SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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SCHEDULE 14D-9
Solicitation/Recommendation Statement
Pursuant to Section 14(d)(4) of the
Securities Exchange Act of 1934
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LIBERTY TAX CREDIT PLUS III L.P.
(Name of Subject Company)
LIBERTY TAX CREDIT PLUS III L.P.
(Name of Person(s) Filing Statement)
BENEFICIAL ASSIGNMENT CERTIFICATES
(Title of Class of Securities)
531280 30 3
CUSIP Number of Class of Securities)
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J. Michael Fried Paul L. Abbott
Related Credit Properties III L.P. Liberty GP III Inc.
625 Madison Avenue 3 World Financial Center
New York, NY 10022 29th Floor
New York, NY 10285
(Name, Address and Telephone Number of
Persons Authorized to Receive Notices and Communications on
Behalf of the Person(s) Filing Statement)
Copies to:
Peter M. Fass, Esq. Patrick J. Foye, Esq.
Battle Fowler LLP Skadden, Arps, Slate, Meagher & Flom LLP
79 East 55th Street 919 Third Avenue
New York, NY 10022 New York, NY 10022
(212) 856-7000 (212) 735-2274
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Item 1. Security and Subject Company.
The name of the subject company is Liberty Tax Credit Plus III L.P., a
Delaware limited partnership (the "Partnership"), which has its principal
executive offices at 625 Madison Avenue, New York, New York 10022. The general
partners of the Partnership are Related Credit Properties III L.P. ("RCP"), a
Delaware corporation with principal executive offices at 625 Madison Avenue, New
York, New York 10022, and Liberty GP III Inc. ("Liberty GP III"), a Delaware
corporation with principal executive offices at 3 World Financial Center, 29th
Floor, New York, New York 10285. The title of the class of equity securities to
which this statement relates is the Partnership's Beneficial Assignment
Certificates ("BACs") representing assignments of limited partnership interests
in the Partnership.
Item 2. Tender Offer of the Bidder.
This Schedule 14D-9 relates to the offer by Lehigh Tax Credit Partners
L.L.C. ("the Purchaser"), a Delaware limited liability company and an affiliate
of RCP, disclosed in a Tender Offer Statement on Schedule 14D-1 dated April 10,
1997 and amended by Amendment No. 1 dated April 24, 1997 (as amended, the
"Schedule 14D-1"), to purchase up to 17,500 issued and outstanding BACs at a
purchase price of $590 per BAC, net to the seller in cash (the "Purchase
Price"), without interest thereon, upon the terms and subject to the conditions
set forth in the Offer to Purchase dated April 10, 1997, the related Letter of
Transmittal and the Supplement dated April 24, 1997, as each may be
supplemented, modified or amended from time to time (which collectively
constitute the "Lehigh Offer" and are contained within the Schedule 14D-1).
The address of the Purchaser's principal executive offices is 625 Madison
Avenue, New York, New York 10022.
Item 3. Identity and Background.
(a) The name and business address of the Partnership, which is the person
filing this statement, are set forth in Item 1 above.
(b) (1) The Partnership does not have any employees, directors or executive
officers. All decisions with respect to the management of the Partnership and
its affairs are made only with the consent of its general partners (the "General
Partners"), Liberty GP III and RCP. Except as described below, there are no
material contracts, agreements, arrangements or understandings or any actual or
potential conflicts of interest between the General Partners or their affiliates
and the Partnership and its affiliates.
The General Partners and their affiliates have received or will receive
certain types of compensation, fees or other distributions in connection with
the operations of the Partnership. The arrangements for payment of compensation
and fees, as set forth in the Partnership's Amended and Restated Agreement of
Limited Partnership, dated as of May 2, 1989 (the "Partnership Agreement"), the
Partnership's prospectus and other publicly filed documents, were not determined
in arm's-length negotiations with the Partnership.
Pursuant to the Partnership Agreement, the General Partners are entitled to
a fee (the "Partnership Management Fee") for their services in connection with
the administration of the affairs of the Partnership (including, without
limitation, coordination of communications between the Partnership and BACs
holders and with the partnerships (the "Local Partnerships") in which the
Partnership has acquired a partnership interest). The Partnership Management Fee
is payable annually and is determined by the General Partners based on their
review of the Partnership's investments, up to a maximum of 0.5% of the
Partnership's Invested Assets (as defined below); provided, however, the
Partnership Management Fee is a minimum of $2,500 per $1 million of Invested
Assets up to Invested Assets of $20 million and $5,000 per $1 million of
Invested Assets above $20 million to $100 million. "Invested Assets" means the
sum of (i) any capital contributions made by the Partnership to the Local
Partnerships, (ii) the amounts represented by promissory notes given by the
Partnership to the sellers of interests of Local Partnerships as part of the
Partnership's purchase price, and (iii) the amount of all liens and mortgages on
properties when the Partnership acquired interests in Local Partnerships. For
the nine months ended December 31, 1996, the General Partners earned aggregate
Partnership Management Fees of $562,500.
According to the Partnership Agreement, the General Partners are also
entitled to receive a disposition fee (the "Disposition Fee") for services
rendered in connection with the sale of a property or the sale of the
Partnership's interest in a Local Partnership. Payment of such fee is
subordinated to the return of Limited Partners and BACs holders of their capital
contribution and other items as set forth in the Partnership Agreement. Each
Disposition Fee is equal to the lesser of one-half the competitive real estate
commission or 3% of the sale price in respect of
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any such sale (including the principal amount of any mortgage loans and any
related seller financing with respect to a property to which such sale is
subject). In no event, however, shall the Disposition Fee and all other fees
payable to the General Partners and any of their affiliates and any unrelated
parties arising out of any given sale exceed in the aggregate the lesser of the
competitive rate or 6% of the gross proceeds from such sale. For the nine months
ended December 31, 1996, the General Partners did not earn any Disposition Fee.
The General Partners also serve as the co-general partners of Liberty
Associates IV L.P. ("Liberty Associates"). Liberty Associates is entitled to
receive up to $2,500 per year as an annual fee (the "Annual Local Administrative
Fee") from each Local Partnership of which it is a special limited partner,
provided, however, the sum of the aggregate Annual Local Administrative Fee and
the Partnership Management Fee for any year shall not exceed 0.5% of Invested
Assets. Liberty Associates, as special limited partner of the Local
Partnerships, earned an aggregate Annual Local Administrative Fee of $75,000
from the Local Partnerships for the nine months ended December 31, 1996. Also,
Liberty Associates received aggregate cash distributions from the Local
Partnerships of $863 during the fiscal year ended March 31 1996.
Affiliates of the Local Partnerships' general partners earned property
management fees for the nine months ended December 31, 1996, of which $19,440
was earned by an affiliate of RCP.
RCP and Liberty GP III, as General Partners, and their respective officers
and directors, are each entitled to indemnification under certain circumstances
from the Partnership pursuant to provisions of the Partnership Agreement.
Generally, the General Partners are also entitled to reimbursement of
expenditures made on behalf of the Partnership. Another affiliate of RCP
performs asset monitoring services for the Partnership. These services include
site visits and evaluations of the Local Partnerships' performance. For the nine
months ended December 31, 1996, the Partnership incurred liabilities of
$141,192, in the aggregate, to the General Partners and their affiliates as
reimbursement of expenditures and asset monitoring performed by RCP's affiliate
on behalf of the Partnership.
In addition, under the terms of the Partnership Agreement, upon the removal
of the General Partners by the limited partners of the Partnership (the "Limited
Partners") or upon the occurrence of a "Removal Event", as defined below, the
General Partners may be entitled to receive compensating payments, which will be
payable with interest for a term not less than five years. The amount of such
payments shall be the fair market value of the removed General Partner's
interest as determined by two independent appraisers, which amount could be
substantial. The Partnership Agreement deems a "Removal Event" to have occurred
if the business of the Partnership is continued after the bankruptcy, death,
adjudication of incompetence or removal of a General Partner (subject to certain
exceptions pursuant to the Partnership Agreement). A majority in interest of the
Limited Partners may approve the removal of any General Partner without the
concurrence of any General Partner at a meeting of the Partnership.
(2) Except as described below, there are no material contracts, agreements,
arrangements or understandings or any actual or potential conflicts of interest
between the General Partners or their affiliates and the Purchaser, its
executive officers, directors or affiliates. The Purchaser is an affiliate of
RCP, one of the two General Partners of the Partnership. The executive officers
and directors of the Purchaser also serve as executive officers and directors of
RCP. Therefore, the Purchaser and RCP, subject to its fiduciary duties, may have
a conflict of interest with respect to certain matters involving the
Partnership, its partners and its investors.
The Partnership, the Purchaser and RCP entered into a letter agreement,
dated April 4, 1997 (the "Standstill Agreement") (a copy of which has been filed
as Exhibit (c)(1) hereto), pursuant to which the Purchaser agreed that, prior to
April 4, 2007 (the "Standstill Expiration Date"), it will not and it will cause
certain affiliates not to (i) acquire, attempt to acquire or make a proposal to
acquire, directly or indirectly, more than 45% of the outstanding BACs
(including BACs acquired through all other means), (ii) seek to propose to enter
into, directly or indirectly, any merger, consolidation, business combination,
sale or acquisition of assets, liquidation, dissolution or other similar
transaction involving the Partnership, (iii) make, or in any way participate,
directly or indirectly, in any "solicitation" of "proxies" or "consents" (as
such terms are used in the proxy rules of the Securities and Exchange
Commission) to vote any voting securities of the Partnership, (iv) form, join or
otherwise participate in a "group" (within the meaning of Section 13(d)(3) of
the Securities Exchange Act of 1934, as amended) with respect to any voting
securities of the Partnership, except that those affiliates bound by the
Standstill Agreement will not be deemed to have violated it and formed a "group"
solely by acting in accordance with the Standstill Agreement, (v) disclose in
writing to any third party any intention, plan or arrangement inconsistent with
the terms of the Standstill Agreement, or (vi) loan money to, advise, assist or
encourage any person in connection with any action inconsistent with the terms
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of the Standstill Agreement. In addition, the Purchaser agreed that until the
Standstill Expiration Date it will not sell any BACs acquired by it unless the
buyer of such BACs agrees to be bound by the Standstill Agreement; provided,
however, the Purchaser may make transfers in the secondary market to any
purchaser which represents that following such sale it will not own three (3%)
percent or more of the BACs outstanding. By the terms of the Standstill
Agreement, the Purchaser has also agreed to vote its BACs in the same manner as
a majority of all voting BACs holders; provided, however, the Purchaser is
entitled to vote its BACs as it determines with regard to any proposal (i) to
remove RCP as a general partner of the Partnership or (ii) concerning the
reduction of any fees, profits, distributions or allocations for the benefit of
RCP or its affiliates. The Purchaser, RCP and Related Capital Company also
agreed to indemnify and hold harmless the Partnership, Liberty GP III, Liberty
Associates and certain associated parties from any claims or damages arising
from a breach of the Standstill Agreement or from a tender offer or acquisition
of BACs by the Purchaser or its affiliates. The foregoing discussion of the
Standstill Agreement is subject to and qualified in its entirety by reference to
such agreement, which is incorporated herein by reference.
The Partnership has been informed that the Purchaser expects to borrow all
of the funds to purchase BACs pursuant to the Lehigh Offer from one of its
members, on substantially the same economic terms and conditions that such
member obtains those funds from an existing credit facility that such member has
available to it with The First National Bank of Boston and Wells Fargo Bank (the
"Lenders"). The existing credit agreement is among the Lenders and RCC Credit
Facility, L.L.C., Related Capital Company and The Related Companies, L.P. All of
the BACs tendered pursuant to the Lehigh Offer (other than BACs purchased by
Everest Properties, Inc. or its affiliates ("Everest") pursuant to the Everest
Option (as defined in Item 8 below)) and all of the membership interests in the
Purchaser will be pledged to the Lenders to collateralize the loan.
Additionally, Related Capital Company will guarantee all amounts borrowed by the
Purchaser under the credit facility.
Item 4. The Solicitation or Recommendation.
(a) Following receipt of the terms of the amended Lehigh Offer, the General
Partners reviewed and considered the Lehigh Offer. The General Partners are
expressing no opinion and are remaining neutral with respect to the amended
Lehigh Offer.
(b) Although the General Partners are not making a recommendation with
respect to the Lehigh Offer, the General Partners believe that BACs holders
should carefully consider the following factors in making their own decisions of
whether to accept or reject the Lehigh Offer:
o An independent third party has estimated that the Fair Value (as defined
below) of the BACs as of March 31, 1997 is between $519.56 and $563.42
per BAC, which range is below the tender offer price of $590. "Fair
Value" is defined as "the amount for which a BAC would change hands
between a willing buyer and a willing seller neither under compulsion to
act, with equity to both, each having reasonable knowledge of all
relevant facts, and within a commercially reasonable period of time."
o The Lehigh Offer will provide BACs holders with an immediate opportunity
to liquidate their investment in the Partnership. BACs holders who have
a present or future need for the tax credits and/or tax losses from the
BACs may, however, prefer to retain their BACs and not tender them
pursuant to the Lehigh Offer.
o As stated by the Purchaser in the Lehigh Offer, there may be a conflict
of interest between the Purchaser's desire to purchase the BACs at a low
price and a BACs holder's desire to sell its BACs at a high price.
Therefore, BACs holders might receive greater value if they hold their
BACs, rather than tender. Furthermore, BACs holders should be aware that
a secondary market exists for the BACs.
o BACs HOLDERS WILL NO LONGER RECEIVE THE TAX CREDITS AND/OR TAX LOSSES
FROM THE BACs SHOULD THEY TENDER PURSUANT TO THE LEHIGH OFFER.
o BACs holders who tender their BACs will lose the right to receive any
future distributions from the Partnership, including distributions from
any refinancing or sale. The Partnership has made no distributions to
BACs holders in the past, and there can be no assurance as to the
timing, amount or occurrence of any future distributions.
o The Purchaser increased the tender offer price to $590 per BAC, an
increase of $1.80 per BAC over the original purchase price, following a
request by the Partnership.
o BACs holders should consult with their respective advisors about the
financial, tax, legal and other consequences of the Lehigh Offer.
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Item 5. Persons Retained, Employed or to Be Compensated.
Neither the Partnership nor any person acting on its behalf has employed,
retained or compensated, or intends to employ, retain or compensate, any person
to make solicitations or recommendations to BACs holders on its behalf
concerning the Lehigh Offer.
Item 6. Recent Transactions and Intent With Respect to Securities.
(a) Neither the Partnership nor the General Partners have effected any
transactions in the BACs during the past 60 days. Except as described below, the
General Partners are not aware of any transactions in the BACs during the past
60 days by any of its executive officers, directors, affiliates or subsidiaries.
The following table sets forth purchases of 95 BACs made by the Purchaser, an
affiliate of RCP (a General Partner), in the past 60 days:
Number of
Date of Purchase BACs Purchased Purchase Price per BAC
- -------------------------- ----------------- ------------------------
February 16, 1997 ...... 10 $588.20
March 1, 1997 ......... 80 $546.25
March 1, 1997 ......... 5 $588.20
(b) Neither the General Partners nor, to the knowledge of the General
Partners, any of their executive officers, directors, affiliates or subsidiaries
intend to tender BACs owned by them to the Purchaser pursuant to the Lehigh
Offer.
Item 7. Certain Negotiations and Transactions by the Subject Company.
(a) No negotiation is being undertaken or is underway by the Partnership in
response to the Lehigh Offer which relates to or would result in: (1) an
extraordinary transaction such as a merger or reorganization, involving the
Partnership or any subsidiary of the Partnership; (2) a purchase, sale or
transfer of a material amount of assets by the Partnership or any subsidiary;
(3) except as set forth in Item 8 below, tender offer for or other acquisition
of securities by or of the Partnership; or (4) any material change in the
present capitalization or dividend policy of the Partnership.
(b) Except as described above or in Item 3(b), there are no transactions,
board resolutions, agreements in principle or signed contracts in response to
the Lehigh Offer which relate to or would result in one or more of the matters
referred to in Item 7(a).
Item 8. Additional Information to Be Furnished.
In March 1997, at the request of the General Partners, the Purchaser
retained Valuation Research Corporation to independently determine the value of
the BACs for the Partnership. On April 8, 1997, Valuation Research Corporation
delivered its valuation opinion (a copy of which has been filed as Exhibit
(c)(2) hereto). Subject to the terms and conditions set forth therein, and based
upon various valuation methods, Valuation Research Corporation concluded that
the estimated Fair Value of the BACs, effective as of March 31, 1997, is between
$519.56 and $563.42 per BAC. For purposes of the valuation opinion, "Fair Value"
is defined as "the amount for which a BAC would change hands between a willing
buyer and a willing seller neither under compulsion to act, with equity to both,
each having reasonable knowledge of all relevant facts, and within a
commercially reasonable period of time."
The General Partners have in the past received from third parties requests
that such parties be provided with a list of the Partnership's BACs holders (the
"List"). Such a List would only be provided by the General Partners to parties
in cases where the General Partners have been satisfied that such List has been
properly requested by a person entitled by the Partnership Agreement to receive
such a List, the party requesting the List has demonstrated that such party has
a proper partnership business purpose in connection with such request and the
General Partners have been satisfied that the Partnership and the BACs holders
have obtained appropriate protections from such party with respect to the use of
such List. The General Partners have sought such protections to ensure, among
other things, compliance with federal securities tender offer rules (i.e., full
and adequate disclosure, withdrawal rights and rights to proration) if the List
will be used to conduct a tender offer and compliance with certain tax
provisions to protect against possible adverse tax consequences to the
Partnership.
On or about January 31, 1997, a representative of Everest requested a list
of BACs holders from the Partnership. RCP, on behalf of the Partnership,
expressed its willingness to make the List available on certain terms and
conditions intended to protect the Partnership, its partners and its investors
and to ensure that Everest's purpose for its request and actual use of the List
would not be improper. Everest refused to agree to the proposed terms and
conditions and could
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not demonstrate that it had a proper purpose for its request. In particular,
after discussions with Everest, RCP, on behalf of the Partnership, was concerned
that the List would be used to commence a tender offer that might not be in the
best interests of the Partnership and BACs holders. During the week of February
3, 1997, representatives of Everest and the Partnership discussed an agreement
upon which the Partnership would agree to release the list of BACs holders. In a
letter dated February 7, 1997, counsel for the Partnership outlined the
Partnership's concerns, the competing interests of all parties involved and
proposed a settlement which it believed to be fair. Everest subsequently
rejected the Partnership's proposal and commenced a lawsuit in the Chancery
Court of Delaware against the Partnership to obtain the list (the "List
Litigation"). On February 19, 1997, a trial date of May 28, 1997 was set by the
court and the parties were authorized to commence discovery. By letter dated
April 15, 1997, counsel for Everest contacted counsel for the Partnership and
disclosed Everest's intention to commence an offer to purchase BACs at a price
higher than Lehigh's Purchase Price. Additionally, on April 15, 1997, Everest
commenced an action seeking a temporary restraining order (the "TRO Action")
enjoining the Lehigh Offer until the earlier of (i) Everest obtaining the List
in order to commence its competing offer and (ii) completion of the List
Litigation. On April 16, 1997, counsel for the Partnership wrote to counsel for
Everest and reiterated the Partnership's willingness to make the List available
to Everest provided that Everest complied with the same terms and conditions as
agreed to by the Purchaser and previously requested of Everest by the
Partnership. On or about such date, the Purchaser and Everest commenced
negotiations to settle the List Litigation and the TRO Action. On April 18,
1997, Everest's motion in the TRO Action for a temporary restraining order
enjoining the Purchaser's tender offer was denied by the Delaware court and the
court scheduled a hearing on a preliminary injunction for May 8, 1997. Prior to
the Purchaser amending the Lehigh Offer, Everest and the Purchaser entered into
a settlement agreement pursuant to which, among other things, Everest was
granted an option to purchase up to 25% of the BACs tendered in the Lehigh Offer
on the same terms and conditions as the Purchaser's purchase of BACs (the
"Everest Option") and Everest dismissed the List Litigation and the TRO Action,
without prejudice, and released the defendants in such actions (including the
Partnership), subject to compliance by such defendants with the terms of such
settlement agreement. Among the claims made by Everest in connection with the
TRO Action was that Everest intended to commence an offer for BACs at a purchase
price greater than the Purchase Price offered by the Purchaser. On April 23,
1997, the Partnership received correspondence from Everest stating that it had
not contemplated or planned to make a tender offer for BACs for a price in
excess of $590 per BAC. There can be no assurance, however, that Everest would
have commenced an offer for BACs, that the purchase price in any such offer
would have been higher than the Lehigh Offer or that the terms of any such offer
would be more or less favorable to BACs holders than the Lehigh Offer. On April
24, 1997, the Purchaser amended the Lehigh Offer to (a) disclose the settlement
with Everest, (b) describe the Everest Option and (c) increase the Purchase
Price to $590.
On March 6, 1997, a representative of Credit d'Impots ("Credit") requested
a copy of the List, but stated no purpose for its request. On March 14, 1997,
the Partnership's counsel wrote to Credit and inquired about the purpose or
purposes for which Credit sought the List. On March 19, 1997, Credit responded
that it wished to send a post card to investors advertising Credit's interests
in purchasing BACs. Counsel for the Partnership and a representative of Credit
have had further communications by telephone with respect to Credit's interests
in obtaining access to the List and the Partnership's concerns about the risk of
misuse or misappropriation of the List and adverse consequences resulting from
any such misuse or misappropriation. In a letter dated April 9, 1997 (the "April
9th Letter"), counsel for the Partnership outlined the Partnership's concerns,
the competing interests of all parties involved and proposed making the List
available to Credit on certain terms and conditions intended to protect the
Partnership, its partners and its investors. On April 22, 1997, a representative
of Credit telephoned the Partnership's counsel, requested additional information
regarding the proposal outlined in the April 9th Letter and indicated that
Credit might be willing to commence a tender offer for BACs in accordance with
the terms and conditions outlined in the April 9th Letter. The Partnership is in
the process of responding to the additional information requested by Credit.
There can be no assurance, however, that Credit will commence any offer for BACs
or the terms thereof. If Credit commences an offer, the Partnership will duly
consider it and respond in accordance with applicable securities laws and its
fiduciary duties.
Item 9. Material to be Filed as Exhibits.
(a)(1) Letter from Liberty Tax Credit III L.P. to BACs holders, dated
April 24, 1997.
(c)(1) Letter Agreement, dated April 4, 1997, by and among Liberty Tax
Credit III L.P., Lehigh Tax Credit Partners L.L.C. and Related
Credit Properties III L.P.
(c)(2) Valuation opinion dated April 8, 1997 delivered to Liberty Tax
Credit III L.P. by Valuation Research Corporation.
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SIGNATURES
After due inquiry and to the best of my knowledge and belief, I certify
that the information set forth in this statement is true, complete and correct.
Dated: April 24, 1997
LIBERTY TAX CREDIT PLUS III L.P.
By: LIBERTY GP III INC.
By: /s/ Paul L. Abbott
-------------------------------------
Name: Paul L. Abbott
Title: President
By: RELATED CREDIT PROPERTIES III L.P.
By: Related Credit Properties III Inc.,
its general partner
By: /s/ Alan P. Hirmes
-------------------------------------
Name: Alan P. Hirmes
Title: Vice President
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EXHIBIT INDEX
EXHIBIT
NO. TITLE
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(a)(1) Letter from Liberty Tax Credit III L.P. to BACs holders, dated April
24, 1997.
(c)(1) Letter Agreement, dated April 4, 1997, by and among Liberty Tax Credit
III L.P., Lehigh Tax Credit Partners L.L.C. and Related Credit
Properties III L.P.
(c)(2) Valuation opinion dated April 8, 1997 delivered to Liberty Tax Credit
III L.P. by Valuation Research Corporation.
LIBERTY TAX CREDIT PLUS III L.P.
625 Madison Avenue
New York, New York 10022
April 24, 1997
Dear BACs holder:
As you are by now aware, Lehigh Tax Credit Partners L.L.C., a Delaware
limited liability company (the "Purchaser"), has made an offer (the "Lehigh
Offer"), as amended, to purchase Beneficial Assignment Certificates representing
assignments of limited partnership interests ("BACs") of Liberty Tax Credit Plus
III L.P. (the "Partnership") for a cash purchase price of $590 per BAC. The
Purchaser is an affiliate of Related Credit Properties III L.P., a general
partner of the Partnership (a "General Partner" and, together with Liberty GP
III Inc., the "General Partners").
The General Partners are expressing no opinion and are remaining neutral
with respect to the Lehigh Offer. Although the General Partners are not making a
recommendation with respect to the Lehigh Offer, the General Partners believe
that BACs holders should carefully consider the following factors in making
their own decision of whether to accept or reject the Lehigh Offer:
o An independent third party has estimated that the Fair Value of the BACs
as of March 31, 1997 is between $519.56 and $563.42 per BAC, which range
is below the tender offer price of $590.
o The Lehigh Offer will provide BACs holders with an immediate opportunity
to liquidate their investment in the Partnership. BACs holders who have
a present or future need for the tax credits and/or tax losses from the
BACs may, however, prefer to retain their BACs and not tender them
pursuant to the Lehigh Offer.
o As stated by the Purchaser in the Lehigh Offer, there may be a conflict
of interest between the Purchaser's desire to purchase the BACs at a low
price and a BACs holder's desire to sell its BACs at a high price.
Therefore, BACs holders might receive greater value if they hold their
BACs, rather than tender. Furthermore, BACs holders should be aware that
a secondary market exists for the BACs.
o BACs HOLDERS WILL NO LONGER RECEIVE THE TAX CREDITS AND/OR TAX LOSSES
FROM THE BACs SHOULD THEY TENDER PURSUANT TO THE LEHIGH OFFER.
o BACs holders who tender their BACs will lose the right to receive any
future distributions from the Partnership, including distributions from
any refinancing or sale. The Partnership has made no distributions to
BACs holders in the past, and there can be no assurance as to the
timing, amount or occurrence of any future distributions.
o The Purchaser increased the tender offer price to $590 per BAC, an
increase of $1.80 per BAC over the original purchase price, following a
request by the Partnership.
o BACs holders should consult with their respective advisors about the
financial, tax, legal and other consequences of the Lehigh Offer.
Enclosed is a copy of the Partnership's Statement on Schedule 14D-9 which
has been filed with the Securities and Exchange Commission and sets forth the
Partnership's response to the Offer. BACs holders are advised to carefully read
the Schedule 14D-9.
Please do not hesitate to call Brenda Abuaf, c/o Related Capital Company,
at (800) 600-6422 (ext. 2090) for assistance in any Partnership matter.
LIBERTY TAX CREDIT PLUS III L.P.
LIBERTY TAX CREDIT PLUS III L.P.
625 Madison Avenue
New York, NY 10022
April 4, 1997
Personal and Confidential
- -------------------------
Related Credit Properties III L.P.
Lehigh Tax Credit Partners L.L.C.
625 Madison Avenue
New York, NY 10022
Gentlemen:
As you requested, the purpose of this letter is to set forth our
understanding with regard to any proposed acquisition of beneficial assignment
certificates ("BACs") of Liberty Tax Credit Plus III L.P., a Delaware limited
partnership (the "Partnership"), from holders of BACs (each a "BACs holder" and
collectively, "BACs holders") by Related Credit Properties III L.P. ("RCP"),
Lehigh Tax Credit Partners L.L.C. ("Lehigh") or any person who is their
Affiliate (as defined below) (collectively, "you").
In response to your proposal to commence a tender offer for BACs and in
consideration of the agreements set forth in this letter agreement, the
Partnership agrees to mail your tender offer materials, at your expense, subject
to the terms set forth below and whether or not such tender offer is subject to
the provisions of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"). Nothing in this letter agreement shall be construed as requiring the
Partnership to provide you with a current list of the names and addresses of the
BACs holders. The Partnership will not be obligated to mail your tender offer
materials until it has received from you an amount of cash equal to $15,000,
representing the estimated cost of such mailing together with the Partnership's
other expenses, including, without limitation, reasonable attorney fees. You
agree that you may only acquire up to 45% (including BACs acquired through all
other means) of the Partnership's outstanding BACs.
You represent and warrant that on the date hereof you beneficially own
not more than ninety-five (95) BACs. You also agree that prior to the tenth
anniversary of the date of this letter agreement, neither you nor any person who
is your Affiliate (as defined under Rule 405 of the Securities Act of 1933, as
amended) will, without the prior written consent of the Partnership, which may
be withheld for any reason, directly or indirectly, (i) in any manner including,
without limitation, by tender offer (whether or not pursuant to a filing made
with the Securities and Exchange Commission), acquire, attempt to acquire or
make a proposal to acquire, directly or indirectly, more than 45% (including
BACs acquired through all other means) of the outstanding BACs of the
Partnership from any BACs holder, BACs holders or otherwise, (ii) seek or
propose to enter into, directly or indirectly, any merger, consolidation,
business combination, sale or acquisition of assets, liquidation, dissolution or
other similar transaction involving the Partnership, (iii) make, or in any way
participate, directly or indirectly, in any "solicitation" of "proxies" or
"consents" (as such terms are used in the proxy rules of the Securities and
Exchange Commission) to vote any voting securities of the Partnership, (iv)
form, join or otherwise participate in a "group" (within the meaning of Section
13(d)(3) of the Exchange Act) with respect to any voting securities of the
Partnership, except that those
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Affiliates bound by this letter agreement will not be deemed to have violated
this letter agreement and formed a "group" solely by acting in accordance with
this letter agreement, (v) disclose in writing to any third party any intention,
plan or arrangement inconsistent with the terms of this letter agreement or (vi)
loan money to, advise, assist or encourage any person in connection with any
action inconsistent with the terms of this letter agreement. Notwithstanding the
foregoing restrictions, nothing in this letter agreement shall apply to, govern,
restrict or limit any sales, purchases, transfers or assignments of interests in
Lehigh.
You agree that any tender offer commenced by you will be at a price per
BAC not less than the value per BAC determined by an independent third party,
approved by the Partnership, in a report delivered to and approved by the
Partnership, completed or updated not more than three months prior to the
commencement of your tender offer. We hereby agree that the report by Valuation
Research Corporation, dated March 31, 1997, satisfies this requirement and is
approved by the Partnership. Notwithstanding any other provision of this letter
agreement, you agree that you shall not commence any tender offer for BACs of
the Partnership unless, prior to the commencement of such tender offer, the
Partnership's general partners agree to the response to be made by the
Partnership in connection with such tender offer.
You also agree during such ten year period, any proposal or request,
directly or indirectly, to amend, waive or terminate any provision of this
letter agreement shall be granted only upon the unanimous consent of the
Partnership's general partners. In addition, you (excluding your affiliate which
serves as a general partner of the Partnership while acting in its capacity as
general partner) agree that you will notify the Partnership in writing at least
five days (one day if such communication is a press release or is sent in
response to a prior communication made to BACs holders by the Partnership or its
general partners which is not seeking to advise or influence any person with
respect to the voting of any voting securities of the Partnership) before
mailing or disseminating any communication with BACs holders and provide us a
copy of such communication (if written) with such notice.
You have advised us that, if requested by us, you (excluding your
affiliate which serves as a general partner of the Partnership while acting in
its capacity as general partner) will incorporate in any communication with BACs
holders a statement as to the valuation per BAC as determined by an independent
third party appraisal. In addition, if you commence a tender offer for less than
5% of the outstanding BACs, you will include verbatim the following language in
any such communication:
"TENDER OFFERS OF THIS NATURE ARE NOT REQUIRED TO COMPLY WITH CERTAIN
RULES AND REGULATIONS OF THE SECURITIES AND EXCHANGE COMMISSION.
Accordingly, this tender offer does not need to comply with certain
disclosure requirements and rules governing tender offers set forth in
the Securities Exchange Act of 1934."
In addition, you hereby represent, warrant and covenant to the
Partnership that any tender offer to purchase BACs commenced by you will be
conducted in compliance with Section 14(e) (misleading statements), Rule 14d-7
(additional withdrawal rights), Rule 14d-8 (pro rata requirements), Rule 14e-1
3
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(unlawful tender offer practices) and Rule 14e-3 (non-public information) of the
Exchange Act, notwithstanding that such tender offer may be for less than 5.0%
of the outstanding BACs.
You understand that the general partners of the Partnership may
consider from time to time selling all or substantially all of the assets of the
Partnership or entering into any other transaction determined by the general
partners to be in the best interests of the BACs holders and the Partnership.
The result of any such transaction, if approved by a majority vote of the BACs
holders, might be the dissolution and liquidation of the Partnership in
accordance with the partnership agreement. Accordingly, in order to avoid
disrupting any possible sale of all or substantially all of the Partnership's
assets or any other transaction determined by the general partners to be in the
best interests of the BACs holders and the Partnership and any required vote of
BACs holders, you agree that, prior to the ten-year anniversary of the date of
this letter agreement, all BACs obtained by you pursuant to any means will be
voted by you on all issues in the same manner as by the majority of all other
BACs holders who vote on such proposal. Notwithstanding the foregoing, you may
vote all BACs in the manner you determine, in your sole and absolute discretion,
on proposals (i) concerning the removal of RCP as general partner of the
Partnership or (ii) seeking to reduce any fees, profits, distributions or
allocations attributable to RCP or its Affiliates.
If at any time during such ten year period you (excluding your
affiliate which serves as a general partner of the Partnership while acting in
its capacity as general partner) are contacted in writing by, or have meaningful
negotiations with, any third party concerning participation in any transaction
involving the assets, businesses or securities of the Partnership or involving
any action inconsistent with the terms of this letter agreement, you will
promptly inform the Partnership of the nature of any such meaningful
negotiations and the parties thereto or forward a copy of such writing, as the
case may be, and you may inform such third party that this letter agreement
requires you to so notify the Partnership, provided however, this paragraph
shall not apply to any transaction or proposed transaction involving all or
substantially all of the assets, businesses or securities of Related Capital
Company and/or its Affiliates (other than the Partnership and RCP).
You will not sell any BACs owned by you prior to the tenth anniversary
of the date of this letter agreement, unless each buyer or transferee agrees in
writing with the Partnership to be bound by the terms and conditions of this
letter agreement until such tenth anniversary, provided however, that this
paragraph shall not apply to transfers made in the secondary market to any
purchaser which represents that following such sale, it shall not own 3% or more
of the BACs outstanding; provided further, however, that nothing in this letter
agreement shall apply to, govern, restrict or limit any sales, purchases,
transfers or assignments of interests in Lehigh. Notwithstanding the immediately
preceding sentence, Lehigh shall remain bound by this letter agreement
notwithstanding that any interests in Lehigh have been sold, purchased,
transferred or assigned.
Lehigh, RCP and Related Capital Company agree to indemnify and hold
harmless, to the fullest extent permitted by law, the Partnership, Liberty
Associates IV, L.P., Liberty GP III, Inc., and each of their partners,
directors, officers, employees, representatives and agents (the "Indemnified
Parties") against any losses, claims, damages, liabilities, costs, expenses
(including reasonable attorney's fees and expenses in advance of the final
disposition of any claim, suit, proceeding or investigation to each
4
<PAGE>
Indemnified Party to the fullest extent permitted by law), judgments, fines and
amounts (collectively, "Damages") paid in connection with any threatened or
actual claim, action, suit, proceeding or investigation which arises out of or
is the result of a breach of this letter agreement, any tender offer commenced
by you (regardless of whether such tender offer is subject to the provisions of
the Exchange Act) or the actual or proposed acquisition of BACs by you by any
other means; provided however, that if such claim, action, suit, proceeding or
investigation is threatened but not actual, your obligation to indemnify the
Indemnified Parties shall apply only if such threat is in writing and only with
respect to any legal fees incurred in connection with such threat. If such
threat becomes an actual claim, action, suit, proceeding or investigation, you
shall then be responsible for the full indemnification provided for in this
paragraph. If an Indemnified Party intends to seek indemnification pursuant to
this paragraph, it shall promptly notify you of such claim, in writing,
describing such claim in reasonable detail; provided, that the failure to
provide such notice shall not affect your obligations herein unless you are
materially prejudiced by the failure to provide such notice. Counsel for the
Indemnified Party shall be chosen at your discretion and shall be directed by
you. We both agree that you will be materially prejudiced if, due to the failure
of an Indemnified Party to provide the notice required above, you were not given
the opportunity to obtain the counsel of your choice or direct such counsel. You
may participate at your own expense in the defense of any such action; provided,
that counsel for the Indemnified Party shall not (except with the consent of the
Indemnified Party) also serve as your counsel. You shall not, without first
obtaining a general release from liability for the Indemnified Parties in a form
satisfactory to such Indemnified Parties, settle or compromise or consent to the
entry of any judgment with respect to any threatened or actual claim, action,
suit, proceeding or investigation involving an Indemnified Party which seeks
indemnity under this paragraph. If the indemnification provided in this
paragraph is for any reason unavailable to or insufficient to hold harmless an
Indemnified Party in respect of any Damages referred to above, then you and each
party seeking indemnification shall contribute to the aggregate amount of such
Damages incurred by such Indemnified Party in such proportion as is appropriate
to reflect the relative benefits received by each party from the act which gives
rise to the indemnification claim. You agree that the amount of such economic
benefit received by each Indemnified Party shall be $1 and the amount of such
economic benefit received by you shall be computed by multiplying your per BAC
offer price by the total number of BACs which were sought in your tender offer.
Both you and the Indemnified Parties each hereby agree to cooperate fully in all
aspects of any investigation, defense, pre-trial activities, trial, compromise,
settlement or discharge of any claim in respect of which indemnity is sought
pursuant to this paragraph, including, but not limited to, by providing the
other party reasonable access upon reasonable notice to employees and officers
and other information during reasonable business hours. Nothing in this
paragraph is intended to limit your ability to obtain indemnification from the
Partnership if such indemnification is available to you pursuant to the
Partnership's partnership agreement and applicable law, provided however, that
your obligations herein shall not be affected by your ability or inability to
obtain such indemnification. We each hereby agree that the provisions of this
paragraph shall have no effect on any other partnership which you or Liberty
III, Inc. or any of our respective Affiliates may be a partner.
We each hereby acknowledge that we are aware, and that we will advise
our respective Affiliates of our respective responsibilities under the
securities laws. We each agree that the other of us or our respective
Affiliates, as the case may be, shall be entitled to equitable relief, including
injunctive relief
5
<PAGE>
and specific performance, in the event of any breach of the provisions of this
letter agreement, in addition to all other remedies available at law or in
equity.
In case any provision in or obligation under this letter agreement
shall be invalid, illegal or unenforceable in any jurisdiction, the validity,
legality and enforceability of the remaining provisions or obligations, or of
such provision or obligation in any other jurisdiction, shall not in any way be
affected or impaired thereby.
This letter agreement shall be governed by the laws of the State of New
York without giving effect to principles of conflicts of law thereof. This
letter agreement may be executed in counterparts, each of which shall be deemed
an original, but all of which together constitute one and the same instrument.
6
<PAGE>
If you agree with the foregoing, please sign and return two copies of
this letter agreement, which will constitute our agreement with respect to the
subject matter of this letter agreement.
Very truly yours,
LIBERTY TAX CREDIT PLUS III, L.P.
By: Liberty GP III, Inc., its general partner
By: /s/ Paul L. Abbott
-----------------------
Name: Paul L. Abbott
Title: President
Confirmed and agreed to as of
the date first above written
LEHIGH TAX CREDIT PARTNERS L.L.C.
By: /s/ Alan P. Hirmes
----------------------
Name: Alan P. Hirmes
Title: Vice President
RELATED CREDIT PROPERTIES III L.P.
By: Related Credit Properties III, Inc., its general partner
By: /s/ Alan P. Hirmes
----------------------
Name: Alan P. Hirmes
Title: Vice President
7
April 8, 1997
Liberty Tax Credit Plus III L.P.
c/o Related Credit Properties III L.P.
625 Madison Avenue
New York, NY 10022
Ladies and Gentlemen:
Valuation Research Corporation ("VRC") has been retained by Liberty Tax Credit
Plus III L.P., a Delaware limited partnership (the "Partnership"), to express
our opinion as of March 31, 1997, as to the fair value of the issued and
outstanding Beneficial Assignment Certificates ("BACs") representing assignments
of Limited Partnership Interests ("Limited Partnership Interests") in the
Partnership in connection with a proposed tender offer (the "Offer to Purchase")
for BACs by Lehigh Tax Credit Partners L.L.C., a Delaware limited liability
company ("the Purchaser"). We understand that under the terms of the Offer to
Purchase, the Purchaser would purchase up to 42,500 BACs and thus, with the 10
BACs already owned by the Purchaser and its affiliates, control approximately
30.5% of the outstanding BACs of the Partnership.
Fair value is defined for purposes of this report as:
The amount for which a BAC would change hands between a willing buyer
and a willing seller neither under compulsion to act, with equity to
both, each having reasonable knowledge of all relevant facts, and
within a commercially reasonable period of time.
After employment of the valuation processes and methodology described in the
attached report and subject to the assumptions and factors discussed in the
attached report, we have estimated a Fair Value per BAC, effective as of March
31, 1997, of $519.56 to $563.42 per BAC.
The Partnership is a limited partnership formed in 1988, under the laws of the
State of Delaware. It was formed to invest, as a limited partner, in other
limited partnerships (referred to herein as "Local Partnerships" or "Subsidiary
Partnerships") each of which owns one or more leveraged low-income multifamily
residential complexes ("Apartment Complexes" or "Properties") that are eligible
for the low-income housing tax credit ("Housing Tax Credit") enacted in the Tax
Reform Act of 1986, some of which are eligible for the historic rehabilitation
tax credit ("Historic
8
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April 8, 1997
Page 9
Rehabilitation Tax Credit", "Rehabilitation Projects", and together with the
Apartment Complexes or "Properties"). Some of the Apartment Complexes benefit
from one or more other forms of federal or state housing assistance. The
Partnership's investment in each Local Partnership represents from 27% to 98% of
the partnership interests in the Local Partnership. According to the Form 10-Q,
as of December 31, 1996, all of the net proceeds from the original offering of
BACs was invested in 62 Local Partnerships.
During the course of our study, discussions were held with management and we
became familiar with the limited partnership agreement of Liberty Tax Credit
Plus III, L.P. In addition, VRC has examined extensive data provided by Related
Credit Properties III L.P. ("RCPLP III"), a General Partner of the Partnership
and the published market data pertaining to the Apartment Complexes which form
the underlying assets of the Partnership. This includes, but is not limited to,
the following:
o Selected financial data for the Partnership as reported in the Form 10-K and
Form 10-Q of the Securities and Exchange Commission.
o Unaudited financial statement and other internal financial analysis for the
62 Limited Partnerships that comprise the underlying assets of Liberty Tax
Credit Plus III L.P.
o Trading data pertaining to the current secondary trading market for BACs of
the Partnership.
o A draft of the Offer to Purchase
o The original Prospectus dated February 20, 1989.
o Projected tax credits and tax losses for each of the 62 Limited Partnerships
of the Partnership.
o Projected tax credits and tax losses for the Partnership.
o Federal U.S. Partnership Tax Returns.
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April 8, 1997
Page 10
o In addition, certain assumptions regarding the Partnership and the 62 Local
Partnerships are made. These include, but are not limited to, the following:
o Each of the Local Partnerships will continue to qualify for low-income
housing tax credits and that there will not be a forfeiture or recapture of
these credits.
o There will be no future change in the Internal Revenue Code that would change
the tax status of the Partnership or the Local Partnerships.
o All debt related to the Properties is for a term of 15 years and thus there
is no risk of refinancing within the projection period.
The basis of our opinion of the value per BAC is the annual tax losses and tax
credits that flow through to the BAC owner in addition to any cash distribution
or tax loss which would flow to the BAC holder upon a sale of the Properties
owned or invested in by the Local Partnerships, net of any debt or tax liability
associated with the Property, or sale of the Property.
To determine the value of the BACs, an income capitalization appraisal technique
known as a discounted cash flow analysis was used. The result of this technique
was then verified by using a second technique known as the market approach. The
basic premise of the income approach is that the earning power of an investment
is the critical element affecting its value, and value is often defined as the
present worth of anticipated future income. The basic premise of the market
approach is the comparing of recently sold investments and their sales price
with the subject investment.
INCOME ANALYSIS
The first step in the income approach is the determination of a proper revenue
stream that one would expect to be able to obtain from the subject investment
based on actual historical operations and future projections. A similar analysis
of typical operating expenses aids in constructing an operating statement that
results in a net operating income (loss), (NOI), for the first and subsequent
years. The estimated future net income or tax losses and tax credits can be
converted into an indicated value by discounting those individual annual amounts
to a present value.
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April 8, 1997
Page 11
The discount rates used to convert these tax losses and tax credits to a present
value are derived from market expectations of returns commensurate with the risk
of the subject investment.
Our analysis began with an estimate of each of the 62 Local Partnerships' income
or loss potential based on an analysis of current and historical operating
results. Using this information and incorporating current economic and market
forecasts for each of the 62 locations of the subject Local Partnerships'
Apartment Complexes, a potential gross income estimate was made. This estimated
potential gross income was then projected to grow over the course of the
projection period 11 years at 3 percent based on current and forecasted economic
conditions in each of the subject areas.
Secondly, a similar procedure was used to estimate and project the expenses
associated with the operation of the subject Properties.
The estimate of the operating expenses, including real estate taxes, was based
on a combination of historical expenses of the subject Properties and published
market surveys. These operating expenses were projected to grow at an estimated
2.5% inflation rate per year over the course of the 11-year projection period.
Finally, the mortgage payments and depreciation expense associated with each
Property was subtracted to arrive at the net pretax income (loss) which is
allocated to each of the BAC holders.
The second element addressed is the tax credits associated with each Property.
Each Property has been awarded tax credits under the Tax Credit for Low-Income
Rental Housing (LIHTC) Program, established under Section 42 of the Internal
Revenue Code of 1986. We have assumed that these credits are fixed and will
continue for the duration of the original 10-year compliance period.
The following table sets forth the estimated aggregate revenues, expenses,
pretax income (loss) and tax credits of the 62 Consolidated Local Partnerships
which form the underlying investment of the Partnership for each of the
twelve-month periods ending December 31, 1997 through December 31, 2007 that
were included in the financial forecasts used by VRC in connection with the
preparation of the valuation opinion.
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April 8, 1997
Page 12
LIBERTY TAX CREDIT PLUS III L.P.
(In Thousands of Dollars)
Year 1997 1998 1999 2000 2001
Revenue 34,053 35,065 36,107 37,181 38,287
Expenses 46,637 46,927 47,272 47,699 48,129
Net Income (Loss) (12,584) (11,862) (11,165) (10,518) (9,842)
Tax Credits 19,645 19,645 18,530 15,492 7,935
Year 2002 2003 2004 2005 2006 2007
Revenue 39,425 40,597 41,804 43,047 44,327 45,646
Expenses 48,554 49,017 49,482 49,733 50,349 53,982
Net Income (9,129) (8,420) (7,678) (6,686) (6,022) (5,336)
Tax Credits 1,191 0 0 0 0 0
In rendering this valuation opinion, VRC relied, without assuming responsibility
for independent verification, on the accuracy and completeness of all financial
and operating data, financial analyses, reports and other information that were
publicly available, compiled or approved by or otherwise furnished or
communicated to VRC by or on behalf of the Partnership. With respect to the
financial forecasts utilized by VRC, VRC believes that the assumptions
underlying the forecasts are reasonable and that consequently there is a
reasonable probability that the projections would prove to be substantially
correct. However, readers of this valuation opinion should be aware that actual
revenues, expenses and net operating income of the 62 Local Partnerships which
serve as the underlying assets of the subject Partnership will depend to a large
extent on a number of factors that cannot be predicted with certainty or which
may be outside of the control of the general partners, including general
business, market and economic conditions, supply and demand for rental
properties in the areas in which the properties owned by the 62 Local
Partnerships are located, future operating expenses and capital expenditure
requirements for the properties, future occupancy rates, the ability of the
general partners and property managers for the properties to maintain the
attractiveness of the properties to tenants, real estate tax rates, changes in
tax laws and other factors. As a result, actual results could differ
significantly from the forecasted results.
The following paragraphs summarize the significant quantitative and qualitative
analyses performed by VRC in arriving at the valuation opinion. VRC considered
all such quantitative and qualitative analyses in connection with its valuation
analysis, and no one method of analysis was given particular emphasis.
12
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April 8, 1997
Page 13
Discounted Cash Flow Analysis - VRC preformed a discounted analysis of (i) the
present value of the forecasted net after tax income (loss) and tax credit
benefits from future operations of the 62 Local Partnerships which are the
underlying assets of the Partnership, and (ii) the present value of the
estimated net after tax proceeds or tax benefits (losses) of a sale of the
Properties at the conclusion of the forecast period. In completing its analysis,
VRC utilized financial and operating forecasts of each Properties' estimated net
pretax net income (loss) for the nine months period ending December 31, 1997 and
each of the twelve-month periods ending December 31, 1998 to December 31, 2007.
From this amount, annual expenses associated with the management of the
partnership were deducted. The resulting income (loss) was then adjusted to
reflect the income (loss) to the BAC holders. Finally, the resulting loss was
adjusted for taxes and the composite tax credits added. The resulting net
investor benefits, along with the forecasted net after tax residual value of the
Properties, were then discounted to a present value using market derived
discount rates (IRR) of 12% and 15%. Using this methodology, the fair value of
the 139,101.5 partnership BACs is $519.56 to $563.42 per BAC.
MARKET ANALYSIS
Valuation Research has analyzed and has given consideration to the trading
history of the subject Partnership's BACs on the Chicago Partnership Board from
March 15, 1996 to March 1, 1997. During that period of time there were 24
transactions and the total number of BACs traded is approximately 1,000. The
high was priced at $560 per BAC and the low was $478. On March 13, 1997, a trade
took place at a recorded price of $485 per BAC.
It should be noted that as of March 15, 1997, based on the trading prices of the
Partnership's BACs over the past 52 weeks, the consideration offered in the
Offer to Purchase to the BAC Holders of Liberty Tax Credit Plus III L.P.
represents a premium over the average market price of the BACs.
The preparation of a valuation opinion involves various determinations as to the
most appropriate and relevant quantitative and qualitative methods of financial
analyses and the application of those methods to the particular circumstances
and therefore such an opinion is not readily susceptible to partial analyses or
summary description. Accordingly, VRC believes its analyses must be considered
as a whole and that considering any portion of such analyses and of the factors
considered, without considering all analyses and factors, could create a
misleading or incomplete view of the process underlying the valuation opinion.
Any estimates contained in these analyses are not necessarily indicative of
actual values or predictive of future results or values, which may be
significantly more or less than as set forth herein.
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April 8, 1997
Page 14
VRC's valuation opinion was based solely upon the information available to it
and the economic market and other circumstances that existed as of the date
hereof. Events occurring after such date could materially affect the assumptions
and conclusions contained in the valuation opinion. VRC has not undertaken to
reaffirm or revise this valuation opinion or otherwise comment upon any events
occurring after the date hereof.
VRC has relied without independent verification on the accuracy and completeness
of all of the financial and other information reviewed by us for purposes of
this opinion. Nothing came to our attention, for purposes of this opinion, which
causes us to question their accuracy or their representation of the operations
of the assets under review. We have not verified the title to ownership of these
assets, nor have we made an independent valuation or appraisal of the reported
current assets or any of the liabilities reported by the Partnership on its
financial statements. Our opinion necessarily is based on conditions as they
exist and can be valued only as of March 31, 1997.
Based on and subject to the foregoing and based on such other matters as we
consider relevant, it is our opinion that, as of the date hereof, the fair value
per BAC is $519.56 to $563.42.
This letter is solely for the information of and assistance to the parties to
whom it is addressed in conducting their investigation with regard to the
upcoming tender offer for 42,500 of the BACs of the Partnership. The Partnership
may include this letter as a part of the information statement filed with the
Securities and Exchange Commission. Any other uses are expressly prohibited and
neither this letter nor any of its parts may be circulated, quoted, or otherwise
referred to for any other purpose without the written consent of VRC, the
exercise of which will be at the sole discretion of VRC, not unreasonably
withheld. If given, such consent shall not be without sufficient review by VRC
as to the precise language of such disclosure and the time and place of its
potential release.
The above limitations do not apply to interested parties as defined herein.
However, in such instances, this opinion must be provided to such parties in its
entirety. The term "interested parties" shall include the Partnership's auditors
and attorneys, participants and assignees, regulators, or appropriate parties
involved in this transaction.
VRC has no responsibility to update the opinion stated herein for events and
circumstances occurring after the date of this letter.
This opinion is subject to the assumptions and limiting conditions contained
herein. VRC has not investigated the title to, nor the liabilities against, the
Partnership or the Properties of the 62
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April 8, 1997
Page 15
Local Partnerships and assumes no responsibility concerning these matters.
Neither Valuation Research Corporation nor any of its personnel have any present
or contemplated financial interest in the Partnership or the assets of the
Partnership, and we certify that the compensation received for this opinion
letter is not contingent on the conclusions stated. Additionally, the assignment
was not based on a requested minimum valuation, a specific valuation, or the
approval of a loan.
Valuation Research Corporation does not conduct or provide environmental
liability assessments of any kind in performing its valuations so that our
opinion of the fairness of the Offer does not reflect any actual or contingent
environmental liabilities associated with the owned residential property that
constitutes the underlying assets of the Partnership.
Respectfully submitted,
VALUATION RESEARCH CORPORATION
Engagement Number: 04-2716-00
15
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April 8, 1997
Page 16
LIMITING FACTORS AND ASSUMPTIONS
In accordance with recognized professional ethics, the professional fee for this
service is not contingent upon our conclusion of value, and neither Valuation
Research Corporation nor any of its employees have a present or intended
material financial interest in the subject company.
The opinion expressed herein is valid only for the stated purpose as of the date
of the valuation opinion.
Financial statements and other related information provided by the subject
company or its representatives in the course of this investigation have been
accepted, without further verification, as fully and correctly reflecting the
company's business conditions and operating results for the respective periods,
except as specifically noted herein.
Public information and industry and statistical information has been obtained
from sources we deem to be reliable; however, we make no representation as to
the accuracy or completeness of such information, and have accepted the
information without further verification.
The conclusions of value are based upon the assumption that the current level of
management expertise and effectiveness would continue to be maintained and that
the character and integrity of the Partnership and/or the 62 Local Partnerships
through any sale, reorganization, exchange, or diminution of the owners'
participation would not be materially or significantly changed.
This letter and the conclusions arrived at herein are for the exclusive use of
our client for the sole and specific purposes as noted herein. Furthermore, the
letter and conclusions are not intended by the author, and should not be
construed by the reader, to be investment advice in any manner whatsoever. The
conclusions reached herein represent the considered opinion of Valuation
Research Corporation, based upon information furnished to them by the
Partnership and other sources.
Related Credit Properties III L.P., a General Partner of Liberty Tax Credit Plus
III L.P., has assured VRC that there will be no material change in the proposed
tender offer or any documents in VRC's possession as of March 31, 1997.
Except as provided above, neither all nor any part of the contents of this
letter (especially any conclusions as to value, the identity of any appraiser or
appraisers, or the firm with which such
16
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April 8, 1997
Page 17
appraisers are connected, or any reference to any of their professional
designations) should be disseminated to the public through advertising media,
public relations, news media, sales media, mail, direct transmittal, or any
other public means of communication, without the prior written consent and
approval of Valuation Research Corporation.
Future services regarding the subject matter of this letter, including, but not
limited to, testimony or attendance in court, shall not be required of Valuation
Research Corporation, unless previous arrangements have been made in writing.
Valuation Research Corporation is not an environmental consultant or auditor,
and it takes no responsibility for any actual or potential environmental
liabilities. Any person entitled to rely on this letter wishing to know whether
such liabilities exist, or their scope, and the effect on the value of the
property, is encouraged to obtain a professional environmental assessment.
Valuation Research Corporation does not conduct or provide environmental
assessments and has not performed one for the subject property.
Valuation Research Corporation has asked the Partnership whether it is subject
to any present or future liability relating to environmental matters (including
but not limited to CERCLA/Superfund liability). Valuation Research Corporation
has not determined independently whether the Partnership is subject to any such
liabilities, nor the scope of any such liabilities. Valuation Research
Corporation's appraisal takes no such liabilities into account except as they
have been reported expressly to Valuation Research Corporation by the
Partnership, or by an environmental consultant working for the Partnership and
then only to the extent that the liability was reported to us in an actual or
estimated dollar amount. To the extent such information has been reported to us,
Valuation Research Corporation has relied on it without verification and offers
no warranty or representation as to its accuracy or completeness.
We have not made a specific compliance survey or analysis of the subject
properties to determine whether it is subject to or in compliance with the
Americans with Disabilities Act of 1990 (ADA) and this opinion does not consider
the impact, if any, of noncompliance in estimating the value of the Units.
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