persons who are not affiliated with the Purchaser and not
subject to a conflict of interest.
* The fact that the longer the Assets are held the greater the risk to the
Partnership of lease rollover, renegotiation and non-renewal. Similarly,
as a result of the average lease term for the Assets being 8.1 years, the
Assets may become more difficult to sell. These costs and risks are
highlighted above under the "Special Factors - Purpose of and Reasons for
the Transaction."
* The high cost of operating the Partnership as a publicly-held entity. Over
the past two years, the Partnership has spent $161,125 and $170,956 on
partnership administration expense and legal, accounting and tax advisory
fees necessitated, in part, by the on-going Federal securities law
compliance.
* The lack of an established exchange or market for the Units which makes it
extremely difficult for the Limited Partners to liquidate their investment.
Based on the May 1996 issue of The Stanger Report, the transaction price
------------------
per Unit for sales of Units in the "secondary" market ranged between $882
and $800, which represents transactions for 412 Units from December 1, 1995
through February 29, 1996. Over the past 12 months, 2,047.26754 Units were
sold in private transactions in the "secondary" market.
* The expressed desire of certain Limited Partners to have their investment
in the Partnership liquidated.
* The Operating General Partners' industry knowledge regarding the
marketability of the Assets.
Factors Against the Transaction:
-------------------------------
* Since the Operating General Partners are affiliates of the Purchaser, their
recommendation is subject to a conflict of interest. See "Conflicts of
Interest." Furthermore, no unaffiliated representative was retained to act
solely on behalf of the Limited Partners for the purpose of negotiating the
Transaction. However, separate counsel was retained on behalf of each of
the Partnership, the Purchaser and the General Partners, the redemption
price was based on an independent appraisal and such party rendered an
opinion that the Transaction is fair to the Limited Partners from a
financial point of view.
* The Limited Partners may be unable to invest the cash redemption price
received by them in connection with the
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Transaction in alternative investments that will generate a return equal to
or greater than that generated by the investment in the Partnership.
* The Limited Partners will no longer have an ownership interest in the
Assets and thus will not share in any potential changes in their value.
* There can be no assurances that a better offer for the acquisition of the
Assets may not be available now or in the future.
* The Limited Partners may incur certain tax liabilities as a result of the
Transaction. See "Income Tax Consequences of the Transaction."
The current value of the Assets as compared to their book value (of
$31,135,258 as reflected on the Partnership's financial statements as of March
31, 1996) was not a significant factor in the Operating General Partners'
determination of the fairness of the terms of the Transaction because, in real
estate transactions, book value is not considered an accurate representation of
underlying market value. Likewise, liquidation value was not deemed to be
applicable due to the finite life investment oriented nature of the
Partnership's Assets.
Conclusion
After evaluation of each of the foregoing factors the Operating General
Partners concluded that the factors weighing in favor of the Transaction
outweighed the factors weighing against the Transaction. In particular, the
Operating General Partners concluded that, as with any investment decision, the
potential disadvantages and risks of the Transaction are speculative, are unable
to be quantified and do not outweigh the benefits of the Transaction.
Therefore, the Operating General Partners determined that the terms of the
Transaction are fair to the Limited Partners and recommend that the Limited
Partners vote "FOR" the Transaction and "FOR" the Amendment. Messrs. Froelich
and Strosberg are not recommending the Transaction because they believe that the
most advantageous methodology for determining a fair price for the Assets would
be to seek third-party offers through an arm's-length bidding process.
Appraisal Rights
Neither the Partnership Agreement nor the Act, provide rights of appraisal
or similar rights to the Limited Partners who dissent from the vote of the
majority in approving the Transaction. As a result, if Limited Partners holding
a majority of the Units approve the Transaction and the Amendment and if the
Transaction is consummated, the Partnership will be merged with
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and into the Purchaser and all Limited Partners, including those who do not
approve the Transaction, will receive the redemption price for their Units
pursuant to the terms of the Merger Agreement.
Costs Associated with the Transaction
The following is an itemized statement of the approximate amount of all
expenses incurred or to be incurred by the Partnership in connection with the
Transaction:
<TABLE>
<CAPTION>
<S> <C>
Legal fees $ 86,400
Fairness Opinion and related expenses 22,000
Printing and mailing costs 12,000
Accounting 18,400
Title, survey and environmental reports 179,700
Proxy solicitation fees 24,000
Other, including filing fees 92,400
--------
Total $434,900
--------
</TABLE>
All of the foregoing fees and expenses will be paid by the Partnership from
cash from operations. Of such fees and expenses $19,739 have been paid to date.
No part of such funds is expected to be borrowed. In addition, the Partnership
will pay the Valuation fees and related expenses of approximately $96,000 of
which $43,400 have been paid to date. The cost of the Valuation was a necessary
Partnership expense in accordance with the requirements of the Partnership
Agreement and, therefore, is not considered an expense of the Transaction.
The fees and expenses of the Purchaser in connection with the Transaction
will be paid by the Purchaser. Certain of these fees and expenses to be paid by
the Purchaser (not the Partnership) include $55,140 payable to each of Brauvin
Management Company and Brauvin Financial, Inc. for advisory services. Brauvin
Management Company and Brauvin Financial, Inc. are owned, in part, by Mr.
Froelich and an affiliate of the Managing General Partner. None of these fees
are being paid out of the proceeds of the Partnership.
CONFLICTS OF INTEREST
Interests in the Purchaser
The Operating General Partners are affiliated with the Purchaser and,
therefore, they have an indirect economic interest in consummating the
Transaction that may be considered to be in conflict with the economic interests
of the Limited Partners. This affiliated status results from the Braults and
certain other members of the management of the Corporate General Partner being
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minority equity participants in the Purchaser. The amount of such equity
participation in the Purchaser has not been finally determined, but will be
dependent on meeting certain performance standards and will range from 0% to
20%. To the extent such equity participation results in less than 10%
ownership, the Operating General Partners may not be considered "affiliates" of
the Purchaser pursuant to the Federal securities laws, although they would still
be subject to certain conflicts of interest. Although the "affiliate" status of
the Operating General Partners has not been finally determined, the Partnership
has complied with the Federal securities law requirements relating to
"affiliate" transactions, including the filing of a Schedule 13E-3.
Notwithstanding the Braults minority ownership interest in the Purchaser, the
Operating General Partners remain accountable to the Partnership as fiduciaries
and consequently must exercise good faith and fair dealing toward the Limited
Partners.
Purchaser Fees
Each of Brauvin Management Company and Brauvin Financial, Inc., which are
owned, in part, by Cezar M. Froelich and an affiliate of Jerome J. Brault, will
receive $55,140 from the Purchaser (not the Partnership) for advisory services
rendered in connection with the Transaction. Such entities will also receive
fees from the Purchaser in connection with the Affiliated Transactions.
Indemnification under the Partnership Agreement
Pursuant to the terms of the Partnership Agreement, the Partnership has
agreed to indemnify the General Partners and any of their affiliates, to the
maximum extent allowed by law, and to hold them harmless, and the Limited
Partners have agreed to make no claim against the General Partners and any
affiliates of the General Partners, for any loss suffered by the Partnership
which arises out of any action or inaction of the General Partners or their
affiliates if the General Partners, in good faith, determine that such course of
conduct was in the best interests of the Partnership and such course of conduct
did not constitute negligence or misconduct of the General Partners.
Furthermore, the General Partners and their affiliates are to be indemnified by
the Partnership, to the maximum extent allowed by law and by the Partnership
Agreement, against any losses, judgments, liabilities, expenses and amounts paid
in settlement of any claims sustained by them in connection with the
Partnership, provided that the same were not the result of negligence or
misconduct on the part of the General Partners and their affiliates, that the
General Partners and their affiliates made a good faith determination that their
actions were in the best interest of the Partnership and that the General
Partners and their affiliates were acting within the scope of the General
Partners' authority.
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If a claim is made against the General Partners or their affiliates in
connection with their actions on behalf of the Partnership with respect to the
Transaction prior to the consummation thereof, the General Partners expect that
they and such affiliates will seek to be indemnified by the Partnership with
respect to such claim. Any expenses (including legal fees) incurred by the
General Partners and such affiliates in defending such claim shall be advanced
by the Partnership prior to the final disposition of such claim, subject to
receipt by the Partnership of an undertaking by the General Partners and such
affiliates to repay any amounts advanced if it is determined that the
indemnified person's actions constituted fraud, negligence, breach of fiduciary
duty or misconduct. As a result of these indemnification rights, a Limited
Partner's remedy with respect to claims against the General Partners and their
affiliates relating to the General Partners' or such affiliates' involvement in
the Transaction could be more limited than the remedies which would have been
available absent the existence of these rights in the Partnership Agreement. A
successful claim for indemnification, including the expenses of defending a
claim made, would reduce the Partnership's assets by the amount paid.
Notwithstanding the foregoing, the General Partners and their affiliates
shall not be indemnified by the Partnership for liabilities arising under
federal and state securities laws unless: (i) there has been a successful
adjudication on the merits of each count involving alleged securities law
violations as to the particular indemnitee and the court approves
indemnification of litigation costs; (ii) such claims have been dismissed with
prejudice on the merits by a court of competent jurisdiction as to the
particular indemnitee and the court approves indemnification of litigation
costs; or (iii) a court of competent jurisdiction approves the settlement of the
claims as to the particular indemnitee and finds that indemnification of
settlement and related costs should be made.
Indemnification by the Purchaser
Pursuant to the Merger Agreement, the Purchaser, as the surviving entity
shall provide the General Partners for their sole benefit, the indemnification
set forth in the Partnership Agreement as in effect on the date of the Merger
Agreement. Pursuant to the Merger Agreement, the Partnership and, following the
Transaction, the Purchaser, as the surviving entity and its affiliates, jointly
and severally release and discharge, subject to termination as discussed below,
Jerome J. Brault, Cezar M. Froelich and David M. Strosberg and their respective
heirs, executors, administrators and personal representatives (collectively, the
"Released Parties"), jointly and severally, from and against any and all claims
arising out of or relating in any way to any acts, omissions, transactions or
occurrences which took place, in whole or in part, prior to and including the
date
44
<PAGE>
of the Merger Agreement, whether known or unknown, suspected or unsuspected,
matured or unmatured, fixed or contingent, including, without limitation, any
which relate to or arise in any way out of the Transaction, but not including
the Released Parties' respective obligations under the Merger Agreement or acts,
omissions, transactions or occurrences which involve fraud or criminal conduct
with respect to the financial affairs of the Partnership. In addition, the
Merger Agreement provides that, if such Released Parties have fully performed
their respective obligations under the Merger Agreement to be performed on or
prior to the Effective Time, the release shall be extended to cover the period
prior to and including the Effective Time.
CERTAIN INFORMATION ABOUT THE PARTNERSHIP,
ITS GENERAL PARTNERS AND THEIR AFFILIATES
The Partnership
The Partnership was organized on May 3, 1988 as a limited partnership under
the Act. The Partnership is governed by the Partnership Agreement, which vests
exclusive management control over the Partnership in the General Partners,
subject to the rights of the Limited Partners to vote on certain limited
matters. The address of the Partnership's principal executive office is 150
South Wacker Drive, Suite 3200, Chicago, Illinois 60606, and the telephone
number is (312) 443-0922.
The Partnership was formed to acquire debt-free ownership of existing,
free-standing, income-producing retail, office or industrial real properties
predominantly all of which will involve triple-net leases. The Partnership
raised a total of $38,923,000 through its offering to the public which commenced
on June 17, 1988 and terminated on September 30, 1989, as well as an additional
$3,914,384 through its distribution reinvestment plan through December 31, 1995.
The reinvestment of distributions through the distribution reinvestment plan was
suspended for the May 15, 1996 distribution as the valuation of the Units was
not completed at such time. As of December 31, 1995, Units valued at $2,773,086
had been purchased by the Partnership from Limited Partners liquidating their
original investment and such Units have been retired. The Partnership has
utilized the proceeds of its offering and the funds received through the sale of
Units through the distribution reinvestment plan to acquire the land and
buildings underlying 29 properties as well as a 51% interest in a Scandinavian
Health Spa and a 99% interest in a joint venture which owns the land and
buildings underlying six Ponderosa restaurants. The Partnership sold one of its
properties in 1994. See the subsection entitled "Description of the Assets,"
below. All of the Assets are under lease.
45
<PAGE>
The original objectives of the Partnership were the: (i) distribution of
current cash flow from the Partnership's cash flow attributable to rental
income; (ii) capital appreciation; (iii) preservation and protection of
capital; (iv) the potential for increased income and protection against
inflation through escalations in the base rent or participation and growth in
the sales of the lessees of the Partnership's properties; (v) the partial
shelter of cash distributions for Taxable Limited Partners, as defined in the
Prospectus; and (vi) the production of "passive" income to offset "passive"
losses from other investments.
The Partnership acquired all of its properties prior to 1995. The
Partnership did not acquire any properties in 1995 or 1996. The Partnership
does not currently have sufficient funds available for additional property
acquisitions. The Partnership has made quarterly distributions of operating
cash flow as described in the subsection below entitled "Distributions." As
distributions of operating cash flow to the Limited Partners will be suspended
during the pendency of the proposed Transaction, the Partnership will not be
selling any additional Units to the Limited Partners pursuant to the terms of
the Partnership's distribution reinvestment plan and, therefore, no funds will
be raised for additional acquisitions.
The General Partners
The Corporate General Partner is Brauvin Realty Advisors II, Inc., an
Illinois corporation, with its principal business address at 150 South Wacker
Drive, Suite 3200, Chicago, Illinois 60606. The principal business of the
Corporate General Partner is to act as a general partner of the Partnership.
The director and executive officers of the Corporate General Partner are Jerome
J. Brault, Chairman of the Board, President and Chief Executive Officer and
James L. Brault, Executive Vice President, Secretary, Treasurer and Chief
Financial Officer. The business address of the director and each of the
executive officers of the Corporate General Partner is 150 South Wacker Drive,
Suite 3200, Chicago, Illinois 60606. Each of the individual General Partners
and the directors and executive officers of the Corporate General Partner is a
citizen of the United States.
Jerome J. Brault is the Managing General Partner of the Partnership and a
beneficial owner of the Corporate General Partner. Mr. Brault is also a general
partner of a series of public limited partnerships affiliated with the
Partnership, including the Affiliated Limited Partnerships, and a director and
executive officer of various corporations affiliated with the Partnership and
said public limited partnerships. In addition, Mr. Brault is an executive
officer and a director of Brauvin Net Lease V, Inc., a publicly-held real estate
investment trust. Prior to his affiliation with the Brauvin organization in
1979,
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<PAGE>
Mr. Brault was the Chief Operating Officer of Burton J. Vincent, Chesley &
Company, a New York Stock Exchange member firm. Jerome J. Brault has a minority
ownership interest in the Purchaser.
James L. Brault is an executive officer of various corporations affiliated
with the Partnership and a series of other public limited partnerships
affiliated with the Partnership, including the Affiliated Limited Partnerships.
In addition, Mr. Brault is an executive officer and a director of Brauvin Net
Lease V, Inc., a publicly-held real estate investment trust. Prior to joining
the Brauvin organization in May 1989, Mr. Brault was Vice President of the
Commercial Loan Division of The First National Bank of Chicago in Washington
D.C., where he had worked since 1983. While with The First National Bank of
Chicago, Mr. Brault was responsible for the origination and management of
commercial real estate loans, as well as the direct management of a loan
portfolio in excess of $150,000,000. Mr. Brault is the son of Jerome J. Brault.
James L. Brault has a minority ownership interest in the Purchaser.
Cezar M. Froelich is a principal with the Chicago law firm of Shefsky
Froelich & Devine Ltd., 444 North Michigan Avenue, Chicago, Illinois 60611,
which in the past has acted as counsel to the General Partners, the Partnership
and certain of their affiliates. Mr. Froelich is also a beneficial owner of the
Corporate General Partner. Mr. Froelich is an individual general partner in
seven other affiliated public limited partnerships, including the Affiliated
Limited Partnership and is a shareholder in Brauvin Management Company and
Brauvin Financial Inc. Mr. Froelich resigned as an individual General Partner
of the Partnership on May 23, 1996, which resignation will become effective
ninety days from June 20, 1996, the date notice of such resignation was first
given to the Limited Partners.
David M. Strosberg is the President of the Morningside Group, 223 West
Erie, 5th Floor, Chicago, Illinois 60610, and is an independent real estate
investor and developer. Mr. Strosberg is also a shareholder of the Corporate
General Partner and certain of its affiliates. Mr. Strosberg's organization
specializes in the development of for-sale, multi-family properties. Mr.
Strosberg is also an individual General Partner of Brauvin High Yield Fund L.P.
Mr. Strosberg has indicated his intent to resign as an individual General
Partner subsequent to the approval of the Transaction by the Limited Partners.
Description of the Assets
The Partnership currently owns 28 income-producing properties as well as a
51% interest in a Scandinavian Health Spa and a 99% interest in a joint venture
which owns the land and buildings underlying six Ponderosa restaurants,
predominantly all
47
<PAGE>
of which are subject to triple-net leases. The Partnership is a landlord only
and does not participate in the operations of any of the properties discussed
herein. All properties are occupied and all lease payments to the Partnership
are current with the exception of the former Hardee's restaurant located in
Albion, Michigan and the three Chi-Chi's restaurants (as discussed in the
following summary). All properties were paid for in cash, without any
financing. The General Partners believe that the Partnership's properties are
adequately insured. A description of each of the properties owned by the
Partnership follows.
The Taco Bell restaurant located in Schofield, Wisconsin was sold in
February 1994. In October 1994, the Partnership exchanged the Ponderosa
restaurant in Apopka, Florida for a Ponderosa restaurant in Joliet, Illinois.
No property had a cost basis in excess of 10% of the gross proceeds of the
Offering or had rental income in excess of 10% of the total rental income of the
Partnership.
Ponderosas:
- - ----------
Rockford, Illinois
- - ------------------
This property is located at 3725 East State Street. The building, built in
1969, consists of 5,930 square feet situated on a 31,476 square foot parcel. The
building was constructed utilizing wood siding over concrete block.
Bloomington, Illinois
- - ---------------------
This property is located at 1329 East Empire Street. The building, built
in 1970, consists of 4,608 square feet situated on a 60,725 square foot parcel.
The building was constructed utilizing wood siding over concrete block.
Orchard Park, New York
- - ----------------------
This property is located at 3019 Union Road. The building, built in 1980,
consists of 5,600 square feet situated on a 75,000 square foot parcel. The
building was constructed utilizing wood siding over concrete block.
In July 1995, Metromedia, the parent of Ponderosa, closed the Orchard Park,
New York restaurant. In exchange for the closed Ponderosa, the Partnership
agreed to accept a Tony Roma's restaurant in Mesquite, Texas. The Tony Roma's
restaurant will result in additional rent of approximately $2,000 per year plus
percentage rents and future rent escalations upon exercise of lease renewals.
48
<PAGE>
Oneonta, New York
- - -----------------
This property is located at 333 Chestnut. The building, built in 1979,
consists of 5,250 square feet situated on a 61,600 square foot parcel. The
building was constructed utilizing wood siding over concrete block and
facebrick.
Middletown, New York
- - --------------------
This property is located at 163 Doison Avenue. The building, built in
1980, consists of 6,120 square feet situated on a 71,708 square foot parcel.
The building was constructed utilizing stained wood veneer and flagstone.
Joliet, Illinois
- - ----------------
This property is located at 2200 West Jefferson Street. The building,
built in 1970, consists of 4,500 square feet situated on a 57,000 square parcel.
The building was constructed utilizing brick and wood siding. This Ponderosa
was received in exchange for Ponderosa Unit 1055, an original purchase of the
Partnership, in December 1994.
In June 1995, Metromedia, the parent of Ponderosa, closed the Joliet,
Illinois Ponderosa with the intent of converting the site into a Bennigan's
restaurant. Subsequently, Metromedia changed its mind and is currently looking
for a suitable sublessee. Under the terms of its lease, Metromedia continues to
pay rent to the Partnership.
Franklin, Ohio
- - --------------
This property is located at 3320 Village Drive. The building, in 1987,
consists of 4,550 square feet situated on a 9,242 foot parcel. The building was
constructed utilizing wood over concrete block.
Herkimer, New York
- - ------------------
This property is located at the corner of State and King Streets. The
building, built in 1979 and remodeled in 1988, consists of 5,817 square feet
situated on a 44,932 square foot parcel. The building was constructed using
wood siding over concrete block and facebrick.
Sweden, New York
- - ----------------
This property is located at 6460 Brockport-Spencerport Road. The building,
built in 1981 and remodeled in 1987, consists of 5,400 square feet situated on a
47,500 square foot parcel. The building was constructed using wood paneling
over concrete block.
49
<PAGE>
Appleton, Wisconsin
- - -------------------
This property is located at 130 South Bluemond Road. The building, built in
1969 and renovated in 1986, is a one-story, 5,400 square foot building
constructed with stucco and painted concrete block with wood trim over wood
frame on an approximately 54,450 square foot site.
Dublin, Ohio
- - ------------
This property is located at 1671 East Dublin-Granville Road. The building,
built in 1973 and renovated in 1987, is a one-story, 5,360 square foot building
constructed with wood siding over wood frame on an approximately 47,000 square
foot site.
Penfield, New York
- - ------------------
This property is located at 1610 Penfield Road. The building, built in
1981 and renovated in 1987, is a one-story, 5,400 square foot building
constructed with vinyl siding over wood frame on an approximately 54,900 square
foot site.
Pendleton Pike, Indiana
- - -----------------------
This property is located at 8502 Pendleton Pike. The building, built in
1984 and renovated in 1987, is a one-story, 5,400 square foot building
constructed with a prefab stucco facade with an atrium front and wood panels on
the sides of the building on an approximately 95,000 square foot site.
Eureka, Missouri
- - ----------------
This property is located at 80 Hilltop Village Center. The building, built
in 1981 and renovated in 1986, is a one-story, 5,360 square foot building
constructed with wood over wood approximately 71,400 square foot site.
Joint Venture Ponderosas: The Partnership has a 99% interest in a Joint Venture
- - ------------------------
with an affiliated public real estate partnership that acquired the following
six Ponderosas:
Louisville, Kentucky
- - --------------------
This property is located at 4801 Dixie Highway. The building consists of
5,100 square feet situated on a 62,496 square foot parcel and was constructed in
1969 utilizing wood siding over concrete block with flagstone.
50
<PAGE>
Cuyahoga Falls, Ohio
- - --------------------
This property is located at 1641 State Road. The building consists of
5,587 square feet situated on a 40,228 square foot parcel and was constructed in
1973 utilizing wood siding over concrete block.
Tipp City, Ohio
- - ---------------
This property is located at 135 South Garber. The building consists of
6,080 square feet situated on a 53,100 square foot parcel and was constructed in
1980 utilizing wood siding over concrete block.
Mansfield, Ohio
- - ---------------
This property is located at 1075 Ashland Road. The building consists of
5,600 square feet situated on a 104,500 square foot parcel and was constructed
in 1980 utilizing wood siding over concrete block and flagstone.
Tampa, Florida
- - --------------
This property is located at 4420 West Gandy Boulevard. The building
consists of 5,777 square feet situated on a 50,094 square foot parcel and was
constructed in 1986 utilizing wood siding over concrete block.
Mooresville, Indiana
- - --------------------
This property is located at 499 South Indiana Street. The building
consists of 6,770 square feet situated on a 63,525 square foot parcel and was
constructed in 1981 utilizing wood siding over concrete block.
Taco Bells:
- - ----------
Schofield, Wisconsin
- - --------------------
This property is located at 704 Grand Avenue approximately 2.5 miles south
of Wausau, Wisconsin. The building, built in 1978, consists of 1,440 square
feet situated on a 11,603 square foot parcel. The building was constructed
utilizing painted brick on a concrete foundation. This property was sold in
February 1994.
Lansing, Michigan
- - -----------------
This property is located at 4238 West Saginaw on the outskirts of Lansing,
Michigan. The building, built in 1979, consists of 1,566 square feet situated
on a 21,186 square foot
51
<PAGE>
parcel. The building was constructed utilizing painted brick on a concrete
foundation.
Scandinavian Health Spa
- - -----------------------
On July 21, 1989, the Partnership and Brauvin High Yield Fund L.P. ("BHYF")
formed a joint venture, Brauvin Funds Joint Venture ("Funds JV"), that acquired
the land and building underlying a Scandinavian Health Spa (the "Health Spa") in
Glendale, Arizona from an unaffiliated developer for $5,250,000, plus closing
costs. The Partnership contributed $2,961,143 (51%) and BHYF contributed
$2,585,608 (51%) to Funds JV. The Joint Venture owns the Health Spa on a fee
simple basis. The Health Spa is not subject to any material mortgages, liens or
other encumbrances.
The Health Spa was constructed in 1988 and consists of a 36,556 square foot
health club located on a three acre parcel in Glendale, Arizona, a suburb of
Phoenix. The property is a two-story health and fitness workout facility
located within the 195,000 square foot Glendale Galleria Shopping Center and has
been 100% occupied during the laws five years by the Health Spa.
The Health Spa is subject to a triple-net lease with the lessee,
Scandinavian U.S. Swim & Fitness, Inc., which is responsible for paying all
taxes, insurance premiums and maintenance costs. The lease terminates in 2009;
is subject to four five-year renewal options and is not subject to a right of
first refusal. The 1995 rental income distributed to the Partnership from Funds
JV was $352,819, which is 12.1% of the total rental income of the Partnership.
The rent is payable in equal monthly installments and was increased by 11.5% on
February 1, 1994 and will be increased by 11.5% every five years thereafter.
Children's World Learning Centers:
- - ---------------------------------
Livonia, Michigan
- - -----------------
The Children's World Learning Center is located at 38880 West Six Mile Road
in Livonia, Michigan, approximately 12 miles west of downtown Detroit. The
6,095 square foot, single-story building was built in 1984 utilizing concrete
block and has a pitched roof with asphalt shingles.
Farmington Hills, Michigan
- - --------------------------
The Children's World Learning Center is located at 29047 13 Mile Road in
Farmington Hills, Michigan, approximately 26 miles northwest of Detroit. The
6,175 square foot, single-story building was built in 1989 utilizing a wood
frame-and has a pitched roof with asphalt shingles.
52
<PAGE>
Waterford, Michigan
- - -------------------
The Children's World Learning Center is located at 3100 Dixie Highway in
Waterford, Michigan, approximately 35 miles northwest of Detroit. The 6,175
square foot, single-story building was built in 1988 utilizing a wood frame and
has a pitched roof with asphalt shingles.
Avis Lubes:
- - ----------
Orlando, Florida
- - ----------------
The Avis Lube is located at 2699 Delaney Street across the street from a
91,000 square foot shopping center anchored by Publix and Woolworths. The
building, built in 1989, consists of 1,532 square feet situated on a 12,150
square foot parcel. The building was constructed using concrete block and has
two oil change bays.
Orlando, Florida
- - ----------------
The Avis Lube is located at 1625 South Conway Road across the street from a
123,000 square foot shopping center anchored by Publix and Eckard Drugs. The
building, built in 1989, consists of 1,947 square feet situated on a 24,939
square foot parcel. The building was constructed using concrete block and has
three oil change bays.
The lessee of the two Orlando Avis Lubes defaulted on its payment
obligations under the lease in 1991 and in January 1992 vacated the properties.
The Partnership continued to receive rent payments from the lessee, which Avis
Lube, Inc. guaranteed to the Partnership until the lease expired in June 1996.
Avis Lube, Inc. subleased the properties until June 1996 to an unaffiliated
sublessee, Florida Express Lubes, Inc. The Partnership signed new leases with
the sublessee to operate the properties, as lessee. The leases are for a 14
year term and commenced June 1, 1996. Base annual rent at 2699 Delaney Street
is $48,000 and at 1625 South Conway Road is $54,000. The new lease rents are
lower than the previous rents.
Rock Hill, Missouri
- - -------------------
The Avis Lube is located at 9725 Manchester Road, two miles west of the St.
Louis, Missouri city limits. The building, built in 1988, consists of 2,940
square feet situated on a 21,143 square foot parcel. The building was
constructed using brick veneer and has four oil change bays, two with service
pit work access and two with ground level work access.
The former lessee of the Rock Hill, Missouri property defaulted on its
payment obligations and vacated the property in
53
<PAGE>
April 1994. The Partnership continued to receive rent payments from the
guarantor, Avis Lube, Inc. Avis Lube, Inc. subleased the property through March
1996 to an unaffiliated sublessee, Clarkson Investors II, an auto/oil repair
operator. The Partnership signed a new lease with the sublessee to continue to
operate the property. The lease is for 42 months, commenced March 26, 1996 and
provides for annual base rent of $55,000. The new lease rent is lower than the
previous rent.
Hardee's:
- - --------
Newcastle, Oklahoma
- - -------------------
This restaurant is an outparcel of a 67,500 square foot shopping center
located on the 400 & 500 block of N.W. 32nd. The 3,300 square foot, single-
story building was built on a 35,200 square foot parcel in 1990 utilizing a wood
frame with brick facing.
St. Johns, Michigan
- - -------------------
This restaurant is an outparcel of a 70,000 square foot Wal-Mart department
store located at the corner of U.S. 27 and Townsend Road. The 3,300 square
foot, single-story building was built on a 47,200 square foot parcel in 1990
utilizing a wood frame with brick facing.
Albion, Michigan
- - ----------------
This restaurant is located at 118 E. Michigan Avenue. The 3,034 square
foot, single-story building was built on a 32,670 square foot parcel in 1990
utilizing a wood frame with brick facing.
Beginning in September 1990, the Partnership did not receive rent payment
on the Hardee's restaurants located in Albion, Michigan and St. Johns, Michigan
(the "Michigan Properties"). As a result of eviction proceedings commenced by
the Partnership against the defaulting lessee on January 5, 1991 due to
nonpayment of rent, the Partnership obtained legal possession of the Albion
property on February 25, 1991 and the St. Johns property on March 18, 1991 and
the leases were terminated. Subsequently, Wolverine Fast Food, Inc.
("Wolverine"), the defaulting lessee, filed a Chapter 11 bankruptcy proceeding.
Upon obtaining possession of the Michigan Properties, the Partnership entered
into a lease (the "Interim Lease") with an affiliate of the Partnership (the
"Affiliated Lessee") until a suitable unaffiliated lessee could be found.
Simultaneously, the Partnership entered into negotiations with Hardee's Food
Systems, Inc. ("Hardee's"), the franchisor, to manage and operate the Michigan
Properties until a new franchisee/tenant for the Michigan Properties could be
located.
54
<PAGE>
During the period that the Michigan Properties were operated by the
Affiliated Lessee, the operating expenses and management fees exceeded the
revenues generated by the restaurants. As a result, the Partnership advanced
$398,915 to the Affiliated Lessee as of December 31, 1993 and 1992, which was
fully reserved in 1993 and written off in 1994.
After taking possession of the Michigan Properties, the Partnership, in
conjunction with Hardee's, had sought replacement operators for the Michigan
Properties. During that time, Wolverine approached the Partnership to re-lease
the restaurants on a long-term basis. Because the Partnership had been unable to
identify another long-term tenant for the restaurants and because Hardee's began
to actively support Wolverine and substantial improvement in the performance of
other Wolverine-operated restaurants was reported, the Partnership entered into
negotiations with Wolverine to re-lease the Michigan Properties.
As a result of discussions with Wolverine, the Partnership agreed to lease
the Michigan Properties to Wolverine, Kenneth Schiefelbein, Barbara Schiefelbein
and Jon Guiles, individual principals of Wolverine, for a period of 20 years.
The lease term commenced at the St. Johns property on April 1, 1992 and June 1,
1992 at the Albion property. Beginning February 1993, the St. Johns property
and beginning July 1993 the Albion property became seriously delinquent on
payments of rent to the Partnership. Although the tenant made irregular rent
payments, these delinquencies increased each month throughout the remainder of
1993. In December 1993, Wolverine abandoned the St. Johns property and in
January 1994, the Albion property was vacated. On February 2, 1994, the
Wolverine petition to the Bankruptcy court was modified from a Chapter 11 to a
Chapter 7 filing. In conjunction with the lease negotiations, as well as with
the lawsuits filed by the Partnership against Schiefelbein and Guiles,
Schiefelbein and Guiles executed agreements with the Partnership for non-
dischargeable debt obligations. A nondischargeable judgement in the amount of
$2,500,000 was entered against Schiefelbein and a non-dischargeable judgement in
the amount of $1,500,000 was entered against Guiles.
The Partnership entered into a lease with a new tenant, Jasaza, Inc., to
operate the Albion property as a Hardee's restaurant. The base rent on the
property began at a level below the original lease with Wolverine. On April 8,
1994, the Partnership was notified that Jasaza, Inc., the replacement tenant,
was terminating its lease at the Albion Hardee's as of April 12, 1994. The
Partnership continues to actively market this property for a replacement tenant.
During the third quarter of 1994, the Partnership recorded an allowance for
impairment of $500,000 related to an other than temporary decline in the value
of the real estate for the
55
<PAGE>
Michigan Properties. This allowance has been recorded as a reduction of the
properties' cost, and allocated to the land and building based on the original
acquisition percentages of 30% (land) and 70% (building).
During the fourth quarter of 1994, the Partnership executed a lease with a
Dairy Queen franchisee to be the new tenant at the St. Johns, Michigan property.
The lease is for a five year term and commenced February 1, 1995. Base rent is
$2,500 per month with monthly percentage rent of 5% due after monthly sales
exceed $37,500. The lease provides an option to renew for one five year period.
The new lease rent is lower than the rent from the previous tenant.
Blockbuster Video:
- - -----------------
South Orange, New Jersey
- - ------------------------
This property is located at 57 South Orange Avenue in downtown South
Orange. The 6,705 square foot brick building was completely renovated in 1990
and consists of a primary level, a mezzanine level plus a full basement for
storage.
Chi-Chi's:
- - ---------
Richmond, Virginia
- - ------------------
This property is located at 9135 West Broad Street in Richmond and consists
of a 7,270 square foot restaurant with a seating capacity of 280. The property
was built in January 1990 and is situated on approximately one acre of land.
Charlotte, North Carolina
- - -------------------------
This property is located at 2522 Sardis Road North at the intersection of
Independence Boulevard. The property is situated on a 1.5 acre parcel and
consists of a 7,270 square foot restaurant with a seating capacity for 280. The
property opened in May 1990.
Clarksville, Tennessee
- - ----------------------
This property is located in Governor's Square Shopping Center at 2815
Guthrie Road in Clarksville. The property consists of a 5,678 square foot
restaurant with seating for 180 people and is situated on an approximately
50,000 square foot parcel of land. The property opened in May 1990.
During 1995, Chi-Chi's, the sub-tenant under the master lease with
Foodmaker, Inc. ("Foodmaker"), closed each of its three restaurants owned by the
Partnership because they were not profitable. Under the terms of the three
leases, Foodmaker, the
56
<PAGE>
master tenant and guarantor, continues to pay rent for all three properties.
Chi-Chi's has undertaken to release the three closed restaurants. In March
1996, a sub-tenant, Carolina Bar-B-Q, executed a second sub-lease with Chi-Chi's
for the Charlotte, North Carolina property, and the operations for this sub-
tenant commenced late in the second quarter of 1996. Chi-Chi's is currently in
the process of completing negotiations with a potential sub-tenant to execute a
second sub-lease with Chi-Chi's for the Richmond, Virginia property and Chi-
Chi's is currently in discussion with potential sub-tenants for the Clarksville,
Tennessee property. Foodmaker will continue to be the guarantor under terms of
each of the second sub-leases.
Distributions
Cash distributions to Limited Partners for 1995, 1994 and 1993 were
$3,582,492, $3,478,020 and $3,569,741, respectively, of which $3,039,738,
$2,564,375 and $2,346,355, respectively, represented net income. Cash
distributions to Limited Partners for the first quarter of 1996 were $907,443.
Distributions of operating cash flow, if available, were paid four times per
year, 45 days after the end of each calendar quarter. No amount distributed in
1995 or 1996 was a result of a sale of assets, however, the Partnership
distributed $375,000 from the sale of the Taco Bell property in Schofield,
Wisconsin during 1994. The difference between cash distributions of the
Partnership and the net income earned is primarily the result of depreciation
expense and, to a lesser extent, differences between the accrual basis of
accounting and the cash generated from operations.
Below is a table summarizing the historical data for the Partnership's
distribution rates per Unit per annum:
<TABLE>
<CAPTION>
Distribution
Date 1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
February 15 $22.3597 $22.3597 $22.5000 $22.5000 $21.8750
May 15 22.3597 22.3597 22.5000 22.5000 21.8750
August 15 22.3597 22.5000 22.5000 21.8750
November 15 22.3597 26.2368 22.5000 21.8750
</TABLE>
The above table includes a return of capital distribution of $6.2368 in
November 1994.
Future changes in the Partnership's distributions would largely depend on
sales at the Assets resulting in changes to percentage rent and, to a lesser
extent, on rental increases or decreases which will occur due to changes in the
Consumer Price
57
<PAGE>
Index or scheduled changes in base rent and loss of rental payments resulting
from defaults and lease payment reductions due to lease renegotiations. The
Operating General Partners have determined that during the pendency of the proxy
solicitation no future distributions of operating cash flow will be made to the
Limited Partners. As of the date hereof, the Partnership has no preferred
return deficiency.
Ownership of Units
No person (including any "group" as that term is used in Section 13(d)(3) of
the Exchange Act) is known to the Partnership to be the beneficial owner of more
than 5% of the outstanding Units as of April 30, 1996.
Market for the Units
The Units are not traded on any established trading market, nor has there been
such a market during the past two years. Thus, no information is available as
to high and low bid quotations or sales prices. It is not anticipated that
there will be a public market for the Units in the future. Furthermore, no
person has contacted the Partnership expressing an interest in purchasing Units.
Neither the General Partners nor the Partnership are obligated to redeem or
repurchase Units, but the Partnership may purchase Units under certain very
limited circumstances. The Partnership will not purchase Units during the
pendency of the proposed Transaction.
Below is a table summarizing purchases of Units made by the Partnership during
the last two fiscal years and the current fiscal year:
<TABLE>
<CAPTION>
Units Range Average
For the Quarter ended: Purchased of Prices Price
- - --------------------- --------- --------- ------
<S> <C> <C> <C>
March 31, 1994 145.42087 $1,000 $1,000
June 30, 1994 135.00000 $1,000 $1,000
September 30, 1994 --- --- ---
December 31, 1994 47.00000 $1,000 $1,000
March 31, 1995 27.00000 $1,000 $1,000
June 30, 1995 100.49429 $1,000 $1,000
September 30, 1995 --- --- ---
December 31, 1995 0.03219 $1,000 $1,000
March 31, 1996 114.54366 $1,000 $1,000
June 30, 1996 --- --- ---
</TABLE>
Purchases of the Units by the Partnership prior to receipt of the
Valuation were made at the initial public offering price. Should the
Transaction not be completed, any future purchases of
58
<PAGE>
Units by the Partnership will be at a price equal to the then current valuation
of the Units based on a third-party valuation.
Legal Proceedings
The Partnership is not a party to any legal proceeding s.
Independent Certified Public Accountants
Deloitte & Touche LLP, whose report on the Partnership's financial
statements as of December 31, 1995 and 1994 and for the three years in the
period ended December 31, 1995 appear in the Partnership's 1995 Annual Report on
Form 10-K, are the current independent auditors of the Partnership. No
representative of Deloitte & Touche LLP is expected to be present at the Special
Meeting.
Available Information
The Units are registered pursuant to Section 12(g) of the Exchange
Act. As such, the Partnership is subject to the informational filing
requirements of the Exchange Act, and in accordance therewith, is obligated to
file reports and other information with the Commission relating to its business,
financial condition and other matters. Comprehensive financial information is
included in the Partnership's Annual Reports on Form 10-K, Quarterly Reports on
Form 10-Q, and other documents filed by the Partnership with the Commission,
including the 1995 Annual Report on Form 10-K, excerpts from which are included
on Schedule I hereto, and the Quarterly Report on Form 10-Q for the period ended
March 31, 1996, excerpts from which are included on Schedule II hereto. Such
reports and other information should be available for inspection and copying at
the public reference facilities of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549 and at the regional offices of the Commission located at
7 World Trade Center, New York, New York 10048 and Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661. Copies should be available
by mail upon payment of the Commission's customary charges by writing to the
Commission's principal offices at 450 Fifth Street, N.W., Washington, D.C.
20549.
The Corporate General Partner is a privately held company and is not
subject to the reporting requirements of the Exchange Act.
CERTAIN INFORMATION CONCERNING THE PURCHASER
The Purchaser is a Delaware limited liability company that was
recently formed to acquire the Assets and the assets of the Affiliated Limited
Partnerships. The Purchaser has not engaged
59
<PAGE>
in any business or activity of any kind, or entered into any agreement or
arrangement with any person or entity or incurred, directly or indirectly, any
material liabilities or obligations, except in connection with its formation,
the proposed Transaction and the proposed Affiliated Transactions. Upon
completion of the Transaction and the Affiliated Transactions, the Purchaser
will own and operate the Assets and the assets owned by the Affiliated Limited
Partnerships.
The Braults have a minority ownership position in the Purchaser. In
addition, certain other members of the Corporate General Partner's management
may participate in the ownership of the Purchaser. Neither Mr. Froelich nor Mr.
Strosberg have any affiliation with the Purchaser. The Purchaser is in the
process of securing equity and debt financing to consummate the Transaction and
the Affiliated Transactions. Thus, the ultimate ownership of the Purchaser will
not be known until the completion of these investment activities. It is
anticipated that the members of the Purchaser will be a number of unrelated,
accredited investors.
The Purchaser's principal executive office and place of business is
150 South Wacker Drive, Suite 3200, Chicago, Illinois 60606. Its telephone
number is (312) 443-0922. All information contained in this Proxy Statement
concerning the Purchaser is based upon statements and representations made by
the Purchaser or its representatives to the Partnership or its representatives.
SELECTED FINANCIAL DATA
The tables attached hereto as Schedules I and II provide a summary of
certain financial data for the Partnership. Such selected financial data should
be read in conjunction with the detailed information and financial statements
included in the Partnership's Annual Report to Limited Partners which was
distributed to the Limited Partners on May 1, 1996 and are included in the
Partnership's Annual Report on Form 10-K for the year ended December 31, 1995,
the Partnership's Annual Report, as amended, on Form 10-K/A for the year ended
December 31, 1995 and the Partnership's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1996, which are incorporated herein by reference.
The Partnership's ratio of earnings to fixed charges for each of March
31, 1996, December 31, 1995 and December 31, 1994 was 0.00%, as the Partnership
has no fixed charges.
The foregoing information is derived from the audited financial
statements of the Partnership for 1994 and 1995 and the unaudited financial
statements of the Partnership for the first quarter of 1996.
60
<PAGE>
Pro forma data disclosing the effect of the Transaction is not
material. The Purchaser is a newly formed entity and thus has no historical
financial data.
INCORPORATION BY REFERENCE
The following documents filed by the Partnership with the Commission
are incorporated in this Proxy Statement by reference and made a part hereof:
1. The Partnership's Annual Report on Form 10-K for the year ended
December 31, 1995;
2. The Partnership's Annual Report, as amended, on Form 10-K/A for the
year ended December 31, 1995;
3. The Partnership's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1996; and
4. All reports filed by the Partnership with the Commission pursuant to
Section 13 or 15(d) of the Exchange Act, since January 1, 1995 to the
date of the Special Meeting.
Any statement contained in a document incorporated by reference shall be
deemed to be modified or superseded for all purposes to the extent that a
statement contained in this Proxy Statement modifies or replaces such statement.
Any such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Proxy Statement.
The Partnership will provide without charge to each person to whom a copy
of this Proxy Statement is delivered, upon the written or oral request of any
such person, a copy of any or all of the documents incorporated herein by
reference (other than exhibits to such documents unless such documents are
specifically incorporated by reference into the information this Proxy Statement
incorporates). Written and telephone requests for such copies should be
addressed to the Partnership at its principal executive office.
61
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE I
BRAUVIN HIGH YIELD FUND L.P. II
(a Delaware limited partnership)
(not covered by Independent Auditor's Report)
Year Ended Year Ended Year Ended Year Ended Year Ended
December 31, December 31, December 31, December 31, December 31,
1995 1994 1993 1992 1991
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Selected Income Statement Date:
Rental Income $ 4,192,243 $ 4,198,955 $ 4,128,233 $ 4,064,706 $ 3,890,615
Interest Income $ 68,435 $ 31,248 $ 12,876 $ 20,440 $ 98,369
Net Income $ 3,039,738 $ 2,564,375 $ 2,346,355 $ 2,936,205 $ 2,750,029
Net Income Per Unit (a) $ 75.82 $ 64.69 $ 57.82 $ 72.62 $ 68.18
Selected Balance Sheet Data:
Cash and Cash Equivalents $ 1,374,779 $ 1,106,917 $ 799,390 $ 548,439 $ 534,673
Land, Buildings and Improvements $35,951,164 $35,951,164 $36,727,348 $36,727,348 $36,727,348
Total Assets $33,207,008 $33,630,071 $34,704,875 $35,626,490 $36,220,659
Cash Distributions to General Partners --- --- --- --- ---
Cash Distributions to Limited Partners (b) $ 3,582,492 $ 3,478,020 $ 3,569,741 $ 3,456,204 $ 3,535,493
Cash Distributions to Limited Partners
Per Unit (a) $ 89.36 $ 87.74 $ 90.22 $ 87.68 $ 89.90
Book Value Per Unit (a) $ 750.60 $ 763.00 $ 792.46 $ 825.48 $ 841.54
</TABLE>
NOTES:
(a) Net income per Unit, cash distributions to Limited Partners per Unit and
book value per Unit are based on the average Units outstanding during the
year since they were of varying dollar amounts and percentages based upon
the dates Limited Partners were admitted to the Partnership and additional
Units were purchased through the Partnership's distribution reinvestment
plan.
(b) This includes $9,060, $14,717, $10,909, $7,856 and $10,323 paid to various
states for income taxes on behalf of all Limited Partners for the years
1995, 1994, 1993, 1992 and 1991, respectively.
62
<PAGE>
SCHEDULE II
BRAUVIN HIGH YIELD FUND L.P. II
(a Delaware limited partnership)
(not covered by Independent Auditor's Report)
<TABLE>
<CAPTION>
Three Months Three Months
Ended Ended
March 31, 1996 March 31, 1995
-------------- --------------
<S> <C> <C>
Selected Income Statement Data:
Rental Income $ 1,040,396 $ 1,037,861
Interest Income $ 20,684 $ 9,825
Net Income $ 695,613 $ 748,698
Net Income Per Unit (a) $ 16.65 $ 18.75
Selected Balance Sheet Data:
Cash and Cash Equivalents $ 1,367,182 $ 1,007,872
Land, Buildings and $35,951,164 $35,962,114
Improvements
Investment in Brauvin High $ 33,365 $ 34,443
Yield Venture
Investment in Brauvin Funds $ 2,467,238 $ 2,486,461
Joint Venture
Investment in Brauvin
Gwinnett County Venture
Total Assets $32,985,739 $33,340,298
Cash Distributions to General --- ---
Partners
Cash Distributions to $ 907,443 $ 897,832
Limited Partners
Cash Distributions to Interest $ 21.72 $ 22.49
Holders Per Unit (a)
Book Value Per Unit (a) $ 745.16 $ 759.56
- - ----------------------------------------
</TABLE>
(a) Net income per Unit, cash distributions to Limited Partners per Unit and
book value per Unit are based on the average Units outstanding during the
year since they were of varying dollar amounts and percentages based upon
the dates Limited Partners were admitted to the Partnership and
additional Units were purchased through the Partnership's distribution
reinvestment plan.
63
<PAGE>
Brauvin Triple Net Lease Portfolio
Valuation Summary - Brauvin High-Yield Fund II L.P. - Arrayed By Unit No.
LOTUS FILE: BRAVALUE REVISED 07/15/1996
<TABLE>
<CAPTION>
UNIT FUND % OWNED PROPERTY PROPERTY STREET
NO. FUND NO. BY FUND TYPE NAME CITY ADDRESS ST.
============================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C>
1 BHYF2 FUND 2 51.00% RETAIL BALLY TOTAL FITNESS GLENDALE 5720 WEST PEORIA AVENUE AZ
- - ----------------------------------------------------------------------------------------------------------------------------
2 BHYF2 FUND 2 100.00% QUICK-LUBE MOBILE LUBE ORLANDO 1625 CONWAY ROAD FL
- - ----------------------------------------------------------------------------------------------------------------------------
3A BHYF2 FUND 2 100.00% QUICK-LUBE MOBILE LUBE ROCK HILL 9725 MANCHESTER ROAD MO
- - ----------------------------------------------------------------------------------------------------------------------------
3B BHYF2 FUND 2 100.00% QUICK-LUBE MOBILE LUBE ORLANDO 2699 DELANEY AVENUE FL
- - ----------------------------------------------------------------------------------------------------------------------------
8 BHYF2 FUND 2 100.00% SIT-DOWN PONDEROSA (VACANT) JOLIET 2200 WEST JEFFERSON STREET IL
- - ----------------------------------------------------------------------------------------------------------------------------
19 BHYF2 FUND 2 100.00% SIT-DOWN TONY ROMA's MESQUITE 3780 TOWNE CROSSING BLVD. TX
- - ----------------------------------------------------------------------------------------------------------------------------
103 BHYF2 FUND 2 100.00% FAST-FOOD HARDEE'S NEWCASTLE 600 NORTHWEST 32ND STREET OK
- - ----------------------------------------------------------------------------------------------------------------------------
104 BHYF2 FUND 2 100.00% FAST-FOOD DAIRY QUEEN ST. JOHNS 1861 SCOTT ROAD MI
- - ----------------------------------------------------------------------------------------------------------------------------
106 BHYF2 FUND 2 100.00% RETAIL BLOCKBUSTER VIDEO SOUTH ORANGE 57 SOUTH ORANGE AVENUE NJ
- - ----------------------------------------------------------------------------------------------------------------------------
107 BHYF2 FUND 2 100.00% FAST-FOOD HARDEE'S (VACANT) ALBION 118 EAST MICHIGAN AVENUE MI
- - ----------------------------------------------------------------------------------------------------------------------------
110 BHYF2 FUND 2 99.00% SIT-DOWN PONDEROSA LOUISVILLE 4801 DIXIE HIGHWAY KY
- - ----------------------------------------------------------------------------------------------------------------------------
112 BHYF2 FUND 2 100.00% SIT-DOWN PONDEROSA ROCKFORD 3725 EAST STATE STREET IL
- - ----------------------------------------------------------------------------------------------------------------------------
128 BHYF2 FUND 2 100.00% SIT-DOWN PONDEROSA BLOOMINGTON 1329 EAST EMPIRE STREET IL
- - ----------------------------------------------------------------------------------------------------------------------------
182 BHYF2 FUND 2 100.00% SIT-DOWN PONDEROSA APPLETON 130 SOUTH BLUEMOUND ROAD WI
- - ----------------------------------------------------------------------------------------------------------------------------
209 BHYF2 FUND 2 100.00% DAY-CARE CHILDREN'S WORLD WATERFORD 3100 DIXIE HIGHWAY MI
- - ----------------------------------------------------------------------------------------------------------------------------
268 BHYF2 FUND 2 99.00% SIT-DOWN PONDEROSA CUYAHOGA FALLS 1641 STATE ROAD OH
- - ----------------------------------------------------------------------------------------------------------------------------
347 BHYF2 FUND 2 100.00% SIT-DOWN PONDEROSA COLUMBUS 1071 DUBLIN-GRANVILLE RD. OH
- - ----------------------------------------------------------------------------------------------------------------------------
353 BHYF2 FUND 2 100.00% SIT-DOWN CHI-CHI'S RICHMOND 9135 WEST BROAD STREET VA
- - ----------------------------------------------------------------------------------------------------------------------------
366 BHYF2 FUND 2 100.00% SIT-DOWN CHI-CHI'S CLARKSVILLE 2815 WICMA RUDOLPH BLVD. TN
- - ----------------------------------------------------------------------------------------------------------------------------
373 BHYF2 FUND 2 100.00% SIT-DOWN CHI-CHI'S CHARLOTTE 2522 SADIS ROAD NORTH NC
- - ----------------------------------------------------------------------------------------------------------------------------
421 BHYF2 FUND 2 100.00% DAY-CARE CHILDREN'S WORLD LIVONIA 38880 WEST SIX MILE ROAD MI
- - ----------------------------------------------------------------------------------------------------------------------------
473 BHYF2 FUND 2 100.00% DAY-CARE CHILDREN'S WORLD FRMNGTN HLLS 29047 13-MILE ROAD MI
============================================================================================================================
665 BHYF2 FUND 2 100.00% SIT-DOWN PONDEROSA HERKIMER STATE AND KING STREETS NY
============================================================================================================================
- - ----------------------------------------------------------------------------------------------------------------------------
740 BHYF2 FUND 2 100.00% SIT-DOWN PONDEROSA ONEONTA 333 CHESTNUT STREET NY
- - ----------------------------------------------------------------------------------------------------------------------------
755 BHYF2 FUND 2 100.00% SIT-DOWN PONDEROSA PENFIELD 1610 PENFIELD AVENUE NY
- - ----------------------------------------------------------------------------------------------------------------------------
779 BHYF2 FUND 2 100.00% SIT-DOWN PONDEROSA MIDDLETOWN 163 DOLSON AVENUE NY
- - ----------------------------------------------------------------------------------------------------------------------------
785 BHYF2 FUND 2 99.00% SIT-DOWN PONDEROSA TIPP CITY 135 SOUTH GARBER OH
- - ----------------------------------------------------------------------------------------------------------------------------
816 BHYF2 FUND 2 100.00% SIT-DOWN PONDEROSA INDIANAPOLIS 8502 PENDLETON PIKE IN
- - ----------------------------------------------------------------------------------------------------------------------------
850 BHYF2 FUND 2 99.00% SIT-DOWN PONDEROSA MANSFIELD 1075 ASHLAND ROAD OH
- - ----------------------------------------------------------------------------------------------------------------------------
857 BHYF2 FUND 2 100.00% SIT-DOWN PONDEROSA EUREKA 80 HILLTOP VILLAGE CENTER MO
- - ----------------------------------------------------------------------------------------------------------------------------
876 BHYF2 FUND 2 100.00% SIT-DOWN PONDEROSA SWEDEN 6460 BRUCKPORT-SPENCER ROAD NY
- - ----------------------------------------------------------------------------------------------------------------------------
1057 BHYF2 FUND 2 99.00% SIT-DOWN PONDEROSA MOORESVILLE 499 SOUTH INDIANA STREET IN
- - ----------------------------------------------------------------------------------------------------------------------------
1060 BHYF2 FUND 2 99.00% SIT-DOWN PONDEROSA TAMPA 4420 WEST GRANDY BLVD. FL
- - ----------------------------------------------------------------------------------------------------------------------------
1071 BHYF2 FUND 2 100.00% SIT-DOWN PONDEROSA FRANKLIN 3320 VILLAGE DRIVE OH
- - ----------------------------------------------------------------------------------------------------------------------------
1848 BHYF2 FUND 2 100.00% FAST-FOOD TACO BELL LANSING 4238 WEST SAGINAW HIGHWAY MI
============================================================================================================================
TOTAL VALUE FOR BRAUVIN HIGH-YIELD FUND II LP.
============================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
====================================================================================================================================
UNIT FUND % OWNED PROPERTY BLG. LAND YEAR 100% LEASED YEAR 1 TERMINAL TOTAL VALUE
NO. FUND NO. BY FUND NAME SF SF BUILT FEE VALUE $NOI OAR IRR OAR OF FUND
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 BHYF2 FUND 2 51.00% BALLY TOTAL 36,556 130,201 1988 $5,750,000 $600,134 10.44% 12.00% 11.00% $2,932,500
FITNESS
- - ------------------------------------------------------------------------------------------------------------------------------------
2 BHYF2 FUND 2 100.00% MOBILE LUBE 1,947 24,975 1989 $480,000 $53,794 11.21% 12.25% 11.50% $480,000
- - ------------------------------------------------------------------------------------------------------------------------------------
3A BHYF2 FUND 2 100.00% MOBILE LUBE 2,940 21,143 1989 $490,000 $51,039 10.42% 12.25% 11.50% $490,000
- - ------------------------------------------------------------------------------------------------------------------------------------
3B BHYF2 FUND 2 100.00% MOBILE LUBE 1,532 9,750 1989 $420,000 $47,253 11.25% 12.25% 11.50% $420,000
- - ------------------------------------------------------------------------------------------------------------------------------------
8 BHYF2 FUND 2 100.00% PONDEROSA
(VACANT) 5,522 76,182 1970 $630,000 $82,535 13.10% 13.50% LAND $630,000
- - ------------------------------------------------------------------------------------------------------------------------------------
19 BHYF2 FUND 2 100.00% TONY ROMA's 5,600 49,820 1984 $940,000 $93,677 9.97% 12.25% 11.50% $940,000
- - ------------------------------------------------------------------------------------------------------------------------------------
103 BHYF2 FUND 2 100.00% HARDEE'S 3,309 35,200 1990 $580,000 $61,607 10.62% 12.25% 11.50% $580,000
- - ------------------------------------------------------------------------------------------------------------------------------------
104 BHYF2 FUND 2 100.00% DAIRY QUEEN 3,300 73,764 1990 $280,000 $29,925 10.69% 12.50% 11.50% $280,000
- - ------------------------------------------------------------------------------------------------------------------------------------
106 BHYF2 FUND 2 100.00% BLOCKBUSTER
VIDEO 6,705 6,231 1990 $1,190,000 $130,748 10.99% 12 .00% 11.00% $1,190,000
- - ------------------------------------------------------------------------------------------------------------------------------------
107 BHYF2 FUND 2 100.00% HARDEE'S
(VACANT) 3,034 32,670 1990 $360,000 ($42,455) -11.79% 12.25% 11.50% $360,000
- - ------------------------------------------------------------------------------------------------------------------------------------
110 BHYF2 FUND 2 99.00% PONDEROSA 5,488 58,000 1969 $620,000 $89,764 14.48% 12.50% 11.50% $613,800
- - ------------------------------------------------------------------------------------------------------------------------------------
112 BHYF2 FUND 2 100.00% PONDEROSA 5,040 27,190 1969 $550,000 $77,049 14.01% 12.50% 11.50% $550,000
- - ------------------------------------------------------------------------------------------------------------------------------------
128 BHYF2 FUND 2 100.00% PONDEROSA 5,038 39,640 1970 $650,000 $91,680 14.10% 12.50% 11.50% $650,000
- - ------------------------------------------------------------------------------------------------------------------------------------
182 BHYF2 FUND 2 100.00% PONDEROSA 5,222 54,377 1969 $900,000 $113,744 12.64% 12.50% 11.50% $900,000
- - ------------------------------------------------------------------------------------------------------------------------------------
209 BHYF2 FUND 2 100.00% CHILDREN'S
WORLD 6,319 35,757 1988 $970,000 $ 98,598 10.16% 11.50% 11.50% $970,000
- - ------------------------------------------------------------------------------------------------------------------------------------
268 BHYF2 FUND 2 99.00% PONDEROSA 5,587 40,228 1973 $870,000 $112,352 12.91% 12.50% 11.50% $861,300
- - ------------------------------------------------------------------------------------------------------------------------------------
347 BHYF2 FUND 2 100.00% PONDEROSA 4,968 48,000 1973 $680,000 $88,175 12.97% 12.50% 11.50% $680,000
- - ------------------------------------------------------------------------------------------------------------------------------------
353 BHYF2 FUND 2 100.00% CHI-CHI'S 7,270 56,993 1990 $1,450,000 $148,863 10.27% 12.25% 11.50% $1,450,000
- - ------------------------------------------------------------------------------------------------------------------------------------
366 BHYF2 FUND 2 100.00% CHI-CHI'S 5,904 60,673 1990 $1,120,000 $115,162 10.28% 12.25% 11.50% $1,120,000
- - ------------------------------------------------------------------------------------------------------------------------------------
373 BHYF2 FUND 2 100.00% CHI-CHI'S 7,270 80,308 1990 $1,460,000 $149,803 10.26% 12.25% 11.50% $1,460,000
- - ------------------------------------------------------------------------------------------------------------------------------------
421 BHYF2 FUND 2 100.00% CHILDREN'S 6,145 35,719 1984 $780,000 $88,095 11.29% 11.50% 11.50% $780,000
WORD
- - ------------------------------------------------------------------------------------------------------------------------------------
473 BHYF2 FUND 2 100.00% CHILDREN'S 6,242 63,675 1989 $970,000 $107,512 11.08% 11.25% 11.50% $970,000
WORD
- - ------------------------------------------------------------------------------------------------------------------------------------
665 BHYF2 FUND 2 100.00% PONDEROSA 5,817 44,932 1979 $800,000 $90,871 11.36% 12.50% 11.50% $800,000
====================================================================================================================================
- - ------------------------------------------------------------------------------------------------------------------------------------
740 BHYF2 FUND 2 100.00% PONDEROSA 5,250 61,130 1979 $890,000 $99,248 11.15% 12.50% 11.50% $890,000
- - ------------------------------------------------------------------------------------------------------------------------------------
755 BHYF2 FUND 2 100.00% PONDEROSA 5,400 50,000 1980 $780,000 $105,421 13.52% 12.50% 11.50% $780,000
- - ------------------------------------------------------------------------------------------------------------------------------------
779 BHYF2 FUND 2 100.00% PONDEROSA 6,120 71,708 1980 $1,070,000 $121,347 11.34% 12.50% 11.50% $1,070,000
- - ------------------------------------------------------------------------------------------------------------------------------------
785 BHYF2 FUND 2 99.00% PONDEROSA 6,080 53,100 1979 $780,000 $96,344 12.35% 12.50% 11.50% $772,200
- - ------------------------------------------------------------------------------------------------------------------------------------
816 BHYF2 FUND 2 100.00% PONDEROSA 5,548 93,862 1980 $910,000 $128,249 14.09% 12.50% 11.50% $910,000
- - ------------------------------------------------------------------------------------------------------------------------------------
850 BHYF2 FUND 2 99.00% PONDEROSA 5,600 104,500 1980 $750,000 $115,868 15.45% 12.50% 11.50% $742,500
- - ------------------------------------------------------------------------------------------------------------------------------------
857 BHYF2 FUND 2 100.00% PONDEROSA 6,054 71,318 1979 $920,000 $106,598 11.59% 12.50% 11.50% $920,000
- - ------------------------------------------------------------------------------------------------------------------------------------
876 BHYF2 FUND 2 100.00% PONDEROSA 5,400 47,500 1981 $790,000 $100,494 12.72% 12.50% 11.50% $790,000
- - ------------------------------------------------------------------------------------------------------------------------------------
1057 BHYF2 FUND 2 99.00% PONDEROSA 6,770 63,525 1981 $930,000 $115,412 12.41% 12.50% 11.50% $920,700
- - ------------------------------------------------------------------------------------------------------------------------------------
1060 BHYF2 FUND 2 99.00% PONDEROSA 5,777 50,010 1985 $970,000 $132,312 13.64% 12.50% 11.50% $960,300
- - ------------------------------------------------------------------------------------------------------------------------------------
1071 BHYF2 FUND 2 100.00% PONDEROSA 4,550 69,242 1987 $770,000 $97,926 12.72% 12.50% 11.50% $770,000
- - ------------------------------------------------------------------------------------------------------------------------------------
1848 BHYF2 FUND 2 100.00% TACO BELL 1,596 21,186 1979 $550,000 $64,013 11.64% 12.50% 11.50% $550,000
====================================================================================================================================
$30,183,300
====================================================================================================================================
</TABLE>
<PAGE>
Annex II
Preliminary Form and Consent of
Cushman & Wakefield Fairness Opinion
------------------------------------
Cushman & Wakefield has advised the Partnership through its Corporate
General Partner that in its opinion, the price per Unit reflected in the
proposed Transaction is fair, from a financial point of view, to the Unit
holders. The determination that a price is "fair" does not mean that the price
is the highest price which might be obtained in the marketplace, but rather that
based upon the sum of the appraised values of the Assets, the price reflected in
the proposed Transaction is within a range that Cushman & Wakefield believes is
reasonable. Although there is no active market in trading the Units, for those
Units that have traded the price per Unit was at or below the price per Unit in
the proposed Transaction. Cushman & Wakefield relied on its appraisal work as a
basis for establishing the fairness of the proposed Transaction. Other methods
could have been employed to test the fairness of the proposed Transaction and
yielded different results. In rendering this opinion, Cushman & Wakefield has
not considered, and has not addressed, market conditions and other factors
(e.g., whether the sale of the Assets as a portfolio rather than a series of
sales of individual assets, would produce a premium or a discounted selling
price) that, in an open-market transaction, could influence the selling price of
the Assets and result in proceeds to Unit holders greater or less than the
proposed price per Unit. Cushman & Wakefield also has not considered the price
and trading history of other publicly traded securities that might be deemed
relevant due to the relative small size of the proposed Transaction and the fact
that the Units are not publicly traded. Furthermore, Cushman & Wakefield has not
compared the financial terms of the proposed Transaction to the financial terms
of other transactions that might be deemed relevant, given that the proposed
Transaction involves all cash to the Unit holders.
<PAGE>
BRAUVIN HIGH YIELD FUND L.P. II
150 South Wacker Drive, Suite 3200, Chicago, Illinois 60606
This Proxy is Solicited on Behalf of Brauvin High Yield Fund L.P. II
The undersigned hereby appoints Jerome J. Brault, with full power of
substitution, the attorney and the proxy of the undersigned, to represent and to
vote, as designated below, all units of limited partnership interest ("Units")
of Brauvin High Yield Fund L.P. II, a Delaware limited partnership (the
"Partnership") that the undersigned is entitled to vote if personally present at
the Special Meeting of Limited Partners of the Partnership to be held on August
__, 1996, at __:00 a.m. (Chicago time), at the offices of the Partnership, 150
South Wacker Drive, Suite 3200, Chicago, Illinois 60606 and at any
adjournment(s) or postponement(s) thereof. This proxy revokes all prior proxies
given by the undersigned.
(Please mark each proposal with an "X" in the appropriate box)
1. APPROVAL OF THE MERGER OF THE PARTNERSHIP WITH AND INTO BRAUVIN REAL
ESTATE FUNDS L.L.C., A DELAWARE LIMITED LIABILITY COMPANY, WHICH APPROVAL WILL
AUTOMATICALLY RESULT IN THE ADOPTION OF AN AMENDMENT TO THE PARTNERSHIP'S
RESTATED LIMITED PARTNERSHIP AGREEMENT, AS AMENDED, TO ALLOW THE PARTNERSHIP TO
SELL OR LEASE PROPERTY TO AFFILIATES.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
2. ADOPTION OF THE AMENDMENT OF THE PARTNERSHIP'S RESTATED LIMITED
PARTNERSHIP AGREEMENT, AS AMENDED, TO ALLOW THE MAJORITY VOTE OF THE INTEREST
HOLDERS TO DETERMINE THE OUTCOME OF THE TRANSACTION WITHOUT THE VOTE OF THE
GENERAL PARTNERS OF THE PARTNERSHIP.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. IN HIS DISCRETION, THE PROXY IS AUTHORIZED TO VOTE UPON SUCH OTHER
BUSINESS AS MAY PROPERLY COME BEFORE THE SPECIAL MEETING OR ANY ADJOURNMENT
THEREOF.
PLEASE SIGN, MARK, DATE AND RETURN YOUR PROXY CARD TODAY IN THE ENCLOSED
ENVELOPE.
SEE REVERSE SIDE
----------------
<PAGE>
This Proxy, when properly executed, will be voted in the manner directed
herein. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED "FOR" PROPOSALS 1
---
and 2.
Please date and sign this proxy exactly
as your name appears hereon and return
this proxy in the enclosed postage
prepaid envelope.
_________________________________________
(Signature)
_________________________________________
(Signature, if held jointly)
_________________________________________
(Title)
Dated:___________________________________
When Units are held by joint tenants,
both should sign. When signing as
attorney in fact, executor,
administrator, trustee, guardian,
corporate officer or partner, please give
full title as such. If a corporation,
please sign in corporate name by
President or other authorized officer. If
a partnership, please sign in partnership
name by authorized person.
